Paul Barry's Address to ERBEI Forum, 27 March 2001

Paul Barry

Thanks Michael, thanks everyone for coming. When I first came to Australia in 1987 I got a bit of a culture shock. One of the first things I did was to read an article in the Courier Mail and the headline went "Minister takes $200,000 bribe". What shocked me about this, coming from Britain, was not so much that that sort of thing didn’t happen there or that people didn’t report it, but the Courier Mail had chosen to put it on Page 5 and given it just a couple of columns. It was obviously such an ordinary everyday story for Ministers in Queensland to take a $200,000 bribe that it wasn’t even worth shoving on the front page.

Now I know those sorts of days with Russ Hinze and Joh running Queensland, and it was Queensland, but I thought all the same that that was pretty remarkable. It struck me that maybe Australia isn’t quite the same as the country I’ve come from, but I think we need to get a sense of perspective. I think there’s a terrible tendency in this country to worry excessively about how bad we are or how the world thinks we’re bad and I think we love to believe that we are a bunch of rogues and scallywags and thieves. Whereas the reality is that in comparison with our neighbours at least we don’t even get to first base. You look at somewhere like the Phillipines. You have the most recent President, President Astrada just being kicked out on charges of graft, bribery, corruption, involving a supposed $66 million that he’s accumulated in just two years of office. You’ve got his recent predecessor, Ferdinand Marcos, kicked out in the mid 1980’s with a fortune of several billion dollars, by all accounts stashed in Swiss bank accounts and foundations, and not far away from there you’ve got the Soeharto family in Indonesia who according to American estimates accumulated somewhere between $6 billion and $25 billion in graft, corruption and bribery in the course of their time running Indonesia.

So, I don’t think I’m ever going to have to write those things in this country about the Howard family or about the Beazely’s. Even in hundreds of thousands, I don’t think that this is a country where corruption is endemic or where it is a way of life in business or in politics. So I think we are talking about a far far far smaller scale. In fact, I think even in comparison to the United States which we would regard as perhaps one of the more ethical countries of the world, I think we do pretty well. I don’t for example imagine having to write a story about John Howard pardoning Christopher Skase in exchange for a new lounge suite, which is essentially what Bill Clinton did with Mark Rich. I also can’t quite see him (although I think he might get a bit close to this) telling the director of public prosecutions not to proceed with charges against John Elliot over the Swiss/Bond affair (that the NCA has been investigating for many years and is still contemplating charges), on the basis that Elliot is a contributor to the Liberal party. He’s a bit closer to that I must say but not quite there. So, I think we’re not a country where corruption is endemic or business ethics are shocking, by any means.

Why do we think we’re so bad? Well, I guess its to do with the 1980’s. That famous time when we had a team of world class white collar criminals. In those days maybe Australia did have some claim to be the best in the world or worst in the world. We had Connell, Skase, Alan Bond and quite a few it would be wise not to name, and I think maybe they could’ve taken on the world. I’m not sure they necessarily would have won – the Germans, the British and Americans also had some pretty sharp corporate criminals in those days. Lord? Maxwell was one in particular, but for a nation with limited resources I think we did extremely well. We can be proud of ourselves.

My favourite of them all I think was Laurie Connell. While most corporate criminals rely on borrowing money from banks and then pinching it, Laurie Connell went one step further than that. He actually set up a bank himself, short circuited the process, took the money off the public, spent it on parties, art, race horses and properties all over the world, antiques and all sorts of things and essentially didn’t pay it back. By the end of his 10 years at Rothwells, he’d got through something like $400 million of other people’s money. It never had any chance of being repaid. That’s what happened in the 1980’s.

