Royalties, flawed governance and non-transparency: a potent brew

 

Thou monstrous injurer of heaven and earth!

Call not me slanderer; thou and thine usurp

The dominations, royalties and rights

Of this oppressed boy…

King John Act two, Scene one.

 

This post provides a high-level overview of how the institutional structures related to payments to traditional owners related to mining on Groote Eylandt have evolved in recent years.

In 1963, prior to the existence of land rights, the Church Missionary Society which had a presence on Groote presciently had secured mining tenements on Groote as a means of protecting Aboriginal interests. They used their commercial leverage to negotiate a royalty arrangement with BHP to ensure that the local Anindilyakwa people would benefit from mining. As part of that negotiation, royalties began to flow in 1965 and in 1969 the Groote Eylandt Aboriginal Trust (GEAT) was established. While the Trust has had a chequered history, it appears to be operating well and has accumulated a balance of over $200m based on royalty payments from GEMCO and its ongoing investments (link here).

GEAT provides an annual grant program aimed at benefiting the traditional owners of Groote. In the 2022 and 2023 financial years, the grants made were around $$5m. and $7m respectively. The following analysis does not deal with GEAT, which is independent of the ALC, and it is mentioned here for the sake of completeness. As I understand it, the more recent mining agreements on Groote under ALRA in effect net off the benefits directed to Groote in calculating the payments made to the ALC for on payment to the AMT.

This post focusses on the complex and I suggest problematic financial and governance arrangements between the Anindilyakwa Land Council (ALC), the   Anindilyakwa Mining Trust (AMT) and the Anindilyakwa Royalties Aboriginal Corporation (ARAC). The aim is to identify points of potential concern in terms of good governance, to raise some questions regarding what appear to be some problematic financial transactions, and finally to explore some broader policy reforms that these issues suggest may be required. It is not intended to be a comprehensive analysis.

In 2007 the AMT was established to receive the negotiated payments arising from a revision of the revised agreement between manganese miner GEMCO and the ALC. Under the current mining agreement between GEMCO and the ALC, GEMCO pays a negotiated royalty to the ALC, a portion of which is then transferred to the AMT to be invested and distributed in accordance with the Trust Deed. The original Trust Deed was revised in 2010, and sets out the rules governing the operation of the AMT. The revised Trust Deed is available on the ACNC website (link here).  

As I understand it, the more recent mining agreements on Groote under ALRA which provide for payments to AMT in effect supplement the continuing payments directed to GEAT.

For our purposes, key elements of the AMT Trust Deed include the power of the ALC to approve the appointment of new Trustees, a requirement for there to be at least two ‘responsible persons’ appointed as Trustees (essentially fulfilling roles akin to independent directors), the provision of quite broad powers to allocate royalty funds for community purposes, the inclusion of standard conflict of interest provisions, and of a power for Trustees to delegate their powers to an individual or individuals. Normal provisions for minute taking and annual meetings apply. The current Trustees are listed on the ACNC website (link here) noting however that Mr W, the former Chair of the ALC, is recently deceased.

The most recently available financial statements, for the year to June 2023, indicate that the AMT controls net assets of $274 million, and is in receipt of an annual income of almost $20 million in negotiated royalties and just over $8m in investment income. These income flows clearly vary from year to year.

The ALC is also in receipt of section 64(3) payments, often referred to as ‘royalty equivalents’ because they derive from provisions of the Aboriginal Land Rights (Northern Territory) Act 1976 (ALRA) which appropriate an equivalent amount from the Commonwealth Consolidated Revenue for all royalties received by the NT Government from mines on Aboriginal land. In turn the ALC is required by section 35 of the ALRA to disburse these funds within six months of receipt to Aboriginal Corporations representing traditional owners. These corporations must be incorporated under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act) to facilitate more intensive governance support (a legislative constraint that makes good policy sense in my view given that ASIC incorporation is looser and is less intensively regulated).

