Central Banks, The Veil Of Secrecy, A Hotbed of Corruption, And Now Another One Got Ensnared

Central banks are designed to be “independent,” and they shroud themselves in secrecy. But they have formidable and, when it comes to money, “unlimited” powers that they harness for the benefit of their clientele, banks. And hiding behind their veil of secrecy are shenanigans that rarely seep to the surface, but when they do, they just get worse and worse. And the latest is a sordid bribery and kickback scandal at the Reserve Bank of Australia (RBA) that appeared to be neatly contained to two subsidiaries, until now.

Securency International Pty Ltd, jointly owned by the RBA and Innovia Films, develops polymer materials for Australia’s banknote technology used in 27 countries. Note Printing Australia (NPA), a wholly owned subsidiary of the RBA, manufactures polymer banknotes. In May 2009, Age newspaper broke the scandal: eight former executives of Securency and NPA had paid millions of dollars in bribes and kickbacks to officials in Vietnam, Malaysia, and Indonesia between 1999 and 2004 through middlemen, including a Malaysian arms dealer, in order to win contracts for manufacturing bank notes. Forced to deal with the ruckus, Securency asked the Australian Federal Police to investigate.

In July 2011, finally, after two years of foot-dragging, and after international pressure to do something, the Federal Police arrested six former executives of Securency and NPA—Australia’s first prosecution under its foreign bribery laws.

On Aug 19, 2012, former Securency CFO David Ellery pleaded guilty to one charge of false accounting—he admitted to concealing a $79,502 payment to a Malaysian agent—and was given a six-month suspended sentence. In return, he handed over hard drives, provided details, and agreed to become a prosecution witness. In her ruling, the Judge lashed out against the company for its “corporate culture” where “staff were discouraged from examining too closely the use of, and payment arrangements for, overseas agents,” and where “secrecy and a denial of responsibility for wrongdoing” prevailed.

So justice reluctantly tiptoed around the lower levels. Suspicions that top officials at the RBA knew about the corruption were waved away by Governor Glenn Stevens. He testified before a parliamentary committee in 2011: he and others at the RBA learned about the scandal by reading the papers. Deputy Governor Ric Battellino—retired since February—sat right next him.

But at least Battellino knew since June 2007! A 5-page memo that ABC obtained from “sources” at the RBA, and made public yesterday, proves it. That June, NPA’s Brian Hood told Battellino in a secret meeting about the corruption issues. He later composed and sent the now surfaced 5-page memo to Battellino, detailing multi-million-dollar payments to overseas agents who in turn made payments to officials and politicians in Vietnam, Malaysia, Indonesia, and Nepal. Hood stated that he’d tried to address these issues within NPA but was told to “back off.”

Battellino reacted. Instead of calling the Federal Police to investigate, the RBA engaged a law firm to do an audit that gave the company a clean bill of health. Whistleblower Hood was axed in 2007, along with the foreign agents and some of NPA’s management. Despite the memo, the RBA, of course, continues to reject the “implication that the governor or other officers of the bank have misled” the parliamentary commission.

Central banks are special creatures, and investigating them turns out to be the hardest thing in the world. While pressures have been rising for an independent inquiry, Parliament voted against it last year, and may do so again.

But the RBA is not alone. Similarly sordid allegations have entangled Ewald Nowotny, Governor of the Austrian National Bank and member of the ECB’s Governing Council. At the Swiss National Bank, an insider trading scandal caused its chairman, Philipp Hildebrand, to resign. And in the US, an audit of the Federal Reserve System by the Government Accountability Office shed some light on the dizzying conflicts of interests and cronyism at the New York Fed when it decided who got which billions during its multi-trillion-dollar bailout mania.
But piercing the veil of secrecy surrounding central banks is tough. While Ron Paul and others have long pushed for regular Fed audits, not much has been accomplished beyond the GAO audit.

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  3 comments for “Central Banks, The Veil Of Secrecy, A Hotbed of Corruption, And Now Another One Got Ensnared

  1. Juno
    Aug 24, 2012 at 7:56 am

    "Central banks are special creatures, and investigating them turns out to be the hardest thing in the world."

    When these special creatures are used to manipulate markets, then entire economies are at risk, huge long term damage for minimal short term gains. We are seeing that in the US, the Uk and in Europe, where sporadic investigative reporting does register results.

    Where are the checks and balances when governments have flexible standards of good practice.

  2. Aug 24, 2012 at 12:00 pm

    The Reserve Bank of Australia (RBA) does not just have a veil of secrecy over their fiat currency printing entities they also are very secretive about where they are holding their 79 tonnes of Gold Reserves.

    Some of my clients and I have been endeavouring to get info on where the RBA's gold is stored over the last several months but the RBA has blocked us at every turn. We are not even asking for exact details either, we would have been happy with the answer “in Australia” or “in London and NY” but we can’t even get that.

    My last attempt was last week after raising funds to mount a Freedom of Information request (FOI) I was again rebuffed. Read here: http://ausbullion.blogspot.com.au/2012/08/rba-has-foi-pf-key.html

    Of course none of Australia’s political parties are interested in this discovery request. I have reached out to the Liberals (eqiv. of Republicians) and Labor (eqiv. of Democrats) and to the left with the Greens and the right in the form of the Shooters & Fishers, Christian Democrats and a few right wing notables and not one of them is interested or even wants to understand the issue. I was particularly disappointed in the Left’s response as one of their own, Hugo Chavez discovered where his country’s gold was held and then bought it back home to Venezula.

    Previous failed attempts to get disclosure from the RBA:

    http://ausbullion.blogspot.com.au/2012/06/pf-keys-still-in-working-order-at-rba.html
    http://ausbullion.blogspot.com.au/2012/04/where-is-australias-gold-update.html
    http://ausbullion.blogspot.com.au/2012/04/where-is-australias-gold.html

  3. Kiers
    Aug 26, 2012 at 2:15 pm

    Have you ever read "The set up" by Paul Erdman? LOL
    Seriously, why do Anglo countries SO indulge "Foreign Corrupt Practices Acts" in their parliaments/congresses?

    Is it for the olde "selective enforcement" to crack down boys who don't play with "the team" or what? Corruption is constant. everywhere. Malaysia, Indonesia, Nepal are US allies too.

    There's no doubt that EVERYWHERE bribes are being paid/ received for every multi national business and yet legislatures howl on about FCPA and probity and moral standards blah blah blah.. Sheer nonsense that.

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