The shadow side of a cardboard king | The Age

The shadow side of a cardboard king

July 25, 2010

    Jeanne and Richard Pratt out the front of their home Raheen, in Kew. <i>Picture: Simon O'Dwyer

    Jeanne and Richard Pratt out the front of their home in Kew. Picture: Simon O’Dwyer

    He may have been generous, charming and charismatic, but mogul Richard Pratt had a dark side. Michael Bachelard explores a world in which money bought everything – except honour.


    LYING on his deathbed last year, Richard Pratt, riddled with prostate cancer, briefly became the centre of the nation’s attention. The then prime minister, Kevin Rudd, the coach of the Carlton Football Club, lifetime employees and Melbourne socialites joined a procession of notaries filing through his gates to pay their respects to the immigrant tycoon, the cardboard king, our biggest recycler, philanthropist, footy club president, family man.

    When attention turned to the question of his role in a $700 million price-fixing cartel, it was his supporters who were heard, in righteous anger, saying he was being hounded to his death by a vengeful regulator. They vowed to have criminal charges withdrawn, to clear his name, have his surrendered honours, including the Companion of the Order of Australia, posthumously re-awarded.

     

    Madison Ashton has made a claim against the estate of Richard Pratt. <i>Picture courtesy Channel Nine

    Madison Ashton has made a claim against the estate of Richard Pratt. Picture courtesy Channel Nine

    After his death, at his state memorial service, he was eulogised by Rudd and Premier John Brumby.

    But 14 months after his death, when last month’s Queen’s Birthday honours list was issued, it was silent on the subject of Richard Pratt. He will now never be officially honoured. Instead, it was his tormentor, Graeme Samuel of the Australian Competition and Consumer Commission, who was made a Companion of the Order of Australia.

    And now Sydney-based Penthouse Pet and former prostitute Madison Ashton has come forward to claim part of his $5 billion empire. This smashes the spin surrounding Pratt’s long-term relationship with his official mistress, Shari-Lea Hitchcock, that the tycoon’s life was simply ”unconventional” and ”European”, and that he was devoted to two families, not just one.

    Shari-lea Hitchcock with their daughter, Paula.

    Sharl-Lea Hitchcock with their daughter, Paula. Picture courtesy Australian Women’s Weekly

    It’s become a cliche to say that Pratt was a complex man. He was brilliant at business – intuitive, intelligent, visionary, capable of manic hard work and creative thinking. He could be charming, caring, impulsively generous to employees, friends and strangers alike. His philanthropy, worth $150 million or more, is a monument to him and particularly to his wife Jeanne, who drove the giving campaign.

    But some former executives and competitors, people who were bullied, damaged and ripped off by Pratt, say it’s now time to balance the ledger of his life.

    A Sunday Age investigation has revealed a dark side to Pratt that played out through decades of questionable business deals and borderline criminality – allegations of bribes, thugs, systematic tax evasion, intimidation, the use of prostitutes and the purchase of political influence.

    ”He was living a double life,” said one former executive of Pratt’s Visy company, a respected Melbourne business figure. ”He was 50 per cent above board successful businessman, philanthropist; the other half was a very flawed character – multiple women, money under the table, mistresses, bribery and corruption.”

    In Pratt’s mind, according to critics, any problem could be fixed with money, and every interaction turned to his advantage. Anything was justified if it served his craving for two things: riches and respectability. By the end of his life, he had achieved the first in spades. But as the honours list shows, the latter, most desperately craved, ultimately eluded him.

    Alan Hancock is perhaps Pratt’s most vocal foe, in life and death. Lured to Visy in the late 1980s to start an outpost of the business in Perth, Hancock was welcomed into the close-knit, family-oriented atmosphere of the company.

    He lived for a while in Melbourne, dined regularly at the Pratt’s palatial Kew residence, Raheen, and became a Pratt confidant. He was put in charge of Anthony Pratt, the then feckless son who would eventually take over the company and become, in turn, Australia’s richest man.

    But by 1993 things had turned sour, with Hancock claiming Pratt owed him $2 million as part of his salary package.

    When Hancock quit Visy, Pratt began a campaign to discredit his former employee, bankrupt him, and have him investigated, on confected charges, by police. Hancock retaliated, alleging publicly as early as 1993 that Visy and Amcor were colluding on prices, prompting an investigation by the Australian Trade Practices Commission, the forerunner of the ACCC. That investigation found nothing.

    Hancock still has pieces of butcher’s paper on which Pratt wrote after a 1987 meeting about his plan to ”share everything” with APM, Amcor’s predecessor. Based on this and other documents, Hancock maintains that the duopoly cartel had been in full operation since 1989, 11 years earlier than the ACCC was able to prove. It was through this illegal arrangement, says Hancock, that Pratt’s phenomenal wealth was secured. If true, this would mean the damage to the Australian economy of the cartel would be more in the order of $2 billion rather than the $700 million estimated by lawyers pursuing a class action over the cartel’s proven duration, from 2000 to 2004.

