‘Too good to be true’: the deal with an Isis-linked Australian family that betrayed PNG’s most marginalised

A sustainable forestry project established to develop some of PNG’s most marginalised communities has become mired in an international corruption scandal

“There is always the stench of corruption around a deal that is too bad to be true or too good to be true,” a full-page advertisement in Papua New Guinea’s Post Courier baldly declared in May 2018.

“Usually, because it’s not true.”

And so it proved: the deal that was “too good to be true” has unravelled in spectacular fashion.

A company owned by Australian brothers Mamdouh and Ibrahim Elomar – patriarchs of a notorious Sydney family linked to Isis and themselves formerly convicted of international bribery – have been found by a court in Singapore to have improperly paid more than $6m to a senior PNG official and his wife to buy a PNG timber company at an estimated discount of more than 90%.

Ibrahim Elomar and Mamdouh Elomar arrive at the Supreme Court of NSW in Sydney. Photograph: Mick Tsikas/AAP

The purchased PNG company, Cloudy Bay Sustainable Forestry, was set up using revenue from the the massive Ok Tedi gold and copper mine to provide “a model for responsible forestry development” in a sector notorious for rapacious foreign loggers: its profits were intended to fund the construction of roads, schools and health clinics for some of PNG’s most marginalised rural communities.

Instead, Cloudy Bay’s assets were allegedly stripped and sold, while its owners, past and present, fought each other through the courts: those who it existed to benefit, forgotten.

A distressed sale

It was in 2014 that three Australian businessmen – the Elomar brothers and their associate Nick Roniotis – scored what appeared to be an incredible bargain in Papua New Guinea, paying 40m kina (then equivalent to A$17.7m) for Cloudy Bay.

“A pretty good deal by any stretch,” Roniotis would later remark in the full-page newspaper ad he took out in the Post Courier.

The assets of Cloudy Bay Sustainable Forestry included a 150,000-hectare timber permit, a sawmill recently purchased from Australia and a prime location wood processing centre in Port Moresby, all recently upgraded through a A$77m investment made by the previous owners.

For the Elomars it was a moment of commercial salvation.

The brothers, who arrived in Australia from Lebanon with almost nothing, had spent decades building a prosperous construction business and a vast property empire in their adopted homeland.

But by 2013, their construction business had gone into freefall.

Mamdouh’s son Mohamed had left to fight for Isis, his picture plastered across national newspapers holding up a decapitated head in Syria. He was later killed in a drone strike.

Infamous photo: Australian jihadist Mohamed Elomar with heads of Syrian soldiers in July 2014.

Mamdouh and Ibrahim’s brother, also Mohamed, was serving a 28-year sentence in Goulburn’s supermax jail for his role in a terrorist plot. And Mamdouh’s daughter-in-law Fatima Elomar was the first Australian woman convicted of supporting terrorism.

Although there is no suggestion Mamdouh or Ibrahim Elomar have been involved in any terrorism activities, the family associations were devastating for business. Domestic contracts had all but evaporated.

So the Elomars’ fortunes were dramatically changed when their associate Roniotis helped facilitate the purchase of Cloudy Bay.

It was a distressed sale. The owner was the Singapore-based Papua New Guinea Sustainable Development Program (PNGSDP), set up in 2001 by the Australian mining company BHP Billiton and the Papua New Guinea government to sustainably invest profits from the Ok Tedi mine for the benefit of the PNG public, and impoverished Western Province communities in particular.

As the Elomar brothers faced the prospect of commercial collapse in Australia, PNGSDP was concerned that Papua New Guinea’s prime minister, Peter O’Neill, could be preparing to expropriate the program’s assets, including Cloudy Bay. The PNG government had appointed a controversial accountant, Rex Paki, to the boards of PNGSDP and Cloudy Bay, of which he was chairman.

In Singapore court records obtained by the Guardian and PNGi, Paki is accused by PNGSDP of using its precarious position to improperly execute a massively discounted sale to Roniotis and the Elomar brothers.

In its statement of claim, PNGSDP alleges more than $6m in bribes was wired by the Elomars across secretive jurisdictions and front companies for the benefit of Paki and his wife, Sarah, including through a British Virgin Islands company owned solely on paper by Roniotis.

It also claims Paki used company assets without authorisation to pay for family air fares and school fees for his son. Paki’s son attended the exclusive St Joseph’s Nudgee College in Queensland, where boarding and tuition fees cost more than $37,000 a year.

