Download PDFNegotiations and sales July 1999 - December 2000
REPORT OF THE INQUIRY INTO CERTAIN AUSTRALIAN COMPANIES IN RELATION TO THE UN OIL-FOR-FOOD PROGRAMME
COMMISSIONER THE HONOURABLE TERENCE RH COLE AO RFD QC
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Report of the Inquiry into certain Australian companies in relation to the UN Oil-for-Food Programme
Volume 2
Negotiations and sales July 1999 - December 2000
Commissioner The Honourable Terence RH Cole AO RFD QC
Novem ber 2006
© Commonwealth of Australia 2006
This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Attorney General's Department, Robert Garran Offices, National Circuit, Barton ACT 2600 or posted at h ttp:// www.ag.gov.au/cca
Report of the Inquiry into certain Australian companies in relation to the UN Oil-for-Food Programme
ISBN Volume 1 0-9803082-0-8 Volume 2 0-9803082-1-6 Volume 3 0-9803082-2-4 Volume 4 0-9803082-3-2 Volume 5 0-9803082-4-0
CD-ROM 0-9803082-5-9
www. oilforf oodinquiry .gov.au
Contents
9 AWB Limited and the AWB group of companies...........................................1
AWB Limited and AWB (International) Limited............................................. 2
Other companies in the AWB group............................................................... 4
The Boards of AWB Limited and AWB (International) Limited......................6
Responsibilities within AWB Limited..............................................................8
The AWB National Pool.................................................................................20
AWB's corporate structure............................................................................. 23
The Wheat Export Authority......................................................................... 23
10 AWB's sales to Iraq before July 1999.............................................................31
The Iraqi Grain Board.................................................................................... 32
A US$480 million dollar debt.........................................................................32
Further sales to Iraq after the first Gulf War.................................................. 33
The 'Tigris debt'..............................................................................................33
11 AWB's participation in the Oil-for-Food Programme.................................. 37
The alleged payment of 'kickbacks' in relation to contracts for the supply of humanitarian goods.......................................................................38
AWB's contracts under the Oil-for-Food Programme................................... 42
The amount of inland transportation and after-sales-service fees AWB paid.................................................................................................................43
The steps involved in AWB's sale of wheat to Iraq during the Oil-for- Food Programme............................................................................................44
The contracts with the grain traders...............................................................53
12 The role of the Department of Foreign Affairs and Trade...........................57
General information about the Programme disseminated by DFAT..............59
Specific advice and assistance to exporters.................................................... 64
The processing of UN contract approval applications: did DFAT 'approve' contracts?....................................................................................... 69
Granting permissions to export under the Regulations.................................83
Report of the Oil-for-Food Inquiry i i i
DFAT's role in investigating breaches or potential breaches of the Programme.....................................................................................................87
Conclusions and findings............................................................................... 89
13 July to December 1999: Iraq introduces an inland transportation fee........ 95 A change to the terms..................................................................................... 96
AWB concludes three contracts for the sale of wheat.................................. I l l
Inland transportation fees: two matters requiring consideration................ 123
Insurance of the wheat shipped to Iraq........................................................ 139
14 October 1999: further sales of wheat to Iraq.............................................. 155
Contract A4821............................................................................................155
Contract A4822............................................................................................157
Contracts for the indirect supply of wheat to Iraq: the Russian trade.........158
15 January 2000: a deletion to the AWB short-form contract.......................... 173
Negotiation of a further sale of wheat.........................................................173
Two further contracts with Savas Grain & Commodities Limited.............. 182
Another sale to Commodity Specialists Company.......................................184
Concluding observations.............................................................................. 185
16 January to March 2000: the Canadian complaint........................................189
January 2000: the initial query......................................................................189
March 2000: the IIC raises the issue again................................................... 201
Ms Johnston's Irregularities File................................................................... 224
17 April to July 2000: delays and demurrage...................................................233
April 2000: a visit to Jordan and Iraq...........................................................234
Appointment of Alia as protective agent.................................................... 243
April-May 2000: strategies and donations....................................................245
May 2000: reports from Mr Watson prior to another visit to Iraq............... 248
May 2000: Mr Enrons' and Mr Watson's further trip to Jordan and Iraq..... 251
June and July 2000: further developments................................................... 257
July 2000: another visit to Iraq.....................................................................267
The donation of bobcats finalised................................................................. 269
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July 2000: consideration by the ELG meeting.............................................. 270
