National Agenda : Megalomania Takes a Toll Down Under : When Alan Bond and other Australian tycoons lost empires, the nation lost plenty: Unemployment rose, credit dropped, corruption spread and a recession gained steam.
Alan Bond was the highest of this nation’s high fliers, the wildest of its Wild West entrepreneurs.
He was the loud-mouthed Aussie who stunned the sporting world in 1983 by winning the America’s Cup yacht race. Four years later, he astounded the art world by paying $53.9 million for Van Gogh’s “Irises,” a then-record price for a painting.
Bond was the British-born sign painter who rose from this backwater town to run an $8-billion corporate empire that spanned five continents. Along the way, he met then-President Ronald Reagan and the Pope, collected Rolls-Royces and private jets and was hailed as a swashbuckling symbol of Australia’s bright future.
“Not since the days of rampant American capitalism when Gould, Carnegie and Rockefeller carved the U.S. between them has one man owned so much of an economy,” gushed a local newspaper writer in 1988.
But when the last of Bond’s giant companies went into liquidation in July, with more than $1 billion in debts, it marked more than the end of the largest, most spectacular corporate collapse in Australia’s history. A series of investigations in this onetime cowboy town--inquiries dubbed by some “Dallas Down Under"--has shown that Bond figured prominently in what now appears to be Australia’s largest-ever government corruption scandal.
Put simply, collusion between business people and politicians turned the state government of Western Australia into a wildly corrupt concern that critics call WA Inc.
“If you roll together Huey Long of Louisiana, Mayor Daley of Chicago and Jimmy Hoffa, it gives you an idea of WA Inc.,” said Patrick O’Brien, associate professor of politics at Western Australia University. “Western Australia became a state of corruption.”
Nor is it alone. Juries and “royal commissions” made up of retired judges are investigating influence peddling, bribery and misconduct in six of Australia’s seven states, threatening Prime Minister Bob Hawke’s tenuous hold on national government.
Most of Australia’s richest and most flamboyant corporate titans are broke, facing criminal charges here or abroad. And some of the largest media, property, brewing and banking companies have collapsed with billions in bad debts and lost share holdings.
And that’s only part of the problem. Aided by lax laws and deregulated banks, a five-year frenzy of borrowing by businesses resulted in a foreign debt rivaling that of Mexico and a national credit rating rivaling that of Peru. The government responded with a credit squeeze that pushed interest rates up to 21%.
Partly as a result, the so-called Lucky Country now struggles with record unemployment and what former federal Finance Minister Peter Walsh calls the nation’s worst recession since the 1930s.
“I attribute it all to megalomania, the megalomania of businessmen and politicians,” said Walsh, who resigned his Cabinet post last year. “Men like Bond were just hucksters. They were never anything else.”
Like their Wall Street rivals, the Australian entrepreneurs of the 1980s dazzled this staid land with bold business deals and ostentatious lifestyles. It made their fall that much worse.
George Herscu, for example, a Romanian refugee who built Australia’s biggest property empire, was sentenced to five years in prison for bribery. He already had filed the nation’s biggest personal bankruptcy petition. His Hooker Corp. is in receivership with debts of about $1.5 billion, largely from ill-advised investments in California shopping centers and other U.S. real estate.
Christopher Skase, who made an unsuccessful $1.5-billion bid for the MGM / United Artists entertainment giant, saw his massive Qintex Australia Ltd. media group collapse.
Robert Holmes a Court, the nation’s biggest corporate raider, died of a heart attack last September. Once reputed to be the nation’s richest man, his holdings had shrunk to a fraction of their previous value.
John Elliott, chairman of Elders IXL, the brewing, financial and farming conglomerate, lost his company. So did Werwick Fairfax, head of the Australia’s oldest and most respected press group, John Fairfax Ltd. It, too, is in receivership.
And Perth banker Laurie Connell faces 78 criminal charges in connection with the collapse of giant Rothwells Ltd. merchant bank. His case is key to WA Inc.
Working from a 13th-floor hearing room near the empty office towers built in Perth’s boom years, the three-member royal commission has heard testimony that state politicians collected $6.2 million in secret slush funds and lost up to $780 million in taxpayer money backing failing corporations run by their friends.
Up to half the money was used to bail out Rothwells and other Connell companies after the 1987 stock market plunge. Despite three infusions of cash, the bank folded. Investigators say hundreds of millions of dollars disappeared in bogus transactions.
Bond, who led at least one of the rescue attempts, has pleaded innocent to a charge that he concealed a $12.5-million fee while inducing another businessman to back the bank. If convicted, he could face up to five years in jail. At least four other tycoons also face charges in the Rothwells debacle.
