Sinodinos steps down while ICAC investigates
Senator Arthur Sinodinos’s 13th wedding anniversary was a particularly memorable one. Not for romantic reasons, but for financial ones.
That day, February 26, 2013, was the day he formally renounced “all and any” interest in Australian Water Holdings (AWH), so severing a corporate connection that might once have made him wildly rich.
Perhaps $10 million to $20 million rich, according to counsel assisting the Independent Commission Against Corruption, Geoffrey Watson, SC, in his opening address relating to the latest investigation of the shady interface between politics and business in New South Wales.
The windfall would have come to Sinodinos via those holdings in AWH – 5 per cent of the company’s shares that were given to him, free, and another 2.5 per cent of the shares he was promised if the NSW government approved a proposed $1.2 billion public-private partnership deal the AWH was trying to get up.
Alas for Sinodinos, he never saw that money, because the deal did not happen. Still, as Watson pointed out to ICAC, the Liberal Party heavyweight did pocket $200,000 a year, plus bonuses, for some three years, for “not more” than 100 hours a year of work as director, and later chairman, of AWH.
Two thousand dollars an hour is good money, but then people pay for experience, and Sinodinos had plenty of relevant experience: he was a bachelor of commerce (first-class honours), a former official of the federal treasury and finance departments, senior banker (Goldman Sachs JBWere, the National Australia Bank), former senior economic adviser to prime minister John Howard and, at the time of his AWH appointment, treasurer of the NSW Liberal Party.
Also, company directors have big responsibilities. As the Australian Securities and Investments Commission emphasises, a company director is expected to be “honest and careful” in all dealings, to know exactly what the company is doing at all times, to ensure it can pay its debts at all times and keeps proper financial records. These responsibilities can be onerous. As ASIC warns in its literature on directors’ responsibilities: “Every year, the courts send dishonest and reckless company officers to prison, and impose heavy fines and award damages.”
Arthur Sinodinos ceased to be a director of AWH on entering the senate in October 2011. But he stuck to those shares, until his anniversary day in February 2013.
Two days after that, at the very end of the last night of the February senate sittings, at 10.10pm, Sinodinos got up in a near-empty chamber to talk about his AWH interests.
This was highly unusual. Lots of parliamentarians hold and dispose of shares; they just make a quiet amendment to their entries in the register of interests. They certainly don’t feel the need to avail themselves of a slot in the adjournment debate, so they can explain themselves under parliamentary privilege.
Then again, most parliamentarians dispose of shares in the usual manner – by simply selling them. Sinodinos couldn’t do that because, as he explained, he didn’t really own them.
Confused? Well, let’s quote Hansard:
“Because I believed I was entitled to that shareholding and had been assured that it would be forthcoming, I disclosed it on my senate register promptly on entering the senate. Because of these assurances that a transfer would occur, I characterised this publicly as a gentleman’s agreement.”
So, there you go. He did not actually have those shares, which had once been worth a theoretical $10 million to $20 million. All he had was a “gentleman’s agreement”. We’ll get to the identities of the “gentlemen” later.
First, a little more of Sinodinos’s privileged explanation.
He emphasised that he did not mean the shares were being held secretly on his behalf. Rather, that “these shares have never been issued to me”.
Nor, he said, would he be pursuing them. “Tonight I confirm,” he said, “… that I have forgone all and any entitlement to this shareholding. On 26 February 2013 – that is, Tuesday, which was also my wedding anniversary – my lawyers wrote to Australian Water Holdings renouncing this interest.”
The terminology is priceless. Sinodinos didn’t just dispose of those shares, he “renounced” them, which makes it sound more like a hostile divorce than a share transaction. In fact, a divorce is the perfect metaphor for what Sinodinos was announcing to the senate that night. He was moving to divorce himself from AWH, which was under investigation by ICAC. He was, he said, unaware that coincident with his appointment to the board of AWH, the company’s CEO, Nick Di Girolamo – a man with close connections to both the Liberal Party and the Obeid family – “had negotiated what has been reported as a personal loan agreement with members of the Obeid family, secured against shares in Australian Water Holdings”.
Sinodinos told the senate he was “obviously … shocked and disappointed to learn that a company whose mission I believed in and was passionate about was financially linked to the Obeid family.
“I believe that should have been disclosed to me at the time. I had no reason to suspect any such involvement.”
Yes, he was aware that Eddie Obeid jnr, son of the corrupt former NSW Labor Party minister, was involved in a related company, but he had not known this before he joined the AWH board. Anyway, Sinodinos said, he had only “very limited” dealings with the younger Eddie and “had no reason to regard his presence in the company as signifying some greater involvement by the Obeid family in AWH”.
Then Sinodinos moved on to talk about political donations by AWH, saying he did “not recollect” them ever being discussed at board level.
