The Albanese government is not having much luck with its defence partners. The relationship between the Department of Defence and arms company Thales remains the subject of a National Anti-Corruption Commission investigation, while the company itself remains under multiple investigations in Europe. Nonetheless, Labor Defence Minister Richard Marles says Thales is “a very important company in terms of the contribution that they provide to the Australian Defence Force”.
Labor refuses to come clean about the relationship between the Department of Defence and Elbit Systems, the Israeli company that made the drone used by the Israeli Defense Forces to murder Zomi Frankcom (and we know there’s an extensive relationship — our freedom of information request about dealings with the company was refused on the basis that there was too much material for the department to put together).
Now there’s Austal, the ailing Perth shipbuilder to which Labor threw a lifeline in November by committing to make Austal its monopoly shipbuilder at the Henderson shipyard in the west.
Marles handed Austal this commitment despite knowing the company was mired in a serious scandal in the United States over years of deliberate under-reporting of massive cost blowouts at its US shipbuilding arm in Mobile, Alabama.
Overnight, the US Securities and Exchange Commission (SEC) announced it had settled the case with Austal with a fine of US$24 million, while three executives will be prosecuted. According to the SEC, Austal
…engaged in a scheme to artificially reduce by tens of millions of dollars the estimated cost to complete certain shipbuilding projects for the US Navy. The complaint alleges that Austal USA knew that its shipbuilding costs were rising and higher than planned, but arbitrarily lowered the cost estimates to meet Austal USA’s revenue budget and projections.
The SEC is the most serious of global markets regulators; when it’s on a company’s case, they usually settle rather than face the humiliation of a “perp walk” if the case becomes a criminal one. It’s obvious Austal settled to avoid what might have been further embarrassment — and further disclosures about the conduct of its executives.
It’s not the only example of Austal’s misleading conduct. In 2022, after action by ASIC, the company was ordered to pay a $650,000 fine (the contrast between a US$24 million fine and a $650,000 fine speaks volumes for how unserious Australia’s corporate laws are) for failing to disclose a US$90 million profit writeback.
Just the kind of outfit you’d want to give an unconditional commitment of work to.
Austal’s shares are down 46% in the past five years, well behind the 21% rise in the ASX. It still has a market value of more than $820 million — more than it should be — but it is now a takeover target, with South Korean giant Hanwha floating an offer earlier this year.
And the company remains at the centre of a major, and unresolved, scandal of the procurement of a fleet of what were named Cape Class patrol boats by the Australian Border Force (ABF).
In 2018, the auditor-general savaged the project, finding “the Cape Class patrol boats have not yet fully met the contracted performance and availability requirements”. Other findings included “the governance arrangements for the in-service support phase of the Cape Class patrol boat project have not provided effective oversight … The department has not established effective arrangements to manage the in-service support phase of the contract for the Cape Class patrol boats.”
The auditor-general was troubled by the fact that the ABF had paid Austal $39 million as a “milestone” payment for “final acceptance” of the boats despite the fact that “final acceptance issues have not been successfully resolved, and as at October 2018, the CCPB fleet has not been finally accepted, capability and support system deficiencies remain, and the project has not successfully transitioned to the [in service support] phase.”
Why Austal was handed $39 million by the ABF for boats that were obviously deficient remains a mystery. The then head of the Australian Commission for Law Enforcement Integrity, Michael Griffin, ordered an investigation. However, Griffin’s replacement, Jaala Hinchcliffe, killed off the investigation — encouraging perceptions that there was no credible anti-corruption body operating at the Commonwealth level.
Plainly, neither Austal’s appalling record with the Cape Class patrol boats or its serial misleading of investors is enough to give Richard Marles pause — especially given Labor’s willingness to waste large volumes of taxpayer cash in an effort to retain the goodwill of West Australians.
