Former Australian Federal Police commissioner Mick Keelty is examining links between political donations and the issuing and buyback of agricultural water licences, amid concerns that undeclared conflicts of interest could be fuelling corruption.

Keelty told The Saturday Paper this week he is concerned about the extent of undeclared conflicts of interest among politicians, lobby groups and businesses operating in the water market.

“I’m interested to see how conflicted politicians are declaring their conflicts of interest when decisions are made about water policy,” he said.

“Where you get those conflicts of interest and they’re not addressed, that’s ripe for corruption.”

His comments come as the Commonwealth Environmental Water Holder confirmed to The Saturday Paper that two contentious water licences for which the federal government paid $79 million have returned next to no water to the environment since they were purchased two years ago.

Keelty is conducting inquiries in his capacity as the Northern Basin commissioner for the Murray–Darling Basin, a position to which the federal agriculture minister, David Littleproud, appointed him in August last year with the support of the Labor opposition.

On the issue of water licences, he draws a direct comparison with the management of development applications by local government, where conflicts of interest are required to be declared.

“We’re not seeing it in water, and it should be there,” he said.

Keelty, who was also the inaugural chair of the Australian Crime Commission, is not categorical about what exposing such conflicts might reveal, though he suggests they are widespread.

“I’m not saying it’s corruption; I’m saying it’s conflict of interest,” he said. “But you could draw a conclusion that if conflicts of interest aren’t transparent, it could lead to corruption … Water is now the value of gold. If you have corruption in other elements of society, if you have corruption in other areas of business, why wouldn’t you have it here, when water is the same price as gold?”

“It is not as transparent as I first thought and it is muddied by in-kind donations and third-party companies or entities that are created to obscure who the real donors are.”

Over the past decade, Keelty has undertaken inquiries and investigations for various governments on issues relating to integrity in government policy, especially in emergency management.

Now turning his attention to the struggling river system, he is aiming to improve transparency in the management of the northern Murray–Darling Basin, which has a far worse compliance record than the river system’s southern half.

His task is to ensure that water gets back to the river system where it is needed and that those who rely on this water, and should have rights for its use, are not being ripped off, especially disenfranchised Indigenous communities and others living downstream.

Keelty argues that excessive numbers of water licences have been issued – sometimes on questionable grounds – and are seriously damaging the river.

“When you look at it strategically, there are too many licences having been allocated for the amount of water that is available,” he told The Saturday Paper.

“Nobody is addressing that, that I can see.”

Keelty also believes the system is too dependent on property owners acting within the law and reporting their own activities.

“The system relies on honesty and integrity but if you look at the number of prosecutions and infringement notices issued in New South Wales in the last 12 months, the pillar of honesty doesn’t appear to be that strong,” he said.

“I can understand the suspicion and the frustration in the southern basin states because they are directly impacted by the efficiency of the systems in the northern basin.”

Keelty is currently examining the Australian Electoral Commission records of political donations, checking links between donors, decision-makers and recipients of water licences or sales contracts.

“Clearly the National Party is probably, I guess, a glaring example of where politicians could be conflicted because their constituency are the very people who are using the water and the very people who are lobbying about water policy,” he said.

But he is examining links to other parties as well. “It’s not just the National Party. Different governments will make decisions about water policy that presumably benefit their state and their constituents.”

Keelty has concerns about the system of political donations more broadly.

“It is not as transparent as I first thought and it is muddied by in-kind donations and third-party companies or entities that are created to obscure who the real donors are,” he said. “I’ve found it more difficult and less transparent than what most of us probably think it is.”

The former police chief is also arguing for proceeds-of-crime legislation to be more clearly linked to offences in the water market because he believes the risk of losing a farming property would be a significant deterrent.

“Where you can prosecute criminal charges for offending, it makes sense to have parallel action in proceeds of crime because that will have more of an impact than perhaps some of the civil charges that are being used to remedy the situation to date,” he said.

Public scrutiny this week intensified on the federal government’s 2017 purchase of water licences from two Queensland cotton-farming properties, Kia Ora and Clyde, owned by Eastern Australia Agriculture (EAA), whose parent company, Eastern Australia Irrigation (EAI), is domiciled in the Cayman Islands, a known tax haven.

The departmental buyback of licences for 28,000 megalitres of floodwater, also known as overland flow, was overseen by the then agriculture minister and deputy prime minister, Barnaby Joyce. It cost taxpayers $79 million and was conducted without a tender process.

Some water experts have said the purchase is unlikely to have significant environmental benefits because the low-quality water exists only when there is a flood. They suggest the water was overvalued.

Shadow environment minister Tony Burke agrees. “You don’t pay Versace prices for water you get from the Reject Shop,” he said.

The Department of Agriculture insists the buybacks represented value for money and “a unique opportunity to secure a significant volume of water in a catchment of particular strategic importance to achieving the trip-bottom-line outcome of the Murray–Darling Basin Plan”.

But critics argue that officials, and successive governments, have been placing too much emphasis on achieving on-paper water savings and too little on whether such contracts result in the basin plan actually doing what it is supposed to do – restore water to the environment.

The properties in south-west Queensland are near the towns of Dirranbandi and St George, where Barnaby Joyce lived when he was a Queensland senator, and are also in the vicinity of Australia’s largest irrigation farm, Cubbie Station.

A condition of the buyback contracts was that dams and levees constructed on the properties to capture overland flow during floods be removed, so the water could flow back into the environment instead. Google Earth images of the Clyde property from this year show what appears to be a large semi-circular dam wall still there.

