The CFMEU, Allegations of Illegal Activity, and Three Royal Commissions

Will this time be different?

 

For many people in the Australian construction industry the allegations of illegal activity, criminal links and general thuggery against union organiser John Setka and the Construction Forestry Mining and Energy Union (CFMEU) will not have come as a surprise. Although it has been widely known for many years that there was a problem, the investigation by the Nine newspapers and 60 Minutes has publicly revealed the extent of the problem and gathered the evidence needed to take action against the union. 

 

The Albanese Government is going to place the CFMEU under external administration, which avoids the problem with deregistration where the union continues to operate with the existing leadership but outside the industrial relations system. That was what happened in 1986 when the Hawke Government deregistered the militant Builders Labourers Federation (BLF) after evidence of criminal and corrupt activity became public. BLF secretary Norm Gallagher was found guilty of receiving secret commissions and building materials from building contractors and sentenced to 18 months jail in 1986. Many BLF members then joined the Building Workers Industrial Union (BWIU) which in 1992 became the CFMEU, and BLF organiser John Setka became Victorian state secretary. 

 

We have been here before. Following media reports in 2012-13 on corrupt and illegal activity in the CFMEU and other trade unions, a Royal Commission headed by Dyson Heydon was appointed in 2014. Over half the Commission’s hearings were on the CFMEU, the behaviour and associates of union officials, and payments or other deals made with employers in NSW, Victoria and Western Australia. The Royal Commission reported ‘widespread and deep-seated misconduct’ across a number of unions throughout Australia, however Commissioner Heydon said the inquiry had uncovered only ‘a small tip of an enormous iceberg.’ 

 

Before the Heydon Royal Commission there had been two previous Royal Commissions into the building and construction industry, both also headed by judges. Roger Gyles headed the Royal Commission into Productivity in the Building Industry in NSW (1991-1992) and Terence Cole the Royal Commission into the Building and Construction Industry for the Commonwealth Government (2001-03). Both concluded the fundamental problem was a lack of respect for the rule of law, a phrase found repeatedly throughout their final reports, and this was a problem on both the employer and union sides. Cole said ‘Culturally, first, there needs to be recognition by all participants that the rule of law applies within the industry,’ and Gyles suggested those who break the law should be punished. 

At this time it is worth revisiting the findings and outcomes of the three Royal Commissions, which is what this post does, starting with the most recent Heydon Royal Commission, which a decade ago found evidence of the CFMEU’s close relationship with motorcycle gangs and criminal groups.

 

The Heydon Royal Commission 2014-15

 

Following reports from the ABC and Fairfax media group (now Nine Entertainment) in 2012-13 on corrupt and illegal activity in several Australian trade unions, in particular the CFMEU, the Health Services Union (HSU) and the Australian Workers Union (AWU), a Royal Commission was appointed in 2014 to inquire into trade union finances and activities. While the terms of reference covered a range of issues around union corruption, the CFMEU was the catalyst and provided justification for the inquiry. Over half the Commission’s hearings were on the CFMEU, the behaviour and associates of certain union officials, and payments or other deals made with employers in NSW, Victoria and Western Australia.

 

The Royal Commission into Trade Union Governance and Corruption was headed by former High Court Justice Dyson Heydon, who found evidence of blackmail, theft, intimidation and death threats, use of motorcycle gangs and other criminal groups as hired muscle, interference in union elections and illegal agreements with employers. In his view ‘It is clear that in many parts of the world constituted by Australian trade union officials, there is room for louts, thugs, bullies, thieves, perjurers, those who threaten violence, errant fiduciaries and organisers of boycotts.’ 

 

The Final Report highlighted poor union record keeping, false invoicing and destruction of documents, union ‘rubber stamp’ committees which failed to enforce rules, payment of large sums by employers to unions for dubious ‘training’ schemes and ‘services’, and influence peddling in the Labor Party through inflation of union membership figures. The sums of money involved were also significant, with many officials benefiting from their positions through fraud or theft from the union (HSU in particular), or in the CFMEU through arrangements with employers for work on properties owned by officials. 

 

Based on that evidence around 50 people, unions and companies were referred to various authorities for possible prosecution, including police and public prosecutors, the Australian Securities and Investments Commission (ASIC) and the Fair Work Commission. Some of the large private companies caught up in the inquiry were Thiess, John Holland, ACI, Downer EDI, Cbus, Winslow Constructors and Mirvac. Companies were found to have made payments to unions to get onto tender lists. 

