Monday 23rd June 2014

Democracy is a powerful concept. But it doesn't come cheap. Running political parties and funding election campaigns costs millions of dollars. That makes politicians vulnerable to businesses willing to fund them or their party in return for favours.

Next on Four Corners, reporter Linton Besser shows how a deal to win partial control of a major public utility opened the door on a web of alleged corruption, impacting both State and Federal politics, as well as players on both sides of the political divide.

Assessing testimony given to the NSW Independent Commission Against Corruption (ICAC) in forensic detail, talking with many of the key players and accessing new information, the program shows how the rules that are supposed to regulate political donations can be ignored or corrupted, not just in NSW but right across Australia.

As former ICAC Commissioner David Ipp told Linton Besser:

"One begins to fear that corruption might be far more widespread than was at first thought."

The now retired Commissioner is not the only one concerned. Besser interviews former top NSW bureaucrat Kerry Schott, who resisted corrupting influences only to find herself the subject of spurious corruption allegations.

We also hear from former Premier Kristina Keneally, respected Labor Senator John Faulkner, and Liberal Senator Bill Heffernan, who helped blow the whistle on corruption eating into his own party.

Warning about the dangers in the current system, he says:

"The most important qualification in public life, is not to have a price... every now and then you've got to have a cleanout, and at the present time there's a bit of a cleanout going on."

Significantly, there is no Federal commission to fight corruption. The key questions now are how far will the clean up go and is there the political will to reform the regulations that govern political donations?

DEMOCRACY FOR SALE, reported by Linton Besser and presented by Kerry O'Brien, goes to air on Monday 23rd June at 8.30pm on ABC1. It is replayed on Tuesday 24th June at 11.00am and 11.35pm. It can also be seen on ABC News 24 on Saturday at 8.00pm, ABC iview and at abc.net.au/4corners.

Transcript

Democracy for Sale - 23 June 2014

KERRY INTRODUCTION

KERRY O'BRIEN, PRESENTER: What price a politician? What price a party? Welcome to Four Corners.

Modern democracy doesn't come cheap. Running political parties and election campaigns costs millions of dollars. Garnering more campaign funding than your opponents can give you a critical edge in a close contest.

This makes politicians vulnerable to businesses and individuals willing to fund them or their party in return for favours.

The recent sensational revelations at ICAC, the New South Wales Independent Commission Against Corruption, have highlighted just how unsavoury that intersection between business and political interests has become.

It's touched both sides of politics at every level of government. The current inquiry into a seemingly obscure company called Australian Water Holdings (AWH) and its director, Nick Di Girolamo has led to the resignation of New South Wales' premier, Barry O'Farrell, and allegations of corruption against senior politicians from both the Liberal and Labor parties.

There's now a growing debate about the role and function of corruption bodies, and tonight, former ICAC commissioner David Ipp QC calls for a federal commission with strong powers to fight corruption.

Politicians at the national level have been reluctant to accept that sort of scrutiny.

Linton Besser reports on how a deal to win partial control of a public utility, with a huge windfall at stake, opened the door on a web of alleged corruption.

LINTON BESSER, REPORTER: They say the wars of the 21st century will be fought over water.

In fact, the first shots have already been fired in a behind-the-scenes battle to control Australia's most precious resource.

Because to a powerful group of men, this wasn't just water - it was gold.

RON QUILL, FORMER GENERAL MANAGER ASSET SOLUTIONS, SYDNEY WATER: Ultimately, we can be talking about $4 billion worth of investment in all, might even be a bit more. So it's major.

KRISTINA KENEALLY, FORMER NSW PREMIER: It is gobsmacking to think that a private company would behave in the way this one did. That is just to see Sydney Water, and its customer base, as a cash cow.

LINTON BESSER: Their audacious plot has unleashed a spectacular corruption scandal.

REPORTER: Are you looking forward to trying to clear your name?

NICK DI GIROLAMO: One-hundred per cent mate.

LINTON BESSER: And prompted urgent calls for reform of the dark side of Australia's political culture.

MOSES OBEID: Mate, call it a white lie, call it what you like.

DAVID IPP, FORMER ICAC COMMISSIONER: One begins to fear that corruption might be far more widespread that was at first thought.

REPORTER: II: Did you pocket the four grand cash? Did you pocket the cash?

LINTON BESSER: The allegation is, on your side of politics, that there's been a systemic, organised, sophisticated means by which to launder prohibited donations.

BILL HEFFERNAN, LIBERAL SENATOR: Yeah, but the good news is it was sprung.

REPORTER III: Two-hundred-and-twenty-five grand and not a shred of paper.

Did you lie to the commission?

EDDIE OBEID: I never lie.

ASHLEY PITTARD, FORMER DEPUTY CHAIR, FINANCE COMMITTEE, NSW LIBERALS: It's like the mob. It's effectively like what the mob used to do in New York in the 50s, 60s and 70s.

JOHN FAULKNER, ALP SENATOR: People have lost faith in the integrity of politicians, political parties and the political process.

LINTON BESSER: The story started here, Sydney's booming north-west, a sprawl that will one day house twice as many people as Darwin.

And all of these homes need one vital thing: water.

Twenty-five years ago, a not-for-profit group of developers were contracted by the government to put water services into the area.

