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Jul 12, 2010

Who profits from our foreign aid? The untold story of GRM International

For nearly a decade one of Australia’s most successful aid companies and its biggest casino operator were owned by the same company.Wendy Bacon and Flint Duxfield tell the untold story of GRM International.

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If you ask most Australians who delivers Australian government aid overseas, they’ll most likely list big, well-known Australian NGOs such as Oxfam, World Vision or Caritas. Most would be surprised to know that for nearly a decade one of Australia’s most successful, although little-known, aid companies and its biggest casino operator were owned by the same company.

We’ve studied the company records of one of Australia’s biggest foreign-aid companies — GRM International Pty Ltd. Until December last year, GRM International was fully owned by the Bahamas-based company Consolidated Press International Holdings (CPIH) — a key company in the private empire of one of Australian richest families, the Packers.

The central question at the heart of this web of complex company structuring is this: such set-ups for tax minimisation purposes are common in international company business — but is it acceptable for major recipients of Australian government contracts to operate in this way?

GRM International handles hundreds of millions of dollars worth of government contracts each year. Yet, according to its most recent financial statements, GRM International Pty Ltd doesn’t make a profit and hasn’t had any employees since 2005.

The company has filed identical financial accounts to Australian Securities and Investment Corporation (ASIC) since 2005. These accounts show that it hasn’t reported a single cent’s turnover for over a decade, despite acknowledging in ASIC documents that 94 people worked for the company in 2005.

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It’s just one of many surprises and inconsistencies that surround the company, which was sold by the Packer family to some of the company’s directors, managers and business associates in December of last year.

The accounts are surprising because, according to Australian government records, GRM secured more than a billion dollars worth of AusAID contracts between 2001 and 2010, as well as income from its agribusiness activities.

A large amount of this money has been for “technical assistance” in the form of short-term contracts for expert advisers. This form of aid is more common  in Australia than in other OECD countries and has been criticised by a recent review of Australian aid to PNG as often ineffective, wasteful and lacking in accountability.

GRM’s highest-profile jobs have been for managing the civilian end of the Australian-led Regional Assistance Mission to the Solomon Islands (RAMSI). GRM has received hundreds of millions of dollars to hire judges, magistrates, public servants, court officials, the Ombudsman and the RAMSI public relations team, advise on financial policy and manage the local prison.

All of these contracts are published on the federal government’s tender database but details are often vague, such as just over $350,000 over two years to “strengthen accountability” and another million for “governance and related activity”.

Even the deputy managing director of GRM International, Darryn Purdy, who until the sale was its Asia-Pacific regional director, said he had no idea why GRM had filed accounts listing zero profit. He directed the ACIJ back to Consolidated Press Holdings headquarters where the company’s accounts were handled.

“Maybe ASIC data is not up to date … I guess what’s happened would be that the results have been consolidated upwards into the Packer account as opposed to being reported separately,” said Purdy. Purdy then suggested that Consolidated Press should explain the anomaly.

“We manage the business and manage the work that we have, but how that’s reported into the broader aspects of these companies, that then goes to [Consolidated Press].”

A spokesman for Consolidated Press, Glen Wein, who was a director of GRM until the sale, refused to comment on the matter, referring the ACIJ back to GRM. “I’m sure we have complied with all our legal requirements. We don’t comment on our filings, you’ll have to speak to the company about that.”

In September last year, when the ACIJ asked ASIC for an explanation of the identical GRM accounts, a spokesperson said ASIC could not comment for “operational reasons”.

Secretary of most of Packer family private companies at the time, Robert Davis, who signed the accounts, declined to speak to ACIJ. Managing director of GRM Kim Bredhauer, who sat on then Minister for Foreign Affairs and Trade Alexander Downer’s Aid Advisory Council, was also not available for interview despite repeated requests from the ACIJ.

The answer to the empty accounts is explained by the fact that GRM International Pty Ltd is a trustee company, not an ordinary proprietary company. Trustee companies, which are not uncommon in the world of business, allow the company to carry on all its activities on behalf of its owner, the GRM Unit Trust, the operations and beneficiaries of which remain secret. (Only once has the existence of GRM Unit Trust been acknowledged on the tender database and this was in relation to a Department of Foreign Affairs and Trade (not AusAID) contract to manage Australian/Arab countries scholarship scheme.)

