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Monday, 20 August 2012
Page: 9332

Mr TONY SMITH (Casey) (20:48): I rise tonight to talk about one of our most important and revered institutions, the Reserve Bank of Australia. This coming Friday the bank's governor and deputy governor will appear before the House Standing Committee on Economics for the second of its semi-annual oversight hearings. Since November 2010, some of the committee's attention has been devoted to what has been described in the media as the 'banknotes bribery scandal'. It is on this important, yet unhappy, topic that I feel compelled to speak tonight. Securency is a company half owned by the Reserve Bank that produces the polymer substrate used in Australian banknotes. Note Printing Australia is a wholly owned subsidiary of the bank that prints those banknotes. In addition to their work on Australian currency, both companies also sought contracts with foreign governments. In pursuit of that overseas business both companies retained the services of foreign business agents.

In May 2009, the Melbourne Age began to publish a series of stories, alleging that some of Securency's foreign business agents may have used their commissions to bribe foreign officials. At that point in mid-2009, matters were referred to police and legal matters are ongoing. My interest and the public interest lies elsewhere. As this issue has unfolded, serious questions have been raised in the media about the governance practices at the highest levels of our Reserve Bank. In response, senior bank officials have repeatedly asserted their ignorance of allegations about possible illegality at Securency or Note Printing Australia before media reports first surfaced in mid-2009. For instance, in a letter written to the Treasurer on 2 June 2010, the governor of the bank wrote:

Audits of both Note Printing Australia and Securency took place well before the Age first raised its allegations in May 2009. Neither the board of Securency nor the Reserve Bank was aware of those allegations until that time.

In August 2011, the Age published new assertions that:

The leadership of the Reserve Bank failed to alert police after the bank received damning evidence in 2007 that its subsidiary Note Printing Australia was implicated in the bribery of foreign officials.

The bank also rejected those assertions in a statement that read:

The implication the Ageseems to be drawing is that people in the company and the bank had information indicating illegality but did not act appropriately on that information.

The apparent inference contained in the questions is unwarranted.

A fortnight later at the Economics Committee hearing held in late August 2011, the then deputy governor, Ric Battellino, was asked about the substance of those stories in the Age. During questioning, Mr Battellino confirmed that in May 2007 the board of Note Printing Australia received a report that included allegations by one of the firm's staff members. The then deputy governor said:

Allegations had been made by one of the staff members that the agents had said certain things. The agents denied those.

When asked whether as a result of those allegations the Note Printing Australia board should have called in police, Mr Battellino noted that it 'had hired a very sound legal firm to investigate the matter'.

At the next hearing, which was in February this year, I expanded this line of questioning to what Reserve Bank officials themselves, as distinct from the Note Printing Australia board, were told and when. I could not pose those questions to Mr Battellino because he had retired 10 days before the hearing. So I asked the governor what he and other senior bank officials knew about the nature of those allegations by the Note Printing Australia employee. Governor Stevens initially stated:

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 final moments of the hearing in answer to the final question of the day, the governor revised that earlier statement. Mr Stevens said:

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.

Of course, it was entirely appropriate that this briefing paper was made available to Freehills. But that action in and of itself does not allay lingering concerns about the bank's internal decisions and judgements. The question is whether the bank, with all its moral authority as one of the key custodians of Australia's financial integrity, should have taken action of its own accord once it was in possession of this memorandum. This document, whose existence was revealed at last February's hearing, constitutes important black-on-white evidence of precisely what was said, when it was said and to whom it was said.

This document means there is an opportunity to assess the decisions made by senior Reserve Bank of Australia officials in mid-2007 and to form a judgement, on the basis of this written brief, as to whether the bank leadership should have independently determined that it had a public responsibility in mid-2007 to refer those concerns to the police. The contents of that memorandum may vindicate the decisions and judgements of the bank or they may not. Only when we see its contents will these outstanding questions be answered.

As I indicated previously, the parliament has no business involving itself with ongoing legal matters. But let me also say that it has every business involving itself with the governance of the Reserve Bank. Let no-one say that because legal matters may be outstanding there can be no parliamentary oversight. Parliament must always tread carefully in these circumstances but it must equally never forgo its oversight function. It is only through rigorous parliamentary oversight that any deficiencies may be identified and rectified. 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.

Let me make it clear that I cast no aspersions on the bank in general or on Mr Battellino in particular. In the lead-up to this Friday's hearing I have reflected considerably on this matter and have taken further time to examine the public record since 2009. As a result, I feel compelled to make the following observations. It is unfortunate that the existence and receipt of this memorandum were only revealed in the dying moments of last February's hearing. Now that we know this written brief exists, I think it is fair to say that the issue is likely to rise again this Friday and beyond. In this light, I think Governor Stevens would do well to take the initiative and table the 2007 written brief at the hearing to be held this Friday. Naturally, any legal issues relating to names or other matters can be addressed appropriately. It is because I hold the Reserve Bank in such high regard that I offer this suggestion, because if these questions linger today they will fester tomorrow. Only if they are answered and addressed can we ensure that the good name of the Reserve Bank and its high level of credibility will be preserved.