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Thursday, 29 November 2012
Page: 14048

Mr TONY SMITH (Casey) (10:25): The review by the House of Representatives Standing Committee on Economics of the Reserve Bank of Australia 's annual report was tabled in the House on the last Thursday of the last sitting week in October. As members would be well aware, the economics committee of the House of Representatives meets with the Reserve Bank twice a year as part of its oversight function—an oversight function that has existed since the bank was granted full independence in 1996. As you would be aware, Mr Deputy Speaker Georganas, and other members would be aware, more recently the work of the committee has included questioning the bank over what has been described in the media as the 'banknotes bribery scandal'.

This issue first emerged in the public sphere in May 2009. On that day the Melbourne Agereported allegations of bribery by overseas business agents of Securency International, a company half-owned by the Reserve Bank, that produces the polymer substrate material used in Australian banknotes. This was the first in a long series of articles by Age journalists Richard Baker and Nick McKenzie, alleging that the use of bribes to secure overseas business contracts was endemic to two RBA subsidiary companies. Soon after, the name of another RBA subsidiary began to be mentioned. The Age reported that Note Printing Australia, a wholly owned subsidiary of the RBA that prints the banknotes, had dismissed its foreign business agents after an internal company audit recommended that stricter controls were required.

Since May 2009 the allegations of bribery have mushroomed. There have been literally hundreds of stories written on the subject, as most members of this House would be well aware. There are legal matters still pending and, as I have always made clear, the parliament has no business involving itself with ongoing legal matters. As I have also made very clear in this chamber, the parliament has every business involving itself with the governance of the Reserve Bank. While parliament must always tread carefully in these circumstances, it must equally never forego its oversight function. It is an oversight function that is performed by the economics committee and it is an oversight function performed by the parliament. It is only through committees doing their job and rigorously applying oversight that any deficiencies can be identified and rectified, and it is only through rigorous parliamentary oversight that the rest of the world can be confident that the disinfecting qualities of sunlight are at work in Australia.

The report which was tabled rightly notes the importance of the oversight role of the committee. This report followed numbers of questions at numbers of hearings but culminated in a special additional hearing which was held for an entire day in early October. I submitted supplementary remarks to the report, because I do not think the report itself dealt with the issues in enough detail or dealt with them sufficiently, from my perspective, and I will take the time of the chamber to briefly run through those.

As I said, the hearings right back in November 2010, right through until the special hearing on 8 October, attempted to deal with the unfolding story of essentially what the leadership of the Reserve Bank knew, when they knew it and how they responded to it over that period. There are a couple of aspects I would like to focus on. I joined the committee as a supplementary member only at the beginning of this year. In all the articles that had been written in the lead-up to the hearing in August there were allegations that back in 2007 important information and allegations had been passed on to senior levels within the Reserve Bank. Following these publications, the then deputy governor of the bank, Mr Battellino, faced some direct questioning at those August hearings. I was yet to be a member of the committee when that occurred, but it was here that Mr Battellino first alluded to the fact that a Note Printing Australia employee had raised an alarm, in 2007, about allegations of illegal activity by some of the company's foreign business agents. I want to take the time of the House to quote that important exchange, as I have in my supplementary remarks. The question was asked:

It has been suggested in the Age newspaper, since the last meeting of this committee, that that report said that at least one agent had admitted to bribery, at least one agent had demanded 'under the table' secret commissions, at least one agent had demanded excessive payments and that payments were being made to third-party accounts. Is that an accurate summary of what was in that report?

'That report' being an audit report. Mr Battellino responded:

I cannot recall. A range of issues were raised in there. Allegations had been made by one of the staff members that the agents had said certain things. The agents denied those.

Mr Battellino was not at the next hearing in February because he had retired 10 days prior to that hearing. So, naturally, questions were directed to Governor Stevens. By that time I was a supplementary member of the committee, so I pursued this specific issue. When I inquired about the precise nature of that warning, the governor initially responded by saying:

If you are asking whether the person in question wrote a letter or something to the bank, I do not think that he did, no.

But then in the dying seconds of the hearing, on some further questioning from me, he amended his previous assertion. He said:

I need to come back to that. I think I said that the bank was aware of that but that it was not in writing. Actually, that was not quite true. I have been reminded while we have been talking that, in fact, the deputy governor invited that person to put that in writing, which he did, and give it to the deputy governor. That written statement on the matter was available to the Freehills people that did the investigation in 2007. So, whereas I said I thought that we were aware of it but that it was not documentary, in fact it was invited to be put in documentary form, which it was.

And at that point the hearing ended.

It had become clear that not only did the former deputy governor, Mr Battellino, fail to provide pertinent information at the committee hearings in November 2010 and in February and August of 2011 but he also responded to direct questioning during those hearings in a manner that I have described as 'less than open'. In fact, in a piece I wrote for the AgeI said:

Despite direct questioning on these matters at committee hearings in November 2010, February 2011 and August 2011, neither the governor nor his former deputy saw fit to volunteer these two salient facts - that a briefing paper containing allegations of impropriety by some NPA agents was written by an NPA staff member in mid-2007 at Battellino's request; and that Battellino met with the author of this memorandum around that same time.

Back in August of this year, theAge published the text of the alleged memorandum and that this had been authored by the then Note Printing Australia company secretary, Brian Hood. The memorandum not only contained allegations of bribery but also noted explicitly that one of the suspect agents confessed to working on behalf of Securency as well.

As I have made clear, I think the implications of that memorandum were extremely significant for all of the reasons I have outlined. The Reserve Bank, as that quote from the governor back in February made clear, had referred those matters to Freehills, which is a legal firm, as we all know, doing an assessment. But the issue, in my view, arises as to what independent action the bank themselves should have taken. It also defies logic on the Securency matter to assume that if a business agent has engaged in bribery to secure overseas contracts for one company they would miraculously refrain from doing so on the other—and I am referring there, of course, to the history on the Securency matter and the relationship there.

In both the August and October hearings I did question both Mr Battellino and the governor about the failure to volunteer to the committee, to say at some point, 'As it happens, we met with a senior staff member from Note Printing Australia and a memo was written.' Initially the reason for not volunteering this was to protect Mr Hood's confidentiality—and he had made such a request. But by the time the committee hearings occurred, Mr Hood had well and truly left Note Printing Australia, so the reason for protecting his confidentiality did not seem, on any fair-minded assessment, to apply anymore. I have already said in the supplementary remarks that I think the lack of openness did hinder the oversight function of the committee, because members could not ask questions earlier on relevant facts never volunteered by the governor or the deputy governor.

In summary, the oversight role of the committee is critical in matters like this. The fact that a one-day hearing finally occurred was a good thing. I pushed for that very strongly. At that one-day hearing, with the benefit of hindsight, the bank did indicate, without going into everything they said, that they have learnt lessons on the issue. I have outlined in my supplementary remarks my view of the failure of judgement and the failure of the bank to independently refer the Hood memorandum to law enforcement authorities on the basis that the bank has a higher duty as a key public institution. Even though Freehills were provided with that memorandum, a third-party law firm, reputable and respected though it may be, does not have the authority and investigative power of the police—and I go into some detail on that matter. The report of the committee deals with this in some detail, although I personally felt that it did not clearly and concisely outline the issues from an oversight perspective, which is why I submitted detailed supplementary remarks.