Corruption and cover-ups in Leighton Holdings' international construction empire were rife and known to top company executives and directors, according to internal company files. Those in the know included the Australian construction giant's chief executive at the time, Wal King, and his short-term successor David Stewart. In revelations that will cause international embarrassment for Australia and raise questions about the role of the nation's corporate watchdog, the files expose plans to pay alleged multimillion-dollar kickbacks in Iraq, Indonesia, Malaysia and elsewhere, along with other serious corporate misconduct. Hundreds of confidential company documents, obtained during a six-month Fairfax Media investigation, also reveal a culture of rewarding corruption or incompetence, and abysmal corporate governance in what looms as the worst recent case of corporate corruption involving a major Australian firm.

Mr King, one of Australia's most highly regarded chief executives and who has reportedly been approached by Communications Minister Malcolm Turnbull about taking an NBN Co board seat, was chief executive of Leighton Holdings for 23 years and is a prominent Sydney business community figure. Leighton is one of Australia's biggest construction companies, with a market value of nearly $7 billion. It has built the Victorian desalination plant, Sydney's ABC studios, and Queensland's Ross River dam. Among the most explosive of the company files is a memo written on November 23, 2010, by then acting CEO David Stewart. It says Leighton International managing director David Savage had revealed he and Mr King knew of a $42 million kickback to a firm in Monaco nominated by Iraqi officials who gave Leighton a $750 million oil pipeline contract. "I asked did Wal K approve this? And he said yes," the memo says. Around the same time, a private consulting firm, Concorde Corporation, advised Leighton it was exposed in Asia to allegations of ''conflict of interest, kickbacks, unethical staff appointments and so on''. Concorde warned that the allegations ''indicate a serious breakdown of probity, governance and ethics within Leighton's Asian operations''.

It is exactly what got the AWB into trouble with their trucking contract at two to three times market rates. The allegations coincide with a tumultuous time at Leighton after Mr King, who has been awarded an AO, left the company to be replaced by Mr Stewart, and an international takeover battle between Leighton's major shareholder, the German company Hochtief and a Spanish firm, ACS. In his time at the top, Mr King transformed Leighton into a global construction powerhouse with $13 billion in revenue. Confidential legal advice provided to Leighton in late 2010 also warned that executives might be linked to corruption or serious mismanagement and that the company was facing an ''extreme'' risk of damage to its reputation. But Leighton withheld the Stewart memo, along with other files detailing corruption, from authorities for several months or failed to pass some of them on at all.

Another key factor impeding full exposure of the corporate scandal is the apparent failure of the corporate watchdog, the Australian Securities and Investments Commission, to conduct rigorous investigations in the two years since Leighton alerted federal police that it may have breached foreign bribery laws in Iraq. ASIC has spoken to no witnesses or suspects, despite witnesses telling federal police they had grave concerns about corporate offences in the company. Key Leighton witnesses and whistleblowers, including former top Leighton executive Stephen Sasse, told Fairfax Media on Wednesday that ASIC and the federal police appeared unable to adequately respond to the breadth of issues engulfing Leighton. ''I would be surprised if the federal police or ASIC have the expertise or technical knowledge to undertake investigations of this nature,'' Mr Sasse said. ''I suspect that the lack of urgency stems from resourcing issues rather than any lack of purpose.'' He declined to answer questions about his stint at Leighton in 2011.

Another source familiar with the Australian Federal Police investigation revealed that AFP agents privately complained about inadequate resources to conduct a proper probe. ASIC - which failed to respond to inquiries from Fairfax Media - is already under pressure for failing to investigate alleged corporate law breaches linked to the Reserve Bank bribery scandal. ASIC referred questions about Leighton to the federal police, which stressed it was treating the Leighton case as a ''priority''. ''We are working to ensure that all alleged criminal activity is uncovered,'' Commander Ian McCartney said. In a statement, Leighton Holdings said on Wednesday that it was co-operating with police, had strong anti-corruption policies and that its directors have ''at all times executed their duties with the appropriate care and diligence'' required by law. Mr Stewart's note says Mr Savage had claimed that Monaco-based firm Unaoil had been paid kickbacks by Leighton via an inflated $87 million contract of which the value of ''real work'' was ''less than half''.

