Serious Fraud Office acting chief executive Simon McArley talks with Anne Gibson about the SFO’s role, fraud in NZ, bigs wins and losses for his office, how he feels when businessmen go to jail for long terms, and how NZers can protect themselves from fraud.
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<b> Weekend Business tomorrow: Acting SFO CEO Simon McArley speaks exclusively and frankly about fraud, corruption and the state of our corporate crime scene. </b>
Australian IT experts Mark Lester and Sean Bryan were sentenced to three years’ imprisonment.
They illegally steered more than $20 million in inflated contracts to Bryan’s company, with $4m in kickbacks.
Justice Michele Wilkinson-Smith emphasised deterrence, highlighting the damage to New Zealand’s business reputation.
After turning a long-term consulting gig into a high-powered position with Spark New Zealand, Australian IT expert Mark Andrew Lester used his influence to illegally steer more than $20 million worth of inflated contracts to a mate with whom he shared a passion for horse racing.
In turn, that friend – New Zealand-born Australian businessman Sean David Bryan – paid more than $4m in kickbacks to Lester and his company between 2014 and 2017.
Both company directors are now headed to prison.
The duo appeared in the High Court at Auckland today, each for sentencing on two representative counts of either giving or receiving a gift to an agent without the principal’s consent.
They can now both be named after they pleaded guilty last year in the weeks leading up to their joint jury trial.
Justice Michele Wilkinson-Smith ordered both men to serve three years’ imprisonment for what the Serious Fraud Office (SFO) has called the nation’s “largest ever private sector corruption case involving a publicly listed company providing crucial services to New Zealanders”.
Australian businessman Sean Bryan stands in the dock in the High Court at Auckland, where he was sentenced to three years imprisonment for corporate corruption. Photo / Dean Purcell
She rejected requests for non-custodial sentences.
“I regard deterrence of this type of offending to be of particular importance,” the judge said as Lester, 54, and Bryan, 51, sat in the courtroom dock.
“This case certainly has the potential to affect New Zealand’s reputation as a place where business can be carried out without corruption.”
Kickbacks, undisclosed relationship
Both men flew to New Zealand from their homes in Victoria and Queensland, Australia, for today’s hearing.
In a somewhat unusual agreement with the Serious Fraud Office, they were allowed to remain on bail in Australia through the duration of the years-long prosecution – even after their guilty pleas, when it was acknowledged prison was a likely outcome.
Authorities said Lester was the sole director, shareholder and employee of Spud Consulting Ltd, which signed an $1800 per-day contract with Spark in 2013 to serve as “test director” of a major upgrade to the telco’s customer services IT platform.
His New Zealand-based role – reporting directly to product director Claire Barber, a member of Spark’s leadership team – included advising on, managing and overseeing testing for the new programme.
The contract, initially for five months, ended up lasting five years after several extensions.
His responsibilities within the company grew as well, joining Barber’s senior leadership team in 2016 as his title morphed to head of performance and resolution testing.
Australian businessmen Mark Lester and Sean Bryan were mates who owned horses together before a $4 million kickback scheme involving $20 million worth of contracts with Spark New Zealand. Photo / Dean Purcell
Early on while working with Spark, Lester advocated for contracting with Bryan’s company, Victory I.T Ltd, to help implement an IBM automated testing programme.
He told Spark officials he had worked with Victory in the past and knew it was a trusted company, worth paying more than two other contractors who could have potentially done the same job for less money.
“Mr Lester and Mr Bryan knew each other outside of their work for Spark,” the agreed summaries of facts for both men state.
“They shared an interest in horse racing and were joint owners of a number of racehorses in Australia.
“This relationship was never disclosed to Spark.”
Over the following years, Lester helped convince Spark to pay Bryan’s company $20.6m in contract work, a cost estimated as 15-20% higher than competing contractors would have charged.
“In awarding the Victory the initial service contract, Spark relied on Mr Lester’s favourable recommendation of Victory,” the summary of facts states.
“Mr Lester ... advised that Victory could provide superior services, claiming there were quality issues with Spark’s two existing providers.
“Spark relied on Mr Lester’s expertise and judgment to ensure that engaging Victory‘s services was the right decision for Spark from an efficiency, cost-effectiveness and capabilities perspective.”
Australian IT expert Mark Lester is sentenced in the High Court at Auckland for corporate corruption involving his former high-powered position with Spark New Zealand. Photo / Dean Purcell
His advice was also accepted when Lester said Victory‘s specialist skills “required premium prices”.
