Why do we venerate the architects of kleptocracy

Papua New Guinea has been ruled by successive kleptocracies. This is a fact attested to by volumes of published research, the professional opinion of the country’s top corruption fighters, and a library of investigation findings produced by Commissions of Inquiry, official audits, and Court decisions.

This mountain of documentary and oral records illustrate, without a trace of doubt, that PNG is a country where a succession of corrupt leaders have abused their power to exploit the nation’s natural resources and the people in order to build their personal wealth and political power.

Is it right then that we venerate the very leaders who have cultivated the poisoned soils out of which kleptocracy has grown? And in so doing, does the nation’s understandable respect for elder statesmen, serve in effect to erase from our shared historical memory the devious acts these men committed for their own benefit?

Put simply, if we are to learn from history, must we first acknowledge fault, even in the nation’s founding ‘fathers’?

The first anti-corruption crusade of the post Independence era was led by Australian Judge Tos Barnett who, from 1987-89, conducted a Commission of Inquiry into the Forestry Industry. The inquiry uncovered a litany of abuse and corruption, including one complex deal orchestrated by the Forest Minister himself.

Barnett set out in detail how Ted Diro set up an illicit and fraudulent scheme to acquire a lucrative logging permit for a company he secretly controlled and then defrauded the State of tax revenues.

Diro was never charged, prosecuted or punished for his role at the centre of the fraud, and instead it signalled the start of PNG’s descent into kleptocracy.

As a standing emblem of that missed opportunity, Diro’s name now proudly adorns a brand new naval patrol boat donated to PNG by the Australian government.

Image: HMPNGS Ted Diro

Similarly, ex Prime Minister Michael Somare, whose portrait adorns the 50 kina note, has never answered for his role in the Community Education Trust  scandal. Singapore’s criminal courts have found following an exhaustive trial that Somare received a kickback of at least US$784,000 into his Singapore bank account on behalf of himself and his son Michael Jnr.

Somare has also never spoken about a corrupt payment of K50,000 the courts have found was paid to his National Alliance Party in 2010 as part of a larger K500,000 scam.

Image: Fifty Kina Note

New Prime Minister James Marape has promised to break the cycle of corruption, to crack down on fraud and take back the economy from the kleptocratic elite.

But his recent announcement that Julius Chan will be the face on the new 100 kina bill suggests little is going to change.

The 80-year old Chan is a political veteran. He has twice been Prime Minister and is currently the Governor of New Ireland.

But it is a political career that has been dogged by official investigations and audits alleging corruption; allegations for which Julius Chan has never answered.

In today’s Tokaut Blog we ask a delicate question. Should we venerate a man who has been credibly implicated, on numerous occasions, in illicit deals that have helped to cultivate the soils out of which has grown the monster of kleptocracy? And in venerating an individual such as Sir Julius Chan is the government of today helping to whitewash our past, so that future generations are more likely to repeat the mistakes of the nation’s forefathers?

Two World Class Property Scams

Exhibit one. Sir Julius Chan was found to be at the centre of what became known as the Cairns Conservatory scandal.

In its investigation into the 1994 purchase of The Cairns Conservatory office building by the Public Officers Superannuation Fund (POSF), the Ombudsman Commission found the building had been purchased for more than two and a half times its market value.

The circumstances surrounding the purchase were suspicious. When POSF made the decision to purchase the building the two Australians they were negotiating with did not even own the building. The Managing Director of POSF failed to keep any record of the discussions leading up to the purchase. There was no other property considered as an alternative investment and no professional advice was sought regarding the property market in Cairns, and no independent valuation was obtained. Finally, no attempt was made to negotiate over the price, and the POSF Board was put under political pressure to push through the purchase.

It was Juluis Chan as Prime Minister and Acting Minister for Finance who gave the statutory approval required for the purchase of The Cairns Conservatory office building for a price of A$18.72 million. This was despite the sellers themselves only having purchased the building two weeks earlier for a mere $9.75m.

Chan’s role in the whole affair though ran much deeper than simply giving Ministerial approval for what was plainly a very bad deal for the State.