RON QUILL: They operated as a type of project manager cum developer. They undertook to provide water and sewerage services, essentially on behalf of Sydney Water, to people who were building in that area.

LINTON BESSER: But, by 2008, the consortium quietly transformed itself into a for-profit private company called Australian Water Holdings, and began demanding increasing management fees - even as its construction work was coming to an end.

Sydney Water asked its senior manager, Ron Quill, to find out why, and to ensure taxpayers were getting value for money.

RON QUILL: There was a significant increase in the invoicing of AWH at a period when the invoicing should've been winding down, in fact stopping.

KERRY SHOTT, FORMER CEO, SYDNEY WATER: The finance people at Sydney Water did a lot of work on this and initially the management fee was running at around 200,000. And, then it really started spiking, and we couldn't understand why that was occurring.

LINTON BESSER: It reached as high as $700,000 a month, didn't it?

KERRY SHOTT: Yes.

LINTON BESSER: Former investment banker and senior bureaucrat Kerry Shott had taken the reins of Sydney Water in 2006.

But soon, she and Ron Quill had decided there was something very wrong at Australian Water Holdings.

KERRY SHOTT: What Australian Water were being paid for was their project management services and also um for the administration of the contracts. And, you'd typically expect that to be round about, sort of, 10, 10 per cent of a contract, maybe a bit less, maybe a bit more. Um but, at various um, at various points when we looked at this, the- that margin was getting up around 25 per cent and sometimes more.

RON QUILL: I have never seen anything like this before in my life.

I mean, normally, if you question a contractor's claim, they very quickly come back and provide you with the information you wanted. I mean that's the way it normally was, but, with Australian Water Holdings it was just the opposite, they just refused point blank. And of course, that gives immediate rise for concern.

NICK DI GIROLAMO: Water is a critical topic at the moment, in particular the issue of water scarcity.

LINTON BESSER: These mysterious changes happened to coincide with the arrival of this man:

Nick Di Girolamo.

RON QUILL: Obviously, we did some investigation to find out what his background was and we found out he was a corporate partner of Biggers & Paisley, I think that was the company. So, you know, we thought we were dealing with someone who had a fair amount of commercial experience and obviously legal experience as well.

LINTON BESSER: Nick Di Girolamo is the son of Italian migrants.

He went to St Patricks College, a Catholic school in inner western Sydney. And he rose fast to the very top of one Sydney's corporate law firms, Colin Biggers & Paisley.

ELANA BENJAMIN, FORMER CLAIMS OFFICER, GIO: Nick was a very ambitious person.

He was only a few years older than me. He was already a senior associate and I had studied law, so I knew that for someone just a few years ahead of me to already be a senior associate, he had to be you know quite a go getter.

And, he wasn't just any senior associate, he was quite senior, he pretty much seemed to be running his practice on his own.

LINTON BESSER: Elana Benjamin was a claims officer for GIO, one of Di Girolamo's major clients.

And, she saw him operate up close.

ELANA BENJAMIN: Nick took really great care of clients. His favourite restaurant was Machiavelli, an Italian restaurant on Clarence Street in the city in Sydney, and I remember the team saying, 'Oh we're going to Machiavelli today with Deege.' And, I went in, there these huge black and white photos of, you know, at the time I think Bob Hawke was up there and John Laws.

And, I remember sitting there thinking Nick would like to be up there one day.

LINTON BESSER: One thing that would help get him there was an old contract Australian Water Holdings had signed 15 years earlier with the state government.

It was a badly worded document that he and his fellow director John Rippon were able to exploit.

RON QUILL: Nick Di Girolamo and his fellow directors decided to give themselves massive pay increases and these invoices that were sent to Sydney Water were simply to support their pay increases, pure and simple.

LINTON BESSER: I mean it was a rort wasn't it?

RON QUILL: Oh an absolute rort. You know, it was worse than that.

PETER PHILLIPS, FORMER INDEPENDENT CERTIFIER: I think Rippon wound up giving himself a salary of about $1.7 million. Nick was paying himself $1.1 million.

LINTON BESSER: Peter Phillips is retired now, but back then, he was the independent certifier hired by Sydney Water to check the mounting costs being charged by Australian Water Holdings.

He found himself caught in the middle of a bitter dispute after Sydney Water decided it would stop paying the company's invoices.

PETER PHILLIPS: At one stage, because the money under the management item was running out, there was a suggestion that the management costs should be billed to another item where it clearly wasn't the correct item for it to be billed under, so I refused to sign off on that.

LINTON BESSER: Australian Water Holdings warned Phillips that they had friends in high places.

PETER PHILLIPS: Australian Water was having discussions with senior politicians at that stage, and they were sure that Sydney Water was going to be pulled into line, basically, and that the politicians were going to intervene on Australian Water's behalf, and all of this was going to get resolved in a few days' time, was what I was told.

LINTON BESSER: And the message was, "Back away."?

PETER PHILLIPS: That was the message I received.

LINTON BESSER: In fact, Australian Water was focused on a much bigger prize.

It was chasing a billion dollar bid to privatise a large piece of Sydney's water network.

KERRY SHOTT: What they wanted to do was to put all the water and waste water and recycled water pipes into the Northwest Sector, along with any treatment plants that were needed.

