from the 7:30 report ….

Eight former executives from companies owned by the Reserve Bank of Australia are facing committal for trial over charges of bribing foreign officials and questions of connection to the central bank are being asked.

LEIGH SALES, PRESENTER: Australia's worst corporate corruption scandal is currently playing out before a Victorian court. Eight former senior executives from two firms owned by the Reserve Bank of Australia are facing allegations that they paid tens of millions of dollars in bribes to win banknote printing contracts overseas. But a major part of this scandal has remained hidden until tonight, and it's never been the subject of any inquiry.

It concerns what top officials inside the Reserve Bank itself knew about bribery and corruption inside the RBA's subsidiaries well before the scandal became public and police began their probe in 2009. The Reserve governor Glenn Stevens has told Parliament several times since then that the RBA was in the dark about corruption and bribery inside its firms before the 2009 expose. But 7.30 has obtained damning new evidence that contradicts those claims, and is likely to reignite debate about whether the Gillard Government needs to call a broad inquiry into the affair. Nick McKenzie has this exclusive report with assistance from Richard Baker of the The Age newspaper.

NICK MCKENZIE, REPORTER: An extraordinary case is unfolding in Victoria's county court. Eight former executives from two companies owned by the Reserve Bank of Australia are facing committal for trial. They are the first Australians to ever face charges of bribing foreign officials.

HAMISH FITZSIMMONS, REPORTER (July 2011): After a two year investigation they were charged with offences relating to bribes allegedly paid to foreign officials to secure contracts for their companies.

CHRIS MCDEVITT, AUSTRALIAN FEDERAL POLICE: These charges are significant. It is Australia's first prosecution under foreign bribery legislation.

NICK MCKENZIE: The case has dogged Australia's central bank since mid-2009 when The Age newspaper began exposing the activities of the RBA's banknote makers, Note Printing Australia and Securency, which are fully and half-owned by the Reserve. The scandal concerns their business dealings overseas.

DAVID CHALKIN, FMR ADVISER TO ATTORNEY-GENERAL'S DEPT: The basic allegations is that these companies and the senior managers in those companies bribed foreign public officials in order to get business, and that is a crime under Australian law.

NICK MCKENZIE: But there is a major part of this scandal that has never been thoroughly examined by any inquiry. It has remained a secret until tonight, and it goes to the very top of the Reserve Bank itself.

DAVID CHALKIN: This is not about a number of individuals accused of corruption. This is about what the Reserve Bank of Australia knew about that corruption, and it goes to the question of the integrity of the most important financial body in Australia.

EXCERPT FROM PROMOTIONAL VIDEO: Let me introduce a master piece of Australian design and technology: Australia's new $5 plastic note.

NICK MCKENZIE: The Reserve Bank companies at the heart of this scandal, Securency and Note Printing Australia, print the polymer banknotes which was pioneered in country in the 1980s. They've made tens of millions of dollars selling the RBA's plastic banknote technology to foreign governments.

Now it's alleged that middle men in Malaysia, Nepal and other countries paid big bribes to foreign officials to help secure some of those sales. But the question is: how much did the Reserve Bank know of these allegations before they became public in 2009?

STEVEN CIOBO, LIBERAL MP: Could you explain to me the first time that the Reserve Bank board became aware that there may be an issue that required closer scrutiny?

NICK MCKENZIE: In repeated parliamentary hearings, RBA Governor Glenn Stevens has insisted the bank knew little or nothing about corruption and bribery in its firms before the stories hit the press in 2009.

GLENN STEVENS, GOVERNOR OF THE RESERVE BANK: The time at which we became aware of the allegations that were made by the newspapers was when they were made. No one in the Reserve Bank or on our board had ever had put to us those allegations before that time.

NICK MCKENZIE: But 7.30 has learned that much more was known inside RBA headquarters than its top brass have let on. In June 2007, two years before the scandal broke in the media, a secret meeting was held at the bank's headquarters in Martin Place, Sydney. Bank sources have revealed who was there: Deputy Governor Ric Battelino and this man, Brian Hood. Brian Hood is a former long-time umpire with the Victorian football league turned senior business executive. In 2007 he was the company secretary of RBA firm Note Printing Australia. At the Martin Place meeting with Deputy Governor Ric Battelino, Brian Hood revealed he had "serious concerns about probity issues" which had not been adequately addressed inside the RBA firm. Six months ago Glenn Stevens was asked if the Reserve Bank was directly told of probity concerns inside NPA.