    Others in a position to know have questioned the 1989 start date, but confirmed to The Sunday Age that a cosy arrangement was well under way by the early 1990s.

    But Hancock, backed by other sources formerly close to the Pratt empire, says Visy’s phenomenal early growth during the 1970s and 1980s had its foundation in a different illegal activity – bribery.

    ”Richard told me in the old Kew house [which he lived in before buying the Italianate mansion, Raheen]: ‘See that bloke there? I’m bribing him. I’m bribing that man’,” Hancock recalls.

    ” ‘I could be considered Australia’s biggest briber. I want to fix it.’ I think he meant it at the time.”

    In most businesses, the executive in charge of deciding who provides the boxes for your product does not have a glamorous job. But Pratt recognised that his success relied on relationships with those people.

    Pratt considered these men ”highly corruptible in easy ways”, a former Visy executive recalls. They were invited to glamorous parties, flown to exotic destinations, their wives feted at parties attended by celebrities. This might be considered good business practice. But some were also given cash in brown paper bags, cars, speedboats as Christmas presents.

    ”There were flying lessons in aeroplanes for a year or two at a time – a lot of people got their pilot’s licences … And when somebody’s in a position to sign a $10 million contract, a $20,000 motor car for their girlfriend isn’t a big deal,” the source said.

    As a big supplier to the fruit and vegetable industry, notorious for its cash transactions, Pratt always had plenty of tax-free cash to splash around to pay for his largesse. On top of that, Pratt artificially inflated the price of paper imports before sale through the use of two sets of books, and the extra money was creamed off to pay for illicit activities.

    Former employees from the 1990s say business clients were entertained by escorts at his parties in some places, and clients were also sent to Melbourne brothels, at Pratt’s expense, to help seal the deal.

    It was not just box-buyers in receipt of Pratt’s generosity.

    Pratt would also influence people higher up the corporate ladder in an organisation he was targeting. He would orchestrate apparently chance encounters with senior executives, even chief executives who were known to be travelling overseas.

    ”And that person may be told, ‘Why don’t you stop off in my magnificent place in Honolulu? I’ve got a big apartment there’ … Dick would just happen to have the keys with him and he’d say, ‘All you’ve got to do when you leave is sign the visitors’ register’,” the source said. ”And then, a year later when there’s a $20 million contract on the line, he’d ask them, ‘Well, did you have a good time a year ago?’ Some of those guys were the big hitters in the Australian business scene.”

    The sources, who declined to be named, also allege that many politicians, as well as union officials and executives in competitor companies, were bribed or received favours with an expectation of support.

    It worked. When Pratt got into trouble with the National Crime Authority in the mid-1990s, very few politicians raised his conduct as an issue – a situation attributed by a Labor apparatchik at the time as being because Pratt ”has been very clever and built up friendships and support”.

    Sources have told The Sunday Age that former Trades Hall secretary John Halfpenny was regularly handed brown paper bags stuffed with cash.

    ”Dick hated unions, but believed you could buy them off. But they’d take the money and not do anything,” one former executive remembers.

    Pratt’s impulse to pay people off never wavered. The story about his best-known mistress, Shari-Lea Hitchcock, emerged in 2000 because one of Pratt’s operatives tried to hand a bag of cash to the nanny who was preparing to expose the relationship, but mistakenly approached a Fairfax reporter instead.

    And in 2007, when the ACCC was trying to nail Visy for the cartel, Pratt’s lawyers quickly agreed to a record high fine of $35 million on the condition that Pratt himself could be shielded from exposure for his personal participation in discussions with Amcor’s Russell Jones.

    The ACCC did not accept this first offer and Pratt was forced to concede his role, as well as pay a record fine. ”He would never agree to anything unless there was absolutely irrefutable evidence. You could get him on video doing something wrong and he’d still deny it,” one associate said.

    By the mid-1980s, Pratt was becoming a very rich man, and as he aspired to join the corporate titans of the day, he began dabbling in dangerous financial transactions. His involvement with his mate, then Elders IXL chief John Elliott, in the defence of BHP in 1986 led to a series of payments that saw him pursued for years by the National Crime Authority. His Battery Group’s ownership and later sale of two insurance companies, Regal and Occidental, sent one man to jail and led to the suicide of another, former Commonwealth Bank executive Vern Christie.

    Pratt lost respect in the business community over these deals, but escaped otherwise unscathed. One Visy document, however, obtained by The Sunday Age and entitled ”Strictly Private & Confidential F[or].Y[our].E[yes] Only”, suggests that a decade after some of these deals, Pratt still feared exposure.

    ”A number of persons have probably still got documents relating to ACI, Battery, BHP, Occidental etc, despite the efforts [of Pratt operatives to get rid of them],” the document says.