Given his dual positions as a board member for a donor and the treasurer of a recipient party, he addressed the other side of the political funding equation, too, saying: “Any matters relating to the receipt and recording of such donations by the NSW Liberal Party is properly the responsibility of the state secretariat.”
Sinodinos went on to speak of a couple of lesser matters relating to undeclared interests, not related to AWH, then sat down. It was 10.20 when he finished and the senate adjourned.
Why did he make the statement? Well, ICAC was onto the Obeid involvement in AWH; in the course of investigating other corrupt dealings by Eddie Obeid, relating to mining licences, it had discovered the holdings in the water company.
And now the media were asking questions. Indeed, a couple of days before he made that statement to the senate, Sinodinos told The Australian Financial Review he was renouncing his shareholdings. He did so in the course of responding to questions about how the Obeid family came to have a $3 million interest in the company, and how AWH had come to give more than $70,000 to the Coalition in the months before the 2011 state election.
The AFR calculated Sinodinos had sacrificed about $3.75 million by renouncing those shares.
Having made his 10-minute statement to the senate 13 months ago, Sinodinos clammed up. He said nothing more about it to the parliament until this week. Right up to the time he announced he would stand aside from his ministerial responsibilities as assistant treasurer, he refused to address any detail of the AWH matter. He simply declared he would be vindicated when he appeared before ICAC, and invited his critics to “watch this space”.
This is probably a sensible observation of the Ian Sinclair maxim about political damage control: when you are up to your chin in shit, keep your mouth shut.
Apart from paying compliment to Sinodinos’s character, his leader, Tony Abbott, seems to be observing the same rule. In response to all the opposition questions in the parliament – Did he believe Sinodinos had given a full and accurate account in his 2013 senate speech? Had they discussed the AWH issue? Why had Sinodinos ever been appointed to the ministry given the ICAC cloud over him? Who decided he should tap the ministerial mat? – Abbott has been brief and evasive.
The indications are, though, that the assistant treasurer made his own decision to step aside. He was not pushed.
Sinodinos told the senate: “I do not want this sideshow to be an unnecessary distraction to the important work of the government, which I am proud to serve.”
Of course, Sinodinos, by virtue of his long service at the heart of the Howard government – the most scandal-plagued federal government of the past 40 years, which lost 15 frontbenchers due to ethical breaches or incompetence – knows a thing or two about damage control.
In fact it was scandal that saw him appointed as John Howard’s chief of staff, back in October 1997, at the end of a horror week in which three ministers and three of Howard’s staff were dumped over misuse of travel entitlements. One of those who lost his job was Howard’s chief of staff, Grahame Morris.
Sinodinos held the job until 2006, becoming one of Howard’s closest confidants and earning a reputation on his own side of politics as a master of detail and a very safe pair of hands. Many on the other side and in the media saw him as likeable and a straight shooter.
As Julia Baird noted in the intro to an ABC Sunday Profile interview with him back in 2011, some in the Liberal Party attributed Howard’s 2007 election loss to the absence of Sinodinos’s counsel.
The profile provided some interesting insights into the man. His father was a Greek immigrant and member of the Seamen’s Union, “very much to the left” of politics. His parents were strongly opposed to the Vietnam War, but their radicalism, he said, “pushed” him the other way. He became an ardent market capitalist. With John Howard he “found fundamental compatibility of beliefs and values”.
There were differences, of course. Sinodinos, with his migrant background – English was his second language – was a little more progressive on migrant issues. But on economics and business, he was even more laissez-faire than Howard.
No surprise then that when he left Howard’s employ in 2006, he followed the money trail out of Canberra to Sydney and the world of commerce.
Operations Spicer and Credo
Let’s move on now, to the other money trail, the one being followed by ICAC.
As Geoffrey Watson, SC, said in his opening statement to ICAC on Monday, the AWH inquiry was “yet another investigation into allegations of the misuse of political power for personal gain”.
What makes it different, though, is that unlike other recent investigations involving Eddie Obeid’s corrupt dealings, this one involves evidence of bipartisan corruption. There are specific allegations of impropriety against several politicians from each of the major parties.
The “bridge”, for want of a better term, between Labor and Liberal is allegedly Nick Di Girolamo, who was both a family friend of the Obeids and a fundraiser for the Liberal Party. He is, said Watson, “central” to the inquiry.
It must be said, there is no specific allegation against Sinodinos. He will front ICAC as a witness, and has said he is “looking forward” to assisting the inquiry.
But that is not to say he has no reason to be apprehensive, for his actions – and inactions – at AWH are definitely highly questionable.
As Watson put it in his opening address: “It is presently difficult to offer observations on the conduct of Mr Sinodinos. He has other involvements which will come under scrutiny in Operation Spicer.”