GLENN STEVENS (February 2011): If you're asking did the person in question write a letter or something to the bank, I don't think that he did, no.

PANEL MEMBER (February 2011): Or discuss it with the bank.

GLENN STEVENS (February 2011): Not to my knowledge.

NICK MCKENZIE: But in fact shortly after the Martin Place meeting, Brian Hood set out his concerns in great detail in a five page memo addressed to the Reserve's Deputy Governor Ric Battelino. RBA sources have given The Age newspaper and 7.30 a copy of that memo. It's explosive, detailing what Brian Hood saw as corrupt behaviour involving Note Printing Australia and massively excessive multimillion dollar payments to its overseas agents - including this man, Abdul Kayum, a Malaysian arms dealer who the memo revealed was working for both NPA and Securency. The memo to Mr Battelino reveals the extraordinarily large payments made by the RBA firm to its Malaysian agent had been used to make:

EXCERPT FROM MEMO (voiceover): Payment to others including officials and politicians.

NICK MCKENZIE: The agent had said that:

EXCERPT FROM MEMO (voiceover): ...dealing through networks was the accepted way of doing business in that part of the world.

NICK MCKENZIE: And the same agent had asked for:

EXCERPT FROM MEMO (voiceover): ...commission funds owing to him be directed to an ANZ Brisbane account. The agent would not explain what position or role the nominated individual had.

NICK MCKENZIE: 7.30 has shown a copy of the 2007 Hood memo to Sydney University corruption expert and former government adviser Dr David Chaikan.

DAVID CHAIKAN: I would rate it as a smoking gun because of the nature of the warnings. For example, it was being stated that the company secretary had heard first hand from agents they were making corrupt payments to politicians of political parties. That was also confirmed by a senior manager in Note Printing Australia. And you add that with all the documentary evidence such as that the negotiations with these agents were not being documented; that arrangements were being made to pay these agents, they also weren't documented; that requests were being made to make payments to third parties. All these are clear warning signs of corruption and you don't need to be a corruption expert to interpret those warning signs.

NICK MCKENZIE: The memo documents similar concerns about commissions paid to agents in Nepal. Hood reported that the Nepali agent had complained:

EXCERPT FROM MEMO (voiceover): There was little left for him after servicing others.

NICK MCKENZIE: This was apparently because the Nepali agent:

EXCERPT FROM MEMO (voiceover): ...made donations to political parties.

NICK MCKENZIE: The memo also reveals Note Printing Australia deliberately misled the Nepal central bank, about how much it was paying its agent there.
EXCERPT FROM MEMO (voiceover): NPA had knowingly understated commissions to the Nepal central bank, which requires such disclosure.

HOWARD WHITTON, FMR UN ETHICS ADVISER: This is an extraordinary way of doing business.

NICK MCKENZIE: 7.30 has also shown the Hood memo to former United Nations corruption fighter turned ethics adviser Howard Whitton.

(to Howard Whitton) What was the core message of that memo?

HOWARD WHITTON: The core message was this organisation is out of control, we're doing either bad things or illegal things in other countries, we're covering it up; and the management of the organisation is not taking any of the desirable or indeed necessary - legally necessary - steps to stop it.

NICK MCKENZIE: Hood reported to Battelino that when he'd earlier raised bribery concerns inside NPA, he was warned by the firm's managing director Chris Ogilvy, who was also a Securency director.

EXCERPT FROM MEMO (voiceover): Ogilvy asked me to back off and not push too hard with investigations.

NICK MCKENZIE: What's your view as to what the RBA should have done?

HOWARD WHITTON: The RBA should have called the cops.

NICK MCKENZIE: No question.

HOWARD WHITTON: No question at all. They have clear evidence from a responsible official who has a legal duty to advise the RBA as the parent of Note Printing Australia that corrupt conduct, criminal conduct was happening on their watch, and it would seem to me that it was obvious that the AFP should have been called in at that point.

DAVID CHAIKAN: What was being alleged by the company secretary is that any investigation by him was being stymied by the senior management of Note Printing Australia. Those two factors together should mean that you call in the Australian Federal Police.

NICK MCKENZIE: The Reserve Bank did not call in the Federal Police. Advice was sought from a corporate law firm, and NPA's foreign agents quietly sacked in 2007. Soon some of NPA's senior managers, including Brian Hood, were pushed out. Hood's memo to the RBA's Deputy Governor was buried.

