While Richard Pratt rummages through Visy’s petty cash tin to come up with $38 million, those with long memories will know this isn’t Pratt’s first corporate escape. Alan Jury in the Chanticleer column in the AFR last week observed that:
[The ACCC action isn’t] Pratt’s first brush with Australian authorities. In 1993, the National Crime Authority raided [Pratt’s] offices in connection with an investigation into foreign exchange dealings by Elders IXL and its stake in BHP. The following year however, the NCA paid costs and returned documents seized.
Pratt’s role in the infamous BHP-Elders transaction is one which warrants further explanation.
In 1986, West Australian corporate raider, Robert Holmes a Court, launched a partial takeover bid for BHP. To stave off the unwanted bid, BHP and Elders (then run by Pratt’s associate, John Elliott) entered into a cross-shareholding agreement (Elders bought 18.4% of BHP in April 1986. At the same time, BHP bought convertible bonds and options in Elders which give it the ability to purchase up to 40% of Elders share capital). BHP later converted the instruments into a 12.5% stake in Elders.
However, while this was occurring, Holmes a Court was continuing with his BHP takeover bid. This caused a headache for Elders – if Holmes a Court obtained control of BHP, he would also gain a sizable stake in Elders (in which he had already acquired a small position).
Shortly after, Pratt and New Zealand merchant banker, Allan Hawkins, acquired a 4.4% stake in BHP through a company called Beid Pty Ltd.
The NCSC (the predecessor of ASIC) claimed that the purchase represented unacceptable circumstances, accusing Hawkins and Pratt of acquiring the stake to support Elders (who would in turn assist Pratt and Hawkins in their takeover of ACI). Pratt and Hawkins denied that they were acting in such a manner. The court agreed with Hawkins and Pratt and they were able to retain the stake. In September 1986, the tussle effectively ended, with Elders, BHP and Holmes a Court coming to a standstill agreement.
The NCA submitted that between April and September (when the standstill was reached), the manner in which Pratt and Hawkins dealt with the BHP shares was of “crucial importance” to BHP and Elders. The NCA also alleged that “Hawkins would be paid a substantial amount of money by Elders to deal with the BHP shares [and that] Elders would pay the fee covertly to Hawkins.”
To repay Hawkins, Elders allegedly entered into several fictitious foreign exchange transactions – known as the H-Fee. It was these transactions (and their subsequent cover-up) with which Elliott and others were charged (but later exonerated by Justice Vincent of the Victorian Supreme Court). Hawkins wasn’t so lucky – he was jailed for six years in New Zealand (and served three) for his part in the alleged fraud.
While the alleged foreign exchange transactions were used to repay Hawkins, to repay Pratt, it was alleged that Elders planned to provide an underwriting fee for the float of Elders Investment Company in Hong Kong. This plan was a fiasco, with Pratt actually losing money due to the share market crash.
It was then alleged by the NCA that Elders then came up with another means of paying Pratt secretly. Said the NCA:
On 29 July 1988, Elders IXL subscribed $52,000,000 for shares in Vicinvest. Vicinvest was an investment company. By 30 June 1990 the majority of the investments held by Vicinvest had been sold and the proceeds passed onto other companies in the Pratt Group.
When providing evidence to the Joint Committee on the NCA in 1997, Elliott was questioned by Senator Stephen Conroy and apparently had “no idea” what became of Elders’ $52 million investment.
Former NCA Investigator, Garry Livermore, later noted to that same Parliamentary Joint Committee that:
No attempt was made by Elders to recover [the $50 million] until it became the subject of the NCA investigation.
Foster’s Brewing Group [which was the successor to Elders] then commissioned its lawyers to look into the transaction. Civil action was taken regarding the transaction against Mr Pratt and others and that was settled out of court [with] Pratt paying something like $20 million to $25 million, plus selling some cheap cardboard boxes to Fosters for a few years.
It was alleged by the NCA that, like Hawkins, Pratt covertly received a payment for his role in helping out Elders and BHP in their defence against Holmes a Court. These funds were paid by Elders shareholders, allegedly without their knowledge. While the NCA raided Pratt in 1993, no action was taken against him.
Virtually all of the NCA’s allegations were supported by testimony from former Elders finance boss, Ken Jarrett. Jarrett pleaded guilty for his role in the scandal and was imprisoned for six months. Hawkins was jailed for three years. No other Elders executive ever saw a jury. Pratt was never charged for his alleged role.