They wanted to bill the customers and keep that revenue, and they wanted to basically run the Northwest Sector like a very mini-Sydney Water company, so control it and bill it and so on.

LINTON BESSER: The Public-Private Partnership, otherwise known as a PPP, was so unfavourable to taxpayers it rang alarm bells with Kerry Shott.

KERRY SHOTT: I was always of the view, and told Australian Water this, and indeed anyone else who wanted to know, that this was a proposal that was never going to be value for money for Sydney Water customers.

LINTON BESSER: But St Patricks had given Nick Di Girolamo an ace up his sleeve.

The school was also where he had made one of his most important friendships, with the family of ALP powerbroker Eddie Obeid.

Last year, Obeid was found corrupt by the then ICAC Commissioner David Ipp after his family pocketed $30 million by rigging a large coal mining tender.

DAVID IPP: It seemed to show that there were some people who regarded New South Wales as an enormous refrigerator. And, whenever they felt hungry they could go into the refrigerator and take out a choicey pie to eat.

LINTON BESSER: In an interview in late 2012, Nick Di Girolamo told me all about the friendship.

(Excerpt from archived interview between Linton Besser and Nick Di Girolamo)

NICK DI GIROLAMO: I met Eddie Obeid on a number of occasions.

LINTON BESSER: How many do you think?

NICK DI GIROLAMO: But not in relation to this.

LINTON BESSER: What in relation to?

NICK DI GIROLAMO: Well, his son, one of his young - his youngest son is a friend of mine.

LINTON BESSER: Is that Eddie junior?

NICK DI GIROLAMO: Correct.

(End of excerpt)

LINTON BESSER: It was more than just a friendship.

REPORTER IV: How do you think it went to day?

EDDIE OBEID JR: Great, easy when you're telling the truth.

LINTON BESSER: Eddie junior worked for Di Girolamo, and the Independent Commission Against Corruption has alleged the Obeid family held a secret $3 million shareholding in Australian Water.

While, behind the scenes, Eddie Obeid senior was making sure his family's investment would pay dividends.

RON QUILL: Obviously he was there to make money, and a lot of it. And, I think it appears to be that the modus operandi, or the whole ah reason for Eddie Obeid's involvement, was to try and get political support for this PPP proposal that they had um ah all of a sudden ah put to Sydney Water.

(Excerpt from archived interview between Linton Besser and Nick Di Girolamo)

NICK DI GIROLAMO: If what you're suggesting is that you know Eddie Obeid and I had an arrangement that I would become a shareholder in this company and they would be a silent partner in it, that they would help me lobby for a PPP.

LINTON BESSER: Yeah.

NICK DI GIROLAMO: That's just completely rejected.

LINTON BESSER: The ICAC found Di Girolamo's denials hard to believe.

(End of excerpt)

LINTON BESSER: The ICAC found Di Girolamo's denials hard to believe.

GEOFFREY WATSON, COUNSEL ASSISTING ICAC: ICAC has been able to recover a written agreement between the Obeid Family Trust and Nicholas Di Girolamo which suggests that, in November 2010, the Obeid family bought 50 per cent of Mr Di Girolamo's shares in Australian Water Holdings for $3 million.

That would give the Obeids 30 per cent of all of the shares in Australian Water Holding.

By the end of the evidence it'll become obvious that the Obeid family were the secret stakeholders in Australian Water Holdings.

LINTON BESSER: And the patriarch of the Obeid family had been busy putting forward Australian Water Holding's case, including a call to the then New South Wales premier, Kristina Keneally .

KRISTINA KENEALLY: In the middle of 2010, I received a phone call from Eddie Obeid and I was home; I was with my husband; I was sitting at the kitchen counter, and I received this call. And, ostensibly it was about something else, I can't even remember. But, he raised the issue of Australian Water Holdings, that this was this company that was, you know, achieving good value for the taxpayer and its proposals were being frustrated by government, and we should have a look at the proposal, a look at it on its merits, he argued.

LINTON BESSER: Blocked by Kerry Shott, the company tried to bypass her.

It lodged an application to the New South Wales Government directly to privatise water services in the north-west growth sector of Sydney.

(Footage of Kristina Keneally launching water project)

KRISTINA KENEALLY: Wonderful day for Sydney, cheers.

LINTON BESSER: This was known formally as an 'unsolicited proposal'.

KRISTINA KENEALLY: The Department of Premier and Cabinet set about evaluating it as an unsolicited proposal, ah and, in that evaluation, found that ah the proposal ah lacked any merit, lacked any value for money for the taxpayer, ah and recommended in a draft minute that the proposal be rejected.

LINTON BESSER: That should have been the end of it.

But, with Eddie Obeid in the shadows, that's not the way things worked in New South Wales.

The cabinet minute was doctored.

Now, the ICAC has pointed the finger at two of Obeid's corrupt allies, Joe Tripodi and Tony Kelly.

Instead of recommending refusal, the new document said the reverse - it urged the government to give Australian Water Holdings almost everything it wanted.

KERRY SHOTT: When I say completely different, it recommended to proceed with the PPP, not to abandon it.

And, it was 180 degrees opposite of what the initial minute from the Premier's Department was.

LINTON BESSER: What was your reaction?

KERRY SHOTT: I was furious. I just absolutely, not only was I angry, I just could not understand how someone could do that.

It really was gobsmacking.