There are two parallel investigations: Operation Credo, into AWH, and Operation Spicer, into concealed political payments and favours.
A lot of weird stuff went on at the company over which he was supposed to be keeping watch as director. Before Di Girolamo became AWH chief executive, in February 2007, the entity was called the Rouse Hill Infrastructure Consortium, and it was a non-profit. It had just one contract, with Sydney Water, a NSW government-owned statutory corporation.
“Immediately upon Mr Di Girolamo’s introduction to RHIC he recognised that there was an opportunity for massive personal gain,” Watson told the inquiry.
“The arrangements under which RHIC supplied their services to Sydney Water were on a costs-plus basis, so that the cost of the materials, labour and any administration costs were tallied and submitted to Sydney Water.”
Di Girolamo gave himself and other executives enormous pay rises. In February 2008, Di Girolamo decided he should have a salary of $1.1 million, plus bonuses that took it to some $1.5 million. Another executive, John Rippon, copped a pay rise from $750,000 to $1.6 million.
These were huge pay packets, considering the size of the operation, which had fewer than a dozen employees.
Di Girolamo also changed RHIC’s status from non-profit. The means by which he did this, the commission heard, were suspect. And in October 2008, he changed its name to Australian Water Holdings Pty Ltd.
Over this period, the company kept billing Sydney Water for ever larger “administrative” costs. Before Di Girolamo came on the scene, these averaged $160,000 a month. In October 2008, the same month Sinodinos was appointed, they were four times bigger, at $635,000.
It has to be noted that these things – except the name change – happened before Sinodinos came onboard.
But the administration costs did not stop growing when Sinodinos joined. In December, they were $800,000.
“It came to pass,” said Watson, “that the administration costs were absorbing a massive proportion of the overall costs. At one time it seems that administration costs were 90 per cent of the amounts being charged to Sydney Water.”
It was fortunate that AWH was able to tap Sydney Water, for its finances were not otherwise in good shape. At one point, Watson noted, it faced a cash-flow crisis “so severe that it was unable to pay its tax commitments as they fell due”.
And what was this money being spent on? Well, massive salaries, of course, but also in pursuit of political advantage. They employed a raft of lobbyists, Liberal-aligned lobbyists. There was Jackson Wells PR, one of whose principals, John Wells, was a former workmate of Arthur Sinodinos in John Howard’s office. There was Tim Koelma, a close associate of Liberal state MP Chris Hartcher. Paul Nicolaou, a Liberal Party fundraiser, was put on a retainer of $5000 a month. Former Liberal MP Michael Photios received a similar retainer, plus the promise of a $1 million bonus if he could get the PPP approved.
At a time when AWH had 10 employees, noted Watson, it had five lobbyists. Watson suggested, and a couple of witnesses have already agreed, that Sinodinos’s tight web of connections in the party were a major part of his attraction, as far as AWH was concerned.
Then there were the political party donations – also unwittingly funded by the state taxpayers through Sydney Water, a reality tacitly acknowledged when the Liberal Party decided to pay back more than $75,000 in donations, not to AWH, but to Sydney Water. Treasurer Joe Hockey returned $10,000 donated in 2010 to his electorate committee.
But biggest of all the highly irregular dealings concerning AWH was the $3 million holding of Eddie Obeid, of which Sinodinos claimed ignorance.
Day by day more evidence emerges at ICAC suggesting he knew more than he has claimed. Such as, for example, reports that in February 2011 he attended a meeting, along with Di Girolamo and Eddie Obeid jnr, at the behest of Obeid snr, to discuss a $15 million sale of AWH shares to a corrupt associate of the Obeids, John McGuigan.
As already stated, none of this is to suggest ICAC will find Sinodinos corrupt. But it does suggest he was less than full and frank when he addressed the AWH matter in the parliament.
Certainly the Labor opposition thinks so. As that most devastatingly forensic of Labor senators, John Faulkner, said in the chamber on Wednesday, there is now “incontrovertible evidence the statement was not complete, not accurate and it cannot stand”.
But Sinodinos’s parliamentary colleagues, Tony Abbott and Attorney-General George Brandis most prominent among them, continue to stand by him as a man of integrity.
Perhaps this is just party loyalty, or perhaps this is their genuine understanding of the way the plutocracy does business.
Anyway, Abbott continues to maintain that he looks forward to Sinodinos’s vindication and his return to the frontbench.
We’ll see about that.
For a big question is likely to linger: even if Sinodinos himself is found to have done nothing improper or corrupt, do we really want someone in high public office who is so oblivious to impropriety and corruption around him?
This article was first published in the print edition of The Saturday Paper on Mar 22, 2014 as "The new NSW disease". Subscribe here.