The Queensland Department of Natural Resources, Mines and Energy told The Saturday Paper that site inspections had confirmed the relevant infrastructure on both properties had been decommissioned.

Federal officials have provided no evidence of monitoring to ensure decommissioning has occurred in the past two years, nor any data on the volume of water returned to the environment as a result of the $79 million purchase.

In response to questions from The Saturday Paper this week about monitoring and measured volumes, a spokesperson for the federal Department of Agriculture and Water Resources responded that the department had no comment.

Mick Keelty emphasised his role is not to investigate the purchase of the two licences, but to ensure the appropriate authorities follow up concerns as they arise. In this case, he says that authority is the auditor-general.

But he remains concerned that a general lack of on-the-ground monitoring of such buybacks means it is extremely difficult to determine whether the government is actually getting the outcome for which it has paid.

“That’s the danger,” Keelty said. “Nobody has looked at whether those things for which they were compensated have actually been done. And who is quantifying the amount of water back to the environment?”

In a written statement, the Commonwealth Environmental Water Holder confirmed to The Saturday Paper that the amount of water recovered from the licences has been negligible since they were purchased two years ago.

“This type of licence is purchased with the understanding that its environmental benefit will be realised when significant rainfall causes flooding of the landscape, and that this happens only occasionally,” the statement said.

“The purchase of these licences will allow the protection of up to 30 billion litres of floodwater during wet seasons. This water will not be harvested from the river system and instead will now be allowed to pass down the rivers providing environmental benefits to the Ramsar-listed Narran Lakes and the Culgoa floodplain. Since the transfer of the licences in 2017, the region has been in severe drought and many categories of water entitlements in the region have not received an allocation for water use. This situation applies to water holders across the region – not just the Commonwealth.”

Agriculture Minister Littleproud formally asked the auditor-general this week to investigate the purchases of the Clyde and Kia Ora licences and all other water licence purchases back to 2008, when Labor was in office.

The Australian National Audit Office had already put the issue on its list of prospective inquiries after receiving a joint request from the Centre Alliance, the Greens and Labor last year.

Tony Burke said that if Labor is elected, it will establish a judicial inquiry – but only into the buyback of the Clyde and Kia Ora licences, not any others before or since.

The Centre Alliance’s Senator Rex Patrick, who obtained 500 pages of partially redacted documents about the purchases through a senate request last year, is calling for a full royal commission, following on from last year’s South Australian Murray–Darling Basin Royal Commission with which the Commonwealth refused to co-operate.

Renewed public scrutiny of the 2017 buyback this week has focused on two issues and two ministers.

Aside from the circumstances surrounding Barnaby Joyce’s decision to purchase the properties’ licences for transient floodwater for $79 million, the federal energy minister, Angus Taylor, is facing questions about his role in EAA and its parent company, EAI.

Taylor helped set up EAI six years before he entered parliament in March 2013. Taylor’s own parliamentary biography describes him as “co-founder and director, Eastern Australia Irrigation from 2007”.

Guardian Australia has reported that Taylor was listed in the annual report of the Australian company as being a director of the Caymans-based parent company until some time in 2012-13 and that he was also a director of Agricultural Managers Ltd, which provided management advice to the other companies and was also based in the Cayman Islands.

Taylor said he “has never had a direct or indirect financial interest in EAA or any associated company”, that he ended all association with that and related companies before he entered parliament and that he was unaware of the buyback of the properties’ water licences until it occurred, and received no financial benefit.

Joyce has also strenuously denied any wrongdoing in the purchase of the licences and defended buying from a company whose parent was based in an offshore tax haven.

“You ask whether they’ve got water to sell,” Joyce told ABC Radio National on Monday. “You’re not asking about what clothes they wear; you’re not asking who they’re married to. You’re asking if they’ve got water to sell. That is what matters.”

He said the preceding Labor government had also bought water from the same vendors.

Joyce said the Queensland Labor government had recommended the purchase.

A desktop Queensland government valuation put the combined price of the two whole properties – including the floodwater licences, other higher-grade licences for better quality river water and the land itself – at $123 million. It found the total amount of water covered by the combined licences would have been 57,000 megalitres of water.

On that basis, the Queensland government had recommended in 2015 the federal government buy the two properties in their entirety as a way of fulfilling its basin plan obligations and as an alternative to buying up the licences of a number of other property-holders in the catchment and disrupting many family businesses.

On Tuesday, the Queensland minister for natural resources, mines and energy, Anthony Lynham, said he does not know why the recommendation was rejected and only floodwater licences were bought instead, leaving the owners still holding the land and the most reliable water.

“Late in 2015, the option somehow dropped off the radar and that coincided with Barnaby Joyce being appointed as the water minister,” Lynham said. “It was his decision to pay $80 million. Due diligence, price, governance are all Barnaby Joyce’s responsibilities.”

Joyce said he acted on his department’s advice.

Overland flow water is a commodity that only exists when the area is flooded, a rare event in recent years in the Condamine–Balonne catchment where the properties are located.

The Murray–Darling Basin Authority’s own assessment of the environmental watering outlook for 2019-20, published in February, rated the Condamine–Balonne catchment area, where the two properties are located, as “very dry” with conditions in the first few months of this year forecast to be “drier than average”.

It found that “climate conditions over the months ahead are likely to be mostly warmer and drier than average across the Basin”.

And with a decorated former investigator asking a lot of uncomfortable questions about water licences, political donations and conflicts of interest – and the auditor-general set to ask a few more – things in the whole area of water policy may be about to get very warm indeed.