KRISTINA KENEALLY: The most significant change in the minute was that, when it left the Department of Premier and Cabinet, it was considered unsolicited. When it left the minister's office, minister Kelly's office, it suddenly became a solicited proposal, and that is a powerful change.

It is a great leg up to a private company.

LINTON BESSER: Critically, during the sensational corruption inquiry, Nick Di Girolamo was accused, but denied, helping Joe Tripodi and Tony Kelly rewrite the document.

KERRY SHOTT: I've read a lot of things that Nick Di Girolamo has written in the course of much correspondence with him, and it did read very much like Nick's PPP proposal. This was something that was a real subversion of government.

(Excerpt from archived interview between Linton Besser and Nick Di Girolamo)

LINTON BESSER: Did you ever meet with Tony Kelly?

NICK DI GIROLAMO: Met with him once.

LINTON BESSER: But, you were aware that he went to significant efforts on your behalf. Are you aware of that?

NICK DI GIROLAMO: No.

(End of excerpt)

KRISTINA KENEALLY: I don't know who wrote that cabinet minute. Somebody wrote it, and if that person did, as ICAC has alleged, show it to Australian Water Holdings, ah show it to their ah their CEO, Nick Di Girolamo, ah and put confidential cabinet papers in front of ah someone like that, someone outside the government, that's just completely and utterly wrong.

LINTON BESSER: Whoever was behind it, the audacious attempt to hoodwink the state's cabinet failed.

But Labor was not going to be in power for much longer.

It was obvious to everyone that the Coalition would win the next election.

So Di Girolamo had begun putting measures in place to ensure he could still have access to the top.

JOHN HOGG, PRESIDENT OF FEDERAL SENATE: ...and I call the Assistant Treasurer.

LINTON BESSER: In late 2008, he employed one of the Liberal Party's most respected figures - Arthur Sinodinos.

The appointment marked a new chapter in this astonishing story.

(Footage of Arthur Sinodinos speaking in the Federal Senate)

ARTHUR SINODINOS: The only statement I can make on this in this House is there is a commission of inquiry underway and I will be attending as a witness and watch this space.

(Footage of ICAC inquiry)

GEOFFREY WATSON: If the PPP came through, Mr Sinodinos would have enjoyed a $10 million or $20 million payday.

It's quite transparent that Mr Sinodinos' true role in Australian Water Holdings was to open lines of communication with the Liberal Party

(End of footage)

LINTON BESSER: Eyebrows were raised when the Liberal Party heavyweight was appointed to Australian Water.

The former chief of staff to John Howard was considered a future political star.

But he needed money, and Australian Water was a cash cow.

Sinodinos was paid $200,000 for 10 days' work each year, with the promise of much more to come if the PPP was approved.

KERRY SHOTT: The chair of our audit committee, a man called John Brown, is well connected in Liberal circles too, and both the board and I were a bit amazed that Arthur turned up as the chair of Australian Water.

So, John and I met with Arthur in Sydney Water's office in the city and explained that the expenses were very high and we were very concerned about it. And, at that meeting, we also mentioned to Arthur that he should be careful about the company he was keeping.

(Footage of Arthur Sinodinos speaking in the Federal Senate)

ARTHUR SINODINOS: I've been called as a witness to ICAC...

LINTON BESSER: Arthur Sinodinos never heeded this warning and now he has paid a heavy price

ARTHUR SINODINOS: I do not want this sideshow to be an unnecessary distraction to the important work of the Government which I am proud to serve. Whilst this process is underway I will therefore be standing aside as Assistant Treasurer.

REPORTER V: Do you think you'll return to the ministry?

ARTHUR SINODINOS: I'm not into speculation; I'm into the facts. Thank you.

LINTON BESSER: But, far more damaging evidence was to emerge from the ICAC inquiry about the extent of Di Girolamo's attempts to persuade the Liberal Party to get on-side.

He made significant efforts to cultivate a relationship with the Liberal leader Barry O'Farrell.

ARTHUR SINODINOS: I'm always happy to help the ICAC...

LINTON BESSER: And he put other Liberal Party figures on the payroll, including Michael Photios: the state's most well-connected lobbyist.

(Excerpt of archived interview between Linton Besser and Arthur Sinodinos)

Did he ever get you any meetings? Did he get you a meeting with the premier?

NICK DI GIROLAMO: I don't need Michael Photios to get me a meeting with the Premier.

LINTON BESSER: So you've met with him about your issues?

NICK DI GIROLAMO: Who?

LINTON BESSER: The Premier.

NICK DI GIROLAMO: Yeah.

LINTON BESSER: When did you meet him?

NICK DI GIROLAMO: Oh I've done more than meet with him.

LINTON BESSER: Just weeks after Barry O'Farrell stormed to victory in the 2011 election, Di Girolamo sent him a special gift worth $3,000.

A Penfolds Grange Hermitage as old as O'Farrell himself.

BARRY O'FARRELL, FORMER NSW PREMIER: I want to categorically refute the claims about the 1959 bottle of Penfolds Grange. Let me be clear I didn't receive a bottle of 1959 Grange.

LINTON BESSER: O'Farrell didn't declare it, and said he didn't remember it. Then the ICAC turned up his hand-written thank you note.

