Cardno Caminosca corruption probe: How Queensland’s leading engineering firm was entangled
January 5, 2017 9:01am
Liam Walsh
Brisbane-based Cardno became embroiled in a corruption scandal — in South America.
THE investigators found a journal, but it seemed to be written in code. Trying to crack that code would be central to corruption allegations entangling one of Queensland’s leading engineering firms, Cardno.
The journal was found during a probe into Cardno’s subsidiary in Ecuador. It was an electronic calendar, The Courier-Mail can reveal today, and inside were a series of strange words.
At first they didn’t make sense. But a legal team investigating for Cardno thought they had decrypted the code. It seemed to point to payments linked to tenders on Ecuadorean government projects, say sources with knowledge of the probe.
The corruption allegations have been a shock to Cardno, which bought the Caminosca operation in Ecuador in late 2012. But they also raise deeper questions about the adequacy of checks when the Brisbane-based engineering firm, now with more than 6000 staff, swallowed almost 50 businesses in a decade.
The Courier-Mail today, via interviews and examinations of company documents, can reveal the untold story of how things went wrong and a potential scandal was uncovered.
A CORRUPT PLACE FOR BUSINESS
Ecuador was a rough place to do business. Based on the equator on South America’s west coast, the nation of 15 million people was ranked 118 out of 174 on Transparency International’s corruption perception index. That was worse than the likes of Ethiopia (113), Mexico (105) and Greece (94).
Yet the petro-nation was expanding, experiencing 5.6 per cent real domestic product growth, according to Australia’s Department of Foreign Affairs. Cardno, meanwhile, was hoovering up businesses globally and wanted a piece of Ecuador’s growing infrastructure market.
Up for sale was Ecuadorean engineering consultancy Caminosca. Founded in 1976, Caminosca’s executives included a guy who The Courier-Mail has chosen not to identify for legal reasons but we’ll call Don, because sources remember him as a smooth operator, with flowing hair reminiscent of Sonny Crockett, the character Don Johnson played in 1980s cop drama Miami Vice. He was rich and travelled with a driver.
Another executive was a man we’ll name Brains. That’s because whereas Don was polished, Brains was described as nerdy — a technically sharp, tall fellow with glasses.
Both were “really, really nice people”, says Andrew Buckley, Cardno chief executive officer when Caminosca was bought. “I would have said: ‘Totally straight-up … they could babysit my kids’,” he adds.
The pair were part a 400-staff operation specialising in infrastructure from hydropower to roads. Among Caminosca’s clients were “many government institutions”, Cardno noted.
The Ecuadorians were ready to cut a deal and Cardno looked through the books with a due diligence committee that included outside experts and Cardno staff.
Corruption was one red-light flagged in due diligence, The Courier-Mail understands. But it can be revealed that Cardno’s checks concluded Caminosca had won government contracts fairly and squarely.
The deal was sealed for more than $15 million, with almost $5 million held back initially. Original shareholders also took Cardno stock as partial payment, in theory a safeguard against the acquisition turning out as a dog.
And the acquisition seemed to succeed — Cardno in 2014 worked on the first subway project of its kind in Ecuador’s capital Quito, which sits 2800 metres high along a volcano’s slopes and boasts UNESCO-listed historical architecture.
WHAT ARE THESE DEALS?
Yet in early 2015, a top beancounter in Cardno’s US office was alerted to unusual transactions involving Caminosca during a review of years of taxes.
Digging began. The penny dropped. This looked really bad.
Payments to offshore subcontractors from Caminosca for millions of dollars went back many years, sources say. Working out ownership was difficult. “They were very sophisticated in the way they did the bribery,” says one person with knowledge of the probe. “They treated bribery as a cost.”
One theory is the alleged bribery revolved around government-linked tenders. Engineering firms give two envelopes when making a bid. Inside Envelope 1 is your technical capability: outlining your staff qualifications and methodology for building a project. Typically, only if your bid meets a required technical score will Envelope 2 be opened. Inside Envelope 2 is your bid price. In the Caminosca case, according to one source, it’s possible the numbers for both envelopes had already been decided.
There are duelling versions about whether any questionable payments occurred after Cardno acquired Caminosca. Regardless, the evidence was enough that Cardno felt legally obliged to alert Australian and US authorities, where it has operations.
Don and Brains were called in to explain to Cardno. Both denied any wrongdoing, sources say. To justify the payments, reports were produced the subcontractors had apparently made, but Cardno’s information technology experts found reasons to think these reports had been faked.
Don and Brains left Cardno. After multiple attempts by The Courier-Mail to reach the men, their Quito-based lawyer Juan Francisco Guerrero del Pozo contacted the paper, saying: “My clients, as shareholders or officers of Caminosca, have not conducted any illegal activities, neither individually nor through Caminosca”.
