Severe water issues in Australia worsened by fraud

Traditional corruption frauds — bribery, kickbacks and conflicts of interest — are affecting water management and availability in Australia. Droughts, fires and floods are raising the stakes.

Australians probably couldn’t survive without the Murray-Darling Basin — a system of rivers, creeks, streams, wetlands and other catchments. The basin covers almost 14% of the mainland, contains more than 40% of all Australian farms, produces one-third of the country’s food supply and holds tens of billions worth of agricultural production value. Beyond its geographic, economic and agricultural significance, the basin is a habitat for dozens of endangered species of animals. (See Murray Darling Basin, Discover Murray River.)

The Australian government, during a significant drought in the middle of the last decade, passed the Water Act 2007 to improve water efficiency and to address over-allocation of water for rural Australia. The act established the Murray-Darling Basin Authority (MDBA) that developed the Murray-Darling Basin Plan in 2012. (See Developing the Basin Plan, Murray-Darling Basin Authority.) Regardless, large portions of the Darling River are drying up, toxic water has poisoned land animals and a million fish died in a single mass event in January 2019. And, of course, fraud has crept into the picture.

Conflicts of interest in water deals

Two scandals stand out among the numerous fraud, corruption and theft allegations related to the Murray-Darling Basin Plan. In August 2018, Australian authorities charged a major cotton farmer — and, therefore, an irrigator of water from the basin — with fraud related to federal funds allocated for water projects.

Former Queensland cotton farmer of the year, John Norman, and his chief financial officer, allegedly conspired to fraudulently obtain up to $31 million in grants from 2010 to 2017 — ostensibly for water efficiency projects. However, Norman allegedly used the funds to construct a system of levees and banks that caught and diverted floodwaters from the Macintyre River, which is part of the Murray-Darling Basin. So, he effectively stole the water by keeping it from making its way into natural waterways and did his part to subvert the whole purpose of the water management and allocation system and profit from it.

David Littleproud, the local member of Parliament and minister for agriculture and water resources at the time of the charges, had previously married Norman’s cousin, although Littleproud denied any personal conflict of interest. (See Queensland cotton farmer charged with $20m Murray-Darling plan fraud, by Kerry Brewster, The Guardian, Aug. 28, 2018.)

Littleproud’s predecessor, Barnaby Joyce, faced corruption allegations in another Murray-Darling Basin scandal, eventually dubbed “Watergate.” The fraud originated with Joyce’s approval of water buyback deals in which the government purchased water to help achieve targets for environmental water set out by the Murray-Darling Basin Plan.

In one of the deals Joyce approved, the government paid Eastern Australia Agriculture (EAA) — a private company — AUD $80 million, or AUD $2,745 per megaliter of water in 2017 in an apparently straightforward deal. (Irrigators in Australia legally own water — or the right to use a certain amount each year — so governments have been buying back some of the water to replenish systems.) An investigative journalist discovered that EEA had previously offered to sell the water at $2,200 per megaliter, and, for some reason, the government later agreed to a price inflated by almost 25%.

After the deal was finalized, EEA claimed a $52 million profit on the $80 million deal, sold the two properties through which it obtained the water licenses and paid off its investors. That group happened to include a holding company co-founded in the Cayman Islands by Australian Energy Minister Angus Taylor. Taylor denied that he received any financial benefit through the deal.

Other controversial water buybacks also featured questionable terms and massive profits for the recipients of federal funds. None of the deals’ bids went through open tenders that would’ve allowed for public scrutiny before closing. (See Barnaby Joyce and Watergate: the water buybacks scandal explained, by Maryanne Slattery, The Guardian, April 24, 2019, and Questions over companies chosen for $200m of Murray-Darling water buybacks, by Anne Davies, The Guardian, April 16, 2019.)

State policies undermining the plan

Around the same time the government authorized the questionable water buybacks (with excellent terms for private investors and grants that benefited agricultural businesses more than the environment), farmers’ advocates and scientists identified problematic state policies that also undermined the Murray-Darling Basin Plan’s purpose of sustainable water management.

In 2017, another journalistic investigation found that cotton farmers were using billions of liters of water purchased by taxpayers in buybacks for environmental purposes in New South Wales (NSW) in Australia, which effectively subsidized wealthy farming corporations.