The ALC distributes its section 35 funds to a range of corporations located on Groote Eylandt, many focussed on clan affiliations. Increasingly however, the ALC appears to have been directing section 35 funding to corporations focussed on social and economic development opportunities linked to the proposed Winchelsea mine; see my earlier post outlining the ALC strategy (link here).

In April 2016, a new corporation was registered with the Office of the Registrar of Aboriginal Corporation (ORIC). Its name is Anindilyakwa Royalties Aboriginal Corporation (ARAC), and it is unique insofar as the members of ARAC must be Aboriginal Trustees of the AMT. While the list of documents related to ARAC on the ORIC web page is incomplete, a revised Rule Book issued in December 2023 (link here) requires that all members of ARAC be members of the AMT. Directors of ARAC must be either members (ie Aboriginal trustees of AMT) or a responsible person (ie a non-Indigenous Trustee of AMT).

Moreover, all the Indigenous members of the AMT, and therefore ARAC, are members of the ALC. ARAC has four independent Directors Adam Simpson, Rodney Tidey, Russell Barnett, and Simon Longstaff. Of these, Adam Simpson and Simon Longstaff are also Trustees of AMT. Rodney Tidey is a former staff member of the ALC, and Russell Barnett runs a consulting firm that appears to have done work for the ALC. To be clear, I am not suggesting any wrongdoing on the part of these individuals, merely pointing to the tangled web of connections that has been constructed by the ALC during the term of its CEO Mark Hewitt.

The ALC thus effectively exercises influence over both the AMT and ARAC by virtue of its control of the AMT membership. This aligns with my observations in previous posts that the ALC exercises a degree of influence over corporations receiving s.35 payments that aligns with the definition of ‘effective control’ under the Corporations Act. If the ALC CEO and former Chair exercise disproportionate influence over the ALC Board, as was identified by the ANAO in its May 2023 performance audit, and explicitly alleged by sources consulted by The Saturday Paper for its recent exposé (link here), then that influence will likely permeate the decision-making of both the AMT and ARAC.

Given this background, I wanted to explore two issues that arise from these entwined sets of responsibilities and issues.

The first is a series of financial commitments and subsequent transactions reported in the AMT financial statements from 2016. The second relates to funding by ARAC of ALC employee costs.

The AMT/ARAC financial transactions

The notes to the 2016 Financial statements for the AMT which are available on the on the ACNC website (link here) include the following text:

12 Commitments During the year ended 30 June 2016, Anindilyakwa Mining Trust committed to contributing $3,500,000 to the Economic Development Unit (which has been established by the Anindilyakwa Land Council) on or prior to 30 June 2018. The first instalment of $500,000 was made during the 2016 financial year. 

The notes to the 2017 AMT Financial Statements state that the first instalment of $500,000 was made during the 2016 financial year and the second instalment for the first year of $500,000 and the first instalment for the second year of $750,000 was made during the 2017 year.

The notes to the AMT 2018 financial statements comment:

12 Commitments During the year ended 30 June 2016, Anindilyakwa Mining Trust committed to contributing $3,500,000 to the Economic Development Unit (which had been established by the Anindilyakwa Land Council) of which $1,000,000 was paid during the 2016 financial year and $750,000 was paid during the 2017 financial year. During the 2018 financial year, an instalment was made for $1,250,000. Therefore, as of 30 June 2018, the Trust has a $500,000 outstanding commitment.

During the year ended 30 June 2017, Anindilyakwa Mining Trust committed to contributing $51,122,311 to Anindilyakwa Royalties Aboriginal Corporation (ARAC) for costs associated with the purchase of infrastructure and funding of the operational budget. During the year, $6,000,000 was paid to ARAC. Therefore, as of 30 June 2018, the Trust has a $45,122,311 outstanding commitment.

The 2019 AMT financial report included a note indicating in relation to the 2016 commitment, a further instalment of $500,000 had been paid thus meeting that initial commitment. The note also states that in relation to the 2017 commitment, the AMT had paid an instalment in the 2019 FY of $5,975,000, thus leaving an outstanding balance to be paid of $39,147,311.

