Money laundering in Australia of the proceeds of corruption in Papua New Guinea

08/10/2012 13:33


Sam Koim: ordinary Papua New Guineans continue to be affected by corruption.





Speech by Sam Koim, Chairman of the PNG Anti-Corruption Taskforce Sweep

Thank you to AUSTRAC for organising for us to speak here today. It is, I think, indicative of the expanded cooperation between our two countries and two governments.

Scope of the problem
For those of you who did your homework before coming to this meeting, you will know that I am the Chairman of Papua New Guinea’s anti-corruption taskforce, Taskforce Sweep. You will also know that a few months ago, I described Australia as the “Cayman Islands” in relation to laundering and housing the proceeds of corruption from Papua New Guinea.

My comment was prompted by the significant portion of funds corruptly obtained in Papua New Guinea that find their way into Australian bank accounts and Australian real estate.

One needs only check the Cairns North Registrar of Titles to ascertain how many properties are owned by Papua New Guineans, including politicians and top bureaucrats.
A few months ago, it was reported in a Cairns newspaper that PNG residents are the largest investors in the far north according to the latest figures from the Registrar of Titles. It is also understood six known politicians (named) have invested in million-dollar properties up north and central Cairns to a tune of $A11.5 million (K24.5 million) — $A3.8m, $A1.9m, $A2.3m, $A2.0m and $A1.45m respectively.

It was also recently reported that PNG’s investment in Australia reached US$1.2 billion according to Asian Development Bank country economist Aaron Batten.
Not all these investments can possibly be derived from legitimate funds. So is the banking industry in Australia doing business with 'dirty' money?
For those of you thinking that Australian authorities would surely have prevented this if the money was not 'clean', or at the very least, seized and returned the money, I have some sobering news. Australia has never repatriated any proceeds of corruption to Papua New Guinea. In case you think you misheard:

Australia has never repatriated any proceeds of corruption to Papua New Guinea.

They have bought property and other assets, put money in bank accounts and gambled heavily in your casinos and have never been troubled by having their ill-gotten gains taken off them.
Unless the money can be prevented from leaving our country or prevented from entering Australia, the bad guys win and the rest of Papua New Guinea suffers.

And PNG is suffering.

Of the 7 million Papua New Guineans who live in the country that is Australia’s closest neighbour – a country so close that you could paddle a boat to it from your Northern islands; 90 per cent do not have access to electricity; 57 per cent live on less than two dollars a day; 31 per cent have access to a safe water supply; 46 per cent complete primary school.
Imagine a country richly endowed with natural resources, sometimes called an “island of gold, floating on a sea of oil”, so rich yet its people are so poor. How frustrating it is to watch the richness of your land vanish in the hands of a few.

Furthermore, Papua New Guinea is a recipient of more Official Development Assistance (through AUSAID) than any other neighbour - a good portion of which is spent trying to combat corruption. AUSAID used to be in the form of cash grants to the PNG Government to support its budget, but some years ago, it was converted to tied grants. I understand that as a result, Australia spends more money in managing its aid in PNG nowadays.
And it is not only Australia: the Asian Development Bank (ADB) has also switched and now managing its own projects. It is my considered view that one of the main risk factors in that change of operation is corruption. So as you can see, corruption in PNG affects Australia as well.
We believe that Australia understands us more than any other country, owing to our historical and continued mutual relationships, and so based on that premise both countries can, and should, collaborate in devising mechanisms that can help detect and combat money laundering and crossborder corruption.

Current and historical context of corruption in PNG

The taskforce, of which I am Chairman, has been tasked to address corruption as best we can, with the resources that we have. It's a mammoth task.
I urge you to imagine what would happen in Australia if your Department of Finance refused to answer to Parliament; if its members disbursed money without recourse to the national budget; if they colluded with each other and people outside the department to circumvent all controls, and misappropriated half of your government budget?

Imagine corruption so pervasive that half of the funding every year, year after year, intended for policing, the judiciary, corrections, ombudsman, Financial Intelligence Unit, the taxation office, the Crime commission and any other anti-corruption body you care to think of, was misappropriated even before it was disbursed to the authorities.
Imagine you have a Fraud and Anti-Corruption Unit that is given just under $94,000 annually to combat corruption. What if that meant that the police cars had no fuel, didn’t get serviced, the power went out in the police stations (and across the cities) for hours every day, the water and phones got cut off for weeks or months because the bills didn’t get paid?
What's more, despite the new government spearheading changes and making some headway, many who have acted corruptly in the past are still in positions of authority in government departments and are still able to misappropriate huge sums of money. We are talking about thousands of offenders, some of them in positions of considerable influence, and they aren’t about to just give up their income streams without a fight.

