Border Force subject to corruption investigation after millions paid to ship builder

The Australian Border Force is the target of a corruption investigation over allegations that it improperly funnelled $39 million from a national security project to sharemarket-listed defence company Austal to prop up its financial position.

But the investigation into the suspected corruption of the $573 million Cape-class patrol boats contract has created divisions within the federal anti-corruption agency running the probe with planned hearings scrapped, counsel assisting removed and claims that the agency is weak.

Austal's Cape-class patrol boat for the Australian Border Force. The eight 58-metre aluminium monohulls were delivered between March 2013 and September 2015.

The revelations about the probe come as debate about the need for a strong national anti-corruption commission is fuelled by the NSW ICAC’s recent hearings involving NSW Premier Gladys Berejiklian.

Sources with knowledge of the investigation by the Australian Commission for Law Enforcement Integrity, but who are not authorised to speak publicly, have confirmed that in early 2019, Australia's then integrity commissioner, Michael Griffin, ordered the commission to undertake an investigation into Austal and Border Force over the shipbuilding contract.

The investigation is looking into why the Australian Border Force, in late 2015 and early 2016, disregarded internal advice that it should not pay Austal part of a $44.6 million success fee for delivering patrol boats used to target people and contraband smugglers and illegal fishing.

The fee was meant to be paid only if Austal met key milestones to deliver eight problem-free patrol boats. The boats were delivered but the Border Force advice stated the ASX200 company had failed to reach the milestones because the boats were plagued with problems.

However, after intense lobbying by Austal, Border Force paid out $39 million, with the first $31 million handed over two days before Christmas in 2015. A further $8 million was paid in June 2016, according to Border Force records.

In the 2015-16 year, donations records reveal Austal donated $60,000 to the Liberal Party, including $20,000 to the party’s West Australian branch. It donated $1500 that same year to the ALP. There is no suggestion the donations had any impact on the funds being released by Border Force to Austal, an Australian-listed shipbuilder and defence contractor with 5500 employees around the world.

Information received by Mr Griffin pointed his inquiries towards a senior Border Force official involved in authorising the payments, leading to suspicions that the official may have engaged in corruption.

The Australian Commission for Law Enforcement Integrity (ACLEI) inquiry into Austal was partly triggered by a December 2018 Auditor-General’s report, which highlighted how the $39 million milestone payment was made to the defence company without a proper basis. Auditor-General Grant Hehir found that even by October 2018, almost three years after the first payment, the Cape-class patrol boat program had failed to reach its milestones and the Border Force patrol boat fleet faced ongoing "capability and support system deficiencies".

Michael Griffin, former head of the Australian Commission for Law Enforcement Integrity.

The revelation of the Austal inquiry also raises major questions for the company itself, with sources saying the investigation, along with ongoing probes by corporate regulators in the US and Australia, has uncovered evidence that the defence giant misled markets. Sources familiar with the various probes said the company wanted the $44.6 million in taxpayer funds as it faced major problems with the Cape-class project and a major US naval contract.

Australian Securities and Investments Commission investigators are also probing Austal, with Federal Court files revealing the corporate watchdog has demanded the firm release "communications involving a dispute with the Australian Border Force" – a reference to the milestone payments. ASIC and American corporate corruption investigators are also examining if Austal misled investors in connection to its US shipyards, which supply the US Navy.

In a statement, Austal said it had not been told of the corruption probe but it would assist the integrity commission and was already assisting ASIC and US regulators. The company denied any knowledge of wrongdoing.

As part of his investigative strategy, former commission for law enforcement integrity chief Mr Griffin approved the use of secret corruption hearings in which witnesses are compelled to answer questions honestly or face criminal charges. Procurement records published by the Federal government reveal he appointed two barristers as counsel assisting, corruption specialist Jonathan Hyde and Dianna Tang.

Border Force staff being circled by Mr Griffin’s probe include a senior former official who helped push through the Austal payments but left the agency in 2017 under a corruption cloud and travelled overseas. This former official, who The Age and Herald are not naming for legal reasons, could not be contacted.

Mr Griffin authorised secret hearings in Perth, the headquarters of Austal, and dispatched investigators to the US to gather evidence from American agencies looking into Austal’s US operations. The US agencies raided the company's Alabama shipyard in January 2019, according to two official sources who are not authorised to speak to the media and requested anonymity.

However, Mr Griffin’s approach to the investigation was scrapped around April by his replacement as commission chief, Jaala Hinchcliffe, who was previously the Deputy Commonwealth Ombudsman. Ms Hinchcliffe was appointed in February by Attorney-General Christian Porter.