The Courier-Mail put details about the probe to Guerrero, a politely spoken lawyer who says he also represents Caminosca’s original shareholders. He maintains some information was inaccurate but won’t specify anything, citing “confidentiality obligations”.
COLOUR-CODED STAFF
Cardno assigned Caminosca staff into colour categories: red meant an employee was branded a bad apple and out, yellow meant they were on a watchlist and green meant they were good to remain, sources say. Projects were also tagged, with evidence leading to concerns about at least one successful tender on an old dam project.
Items were seized including laptops and the journal, belonging to Brains, was found, sources say.
The investigators’ methodology is not proven beyond doubt, but they came up with a way of decoding the journal that indicated persons and projects had a code name along with a note about payment. Associated calendar dates seemed to match project dates. The names of Ecuadorean government officials also came up, sources say.
Cardno made the shocking stockmarket announcement in March 2015 that it was reviewing “certain payments related to Caminosca’s government and state-owned entity contracts”. A few months later, Cardno’s annual report revealed legal action against Caminosca’s former owners for alleged sale misrepresentations. The matter is in arbitration in Florida.
There’s no suggestion any Australian or US-based staff were involved in any suspect transactions, and the Australian Federal Police told The Courier-Mail its “evaluation of this matter has been finalised with no Australian offence disclosed”.
While the US Department of Justice declined to comment, sources say the DoJ can take a hard line under the Foreign Corrupt Practices Act, meaning fines, even for US management. It also would look poorly when bidding for any future government work. Ecuador’s embassy did not answer questions.
GETTING BIG QUICKLY
Recriminations also linger about how a Brisbane-based firm, started by two engineers as World War II finished, found itself in this position. One former insider thinks Caminosca’s due diligence was badly done — the logic being that otherwise transactions would have been caught. The counter view says the alleged bribery was too complex for normal due diligence and unravelling the proverbial wool ball only came after immense spending on external experts.
Buckley — who was CEO when Caminosca was bought but had retired in 2014, before the scandal broke — has mixed views.
“We did a lot of due diligence. We didn’t find anything. We thought they were absolutely on the up and up, straight people,” says Buckley, who was not on the due diligence committee. “I suppose you could say it wasn’t adequate in front of the problem. But was it extensive and careful? Absolutely.”
The acquisition was one of almost 50 made under the reign of Buckley, a charismatic engineer who ran Cardno for 17 years. His successor, Michael Renshaw, a long-running executive who had overseen Cardno’s international expansion, doubled down with “Vision 20/20”, a plan to grow Cardno into a global top 20 engineering firm by 2020 with a staff of 25,000.
Renshaw was boss during Cardno’s largest acquisition — and financially one of its worst timed — the $US145 million ($A160 million) buyout of energy engineers PPI in March 2014, just before oil prices plunged. Renshaw departed Cardno 10 months into the CEO role.
These purchases helped weaken Cardno; in the last two years it has lost $421 million, including writedowns on Caminosca and impairments on US businesses.
Private equity outfit Crescent Capital Partners subsequently swooped on a 47 per cent stake in Cardno and effectively seized control. Crescent has since publicly slammed Cardno’s past integration process and “off strategy acquisitions”.
‘LIKE POLITICS: BLAME THE PEOPLE BEFORE!’
Cardno is now shrinking, selling US environmental consultancy ATC only three years after its acquisition. Sure, ATC added an extra 1600 staff, but it also billed customers at smaller rates than other Cardno divisions.
Buckley isn’t taking criticism lying down. “It sounds a bit like politics, doesn’t it: Blame the people before! We did 17 years of revenue and profit growth. We went from 200 people to 8000, and I think we did it really well,” he says.
There was logic behind buying ATC, he adds. And while conceding a small number of acquisitions weren’t successful, like Caminosca, Buckley proffers a skiing analogy: if you don’t fall over, you’re not trying.
Cardno under Crescent, whose motto is “grow, increase, expand”, has some shareholder support. But some former insiders are sceptical Crescent can manage Cardno any better.
“They don’t understand what they have,” one critic said. The argument is Crescent is overly focused on raw numbers and does not understand the nuances of Cardno’s worldwide operations. Crescent declined to comment, as did Renshaw. The Courier-Mail also put details about the Caminosca probe to Cardno, which declined to comment.
Back in Ecuador, the lawyer Guerrero says Caminosca’s former “shareholders do not know why things with Cardno have turned out as they have”.
But he offers a theory: “Cardno’s timing in announcing a dispute to the public coincides with news reports indicating a downfall of the Ecuadorean economy starting in mid-2014, and the corresponding delay by the government in payments to public contractors.”
Not everything went pear-shaped in South America — Cardno has another venture still working there. Yet the infamous Caminosca outfit, unsurprisingly, is for sale.