The 2020 and 2021`AMT financial reports note that no payments had been made and the outstanding commitment remained at $39,147,311. The Notes to the 2021 AMT financial report note that the outstanding amount was paid in FY 2022; this suggests the payment was made in the first half of the financial year. The 2022 AMT financial report lists under the heading Grants a payment to ARAC of $41,324,957. No rationale is provided for why the amount has increased from $39m to $41m.

There are no further payments reported in the 2023 AMT financial report.

The 2022 financial statement for ARAC is available on the Registrar of Aboriginal Corporations website (link here). Under revenue, it records a s.64(4) grant from the ABA of $9.6million (which would have been approved by the Minister) and a grant of $14.3m in s.35 payments from the ALC (the equivalent amount in 2021 was $34.8m). Total net revenue is listed as $23.0m. There is no record of any grant being received from the AMT. Nor is there any record of such a grant being banked in the following financial year.

That a payment of $41m appears to have disappeared is somewhat strange. It is even stranger when one considers that the AMT has no staff and its administration appears to be undertaken by the ALC, that ARAC has no staff (see the 2022 ARAC General Report) and its office is at 58-62 Macleod Street Cairns, the same address where the Commonwealth transparency portal lists ALC’s Finance and Royalty Development Unit (RDU) employees being located. Thus while the AMT and ARAC have different auditors and accountants, the staff servicing Board meetings and probably implementing Board decisions (including managing income and payments) are likely part of a small team in Cairns. Clearly a forensic audit is required to determine the reason for the apparent disappearance of these funds. I should acknowledge that I was alerted to the issues around the missing $41m by the recent story in the Saturday Paper (link here).

 

ARAC funding of ALC employee costs

The ARAC 2023 financial report includes under expenses a line item for ALC employee costs of $7.2m in 2021 and $8.0m in 2022. This strikes me as potentially problematic as it appears to suggest that the ALC is making payments to ARAC which are then used to pay ALC employee costs. In effect, this can be characterised as the ALC using funds that are required to be allocated towards corporations representing Traditional owners diverting the funds to financing its own activities.

The rationale that the ALC will use in its defence is that section 23(ea) of the ALRA allows land councils to assist Aboriginals in the area of the land council to carry out commercial activities. The ALC CEO has relied on this provision on a number of occasions in Estimates Hearings. However, the provision reads as follows (emphasis added):

The functions of a Land Council are (inter alia)

(ea)  to assist Aboriginals in the area of the Land Council to carry out commercial activities (including resource development, the provision of tourist facilities and agricultural activities), in any manner that will not cause the Land Council to incur financial liability or enable it to receive financial benefit;…

It is clear that the engagement of staff by the land council incurs a financial liability, and also that the payment of employee costs by ARAC can be characterised as receiving a financial benefit. While section 33A and B allow a land council to charge fees for services, this likely is limited to services which a land council is allowed to provide. Accordingly, it seems clear to this bush lawyer that the arrangements adopted since 2016 have breached that provision of the legislation. The appropriate way to have provided the assistance envisaged in my views would have been for the Minister to approve estimates of expenditure of the Land Council under section 64(1) of the Act. Why this was not done is unclear.

Similar issues arise in relation to the ALC economic development unit which the AMT funded in 2016, 2017 and 2018.

In relation to the arrangements which were adopted, it seems that there are two possibilities: either the arrangements have been undertaken with the approval and knowledge of the Minister and NIAA, in which case it places an additional onus on them to monitor and mitigate the risks of fraud or misappropriation, or even just poor management. Or alternatively, the arrangement has not been approved in which case it appears to breach the financial management provisions of the ALRA and probably the PGPA Act. Which is it?

 

Policy implications

The two issues outlined above raise numerous policy issues.

In the short term, both issues are serious enough to require a detailed forensic audit. These are both issues that fall within the regulatory oversight responsibility of the Minister and her agency, the NIAA. If they are to handball them off to an alternative ‘appropriate authority’, then they must identify the issues explicitly and directly. Otherwise there is a risk that the issues involved will be overlooked in the tangled web allegations that are currently in play (see my previous post link here).