In March 2020, the Singapore high court ordered Rex Paki to pay $6.6m to PNGSDP. Sarah Paki was ordered to pay $429,000. Rex Paki told the court all the payments made to him were legitimate and told the Guardian he intended to appeal. No finding was made by the court against Roniotis and the Elomars were not parties to the case.

The Guardian has confirmed the court-ordered repayments have not been made.

Rex Paki, Roniotis and Mamdouh and Ibrahim Elomar all deny wrongdoing and dispute the court’s findings of impropriety.

Worth more than 10 times the price

The documents exposed by litigation in Singapore, supplemented by analysis of corporate filings in Australia and Papua New Guinea, provide a rare public window into allegations that certain sections of the expatriate business community have sought to exploit weak governance in PNG for their own benefit, at the expense of the most vulnerable.

Cloudy Bay might have achieved much for PNG’s poorest.

A giant mining truck working at the Ok Tedi copper mine in Papua New Guinea’s Western Province in 2006. Photograph: Lloyd Jones/AAP

PNGSDP was established with a mandate to invest a portion of profits from Ok Tedi for the benefit of communities in a region that had seen precious little development, despite decades of natural resources being plundered from its hills at the expense of extensive damage to the environment.

Cloudy Bay would be Papua New Guinea’s first sustainable forestry project, generating profits – and subsequent development – for decades. “We commit ourselves to improving the quality of life of the people of Western Province,” the program said on its website.

By 2012, after years of investment, PNGSDP believed it was on the cusp of commercial success. But it claims all that was thrown into jeopardy at the stroke of a prime ministerial pen.

In September 2013, O’Neill’s government abruptly passed legislation liquidating PNGSDP’s shares in Ok Tedi, its primary source of revenue.

Reissuing new shares in Ok Tedi to the government, O’Neill framed this as a historic moment of economic nationalism. Critics of the move feared the value of Ok Tedi revenue to the public would be rapidly eroded to worthlessness.

The Ok Tedi copper mine has caused significant damage to the environment. Photograph: Friedrich Stark/Alamy

Paki, the government’s representative on the Cloudy Bay board, was elevated to the chairmanship the same month the legislation passed, and handed responsibility for selling the company.

He found buyers in the Elomars, allegedly introduced to him by Roniotis, a man he described in court documents as a “personal friend”.

Of the K40m agreed for the sale of Cloudy Bay, K15m would be paid up front with the remainder to follow a year later.

Cloudy Bay held significant assets and revenue-generating capabilities. The 150,000 hectare timber permit alone – “the prize” in Roniotis’s words – could generate tens of millions of dollars every year.

Roniotis would later publicly claim Cloudy Bay was worth K440m, more than 10 times what he and the Elomars paid for it.

Corporate filings show the Elomar brothers took a 75% stake in Cloudy Bay through Lifese Engineering (PNG) Limited, while Roniotis acquired 25% through his firm OPPA Limited. PNGSDP alleges Paki also held a secret interest in the deal through OPPA, which is registered in the British Virgin Islands.

In its Singapore statement of claim, PNGSDP alleges that the deal was secured through bribery.

Court documents reveal that $6.6m was wired through 21 transactions to companies in Papua New Guinea and the British Virgin Islands across 2013 and 2014.

In total $1.1m was transferred from the Elomar brothers’ Lifese Engineering (PNG) Limited to Argos Global (PNG) Limited, a company jointly owned by Roniotis. A further $5.1m was wired to OPPA Limited.

On the cusp of commercial success: the Cloudy Bay timber operation. Photograph: PNG Sustainable Development Program

PNGSDP alleged the payments were for the benefit of Paki, who was a silent partner in these businesses. PNGSDP does not allege that Roniotis himself was the beneficiary of any payment.

An additional payment of $429,321 was made in 2014 to a PNG company, Orpheus No 27, owned by Sarah Paki.

As well as denying any impropriety, in court documents Rex Paki defended the Orpheus payment as legitimate reimbursement for helicopter flights and other services provided on a proposed mining project, and for family funeral expenses.

The Cloudy Bay sale was concluded on 20 February 2014.

Cloudy Bay Sustainable Forestry – the timber permit was said to be able to generate tens of millions of dollars a year. Photograph: Cloudy Bay Sustainable Forestry

Claim and counter-claim

Despite acquiring Cloudy Bay at a “fire sale” price, as O’Neill later put it, Lifese Engineering and OPPA failed to pay the final K25 million they owed by the stipulated 12-month due date.

The Elomars had more pressing problems in Australia.

On 15 February 2015, Mamdouh and Ibrahim Elomar were arrested over a conspiracy to bribe an Iraqi official with US$1m (then A$1.285m) to win construction contracts in that country.