 

The Final Report, released in December 2015, had 79 recommendations, with half concerned with the regulation of unions (24) and union officials (14). The first recommendation was ‘Commonwealth and State governments give consideration to adopting a national approach to the registration, deregistration and regulation of employee and employer organisations, with a single regulator overseeing all such organisations throughout Australia.’ This Registered Organisations Commission would have investigative powers similar to ASIC, and focus on financial compliance with new rules on management and disclosure. Other recommendations were for significant changes to industrial relations laws, to restrict union privileges, and Federal competition laws on price-fixing and bid rigging. 

 

Although the Royal Commission reported ‘widespread and deep-seated misconduct’ across a number of unions throughout Australia, Heydon said the Royal Commission had uncovered only ‘a small tip of an enormous iceberg.‘ There was also a confidential sixth volume because ‘a large volume of evidence cannot be publicly released due to serious threats made to certain witnesses and their families’ and ‘reveals grave threats to the power and authority of the Australian state.’

 

An important recommendation was for the reestablishment of the Australian Building and Construction Commission (ABCC) as an independent industry regulator ‘For the purpose of seeking to combat the culture of disregard for the law within the Construction, Forestry, Mining and Energy Union’. Originally set up after the 2003 Cole Commission recommended widespread changes to the industry’s industrial relations laws, legislation establishing the ABCC as a statutory authority to monitor workplace relations was passed by the Howard Government in 2005. 

 

The ABCC was opposed by the CFMEU and the ACTU, and in July 2012 the Gillard Government replaced it with the Fair Work Building and Construction Inspectorate, a body with reduced scope and powers. In 2016 the ABCC was reestablished by the Turnbull Government, then in 2022 the Albanese Government transferred its responsibilities to the Fair Work Ombudsman and in 2023 abolished the ABCC for a second time. According to the Australian Financial Review  the Fair Work Ombudsman was ‘handling 35 court cases against the CFMEU, including six appeals,’ after the ABCC transferred 40 remaining matters to the agency in 2023. 

 

The cases brought against the CFMEU by the ABCC were mostly about illegal pickets, intimidation and abuse, and coercing companies to accept union agreements, all industrial relations issues. These cases typically resulted in over $16 million in fines between 2016 and 2022 that were easily paid by the CFMEU, which in 2024 had net assets of $106 million.  Over both periods of the ABCC’s existence there were no cases involving association with people with criminal records, and there were no reports of any advice to the ABCC from the state and federal police forces responsible for monitoring the activity of bikie gangs. 

 

Before the Heydon Royal Commission there had been two previous Royal Commissions into the building and construction industry, both headed by judges. Roger Gyles headed the Royal Commission into Productivity in the Building Industry in NSW and Terence Cole the Royal Commission into the Building and Construction Industry for the Commonwealth Government.

 

 

The Gyles Royal Commission 1990-92

 

In the 1980s, industrial warfare made construction sites a battleground because of the intense rivalry between the Builders' Labourers Federation (BLF) and the Building Workers Industrial Union (BWIU, now the CFMEU). In July 1990 the New South Wales Premier Nick Greiner appointed Roger Gyles QC to head the Royal Commission into Productivity in the Building Industry in NSW (RCBI), after spectacular cost overruns from union disputes on major projects associated with the bicentennial in 1988, such as the Convention Centre at Darling Harbour and the Dowling Street Courts, among others. The deadline for the Royal Commission was extended three times after September 1991, before the Final Report was released in May 1992. An enormous amount of material was compiled by the RCBI, the Final Report’s 62 recommendations are in Volume 7 of a 10 volume report that is over 5,000 pages long.  

 

The RCBI had a substantial staff. A Building Industry Task Force to investigate breaches of the law and commence legal proceedings was headed by a Crown Prosecutor and staffed by lawyers, law enforcement officers and expert advisers from the industry. Thirty policy and research analysts were responsible for producing the discussion papers the RCBI issued. There were three volumes of appendices with data and analysis in the Final report, with detailed case studies of 20 major projects, industry surveys of contractors, subcontractors and suppliers, and background papers on a range of topics including insolvency, partnering between contractors and clients, and industry characteristics. 