Beyond the issues involving the ALC, NIAA should in my view undertake an immediate internal review of its approach to the regulatory oversight of portfolio bodies, the extent to which its Audit and Risk processes and fraud control processes are fit for purpose in relation to portfolio bodies for which the NIAA has an oversight responsibility.

In the medium term, these issues raise questions regarding the level of due diligence applied by the Registrar of Aboriginal Corporations when she approves the registration of corporations that are intended or likely to receive section 35 payments from a land council in the NT. The ALRA requires these payments to be directed to CATSI corporations, but this requirement can be undermined if the land council exercises effective control over the corporation. The Registrar should in my view initiate an internal review to identify what actions might be taken to ensure existing and yet to be established corporations likely to receive section 35 payments are properly independent of the land council making the grant.

The issues raise questions regarding the adequacy of the ANAO’s financial audits of statutory corporations, in circumstances where there are subsidiaries (such as with IBA and ILSC) or as in this case, with corporations where there is no formal ownership, but effective control is exercised by other means. Similarly, while the ANAO performance audits of the NT land councils has been perhaps the watershed in allowing greater scrutiny to be undertaken in relation to the ALC, in retrospect, it is clear that they should have adopted a much wider frame of reference once they realised that an intricate web of interconnected financial transactions was involved. In the light of the revelations that have emerged since the ANAO performance audit was published, its recommendations appear increasingly inadequate and short-sighted. In my view, there would be merit in the ANAO undertaking an internal review of its performance in relation to the ALC and associated entities aimed at identifying any shortcomings or ways to improve its effectiveness. Further (and to reiterate a point I have made previously), it is time that the ANAO conducted a detailed performance audit of the implementations of the financial provisions of ALRA.

Finally, the ongoing imbroglio on Groote points to two further general points with broad policy significance.

First, the NIAA apparently has no permanent presence on Groote Eylandt despite the extraordinary complexity of the policy issues that shape and confront the local population. This was not always the case and reflects a much broader pull back by the Commonwealth of on the ground staff across regional and remote Australia. Without eyes and ears on the ground, Ministers cannot hope to obtain the quality information and advice required in a rapidly modernising and changing demographic, social and economic environment. Th incoming minister for Indigenous Australians would be well advised to immediately place staff on the ground in Groote Eylandt, and to commission a review of NIAA staffing aimed at reshaping its staffing profile to better reflect the locus of the major policy challenges it faces.

Second, I cannot resist noting, indeed emphasising, that the Groote imbroglio has only surfaced because of the serendipity of the ANAO audit and the persistent delving of the media. The trend towards ever less transparency by government in general and the Indigenous Australians portfolio in particular, is in my view of deep concern for its implications for democracy, but just as important, because it allows First Nations peoples aspirations and interests to be ignored. So much of what has occurred on Groote can be traced back to failures of Ministers to uphold their responsibilities, failures that are facilitated and arguably encouraged by the endemic lack of transparency across the public sector. How is it that we only learn this year that in 2018 a minister of the Crown approved a mining agreement on Aboriginal land (whose terms have never been made public) where the Chair and CEO of the land council were sitting on both sides of the negotiations leading to the agreement. They had a conflict of interest, but in my view, it is the former Minister who approved the agreement who should be held to account. The consequences of that decision are playing out today and the outcomes are as yet unclear; but may well lead to ongoing economic and social losses for the Aboriginal residents of Groote Eylandt.

 

26 July 2024

Addendum 280724

It has been brought to my attentin that the AMT was originally assisted in its administration by the Myer Family Company which in 2017 merged with Mutual Trust (MT) (link here). It may be that MT continues to provide adminstrative assistance to the AMT, and not the ALC Royalty Management Unit in Cairns as was surmised in my original post. I have not been able to confirm this either way. Even so it does not change the broader underlying point that was being made.