The extraction rules changes in NSW — and the attention they received amid the irrigator harvesting — led to negotiations between one of the large farmers and the Commonwealth Environmental Water Office about a potential commercial arrangement in which the irrigators would be paid for not harvesting the water, which would mean taxpayers would pay twice for the same water.

Although the Murray-Darling Basin Agreement requires annual audits of state governments’ compliance with the plan, no such audit had occurred since 2011 when the allegations surfaced. (See Murray-Darling Basin Plan: Taxpayer-purchased water intended for rivers harvested by irrigators, by Linton Besser, Mary Fallon and Lucy Carter, Australian Broadcasting Corporation News, July 25 2017.)

Federal audit of plan found significant fraud risks

Australia’s government enlisted international business consultancy, EY, to conduct an audit in 2017, and assess risks associated with environmental water delivery required by the plan. The audit found significant fraud risks in the Commonwealth Environmental Water Holder’s (CEWH) management of environmental water, which was worth AUD $3.2 billion, because it relied on state governments and other commonwealth water agencies whose priorities weren’t always aligned with the environmental targets set out in the Murray-Darling Basin Plan.

EY’s report cited the risks of state agencies or individual water officers intentionally providing false information to the CEWH or misusing CEWH resources, and unauthorized access or misuse of environmental water by private landholders. (See Coorongs don’t make a right, by Maryanne Slattery and Roderick Campbell, The Australia Institute, December 2018.)

Inspectors, inquiries and familiar frustrations

In the wake of the well-publicized issues with the implementation of the Murray-Darling Basin Plan, the government appointed an interim inspector-general, Mick Keelty, after the affected states unanimously agreed to the position’s establishment in the summer of 2019.

After spending a month touring the southern reaches of the basin, Keelty acknowledged that the commissions, investigations and prosecutions launched by individual states in response to the high-profile scandals and revelations served to undermine public faith in and threaten the future of the Murray-Darling Basin Plan.

He also said that his initial efforts revealed how the state and federal departments responsible for compliance with the plan lacked effective processes for handling or responding to complaints. Keelty said that journalists, not whistleblowers, were responsible for the investigations and reviews. (See Murray-Darling Basin corruption undermining faith in $13b plan, Mick Keelty says, by Caitlyn Gribbin and Clint Jasper, Australian Broadcasting Corporation News, Sept. 2, 2019.)

Keelty’s early comments and efforts didn’t prove sufficient to quell unrest related to the plan. Shortly after he made those statements, protesters in NSW staged a rally calling for Littleproud to be removed from the cabinet position of water minister and the Murray-Darling Basin Plan to be paused as they voiced their frustrations with its effects. Demonstrators threw an effigy of Littleproud into the Murray River. (See Angry farmers throw effigy of Federal Water Minister into Murray River, by Rhiannon Tuffield and Warwick Long, Australian Broadcasting Corporation News, Sept. 6, 2019.)

Since Keelty’s appointment and the protest, severe drought conditions have exacerbated water management issues. A historically devastating bushfire season ravaged Australia and contaminated water sources in the Murray-Darling Basin, which prompted more fish die-offs and water shortages even after severe flooding. Meanwhile, states in the basin escalated disputes among themselves about water management as allegations of more water theft emerged and a state regulator filed charges against multiple irrigators. (See States at war over Murray-Darling ‘water grab,’ by Ean Higgins, The Australian, Feb. 19, 2019.)

Outlook of fraud-inducing Murray-Darling Basin conditions

All reports indicate that the justifiable high tensions in the Murray-Darling Basin demand corrections to the implementation of the basin plan. Re-evaluating the classifications and allocations of water flows and water rights to more adequately balance needs of different states and industries could potentially be aided by increased transparency, which was lacking in most of the high-profile scandals.

Additionally, it appears that coordinated enforcement efforts among the affected states would do well to emphasize internal complaint reporting mechanisms so more whistleblowers come forward. Efforts over the past year suggest that the government is at least aware of the critical need to improve anti-fraud and anti-corruption measures associated with the plan. The devastating droughts, fires and floods in Australia highlight the needed changes.

Mason Wilder, CFE, is a senior research specialist with the ACFE. Contact him at mwilder@ACFE.com.