 

A Second Commissioner, Kevin Holland QC, was appointed to conduct hearings on tendering practices which revealed bid rigging, payment to industry organisations of special fees by successful tenderers, and unsuccessful tender fees paid to the other tenderers providing cover bids. This collusive behaviour by contractors acting as cartel was (as is) illegal and was facilitated by their industry associations. Holland’s inquiry resulted in repayment by contractors to the NSW Government of some of the inflated costs of public projects. The major contractors representative association, the Australian Federation of Construction Contractors was closed down (to be later reborn as the Australian Contractors Association) and Gyles recommended to the government that advice be sought on whether the Master Builders' Association of New South Wales should be deregistered as an industrial organisation.

 

Hearings before Gyles on the behaviour of unions and some union officials revealed practices beyond the rights of unions on behalf of their members. Gyles found illegal activities ‘range from physical violence and a threat of physical violence at one end to petty pilfering of building materials at the other. In between there is a great variety of illegal activities, essentially economic in nature or effect, from collusive arrangements involving giant corporations and industry associations to labour-only subcontractors paying small amounts of graft to project managers. Those involved range from managing directors of large corporations to labourers on site. No sector of the industry has been immune.’

 

Gyles also said ‘Observance of the law and law enforcement in general play very little part in the industry. The law of the jungle prevails. The culture is pragmatic and unprincipled. The ethos is to catch and to kill your own … Once it becomes acceptable to break, bend, evade or ignore the law and ethical responsibilities, there is no shortage of ways and means to do so.’

 

Gyles did acknowledge the complexity of the industry: ‘the issues thrown up … have been manifold. Some have been controversial ... some are complex or technical ... In relation to some issues, I have fairly well developed and precise views as to what ought to happen. In relation to other issues, I … leave them to the government or interested parties to follow through, or make suggestions as to procedure by which they ought to be resolved.’

 

Nevertheless, Gyles concluded industrial relations were overwhelmingly the most important issue, and the union’s conduct and philosophy the fundamental cause of the industry's problems. He recommended deregistration of the BWIU in both the State and Federal jurisdictions, and that the Commission’s Building Industry Task Force pursue cases and recommend changes to the law. The Final Report found:

 

the conduct of the members and officials of the former BWIU (NSW branch) very severely affect productivity and efficiency of the industry in this State, both because of the persistent disruption of projects and businesses and because of the restrictive work practices instituted and defended whilst work is actually proceeding (p.5).

 

In all, Gyles made 62 recommendations to the NSW Government, of which all but two were adopted. The Commission’s report recognised the structure of government departments and authorities makes implementation of many of its recommendations difficult. Gyles recommended the government should take the lead in a client-led process of reform, and a NSW Ministry of Construction should be set up, with the role of developing a code of conduct and procedure appropriate for each form of project delivery. In 1991, the NSW Legislative Council's Standing Committee on State Development had also recommended that a Ministry of Construction be established to plan capital works, help departments to improve their capital works management skills, check projects in order to improve cost effectiveness and issue guidelines for all public sector capital works projects. 

To implement the RCBI’s recommendations a Construction Policy Steering Committee (CPSC) was established with people from the Department of Public Works, the Roads and Traffic Authority and other NSW agencies, but no private sector involvement. Its primary responsibility was to develop a code of practice to be implemented by all government agencies which would then drive reform within the industry. The CPSC's work was published in 1996 as the Capital Project Procurement Manual (CPPM), with the Code of Practice for the Construction Industry and a Code of Tendering for the Construction Industry. The objectives of the CPPM were to define minimum levels of acceptable behaviour, and to provide goals that facilitated higher performance from both individuals and organisations. 

The NSW strategy was mirrored in Victoria and Western Australia. Both States adopted Codes of Practice requiring contractors and subcontractors to meet defined standards on industrial relations and tendering. Then the Commonwealth, State and Territory governments through the Australian Procurement and Construction Council introduced a National Code of Practice for the Construction Industry (1997). 

 

The Cole Royal Commission 2001-03

 

In May 2001 the CFMEU’s NSW Secretary John Sutton made allegations of organised criminal activity within the union on the ABC’s 4Corners program. As in the 1980s, there was intense conflict between ex-BWIU members and the Victorian BLF for control of the NSW branch. A report for the Minister for Workplace Relations Tony Abbott then alleged union officials were engaged in bribery and criminal corrupt conduct, and accepted secret commissions. The Howard Government appointed Justice Terrence Cole QC as sole Commissioner in August 2001 to inquire into the ‘nature, extent and effect of any unlawful or otherwise inappropriate industrial or workplace practice or conduct.’ 