BARRY O'FARRELL: In no way did I seek to mislead, wilfully or otherwise, the Independent Commission Against Corruption. That would go against everything that I have, but this has clearly been a significant memory fail on my part. I will be resigning the position; a new Liberal leader will be elected to take on the position of Premier of New South Wales.

Thank you.

DAVID IPP: I was really sorry that he resigned, because he was a strong supporter of ICAC, but he told an untruth to ICAC and he had to resign.

He thought that that was appropriate and many people would think that that's appropriate.

KRISTINA KENEALLY: I cannot understand the evidence that Mr O'Farrell gave.

It seems very strange to me that he didn't go into the ICAC box and say, "When I spoke to a journalist about the wine, I forgot then, but I've now remembered and I've updated my pecuniary interest."

I have to think, if he'd done that, he might have suffered a day or two of embarrassment, but he would've survived in office. I suppose the question I have is, maybe he didn't want to survive in office?

(Footage of Arthur Sinodinos outside corruption inquiry speaking to journalists)

REPORTER VI: How damaging is your lack of memory?

ARTHUR SINODINOS: I've answered questions.

LINTON BESSER: Australian Water also poured $72,000 into the Liberal Party's coffers in the lead up to the March 2011 New South Wales election.

REPORTER VI: A lot of don't recalls, I don't remember.

LINTON BESSER: Arthur Sinodinos was deputy chairman of the company donating the money, but also the treasurer of the party receiving it.

ARTHUR SINODINOS: Nothing further to add. Thank you.

LINTON BESSER: He told the corruption hearings he could not recall anything about it.

(End of footage)

Now, Arthur Sinodinos' former deputy on the New South Wales Liberal Party Finance Committee is speaking out for the first time.

ASHLEY PITTARD: Arthur Sinodinos was the treasurer of the party at the time. He then became the president of the party.

He would have to have known what people were actually donating to the party.

You might not know exactly the amount of money they are spending with regards to is it 100,000, 200,000, 80,000. But you would have an understanding that they were a substantial donor. And if you weren't, then you're kidding yourself.

LINTON BESSER: Ashley Pittard is a successful fund manager and spent two years on the finance committee.

He left the party in 2010 after failing to gain preselection for a New South Wales state seat.

He has told Four Corners it was difficult to believe someone in Sinodinos's position would have been unaware of the transactions.

ASHLEY PITTARD: If you're on both sides of it, you have to know. It's common sense. It's common sense that you know.

REPORTER VII: Were you aware that the money was effectively coming from Sydney Water customers?

LINTON BESSER: The ambitious water company employed yet more Liberal Party figures, hiring Paul Nicolaou.

Nicolaou was a senior party official, and was on a $5,000 monthly retainer from Di Girolamo's company - all of it being billed back to New South Wales taxpayers.

DAVID IPP: The allegation is that Australian Water misled Sydney Water into paying money for expenses in Australian Water's business of conducting sewerage operations when, in fact, that money was for something entirely different.

REPORTER VIII: Were you knowingly on the take from Sydney water?

PAUL NICOLAOU: No.

LINTON BESSER: Nicolaou's efforts to give Di Girolamo access to government were not confined to New South Wales.

ICAC has heard Paul Nicolaou told Di Girolamo he would need to pay a $5,000 donation in order to get a meeting with the then-lord mayor of Brisbane, Campbell Newman.

Di Girolamo and Eddie Obeid junior were spending Sydney Water money chasing deals north of the border.

AJ BROWN, CENTRE FOR GOVERNANCE AND PUBLIC POLICY, GRIFFITH UNIVERSITY: The lord mayor of Brisbane can deny that he even knew that there was a $5,000 donation that had been requested before he would meet with somebody, but the fact is, if you believe the evidence, somebody was selling that access.

LINTON BESSER: Is that the kind of donation arrangement that concerned you?

DAVID IPP: Yes hypothetically, absolutely. That's just a director or employee of the company that is going to do the lobbying and the lobbying is coupled with $5,000 payment.

That's precisely the real evil in the system.

LINTON BESSER: The recently-retired head of the ICAC, former judge David Ipp QC, had initial carriage of the current investigation, and four years ago, he predicted precisely this kind of scenario, where secret lobbying ran uncontrolled.

(to David Ipp)

The warnings that you'd issued a year or two earlier about lobbying to the New South Wales Parliament and the public, lobbying, political campaign contributions, meetings in secret, are these all exemplified by the allegations about Nick Di Girolamo?

DAVID IPP: Well, accepting that these are only allegations at this stage, the answer is yes.

LINTON BESSER: So far, Nick Di Girolamo and his company had Arthur Sinodinos on the board, a series of lobbyists on the books, and it was donating money through the front door of the Liberal Party.

But it seemed even this was not enough.

Corruption investigators discovered Australian Water Holdings had poured a further $183,000 into a secret Liberal Party slush fund.

The revelation took this story into dramatic new territory. The focus shifted from personal enrichment to the pursuit of political power.

REPORTER IX: Is your career in tatters Mr Hartcher?

LINTON BESSER: And it centred around this man, Chris Hartcher

BOB GRAHAM, FORMER NSW LIBERAL MP: Chris Hartcher was the dominant Liberal on the Central Coast, the one that everyone else looked up to. And, he was ah very ah, ah very well respected amongst other Liberals and so they did whatever Chris said. Chris said jump and everybody said, how high Chris.