    The document does not identify either an author or a recipient, but is labelled: ”Update on security and related aspects of Pratt Group/Visy Industries, November 1996.”

    An extraordinary artefact, it’s clearly written by one of Pratt’s security men, and it also reveals the extent of Visy’s tax evasion, political manoeuvring, and use of underhanded tactics in business.

    ”The tax department,” the document says, ”is still a major achilles heal (sic)”, particularly the issue of ”executive salaries and the ‘tax sensitive’ material”.

    It makes clear – a story supported by Hancock and other former executives – that Visy was paying executives a large proportion of their benefits under the table, and out of reach of the tax department, using a ”black” chequebook. One had a tennis court built at his property, another a swimming pool, and many whitegoods were purchased, Hancock says.

    The document confirms that the pay slip of one senior executive, which was left lying on his desk, ”represents less than half of his package” which ”creates a vulnerability”.

    ”There could be a F[ringe] B[enefits] T[ax], payroll tax and group tax liability in excess of $50,000,000 with penalties. In particular, under Victorian state payroll tax legislation there is a vulnerability back into the ’70s for evasion.”

    Of payments to another executive the document says, ”the tax department must not see any of the detail”, particularly a document that included the words: ”Confirmed by R. Pratt that all three areas are to be paid out of Australia.” There is reference to a note in Pratt’s handwriting which says, ”Shred everything – RP”.

    Pratt’s approach to tax was consistently aggressive throughout his career. He admitted to being involved in the ”bottom of the harbour” tax schemes in the 1980s. Michael Brereton, the tax lawyer whose clients are at the centre of the Wickenby investigation into illegal offshore tax transactions, was on Pratt’s payroll, earning $82,200 over four months in 1996, and Pratt was the biggest single investor in conman Max Green’s scam, investing $1.19 million in what was sold to the Jewish business community as a tax-minimisation scheme.

    The documents reveal that Pratt’s security men had other concerns, too. Employees are named, one for her predilection for ”pot and men”, another for his ”drinking problem”. Of a former Liberal politician it’s said that ”since the BMW transaction ($174,000) … [he] has become somewhat cavalier … He appears to be taking advantage of Richard Pratt’s long-term friendship and trust plus ‘knows too much’.’’

    Then comes a frank admission of what Pratt was buying with his large donations to both big political parties: ‘‘The fact of political donations being followed by letters from Richard Pratt for assistance … could cause embarrassment for the recipient and the author,’’ the document says.

    Politicians are summed up for their reliability. ‘‘Whilst a number of prominent politicians and others are on side, Daryl Williams QC [the then attorney-general] is to some degree an unknown quantity and Peter Costello is far from over the line.’’

    Williams is considered by both sides of politics to have been a straight shooter, and Costello never crossed the line to Pratt’s side. John Howard was publicly praising Pratt during the cartel case between 2007 and 2009 while Costello remained silent.

    A corporate source said that, at two separate functions during the case, Pratt demanded of Costello that he call Graeme Samuel off the case. At one ANZ Bank function, the source recalls, ‘‘[Pratt] was absolutely beside himself when he saw [Samuel] and said to Peter Costello … that he ought to do something to pull him into line. Costello said, ‘[Samuel] is just doing what he has to do, it’s his job’.’’

    Pratt’s wooing of politicians went beyond donations to the two big parties. One document collected by  Hancock shows that after he finished as prime minister, Bob Hawke was on the Visy payroll, earning $8333.33 every month between September 1995 and June 1996, or $85,661 for the year, for ‘‘consulting services’’. Gough and Margaret Whitlam received $27,000 over the same period.

    Malcolm Fraser has confirmed to The Sunday Age that Pratt put him on the Visy payroll between approximately 1985 and 1987. ‘‘I gave him some help and advice on international matters … It was about markets and maybe how to approach markets,’’ Fraser said. ‘‘People like Hawke and myself could open doors that he himself couldn’t open,’’ he said, emphasising this did not include political doors.

    Many others enjoyed lucrative consultancies. Among them were former NSW premier Nick Greiner and one of his key staff, Ken Hooper. Shipping consultant Peter Wilson, who was later employed (along with a number of other senior Visy staff) by former workplace relations minister Peter Reith to help devise the 1996 waterfront strategy, was given a consultancy, as were Mick Miller, the former Victorian chief commissioner of police, and past competition policy chief Fred Hilmer.

    Pratt is lionised for his kindness to employees. He knew many of them by name, and saw many of them during his famous morning walks around his factories.

    But union officials say there was a darker side to this. Australian Manufacturing Workers’ Union national print division secretary Lorraine Cassin remembers a number of industrial disputes at Visy’s Dandenong site where workers were intimidated by Hells Angels bikies hired by Pratt. ‘‘We had an employee car in front of the gate driven over by a Kenworth truck about 12 or 14 years ago,’’  Cassin says.

