As 2020 slides mercifully into the rear-view mirror, this article glances back at some anti-corruption trends evident this year, and sneaks a look at likely developments to come (including better whistleblower protections) in 2021.
Around the world, multiple nations have to now confront a post-Covid landscape that includes these features: a fearful and fatigued population hoping for a vaccine that will stick; leaders taking emergency measures by decree and bypassing usual democratic checks and systems; millions of people out of work or on reduced pay and looking for supplementary sources of income; governments pumping vast sums of money at high speed into macro-economic stimulus, health sector spending, and all manner of public works recovery schemes.
From a fraud, bribery, organised crime fighter point of view, what could possibly go wrong?
New Zealand, despite its annual arm-wrestle with Scandinavia to win ‘top of the pops’ corruption perceptions surveys, has to steer through these unsavoury developments just like every other nation.
Trend #1: Enforcement agency (the Serious Fraud Office) funded to become more active
New Zealand’s independent Serious Fraud Office (“SFO”) works alongside Police and other regulators on various operations, but is generally the lead agency for corruption cases. It has been busy this year investigating a number of complex issues and prosecuting more cases than last year, albeit from a low base point (7-8 court actions) historically.
The SFO traditionally tends to spend more of its NZ$13.5m budget resources on financial fraud and deception cases, where it focuses on complex or higher value frauds over NZ$0.5m. But for corruption matters, no dollar threshold applies, and over time its workload is becoming more evenly balanced with public sector corruption case actions, now up to 40% of its caseload.
In response to Covid-19 and with expectations of more cases of financial crime and bribery emerging in future, a special budget allocation of nearly NZ$4m was made available over the next 3 years.
In addition to the political donations cases described below, evergreen corruption risk areas can be seen in the SFO’s work around local council procurement, construction and infrastructure projects and IT contractors. For instance, other important current active 2020 cases include those relating to:
- Former employees of Oceania Football Confederation (sports sector);
- IT supply contractors dealing with the Auckland Council (IT services);
- Employees of the Christchurch Earthquake Recovery Agency (construction industry); and
- 4 persons charged with manipulating the Westland District Council procurement process, regarding a design and build contract for a wastewater treatment plant.
Trend #2: More focus on political party donations – investigations and prosecutions on foot
Beyond its usual measure of public sector corruption and procurement deception cases, and with a general election for New Zealand’s Parliament looming, several cases were opened in 2020 investigating financial donations made to New Zealand political parties: the National Party, the New Zealand First Foundation (linked to New Zealand First party) and the Labour Party.
Similar issues were being scrutinised over 2019’s local/municipal body elections to both the Auckland and Christchurch Councils.
New Zealand’s Electoral Act legislation has strict rules around donations to political parties. In particular, parties must report the details of donations over $15,000 in a particular disclosure format. There has been growing public concern and media suspicion that transactions are being structured, or hidden, so as to circumvent the threshold and disclosure rules. In some cases, the concern extends to the threat of foreign funding and potential interference in New Zealand’s political system.
The SFO has pressed charges in two high profile cases in 2020, and continues open investigations rolling into 2021 concerning donations made to the Labour Party (currently in government) and into Auckland Council mayoralty campaign donations. The determination appears clear – to expose those who skirt the law against public transparency interests in knowing who is making large donations to political causes.
The first prosecution was against a former National Party MP, Mr Jami-Lee Ross, and three businessmen. The charges include obtaining by deception under the Crimes Act, and also one businessman faces a count of misleading or obstructing the SFO investigation. If convicted, each could face a maximum sentence of 7 years imprisonment per charge. All of the defendants have pleaded not guilty. Trial is to commence in September 2021.
The charges concern two donations to the National Party, one for $100,000 in 2017, and another for $100,050 in 2018. The SFO alleges the defendants arranged to split the donations into sums of money less than $15,000 and transferred the donation into the bank accounts of 8 different people (structuring the funds) before the amounts were paid to use of the National Party.
In a second case, investigated since February 2020 and becoming even more high profile with charges laid in September 2020 just before the election, the SFO targeted the New Zealand First Foundation. That is an incorporated body linked to the New Zealand First Party, and potentially used to put distance between the party and its benefactors.
This has led to significant media attention so close to our Parliamentary election, with the NZ First Party seeking a court injunction trying to stop the SFO from even issuing a public statement stating that it had filed criminal charges against two persons (to be clear, those persons still have name suppression, but are not party politicians).
Rejecting the injunction bid, the Judge cited significant public interest in the voting public being informed during an election campaign about criminal charges of serious fraud against people/organisations behind political parties. These defendants maintain interim name suppression, and a case hearing date has not yet been set but could be many months away.
Ironically enough, the National Party before the election announced a strong anti-corruption policy, if it were to end up leading the next government. It proposed to double the funding of the SFO, and reconstitute it as a formal Anti-Corruption Agency. As the electorate ended up voting overwhelmingly to return the incumbent Labour government, these worthwhile policy ideas never ended up getting proper traction or consideration.
As a result of all this attention and several high profile investigations, one of NZ’s Anti-Money Laundering regulators, the Department of Internal Affairs, took the highly unusual step of publishing to its reporting entities an update on overseas electoral donations via international wire transfers or online payments systems as a particularly elevated alert/red flag risk area.