Bond however was in a far far far greater class than Laurie Connell and certainly than Christopher Skase. In the course of his career he broke all records in that area. He notched up the biggest corporate loss in Australia of around about $1 billion. He then produced the biggest corporate collapse with Bond Corporation of around $4 billion. He then proceeded to the world’s, or almost the world’s biggest bankruptcy, it was in fact the second I think around $600 million and he romped away with the title of Australia’s biggest fraud with $1,200 million. For twenty years Alan Bond plundered his public companies. He paid himself huge fees that he was not entitled to, he took huge private profits of public deals with other people’s money and he sold things into the public company at inflated prices and he borrowed money that he was never going to pay back and never did pay back. At the end of it he left a black hole of around $5,000 million, $5 billion Australian dollars which was losses borne by shareholders, creditors, bankers and the rest. He then managed to hang on to a private fortune of something like $100 million. Some of that legally because of the way in which the laws operate and the trust laws operate and some of it clearly illegally in the sense that it was concealed offshore. He had the usual things that tycoons collect. He had artworks, English country mansions, houses in London, a ski lodge in Colorado, horses, paintings and all sorts of other trinkets. Indeed he still has them, or most of them or he has the money that came from them. I must say I hope that Kerry Packer is right - that we only get one Alan Bond in our lifetime, because I think what he did in the 1980’s and the 1990’s was a disgrace to this country and brought us into disrepute throughout the world. I think more to the point what happened in the 1990’s was that he made a fool of the legal system and made a fool of all of us too. In the 1990’s he managed to hang on to a fortune despite the fact that he was bankrupt and despite the fact that his creditors, the police, the taxman and a whole bunch of other people were chasing him for the money. I think the fact that it was so public was really what the problem was. When people get away with large amounts of money and you don’t know about it, it’s a problem but it’s not such a problem as when they do it publicly and openly and in the face of everything the system can throw at them.

The reason why I wrote my latest book, "Going for Broke", was because I was so outraged at what Bond had been allowed to get away with, and he has gotten away with it basically, he has gotten away with it. I think the message it sent out to the population at large was that there are some people whom the legal system just can’t deal with. There are some people who are rich enough and whose lawyers are smart enough to avoid justice altogether. The message it sends out is that crime can pay, you can lie and can cheat, you can defraud your shareholders, you can claim to brain damaged, you can commit perjury, you can basically do what you like and if you have enough nerve and if your lawyers are tough enough, you can get away with it.

I think the other lesson and this is perhaps a bit more relevant, that the Bond story of the 1980’s and I guess in general tell us, is that when there are large amounts of money to be made and being made by people who we would brand as criminals, there’s never a shortage of respectable professionals who are prepared to work with them, to be used by them. They’re the sort of people that we normally regard as respectable members of the community, the sort of people that you and I might play golf with or have a game of cricket with or meet at parties or meet on Saturday mornings when we take our kids to play sport. They are people who would never be touched by criminality, they would never be prosecuted for anything they do, yet they aid and abet those who steal money off others and those who defraud their shareholders and they do it willingly and enthusiastically. Among them there are valuers who put ridiculous valuations on the assets of these entrepreneurs, and particularly Bond, as either selling or borrowing money against. There are merchant bankers who do the same thing but with corporate assets. I can think of one or two very high profile ones in Sydney who have put some quite absurd valuations on a couple of Bond assets, who are very highly thought of members of this community. There are medical experts who are prepared to testify that Bond, for example, is so ill that he can’t possibly remember whether he has $50 million in Jersey or not. Most of all there are lawyers and I don’t want ………….. well, I’m sure lawyers already think I’ve got something against them, and I guess I have. I suppose what marks out lawyers or what I suspect might mark out lawyers is that they tend to believe they don’t need to behave ethically because they have the law to guide them. It seems to me that more and more lawyers are employed to find ways around the law rather than ways to enforce it or ways to abide by it. Never is that more true than in the case of corporate endeavour and entrepreneurial endeavour, if you take people like Bond, where vast amounts of money are to be made.

Shortly after Bond was let out of jail in 2000, on a technicality engineered by his lawyers I guess, he wrote a piece in the Perth Sunday Times to state that he was innocent of any of the crimes that he’d been convicted of, including those that he pleaded guilty to. He said one thing that caught my attention. It was that everything his companies had ever done had been approved by lawyers and in particular he said that the removal of $1,200 million from Bell Resources which was the largest fraud in Australian history had been signed off at every stage by lawyers. Now, I don’t know enough about the details of that particular transaction to know what those lawyers knew, whether they saw the whole picture of the transaction and whether Bond’s claim is true and I don’t know whether they also tried to dissuade him from what he wanted to do, but I do know enough about parts of Bond’s history to know that some of what he says is true, and in particular lawyers played an absolutely crucial part in keeping Bond’s fortune away from his creditors, people that genuinely lost money or people that had been defrauded of money essentially. They also played an absolutely crucial part in keeping Bond out of jail and in keeping the Federal Police at bay when they investigated Bond’s alleged bankruptcy offences. He was alleged to have conspired against the bankruptcy act to steal assets from his creditors essentially. The police eventually gave up the chase against Bond after 4 or 5 years and the reason why, or one of the main reasons why they gave up, was because they met a brick wall in Switzerland. They were confronted by a series of legal actions that Bond and his lawyers took that frustrated their progress at every step in the attempting to get documents out of Switzerland in particular. Bond fought 13 separate legal actions over the space of some 4 years. He and his lawyers lost every single one of those 13 actions, they didn’t win a technical point in any of them and yet by fighting them they essentially won the war in that they outspent and outlasted their pursuers.