    The truck was driven by an employee of Cadpro, a trucking company with a Visy contract that at the time was owned by the now-imprisoned Hells Angels boss, Stephen Rogers.

    ‘‘It was run by bikies,’’ confirms another former executive, whose loyalties remain with Pratt. ‘‘The contract, performance, cost, they did better than anyone else.’’

    Rumours aired in 2007 by 3AW broadcaster Derryn Hinch might explain why Cadpro could provide trucking services cheaper than their competitors — it’s said the bikies were using Visy trucks to traffic amphetamines around the country. Patched Hells Angels members on bikes also used to ‘‘buzz’’ picketing workers at factories. Others rode shotgun in trucks,  carrying shotguns, and another bikie is said to have threatened the family of a union official during a dispute at the Smithfield plant in Sydney.

    Cadpro has a new owner since its former owner was jailed, but, at its Campbellfield headquarters recently, a number of Visy Recycling trailers were still parked along with a prime mover emblazoned ‘‘Angel Express’’.

    Former employees say that, bikies aside, Pratt employed a number of shady characters. Documents from the 1990s refer to ordering one of these employees, Tony Millane, to ‘‘do some espionage’’ on business opponents.

    Hancock says that Millane, a petty criminal for more than three decades with a rap sheet that included arrests for offences involving loaded firearms, robbery and attempted incest, once threatened him with a pistol. Hancock sacked him but Pratt re-hired him ‘‘because he knew too much’’.

    After Hancock quit Visy in 1993 he says he was beaten up and robbed by three thugs who warned him in a dark carpark one night, ‘‘Don’t cause trouble for the Pratts’’.

    The roles of other operatives such as Steve ‘‘The Colonel’’ Zagon, a former military intelligence officer,  were harder to work out. ‘‘There was an ex-SAS guy,’’ remembers one former executive. ‘‘Dick used him all the time to follow people. Really underhand shit.’’

    A Melbourne business figure remembers that Amcor regularly swept its offices for bugs it believed were installed by people working for Visy.  ‘‘There was a fair bit of lead lining put on the walls and ceilings, yes,’’ he says.

    A number of these people, including Zagon, worked for the Howard government during the waterfront dispute, carrying out the heavy-handed, union-busting strategy devised by another key Pratt executive-on-loan, Dr Stephen Webster.

    The former spooks  were also sometimes used to enforce the loyalty that Pratt prized in his employees.  Those who strayed outside the organisation were offered large salaries to stay, or large retainers to keep their silence if they left, according to one with personal experience.

    Those who did not fall into line, however, might be followed and intimidated or, in Hancock’s case, bashed up and dragged through the courts. ‘‘It was like Hotel California — you could check out any time but you could never leave,’’ Hancock says.

    Some of these allegations were investigated by authorities.

    A National Crime Authority probe of Pratt’s dubious 1980s business dealings with John Elliott soon widened to look at some of these other areas, prompting Pratt to say in 1995 he felt he was ‘‘living in a Nazi state’’.

    The NCA investigation eventually led nowhere, partly because of a widespread Pratt practice of shredding compromising documents.

    A former investigator has confirmed that the raid of Visy’s Rialto head office in 1994 was prompted by evidence of document destruction.  Former executives interviewed by The Sunday Age confirm also that they’d witnessed staff feeding the shredding machines.

    A spokesman for Visy said the company had no interest in commenting on any of these allegations.

    PRATT never explained to the world what were the demons that drove him, provided his boundless energy, prompted the vicious anger he spat out at family, friends and employees. He could not explain why he was so hugely generous with his philanthropy, nor what sent him spinning into the arms of crooks and prostitutes.

    His philosophy, such as it was, was boiled down into a number of aphorisms. George Bernard Shaw’s ‘‘All progress depends on the unreasonable man’’ was a favourite. But there were others: ‘‘Never give anything without getting something in return’’ explains, in part, his philanthropy. Others included, ‘‘Love your customers, hate your competitors and screw your suppliers.’’ And ‘‘The  end justifies the means. Money solves everything.’’

    ‘‘He really believed it,’’ says one former associate. ‘‘He really did believe it. And he had to keep proving things because of his background and ethnicity and all those other reasons.’’

    ‘‘He suffered a massive inferiority complex,’’ says another Melbourne business figure. ‘‘Why he couldn’t be as big as Elliott, do this takeover or that deal.’’

    One respected Melbourne business figure remembers congratulating Pratt on being appointed the foundation chancellor of Swinburne University of Technology. Pratt was dismissive: ‘‘No, no, I just bought it. It’s only money,’’ he had said.

    In the end, though, money could buy neither respect nor happiness. According to Hancock, ‘‘Dick just worked out that the darker side of life was better’’.

     

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