Boats, borders and bad guys: How a super department has come unstuck

In late 2020, an alarming file began circulating in the Department of Home Affairs. The file, from money-laundering watchdog AUSTRAC, raised the spectre that a number of senior Nauruan politicians might be involved in corruption using a series of Australian bank accounts.

These were not just any Pacific politicians. They were Nauru’s gatekeepers, people who had the power to dictate the direction of a policy cherished by both the Coalition and Labor: offshore refugee processing.

In the language of corruption fighters, they were “politically exposed persons”, and Home Affairs and its contractors should have been particularly careful and transparent in their dealings with them.

One of these politicians held a key Home Affairs contract and made millions of dollars from it. The contracts were signed and paid from Australia with the full knowledge and approval of the lead contractors and, above them, Home Affairs itself.

The 2020 document was produced by an agency within Home Affairs. So what happened as a result? The Australian Federal Police began an investigation codenamed Operation Bernie but, as the Home Truths series by The Age, The Sydney Morning Herald and 60 Minutes has shown, from another part of the same department, the payments kept flowing.

For the next two years, the Australian taxpayer continued funding this politician’s company to the tune of hundreds of thousands of dollars.

When Home Affairs was set up in 2017 as a single mega-department, bringing together customs, immigration and Border Force with ASIO, the Australian Federal Police, the anti-money laundering agency AUSTRAC and the Australian Criminal Intelligence Commission (ACIC), then prime minister Malcolm Turnbull spruiked it as a “structure to meet the challenge of the times”. It would, he said, “entrench the co-operation between the agencies”.

Home Affairs’ head, Mike Pezzullo, put it rather more colourfully. He invoked a “dark universe” brought into being by the “globalisation of terror, crime and, indeed, evil”. What the country needed, the secretary said in an October 2017 speech, was a “single department with a single accountable minister” running the latest possible technology. Alongside defence and foreign affairs, it would be Australia’s “third force of security”.

And he was the man to lead it. But, judged by the measures set out at its birth six years ago, Home Affairs is failing.

Australia’s border security system has a fearsome global reputation for keeping people out, but for Albanian gangsters or a business person who wants to keep a slave in a suburb of our cities, for sex trafficking syndicates or politicians in Nauru and Manus Island feeding off the teat of the Australian taxpayer, it has been more than accommodating.

Two official inquiries, one by former police chief Christine Nixon and the other by former public servant Martin Parkinson, are equally scathing. Commissioned by Labor’s Home Affairs Minister, Clare O’Neil, they found criminals can eke out a 10-year crime spree on temporary visas alone. The number of people in visa limbo has been rising for years, and appeals are slowing processing times almost to a halt.

As for technology, Parkinson found at Australia’s borders it was, in some cases, 40 years old.

Nixon concluded that the laser focus over the past decade on stopping boat arrivals had taken attention from the department’s core business of helping legitimate migrants arrive and settle, and repelling or expelling the rest.

O’Neil blames Dutton, her political rival. The migration system “was designed and run by Peter Dutton, and its failure is his lasting legacy”, she said in a statement. It was, she added, “completely broken”.

The department’s response was markedly different. A spokesman asserted there were only “isolated exceptions” to the department’s “highly successful” handling of threats to the system.

This masthead’s Home Truths investigation has taken months, asked questions of dozens of current and senior officials, politicians and contractors, scrutinised secret and public documents from Australia and offshore. It has revealed that serious questions need to be asked about whether Home Affairs is doing what it says on the label.

Those questions consistently lead back to Pezzullo himself, a man described by one observer as “the hardest nut in government”. Pezzullo came up with the concept of Home Affairs many years before its birth, shaped its structure and culture, and helped convince Turnbull to bring it into existence.

He has run and dominated the department, and its predecessor agency, since 2014. It surprised many on the left, who believe he was far too close to Dutton, that O’Neil kept him on after the 2022 election. Now facing calls for an independent inquiry into his department’s operations, some people, including his former minister Karen Andrews, believe the time has come for Pezzullo himself to step aside.

When Home Affairs came into being in 2017 out of its predecessor, the Department of Immigration and Border Protection, Turnbull described it as the most “significant reform of Australia’s national intelligence and domestic security arrangements and their oversight in more than 40 years”.

The structure he adopted was the singular vision of Pezzullo.

Widely known in Canberra as “The Pezz”, he is the child of barely literate Italian migrants who, through brains and determination, turned himself into a well-read, hard-working, often-charming and successful life-long public servant.