Now I guess some of you may take the view that that’s a perfectly reasonable thing for lawyers to do, I personally don’t take that view, I’m sure there’s no law against it but I don’t think it is ethical, but Bond’s lawyers did more than that. He had acting for him a firm called Parker & Parker and they essentially allowed him to stand up and make a series of claims in court or in legal proceedings that he knew nothing about this money that he had overseas, that he had no relation with any of these companies that were put in front of him and that he couldn’t remember any details of any of these financial transactions. The very firm of lawyers who allowed him to do that and who took fees from him for doing that had a senior partner called Harry Lodge. In 1979 and then again in 1984, Harry Lodge travelled to Jersey to set up or to help set up the very offshore structure that the bankruptcy trustee and the Federal Police were investigating, and the very offshore structure that contained, in the middle of the 1980’s, some $50 million of money that was given offshore by Bond. Now, I find it absolutely extraordinary that a law firm can have a senior partner who sets up or helps set up the very structure that the rest of the law firm can then deny or help to deny the existence of. Yet that is what happened in the case of Bond. They also allowed him to claim that he was sick, while I’m sure they knew that he was not. This same law firm received some $2 million in legal fees in the early stages from bank accounts in Switzerland which were operated by Jorg Bolag who was the person who was alleged to be controlling the funds. Again, I find it quite extraordinary that any legal firm can do that but this legal firm apparently had no difficulty in doing so.

I don’t know whether we expect too much of lawyers, maybe they are like other people, but I do know that when the 1980’s come round again they will be there yet again to do the bidding of people like Bond and to make money from it. And to claim respectability and ethical behaviour at the same time. I don’t however think the 1980’s are about to return in short order and even if they are, I don’t think that its what we should now be concerned about. I don’t think that there’s a huge risk of rich businessmen robbing their shareholders at this current time. I’m note quite sure why not but I don’t think there is. I think business ethics in that area is much improved. There are fewer of those sorts of companies around perhaps. I do think there is a different problem and I do think there is an important problem and it’s one in a way that Michael Carmody touched on two years ago in the first of his lectures. It is that, not that the rich are robbing their shareholders but that they are robbing all of us, that they are robbing all of us by not paying their taxes.

Back in 1996 the then Treasurer Ralph Willis claimed that the tax office had identified 100 wealthy businessmen with a net wealth of more than $30 million each, of which 80 were declaring income of just $20,000 a year. $30 million wealth, $20,000 a year income, paying virtually no tax. I don’t know whether those figures have been confirmed. More recently though there was an example in the ATO’s annual report of a so-called high wealth individual and his group of companies which had, according to the ATO, entered into numerous aggressive tax planning arrangements between 1994 – 1999. They had reduced this group’s (this is one person or one family) taxable income by more than $1 billion in the space of 5 years. Now I have no doubt that that’s within the law in the sense that it’s not tax fraud. It may not be in the law in the sense that those arrangements may be ultimately challenged in court and they fall over and tax may have to be paid. I’ve also no doubt that they were put in place by again those lawyers and accountants that we play golf with and see at Saturday sport.

So what do we do about this? And I do think we need to do something about it. It seems to me it is a problem because the less tax the rich pay, the more that everyone else pays. What do we do about it? Well, we change the law with monotonous regularity, I’m not sure that it ever works. I come back to the point that lawyers in my view are increasingly employed to find ways around the law rather than to ensure its compliance. My answer or part of an answer I guess would be that we need publicity, we need to shame these people into paying. To judge by the Sydney Morning Herald’s recent series on barristers it seems to be working in that department. The Australian Tax Office’s case study of this very very rich individual was naturally anonymous. I believe though that in this country we have a right to know if someone is not paying their taxes, whether it’s legal or illegal. If there is nothing wrong with what they are doing and their lawyers always tell us that there isn’t, then I can’t see why they wouldn’t mind us knowing.

And in the meantime, if anybody has any ideas of who this guy is …………, I’m a phone call away. Thankyou!