Unaoil is run by an Iranian family that boasts close ties to Iraq's oil minister and Prime Minister. Unaoil was recently named in the British High Court as a company with influence among Middle Eastern and African officials and that was once wired a commission ''disguised as payment for office equipment''. Mr Savage was given a $2 million bonus when he left the company on March 31, 2011, despite internal concerns about his knowledge of corruption. Mr Stewart's memo of November 23, 2010, says Mr Savage allegedly suggested an extra $23 million illicit payment to win a further $500 million worth of work in Iraq. ''It is exactly what got the AWB into trouble with their trucking contract at two to three times market rates,'' Mr Stewart recorded himself telling Mr Savage, in reference to the Iraq bribery scandal involving AWB Limited in 2006. ''Wal King is still CEO and if he is OK with it, go for it,'' Mr Stewart's memo says.

The memo was not passed to police until November 2011, a year after Mr Stewart wrote it and only after lawyers working for Leighton accidentally stumbled over it. When Fairfax Media tried to question Mr Stewart about the bribery allegations this week, he responded: ''I don't know anything about it at all.'' Mr King declined to speak to Fairfax Media. A company source still close to Mr King cast doubt on Mr Savage's claim - as recorded by Mr Stewart - that he had discussed inflating the Iraqi contract with the former chief executive. But the confidential Leighton files also reveal that Mr King and other top executives were emailed in 2009 by a whistleblower about a ''payoff'' made to a corrupt Leighton employee in connection to a barge-building project in Asia. They also reveal the whistleblower's corruption concerns were subject to bungled internal investigations, despite spanning ''several countries'', including Indonesia and India, and exposing ''criminal'' conduct, including a ''systemic fraud''.

''It is not difficult to understand the frustration expressed by [the whistleblower] ... that there has been an attempt to cover up these issues,'' a company memo says. The whistleblower allegations exposed another company middleman, Malaysian-based businessman Pakianathan Sri Kumar, who was allegedly involved in corruption. Mr Sri Kumar has worked with Leighton in Iraq, Indonesia, India and Tanzania and the whistleblower said he had heard that the businessman received ''a 10 per cent kickback'' on certain projects, ''some of which is passed to Leighton executives''. Leighton's Indian projects alleged to be tainted by corruption were multimillion-dollar offshore works in the Indian town of Cochin and the district of Jamnagar. In confidential legal advice provided to Leighton in late 2010, Sydney lawyer Malcolm Davis warned that Leighton executives may be tainted by corruption or serious mismanagement.

''It is perhaps trite to say that 'reputational' risk to LHL [Leighton Holdings] and the greater LH Group is extreme were it ever to become known that LIL [Leighton International] ... engaged in conduct of the kind referred to in the allegations of impropriety.'' Mr Davis said it ''beggars belief'' that a Leighton senior project manager who had engaged in clearly ''criminal conduct'' with Mr Sri Kumar in Indonesia was not sacked. The manager, Gavin Hodge, allegedly stole $500,000 worth of steel from Leighton to build a barge for Indian company Adani in a black-market racket. Rather than being sacked, Mr Hodge was given a bonus and thanked for his work by a Leighton executive who knew of his alleged corruption, Russell Waugh. Mr Waugh, who could not be reached, is now a top executive at engineering and property services company UGL. After Mr Davis' scathing advice, Leighton finally fired Mr Hodge and initiated private legal proceedings against him to recover $500,000 he allegedly stole.

