Ex-Westpac banker says threats by Malaysians prompted property fraud
Former senior banker Michael Knight, who
claims to have uncovered massive corruption involving Malaysians
inflating property prices in Melbourne. Photo: Jason South
Michael Knight paid little mind to the dark-haired man
walking in his direction, past the luxurious cars and large gates on
Mulgoa Street, in Melbourne's upmarket beach suburb, Brighton.
At
least not until the man stepped close, twitched his jacket to suggest
he was carrying a gun and issued an unforgettable threat to the senior
Westpac banker: "I know you have three children – you will do what I
say."
The threat was aimed at coercing him to use his
personal bank account to facilitate illegal payments for a
multimillion-dollar international criminal conspiracy, Mr Knight says.
The
alleged conspiracy was run by well-connected Malaysian businessmen who
are accused of using Melbourne property purchases at inflated prices to
shift millions of dollars of their government's investment funds into
their own personal accounts.
Mr Knight says he played his role, paying out tens of
thousands of dollars from his account to a middle man. But he only did
this because he feared for his family. He later pleaded guilty to fraud
offences, avoiding a criminal conviction and receiving community service
as a punishment.
But after reading Fairfax Media's June expose of
how the Malaysian money-making scheme worked, he realised he had been
part of something much bigger: an alleged plot that involved $80 million
of Melbourne city properties and kickbacks worth millions of dollars.
It's
a scheme that has prompted criminal investigations in two countries and
highlighted Treasurer Joe Hockey's concern of illegal international
funds flooding Australia's property market.
"I read the [Fairfax] article and I thought, 'Finally I could put it all together'," Mr Knight said.
He
first twigged something was wrong with Westpac's well-heeled Malaysian
government clients when they introduced a British Virgin Island company
into their application for a $22.5-million loan, he told Fairfax Media.
Mr
Knight was Westpac's man overseeing the financing of large property
developments, but he was familiar with offshore tax haven vehicles,
having run an international investment firm before joining the bank in
2011.
Why, he wondered, would a Malaysian government
agency – the borrower was a national wealth fund called MARA – want to
deal via a notorious, secretive, offshore tax haven?
Then
he was puzzled to discover that the property the Malaysians were
buying – a student-accommodation apartment complex in Caulfield,
Melbourne, called Dudley House – was significantly overvalued. It was
worth around $17 million, but these men were happy to pay $22.5 million.
So
he checked the sale prices of several Melbourne CBD properties,
including multimillion-dollar office towers in Exhibition Street and
Queen Street, which the Malaysian buyers had bought with loans from
other major Australian banks for a total of about $80 million.
A
property valuer with inside knowledge confided in Mr Knight that the
purchase prices of these properties had been "ridiculous".
He
said he confronted the Malaysians, telling them they were "clearly
paying too much", but they brushed off his concerns. He immediately
suspected the buyers were "absolutely corrupt".
"I knew the vendors are taking a super profit and sharing those spoils with the officials," he said.
Mr
Knight said he thrived on striking deals and making money for
shareholders, so he didn't report his concerns to Australian
authorities. (Nor, it seems, did any of the other major banks dealing
with the same group). Instead, he had agreed to finance the Caulfield
deal at a lending ratio that protected Westpac's interests.
It
was within hours of striking that deal on 5 March 2013 that, he claims,
he was confronted by a man of Asian appearance outside his Brighton
home.
Mr Knight alleged the man threatened his family
before instructing the banker to move into his own account the $50,000
the Malaysian officials had just paid to secure its Westpac loan. The
man told him to then withdraw the funds in cash and pay him. Mr Knight
speculates the man must have been working with the Malaysians as a local
fixer.
The transactions were clearly illegal, but Mr
Knight made them anyway. "I've spent my whole life dealing in tens of
millions of dollars. If you think I'm going to put my family at risk for
50 grand, you are kidding yourself," he said.
On March
6, a day after he claims he was threatened, Mr Knight shifted Malaysian
government funds into his personal account in a transaction he would
repeat several times. Banking records show that Mr Knight withdrew large
amounts of cash - he says he also handed these over to the man.
Mr
Knight's lawyer later told a court that Mr Knight "wishes he had gone
to police… but the fact is he was in fear of his safety and his family's
safety".
It's hard to ignore how Mr Knight's story
provides him with a convenient defence for his actions – and his story
is not without holes. Victorian police say they found no evidence he was
threatened.
"If I am going to pinch money, I am hardly
going to move it to the same Westpac account my Westpac salary goes
into," Mr Knight said.
In September 2013, during an
unrelated audit, Westpac discovered the transfers and called the
Victoria Police. The bank says it cannot comment on the case, except to
say it had robust anti-money laundering procedures.
The bank sacked Mr Knight, who was then charged with obtaining property by deception.
Last
year, a preliminary hearing in the Melbourne Magistrates' Court heard
how Mr Knight had shifted into his own account a total of $75,000 linked
to the property purchase.
Magistrate John Doherty appeared cautiously
open to Mr Knight's claim that he had been coerced into moving cash.
"All
of us in this courtroom can understand about threats made to your
family, particularly you children and your wife," he said. "And that
happens from time to time to judicial officers as well. I get that, I
really get that."
The magistrate told Mr Knight that if
his story was accepted by a court, the case against him would collapse.
But he also warned that the alternative could be grim – if his story
wasn't believed, he could be jailed.
Then in June, the Fairfax Media report
hit. It showed that, from the $22.5-million property purchase Knight
had been involved in, $4.5 million had been skimmed off and returned
to senior Malaysian officials.
Our exposé prompted
Malaysia's Prime Minister, Najib Razak, to announce a full investigation
and Australian Federal Police to raid a house in Melbourne and travel
to Malaysia to collect more evidence.
However, at the
time Fairfax was not aware how one of Australia's leading banks had
facilitated the corrupt transaction. Nor did it have evidence that other
Australian banks might have also helped the Malaysian buyers pay
deliberately inflated prices on three other multimillion-dollar
Melbourne properties.
Then Mr Knight rang to tell his
story. He says he had long ago told Westpac and the Victoria Police his
story of coercion and about the Malaysians' alleged corruption and
kickbacks. It appears neither the bank nor police passed on this
information to federal authorities.
"Westpac was just worried about covering their arse – as soon as something goes wrong it is arse-covering mode," Mr Knight said.
Police
did not start their investigation until Fairfax Media approached them
in late 2014. By then, the former Westpac executive's case had already
come before court, where he was told by a magistrate that if he pleaded
guilty to moving the funds into his account, he would most likely would
escape a criminal conviction and instead perform community service.
Knight
took the deal and within a few weeks was working at the Salvation
Army. "It was excellent, the people there were just great," he said. "I
was sorting, pricing and dealing with customers."
Meanwhile,
the federal police are now hot on the trail of Westpac's Malaysian
government borrowers and their Australian partners over allegations of
bribery, money laundering and tax evasion.
The investigation is ongoing.
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