Catherine Wilson | Inter Press Service
Corruption, the single largest obstacle to socioeconomic development worldwide, has had a grave impact on the southwest Pacific Island nation of Papua New Guinea. While mineral resource wealth drove high gross domestic product (GDP) growth of eight percent in 2012, the country is today ranked 157th out of 187 countries in terms of human development.
Key anti-corruption fighters in the country say that money laundering must be tackled to increase deterrence and ensure that stolen public funds earmarked for vital hospitals and schools do not pay for luxury assets abroad.
“Our police officers, school teachers and health workers live and work in very squalid circumstances,” Lawrence Stephens, chairman of Transparency International (PNG), in the capital, Port Moresby, told IPS.
“So when we see the government awarding a contract for pharmaceutical and medical supplies to a company not qualified to tender, a company quoting a price 40 percent higher than the closest qualified tender and costing the equivalent of 160 new homes for nurses each year of the three-year contract, we blame corrupt individuals for destroying development.”
Papua New Guinea has been given a corruption score of 25/100, where 100 indicates clean governance, in comparison to the world average of 43/100, by Transparency International.
The country’s dedicated anti-corruption team, Investigation Task-Force Sweep (ITFS), launched by the government in 2011, has described the country as a ‘mobocracy’, where a patronage system of governance and a culture of secrecy have led to the misappropriation of an estimated half of the development budget of 7.6 billion kina (about 2.8 billion dollars) from 2009 to 2011.
Large-scale theft of public funds, including foreign aid, is alleged to have occurred across government departments responsible for national planning, health, petroleum and energy, finance and justice.
A 2006 Public Accounts Committee Inquiry into the Lands Department alone concluded that it had conducted itself illegally over many years and given priority to the interests of private enterprise and speculators over the interests and lawful rights of the State. The department’s shortfall in revenue was 5.9 million kina (2.2 million dollars) in 2001 and 4.9 million kina (1.8 million dollars) in 2003.
State capture, where powerful private sector interests exert undue influence over state leaders, officials and procurement processes, has had devastating repercussions for national development. Approval of ‘white elephant projects’ has channelled windfalls to criminal syndicates, Sam Koim, the ITFS Chairman, reported in the Griffith Law Journal.
Koim told IPS that, of 302 cases of corruption entailing revenue of up to 5.3 billion kina (1.9 billion dollars) under investigation, 91 had been prosecuted. Twenty-eight senior public servants have been suspended or removed from office, while two Members of Parliament and two senior public servants have been convicted and jailed.
To date, 8.3 million kina (3.1 million dollars) in proceeds of crime have been recovered, but including all outstanding cases this figure could potentially rise to 500 million kina (187 million dollars). Investigation into corporate tax evasion has led to the restitution of 22.6 million kina (8.4 million dollars).
Globally it is estimated that corruption drains the developing world of up to one trillion dollars every year and what is lost is in the magnitude of 10 times the official development assistance budget, claims the United Nations Development Programme (UNDP).
This has impacted increasing inequality in countries such as PNG, where 40 percent of the population of seven million live below the poverty line, maternal mortality is 711 per 100,000 live births, literacy is just 63 percent and only 19 percent of people have access to sanitation.
It is a vicious cycle, as Koim also believes that the state becomes an alternative source of personal prosperity when there are few legitimate avenues available for people to economically improve their lives.
Banks crucial to fighting corruption
The majority of stolen funds have been transferred through banks to offshore investments. Australia receives about 200 million Australia dollars (155 million dollars) of illicit gains from the Melanesian island state every year, claims the Australian Federal Police.
Several PNG politicians have purchased luxury homes with a total estimated value of 11.5 million Australian dollars (8.9 million dollars) in the northern Australian city of Cairns.
“Without banks and financial institutions, it is impossible to commit economic crimes, such as fraud and money laundering,” states the Investigation Task-Force Sweep (ITFS).
In a report last year on the government’s payment of fraudulent legal fees, ITFS identified numerous control gaps, such as lack of written contracts, oversight of procurement and payment clearance processes and the failure of banks to prevent evidently suspicious transactions.
“The duty imposed on banks to avoid engaging in money laundering should not be limited to ticking the boxes or submitting periodic transaction reports, but also taking proactive steps including rejecting transactions and closing bank accounts,” the report recommended. Sixty-five percent of PNG’s financial sector assets are held by commercial banks, including foreign bank subsidiaries.
There are also gaps between national legislation and banking sector regulations. For instance, money laundering is a criminal offence under the Proceeds of Crime Act (2005), but there is no obligation on banks to check inexplicably large or unorthodox patterns of transactions.