The possibility of a despatch and demurrage account.................................273
July 2000: another sale to the IGB................................................................ 277
18 April to July 2000: changes within International Sales and Marketing.....................................................................................................287
April 2000: the restructure of International Sales and Marketing under Mr Lindberg..................................................................................................287
The manner of payment of inland transportation fees prior to August 2000................................................................................................................294
The use of shipowners as a conduit for payment.........................................297
February 2000: payments directly to Alia..................................................... 305
Interposition of Ronly and Tse Yu Hong Metal Limited..............................315
Resumption of payments by Hyundai Merchant Marine Co. Limited.........333
Summary of methods of payment prior to August 2000..............................333
An end to the use of Ronly and other shipowners.......................................335
Utility of AWB's arrangements with Ronly and the other shipowners........ 342
Postscript: AWB's communications with Ronly in September 2002............. 347
19 October 2000: a visit to Iraq and subsequent events..................................365
Discussions during the visit.......................................................................... 365
Events following Mr Stott's and Mr Hogan's trip to Iraq............................. 375
20 October 2000: an 'eloquent solution'.......................................................... 391
Mr Stott's letter to DFAT...............................................................................392
Whether Mr Stott spoke with DFAT before sending his facsimile............... 406
DFAT's letter to Mr Stott in reply................................................................. 409
Whether Mr Stott spoke with DFAT after he received its letter of 2 November 2000...........................................................................................414
November 2000: the Board report................................................................. 417
21 November 2000: introduction of the 10 per cent after-sales-service fee................................................................................................................. 425
The first references to 'after-sales service'.................................................... 425
Negotiation of a further sale......................................................................... 429
Report of the Oil-for-Food Inquiry v
Conclusion of the sale and imposition of the 10 per cent after-sales- service fee......................................................................................................433
Shipments under contract A0430.................................................................. 439
Further discussion of the supply of laboratory equipment.......................... 440
December 2000: the Arthur Andersen report.................................................445
The retainer................................................................................................... 445
The course of investigations......................................................................... 446
The draft reports...........................................................................................446
The final Arthur Andersen report................................................................ 447
Meetings in February 2001........................................................................... 450
The aftermath............................................................................................... 452
Conclusion....................................................................................................453
Report o f the Oil-for-Food Inquiry
Volume 1 Summary, recommendations and background
Summary
Findings
Recommendations
1 United Nations resolutions restricting trade with Iraq
2 Australian enforcement of United Nations resolutions
3 Imposition of inland transportation fees and after-sales-service fees: Iraq documentation
4 United Nations knowledge of breaches of sanctions: 1999 to 2003
5 United Nations investigation into the Oil-for-Food Programme
6 The Letters Patent
7 Conduct of the Inquiry: principles and procedures
8 AWB's approach to investigation and disclosure
Volume 3 Sales, allegations and inquiries January 2001 - December 2005
23 January 2001 to June 2002: more sales to Iraq
24 June 2002 to March 2003: contracts A1670 and A1680
25 March to September 2003: renegotiation of AWB contracts
26 August 2000 to March 2003: inland transportation fees
27 BHPP, the Iron Filings Claim, and Tigris
28 May 2003 to December 2005: allegations and inquiries
Volume 4 Findings
29 The Wheat Export Authority
30 The knowledge of the Commonwealth
31 Findings: AWB and associated persons
32 Findings: Alkaloids of Australia Pty Ltd
33 Findings: Rhine Ruhr Pty Ltd
Volume 5 Appendices
Report of the Oil-for-Food Inquiry vii
9 AWB Lim ited and the AWB group of com panies
9.1 AWB Limited is Australia's leading diversified agribusiness and one of the
world's largest wheat exporters, exporting on behalf of Australia's 30,000 wheat-farming families.1
9.2 The AWB group markets Australia's wheat to about 50 countries, the bulk of
which are in the developing world. With annual sales averaging over $4 billion, Australia's wheat exports account for about 16 per cent of world trade in wheat and about 3 per cent of Australia's total exports.2
9.3 In addition to its dealings in wheat, the AWB group markets and trades a
range of other grains, both in the Australian domestic market and for export. In 2003 AWB Limited acquired Landmark from Wesfarmers Limited. Landmark is a major supplier of agribusiness products and services, including rural merchandise, livestock, wool marketing, agronomy, real estate and fertiliser distribution.3
9.4 AWB Limited and the AWB group of companies evolved from the Australian
Wheat Board, which was established in 1939 as a government statutory authority to control the domestic and export marketing of wheat in Australia. From 1939 to 1989 the Wheat Board was the sole marketer of Australian wheat, both domestically and for export, and from 1939 to 1999 it performed its functions under various Commonwealth statutes that dealt with wheat marketing. The most recent of those statutes is the Wheat Marketing Act 1989.