Pezzullo earned $918,000 last year, is said to sleep a handful of hours a night in his big house on a dress circle street in Canberra, and to divide the rest of his time between working, reading, thinking and his family (he is married to health economist Lynne and has four children and a grandchild).

“He is on the phone to his staff at five in the morning and midnight at night”, said one senior bureaucrat not authorised to speak publicly. Pezzullo wields a blue pen to mark up documents, even news articles, sometimes with the single word – “facts” – or a question mark, challenging his officials to investigate and report back. He joins staff to WhatsApp groups, then peppers them with things to read and think about.

“Everyone is scared of him,” the official said.

Pezzullo abstains from alcohol (during work hours at least) and expects his underlings to do the same. A committed Christian, at Easter he sends messages to the contacts in his phone about the glory of the risen Christ. He dominates Senate estimates committee hearings, chiding politicians and making sweeping statements across his portfolio. He is well-connected and has cultivated strong relationships across the political divide, as well as with influential journalists, across his long career.

It was in the heat of the 2001 election campaign that Pezzullo conceived the idea of the mega-department that became Home Affairs. He was Labor leader Kim Beazley’s deputy chief of staff when prime minister John Howard was weaponising the Tampa affair and the terrorist attacks in New York to question the opposition leader’s “ticker”.

Pezzullo’s answer for Beazley was a new department, modelled on the British Home Office, to keep all Australia’s security-related agencies together. It would be, according to Labor’s policy document of that year, the “most powerful and focused peacetime ministerial arrangement for co-ordinating Australia’s domestic security in our history”.

After Beazley’s election defeat, according to one former close colleague speaking anonymously to protect his position, Pezzullo put his “concept paper” away in a safe in his office. He worked his way up through the defence department, where he became a deputy secretary – a job he told one former Labor staffer and former colleague was “better than sex”.

In 2009, Pezzullo was entrusted to write the Defence White Paper for prime minister Kevin Rudd, which rang the alarm for the first time on the military implications of China’s rise.

That paper is now seen as visionary, but it alarmed the Chinese government and Pezzullo was dispatched to Beijing to brief their officials. US cables released by WikiLeaks quote the Australian boasting to US diplomats of his encounter with a man he described as “the bruiser” – the Chinese defence ministry’s deputy director of foreign affairs, Major-General Jai Xiaoning – who expressed “cold fury” at the White Paper’s account of China’s military modernisation. Jai wanted changes but Pezzullo, according to a book by journalist David Uren, told him he had “not come to negotiate”.

Pezzullo is fond of telling the story, according to a Canberra journalist speaking on condition of anonymity, because it demonstrates his toughness when carrying out a brief for the boss.

They say he regards it as one of his proudest professional moments.

The snake and the crocodile

By 2013, toughness was once again in vogue in Canberra. Tony Abbott had been elected prime minister promising to stop maritime boat arrivals using the offshore processing system on Nauru and Manus Island that Labor had exhumed from the Howard years.

Pezzullo, then the chief executive of customs, played a key part in Operation Sovereign Borders. He later described his role as another career highlight. The satisfaction, he insisted, came not from the policy itself (“that’s between the politicians to argue about”), but because it had required him to “harness a dozen or more agencies to execute the plan”.

Piggybacking on that success, Pezzullo pulled the Home Affairs idea out of the safe.

Senior bureaucrats from the time, who were not authorised to speak publicly, said his minister Scott Morrison loved it, but attorney-general George Brandis and foreign minister Julie Bishop objected. ASIO and the AFP also pushed back hard, and ultimately convinced Abbott to say no. Back into the safe the idea went. Brandis wrote later that governments “should try, so far as possible, to avoid politicising national security policy, was not a view which all of my political colleagues shared”.

In 2014, Pezzullo survived criticism from Labor after he had failed to immediately inform parliament that his brother, Fabio Pezzullo, a junior customs officer, had been charged with selling a prescription drug to other customs officers and misleading the anti-corruption commission. Pezzullo countered by launching a taskforce to tackle integrity concerns inside the customs agency.

These events did him no apparent damage: late that year, Abbott appointed him as the secretary of Immigration and Border Protection, a new agency which merged customs and immigration for the first time. Shortly afterwards, Dutton became his minister.

A new armed, uniformed and semi-independent agency, Australian Border Force, was part of the package. Under commissioner Roman Quaedvlieg, Border Force brought together the enforcement functions in customs and immigration, and Pezzullo enthused about it as a “shift in service’s philosophy towards a law enforcement-style command and control model”.

