Securency lacked controls on agency payments

Ian Rogers
The managing director and company secretary of Securency International both left the firm yesterday, The Age reported. Their departure - it is not clear if they are resignations - follows the public release yesterday of a report by KPMG into allegations of bribery of foreign officials.

The firm makes polymer film for use in the production of banknotes, such as used in Australia. The Reserve Bank of Australia owns 50 per cent of the firm and controls the selection of half the directors including the board chair, presently Bob Rankin.

The Age first reported the allegations in May 2009. The Australian Federal Police are investigating the claims, while KPMG pursued a complementary investigation for the board.

The two staff to leave yesterday were Myles Curtis, the managing director of Securency International and John Ellery, the company secretary. Both were on long term leave since last year. Two other senior sales staff had earlier left the firm.

The KPMG report found that management failed to alert the board to allegations of bribery and corruption, raised by a former staff member in 2007. Management also did not raise these concerns with the board in 2009 when The Age ran a series of articles on the firm's sales activities.

KPMG was generally supportive of the practice of engaging agents to market the polymer film, given the very long lead time on sales, which can take many years.

Securency drew on advice from Austrade on the development of its sales model, including the setting of commissions.

The actual commission paid by Securency on sales made by agents ranged from 2.5 per cent to 15 per cent of selling prices. The company target, and endorsed by the board as policy, was to "endeavour" to not pay commissions of more than 10 per cent.

In Cambodia and Vietnam, Securency obtained advice from Austrade about market rates for agents. In the case of Cambodia Austrade advised these ranged up to 30 per cent and in Vietnam up to 33 per cent.

In the period reviewed by KPMG, Securency paid $47.5 million to agents and equal to 13 per cent of sales subject to commission over those years.

The chief controversy related to payments made to agents with bank accounts outside their home market, something on which Securency took advice. Those payments were sometimes made to tax havens, The Age reported.

Contrary to the management model for making commission payments, Securency did sometimes make monthly payments of retainers and also sometimes paid expenses.

It is the monthly payments to one agent, who did not close any sales, that appears to be at the core of this controversy. Based on the series of reports in The Age this appears to be the payments made to the firm's agent in Vietnam.