LINTON BESSER: Bob Graham was the former Liberal member for the Entrance and entered the New South Wales Parliament in 1988 at the urging of his good friend Chris Hartcher.

For years, Graham was just one of Hartcher's many loyal acolytes.

BOB GRAHAM: He's been into politics all his life and he knows how to handle it. He knows what it is and he has this controlling influence on people.

Gee, as I said to you, I was caught up in that controlling influence back in the 80s. I mean, I used to think the sun shone out of him.

LINTON BLESSER: Along the coastline between Sydney and Newcastle, Hartcher fought for years to establish the Liberal brand.

Darren Webber and Chris Spence were both former staff to Hartcher and candidates at the 2011 election.

(Footage of Barry O'Farrell campaigning with Chris Hartcher, Darren Webber and Chris Spence)

BARRY O'FARRELL: I'm here to talk to the three new Lib candidates on the coast and the father of them all.

CHRIS HARTCHER: Godfather, rather.

BARRY O'FARRELL: The Godfather.

CHRIS SPENCE: Uncle Chris.

LINTON BESSER: Hartcher poured thousands of dollars into the campaign to get both men elected to Parliament.

BOB GRAHAM: Well, I to be honest with you, if somebody funded your campaign, you would feel obligated to them wouldn't you?

LINTON BESSER: But the question is, where did the money come from?

In late 2009, the former New South Wales Labor government banned property developers from making political donations.

This set off alarm bells inside the Liberal Party which was always staving off insolvency.

BILL HEFFERNAN: It's interesting for me that property developers are not allowed to donate to the state political system which immediately disadvantaged, in the democratic cause, conservative politics because the unions, they're still being able to bucket money in.

LINTON BESSER: The property developer ban prompted an allegedly corrupt scheme on the Central Coast that ICAC has heard was hidden in an innocuous marketing company called Eightbyfive.

While Chris Hartcher's staffer Ray Carter scoured the Central Coast for illegal donors, his colleague, Tim Koelma, issued those same donors with what the ICAC alleges were fake invoices for work simply never done.

More than $400,000 was allegedly laundered in this way.

The scheme was inadvertently exposed by a Wyong home builder named Matthew Lusted.

MATTHEW LUSTED, NSW LIBERAL PARTY MEMBER: Ray indicated that he was basically going around fundraising, and he asked for a donation, and he's raising money for the boys on the coast. Effectively there's an opportunity to change the Central Coast and, to do that, we wanted to install Liberal members.

LINTON BESSER: Lusted had political ambitions, and had been a Liberal Party member. He was more than happy to contribute $5,000.

He thought nothing more of it, until nine months later, when the election funding authority sent him a declaration form.

His staff could not find any record of the donation.

MATTHEW LUSTED: I sent them back again and said, "Well no, we did, we did make the donation so go find it." And then they came back again and said, "No I can't find it", and that's when I knew something was wrong, yeah.

LINTON BESSER: The reason Lusted couldn't find it was because Ray Carter had asked Lusted's accounts staff to make out the cheque not to the New South Wales Liberal Party, but to Eightbyfive.

When the Party's state executive was told something was amiss, they urged Lusted to contact Senator Bill Heffernan.

MATTHEW LUSTED: The first time I've actually heard of the company Eightbyfive was actually through Bill Heffernan over the phone who was quite boisterous on the phone that he's, ah, dug something up that needs to be exposed.

BILL HEFFERNAN: Obviously, I take these things seriously and sometimes you've got have a bit of guts to do it. But, yeah, I won't comment on the process, and, I mean, Matthew understood my position as soon as he told me the score and he understood his position

(Footage of Matthew Lusted pursued by media outside ICAC)

REPORTER X: Did you ever think you'd be the centre of such a massive scandal?

MATTHEW LUSTED: I certainly did not.

LINTON BESSER: In the corruption inquiry that followed, Lusted's innocent donation was a drop in the ocean.

MATTHEW LUSTED: The facts speak for themselves.

LINTON BESSER: As well as $183,000 from Australian Water Holdings, a string of banned property developers had been pouring thousands more into Eightbyfive.

REPORTER XI: Were you honest up there?"

RAYCARTER, FORMER STAFFER TO CHRIS HARTCHER: I was honest, yes.

LINTON BESSER: Ray Carter rolled over to the ICAC inquiry, claiming the money laundering went much higher, and also involved a mysterious 30-year-old foundation based in Canberra and registered to this post-office box.

GEOFFREY WATSON: During 2010 and 2011, there were members of the Liberal Party of New South Wales who used an organisation called the Free Enterprise Foundation as a means of washing and re-channelling donations made by prohibited donors. The actions of these persons were a serious breach of the law and a serious breach of trust with the voters of New South Wales.

LINTON BESSER: The Free Enterprise Foundation has been nominated effectively as a money laundering operation by ICAC-

BILL HEFFERNAN: Oh well, that's a distortion of the facts. But, I mean the Free Enterprise Foundation for many, many years has been a well-credited, well-audited fundraising opportunity with all the returns.

Whether there's been a distortion because, in recent times, once again, I'm not going to go there because there are certain sensitivities when you have an active ICAC inquiry.

LINTON BESSER: The foundation has always been a campaign finance conduit for the Liberal Party.