Customs officials were “patting themselves on the back” about the merger, according to one former senior immigration official not authorised to comment publicly. Their guy was in charge and the smaller agency had absorbed the larger. “The snake swallowed the crocodile,” they boasted.

The consequences quickly became apparent. Public servants in the immigration side of the department said Border Force’s ability to knock on doors to pick up people dodging visas or to crack down on worker exploitation weakened as the new agency poured resources into stopping drug, gun and illegal tobacco importations. Nixon’s report found that, over years, “investigative skills appear to have been degraded” to the point where there was “no compliance or investigative capability” within immigration itself.

Across the new department, Pezzullo installed old colleagues from Defence into top jobs and, citing its “privileged position” in the security apparatus, imposed dress codes and drug and alcohol testing on bureaucrats. In step with Dutton, he hardened the rhetoric in his many speeches around immigration, talking about borders as crucial barriers between the state and the dangers outside.

An Auditor-General’s report later found that the department had suffered “a loss of corporate memory due to the level of turn-over” of senior executive staff. Almost half of the people at that level present in July 2015 were no longer in the department at July 2017, the watchdog found. A senior bureaucrat from the day described it as a “pogrom”. Among the remaining workforce, survey after survey showed morale plummeting.

Old immigration hands had also seen their job in economic and social terms, but now settlement and welfare programs were shifted to other departments. According to a former deputy secretary Abul Rizvi, Pezzullo treated immigration as “second class”. Some say he disparaged them as “care bears” – though Pezzullo has denied ever using the term. In a pair of speeches in 2015, Pezzullo declared “mission … accomplished” on the era of mass, nation-building migration.

He was also on the cusp of creating the department he’d dreamt of for years and which is now at the centre of a political storm.

‘Authoritarian management’

In the years 2014 and 2015 there was a global uptick in terror attacks, including at home in Melbourne and Sydney. The times suited the deepening threat-based view of the world shared by Dutton and Pezzullo.

Behind the scenes, they were agitating again for a Home Affairs portfolio. “The screws got tighter and tighter” on Turnbull, said one senior bureaucrat. Under threat from Dutton for his leadership, Turnbull finally agreed in 2017.

The Coalition shifted ASIO and the AFP from the Attorney-General’s Department and under Pezzullo’s administrative umbrella, along with other powerful agencies, the ACIC and anti-money laundering agency, AUSTRAC. They remained independent statutory bodies. Australian Border Force, however, did not. Its staff reported to the department.

Binding the massive apparatus together was Pezzullo’s determination to oversee “one function that is wielding state power to keep our fellow citizens safe and secure”. That and an Abbott-style three-word slogan: “Prosperous. Secure. United.”

A senior figure active in the debate described the new department as “a hostile takeover of not just immigration but two-thirds of the Attorney-General’s portfolio”.

The agency heads were not happy.

“If my colleagues were apprehensive about Dutton, the various agencies involved in the restructure were horrified by the thought of working with Michael Pezzullo,” Turnbull wrote in his memoirs. “I have never known anyone in the Australian Public Service who is more disliked by his senior colleagues.”

Pezzullo was “one of the most brilliant civil servants in Canberra”, Turnbull wrote, but much of “the subsequent grief associated with the creation of the new department” had been “caused by his, and to some extent Dutton’s authoritarian management style”.

A swath of senior bureaucrats who are not authorised to speak publicly agreed.

“He rode roughshod over everybody,” said one.

John Blaxland, an international security and intelligence studies professor at ANU, said he was “concerned that there was an aggregation of too much power in too few hands, and that there were some risks to civil society that were associated with that”.

The “Border Force brand” had become the brand for the whole department, Blaxland said.

Immigration’s power slipped further. The word itself dropped from the name of the department for the first time since its establishment in 1945.

“I think that when Home Affairs was first established more enforcement was a priority. National security was a priority. And immigration, the processing of visas was considered a lesser priority,” concedes former minister Karen Andrews. “It was seen more as an administrative function than it should have been.”

A senior former bureaucrat, speaking anonymously to discuss confidential conversations, said Dutton wanted a smaller program, so fewer visas processed and fewer migrants suited him.

“The Home Affairs model has been a disaster for the immigration function,” wrote Peter Hughes, one of the many former senior department officials who left. “An organisation which prioritises ‘security’ above all else has simply choked it to death.”

Justifying it all was the promised role it would play in keeping Australians safe.

The Nixon and Parkinson reports

“I have been appalled,” wrote Nixon, the former Victorian chief police commissioner Christine Nixon in May, “by the abuses of sexual exploitation, human trafficking and other organised crime that have been presented to me.”

