CHRIS UHLMANN, PRESENTER: A root-and-branch overhaul of Customs - that's the Government pledge after police revealed the latest arrests in a two-year investigation into drug importation. In all, eight people have been arrested including two Customs officers and a quarantine official. The police operation centred on Sydney Airport where some of the people paid to secure our borders now stand accused of guiding through contraband. Shortly I'll discuss that with Home Affairs Minister Jason Clare.

But first, for the past six months Nick McKenzie has tracked this investigation for 7.30 and Fairfax media. It now shapes as one of the nation's most serious corruption scandals. Until tonight we've been holding Nick McKenzie's report for operational and legal reasons, but now he can bring you the inside story.

NICK MCKENZIE, REPORTER: Late one night in early March at this Woolooware apartment block in the south of Sydney, the NSW police drug squad staged a raid. The police burst into apartment number seven and found five kilograms of pseudoephedrine tablets, as well as steroids and 14 grams of cocaine. The raid was linked to one of the biggest law enforcement corruption scandals to hit Australia in decades. It's a scandal which, until now, has remained a secret.

The drugs found here at this apartment block behind me came via a most remarkable route. Not only did they pass through what should have been one of Australia's most secure sites, they did so with the help of suspected corrupt Federal Government officials. These officials were meant to be guarding the nation's borders. Instead, they've been involved in no less than alleged drug trafficking and bribery.

The hub of this alleged corrupt activity is Australia's biggest airport. Sydney Airport plays host to thousands of passengers every day, screened by Customs officers whose job it is to prevent drugs and other prohibited goods entering Australia.

But far from being secure, it's suspected to be wide open to systemic corruption.

NEIL FERGUS, FORMER DIRECTOR OF SYDNEY OLYMPIC SECURITY : The capacity for a corrupt insider appropriately motivated to find ways through the system is actually quite strong and it probably always will be, so it is of paramount importance that corrupt insiders are detected and dealt with.

NICK MCKENZIE: Inside the apartment that was raided in March was Colombian-born Sydney man Diego Refojus. Refojus is a minor player in the underworld, a drug trafficker with prior convictions for aggravated burglary. But a Fairfax-7.30 investigation has discovered that the drugs found in his apartment were allegedly smuggled through the airport with the help of members of a suspected corrupt cell of Customs officials. The alleged members of the cell know the drug detection system back to front and know how to defeat it as well.

STEVE HUTCHINS, PARLIAMENTARY COMMITTEE ON BORDER SECURITY (2011): Customs officers would not have criminal records. They would have impeccable records.

NICK MCKENZIE: They'd be the perfect man to have on the inside.

STEVE HUTCHINS: They would be the perfect person.

NEIL FERGUS: If we have corrupt Customs officers, they do - they know how the system works. ... You're undermining everything that Customs stands for.

NICK MCKENZIE: Security concerns at Sydney Airport have persisted for years. In 2005, a leaked Customs report revealed organised crime had infiltrated Sydney Airport. The Federal Government ordered an inquiry.

Neil Fergus, former head of the Sydney Olympic security centre, helped Sir John Wheeler conduct his inquiry which revealed massive shortcomings and highly dysfunctional relationships between Customs, state and federal police and private airport security.

NEIL FERGUS: There were weaknesses with the CCTV technologies, the sharing of that and the use of that. There were issues in terms of intelligence sharing. There were a whole raft of issues.

NICK MCKENZIE: The Howard Government moved quickly to reform airport security and policing.

JOHN HOWARD, THEN PRIME MINISTER: I think we do have a high order of security at our airports, but it can be made better.

NICK MCKENZIE: But Fergus has told 7.30 the security reforms he called for were never fully realised.

NEIL FERGUS: I can't hand on heart, Nick, say that it has worked to the extent that we would have liked. I suspect it has been less effective than we hoped.

NICK MCKENZIE: In late 2007, in a report that was kept secret, a top-ranking Customs official urged a doubling in the numbers of anti-corruption staff and warned that the agency was terribly exposed without major reforms including drug and alcohol testing of Customs officers and mandatory reporting of fraud, corruption and serious misconduct. But those calls would go mostly unheeded for the next five years, leaving Customs without vital anti-corruption safeguards, a fact that shocks Neil Fergus.

NEIL FERGUS: Absolutely stunned. And to be honest, Nick, I didn't realise that that was the situation. So an agency of such critical importance to Australia's national security must have an appropriate vetting regime, must have an internal affairs or integrity section, must have alcohol and drug testing. It's almost defies belief if, as you tell me, those things are only being addressed now.

NICK MCKENZIE: In March 2009 the still unplugged gaps in airport security were dramatically illustrated with the fatal bashing of a Hell's Angels bikie associate at the Qantas domestic check-in terminal.

Airport security failed to stop the brawl and the CCTV cameras failed to capture vision that could be used effectively in court.

CLIVE SMALL, FORMER NSW POLICE ASST COMMISSIONER: Given the seriousness of the problem of drugs and other contraband being smuggled through the airports and given the publicly proclaimed high profile that was given to the security of airports, I would have thought the cameras would have worked.