Court documents describe Lester as “dominant in determining and directing the flow of work to Victory” and justifying the higher rates even as others within the company tried to raise the alarm.
It wouldn’t be found out until later that during that time, Lester and his company had received 32 separate payments totalling $4.1m from his mate’s company.
“Mr Bryan made these payments in return for Mr Lester’s acts in promoting Victory‘s interests, and/or showing favour, in respect of contracting between Spark and Victory,” the agreed summaries of facts state.
“Mr Lester accepted the payments on the same basis.”
Spark terminated its contract with Lester in 2017 after discovering irregularities with his performance. The telco terminated its agreement with Bryan as well after discovering some of the payments.
Victory I.T has since gone bankrupt, the court was told today.
‘Ludicrous and naive’
Both men pleaded guilty in the weeks leading up to their trial last year to two representative counts of either giving or receiving a gift to an agent without the principal’s consent.
A law change in 2015 means all offending before 2015 carries a maximum punishment of two years’ imprisonment, while offending after that date is punishable by up to seven years.
Justice Wilkinson-Smith flatly rejected what she said seemed to be a suggestion by Lester that the $4.1 million was more of a “gratuity amongst friends ... rather than a corrupt scheme”.
“You accepted very large kickbacks which enriched you by millions of dollars,” she said, describing Lester’s crimes as a “gross breach of the significant trust and authority given to you by Spark”.
Lester’s lawyer, Shane Kilian, suggested that it could be considered a mitigating factor that the work done by Victory I.T had been a success for Spark. But prosecutor Brian Dickey said there is nothing mitigating in the business completing the task it was paid for. The judge agreed.
“I reject it as minimising what was ongoing corruption.”
Justice Michele Wilkinson-Smith determined the sentences for businessmen Mark Lester and Sean Bryan in the High Court at Auckland. Photo / Bevan Conley
Kilian clarified that his client accepted what he had done was corrupt. The point he was trying to make, he said, was that his client didn’t accept the job with Spark thinking it would lead to an opportunity for corruption.
“There was no inkling of that,” he said, adding that his client was going through an “extremely stressful time” and “didn’t think much of it” when the money came into his account.
Prosecutors noted, however, that the first payment to Lester’s account was $345,000 - not exactly something that tends to go unnoticed.
Defence lawyer Matthew Goodwin, representing Bryan, argued that Victory I.T’s work was worth the premium price Spark paid for it because other contractors didn’t have the necessary skillset.
The judge was sceptical of that argument, too. There’s no way to scrutinise that claim, she said, because of the defendants’ corruption that short-circuited the normal process.
Justice Wilkinson-Smith ordered a six-year starting point for both men before allowing various deductions for the men’s guilty pleas, health issues, difficulties involved with serving a sentence in a foreign country and other issues.
She acknowledged both men showed some remorse, although she characterised Bryan as having the greater insight of the two.
While he initially tried to rationalise the kickbacks, “you now realise it was ludicrous and naive”, she noted.
Neither man had prior convictions, but prosecutors argued the good character discount should be tempered by the fact the offending continued for three years rather than being a momentary lapse in otherwise sound judgment.
The judge agreed, allowing 5% reductions for both.
She noted that Bryan suffered sleep apnoea and required a machine while sleeping, while Lester suffered a severe form of asthma that can be affected by cold and stress and was on an experimental medication funded in Australia but not New Zealand.
Lester’s lawyer also sought discounts for his client’s gambling and methamphetamine addictions, which he said he acquired as a way of coping with his “high-pressure lifestyle” while working for Spark in New Zealand as his family life disintegrated overseas.
The judge initially allowed 45% in total reductions for Lester and 40% for Bryan, but she noted that in some ways Lester’s offending was the worst of the two. Because of that, she agreed to reduce Bryan’s sentence by another 5% so that they would serve the same amount of time.
SFO director Karen Chang praised the three-year sentences in a statement released after the hearing.
“It sends a clear warning about the real risks corruption poses,” she said.
“These risks include harming the integrity of our business environment, reducing competition and lowering investor confidence.
“While this particular case does not involve foreign bribery, it highlights the behaviours the SFO’s latest campaign is targeting and reinforces why we must protect New Zealand’s reputation as a safe, trusted place to do business.”
Craig Kapitan is an Auckland-based journalist covering courts and justice. He joined the Herald in 2021 and has reported on courts since 2002 in three newsrooms in the US and New Zealand.
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