Ethics, morality and leadership: The Reserve Bank of Australia

The series of corporate scandals and transgressions that have emerged over the last decade, including those associated with Fannie Mae, Freddie Mac, Alcoa, Enron, HIH, Merck, Lehman Brothers, Parmalat, Union Carbide and WorldCom, have not only contributed to global ?nancial crises. They have also raised questions about the quality of corporate leadership and ethics, and damaged the psychological relationships between such companies and their multiple stakeholders. Studies of such scandals and transgressions in Australia suggest that fraud, including corporate scandals and institutional corruption, has cost the Australian economy dearly.

This is supported by extensive research on corruption carried out by Transparency International, which targets particular countries in Asia and Africa and their governments for special attention. In response, many governments and enlightened corporations have established tighter corporate governance (CG) and personal accountability regulations and mechanisms, together with a wide range of corporate social responsibility (CSR) programs. While the former are aimed speci?cally at preventing fraud and other unethical practices, CSR is primarily intended to enhance corporate reputations through undertaking socially responsible community activities.

This assignment considers the case of Note Printing Australia a subsidiary of the Reserve Bank of Australia and claims that it bribed government officials in a number of countries to secure lucrative contracts to print their currency notes.

Richard Baker, Nick McKenzie and Maris Beck

AUSTRALIA's corporate watchdog bungled its handling of the nation's biggest bribery scandal by failing to interview a single relevant witness and misspelling the lead police investigator's name in emails, leaving crucial correspondence stalled or unread. The Australian Securities and Investments Commission announced in March that it would not act on a federal police referral to investigate the RBA bank note scandal, despite the AFP and government lawyers finding compelling grounds to do so.

The Saturday Age can reveal that so strong is the evidence of possible corporate malfeasance that prior to referring the matter to ASIC, the federal police considered taking the rare step of getting a special delegation from the Gillard government to investigate corporate law offences.

ASIC's failure to conduct the most basic of investigations into the matter has not only infuriated senior law enforcement sources in Canberra, but left a major part of Australia's worst corporate corruption scandal untouched. It has also sparked questions about whether the intense political sensitivities that could flow from a probe that ensnared top serving and former RBA officials has influenced ASIC's conduct.

Liberal MP Tony Smith said he intended to grill ASIC chief Greg Medcraft about the issue, while independent senator Nick Xenophon questioned ''the extent ASIC has been blindsided by the fact that these allegations involve subsidiaries of the Reserve Bank''.

''It seems extraordinary that given the seriousness of these allegations and what is at stake here, that not one relevant witness has been interviewed by ASIC,'' Senator Xenophon said. ''This is serious enough to warrant a special taskforce from ASIC.'' A senior legal source aware of evidence implicating some of the directors of allegedly corrupt RBA subsidiaries Securency and Note Printing Australia said it was ''very strong'' and included the reckless approval of payments to a suspected corrupt arms dealer and to front companies in known tax havens.

Yesterday The Age revealed that several directors of both companies - including top RBA officials - were told of explicit bribery and corporate corruption concerns in 2007 but chose not to call police. It was revealed in court on Thursday that a corruption whistleblower, former RBA banknote company secretary Brian Hood, was made redundant in 2008 by top reserve official Bob Rankin after Mr Hood repeatedly raised corporate corruption concerns.

Australian corporate laws that ASIC ostensibly enforces prohibit victimisation of whistleblowers or reckless conduct by directors.

ASIC's task of beginning a probe was made vastly easier after the AFP gave it boxes of evidence related to possible corporate charges identified during the AFP's probe of criminal bribery offences.

But it is understood that ASIC investigators did not question a single director, or interview any relevant witness, about the material provided by police. Documents obtained by The Saturday Age under freedom of information laws also reveal ASIC only twice corresponded in writing with police about the bribery scandal before deciding not to launch a formal probe. In July last year, a senior ASIC investigator emailed the head of the federal police taskforce investigating Securency and NPA to seek advice.

''The deputy chair of ASIC has requested that I inquire of the AFP as to the scope of its investigations and the charges that have been laid before ASIC makes any decision as to whether we need to investigate anything arising from this matter," the investigator wrote. ''ASIC would not want to duplicate any work that the AFP has already undertaken so it would be appreciated if you could assist ASIC in determining whether it should commence any investigation.'' However, the ASIC investigator misspelt the email address of the senior

AFP officer, calling him ''Roland Pike'' instead of Rohan Pike. This meant Agent Pike did not receive ASIC's initial email. In the email, ASIC also mistakenly writes that the AFP ''was given delegation by the minister to prosecute Corporations Act offences as part of their investigation,'' despite the fact that this was not ultimately given to the federal police by the government.

ASIC declined to release the only other piece of written correspondence between it and the federal police, a series of emails sent in March just before it announced it would not investigate directors of the RBA firms. While police have charged both Securency and Note Printing Australia, along with eight former executives, with criminal bribery offences, no action has been taken against the directors of the companies. ASIC chairman Mr Medcraft has yet to publicly explain the basis for his decision not to investigate.

An ASIC spokesman told The Saturday Age that a thorough assessment of the material provided by federal police had occurred before it was decided not to investigate. But he declined to answer a series of specific questions.

''Should new information come to our attention that warrants further examination, we will review that in the normal course, but cannot be drawn on the specific circumstances you have raised,'' the spokesman said.

Yesterday, during the criminal committal proceedings of the former banknote executives charged with bribery, the Melbourne Magistrates Court heard fresh evidence from Mr Hood. He told the court he was ''surprised'' when Note Printing's Malaysian agent, arms dealer Abdul Kayum, arrived at his Melbourne office to ''deliver a message'' to Mr Hood about what his $2.2 million commission payment was used for. Mr Hood said Kayum did not use the word ''bribe'' but left ''absolutely no room for interpretation''.

Questions:

1. Who are the key stakeholders in this case?

Part A:

1. Was the action of the NPA in line with its and the RBA's Code of Conduct.

2. What should the NPA have done when it learned that they would be required to pay a bribe to do business in Asia?

3. How do you think of the actions of the whistle blower Brian Hood ?

Part B:

1. How did the RBA react when it was told of possible corruption at NPA

• Cover -up ?
• Was it in the best interest of the public that they should hush things up ?
• What do you think were the other factors

2. Should the RBA have called in the police ?

3. Why do you think they kept it under wraps ?

Part C

1. What about ASIC - what do you think of their excuse ?

2. What do you think the next steps should be :
• Royal Commission ?
• What about the position of the RBA Governor - Should he have resigned ?