Inadequate due diligence threatens reputation of Australian-funded infrastructure

Silhouette of Engineer and worker team on building site, construction site at sunset in evening time
Project Coordinator – Infrastructure

PNG Ports – Conflict of interest, allegations of kickbacks and inadequate due diligence threaten the reputation and quality of Australian funded infrastructure projects.

Australia’s weak laws against foreign bribery and lack of transparency of company ownership mean that Australian companies involved in construction and infrastructure are particularly exposed to corruption risks. The multi-million-dollar contracts awarded under large infrastructure projects provide an incentive for contractors to offer bribes or facilitation payments to officials. Bribes can account for 10-15 percent of the contract value and can have a significant impact on the quality of the project.

As the Australian government increasingly funds large infrastructure projects as part of its aid program – the Australian Infrastructure Financing Facility for the Pacific (AIFFP) grew to $4billion in grants and loans in 2022 – it must actively prevent these corruption risks to protect its reputation and to ensure the quality of the infrastructure it funds. The Australian aid program also plans to ramp up investment in much needed renewable energy infrastructure in the Asia-Pacific region too.

PNG Ports Infrastructure Investment Program is a project funded under the AIFFP to upgrade and refurbish selected PNG ports. The AIFFP is financing AUD 621.4 million to upgrade PNG’s largest port, the Lae deep water Port, that will service PNG highlands and become the key transhipment hub for the Pacific. Negotiated in 2021, the project was promoted as critical for PNG’s economic growth and described as providing benefit to communities through access to coastal wharves food, imported goods and trade and transport to services such as healthcare and education.  The project has now become mired in controversy and red flags

A recent joint investigation by OCCRP and the ABC has uncovered questionable payments to senior PNG Ports officials from an offshore bank account in Singapore that is controlled by Australian businessman Don Matheson. The account received millions of dollars from a Philippines based company, International Container Services (ICTSI), around the time it won the contract to operate PNG ports in 2017. Matheson then appears to have used his account to pay for perks, including race horses for the PNG Ports boss, Fego Kiniafa. At minimum, this appears to be a serious conflict of interest where payments are going to a consultant from the account of a wining contractor, and appear to be going back to the people who decide who gets the contract, but could indicate that kickbacks have been made. Kiniafa was murdered in his home village in September 2022. His murder was initially treated as unrelated but officials are now reinvestigating this case as part of a wider conspiracy that includes suspects beyond those held in custody after the incident.

“We can’t know for certain from what we see here, but certainly what we see here gives rise to the potential that there may have been kickbacks made.” John Chevis, former Australian Federal Police financial crimes analyst and TI Australia Senior Advisor

Don Matheson has a track record for unscrupulous business practices in Australia, leaving hundreds of thousands in unpaid taxes relating to the collapsed Northern Queensland Fury soccer team. He was also found to have misled his partners in a failed Queensland golf course venture. After these failures he left Australia and set up a consulting business in Papua New Guinea and reportedly has close ties to the Prime Minister, James Marape. With payments from ICTSI, Matheson has since paid his tax debt and lives on the Gold Coast in a multi-million-dollar property. He has also bought and sold another $5million worth of property in the last five years.

The government in Papua New Guinea has now ordered an investigation into the PNG Ports Corporation by the Independent Commission Against Corruption (ICAC).

While the matters under investigation occurred before AIFFP’s involvement in PNG Ports, this raises a number of questions about the corruption risks of Australian funded projects. When millions of dollars of Australian money is invested into these large infrastructure development projects as part of Australian government aid, we need to know what due diligence is done to ensure that the money is being spent as intended.

How does the AIFFP prevent conflicts of interest, detect and prevent foreign bribery and do they do adequate due diligence into the track record of contract partners?

As it stands, the laws in place that deal with these issues are weak. We know about the questionable payments of Don Matheson’s Singapore based consultancy company because of the work of investigative journalists accessing information leaked in the Pandora Papers. Ordinarily, uncovering suspect payments and accessing company ownership information to understand risks, track relationships, find conflicts of interests and track corruption is incredibly difficult under Australian law.  Australia should increase transparency over company ownership which makes it easy to set up shell companies and hide money flows so that we can know who owns and ultimately benefits from contracts and business approvals.

Australia should also strengthen laws against foreign bribery to close loopholes that enable people to hide corruption and the proceeds of crime. This should include prohibiting ‘facilitation payments’ – small bribes made to foreign public officials to speed up government processes – which are currently allowed under Australian law and creating a Deferred Prosecution Agreements (DPA) scheme to improve detection of foreign bribery.

To protect Australia’s reputation as an investment and development partner funding projects with large budgets and transformational development aims, we must ensure that we have adequate laws in place that can prevent and detect bribery and corruption. Without these measures these activities will continue to threaten democracy and the rule of law, and undermine the development aims we set out to achieve.

Read more about Transparency International Australia’s work in addressing corruption risks.