When you fight corruption, it fights back.

The sad reality is that until recently, Papua New Guinea was estimated to be losing about half of its government budget each year directly to fraud and corruption. Numerous government Inquiries, such as that into the Department of Finance, and the Parliamentary Public Accounts Inquiry, described the terrible state of the public service and the leakage of money, where we were literally losing billions of dollars a year in public revenue, and to a lesser extent, are still losing large amounts of money to corruption.
Through the investigations carried out by my team, we have uncovered incidents of institutionalised and syndicated corruption, where private companies through collusions with public officials and politicians, have infiltrated the Government budgetary processes under the pretext of development projects, and squandered billions of kina.

Corruption has distorted open markets for Government contracts as institutions that are established to administer the public procurement process wantonly apply the rules and have instead become havens, orchestrating government contracts under a thick veil of secrecy.
The Government relies heavily on the private sector to drive the development agendas of the Government but once the market is distorted, bogus companies of political cronies float to the top of the list whilst genuine and reputable companies sink to the bottom. With the support of their connections in government, these front companies squander the funds whilst the people continue to lack basic goods and services.
A powerful minority mob establishes potent networks to decide who should get what. They plunder the rich resources of the country at the expense of the vast majority, turning our Constitutional Democracy into a “mobocracy” and “Kleptocracy”.
In corrupt circles “who you know” is the mantra that builds the channels of wealth creation and wealth transfer.

Ironically though, the challenge is not identifying offenders – that is all too easy. Indeed, much of the corruption is carried out using government cheques placed into accounts in the offender’s own name and companies that they have direct links.
Our challenge rather, is to prevent the continuation of offences, providing a deterrent to those who are still in the process of acting corruptly and those who might do so in the future. We also intend to reduce the ease with which they are able to move the proceeds of corruption and remove the opportunity for them to enjoy their ill-gotten gains.
We have started to restrain the proceeds of some of the offences, but again, there are so many offenders, and so many continuing offences that unless we squeeze the “gateways” we will never be able to achieve a significant impact.
As you can see, just 100 miles north of this continent, your closest neighbour has so many leakages that they've created a pool of illicit money floating around its territorial banks in search of an opening offshore. We believe that Australia had passively allowed those illicit funds to be channelled into this country. But equally, we do not believe that Australia has a will to build a society and economy out of dirty money.

Taskforce: taking a proactive approach against money laundering

The PNG Government has taken a proactive approach to combat corruption and money laundering by appointing my team. We have arrested politicians, senior public servants and business people. We have also recouped millions of kina through tax and proceeds of crime recovery.

Things have changed and must change – the people of Papua New Guinea demand it. Yet, up until recently, regardless of public outrage, offenders have known that there was little that could be done even if everyone knew what they were doing. We’ve had allegations published in the newspapers – they’ve even been published in yours - but unless there is something to stop the offender, or to confiscate these illicit funds, they will still carry on with impunity.

We have had instances where suspects of corruption escape jurisdiction and continue to live and access their ill-gotten gains in Australia. That must be a thing of the past as recent events between our two countries indicate there will be a much greater level of cooperation between our two governments.

We will provide a list of politically exposed people to AUSTRAC and the Australian Federal Police (AFP) through the normal information sharing with our agencies. Where we observe instances of remittances to Australia by these people in the future we will be providing the AFP with the evidence that the funds are proceeds of crime and making a specific request that the institution involved be investigated for potential offences against Division 400 of the Australian Criminal Code.

Where that occurs, and I sincerely hope it never does, (notwithstanding, some of your institutions currently hold accounts for these people), I have also briefed my Attorney-General to ascertain the process of obtaining damages from Australian financial institutions who have been found to have acted negligently with respect to the facilitation of money laundering from Papua New Guinea.

Be in no doubt, Papua New Guinea is a high risk country when it comes to corruption - its risks concern your institutions when you receive any remittances with such a provenance - but particularly from people categorised as “Politically Exposed”.

Be under no illusion, these people have chosen Australia as their preferred place to launder and house the proceeds of their crimes because it is easy. Cairns is only a short flight and property can be bought off the plan without permission. The financial system is stable and, it has been, up until now, extremely easy to get their money into your system. I repeat: you only need to conduct a search at the Cairns North Registrar of Titles to ascertain how many properties are being bought by Papua New Guineans - including politicians.

It is my expectation that in the very near future you will commence conducting enhanced due diligence in your dealings with these people. I would ask that you inform AUSTRAC when you commence this process.