According to the Ombudsman Commission, Julius Chan had, from the very earliest stages, played an important, but inappropriate role, in supporting the proposal to purchase the Conservatory. Chan ‘applied political pressure’ to ensure the deal went through.

This conduct was ‘wrong’ says the Ombudsman Commission. To make matters worse, Chan had a blatant conflict of interest.

The very same two people who were selling the Cairns Conservatory to POSF, for an exorbitant price, were at the same time negotiating to build a large office complex in Port Moresby. The complex was to be built on land which was owned by a company in which Julius Chan held 75% of the shares, in trust for his political party, the People’s Progress Party. The company stood to ‘gain significantly’ from the redevelopment and that ‘financial windfall would also benefit Chan’.

Chan’s failure to declare his obvious conflict of interest created ‘an environment where corruption could easily occur’ concluded the Ombudsman Commission.

It is also worth noting that the Ombudsman Commission investigation was interrupted for two years by various court challenges and injunctions sought by Julius Chan. All of which were eventually dismissed or discontinued.

The Cairns Conservatory though was not Chan’s only involvement as Prime Minister in the property market.

Julius Chan was also heavily criticised in the Ombudsman Commission report into the State’s leasing and proposed purchase of Malagan House in Brisbane – again for an ‘exorbitant’ price.

As with the Cairns Conservatory purchase, the Ombudsman Commission found irregular financial arrangements. These included unnecessary costs to the State including overcharging for rent amounting to A$1.5m, political interference in administrative functions, and administrative incompetence, all of which created an environment ‘where corruption could easily occur’.

It was Julius Chan who approved the lease and ‘manifestly excessive rental payments’ in his role as Minister for Foreign Affairs. At the time says the Ombudsman Commission, Chan ‘had associations with the other parties involved’ and those associations should have been disclosed, but were not.

Chan’s conduct says the Ombudsman Commission was simply “wrong” and as a result ‘a large amount of public money was wasted’ bringing ‘embarrassment and shame’ on Papua New Guinea.

The Sandline Crisis

Chan’s dubious record as Prime Minister extends well beyond the property market. He was, after all, Prime Minister during what became known as the Sandline Crisis.

The Bougainville conflict cast a long shadow over the nation for more than a decade. As many as 20,000 people died.

In 1994 a new government led by Prime Minister Julius Chan and his Deputy Chris Haiveta declared solving the crisis a top priority.

Finding a political answer though proved hard and Chan determined instead to find a military solution. Rebuffed by both Australia and New Zealand, in January 1997, an increasingly desperate Chan secretly signed a US$36m contract with a private military company, Sandline International. Sandline would supply mercenaries and equipment to defeat the Bougainville Revolutionary Army and re-take control of the Panguna mine.

However, soon after the mercenaries arrived in Port Moresby in March 1997, they were rounded up by the PNG Defence Force who viewed the use of mercenaries as by-passing their own constitutional role.

The public backed the soldiers and Chan and Haiveta were forced to resign after 10 days of public protests. Three months later, both Chan and Haiveta lost their seats in the National Elections.

A subsequent Commission of Inquiry uncovered that the engagement of Sandline was not only constitutionally inappropriate it involved various dubious financial arrangements. There had been insufficient inquiry into the background and identification of Sandline International and into its intentions in relation to the Panguna mine . When the NEC agreed to the engagement, there was no draft contract and no assessment by State lawyers of the legal implications of what was being approved. There were no checks made on the real price of the equipment  Sandline was to supply and the State was to make an immediate payment of $US18 million without receiving anything in return, least of all any security or guarantee of performance on the part of Sandline.

There were also allegations of impropriety regarding BCL shares and the future role of Sandline at the Panguna mine.

It seems likely that discussion included the prospect of Sandline or a company associated with its principals obtaining an interest in the mine and Sandline providing on-going security services.

In July 1997, a second Commission of Inquiry was appointed to look further into the Sandline affair and particularly the financial arrangements. That inquiry was particularly critical of the role played by Chris Haiveta who, it alleged, received a direct ‘corrupt and improper payment’.