 

Ten years after Gyles the same problems were still prevalent. Commissioner Cole found a disregard for enterprise bargaining, unlawful strikes and use of inappropriate payments. As a result 31 individuals were referred for possible prosecution, 392 instances of unlawful conduct were found (including 30 by employers), and 25 different types of unlawful conduct and 90 types of inappropriate conduct identified. 

 

In his Final Report Cole envisaged an industry where ‘disputes are resolved in accordance with legislated or agreed dispute resolution mechanisms rather than by the application of industrial and commercial pressure. The rule of the law must replace industrial might.’ His view was ‘These findings demonstrate an industry which departs from the standards of commercial and industrial conduct exhibited in the rest of the Australian economy. They mark the industry as singular. They indicate an urgent need for structural and cultural reform. At the heart of the findings is lawlessness. It is exhibited in many ways.’

 

The Final Report in 2003 had 212 recommendations, the great majority about changes to federal workplace relations legislation governing the building and construction industry. Federal Cabinet extended the operation of the Commission’s Building Industry Task Force, pending the establishment of the Australian Building and Construction Commission (ABCC). However, the legislation for that was rejected by the Senate and it was not until 2005, after the election in 2004 when the Coalition gained control of the Senate, that the bill was passed. Cole intended the ABCC to monitor illegal behaviour by unions and, while the ABCC had a restraining influence on the conduct of the CFMEU, it clearly did not fundamentally alter industry ‘standards of commercial and industrial conduct’ before its first abolition in 2012.

 

Conclusion

 

Nearly 40 years after the deregistration of the BLF because of corrupt officials and illegal behaviour, evidence of these problems today in the Construction Division of its successor union the CFMEU have again been made public by investigative journalists. Previous media reports on these issues led to two Commonwealth Government Royal Commissions in 2001 and 2014, and there was a third Royal Commission in NSW in 1991. Through these three Royal Commissions and other state inquiries, the ABCC coming and going twice, and the shift of industrial relations from a centralised system to enterprise bargaining, the CFMEU has endured. 

 

While many of the recommendations from Commissioners Gyles, Cole and Heydon did become legislation, perhaps the underlying issue that should be addressed is why the building and construction industry operates the way it does. None of these Royal Commissions produced a vision of a different industry, apart from a law abiding one, and made no recommendations on industry policy or the direction that development of the industry might take. In their absence we have had quasi-judicial agencies and an emphasis on industrial relations. 

 

The three Commissioners agreed the fundamental problem is a union culture of lawlessness, and the three inquiries found illegal behaviour by both union officials and contractors. In keeping with Australia’s complex and institutionalised industrial relations system, the focus of their inquiries was on industrial or workplace practice and conduct and their recommendations, in various ways, primarily focused on increased regulation and enforcement through legislative action. In this they had, as Roger Gyles’ said, ‘well developed and precise views.’ 

 

While necessary, increased regulation does not address the issue of why the building and construction industry has such a culture. What are the causal factors at work in creating this culture? How might they be affected by industry practices and institutions in areas like recruitment and training, tendering and procurement, wage setting and agreements between unions, employers and government? Clients use of fixed price contracts makes contractors vulnerable to union action that may delay their projects, and can also affect their choice of subcontractors. 

 

It is worth asking if the recommendations of the Gyles and Cole Commissions, and other subsequent State inquiries and industry codes of conduct, had all been implemented and followed through, would the third Heydon Royal Commission have been necessary? Enforcement is an expensive exercise, due to the cost of monitoring projects and the staffing and resources required for the relevant agencies. It fact, it is unlikely these agencies would get the resources needed to cover an industry as large and diverse as construction, thus it is unlikely that the issues of criminality and illegal behaviour can be solved by increased regulation alone. Also, there have no police actions against the CFMEU for links to criminals over the last three decades despite the evidence available, and the cases taken to court by the ABCC when it was active were on workplace issues and behaviour.  

 

Will this time be different? Under the centralised industrial relations system of the 1980s, deregistration was the only option for dealing with the BLF. Today an external administrator can be appointed to run the CFMEU and reform the union and replace the leadership. While that is a necessary step to stop corrupt and illegal behaviour by current officials, it may not be sufficient to replace the ‘law of the jungle’ with  the ‘rule of law’ in the Australian construction industry.