ACLEI chief Jaala Hinchcliffe.

It is the second time Ms Hinchcliffe has scrapped an anti-corruption inquiry endorsed by Mr Griffin, having also ditched his planned public hearings into Home Affairs' dealings with scandal-ridden casino firm Crown Resorts with a relatively limited investigation and public report. In that case, Ms Hinchcliffe removed two counsel assisting, Sydney SC David McLure and Shipra Chordia, who had been appointed by Mr Griffin to conduct private and public hearings and directed investigators not to use certain anti-corruption powers, the sources said.

This case exposes a philosophical difference between corruption fighters. Sources with knowledge of the commission's operations said Ms Hinchcliffe's preference is for its investigators to avoid coercive hearings, partly because information they gather can not be used in criminal prosecutions.

But other agencies, including NSW's ICAC, prefer holding hearings because they force suspects to answer questions truthfully during grillings run by lawyers, thereby exposing corruption that would otherwise remain hidden.

The Australian Commission for Law Enforcement Integrity is the key pillar of the Morrison government’s proposed Commonwealth Integrity Commission, which has been attacked by Labor, the Greens and independents as weak and ineffective. The federal government believes the ICAC model proposed by Labor is at risk of running overzealous, sensational corruption hearings that shred reputations but lead to few prosecutions.

Former Court of Appeal judge Stephen Charles has called for a powerful federal ICAC that holds coercive hearings and described ACLEI's track record as "hopeless". Its small budget was partly to blame, he said, as was a lack of will.

Legal eagle: Stephen Charles wants a federal ICAC.

One commission insider was critical of the handling of the Austal probe, saying of the payment by Border Force to Austal: "It's either corruption, maladministration or inexplicable incompetence [by ABF] but whatever it is, the Australian public deserve to know about it".

Another official said Ms Hinchcliffe was hired as the commission's chief because she was an astute manager with a background in criminal prosecution who would improve the organisation's mixed record under Mr Griffin, who secured few notable corruption convictions. Under him, the commission's highest profile scalps were former ABF Commissioner Roman Quaedvlieg and former AFP Deputy Commissioner Ramzi Jabbour, both of whom lost their jobs over relatively minor conduct breaches. Mr Quaedvlieg was found to have acted corruptly by helping his girlfriend get a job at Australian Border Force, while Mr Jabbour is facing charges for using his service firearm on a recreational hunting trip. Mr Jabbour has pleaded not guilty.

Officials who have had dealings with Mr Griffin criticised his approach of "briefing everything out to the NSW bar", a reference to hiring external barristers to run coercive hearings rather than relying on the commission's own investigators.

Attorney General Christian Porter said Ms Hinchcliffe was "absolutely the right person for the job" and the key measure of the commission's success was not its use of coercive hearing powers but "successful prosecutions".

But former judge Mr Charles questioned if Ms Hinchcliffe was too subservient to Mr Porter, as well as questioning her decision to remove the barristers.

In a statement on Wednesday evening, Ms Hinchcliffe said she couldn't discuss ongoing probes but dismissed the criticism, rejecting any claim that "I would exercise my powers and functions in a way that is partisan or biased." She said that since replacing Mr Griffin, "I have moved to institute a range of changes within ACLEI".

"It is especially important as a small agency that we are directing our limited resources towards ... serious and systemic corruption."

The use of public and private hearings to fight corruption has been thrust into the spotlight recently with the NSW ICAC’s inquiry into ex MP Daryl Maguire, including his dealings with Ms Berejiklian. In Victoria, IBAC has held private hearings, and is preparing public hearings, into allegations of corruption in the public transport sector.

Mr Griffin favoured private coercive hearings and moved to use the commission's controversial corruption busting public hearing power just once during his five year tenure via a major public inquiry to be led by star Sydney SC David McClure.

Ms Hinchcliffe's April decision to scrap private hearings into Crown was announced in a short statement that received little media coverage. A more limited inquiry into the Crown scandal found no corruption, merely corruption vulnerabilities. Investigators interviewed no Crown staff and very few Border Force and Home Affairs officials.

Ms Hinchcliffe defended the decision saying other investigative measures had exhausted key leads. She said coercive hearings "impacts on a person’s rights" and should not be used lightly. "From a more practical perspective, coercive hearings are also more resource intensive than other methods of investigation," she said.

Just weeks after the Austal inquiry was redirected by Ms Hinchcliffe, Austal was awarded a $324 million contract to supply six Cape Class Patrol Boats for the Royal Australian Navy.

The Australian Commission for Law Enforcement Integrity is only permitted to launch an investigation if it believes it may expose corruption involving a serving law enforcement official.