DAVID CHAIKAN: I think the most striking thing was that the company secretary was pleading to the Reserve Bank for assistance. He, and indeed the rest of the Australian community, have been let down by what has happened.

NICK MCKENZIE: It would take months for Federal Police agents to discover the Hood memo after their inquiry began in May 2009. Almost two years later, Glenn Stevens told the economic committee nothing about the Hood memo, and nor did the man sitting next to Stevens, Deputy Governor Ric Battelino.

GLENN STEVENS (February 2012): You know, a question would be is there any way that anyone in the RBA ever knew anything about anything, and I'm pretty sure the answer to that is no.

DAVID CHAIKAN: Well he should have asked them, you know... he had the man next to him, didn't he? And he had the answer, and... it just is incredible. Actually, it's incredulous, and the governor of the Reserve Bank should now come out and state whether he did or did not know about that memo. It would have been the most extraordinary thing in the public service for the Governor of the Reserve Bank not to be told about this memo, and to discuss what the implications of that memo were for his organisation

NICK MCKENZIE: How do you characterise the testimony of the Deputy Governor and the Governor of the Reserve Bank in respect of this scandal before Parliament?

DAVID CHAIKAN: Well it's virtually now a farce.

NICK MCKENZIE: In June 2010, Governor Glenn Stevens wrote to Treasurer Wayne Swan about the scandal, telling him that the bribery allegations were completely unexpected when they hit the media in 2009. Earlier this year, two weeks after Battelino had retired from the RBA, Stevens changed his testimony.

In the committee's very last question, Liberal MP Tony Smith asked Stevens if he stood by his earlier answers.

GLENN STEVENS (February 2012): I think I said that the bank was aware of that but that it wasn't in writing. Actually, that wasn't quite true. I've been reminded while we've 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.

NICK MCKENZIE: Governor Glenn Stevens said something about the content of the memo.

DAVID CHAIKAN: He reluctantly, at the end, admitted there was some written document but tried to downplay it. The whole exercise was to downplay the significance of that document, but anybody reading that document would see it as a critical document in terms of the knowledge of the RBA.

NICK MCKENZIE: Glenn Stevens and Ric Battelino declined our request to be interviewed for this program.

Last night, Liberal MP Tony Smith took to the floor of Parliament to raise yet more questions of the RBA.

TONY SMITH, LIBERAL MP: The question is whether the bank, with all this 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 the possession of this memorandum. This document means there's an opportunity to assess the decisions made by senior Reserve Bank of Australia officials in mid-2007.

DAVID CHAIKAN: It would appear to be an orchestrated attempt to cover up the truth - that's why a Royal Commission would be the only way that we have in Australia to uncover that.

LEIGH SALES: Nick McKenzie with that report.

7.30 contacted the memo's author, Brian Hood, but he declined to comment.

This afternoon, we received a statement from the Reserve Bank, which referred to action taken by its subsidiary Note Printing Australia on the corruption allegations but that statement doesn't address the issue of what the bank itself knew.

Read the RBA's response for yourself.

………………..

Of course, given that Glenn Stevens was Chairman of the Reserve Bank Board (as well as Governor of the Bank) & Deputy Governor, Ric Battelino, was also a Director, a ‘reasonable person’ might wonder what, if anything, was reported to the Board on these matters?

Apart from Stevens & Battelino, the Directors at the time were Ken Henry, Secretary to the Treasury & corporate luminaries Jillian Broadbent, Roger Corbett, Graham Kraehe, Donald McGauchie, Warwick McKibbin & Hugh Morgan (it should be noted that Hugh Morgan’s term on the Board ended on 28 July 2007).

So what did the Board know?

And if the Board knew, was the then Howard government informed? And, if so, who … the world’s greatest Treasurer … ‘Rattus’?

With an election looming in late 2007 & Kevin Rudd rampant, how would little ‘Rattus’ have felt about the possibility of another bribery scandal exploding in the upper reaches of financial awstrayla, only a matter of months after his government & a number of senior ministers had been dragged kicking & screaming through the mud of the AWB bribery scandal?

Not happy Jan!!

This is a huge scandal that must be addressed by a Royal Commission with, unlike the Cole Inquiry into the AWB affair, full powers of unfettered enquiry.