Analysts say the case illustrates how the Labor government, elected in 1983, became so intertwined with business people that public weal took a back seat to private gain. Supporters got special access, tax breaks, government guarantees and lucrative backing while politicians got wads of cash.
Then-state Premier Brian Burke, for example, allegedly controlled a multimillion-dollar political slush fund. According to testimony before the royal commission, he secretly paid labor unions, invested $157,000 in gold and another $68,000 in rare stamps for his private collection. Few records were kept. Similarly, according to testimony, Burke’s former deputy kept a satchel with $20,000 in cash in his desk, while Burke’s former secretary was secretly paid $63,000 for work that she says she can no longer recall.
Burke, a Hawke protege who recently resigned as ambassador to Ireland and the Vatican, has not been charged and denies any wrongdoing, but he did concede in testimony that his handling of political donations was “not satisfactory behavior.”
Others are harsher: “It was clear to me it was a corrupt system,” said lawyer Bevan Lawrence, who led a campaign to form the royal commission. “I think all the deals were to line pockets of their mates.”
R. G. Pike, an opposition legislator who completed a committee investigation in June, agreed, saying: “That money went somewhere. That much money doesn’t just disappear. I think there’s a fair amount of swag that’s no longer in Australia.”
But with juggled books, overseas banks and shell companies from Bermuda to the Cook Islands, tracing the corruption isn’t easy. “In some respects, it has been like dealing simultaneously with a slippery eel and a very large and active octopus,” complained one judge investigating a controversial Bond deal last year.
Bond’s base was Western Australia, a nearly empty expanse of arid outback that forms one-third of this vast continent.
An obscure land speculator in an obscure town, Bond helped put Perth on the map when the Australia II, a wing-keeled yacht he financed, wrested the coveted America’s Cup trophy away from the New York Yacht Club at Newport in 1983.
According to biographer Paul Barry, on the day Australia II sailed to victory, Bond’s major company, Bond Corp., had fewer than 2,000 employees and net assets of $230 million. It was not even in Australia’s top 100 companies. Fed by his newfound fame, Bond’s empire grew by a factor of 20 in the next five years. By 1988, it was Australia’s largest media company and one of its largest brewers.
He owned oil wells, gold mines and dirigibles. He bought hotels in New York, office towers in Hong Kong, an oil venture in China, a telephone system in Chile, even a Cotswold village in England. He drove a $314,000 Bentley, flew a $21-million jet and sailed a $24-million yacht.
Almost all of it was with borrowed money. The ever-confident Bond got billions from obliging bankers. Even his purchase of “Irises” was half-funded by Sotheby’s auction house. He couldn’t pay. The painting was resold to the J. Paul Getty Museum in Malibu.
“Bond was always cash-strapped,” said O’Brien. “He was a man of tremendous energy, great dreams and no money.”
Bond’s own explanation for his buy-and-sell mania was simple. “People ask why I do something,” he told a reporter. “I answer, ‘Why should I not do it?’ ”
But combined with several ill-timed takeovers, Bond made three major mistakes. First was the Rothwells fiasco. Then a federal broadcasting tribunal declared him unfit to hold television and radio licenses after finding that he had made an improper $314,000 payment to a politician and threatened a business rival.
And finally, in late 1988, Bond attempted a hostile takeover of the London-based Lonrho PLC mining, hotel and agribusiness conglomerate. It was a disaster. Lonrho’s chief, R. W. (Tiny) Rowland, responded with a detailed report saying Bond was broke, with $11 billion in debts.
Bond’s house of cards quickly began to tumble. A fire sale of assets was unable to stem the collapse. As evidence mounted that Bond intermingled his private and public companies, a London judge charged that finding cash appeared to be a matter of “putting your hand into whatever till was available.”
Bond, 53, has denied any wrongdoing. He recently complained that his long-loyal chief aide, who died last year, had “dropped the ball.”
In a chance encounter, the burly Bond emerged from a shiny blue Mercedes to attend a showing of “Robin Hood, Prince of Thieves” and told this reporter to call him Monday for an interview. He didn’t mention he was leaving Sunday for Europe.
As investigators unravel the complex cases, and politicians plan beefed-up securities laws, others weigh the damage.
Lawrence observed that “the real penalty is long term. Our health system was one of the best. It’s now stuffed. Our schools need money. Our police force is undermined. People think all politicians are crooked. There’s a complete loss of respect for our institutions. That’s the real cost of WA Inc.”