9.5 The Wheat Marketing Act 1989 introduced a significant change to these
arrangements because it brought about the deregulation of the domestic wheat market. As a result of this deregulation, from 1989 any traders, millers and growers could buy and sell wheat in the domestic market. The Australian Wheat Board was also expressly permitted by the Act to continue trading in both wheat and other grains in the domestic market.
9.6 This deregulation did not, however, extend to the Australian export market.
Linder the provisions of the Wheat Marketing Act 1989, the Australian Wheat Board retained the sole right to export wheat from Australia. It also had responsibility for the commercial aspects of wheat marketing through the operation of wheat pools.
Report of the Oil-for-Food Inquiry 1
9.7 In 1997 and 1998 important amendments were made to the Wheat Marketing
Act 1989 and the scheme it provided for, including in relation to the export of wheat.4 As a consequence of the amendments, by 1 July 1999 most of the Australian Wheat Board's marketing and financial functions were transferred from the Board to a new grower-owned and controlled Corporations Law company structure. AWB Limited is at the head of that new company structure.
9.8 Following the transfer of these responsibilities, the shell of the then existing
statutory authority, the Australian Wheat Board, became the Wheat Export Authority.5 Since 1999 the Wheat Export Authority's functions have been to control the export of wheat from Australia, to monitor the performance of AWB (International) Limited in relation to the export of wheat, and to examine and report on the benefits to growers that result from that performance.6
AWB Limited a n d AWB ( I n t e r n a t i o n a l ) Limited
AWB Limited
9.9 AWB Limited (AWB) is a company limited by shares. It was incorporated
under the Corporations Law of Victoria in March 1998, initially as a subsidiary of the Australian Wheat Board. On 1 July 1999 AWB was fully privatised and became an unlisted public company. On 21 August 2001 it was floated and listed on the Australian Stock Exchange.
9.10 Shares in AWB are divided into two classes. The A class shares may be held
only by wheat growers; they carry voting rights but not the right to receive dividends. The holders of A class shares control the Board of Directors of AWB, in particular through their right to elect a majority of the Board of Directors. The B class shares carry with them the right to receive dividends and the right to elect a minority of the Board of Directors; they are listed on the Australian Stock Exchange, and there are no restrictions on who may hold them.7
9.11 Since 1999 AWB has been the exclusive manager and marketer of all bulk
wheat exports from Australia. It has done this through the supply-pooling system known as the Single Desk, which AWB (International) Limited operates on behalf of Australian wheat growers.8
9.12 In its current form, the Single Desk is a system established by the provisions
of the Wheat Marketing Act 19899, pursuant to which all Australian wheat that is to be exported in bulk10 is pooled, marketed, sold and exported by a single
2 Report o f the Oil-for-Food Inquiry
entity. That entity, referred to in the Act as 'nominated company B' is AWB (International) Limited.11
AWB ( I n t e r n a t i o n a l ) Limited
9.13 AWB (International) Limited (AWBI) is a company limited by shares and was incorporated under the Corporations Law of Victoria. It is a wholly owned subsidiary of AWB.