Trend #3: Whistleblowers keep coming forward, but still undervalued despite Protected Disclosures law to receive an overdue update
New Zealand has had a form of whistleblower legislation, albeit a limited and weak version, for twenty years now – the Protected Disclosures Act 2000. At long last, this is to be strengthened by the Protected Disclosures (Protection of Whistleblowers) Bill 2020 introduced in order to repeal and replace the existing law, and aiming to strengthen protection for whistleblowers in the workplace.
However, the Bill still has a limited scope of coverage and, consistent with that scope and with broader trends towards tougher workplace health and safety policy initiatives, the focus remains on employees in a workplace setting. It is not, unfortunately, in this form going to amount to a modern broader whistleblower protection law, and the Bill is currently being considered by the Education & Workforce Select Committee.
Fraud, corruption, collusion and corporate crime can be very hard to detect. They are usually hidden by deliberate steps taken by the perpetrators in order to keep it secret. People on the inside, such as employees and middle managers, are often best placed to pick up wrongdoing that is going on, rather than outside auditors or law enforcement agencies. Hence a clear ability to anonymously make a report or blow the whistle is a vital part of detection and deterrence.
Despite that, over the decades many whistleblowers in New Zealand have learned the hard way that they face disadvantages, such as loss of career, other benefits or public vilification. A number of reports have found New Zealand lags behind other countries in providing effective protections, due to the current unclear, contradictory and confusing Act. Politicians and public sector chiefs have sometimes proved themselves the most likely to turn on a whistleblower, smearing their motives and capabilities, then storming into “inquiries” to uncover the source of the “leak”.
To improve the lot of the person or third party trying to draw attention to some unlawfulness requires a culture change. More enlightened businesses, or those that are heavily regulated and licensed, are starting to recognise the value of a powerful early warning system for regulatory and governance problems, if they get their whistleblower process spot on. That wider culture change might be led by a strong and secure whistleblower protection law. On this version of the Bill, although a step forward, there is still a long way to go.
The new Bill recognises the potential forms of adverse conduct that whistleblowers may face. The Bill turns upon a key concept of “serious wrongdoing”, as defined. If there has been such serious wrongdoing the Bill allows people to report directly to an “appropriate authority” at any time. It also strengthens protections for those making disclosures and clarifies the internal process requirements for public sector organisations and what they must do to safely receive protected disclosures.
Public submissions on this Bill are now open and available, and will close on 28 January 2021.
Trend #4: Organised crime groups increasingly attempt to convert and corrupt staff at government agencies
Covid-19 has disrupted some levels of organised crime, but New Zealand’s methamphetamine problem shows no sign of abating. Criminal gangs have swiftly pivoted to new mechanisms, and to take advantage of lockdowns and general economic dislocation which provides alternate recruitment and distribution opportunities.
A particularly troubling new boldness has emerged with criminal organisations seeking to target, recruit, manipulate or bribe persons on the inside in corrective institutions and supply chain businesses. Two recent cases are of concern.
First, the specialist National Organised Crime Group within NZ Police have been investigating in 2020 corruption allegations at Rimutaka Prison. An inmate had been previously sentenced to more than a decade in jail in 2018, for importing from South East Asia methamphetamine for New Zealand supply. He appears to have carried on dealing, within a few months arranging the trafficking of drugs into New Zealand from behind bars, using illicit mobile phones provided by a Corrections Department prison officer (mobile phones being treated as a contraband item inside prison).
Ongoing investigations found a wide variety of contraband making its way into the prison: significant methamphetamine, cannabis, LSD and tobacco, along with numerous mobile phones. Gang members were not only carrying on their same business model, but handily laundering money by using inmates paying off Corrections staff.
This investigation was supposedly prompted by information gathered in an earlier police operation, which highlights a disturbing trend inside Rimutaka Prison. As Stuff newspaper reported an earlier 2016 investigation turned up very similar conduct involving a guard supplying phones, tobacco, fast food and other goods in return for significant cash bribes.
As the inquiries deepened Newshub reported that the corruption investigation relates to 4 staff members including one at the highest ranking officer level in the prison system. So any suggestion this was a one-off or involving naïve junior staff seems misplaced.
The second case involves a crew of Air New Zealand baggage handlers, now facing charges along with a rap musician travelling in and out of the country in between 2020 lockdowns. Significant allegations are made involving NZ$8m worth of methamphetamine bypassing usual airport security checks, leading to potential life imprisonment penalties.
NZ Customs led the investigation into drug smuggling, where importers need assistance from people on the inside, in this case 4 men working at Auckland International Airport. Avoiding X-ray machines and secure Customs checks, the allegations appear to engage similar smuggling techniques seen overseas, where a corrupt baggage handler has been manipulated to secretly load illicit bags into an airplane hold among other checked-in luggage, or create fake luggage tags linked to real passengers for an unseen extra bag of drugs.
So far the suspects have pleaded not guilty in the Manukau District Court.
If these two cases represent a pernicious trend towards gangs corruptly using insiders (public or private sector) then the law enforcement agencies will need a highly joined-up approach and plenty of whistleblowing options coming forward, if they are to tackle it effectively in future.
Gary Hughes Barrister
20 December 2020