Until late 2009, GRM Pty Ltd and the GRM Unit Trust were part of a complicated chain of companies that led from Australia to the UK company GRM International Holding Company Ltd, which was owned by Australian company Revlake Pty Ltd, which was owned by another Packer company, Taringah, which in turn was owned by Consolidated Press Holdings. All these companies were until December 2009 ultimately owned by the Bahamas-based Consolidated International Press Holdings Ltd (or CPIH). (If it seems complicated, as you can see from this diagram (click on the chart for the large version) it is!

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According to a 2004 Federal Court tax case, the then head of the company Kerry Packer moved CPIH to the Bahamas from the UK in 1990 following the advice of his tax advisers Ernst and Young after changes to UK laws aimed at recouping more tax from foreign companies.

From 1993 until the end of 2009, the GRM group were part of a private empire consisting of hundreds of subsidiaries including cattle stations, abattoirs, live meat and other agricultural exports, yachts, ski resorts, and property development.

Through its shareholding in public companies, CPH has played a significant role in Australia’s media, financial services and through Crown Ltd, owns casinos in Australia, Macau, Las Vegas and the United Kingdom. These interests, along with a stake in US-based debt collecting company Encore Capital were all beneficially held by the Packer family’s secret Bahamas holding company CPIH.

As Paul Barry reported last year in his book Who wants to be a billionaire? CPIH is the holding company for the secret family trusts set up by James Packer’s grandfather, Frank, in the 1950s. In October 2009, Packer companies withdrew from a costly bid for a US casino company on the grounds that the trusts’ secrecy, which was paramount, could be breached if James Packer’s sister, Gretel, and other family members were questioned by the Pennsylvania Gaming Board.

GRM International Holdings (UK) was previously called Asiamet (No. 1) Resources Pty Ltd. Asiamet was familiar to Australian tax lawyers because it was one of several Packer companies involved in a series of tax court cases about the transfer of losses between companies sharing a common ownership to gain maximum tax advantage. When the High Court knocked back some tax loss arrangements between another lot of Packer companies, the Packer family’s tax advisers created Asiamet (No.1) later renamed GRM. (The cases later lapsed.)

Secret trusts and complex company structuring for tax minimisation purposes are common in international company business. So is it acceptable for major recipients of Australian government contracts to operate in this way?

AusAID’s contracts are managed according to the Commonwealth Procurement Guidelines. For large contracts, AusAID says it requires contractors to provide information on their financial status, ultimate ownership and other related entities and the previous three years’ accounts. It hires accounting firms to assess these. So assuming it was given correct information, AusAID should have been aware of the company’s structure and ultimate ownership structure.

The ACIJ asked AusAID when it was aware GRM International was owned by CPIH and if it was aware that it was based in a tax haven and that it owned casinos. A spokesperson for AusAID said: “AusAID has been aware for many years that Consolidated Press Holdings (CPH) was GRM International’s ultimate owner.”  It did not respond to the question about the tax haven or the casinos other than to say: “AusAID has had no direct commercial relationship with CPH.  AusAID’s contractual dealings have been with GRM International.”  ACIJ has contacted AusAID to confirm that it was not aware of CPIH’s role but as yet has received no reply.

GRM company records are themselves inconsistent. The UK GRM International Holding incorrectly lists the Australian company CPH as its ultimate holder. But other companies in the group, including GRM International Pty Ltd, correctly listed Bahamas-based CPIH as the ultimate holding company.

ACIJ also asked AusAID about the company records showing no employees, to which AusAID replied: “AusAID has regular direct dealings with GRM personnel.  How GRM reflects this in its reporting to ASIC is a matter for GRM and ASIC.”

So what do others concerned about Australian aid policy think?  We asked several experts to comment on the general principles.

Transparency International’s executive director Greg Thompson says that transparency of financial information and ownership is important because developing countries often don’t have resources for strong tax regimes. Transparency International would prefer to see tax havens closed but where they do exist, it favours a mandatory register listing all beneficial owners.  If aid companies “are receiving money including for strengthening financial systems then they should lead by example by being transparent and open about their finances”.