NICK MCKENZIE: In 2009 the AFP's new airport policing squad zeroed in on Wayne Cleveland, a member of the infamous surf gang the Bra Boys. Police believed Cleveland's drug syndicate had for over a decade been using corrupt plane cleaners and caterers to smuggle cocaine, including this stash found by authorities in 2007.

???: Inside we have blocks of a white, hard substance in a vacuum-sealed package.

NICK MCKENZIE: In August 2009 Cleveland was filmed meeting one of his corrupt airline catering and cleaning contacts to organise another drug importation.

Cleveland was busted and later convicted along with two corrupt airline cleaners who both had been granted Federal Government aviation security identity cards even though they had prior criminal convictions.

Last year Steve Hutchins led a federal parliamentary committee that toured major airports examining gaps in border security.

STEVE HUTCHINS: But if you work here, you know exactly where the black spots are. You know where to get - smuggle gear in and where to get it out as well.

NICK MCKENZIE: Law enforcement officials told Hutchins privately that dozens or even hundreds of airport and waterfront staff had links to organised crime.

STEVE HUTCHINS: For some time, particularly the Australian Crime Commission, the Australian Federal Police, have been highlighting the amount of infiltration in some areas of the port and the airport. They suspect it's about three per cent of people who work in or about those areas that may be involved in serious and organised crime.

NICK MCKENZIE: Hutchins was warned privately by police of the challenges they faced, including a rise in cocaine smuggling through Australian airports, so his committee recommended new and sweeping overhauls of airport security.

STEVE HUTCHINS: So when Qantas introduced a direct flight to Buenos Aires, police said definitely that that would increase the amount of cocaine coming into the country or the opportunity for it to come into the country and inevitably it has.

NICK MCKENZIE: Fairfax and 7.30 can reveal that over the last two years figures in the underworld began to talk of some very special inside help at Sydney Airport. One of those with friends in the airport was underworld figure Alex Taouil.

In his book Blood Money, former NSW Police assistant commissioner Clive Small documented the rise in the underworld of Alex Taouil, seen here in this photo with Melbourne underworld boss Mick Gatto.

CLIVE SMALL: He's certainly moved much closer to the top in the past decade to the extent if he's associating with the likes of Gatto and a number of other people he's been - he is certainly towards the top and has got a wide network of associations.

NICK MCKENZIE: Alex Taouil's alleged contact inside Customs, Adrian Lamella, has an interesting history for a man whose job involves detecting drug traffickers. Publicly available records show that in 2008 the NSW police allege they found Lamella and two other men in a car with five small bags of cocaine, some of which Lamella later admitted to using. Two years after that, Lamella was involved in a property deal involving a unit in this apartment block with a man called Joseph Harb who'd later be arrested for drug trafficking.

Joseph Harb and Alex Taouil are not Lamella's only alleged questionable associates; nor is Lamella the only Customs officer with suspected links to the criminal underworld. According to intelligence obtained by Fairfax and 7.30, several policing and anti-corruption agencies suspect that Lamella is part of an allegedly corrupt cell of Customs officers working at Sydney Airport.

STEVE HUTCHINS: Customs is a problem. It would be a problem because a number of the areas that were recommended in the report weren't proceeded with by the Commonwealth. Now one of the areas of course is the role of the trusted insider.

NICK MCKENZIE: Well-placed sources say this cell of Customs officers has allegedly helped smuggle suitcases in backpacks filled with drugs past screening points, an activity suspected to have occurred every few months for several years. It's understood that around 12 months ago the cameras at Sydney Airport were secretly turned on the suspected Customs officers by Australia's secretive and powerful anti-corruption agency, the Commission for Law Enforcement Integrity. Soon, Customs officers' phone conversations were being tapped.

It was these tapped phone calls that led the NSW police drug squad to Diego Refojus' Woolooware apartment in March and the seizure of five kilograms of pseudoephedrine. Refojus is linked to two members of the allegedly corrupt Customs cell who are believed to have been at his apartment in the hours before the drug squad burst through.

Incredibly, up to 15 Customs staff at Sydney Airport are believed to have engaged in either serious misconduct or corruption. From that group, a core cell of up to 10 have been involved in drug trafficking and bribery.

Until this week, only one Customs officer had been arrested and accused in court of drug trafficking, arrested with him in August was Joseph Harb who was accused of smuggling drugs through Sydney Airport. This week, Adrian Lamella became the second Customs officer arrested and remanded into custody to face serious corruption charges.

Also arrested was his ex-girlfriend, a quarantine inspection official accused of leaking information to him.

Several other Customs staff remain under investigation, but are still working at Sydney Airport or other locations. Incredibly, it's only now that Customs are starting to implement common anti-corruption measures such as drug testing and the mandatory reporting of corruption. Unsurprisingly, the scandal is sparking calls for a full inquiry.

STEVE HUTCHINS: Look, I would call for a Royal Commission. We're not talking about small goods being knocked off anymore. We're talking about the importation of drugs.

NICK MCKENZIE: There's been a litany of reports, yet in 2012 we're still encountering very serious organised crime problems. Is it time to say, "Enough reports. Let's have something like a proper judicial inquiry, a Royal Commission?"

NEIL FERGUS: Look, I take the point that maybe there have been too many reports and not enough action taken, so, yeah, a commission of inquiry with judicial powers: it might be appropriate.

CHRIS UHLMANN: Nick McKenzie reporting.