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A scathing audit of the Infrastructure Department’s purchase of land for the Western Sydney airport has led to an AFP investigation. But this is only the latest controversy in a long history of scandals relating to the Badgerys Creek site. By Karen Middleton.

Probe into Western Sydney airport land deal

Labor senator Penny Wong speaks at a senate estimates hearing on Monday.
Credit: AAP Image / Lukas Coch

It was a mid-ranking manager in accounting who first figured out that the Department of Infrastructure, Transport, Regional Development and Communications had a serious problem.

The official was tallying up the department’s assets for the Australian National Audit Office’s annual once-over of financial statements when a “significant and unusual” discrepancy emerged.

The assets included the “Leppington Triangle”, a block of land the Commonwealth had acquired a year earlier in Bringelly, on Sydney’s western fringe, adjacent to the site of the city’s future airport at Badgerys Creek. The executive level two (EL2) public servant completed the routine valuation and checked it against the previous year’s purchase price. Then they picked up the phone and sounded the alarm.

“The EL2 in accounting worked out: ‘We’re paying $30 million for something that I have to value at $3 million.’ Yes?” Labor’s senate leader, Penny Wong, asked departmental secretary Simon Atkinson on Monday, as parliament’s budget estimates committee hearings began.

“Yes,” Atkinson replied.

As he tried to explain how the Australian Federal Police came to be investigating his agency for possible fraud and corruption, Wong stepped Atkinson through events in excruciating detail.

“Presumably that is advised up the chain?” she asked, clarifying what the public servant did next and lingering over a rare naked-truth moment in a committee process normally swathed in obfuscation.

“Yes,” Atkinson confirmed.

Whoever this official was, the Labor senator observed, “somebody should give them a gold star”. “People above them, senior to them, didn’t find this, but they did.”

Atkinson did not seem inclined to celebrate. A month earlier, he had received what may be the single most scathing audit report on any government agency.

It outlined that on July 31, 2018, the Infrastructure Department bought the land near the future Western Sydney airport for 10 times its true value. Using taxpayers’ money and a valuer the landowners selected, Infrastructure officials abandoned procurement standards, kept incomplete records and held meetings with the sellers in coffee shops.

Despite the area being subject to severe building restrictions, the inflated valuation reflected future development potential.

In an unexplained departure from normal practice, the valuer had excluded references to airport noise at the department’s instruction. Five other departmental valuations involving a different airport development project all accounted for airport noise. So had the New South Wales government valuation, which, like seven others for the same block of land, more closely reflected its real worth. But other valuations were ignored.

In fact, the instructions to the valuer changed so many times, and were so unusual – including to drive by the front gate of the property but not enter – they had caused queries to be raised with the department.

Having been involved in a decade-long legal battle with the Leppington landowners years earlier over a related sale, the department said it was trying to avoid a repeat. It had already realigned a road to suit the sellers, rejecting advice that it would be too close to the airport’s eventual second runway.

The department said acting urgently to buy the land would capitalise on goodwill the move had created. But in what the ANAO noted was a complete contradiction, the department threw in extra concessions, insisting the sellers were reluctant.

The auditor-general also noted the purchase occurred 30 years before the land would even be needed to buffer the second runway. But the departmental officers insisted the acquisition had to be completed by July 31, 2018. They had included a compensation clause that would have netted the sellers 8 per cent interest per annum – or $218,820 a month – had the deadline been missed.

The audit report also highlighted the subsequent “unethical” behaviour of unnamed officers who gave the ANAO false evidence, apparently trying to hide the deal’s details.

The Leppington purchase predated Atkinson’s November 2019 arrival in the Infrastructure Department. But it fell to him as secretary to explain.

“What it looks like is people trying to cover it up, when the audit office came asking questions,” Wong put to Atkinson.

“I agree with you,” he replied. It was the alleged cover-up that had prompted him to contact the AFP. The audit had left one “outstanding question” – had anyone done anything criminal?

“I actually find it gobsmacking, to be honest,” Wong said. “I get that people make mistakes et cetera, but you read this audit report and you see conduct which is extraordinary and outside of what any reasonable person would regard as appropriate.”

“I’m trying to clean it up,” Atkinson said.

The secretary outlined that he had set up two code-of-conduct inquiries into two individual officers – one involved with the acquisition and the other with an undisclosed interest. He had also ordered an independent audit of the purchase and a separate review of the section responsible for it, then known as the “Western Sydney unit”.

When the ANAO had first raised questions about the land valuation, the department let the unit investigate itself – a practice now abolished, along with another that saw land sales and acquisitions proceed without governance committee oversight.

But Atkinson’s clean-up efforts had also delivered him another surprise.

After mulling over the findings for more than two weeks, he instructed his chief operating officer on October 8 to contact the AFP and raise the possibility of an investigation – only to discover one was already under way. The ANAO had referred the matter itself.

Auditor-General Grant Hehir had not mentioned this in two conversations with Atkinson about the findings. In writing to police, Hehir described the referral as the ANAO’s first in at least two decades.