Recognising that some will defend secrecy on the grounds of commercial confidentiality, Thompson argues “… those principles should not interfere with the more general principles of transparency and accountability. All those managing Australian government funds should be subject to the same principles of disclosure” with flows of money and terms of contracts, disclosed to those at the grassroots.

Jack de Groot, CEO of Catholic Aid Agency Caritas, says that in “the aid and development area it is crucial that all actors need to aim for the highest level of transparency and accountability. While for-profit aid companies have a role to play, “… such companies must understand that government and the taxpayer, let alone the people who are living in poverty stricken communities, will demand intense scrutiny of the aid company”.

“Some of the government’s aid program has been about building taxation systems in developing countries that help in securing government revenues. It would be an appalling irony if a provider of such a consultancy or capacity building program squirreled its profits in a tax haven to avoid paying what is their responsibility to pay — and from the government they were receiving the funding from in the first instance,” says de Groot.

Sydney University Professor of Accounting Robert Walker agrees: “In principle, agencies giving substantial grants to companies should subject them to the most rigorous accounting rules. This should involve providing full financial statements to ASIC.”

Professor Walker argues that these rules should also apply to trusts whether charities, superannuation funds, age care providers or aid providers. If these rules applied, GRM would have to lodge accurate financial statements with ASIC.

Wendy Bacon is the director of the Australian Centre for Independent Journalism and Flint Duxfield has just completed a postgraduate journalism course at UTS.

Who profits from our foreign aid? is a joint investigation between the Australian Centre for Independent Journalism and Crikey. Tomorrow: GRM — the Packer years.

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12 thoughts on “Who profits from our foreign aid? The untold story of GRM International

  1. Him Nao!

    Yes, understood. Just separate the GRM business from the old owners. The old owners are part of the ruling oligarchy of Australian business and politics and feel free of rules. The GRM business should be assumed to be a responsible corporate player until proven different. Having said that, your scepticism is not only understood but ultimately helpful in keeping these players honest and tax money well spent.

  2. John Bennetts

    @ Him Nao! Posted Wednesday, 14 July 2010 at 10:30 pm:

    I accept that you are not an employee of GRM, although you came across as an apologist for them. The work of people close to the fron t must be particularly challenging so I thank you for your perspective.

    I am sure that the future chapters of the story, as they unfold in Crikey, will explain both your view and mine much better.

    One little thought on leaving… do you not smell a rat when a tangle of companies, with no public balance sheets, who do not even bother to register changes in their Board to the authorities, whose Board Members are spread through the decision making and funding arms of AusAid and related government entities use blind company structures and off-shore tax havens? Does this not indicate, at the very least, contempt for governance and accountability and a desire to avoid scrutiny?

    After all, what do they have to hide? They help out a few admittedly low-paid employees of another NGO operating in the foreign aid business, so they must all be above reproach.

    Do you see now why I am sceptical?

  3. Him Nao!

    Dear Mr. Bennetts,

    I understand how easy it is to get emotional about the perceived misuse of taxpayer money. And there is no question that significant abuses happen in the system. But I think it is important for you and those in your camp to hear the other side of the story.

    I work for local NGOs for a living, and I make very little money. I’ve been working in development for 10 years throughout the world. I know more than you and likely a lot more than the writers. I am usually the one railing against overpaid consultants.

    The consultancies CAN BE an effective way to manage aid programs, full stop. But they can only be as good as the project design approved by AusAid and their kind. The profit they make on this effort is fair – I know, I’ve seen the contracts. The pay received by their direct employees is low compared to other jobs in Australia. Yes individual consultants that they hire can make a lot of tax free money, but they have very uncertain employment, they must carry their costs at home, they live abroad in uncomfortable places for extended periods and they often have a very difficult to find skill set.

    This issue is an easy one to get angry about, and as usual, the press do a crap job of gathering the data. There are consultants out there making obscene money – and they are typically hired directly by the Aid agencies or other government organizations who have little program management experience. AusAid is particularly guilty of this behaviour and it is incredibly disruptive to the development process. The consultancies are there to prevent this activity and ensure the Australian taxpayer is getting a fair deal for its money.