As Chairman of Taskforce Sweep, I am privy to the thinking of our Prime Minister on this topic. I can share with you the fact that he has become increasingly unhappy as our Taskforce has progressed, with the fact that the Australian financial system is being used to systematically launder tens of millions and possibly hundreds of millions of kina that should be used to provide healthcare, education and infrastructure for our people - the priority areas of the Government I represent.

Australia's international anti-money laundering obligations

Not only does Australia have obligations under the G20 Anti-corruption Plan, the United Nations Convention Against Corruption (UNCAC) and the Financial Action Task Force (FATF). But the most compelling reason is Division 400 of the Australian Criminal Code.

I have briefly perused your Financial Transaction Reports Act 1988, as well as the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and compared both against our Proceeds of Crime Act 2005. The laws impose on you, as cash dealers, to conduct due diligence on your customers. We request of you, in conducting enhanced due diligence, that you: ensure that the transactions being conducted are consistent with your knowledge of the customer, their business and where they are conducting large transactions, or frequent smaller transactions, that you assure yourselves of the source and legitimacy of the funds.

We also request that you extend your due diligence checks by conducting a “means test”. We believe that you won’t go wrong if you do one on every Papua New Guinea derived transaction. Western Union Money transfers, Chartered Accountants, Law Firms, Financial Investment Companies, and other cash dealers like Heavy Equipment dealers and real estate agents that appear to be commonly used to launder funds. They require some form of scrutiny. There also appears to be some structuring and layering of amounts of money.

Where you can’t comply with those requirements we ask that you refuse to perform the transaction and that you terminate the business relationship.

It's as simple as posing these questions:

  • Ask them to provide their tax returns and their business tax returns; ask for their bank statements; if it is a politician, ask him/her for the asset and income declaration they are required to provide every year to the Ombudsman Commission.
  • If they claim that the money is from a business, ask for copies of that businesses’ bank statements; if they claim the business has a large government contract, ask to see the contract- make sure it isn’t from the Department they work for.
  • If it’s for investment by a company, does the bank statement show that the company was in business and if so, what sort of business? Has it received any funds from the Government and if so, had the purposes to which the funds were paid fulfilled.
  • If it’s from the personal account, ask them of their salary slips and evidence of loan.
  • If it’s from an Australian based company transacted within Australia for the benefit of a Papua New Guinean, ascertain whether that company had received some funds from Papua New Guinea and if so, make inquiries to establish whether that company was used as a front to launder proceeds of corruption.
  • Ask them for information so that you can be reasonably assured that you are not engaging in a money laundering transaction.

I would suggest that you make the answers to such questions available to AUSTRAC and consult with them on what is required to ensure that you are not being negligent or reckless under Division 400 of the Criminal Code.
If the AFP come knocking, it is my belief that you will need to show that you've conducted sufficient due diligence to ensure that a reasonable person would not have thought your institution was negligent or reckless in its dealings.
The responsibilities may seem onerous but the stakes are high.

In summary

Please be aware - the environment has changed.

The PNG Government has changed and will actively seek to ensure that Australian authorities stop our money being laundered through Australia. We have been instructed to lean on your country’s authorities to make this happen.
We are not interested in the process so much as the result. Until we see our offenders cease using Australia as a Cayman Islands we will continue to increase the pressure.
We will assist you to assist us, but we will also seek to have those who continue to turn a blind eye punished in order to bring them into line.
As far as I am concerned, the process starts today.

If I sound a bit dramatic, it is because our people are suffering and dying because of corruption. This is no theoretical process. When money that is supposed to build hospitals, or buy medical equipment is used to buy real estate in Cairns or Brisbane, people die. And, quite frankly, those who turn a blind eye to this are as guilty as the offenders.
In PNG we are doing all that we possibly can to stop corruption and to prevent the corruption proceeds from entering the financial system there. However, we have very limited resources and a very long way to go before we are going to be able to stop it all together. We are trying to turn a whole country around, and like a big ship, it is taking a while to turn.

Is it unfair that we are applying this sort of pressure - that you are bankers not police?
I believe that when you've taken time to peruse the examples of money laundering that have been conducted through the Australian financial system – through your institutions – and take the time to understand the ramifications in human cost, you will have your answer.
The view that I held in referring Australia as the Cayman Islands is not a personal one, but that of my people. I believe that we have started through this conference, to reduce that perception. I guarantee that my people, though cynical, do change when they see something is practically done about it
Once again, I am indebted to AUSTRAC for this opportunity. I am gratified, that you were able to hear some of the cries of my people and I trust, as ever, you will help us.
God Bless Australia and Papua New Guinea.