The eye-opening accounting issues behind the ‘watergate’ scandal

How good is a 200% return? That’s what Cayman Islands-based company Eastern Australia Irrigation (EAI) made from Australian water and cotton farms.

Farmer and former Liberal Party senator Bill Heffernan warned against taxpayer money being used to purchase overflow land (OFL) water licences that involve floodwaters, or water that is “in the clouds”. He variously described these deals as a fairy tale, a con job and cooking the books.

Unfortunately, Bill’s trifecta of warnings has gone unheeded by his political party. In August 2017, $80 million was given to Eastern Australia Agriculture (EAA) for the acquisition of two OFL water licences at properties at Clyde and Kia Ora.

This taxpayer-funded purchase delivered a windfall gain of at least $52 million for the benefit of EAI, the parent company of EAA, in the Cayman Islands. The ultimate beneficiaries of this bonanza are unknown investors.

Former agriculture minister Barnaby Joyce had ministerial responsibility for the $80 million purchase through the Department of Agriculture and Water Resources (DAWR). Barnaby’s colleague, Energy Minister Angus Taylor, is managerial alumni of both EAA and EAI. The various relationships of Angus Taylor with EAI and EAA on the public record are as follows:

• Founder of EAI from 2007.
• Director of EAI from 2007 until financial year (FY) 2013.
• Director of EAA from June 26, 2008, until November 25, 2009.
• Secretary of EAA from June 26, 2008, until December 18, 2009.
• Part of key management personnel of EAA from 2007 until FY 2013.
• Consultant to EAA FY 2009.

Last Friday, large law firm Ashurst produced a media release on behalf of its client EAI in the Financial Review. Neither Taylor nor any member of his family had any financial interest in EAI or any associated company, Ashurst says. When it comes to law firms issuing statements on behalf of clients though, it is usually more useful to focus on what they leave out rather than what they put in.

Set out below are some of the important omissions, which pose serious questions for Ashurst’s client, Joyce and Taylor. In summary:

• Did EAA spend $7.2 million on advisers when purchasing Clyde and Kia Ora in 2008 and how much of that was received by Angus Taylor?
• Did EAA successfully negotiate with DWAR to be compensated for $16 million for infrastructure which had cost it a fraction of that amount?
• Did investors in EAI make returns of 200 per cent from financing the purchase of EAA in 2008 and selling out of the company in 2018?
• Did EAA pay any income tax in Australia on the windfall gain made on the water licences sold for $80 million?
• Did EAA avoid income tax in Australia by overstating the original cost of the water licences sold for $80 million?

Were financial benefits flowing before water licences were sold?

The Ashurst Friday statement also said: “We are further instructed that he [Angus Taylor] has not received any benefit of any kind for the sale of any water or land owned by EAI or any associated company and we are not aware of any matter which would cause us to doubt the accuracy of these instructions.”

Perhaps Ashurst is not aware of the quantum of consultants’ fees received by Angus Taylor from EAI, EAA and associates. A lot of government money ($80 million) has been received by EAA for the sale of water. Before the water was sold, a lot of money seems to have been paid by EAA to advisers of which Angus Taylor was one.

It is important to note that Taylor was a director of EAA in 2009 and of its parent, EAI, until some time in 2013 before he entered parliament. There is no allegation in this story that Angus Taylor has done anything wrong.

The Ashurst media release in the Fin reports a source saying: “Ashurst was responsible for setting up the corporate entities to own the farms while Mr Taylor found the farms, valued them and wrote a plan to make them profitable.” So how much exactly did Angus Taylor receive for his consulting work on the purchase of the two farms?

The EAA accounts for FY2008 show that the two farming properties (including water licences) involved an outlay of $7.2 million on direct costs related to the acquisitions. These costs would normally include stamp duty, accountant fees, lawyer fees and consultant fees, which related directly to the acquisitions.

Apparently, Queensland stamp duty does not apply to business property used to carry on a primary production business. In that case, EAA has paid around $7.2 million to advisers in connection with the acquisitions of the Clyde and Kia Ora properties in FY2008. The question is, was Angus Taylor an adviser at this time?

Read the rest of this piece over on Michael West’s blog