  4. Sean

    -bug, +big — having a New Zealander moment…

  5. Sean

    It certainly sounds suspicious. I’ve been under the impression for quite some time that most of the money allocated for foreign aid goes straight into the pockets of very well paid Westerners who are ‘development consultants’ etc, who, of course, need to be remunerated well first for the very risk of going into dangerous developing countries full of exotic diseases and civil wars plus then providing their amazing development expertise. Of course, these salary dollars are spent on lavish houses and private schools for their kids in Western countries where they live most of the time, not given away to the poor starving teeming millions of the world — after all, we’re only here to teach them to fish, not give them the fish.

    So while Centrelink cracks down on the poorest of the poor here for nickel and dime ‘rorts’ and overpayments (often made in Centrelink error), literally trying to sue individuals in the courts for nickels and dimes, they dole out largesse unaccountably to Australia’s richest man and his cronies. It’s not enough for these people to make money out of their rubbish airheaded rag magazines at supermarket checkouts that add nothing to the social fabric of the country, but they also have to extort money from the lush public purse as well for extra revenue streams. I think we can all see how the rotten government system works now — government of the people, by bug business, for big business, fooling most of the people all of the time.

  6. lindsayb

    Although companies have a right to make a profit from work that they do, we as taxpayers also have a right to see where our money is going, who is making a profit from our largesse, and how large this profit is.

  7. BDS

    Actually there is no need to dismiss Him Nao so outright. Like many things there should be a balance … there is a role for TA as much as other mechanism and delivery through companies, NGOs and government to government and its clear there needs to be a better balance in some areas. While I wouldn’t dismiss the capabilities of AusAID staff as easily as Him Nao there are things that companies do better, things NGOs do better and governments. Profit isn’t instantly evil and likewise not-for-profit isn’t instantly good … there is plenty of politics, backstabbing and bitching going in the NGO ranks as they chase funding and it does create a conflict of interest for them to be given the right to comment on companies as if from the position of perfection and purity.

  8. John Bennetts

    Him Nao!,

    What an astounding and unbelievable contribution you have provided!

    Not a whit of evidence or a scintilla of common sense. You are obviously in the pay of some smoke and mirrors expert and you are trying your best to achieve, with not a single scrap of credibility, some sort of financial miracle.

    There is a fair case to be made for unravelling trusts, especially those resident in tax havens. There is no need for Wendy Bacon and friends to explain their cfradibility – she has been a credible and solid voice of the public interest for over 40 years.

    OK, so who the f_ck are you and what are you trying to represent? I look forward to as many future chapters of this story as there may be. It is clear to me that GRM is a corporate parasite.

    Thanks, Crikey!

  9. dire

    check out http://www.private-eye.co.uk and do a search for CDC it would appear getting rich from aid and using tax avoidance is not an Australia only problem.

    if you check the Eye site there is a great story on the front page at the moment on how CDC tried to ban the Eye from an event and how it went badly astray

  10. Him Nao!

    Your story is incomplete and the writers dont understand the business they are writing about – poor showing. Most of the revenues are pass through for GRM’s income statement; the returns generated by the business are good but also fair. Without businesses like GRM the management of aid programs would be left to the bureaucrats of AusAid who, while capable administrators and programmers, do not have the experience or expertise to provide local program management and are often guilty of poor program design, as is proven by some of the RAMSI activities.

    The GRM’s of the world make the aid money spent by Australia’s taxpayers go further by hiring the most experienced and capable managers and development practitioners, leading to more effective and sustainable development efforts. They make a profit necessary to support their business. Australians should support this approach and your reporting should be more complete.

  11. lindsayb

    What a surprise, to see the super-rich suckling at the public teat (again).

  12. jungarrayi

    Let me paraphrase:
    Who profits from The Northern Territory Intervention? The untold story of countless outside contractors,consultants, researchers and bureaucrats.

    Rather cute, but recently a report was prepared for FaHCSIAH by TNS Global.
    The report on a survey of GBMs (Government Business Managers- or Ginger Bread Men) is an amazing piece of self-congratulary clap-trap. Don’t know what it cost, nor if tax was paid on the fee in Australia, but suspect it didn’t come cheap.
    Suggest you Google TNS.

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