Corruption rears head in NZ business

20:11, Jan 08 2011
SENTENCE APPEAL: Taito Phillip Field was jailed on 11 counts of bribery and corruption.

In December 2006 in the High Court at Auckland, Colenso ad-man Adrian Hood stood before Justice Geoffrey Venning to be sentenced to two years in prison. He had earlier been found guilty on 45 counts of "making a gift to an agent without the consent of the agent's principal".

Bribery, in other words.

Justice Venning noted at the time that it was necessary for the court to impose a sentence that reflected the need for deterrence.

"This sort of dishonesty in commercial practice, which is effectively bribery to ensure the continuation of a supply of business, is not at all commonplace in New Zealand," the judge said. "It should not become commonplace in New Zealand."

Last month, however, Transparency International released a disturbing statistic, claiming that 4% of Kiwis admit to paying a bribe. The New Zealand number was twice Australia's and four times the United Kingdom's results.

Transparency's New Zealand director Alex Tan said New Zealand tended to "rest on its laurels" about corruption and needed to be more vigilant.


Transparency also reported that 73% of Kiwis felt corruption had increased over the last three years.

If that is the case, it is a finding that is not supported by a growing number of prosecutions. A search of court judgements delivered over the past five years reveals a handful of cases – from the high-profile trial of MP Taito Phillip Field, sentenced to six years' jail on 11 counts of bribery and corruption as a Member of Parliament, to small fry such as the case of tax department investigator Alex Song, sentenced to three months' home detention in 2008 for soliciting $120,000 for himself and colleagues to make a tax investigation go away.

But, at an average of one serious case a year, it still doesn't look like New Zealand is awash with bribery. And even with 4% reporting they paid a bribe, New Zealand remains in an elite group of countries considered relatively free of corruption.

However, when the Serious Fraud Office appointed Nick Paterson to lead its charge against corruption it signalled the issue was being given new priority.

The UK-born Paterson has been in the job, general manager of fraud and corruption, for six months now after a restructuring at the SFO in the first half of 2010. His background is as a chartered accountant specialising in corruption and fraud investigations. Immediately before taking his new role he led fraud investigations for Ernst & Young.

Paterson said he is still getting a bead on exactly how much corruption exists in New Zealand. There is an apparent gap between our perceptions of corrupt practices – that there isn't a lot – and the reality.

He agrees there has been a lack of bribery and corruption cases before the courts, but that might be because the issue has not been taken seriously. The creation of a dedicated role at the SFO is a sign that is changing.

New Zealand may not have any choice in that regard, with governments around the world ramping up their anti-corruption campaigns and international organisations applying pressure for more action.

Paterson points out that an OECD review in 2010 noted New Zealand had no nominated lead agency to head the battle against corruption and bribery. New Zealand is a party to the OECD's Anti-Bribery Convention.

"Complying with the Convention requires unwavering support from the OECD and its working group on bribery," the OECD website explained. "Country monitoring and extensive follow-up help to ensure that these countries win the fight against bribery."

Paterson said there are two alternatives: either the perception that we are relatively free of corruption is correct, in which case we cannot be complacent; or it is wrong and we have a problem to deal with. That is, first and foremost, about increasing awareness and communication about the issue, and helping people and businesses to understand the risks.

But first there is the problem of definition: just where does corruption start? Does a free coffee or lunch count? Does a gift? How about a paper bag full of money?

"It's where you draw that line and it varies from organisation to organisation in the private sector," Paterson said. In the public sector there are more standard guidelines and codes of conduct.

The SFO has drawn a line in the case of sacked Accident Compensation Corporation property manager Malcolm David Mason, which Paterson described as a "fairly chunky" alleged bribery case.

That investigation began when ACC Minister Nick Smith questioned a lease ACC signed for a new office in Nelson costing $346,320 a year, 249% up on what the corporation was previously paying. Questions have also been asked about at least one free trip allegedly provided to Mason by a firm of architects.

Questioned about the allegations in May by the Nelson Mail, Mason said it was "trial by media and it's not fair".

Paterson said the numbers involved aren't enormous in international terms, but it is an important case.

The SFO laid eight charges against Mason and another individual, whose name is suppressed, in late November. SFO chief executive Adam Feeley said that the charges, under the Crimes Act and Secret Commissions Act, were the end result of inquiries into numerous property development and leasing arrangements involving the ACC over a two-and-a-half-year period.

The SFO described the case as "a timely reminder that despite a global reputation for being the least corrupt country in the world, there are constant and very real threats to that reputation". Feeley said there have been wider, and serious, issues raised by this investigation, including procurement processes in the public sector, the process for referring corruption allegations to law enforcement agencies and the scope of New Zealand's bribery laws.

Paterson said issues have emerged over the different laws applying to the public sector, subject to the Crimes Act, and the private sector, which falls under the Secret Commissions Act, now 100 years old, and which provides lower penalties than cases taken under the Crimes Act. The Ministry of Justice is now looking at those issues, he said.

Barry Jordan, the head of the forensics team at accountancy firm Deloitte, has never bought into the idea that New Zealand is free of corruption.

"I never believed it for a second, it's so inconsistent with what I see on the ground," he said.

Jordan describes one recent case in the private sector where an employee was effectively extorting expensive toys from a contractor providing services to the company he worked for. Such cases often never hit to the front pages of New Zealand's newspapers because many private sector cases never go to court, instead being settled internally and quietly. "In the public sector there is zero tolerance and taking it to prosecution is required," Jordan said.

That makes the Colenso/Carter Holt case a rarity. In that case, companies under Hood's control paid more than $243,000 over three years to Glen John Keeley, the marketing manager of Carter Holt Harvey, to ensure they did not lose a lucrative contract. For his part, Keeley was sentenced to 10 months' jail after pleading guilty to a charge of accepting a "secret commission".

So where can bribery and corruption occur?

Jordan and Paterson agree there is a lot of potential for corruption around tender processes and general procurement.

"The numbers are large and a lower level corrupt payment can be absorbed or not seen," Paterson said.

As to the transparency figures of 4% reporting they had paid a bribe, Paterson was surprised.

"I wonder if I'm sometimes naive," he said. "I don't know where people are paying these bribes."

He said he'd be very surprised to hear of police taking cash on the side of the road. Because of SFO's focus on larger scale corruption, it is possible the agency wouldn't see such cases anyway. The SFO has a lower limit of $2 million in cases where bribery and corruption are not an issue. Technically, there is no lower limit in bribery and corruption cases where there is an over-riding public interest, but in reality such cases are likely to be handled by Police, Immigration, Corrections and other agencies.

The watchdog is now interested in all cases in this area. "We want to hear about anything and everything to help us understand the issues," Paterson said.

Jordan said he sees a sizeable number of cases with elements of bribery and corruption, often as an aspect of fraud cases.

In the UK, he said, bribery is an offence against the company and the best defence is that the company has procedures in place to combat corruption. Surveys there show three-quarters now do, but only about half of New Zealand organisations can claim the same, Jordan said, creating a fertile landscape for anyone inclined towards corrupt dealings. "If we are the least corrupt country, heaven help the others."


Deloitte forensics team leader Barry Jordan provides tips for spotting corporate corruption.

Do employees have an unusual interest in a specific contractor? Do employees make excuses for poor service from an existing contractor?

Listen to industry rumours. Is an employee's lifestyle out of kilter with their level of income? A

re employees circumventing established tendering practises or arguing for special cases or special reasons to do so?

Is an employee turning down a new position or a transfer for reasons that don't make sense?

Sunday Star Times