Not knowing this, Atkinson had asked Hehir if he thought referral was warranted. The auditor replied obliquely that it was up to the department.

Atkinson was asked on Monday morning if he knew when the department’s referral was made. He did not.

On Monday night, Hehir revealed to a different estimates committee that he alerted the police in mid-July. AFP commissioner Reece Kershaw confirmed this on Tuesday. “He raised the possibility that fraud may have been committed,” Kershaw said.

Deputy commissioner Ian McCartney explained that, in August, the ANAO had given the police 800 files, totalling 256 gigabytes of information. “That’s a lot,” he emphasised.

The auditor-general’s report on the purchase of the Leppington Triangle is extremely detailed.

It reveals that some departmental officers had a disregard for probity during both the purchase process and the subsequent audit. It does not establish why.

The auditor-general documents at least three examples of the department misleading the ANAO during its investigation.

He does not say whether he believes these were lies or mistakes. But his AFP referral would suggest he has his suspicions.

And although his language is, as always, understated, Hehir’s anger at the contempt shown for proper process, his office and its role is barely concealed. Investigating criminality or impropriety and contemplating further action is not the role of the auditor-general.

But the forensic evidence detailed in the report prompts questions about whether the transgressions were inadvertent.

The departure from proper process – sometimes on explicit departmental direction – is striking, as is the disregard for warnings and advice, including from the NSW government, whose own $3.7 million valuation was much more accurate.

Because its focus is on government behaviour, the audit report does not provide background on the sellers, Leppington Pastoral Company, which is owned by rich-list developer brothers Tony and Ron Perich. The Perichs are past donors to the Liberal Party.

Deals involving the land around Badgerys Creek have a long history of scandal.

Commissioner Kershaw confirmed on Tuesday that the AFP has contacted the NSW Independent Commission Against Corruption about whether former state Liberal MP Daryl Maguire’s activities in lobbying for a Western Sydney land proposal on behalf of developer Louise Waterhouse might also involve the Leppington deal.

ICAC’s current investigation of Maguire has revealed a secret relationship with NSW Premier Gladys Berejiklian, raising concerns about what she knew of his sideline money-making ventures and whether she was compromised – something she denies.

But past land deals around Western Sydney airport have also involved Labor.

Featured characters included state Labor MP Eddie Obeid, who was later jailed over other development deals, and former MP Joe Tripodi. Developer Ron Medich, currently in prison for ordering the murder of rival Michael McGurk, and Medich’s brother Roy have also been heavily involved in land deals in the area. Medich’s past political donations have favoured the Labor Party.

As Commissioner Kershaw appeared before estimates on Tuesday morning, Labor MPs were discussing the Western Sydney land controversy in their weekly meeting. Some Western Sydney MPs are opposed to the airport or are angry at a lack of past consultation both with locals and within Labor in setting policy direction.

Four MPs rose to speak about land deals around the airport. Ed Husic, MP for Chifley, argued the airport drains the region’s resources and raised concerns, along with the MP for Werriwa, Anne Stanley.

The member for Macquarie, Susan Templeman, also spoke up. She wants an inquiry.

“I think it’s time to look at some sort of independent scrutiny of this,” she tells The Saturday Paper. “In the same way that the NBN [national broadband network] needed something, so this project does. It’s billions of dollars … Parliament has to lift the lid on this entire project and we need to let in the light because I think it’s been hidden for too many years.”

The member for Macarthur, Dr Mike Freelander, supports the airport but called for a royal commission.

“I don’t know whether there’s been corruption or not, but the only way to find out is there needs to be an open inquiry, a judicial inquiry of some sort,” Freelander says. “But it needs to have coercive powers. It needs to go back a long period of time … three decades.”

Such inquiries could be awkward for Labor. Public advocacy puts these MPs at odds with their leadership.

The shadow minister for Cities, Andrew Giles, told the caucus Labor’s focus was instead on pushing the government to establish a Commonwealth integrity commission.

Labor ignored the explosive Leppington evidence at Monday’s parliamentary question time and for the first half of Tuesday’s as well.

It was independent Victorian MP Dr Helen Haines who first asked the government this week about its tardiness in presenting draft legislation on a national integrity commission, legislation later revealed to have been ready since December 2019.

Attorney-General Christian Porter blamed the pandemic for the delay.

When Labor finally asked about the Leppington deal, Deputy Prime Minister and Infrastructure Minister Michael McCormack called it a good investment.

He conceded the government had paid “way over the odds”, but insisted it would cost more in future. “In time,” he said, “people will look back at this moment and say: ‘Well, thankfully, the Commonwealth invested in that in 2020.’ ”

Asked in the estimates hearing if any evidence supported McCormack’s argument, Simon Atkinson said: “Not that I’m aware.”

This article was first published in the print edition of The Saturday Paper on Oct 24, 2020 as "Landing blows".

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Karen Middleton is The Saturday Paper’s chief political correspondent.