9.14 The wheat collected from growers and pooled under the Single Desk is referred to (within the AWB group) as the AWB National Pool.
9.15 About 30,000 to 35,000 wheat growers contribute to the National Pool annually.12 The pool's size and transaction volumes vary from year to year as a result of variations in the size of the crop. In 2001-02,19.958 million tonnes of wheat was sold from the pool, generating an income of $ 6.1 billion.13
9.16 As the holder of the Single Desk, AWBI is responsible for operation and management of the National Pool on behalf of Australian wheat growers who supply wheat to the pool. In particular, as pool manager, AWBI is responsible for marketing and selling all the wheat making up the pool.14 It does so with
the objective of maximising and distributing net returns to growers who sell their grain to the pool. It also exercises the statutory power of approval of requests for bulk export of wheat by other companies.
9.17 AWBI operates as a not-for-profit entity that returns all revenue from the sale of wheat in the pool (after deduction of costs) to growers who participate in the pool.15
9.18 AWBI has no capital or financial resources of its own. Prior to the restructure announced on 27 September 2006, AWBI did not employ any personnel. It does not itself operate or manage the Single Desk or the National Pool: AWB performs those functions for it.16
9.19 This is done pursuant to an arms-length Services Agreement between AWB and AWBI under which AWB (and other members of the AWB group) provide pool management, finance, supply chain and other services to AWBI necessary for AWBI to carry out its functions as the manager of the National Pool.17
9.20 Pursuant to this agreement, prior to 2003 staff employed by AWB managed the National Pool. This was in return for a payment from AWBI to AWB.18 Although members of the pool management staff were formally employees of AWB, they were located in a dedicated pool management team and made decisions independently of AWB. Since the incorporation of AWB Services
Report o f the Oil-for-Food Inquiry 3
Limited (AWBS) in 2003 and the transfer of staff from AWB to AWBS, staff employed by AWBS have managed the pool on behalf of AWBI. Although formally employees of AWBS, they too are located in a dedicated pool management team and make decisions independently of AWB.19 This position may have changed since a restructure announced on 27 September 2006.
9.21 Figure 9.1 shows the operation of the AWB National Pool from 1999 to 2003. Figure 9.2 shows the structure at February 2006; prior to 2003 and the incorporation of AWBS, AWBS's position was filled by AWB.20
O t h e r c o m p a n i e s in t h e AWB g r o u p
9.22 The AWB group of companies comprises:
⢠AWB Limited, which is the holding company in the AWB group
⢠a number of subsidiary companies, currently more than 75, the names of which are identified in the notes to the financial statements contained in the annual reports of AWB Limited.21 Among these subsidiaries are AWB (Australia) Limited, AWB Services Limited and AWB Harvest Finance Limited.
AWB (A u s tra lia ) Lim ited
9.23 The 1997 and 1998 amendments to the Wheat Marketing Act 1989 contemplated a third company undertaking domestic trading of grains and other non-pool commercial activities not handled by AWB.22 Since 1 July 1999 that company has been AWB (Australia) Limited (AWBA), a company limited by shares, incorporated under the Corporations Law of Victoria, and a wholly owned subsidiary of AWB.
9.24 AWBA is responsible for domestic wheat and other grain trading, as well as the export of grains other than bulk wheat (which is the exclusive domain of AWBI).23 Prior to 30 September 2000 all trading activities of the AWB group were conducted through AWBA.24 This included the trading operations of AWB Chartering.
4 Report of the Oil-for-Food Inquiry
Source: Ex 55, WST.0001.0101 at 0109.
Figure 9.2 Operation of the AWB National Pool, February 2006
A$ distributions to grower
Levies etc Futures hedging and foreign exchange hedging
Sell US$, buy A$ US$ consideration
Customer
Investment bank Futures exchange
Grower
AWB Services Ltd (staff and infrastructure)
AWB Harvest Finance Ltd (AWB central banker)
AWB National Pool Manager: AWBI
> · Grain flows
> . Cash flows
Source: Ex 335, WST.0009.0001 at 0011.
