Sequence of events
Gregg – who will be sentenced on January 31 – pleaded not guilty to both charges and did not testify during the five-week trial in Sydney’s District Court. His possible motivations for making the $US15 million payment are best understood through a sequence of events starting with the sale of a 35 per cent stake in Leighton’s Indian operations in December 2010 to Indian conglomerate Welspun to create a joint venture, Leighton Welspun.
The sale, which was known internally as “Project Melbourne”, generated $US80 million in cash, allowing Leighton to record a one-off gain of $US200 million. The sale was made to Welspun Infra Projects Pvt Ltd, which was majority-owned by Indian billionaire BK Goenka, the founder of Welspun.
The sale arrangement was complicated, with some of the proceeds to be paid to Leighton directly, and some of it to be held in escrow until Leighton Welspun met certain earnings targets.
If Leighton Welspun did not meet the earnings targets, Leighton would not receive the full sale price, and some money – around Rs40 crore (then worth some $9 million) – would be kept by Welspun.
Leighton Welspun did hit its earnings targets, so the joint venture was due its Rs40 crore from Welspun, who would pay the money to Leighton first. But there were issues over how exactly Leighton would then put the Rs40 crore into the joint venture, because if it put the money in as a loan, it might have had difficulties getting it out of India again due to the country’s financial regulations.
Leighton and Welspun’s management teams discussed the best way to put the money into the joint venture in the first half of 2011 with the aim of reaching agreement by July 15. If they did not reach an agreement by that date, Welspun had the right to force Leighton to buy back its interests in the joint venture as well as requiring Leighton to pay it 20 per cent of the internal rate of return (IRR).
Leighton meanwhile had announced a 25 per cent drop in first-half profits to $217 million, and then in April shocked investors by warning it was facing a $427 million loss for the year instead of the $480 million profit previously signalled. The slump was due to massive write-downs on its Airport Link project in Brisbane and its Victorian desalination plant project.
The Crown Prosecutor highlighted Leighton’s dilemma in his closing address to the jury.
“You might think it doesn’t want any more bad news. And it’s already accounted for $200 million worth of profit from the sale in India plus the cash of $80 million profit from India. If that was unwound and it had to pay back the cash plus the 20 per cent IRR, you might think, how would the board of directors be seeing that? How would the people at senior management be seeing that?”
After dumping bad news on investors in April, Leighton’s management was trying to restore investors’ confidence, and didn’t want “any more negative surprises”, the Prosecutor said.
On August 13, Welspun wrote a letter agreeing to pay Leighton the Rs40 crore it was owed, and also agreed to waive Leighton’s obligation to infuse money into the Indian joint venture.
The Crown asked the jury to consider whether the evidence was “strongly in favour of Welspun wanting something out that deal” because Welspun had not asked for anything in return from Leighton in the letter.
“The Crown would ultimately be submitting to you that, whilst there is no evidence directly on whether the payment instruction and the moneys that were paid were to buy out, if you like, the waiver obligation and the receipt of the Rs40 crore, that is nevertheless a conclusion you can draw from the facts.”
On August 15, Gregg asked that a $US12.5 million payment for “marketing and advisory” services be made by Leighton to Asian Global, as well as a $US2.5 million loan, via a bank in the US with the payment then sent on to Dubai.
Asian Global was run by Mahesh Khemka, who the Crown argued was known to Goenka, because Khemka had once served as a company secretary of a Welspun subsidiary.
In September, Gregg and Russell Waugh, who was the managing director of the Indian joint venture, exchanged emails discussing a $US12.5 million “buy and sell” agreement for steel and pipes between Leighton and Welspun. Leighton was named as the buyer, and Welspun – which manufactured pipes – was named as the seller.
Pressure from internal audit
The agreement was still in the process of being drafted in December when Leighton’s auditor, Christof Brixel, came across the $US15 million payment to Asian Global, and asked for an explanation. Gregg emailed Waugh on December 16 saying he was “getting pressure from IA [Internal Audit] to complete documentation.”
The final version of the buy and sell agreement, sent on December 18, was between Leighton and Asian Global (not Leighton and Welspun as initially drafted) with Asian Global described as having “contracts with internationally reputed manufacturers of high grade steel and steel pipes”. The value of the agreement had increased to $US15 million, and it was backdated to August 1, 2011.
Gregg asked Leighton’s accounts department to remove the agreement from the current year’s expenses and book it to “pre-payments”, which the Crown alleges had the effect of turning it into an asset that could amortised by about $600,000 every month.
The Crown argued Leighton’s subsidiaries, such as John Holland and Thiess, never used the agreement to purchase steel or pipes, and that Asian Global never made attempts to offer steel supplies. There was also no communication between Gregg and Khemka after January 2012. Khemka “just disappeared”, the Crown told the jury. “The agreement was a sham.”
Waugh, who had been accused of aiding and abetting Gregg by acting as an intermediary in the signing of the agreement, was found not guilty by the jury. Waugh’s barrister, Chris O’Donnell, SC, argued that his role in drafting and forwarding the agreement in emails had been “innocuous” and part of his job, and that Waugh had believed the agreement to be genuine.
“The decision to enter into the agreement was not his.”