Action is also required by recipient nations, experts say. Professor Jason Sharman of the Centre for Governance and Public Policy at Queensland’s Griffith University told IPS that there was a need for improved government “supervisory responsibility to make sure that Australian banks are not accepting suspect funds from PNG Politically Exposed Persons (PEPs).”
“One of the main weaknesses is in the Australian real estate sector with very little scrutiny of foreign money coming in, especially when, as is often the case, this money is routed via lawyers’ or real estate agents’ trust accounts,” he added.
But progress by the anti-corruption team has accelerated broader action. “A number of PNG-based banks have closed accounts of high risk customers and refused suspicious transactions”, while some international corresponding banks “have refused transactions they view to have originated from illicit sources,” ITFS reports.
Reducing and preventing corruption is a long-term battle, which includes addressing the cultural divide between an introduced western government system and centuries of traditional governance based on a leader’s ability to acquire and distribute resources to his own kin. But if corruption is driven largely by the lure of a quick route to untold personal wealth, then a critical measure now is eliminating safe havens for the plunder.
Read more on the Woodlawn Scandal:
- Woodlawn scandal back in the news
- Govt determined to pursue missing Woodlawn millions
- MVIL struggles to recover money lost in Woodlawn scam
- Morauta: Woodlawn Capital statement a fabrication
- Woodlawn admits handling K96m but denies wrongdoing
- The Somare family and the K96m Woodlawn scam
- Arthur Somare under investigation for loss of K76m
Papua New Guinea Today
The Supreme Court of New South Wales ordered that Woodlawn Capital Pty Ltd (Woodlawn) release AU$20million to Motor Vehicle Insurance Limited (MVIL) as part of the Court’s earlier judgment made in October 2014.
In accordance with the court ruling, Woodlawn transferred AU$20million to Gadens Lawyers Trust Account in PNG in December and today PGK41.9million is finally being released to MVIL. Gadens Law Firm has provided legal representation for MVIL in the matter since proceedings were initiated against Woodlawn in 2011.
This is the latest outcome in the long-running court case between the parties, who are battling over AU$26million held in bank accounts managed by Woodlawn that has been “frozen” by the Court since March 20, 2012.
The case has been pursued by the Independent Public Business Corporation (IPBC) on behalf of MVIL since July 2011 as MVIL is subject to regulation under the Independent Public Business Corporation of Papua New Guinea Act 2002 (PNG).
The matter contended in the Supreme Court of New South Wales goes back to July 2009 when MVIL transferred 96 million kina (about AU$43million) (the Fund) to Woodlawn to invest and manage the Fund with the aim of growing the Fund over time.
This initial transaction is also the subject of a challenge by IPBC in both the National and Supreme Court in Papua New Guinea. As such, neither IPBC nor MVIL are prepared to make further comment on the matter at this stage.
In relation to the matter in Australia, the IPBC Board has unanimously approved legal action against those responsible for losses incurred in the transaction and the establishment of the Fund.
In regard to the Supreme Court of New South Wales ruling there are a number of outstanding issues that the Court will resolve when the matter resumes on March 30, 2015. Those issues include whether MVIL will be awarded interest on the Fund since November 17, 2011 and whether MVIL will be able to recover its legal costs of the proceedings from Woodlawn.
There has still been NO ACTION to cancel the huge SABL land grab, revoke the unlawful leases or stop the illegal logging in Papua New Guinea.
It is now 602 days since Prime Minister Peter O’Neill was told that the SABL leases were unlawful and should be cancelled.
On June 24, 2013 O’Neill was given the reports of the SABL Commission Inquiry which detail the widespread fraud and mismanagement used by foreign logging companies to gain illegal access to over 5 million hectares of land.
O’Neill has REPEATEDLY STATED the leases will be canceled and illegal logging stopped.
In September 2013 O’Neill told Parliament:
“We will no longer watch on as foreign owned companies come in and con our landowners, chop down our forests and then take the proceeds offshore”
In June 2014, announcing an NEC decision cancelling the leases, O’Neill said
“We are taking these steps to reclaim our customary land illegally lost to foreigners with the help of corrupt public servants and leaders”
“As a responsible government we want to ensure that all citizens have access to the lands of their ancestors. We will not allow our land to be lost to unscrupulous people out to con our people”
But, WE ARE STILL WAITING for the leases to be cancelled and the logging stopped.
For 602 days O’Neill has failed to ensure the SABL leases are revoked and he has been complicit in the illegal logging of our forests by foreign logging companies.
Crucially he has failed to take any action to remove the corrupt public servants responsible for the land grab or distance himself from the politicians, including key Minister’s, complicit in the illegal deals and who are now blocking any positive action to revoke the leases and stop the logging.
Prime Minister Peter O’Neill has aided and abetted the theft of logs worth hundreds of million of kina and the destruction of thousands of hectares of pristine forest.