Allegations of corruption rock Leighton

Construction giant Leighton Holdings has been rocked by media reports containing allegations of mass corruption and cover-ups, with former top executives David Stewart and David Savage losing their positions at British construction and engineering companies.

Former Leighton chief executive David Stewart resigned as chief executive of UK contractor Laing O’Rouke’s Australian business on Tuesday to "concrentrate exclusively on addressing the allegations".

David Savage, Leighton’s former chief operating officer, also stepped down from the board of UK engineering group Keller plc over the weekend. He was a non-executive director since 2011.

The scandal began with the release of various reports by Fairfax Media last week, which claim that Leighton Holdings had plans to pay alleged multimillion-dollar kickbacks in Iraq, Indonesia, Malaysia to secure lucrative contracts, along with other serious corporate misconduct.

Those in the know included the firm’s chief executive at the time, Wal King, his short-term successor Stewart, as well as Savage.

Ex Leighton boss David Stewart outside his home the day after resigning from Laing O'Rourke. Photo: Louie Douvis, Source: Fairfax Media.

According to the report, which Fairfax says is based on a six-month investigation involving hundreds of confidential company documents:

• A Monaco-based firm known as Unaoil, which is run by an Iranian family with close ties to Iraq’s oil minister and Prime Minister, was allegedly paid kickbacks by Leighton via an inflated $87 million contract of which the value of ‘real work’ was ‘less than half’;
• In 2009, then company chief executive Wal King and other top executives allegedly received an email from a whistle-blower about a ‘payoff’ made to a corrupt Leighton employee – allegations the report says became subject to bungled internal investigations, despite concerns relating to a number of countries, including Indonesian and India, exposing ‘criminal’ conduct including ‘systematic’ fraud;
• The aforementioned whistle-blower also allegedly exposed another company middleman, Malaysian-based businessman Sri Kumar, who worked as a consultant with the company in Iraq, Indonesia, India and Tanzania. The whistle-blower heard that Sri Kumar had received a ten percent kickback on certain projects, some of which were allegedly passed on to Leighton executives;
• Rather than being sacked, Gavin Hodge, a Leighton senior project manager who allegedly stole $50,000 worth of steel from Leighton to build a barge for an Indian company in a black market racket was allegedly given a bonus and thanked for his work by a former Leighton executive.

In a written statement in response to the allegations, Leighton denied the cover-up claims and defended the conduct of its directors and senior executives.

The company said it had voluntarily reported the alleged conduct in Iraq to the Australian Federal Police as soon as it became aware possible illegal activity may have occurred and subsequently dismissed a senior executive when a resulting internal review identified failures to meet the group’s governance standards.

Meanwhile, with regard to the Indonesian barge allegations, Leighton says it has taken action to recover $5.6 million against the former employee concerned.

The company has also said that steps have been taken to improve governance, including a revision of its code of conduct, beefing up tender risk controls and establishing a new tender review process, as well as beefing up its audit program and assurance function.

“Leighton takes these accusations seriously and is deeply concerned about the suggestions of impropriety,” the company said in a statement.

“We have more than 61,000 employees who are focused on delivering our 400 plus current projects to the highest ethical and professional standards. The Iraq investigation and the construction of the barge in Indonesia are exceptional instances that are the subject of either an ongoing confidential investigation by the AFP or litigation commenced by Leighton Holdings which is before the courts.”

Current Leighton chairman Bob Humphris, who was on the board of Leighton International when the alleged corruption occurred, does not intend to step down from the main Leighton board. He took over as chairman from Stephen Johns this year.

Furthermore, the company has taken no action against any of its current employees or board members following Fairfax’s bribery reports despite a 16 per cent fall in its share price since the allegations were first reported on Thursday.

Leighton is one of Australia’s biggest construction firms with a market value of nearly $7 billion. It has built the Victorian desalination plant, Sydney’s ABC studios, and Queensland’s Ross River dam. Most recently, it secured a $370 million contract to build Melbourne’s new airport terminal.

Victorian Desalination Plant. Image: designbuildsource