Mr Savage declined to answer questions. The questions Fairfax Media put to Leighton Holdings Why did the board of Leighton International, or some or all of its directors, or directors of LHL, approve a multimillion dollar agency payment to a Nominated Sub Contractor chosen by Iraqi authorities in relation to the Iraqi pipeline contract won in 2010? Did the board or senior company officials ever consider the prospect that part of this payment could be used to bribe Iraqi officials? What due diligence was done by the LIL and Leighton Holdings boards' on the use of Nominated Sub-Contractors in Iraq and/or other locations? Why did the CEO of LHL release a statement in Feb 2012 that the company had voluntarily notified the AFP of the Iraq issues when they had in fact been recorded by the company in 2011? Why did the company not immediately notify authorities when these and other corruption related matters, including Alan Fenwick's whistle-blowing, became known to senior company officers in 2010 and 2009? Current Leighton Holdings chairman Bob Humphris was part of the LIL board when large and suspicious payments were made to subcontractors in Iraq and when corruption issues occurred on other LIL projects. What steps did Mr Humphris take to act with care, diligence and in the best interests of the company, in respect of these issues? Did Mr Humphris and his fellow directors on the LIL board closely examine 'green sheets' on major projects, including the Iraq Oil project, and, if so, what was the reaction to the agency fees detailed in these sheets? If green sheets weren't closely examined, why not? Why did LHL not ensure appropriate investigations and action were taken when Alan Fenwick first aired his corruption concerns? Why did the company consider it appropriate that senior executive Russell Waugh be placed in charge of investigations into the conduct of his employee Gavin Hodge, given Mr Waugh's obvious conflict of interest in the matter? What due diligence did the board of LIL or the board of LHL do before approving payments and consultancy agreements to contractor LYE? What services has LYE provided the company and why was LYE allowed to continue his association with Leighton after it was known that he may be involved in corrupt behavior? What is the company's response to allegations that bribes or corruption have been apparent in projects in India, Tanzania, Malaysia, Indonesia and the Middle East? Why was Unaoil engaged by Leighton International? In India, is the LIL or Leighton Holdings board aware of the arrest of the head of its joint venture partner, Oriental Structural Engineers, by India's anti-corruption agency for allegedly bribing government officials to win highway construction contracts in 2010? In Malaysia, the deputy chairman of Leighton Malaysia, Tan Sri Hari Narayan was until recently the on the board of the Malaysian Government's National Highway Authority, an entity involved in road building contracts won by Leighton. Does this present Leighton with a conflict of interest problem, as well as a possible breach of Australian laws preventing payments or benefits to foreign officials in order to obtain a business advantage? In 2008 Leighton Offshore agreed to provide training and possible employment to students at a Malaysian TAFE owned by a political party that is part of the country's ruling coalition and chaired by a politician (Samy Vellu) who in his ministerial capacity had since 1987 awarded contracts to Leighton. Has the board of LIL or Leighton Holdings ever sought legal advice on this Malaysian TAFE agreement to see how it complies with Australia's foreign bribery laws? If so, what did the advice say? Have the boards of either LIL or Leighton Holdings passed on all evidence of possible bribery offences or breaches of corporations act duties to ASIC? In what capacity has LIL engaged Oceanking? Did LHL give permission for Mr David Savage to start a new EPC venture while he was working at LHL? Given the unresolved and serious issues facing LHL, why should shareholders have faith in the company's ability to ensure good corporate governance? The answers TO: Nick McKenzie and Richard Baker, by email

DATE: 2 October 2013

In 2011, Leighton Holdings voluntarily reported to the Australian Federal Police (AFP) a possible breach of its Code of Ethics as soon as it became aware of a possible breach although it did not have sufficient evidence to conclude that a breach had occurred. To facilitate the collection of evidence, Leighton kept the information confidential until, with the AFP¡¦s approval, an announcement could be made in February 2012 having concluded with the benefit of legal advice that this would not breach its continuous disclosure obligations. Following the discovery of the possible breach of its Code of Ethics, Leighton conducted an internal review of the projects involved. The internal review identified instances of failures to meet governance standards in the proper documentation of contractual arrangements. A consequence was the dismissal of a senior executive in July 2012. Leighton continues to cooperate with the AFP while the AFP undertakes its investigation. As this is subject to Federal Police investigation, Leighton does not intend to make any further comment. There have been a number of internal investigations relating to the construction of a barge on Batam Island culminating in Leighton taking court action against a former employee for alleged breaches of contractual and fiduciary duties. As the case is currently before the court, Leighton is restricted from making further comment. Directors

The Directors of Leighton¡¦s subsidiary companies and of Leighton Holdings are aware of their responsibilities and have at all times executed their duties with the appropriate care and diligence, and in the best interests of each relevant company. Corporate governance Over recent years, Leighton Holdings has continued to strengthen and improve its corporate governance and risk management processes including: Introducing a comprehensive Code of Business Conduct which sets out the behaviours that Leighton employees must adhere to, regardless of where they operate. The Code includes disciplinary action if breaches of the Code occur

Further enhancing its risk management capability to better measure, manage and control risk. Tender risk controls have been improved, including an update to the criteria for determining levels of risk in tenders

Establishing a ¡¥5 gate¡¦ tender review and approval process, with separate approvals required to: pursue a prospect; prepare and submit a non-binding proposal; prepare a tender; submit a tender; and execute a contract. This process culminates in projects of a certain size and risk profile requiring the approval of the recently established Tender Review and Risk Committee of the Board

Taking additional steps to enhance its independent internal audit function and assurance program

Establishing itself as a Strategic Management Company to ensure the appropriate span of control across the business and substantially refreshing its management team Loading These changes have strengthened the Group and brought a new governance rigour to the benefit of shareholders.

The Company is focused on ensuring that its values are consistently applied across the Leighton Group and any deviation from those values will not be tolerated.

