Former Victorian Legislative Council president Bob Smith has slammed Fair Work Commissioner Ian Cambridge’s media campaign against Prime Minister Julia Gillard, revealing his former factional rival clawed back $160,000 paid into her former boyfriend Bruce Wilson’s slush fund.

Extracts from Cambridge’s 1995 diary entries have dominated The Australian‘s coverage of the Australian Workers Union saga in recent days — a page 1 exclusive on Friday reported that some of the cash had been paid back to employers, but not that the payments were subsequently returned to the union jointly controlled by Cambridge.

Cambridge confirmed to Crikey that “in pretty much every case” the “legitimate” money from the AWU Members Welfare Account No. 1 was re-diverted back to the union. “Wilson and his friends decided to put the money into his so-called members welfare account,” he said. “He returned it, so we wrote to them [the employers] and eventually they sent it all back to me.”

The revelation goes to the heart of the affair documented article-by-article in Crikey: the murky dividing line between legitimate and illegitimate employer payments to unions and the lack of hard evidence that directly proves third-party malfeasance.

In July 1995, Smith placed a freeze on accounts controlled by Wilson after he attempted to draw cheques to send the $160,000 to a mysterious Perth-based “Construction Industry Fund”. Earlier that year, the existing Victorian AWU branch had been dissolved and two branches — a national construction branch headed by Wilson and a “new” Victorian branch headed by Smith — were spun off. Smith assisted Wilson to pay back the money in a legal deal brokered by the two officials’ lawyers.

As first reported by crack Age industrial reporter Joanne Painter 17 years ago, prominent construction firms including Fluor Daniel, John Holland, Thiess, Chamber Consulting and Woodside sent cheques to Wilson for what they believed to be legitimate purposes, including membership fees. But in some cases, they appear to have been paid as a quid pro quo for industrial peace or, in Thiess’ case, to get the union’s OK to use contaminated in-fill on its Western Ring Road site. According to a 1996 affadavit lodged by Cambridge, the account was “used to hold and/or launder union funds, as a step in the conversion of those funds to unauthorised, invalid, irregular and possibly illegal uses”.

A Victoria Police investigation into the transactions, released under freedom of information, confirmed that while some of the companies refunded the returned money, others kept it “in confusion … until some sort of logical explanation was forthcoming from the union as to its legal entitlement”.

Smith, then the Federation of Industrial, Manufacturing and Engineering Employees-aligned secretary of the Victorian branch, says it is “crazy” his long-time AWU nemesis Cambridge is “trying to claim the moral high ground” when the union ultimately ended up keeping the cash. “He pursued the money that companies had given Wilson and used [Robert] McClelland to get it back and it’s outrageous and totally immoral,” he said. “It certainly wasn’t clean money.”

At the time, Cambridge accused Smith of covering up Wilson’s transactions. But the irascible Smith says the reverse was true.

“Cambridge came in to frustrate my pursuit of Wilson,” he said in an interview with Crikey. “The fact is we did go to the police, I did go to the national executive … we were determined to get that rubbish out of our union. The victor always re-writes history. We were having a very, very difficult internal brawl.”

The Victorian-based fund was separate to the now-notorious WA-based AWU Workplace Reform Association established by Wilson with advice from Gillard in 1992, that was meant to be used for training purposes. Some of that money allegedly ended up being funnelled towards the purchase of a Fitzroy house under the name of Wilson underling Ralph Blewitt.

The Victorian Fraud squad investigated both accounts and numerous others in Wilson’s orbit but ultimately didn’t find enough evidence to press charges. Repeated calls by Cambridge for a royal commission fell on deaf ears.

On Friday, The Australian also reported the “$100,000” in redundancy payments paid to Wilson, Blewitt and Bill “the Greek” Telikostoglou in August 1995, but did not mention those monies were ordered to be repaid 10 months later after a successful Industrial Relations Court challenge by then-joint national president Bill Ludwig. However, it is believed the money was never recovered.

Cambridge exited the field in 1997 when he was appointed to the NSW Industrial Relations Court and much of the legal action died.

The union’s poisonous internal factional dynamic has escaped serious analysis. At the time, Cambridge and Ludwig’s faction was involved in a bitter brawl with Smith ally and fellow joint-national secretary Steve Harrison — aligned with the NSW Right and the FIMEE half of the union — for control. AWU and FIMEE had embarked on a rushed merger in 1992, but the strained factional dynamic — overlaid with Left, Right and state-based loyalties — persisted until 2001 when Bill Shorten was elected unopposed as national secretary and Ludwig as national president.

Cambridge claimed in an interview with Crikey that Smith was lashing out because he fears further diary extracts in The Oz will expose violent threats levelled against him when the duo were at war. “Mr Smith will be very concerned about his threats of physical violence against me. I would imagine that the revelations of my diary are going to give him a great deal of discomfort,” he said.

But Smith hit back, calling Cambridge’s claims “bullshit”. “If he’s actually suggesting I’ve ever threatened him physically then he’s a liar,” he said.

Smith accused the Ludwig-Cambridge faction of failing to probe the Victorian branch when financial problems first began to emerge in the media 1992. Wilson, then loyal to Ludwig, was acting Victorian secretary at the time.

Indeed, the internal tension in the AWU that continues to inspire Julie Bishop’s question time strategy can be traced back 23 years to the 1989 AWU elections, when Ludwig and Wilson challenged Ernie Ecob and Errol Hodder for president and secretary on a cross-Nullarbor unity ticket.

Wilson was part of a group of late-’80s Left “reform groups” that were challenging the Right for supremacy amid rank and file frustration with the accord, which had tied wages to productivity and hamstrung bargaining. Lindsay Tanner had successfully “turned” the Federated Clerks Union and the Health Employees Federation (No. 2) branch and the Transport Workers Union had also moved, endangering Robert Ray’s and Gareth Evans’ Senate preselections.

In 1989, Wilson fell short in his secretary bid by just 229 votes, 10,746 to 10,975, while running mate Ludwig triumphed. The Right’s Bob Kernohan, a favourite source of sacked 2UE presenter Michael Smith, was tipped out and the Victorian branch was snatched by (the other) Bob Smith, a left-wing organiser from Geelong. Wilson would later fill in for Smith when he took extended leave after the Left split.

A bitter Kernohan launched a five-year assault on his rivals, escalating when Wilson was anointed acting state secretary in 1992 as part of a peace plan hatched by Ludwig to soothe divisions.

Ludwig, who needed Wilson’s numbers to muscle up against the FIMEE forces by marshalling a Queensland/Victoria/WA bloc, remained, until 1995, his greatest supporter and regarded his charge as a potential future prime minister.

Bob Smith (the right-wing FIMEE one) told Crikey that Ludwig’s support led to much mirth on the AWU national executive when the issue of the secret accounts began to unravel. “I used to challenge Bill at national executive and ask him how his love child’s going now?” he laughed.

Smith says The Australian‘s resuscitation of the yarn 17 years on is a blatant attempt to launch a post-facto attack on the Prime Minister under the cover of hard news. “I’ve got no doubt about that … are they going after Bruce Wilson? Don’t think so. She seems to be the obvious target and is a pretty big fish,” he said.