But, since the ban on developer donations in New South Wales, the amount of money it was giving to the New South Wales branch of the Liberal Party soared.

With the help of party fundraiser Paul Nicolaou, foundation contributions rocketed from $50,000 a year to $700,000.

KRISTINA KENEALLY: The Free Enterprise Foundation is not just some mistake somebody made; it's a deliberate and successful attempt to get around the donation laws.

DAVID IPP: Breaching the electoral laws is, by definition, in the ICAC Act corrupt conduct - breaching the electoral act. So, if the donations are laundered in a way that breaches the act, that's corrupt conduct as defined.

ASHLEY PITTARD: It's actually the best thing for the Party and also the best thing for New South Wales that these allegations come out and all of the people that were involved are cleared out of the Party, their power bases are totally destroyed and then the Party rebuilds itself.

LINTON BESSER: The ICAC has already made corruption allegations against a string of sitting Liberal MPs: Chris Hartcher, Marie Ficarra, Darren Webber and Chris Spence, as well a host of illegal donors.

And, when it resumes in August, it will hear evidence implicating the former police minister, Michael Gallacher.

Now, the man who first investigated the scandal says the collateral damage was inevitable.

BILL HEFFERNAN: You'd come to some bloke when there's a huge fire coming, saying we're going to put a fire break across your property and we're probably going to burn your property out. It's a difficult decision to make, to put the fire break in, knowing you're going to burn this bloke out to stop the bigger problem, and sometimes that has to be the way it happens.

NICK DI GIROLAMO: It's been horrific, you couldn't write about it, literally, could you?

LINTON BESSER: This story started with an ambitious lawyer and his plans to privatise part of Sydney Water.

Those plans ultimately failed.

But, the ICAC investigation they sparked has exposed major vulnerabilities in our political system.

The first is the patchwork of campaign finance laws that promote the perception politicians are for sale.

AJ BROWN: Where it becomes very, very murky is where the level of access that you can get starts to be affected by whether or not you've made a political donation. Because it automatically starts to become a question of getting something very concrete in return for your money.

ASHLEY PITTARD: And as you've seen with a lot of the hearings recently, there is a fringe element that want access and want a favour and want a return on their money.

And that's what has to be stamped out.

JOHN FAULKNER: We need a transparent electoral funding and disclosure regime. We need a transparent expenditure regime; this is in the interests of the Parliament; it's in the interests of politicians; it's in the interests of a good political system and it's in the interests of Australian democracy.

LINTON BESSER: Six years ago, Senator John Faulkner repeatedly tried to introduce reforms that would finally open up political fundraising to proper scrutiny.

The bill never passed.

JOHN FAULKNER: There is absolutely no reason why donations to political parties can't be made publically available effectively at the time they are given.

The technology exists to enable this to occur and it would massively enhance ah any ah transparency regime. But, along with ensuring that those donations are reported ah quickly in the public arena, obviously the threshold level needs to be reduced.

LINTON BESSER: The evidence about the Free Enterprise Foundation and the role played in this saga by figures outside ICAC's jurisdiction has exposed the lack of a national anti-corruption commission.

AJ BROWN: It's clear that the type of corruption that we see in New South Wales is not simply isolated to New South Wales, that those issues go wider, that they go across all political parties.

DAVID IPP: It is so screamingly obvious that there is a breakdown in trust at the moment and that the only way of maintaining trust, or recovering the trust, is to demonstrate that there are adequate means of discovering corruption so that the public can be confident that what the government is doing is not tainted by dishonest behaviour.

JOHN FAULKNER: A person who's done the right thing has nothing to fear from the work of a corruption commission. And I think it's really important that those who serve in territory, state of Commonwealth parliaments acknowledge that that is the case.

LINTON BESSER: Political veteran Bill Heffernan doesn't see the harm in a federal ICAC, but believes selecting the right people for politics is even more important.

BILL HEFFERNAN: The most important qualification in public life, the most important qualification, is not to have a price. Every now and then you've got to have a cleanout, and at the present time there's a bit of a cleanout going on

KERRY O'BRIEN: Hopefully more than a bit of a cleanout.

The Independent Commission Against Corruption resumes its hearings in August. Who knows how deep the hole it will have dug under the foundations of political credibility in Australia by the time it finishes.

That's the program for tonight, until the same time next week, good night.

END

Background Information

KEY DOCUMENTS, TRANSCRIPTS AND REPORTS

TRANSCRIPT Opening Address by Geoffrey Watson SC at ICAC Operation Credo | 17 Mar 2014 -The transcript of Counsel Assisting Geoffrey Watson on the first day of full hearings into the ICAC investigation, Operation Credo.

Read the transcripts and source documents used in evidence during the ICAC Hearings, for Operation Credo and Spicer.