With the principal buyers of Cloudy Bay facing the possibility of a lengthy prison term in Australia, PNGSDP served a notice of demand on Lifese and OPPA for the deferred payment.

But rather than wiring payment, Lifese instead demanded compensation from PNGSDP. The Elomar brothers claimed that after the February 2014 purchase they uncovered a range of transactions that considerably diminished the value of Cloudy Bay.

It is claimed that some of these transactions, running to tens of thousands of dollars, involved Paki. They included a series of alleged improper payments from Cloudy Bay to Paki for private school fees, medical expenses, car repairs and payments to Paki’s accountancy firm, allegations denied by Paki.

It was also alleged that K1.7m held in trust for PNGSDP in a Cloudy Bay infrastructure account had gone missing. In its Singapore statement of claim PNGSDP apportioned responsibility to Paki, and in a judgment delivered on 4 March 2020, Singapore’s high court found in favour of PNGSDP.

Justice Vinodh Coomaraswamy ordered Paki to repay to PNGSDP the $6.6m transferred to him by the Elomars through Lifese. Paki was also held liable by Coomaraswamy for the K1.7m from Cloudy Bay’s infrastructure account.

The Singapore court also ordered Sarah Paki to repay PNGSDP the $429,321 sent to Orpheus No.27.

PNGSDP now attempted to recoup some of its losses by negotiating with the Elomar brothers over the missing K25m deferred payment for Cloudy Bay’s purchase.

The Cloudy Bay timber operation. Photograph: PNG Sustainable Development Program

In February 2017 it signed a settlement under which PNGSDP would forgive the K25m debt and would also pay the Elomars – through Lifese – A$9m in compensation for the alleged improper actions that Lifese contends diminished Cloudy Bay’s value.

In return, PNGSDP would get back from the Elomars Cloudy Bay’s Port Moresby property, valued at K21m two years before.

It is an extraordinary settlement: the original vendor of the Cloudy Bay timber business, PNGSDP, ended up paying the purchaser $2.4m to take the Cloudy Bay business off its hands. PNGSDP said it was “unaware of the irregularities at the time of its sale” and that it was prepared to pay the compensation “demanded” by the Elomars in order to reclaim Cloudy Bay’s Port Moresby property.

The forgotten many

The saga did not end there. In September 2017, the Elomar brothers were sentenced to four years in jail after pleading guilty to the Iraq bribery charges. They were released in 2019.

This coincided with an excoriating public condemnation of Rex Paki’s alleged “dirty work” and “corruption”, published under Sarah Paki’s name, claiming he forged her signature and lied in court affidavits.

“I want to make myself clear to the people of Papua New Guinea that I, the wife of Rex Paki, was used as a rubber stamp by my husband to do [his] dirty work for [his] own personal gain,” the statement said.

The Elomars, too, have fallen out with their former business associate Roniotis, who has accused them of stripping assets out of Cloudy Bay.

Paki and the Elomar brothers separately deny all wrongdoing. The Elomar brothers declined to answer a detailed list of questions from the Guardian or to comment publicly on the case.

Roniotis also denies wrongdoing and told the court any money received by his companies was “paid pursuant to legitimate work done”.

Through lawyers he told the Guardian he had no knowledge of and had not been involved in, nor benefited from, any bribery, and that he “broke with the Elomars when their notoriety exploded” over family links to terrorism.

“My client cannot elucidate these matters for you,” his lawyers said. “If bribes were paid, to whom were they paid and for what purpose?”

Rex Paki told the Guardian he had received no money improperly. “Nothing: I received nothing.

“I want to clear my name, and I want to go back on to the PNGSDP board. I am fighting for those two things … and I am totally confident I will win.”

He said he had always acted in the best interests of PNGSDP.

“We thought this was the best deal we could get, so there was no need for any bribery of any sort.”

Paki said he had been “rolled under a bus” by others involved in the deal, and said he would not have entered into an agreement with the Elomar brothers if he had known of their family’s links to terrorism.

“I totally regret being involved with them. We did our due diligence on them, we thought they were reputable guys.”

The Elomars’ family links to terrorism were widely known in 2013, months before the Cloudy Bay deal.

Villages from the Western Province of Papua New Guinea carry emergency food supplies delivered in a time of drought. Photograph: Reuters/Alamy

Forgotten among all the internecine accusations, it seems, is the original rationale for Cloudy Bay’s existence.

The company’s sole purpose was to assist some of Papua New Guinea’s most marginalised, who for years have seen their ancestral lands scarred, scraped and irreparably polluted by mines such as Ok Tedi, for precious little in return.