An arm of the company tasked with advising the Turnbull government on its signature infrastructure project, Snowy Hydro 2.0, has been banned by the World Bank for alleged bribery and corruption, prompting further calls for a federal anti-corruption watchdog.
Federal Labor has demanded the Turnbull government reassure taxpayers the project remains on track, and the Greens have suggested the matter underscores the need for a corruption commission to oversee government agencies.
Engineering company SMEC had five of its subsidiaries banned by the World Bank last week after an investigation into "inappropriate payments" linked to projects in Sri Lanka and Bangladesh.
SMEC was chosen to undertake the $29 million feasibility study back in May and the work is due to be finished by the end of the year. The firm was selected by the state and federal government-owned Snowy Hydro corporation, which runs the current power plant.
Last year, Fairfax Media revealed the details of some of the allegations around improper payments involving SMEC, including allegedly corrupt dealings between the firm and Sri Lankan president Maithripala Sirisena when he was a cabinet minister in 2009.
Those dealings and others are still under investigation by the federal police.
Labor legal affairs spokesman Mark Dreyfus told Fairfax Media the World Bank is a respected international institution with high standards of probity and "the fact that they took such drastic action should ring alarm bells" in Australia.
"It would be good to know whether, on any of his numerous visits, the Prime Minister sought to satisfy himself that this scandal won't impact on the delivery of this project," Mr Dreyfus said.
"The Prime Minister should immediately reassure taxpayers that all proper processes were followed, that the selection process was rigorous and credible, and there is no risk to the delivery of this project as a result of this scandal."
Greens climate spokesman Adam Bandt said the matter could undermine public confidence in the project and that, "if we had a national anti-corruption watchdog looking over their shoulder, public agencies would lift their game and do the proper checks before doling out public money".
In a statement, the firm said: "SMEC Australia is not subject of any allegations and\or investigations by the World Bank or AFP [Australian Federal Police]. Snowy Hydro were aware of the allegations against SMEC International during the bid process.
"SMEC Australia was not involved in or connected to these projects. All the allegations relate to projects which were undertaken by SMEC's international business.
"The AFP investigation is ongoing. SMEC has fully co-operated with AFP including sharing with AFP the report of SMEC's independent review of the matters under investigation, including additional material uncovered in this review."
Prime Minister Malcolm Turnbull announced plans for Snowy Hydro 2.0 in March. It will cost, conservatively, at least $2 billion, take at least four years to complete and could power an extra 500,000 homes when finished.
Last week, the World Bank announced SMEC's international subsidiary had agreed to be banned from bidding on projects in South Asia after "a World Bank investigation which revealed misrepresentations to meet bidding requirements under World Bank-financed projects in Sri Lanka and India".
"The investigation also found evidence indicating inappropriate payments made in relation to World Bank-financed projects in Sri Lanka and Bangladesh."
Under a negotiated settlement, SMEC will be barred from participating in World Bank projects for between six and 30 months.
Australia has no debarment scheme to block companies alleged to have engaged in corruption from tendering on government financed projects.
In August last year, Fairfax Media revealed the contents of internal company documents detailing SMEC's overseas staff's alleged bribery of officials in Sri Lanka to secure a $2.3 million aid-funded sewerage project in 2003 and a $2.2 million power plant project in Bangladesh in 2007.
Company emails also reveal Sri Lankan President Maithripala Sirisena and his adviser allegedly sought a political "donation" to be paid by SMEC when Mr Sirisena was a cabinet minister in return for signing off on a contract sought by SMEC. The company files suggest some in the firm's overseas office backed the payment and later withdraw a large amount of cash. However, the company has said it found no evidence the donation was ever paid.
The emails show a plan to siphon money from a World Bank-funded dam project in 2009 that was to involve Mr Sirisena awarding the $1.82 million contract to SMEC.
A damaging series of correspondence involved a SMEC Sri Lanka manager writing to his Australian colleagues to tell them that he wanted to "inform the minister/co-ordinating secretary" of the size of an alleged kickback to be paid. The manager also wrote that he needed to "prioritise" certain payments to unnamed parties "since the signing of the contract would depend" on it.
In a statement to Fairfax Media last year, Mr Sirisena said he had "no knowledge of the incident" and requested further information to "ascertain the involvement of any of his office staff".
SMEC started out as the government-owned Snowy Mountains Engineering Corporation but was later privatised and, last year, was purchased by an Asian engineering company.
The SMEC business units will also be denied work with the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank and the African Development Bank.
Foreign bribery has been a criminal offence in Australia since 1999. But the Australian Federal Police has found many cases difficult to investigate, with overseas officials often unwilling to co-operate. The AFP continues to investigate SMEC over its Sri Lankan and Bangladesh contracts.
A spokeswoman for Snowy Hydro said the company had been selected through a competitive selection process and confirmed the company had been aware of the investigation into SMEC International.
"We understand that SMEC Australia is not a party to the World Bank's investigations nor involved in any of the related projects. Snowy Hydro has confidence in SMEC's ability to carry out the Snowy 2.0 Feasibility Study," she said.
A spokesman for the Energy Minister Josh Frydenberg said: "The Australian Renewable Energy Agency has only provided grant funding for a feasibility study to Snowy Hydro."