23/05/2007
The Howard Government must explain
how the Future Fund appointed Northern Trust as its global custodian without
an independent examination of its role in the Enron scandal.
Northern Trust was a trustee of the Enron staff superannuation scheme. When
Enron collapsed, its staff lost huge amounts in superannuation because it was
invested in Enron companies. The US district court found that Northern Trust
knew or should have known that Enron was in financial distress and the continued
purchase and holding of its shares were imprudent. Northern Trust ultimately
settled the employees court case with a payment of $US 37.5 million.
Future Fund CEO Paul Costello admitted today in Senate Estimates that the Future
Fund was aware of Northern Trust’s involvement in the Enron scandal,
but made no independent investigation before deciding to appoint the company
as its global custodian. The Future Fund simply took Northern Trusts word on
its role in the Enron collapse without undertaking a due diligence check.
Treasurer Peter Costello’s claim that he has no responsibility for the
custodianship of $51 billion in taxpayer’s money is wrong. Under the
Future Fund Act, he and Finance Minister Senator Nick Minchin are empowered
to issue investment directions to the Future Fund. Such directions have been
issued, but they contain no reference to scrutiny of the prudential integrity
of prospective managers of the Future Fund’s money. The Government has
the power to direct the Fund regarding these issues. It has merely failed to
do so. The existing directions cover corporate governance issues: why can’t
they also deal with prudential matters?
23 May 2007