Eight years after the customs snake swallowed the immigration crocodile, and five years after Home Affairs came into being, Nixon was commissioned by Clare O’Neil to work out how transnational organised criminals were able to work so freely in Australia. This masthead released a leaked copy of the report this week.

It documented “abhorrent crimes”, with organised crime syndicates “abusing gaps and areas of weakness in Australia’s visa system”.

Young women were being trafficked to Australia as students by migration and education agents and placed into a shadow sex industry. Calculating foreign criminals could stay in Australia on a tourist visa or student visa before applying for a partner visa, followed by a refugee visa, appealing each rejection through the three possible layers of review and extending their “temporary” stay to a decade or more.

The report punctured the department’s security-focused rhetoric. It had a “diminished investigation function and field compliance resources”, Nixon found, with “degraded” investigative skills. “Law enforcement priorities such as illicit drugs, tobacco and Unauthorised Maritime Arrivals [people seeking asylum by boat] had taken all the focus”, she found.

Meanwhile, departmental figures show the number of failed asylum seekers who are still in Australia is at 73,000 and growing, and another 27,000 cases are still waiting to be determined, meaning there more than 100,000 people who arrived by plane with mostly false refugee claims.

Only 10 are being located and removed from Australia per month – most voluntarily. Former immigration officials say funding cuts to areas processing visas means 1000 fewer staff doing the work.

Former department deputy secretary Abul Rizvi, a long-time critic of the Home Affairs model, said that once a large group of shadow workers were entrenched in a country “as it is in the United States and the UK – it’s very difficult to reverse, because the backlog just keeps growing”.

The department, says Rizvi, “didn’t understand that the compliance function goes hand in hand with visa processing. Separate the two and kill one off and the unscrupulous in the world flourish.”

The second major report into Home Affairs, by former senior public servant Martin Parkinson, is just as damning. Immigration, he found, had been degraded over many years by “piecemeal reforms” and an “incremental, patchwork approach to migration policy”. It was governed by “an excessively complex system without a clear strategy or objective”, while migration expertise had been eroded. About 100 visa subclasses formed a spaghetti junction of complexity.

The result was that Australia was in danger of losing the race to attract “younger and more highly educated” people on the global marketplace and had grown “relatively weak” compared to competitors such as Britain, Singapore and Canada. People wait up to 50 years for their parents to get a visa to join them – something highly valued among many young migrants. So unfriendly was the visa system that Australia risked “reputational harm”.

The 1.8 million temporary migrants in the country mostly had work rights, but “unclear pathways to permanent residence”, creating a “permanently temporary underclass” that now forms about 13 per cent of Australia’s labour market – twice the number seen 15 years ago – which is ripe for exploitation.

In a 2015 speech, Pezzullo said the future of immigration would be made up of skilled “mobile global citizens” in Australia “on a temporary basis, and not seeking necessarily to settle at all”. Eight years later, Parkinson, in a report to the department Pezzullo runs, warned this was “not in Australia’s national interest”.

Putting people in a system that denied them a sense of belonging and a pathway to citizenship “undermines our democratic resilience and social cohesion”, Parkinson wrote. Perhaps the old “care bears” of immigration had a point.

In 2014, Pezzullo said the department needed to be “world-leading in the uptake of technology”, but Parkinson pointed out that, in some areas it’s still operating on “technology from the 1980s and 1990s”.

The department has a disastrous record of commissioning new technology. It has tried three times and spent more than $100 million failing to create a new “permissions capability” to allow users to apply for visas, licences and accreditation online. A number of Auditor-General reports have shown how poorly it has managed these projects.

Home Affairs also suffers high staff turnover, relatively poor pay and worse morale. In the most recent survey, almost one-third of employees agreed that “I want to leave my position within the next 12 months”.

The former senior departmental executive pointed to “constant fiddling” with the structure: “Every time you turn around, Pezz is restructuring with no rationale.” Pezzullo, the senior former official says, “is running on too many fronts”.

Former minister Karen Andrews said she had noticed “a lot of people moving within the department, and it wasn’t always clear why they were moving and what the basis for the changes were”.

She criticised Pezzullo for his tendency to centralise information, intelligence and decision-making in his office, and his attempts to mediate her relationship with the agency heads – even those with statutory independence. Despite all this, two years ago, celebrating the anniversary of Home Affairs’ establishment, the department produced a glossy brochure that boasted of its unalloyed success.

