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Leighton Holdings linked to 'corrupt' fees for Iraq pipeline contracts
By Nick McKenzie and Richard Baker
Damning evidence has emerged in a court case linking construction firm Leighton Holdings to allegedly corrupt payments of "not less than $25 million in marketing fees" to a Monaco firm to help win Iraq government projects, even though the projects required no marketing.
Leighton's own lawyers recently labelled these payment agreements as "vague and uncertain", while corporate corruption expert Dr Kath Hall, Associate Professor at the ANU College of Law, said they were risky and compared them to the dealings of AWB Limited in Iraq over a decade ago.
Former Leighton International director: David Savage.Credit: AFR
Files from the British High Court of Justice case reveal that the fees were contained in deals, known as Memorandum of Agreements (MOAs), struck between Leighton's offshore business and another company, Unaoil, in the last half of 2010 and in early 2011 and aimed at securing oil pipeline contracts in the south of Iraq.
Unaoil operates out of Monaco but is incorporated in the British Virgin Islands, a tax haven with an opaque banking system.
Oversaw the deals: Former Leighton International executive Russell Waugh.
The Unaoil deal is one of two deals linked to the Iraq projects in 2010 - the second involving UAE company Oceanking - that Leighton insiders now concede should have never been struck because they involved payments for services that were undefined and vague.
Leighton only referred the deals to police in November 2011, after external lawyers discovered company files outlining allegations of bribery in Iraq.
The two deals were overseen by former Leighton International director David Savage and former top executive Russell Waugh.
Unaoil has alleged in its court case that the MOAs required the Australian firm to pay pay Unaoil "a minimum price for construction and marketing of $US55 million" in the event that the Iraqi government awarded Leighton the second pipeline contract.
"Furthermore, the parties agreed that Unaoil shall be paid an additional marketing fee of 5 per cent of any amount that Leighton receive on the [Iraq] Project above $US500 million."
"For the avoidance of doubt, the marketing fee paid to Unaoil shall not be less than $US25million."
In documents lodged in court in April this year, Leighton's barrister Sean Brannigan, QC, rejected Unaoil's demands, stating that the MOA between Leighton and Unaoil was "so vague and uncertain that it cannot be given contractual force"
.As federal police bribery investigators continue to investigate Leighton's Iraq dealings, several figures closely associated with Leighton said the MOAs should never have been drawn up. Most corporate anti-corruption programs warn that ''marketing fees'' may be used as a vehicle to pay bribes in overseas business deals.
Former Leighton chief executive Walk King, who departed Leighton at the start of 2011, was also on the board that oversaw Leighton Offshore's initial Iraq contract and initial MOAs with subcontractors.
Mr King said that he had no knowledge of or involvement in the ''so-called second contract'' in Iraq, which is the subject of the British legal dispute between Leighton and Unaoil.
In a statement on Sunday, Leighton Holdings said its directors and the boards of its subsidiaries executed their responsibilities with ''due care'' at all times and contracts with subcontractors in Iraq were a management responsibility.
''The Iraq project and the subcontracts entered into by that project were within the authority level of the relevant management. The subcontracts did not require board review or approval.''
Leighton said the police investigation and legal action with Unaoil prevented it from answering several questions. Fairfax Media revealed last month that former Leighton CEO David Stewart wrote a handwritten memo dated November 23 2010 in which he alleged he was told of plans to pay Unaoil kickbacks in Iraq. It was the discovery of Mr Stewart's 2010 memo by external lawyers in November 2011 which triggered the AFP inquiry.
Fairfax Media asked Dr Kath Hall to review the payment arrangements outlined in the British court files.
"It is very unclear what the company [Unaoil] was agreeing to do but what is clear is that all the payments to Unaoil were conditional upon Leighton securing the contract … in Iraq … generic and vague terms" such as marketing were sometimes used in contracts to hide improper payments.
Australian Federal Police refused to comment on the court files.