Massive Security Corruption AdmittedBy: Carlton Purvis, Published on Oct 10, 2013
$20,000 gambling debt from a drunk night at ISC West? Kickbacks, rigged bids, faked bids, fake accounts, and witnesses afraid for their safety in an “incestuous” industry are the findings of an 86-page commission report detailing how an integrator colluded with a government official, including excerpts from email correspondence between the players and the schemes used to secretly move money.
In a statement released to IPVM, the company took responsibility for the "corrupt dealings" saying previous management "failed to recognize and or stop this behavior," acknowledging this as a "wakeup call" and pledging that "significant changes" have been made.
How It Was Done
For one project, Kings Security Group and another company put in a bid. But because of the cost of the project and the spread between the two bids, the process required at least one more bid. The third bid came from a company called MJH Security Installations. MJH was a company that did not actually exist anymore. A government official, working with Kings, used the non existent company letterhead to enter a dummy bid that would favor Kings. The other bidder's CEO had no idea.
Gambling Debt Used as Cover
More than once in the investigation, those involved tried to explain away large payments as gambling debts. In once instance Charles Diekman, of Kings Security, tried to explain a $20,000 payment away to an official as a debt from a drunken night at ISC West: “He claimed that the $20,000 was payment for gambling chips he borrowed from Mr. Paul in March 2009, while at Planet Hollywood in the US. Mr. Diekman said that he was intoxicated on that night and could not recall the value of the chips he borrowed from Mr. Paul,” the report says.
The commission was unconvinced and believes the money was a reward for helping win the AGNSW contract.
Rigging the Bid Process
For a University of South Wales project, Kings realized that a way to get one up on the competition would be to have more technicians that other companies bidding on the project. They altered their own records to show more technicians than they actually had and then worked with Paul to ensure that he recommended the contract go to the company with the most accredited technicians, according to the report.
Rigging Change Orders
Once Kings Security won the contract, USW asked for an updated price list from Kings. In a “secret” email, the consultant Paul gives Kings Security suggested price increases that were small per unit, but increase the company’s profit by $10,000. Kings submitted the new prices and ironically it was Paul who the agency asked to verify that the new prices looked legit.
Low Transaction Amounts
Cash transactions (bribes and kickbacks) were split not to exceed $10,000 so they would not require reporting under the Financial Transactions Reports Act of 1988.
They made fake accounts for cash payments with the commission finding, "The checks were deposited into Paul’s mother-in-law’s account, although Paul denied he knew about them and later said they could have been for work he did for King’s in the past or a gambling debt Diekman owed him."
What Was Paid
The report found that Daniel Paul, who was a government consultant, received more than $100,000 in kickbacks from cash payments to trips.
In exchange for his help, the report says that Huskic got a $10,000 Vespa, a security door for his parents, lock work on his personal home, $3,100 in electronics, including an iPad, iPhone, and PlayStation games. Kings also gave him $9,500 cash to settle his credit card debt.
Unreliable, Uncooperative Witnesses
The commission says all of the men accused were unreliable, unresponsive witnesses. Diekman especially.
“Mr. Diekman was an unsatisfactory witness. He admitted to telling lies to the Commission. At one stage during the public inquiry, he claimed that he had not told the truth because he was in fear of his safety. This concern was explored in a compulsory examination. The Commission is satisfied that there was no basis for any fear on his part. In order to avoid answering difficult questions, Mr Diekman often claimed he was unable to recall salient events. His explanations for requesting cash cheques or cash from Kings were inconsistent and contradictory.”
Security Industry ‘Incestuous’
The testimonies collected from witnesses give the public an insider view of frustrations with the security and surveillance industry and the opinion that the type of deals Kings Security was involved are common in the industry.
Witnesses called the security industry “incestuous” and said everyone always knows what everyone else is doing. Others admitted that “there’s always talks” about kickbacks.
Even Richard Stokes, CEO of QVS, another company who benefitted after scratching Paul's back admits that interdependent relationships in the industry are what helps drive illegal kickbacks. “I don’t like the security industry, I’ve made a lot of money out of it but I haven’t enjoyed my time in it all the time and the history is that you scratch someone’s back, they scratch yours and that’s in, everything in the technology market I believe is the same ...”
Too Much Power for Consultants
Others considered the reliance on consultants was unhealthy, feeling they were at the mercy of whatever products the consultant was partial to. The commission also found issue with their ambiguous, sometimes changing roles in government projects. For example, Paul not only was a consultant but was listed as project superintendent on one project and contract administrator for another.
“The outsourcing of accountability was evident in the breadth of control afforded to Mr. Paul across the length of the various security projects and his level of influence within each project stage. His degree of control was, in some cases, astounding. It also created a real opportunity for corrupt conduct,” the ICAC says.
The investigation raised questions about whether public agencies had put in their own corruption safeguards, finding it especially concerning that “agencies involved in this investigation had limited capabilities in the design, integration and installation of complex security systems" and that they "placed substantial trust in consultants and external installers to provide impartial and honest services."
"The possibility that these persons might abuse the trust placed in them for personal gain raised an important issue for public sector administration as a whole,” the report says.
Further, "Expert security consultants are susceptible to conflicts of interest and shifting alliances, due to the short-term nature of their work. This is particularly the case in the security industry, where it is common for technicians to move between companies, and rapidly changing technology necessitates information-sharing," the report says.
In 2009, the ICAC was tipped off that a government official was unfairly awarding government contracts to a company that was paying him.
The investigation initially focused on allegations of corruption in regard to a contract for the security upgrade for the Art Gallery of New South Wales (AGNSW), but as the investigation went on, information came to light showing questionable dealings several other projects too.
The full report examines six projects where foul play was suspected. It details emails and correspondence between officials and Kings Security, checks paid and how they shuffled money through bank accounts to obscure the recipient. The accused company, Kings Security Systems, even footed the bill for Paul to go to ISC West, the ICAC says.
- The ICAC says Paul accepted $13,000 from Diekman in 2008 for assistance in obtaining the University of South Wales (USW) access control project.
- Paul accepted $20,000 from Diekman in 2009 for helping Kings win the AGNSW project.
- Paul accepted $27,500 from QVS in 2009 as a reward for helping QVS become the main supplier for the project.
- Huskic from 2006 - 2011 sought and accepted gifts in exchange for using his public office to do things that would favor Kings Security and in 2010 helped create dummy quotes for a project.
This type of corruption happens in many places, but rarely does the industry get to see a light shined on it. Even in court proceedings often much of the evidence either is not easily accessible to anyone outside of the courtroom and even then both parties can argue to keep some information private. If you are looking for a good rundown of the dirty tricks and how they work, this report is it. And who knows how many other projects dealing with other agencies went on without being flagged by this investigation.
It is also important to note that even though Paul was only a government consultant, the commission still considered him a government official when he was doing work on behalf of the government.
Hopefully the this investigation and the ICAC's recommendation for prosecution will send a wake-up call to the industry.
The industry is incestuous so if you think only you and the public official know about the payments, then more likely someone else is asking questions too.
Criminal Charges Recommended
The ICAC has recommended criminal charges be filed against the major players in the case:
- Daniel Paul, a government consultant
- Charles Diekman, who owns 51% of Kings Security and is a director within the company. Deikman is in charge of getting contracts for Kings Security.
- Charges have also been recommended for government employee Robert Huskic for offenses from falsifying documents, to fraud to corruptly receiving and giving benefits.
Diekman left the company in 2011, and since then, the entire management team has been replaced by people with no ties to the corruption case.
It is up to the Director of Public Prosecutions to pursue criminal charges.