In her ministerial foreword, Andrews enthused that: “This prescient reform by the Government has continued to safeguard Australia’s security and enhance our prosperity and unity.”

‘No one is indispensable’

Despite this masthead’s revelations and the damning Nixon and Parkinson reports, so far O’Neil, Pezzullo’s minister, remains firmly behind him. Anthony Albanese made it clear in his first press conference as prime minister that he would not be sacking senior bureaucrats.

O’Neil pins the blame for failings on Dutton.

“One of the great frauds that’s been perpetrated in Australian politics,” she said in a recent interview, “is Peter Dutton presenting himself as the big tough guy who’s tough on our borders.”

Pezzullo is a most unusual public servant. Labor eminences such as former foreign minister Gareth Evans and former Labor leader Kim Beazley are supporters, and he has friends, acolytes and former colleagues in many parts of the Canberra ecosystem.

Evans told this masthead Pezzullo was “a passionately loyal civil servant, who will serve whoever is his minister of the day with undivided commitment”. He was also, said Evans, “more sensitive to the moral dimensions of policymaking than is often attributed to him by his critics”.

Pezzullo certainly speaks in sophisticated terms of the ambiguities of his role. In one speech he said public servants should be “jealous of their honour and not seek to please”. But, conversely, the job was to “be able to both create WorkChoices and then, when the government changes, dismantle WorkChoices”.

People close to Attorney-General Mark Dreyfus who are not permitted to speak publicly say he describes Pezzullo in unprintable terms. For years, Dreyfus and other members of Labor pursued the Home Affairs secretary in parliamentary hearings over offshore processing contracts that appear to be tainted by corruption. They were often met by answers that were partial or difficult to interpret.

In response to detailed questions from this masthead, Pezzullo said he had “always acted with integrity” and that, “for the duration of my tenure, I have been the subject of integrity oversight in the form of the Australian Commission for Law Enforcement Integrity and now the National Anti-Corruption Commission”.

“I am proud of the record of achievements of the Department of Home Affairs,” he said.

Andrews said Pezzullo could be “particularly charming”. When she started in the role, “he bent over backwards to help me”.

A former senior journalist said, half admiringly, that Pezzullo’s appeal to ministers was that he was “a junkyard dog” who made it clear that it was his mission to protect them.

But Andrews also believes Pezzullo should take responsibility for the department’s many failings. “It has to be, simply because he’s the secretary,” she said.

Asked if it could do without him, she replied sharply: “No one is indispensable.”

The beast that covers everything

O’Neil might have kept her secretary, but last year the government pulled the AFP, the ACIC and AUSTRAC out of the department and put them back into Dreyfus’ portfolio.

The ANU’s John Blaxland, who was concerned about the original structure, said the trimmed-down Home Affairs made him reasonably optimistic that it could work.

O’Neil also appears intent on restoring her department’s heft on immigration. A new position has appeared on the ever-changing Home Affairs organisational chart: an associate secretary, respected bureaucrat Stephanie Foster, who oversees all the immigration functions. Multicultural affairs and settlement are back.

A recent former departmental executive said that “there is a quite clear divide coming back in” between immigration and the security focus of the department, which is increasingly directed towards cybercrime. Immigration under Foster, he said, “would have a level of autonomy that it used to have as a department of state that it lost back in 2014”.

Pezzullo’s contract is up for renewal next year and if Labor’s intention is not to renew it, sources in the department who are not authorised to speak publicly speculate that Foster is being groomed to replace him.

“There are some things that should be kept, and some things tweaked and there are some things that should be just thrown out the door,” according to Andrews. Australian Border Force, for example, should become a genuinely independent authority, in charge of its own staff and budget.

“When you create a beast that covers everything … it’s very broad,” a former Home Affairs senior executive says. “Other departments are big, but they have a common purpose. Home Affairs never had that. And the three-word slogan is not enough to hold it all together.“

He thinks the answer is a small, central policy department administering a series of independent agencies, including separate customs and immigration functions.

Others, including former immigration officer Peter Hughes, have called for an immigration, citizenship and multicultural affairs department with its own cabinet minister. Colleen Lewis, a professor at the Australian Studies Institute at ANU, said it should be “split up”.

These are not just political games for the Canberra elite. This week’s revelations carry serious risks for Australia and its reputation in the Pacific.

Several former immigration hands point out how heavily reliant Australia is on migrants, and how they must be made part of our society, not just an underclass that damages national cohesion.

“How we manage immigration is effectively how we manage Australia into the future,” Rizvi says. “We’ve got to get it right.”

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