ICAC Exhibit: Other Stages Agreement - According to ICAC, this document was exploited by AWH to dramatically inflate their fees to Sydney Water. [PDF 932Kb]

ICAC Exhibit: "Unsolicited Proposal" Cabinet Minute - This document, used in evidence at ICAC, illustrates the changes between the original draft cabinet minute and the alleged forgery. According to ICAC, the changes greatly favoured AWH and were designed to mislead the NSW Budget Committee. [PDF 9Mb]

ICAC Exhibit: Email from Paul Nicolau to Nick Di Girolamo - Read the email sent from Liberal Party lobbyist, Paul Nicolau, to the CEO of Australian Water Holdings, Nick Di Girolamo, arranging access to the then-Lord Mayor of Brisbane, Campbell Newman, in return for a $5K donation. This document was used in evidence at the ICAC hearings. [PDF 175Kb]

REPORT National Anti-Corruption Plan 2014 | Attorney-General's Department - The Government's confidential anti-corruption report was obtained by Four Corners. The plan envisaged no oversight of federal politicians. Download the report. [PDF 92Mb]

RELATED NEWS COVERAGE

AUDIO Former ICAC head calls for Federal corruption agency | ABC AM | 23 Jun 2014 - The New South Wales corruption body looking at political favours in the state has already brought down a Premier and sidelined a Federal Liberal Senator. Now the recently retired head of ICAC, David Ipp QC, wants to see a federal agency established with the powers of a standing royal commission. He says there's been a breakdown of trust in the political process and more needs to be done. By Mario Christodoulou.

National anti-corruption plan prepared by Attorney-General's Department did not include independent watchdog | ABC News | 23 Jun 2014 - A national anti-corruption plan prepared by the Attorney-General's Department before the 2013 federal election fell dramatically short of calling for an independent graft watchdog.

David Ipp calls for federal corruption watchdog | SMH | 23 Jun 2014 - The recently retired head of the Independent Commission Against Corruption has called for the establishment of a federal anti-graft agency with the powers of a standing royal commission, lamenting a grave "breakdown of trust" in the political process. By Four Corners reporter Linton Besser.

David Ipp QC, retired ICAC commissioner, reveals the 'bitter' challenges of investigating corruption among Australia's rich and powerful | ABC News | 23 Jun 2014 - After presiding over investigations into some of the wealthiest and most powerful figures in the country, David Ipp QC is no shrinking violet.

VIDEO Former Newcastle MP reacts to ICAC revelations | 7.30 NSW | 20 Jun 2014 - Jodi McKay, the former Newcastle MP who stood up to Nathan Tinkler, talks about ICAC revelations that she was the targeted for removal by members of her own party.

ICAC finds Eddie Obeid and Joe Tripodi corrupt over retail leases at Sydney's Circular Quay | ABC News | 6 Jun 2014 - The Independent Commission Against Corruption (ICAC) has found former NSW Labor ministers Eddie Obeid and Joe Tripodi acted corruptly over retail leases at Sydney's Circular Quay.

Moses and Paul Obeid challenge ACCC action over alleged cartel conduct in Federal Court | ABC News | 6 Jun 2014 - One of former New South Wales Labor minister Eddie Obeid's sons has faced court to fight an order to co-operate with an ACCC investigation into a corrupt mine licence.

OPINION The public wants action, not just ICAC findings | ABC The Drum | 5 Jun 2014 - NSW Labor moved swiftly to expel Joe Tripodi from the party after ICAC corruption findings today, but the cynical and expedient culture he and others manipulated remains to be demonstrably changed, writes Quentin Dempster.

VIDEO NSW political corruption claims cross borders | ABC 7.30 | 28 May 2014 - New South Wales' Independent Commission Against Corruption is investigating whether taxpayer money helped fund the expansion into Queensland of a company allegedly using government funding massive salaries, political donations and luxury travel.

ICAC: Nathan Tinkler denies any knowledge of donations to alleged Liberal Party slush funds | ABC News | 16 May 2014 - Embattled coal magnate Nathan Tinkler has told the Independent Commission Against Corruption that he gives large political donations without strings because "that's the way we do business in New South Wales".

ICAC: Mining mogul Nathan Tinkler says allegations are 'character assassination' | ABC News | 15 May 2014 - Former Newcastle-based businessman Nathan Tinkler has accused the Independent Commission Against Corruption (ICAC) of ruining his reputation.

Former Newcastle MP Jodi McKay gives evidence to ICAC over alleged Nathan Tinkler bribe | ABC News | 2 May 2014 - The corruption watchdog has heard evidence that former treasurer Eric Roozendaal had inside knowledge of an alleged bribe offer from former businessman Nathan Tinkler.

Australian Water Holdings' big Qld push: Ties from Premier Campbell Newman to Ipswich Mayor Paul Pisasale | The Courier-Mail | 29 Apr 2014 - he story goes back to the 1990s, when AWH helped create water infrastructure for NSW developments in a deal involving public utility Sydney Water. By 2007, Di Girolamo was in charge and, according to ICAC hearings, the controversial Obeid family became involved.

AUDIO NSW ICAC claims another scalp | ABC PM | 28 Apr 2014 - The Upper House MP Marie Ficarra has stood down as parliamentary secretary to the Premier and from the parliamentary Liberal Party after being accused of soliciting a donation from a banned donor.

VIDEO ICAC told of Liberal slush fund | Lateline | 28 Apr 2014 - The NSW corruption watchdog, ICAC has heard sensational allegations of a secret Liberal slush fund set up to allow illegal donations to the party.

WATCH RELATED FOUR CORNERS

The Enemy Within | 11 Mar 2013 - Reporter Marian Wilkinson charts Eddie Obeid's rise inside Labor's most powerful faction, the New South Wales right.