The PNG government was eventually forced to pay US$13 million to Sandline for a contract that was never fulfilled.

An Australian government inquiry concluded, had the contract gone ahead it ‘would have resulted in large-scale violence and potentially have inflamed and protracted the conflict on Bougainville’.

Although Chan was never found guilty of any wrongdoing over the whole affair, it casts a huge stain on his record as a politician that he could ever have contemplated such a solution, let alone secretly taken the steps necessary to put it into action. Steps that ultimately cost the taxpayer US$13 million.

Defence Force Housing Scandal

Even before becoming Prime Minister, Chan was allegedly involving himself in dubious property deals by the State. In 1994 Chan was censured by the Ombudsman Commission for his key role in the K60m disciplined forces institutional housing project scandal.

Like the later Cairns Conservatory and Malagan House contracts, this was another government project that was not put out to public tender. Instead, the government wrongly issued a certificate of inexpediency to allow a preferred Malaysian company to obtain the K60m contract and with it ‘extremely generous tax concessions’.

This was only possible, said the Ombudsman Commission, because Chan as Minister for Finance and Planning, ‘wrongly’ delegated the power to award the contract to the Minister for Defence thus bypassing normal checks and balances imposed by seeking approval from the Governor General, National Executive Council and Parliament.

The contract was also improperly funded, says the Ombudsman Commission, through a loan from a Malaysian bank that was also not subjected to any competition to ensure value for money.

Good Times, Fast Money

Julius Chan has backed a coterie of businessmen who have fleeced the Provincial coffers

Since 2007, Chan has concentrated his efforts on Provincial as much as National politics.

Julius Chan has been Governor for New Ireland for the past 12 years, 12 years during which the good times and fast money have flowed.

A special inquiry conducted by the Auditor General’s officehas directed a series of damning accusations at the New Ireland Government and a clique of Malaysian businessmen.

The inquiry concluded K2 million of development funds were used by New Ireland Provincial Government to build Parliament Haus and a new residence for the Governor, Julius Chan.

The funds were paid through a shadowy corporate structure the centre at which stands Julius Chan and his right hand man Noel Levi.

The money landed in the account of C & C Group, a recently registered company owned by two Malaysian businessmen, Mr Peng Chun Chee and Mr Ming Hii Ell. At the time C&C was operating illegally in PNG.

Then the money was stolen.

The full details have been set out in the PNGi investigation report Good Times Fast Money in Julius Chan Country.

Despite the facts being publicly aired though, Julius Chan has not offered any explanation for how a company he was responsible for paid millions in development grants to an illegally operating Malaysian firm, whose executives are alleged to have run off with the money. Nor for why he failed to observe Public Finance (Management) Act provisions or whether he has ever reported the alleged theft to police and assisted with any subsequent investigation.

This is not an isolated case of shady dealings in the Provincial government headed by Julius Chan. PNGi has previously highlighted various other dubious transactions that have been investigated by the Auditor General’s Office.

These include the ‘improper and inappropriate’ purchase, without public tender, of 5,000 solar lanterns for K337,500 from a company whose director was also director of company owned by Julius Chan and his family.

Julius Chan and the unlawful contract to supply solar lanterns.

The AGO has also highlighted many other legally and financially irregular contracts and overpayments made by the New Ireland Provincial government, including overpayment of the Governor’s own housing allowance which amounted to over K60,000 in just one year.


If Prime Minister Marape is serious about taking back PNG  from the kleptocratic elite then he needs to show that things are really going to be different under his leadership.

This has to include putting an end to the dangerous tradition of venerating the leaders who have not only allowed PNG to degenerate into chaos but have been the architects of some of the most insidious deals.

Already PNGi has identified the moves afoot by the new government to resurrect two corrupt organisations that were supposed to have been killed off, the National Housing Estate Limited and Konebada Petroleum Park Authority.

Will James Marape show true leadership by taking the very simple but significant step to reverse his decision to endorse Julius Chan as the face of the new 100 kina note?

If he does not, then all those new notes will be a very permanent and constant reminder that he failed to match his promises to clean up corruption with action.