Report o f the Oil-for-Food Inquiry 5
AWB S e r v i c e s Lim ited
9.25 On 26 March 2003 AWB Services Limited (AWBS) was incorporated. It is also a wholly owned subsidiary of AWB. Since its incorporation, AWBS has provided, on a fee-for-service basis, management services and business infrastructure to the AWB group of companies25, these being services and infrastructure that prior to 2003 had been provided by AWB itself.26
AWB H a r v e s t F in a n c e Lim ited
9.26 AWB Harvest Finance Limited was incorporated in 2002. In addition to providing a suite of financing arrangements to growers who deliver wheat into the National Pool, AWB Harvest Finance Limited also manages foreign currency investment interest rate exposures for AWBI's pooling activities.27 Prior to the incorporation of AWB Harvest Finance Limited, these functions were performed by AWB Finance Limited, which was also a subsidiary of AWB. Another subsidiary, AWB Commercial Funding Limited, provided working capital finance and managed foreign currency and interest rate exposures for the commercial subsidiaries of AWB Limited.
Th e B o a r d s of AWB Limited a n d AWB ( I n t e r n a t i o n a l ) Limited
AWB Limited
9.27 AWB has a Board of Directors that is responsible for the corporate governance
of the company. This includes setting goals, monitoring performance, and ensuring that the company's internal control and reporting procedures are adequate, effective and ethical.28
9.28 The Board is elected by the A and B class shareholders of AWB, the A class shareholders having the right to elect a majority of the Board.
9.29 Table 11.1 in Appendix 11 lists the current directors of AWB. Table 11.2 in
Appendix 11 lists the directors of AWB when AWB became fully privatised on 1 July 1999. Table 11.3 in Appendix 11 lists the directors of AWB for each of the years from 1999 to 2006.29
9.30 In 1999 the Chairman of the Board of Directors of AWB was Mr Flugge AO.
Mr Flugge had first been appointed to the Board of Directors of the Australian Wheat Board in 1987. He had been appointed Deputy Chairman of the Wheat Board in 1991 and non-executive Chairman of the Wheat Board in April 1995.30 He was appointed Chairman of the Board of Directors of AWB in May
6 Report o f the Oil-for-Food Inquiry
1998, a position he held until March 2002, when he was succeeded by Mr Stewart.31
AWB ( I n t e r n a t i o n a l ) Limited
9.31 Although AWBI does not have any employees or capital resources of its own,
it does have a Board of Directors. Three of these directors are independently elected by the growers32; the remainder are also directors of AWB.
9.32 Table 11.4 in Appendix 11 lists the current directors of AWBI. Table 11.5 in
Appendix 11 lists the directors of AWBI for each of the years from 1999 to 2006.33
Mr Flugge was also Chairman of the Board of Directors of AWBI in 1999. He held that position until March 2002, when he was succeeded by Mr Stewart. Mr Stewart resigned as Chairman of AWBI on 23 February 2006, at which time Mr Donges was elected Chairman.
9.34 AWBI also has a Compliance Committee consisting of the three independent
directors.34 This committee is responsible for monitoring the dealings AWBI has with AWB, to ensure that they are not in conflict with AWBI's objectives with respect to the National Pool. It is also responsible for ensuring that the obligations contained in the Services Agreement between AWB and AWBI are
observed.35
9.35 Article 13.2 of the AWBI Constitution provides that, in the exercise of their
powers, the directors of AWBI must ensure that the business of the company is managed in a manner that complies with Article 3.1(b) of the AWB Constitution. Article 3.1(b) provides that in the exercise of their powers, the
directors of AWB must ensure that:
(b) the business of the Pool Subsidiary [that is, AWBI] is managed with the objective of:
(i) maximising the net pool return for Growers, who sell wheat into the pools run by the Pools Subsidiary by securing, developing and maintaining markets for wheat and by minimising costs as far as practicable;
(ii) distributing the net pool return to Growers who have sold wheat into the relevant pool.36
The combined effect of these provisions is that the businesses of AWB and AWBI are to be conducted in the interests of maximising returns to growers who sell wheat into the AWB National Pool. In particular, the AWBI Constitution requires the AWBI directors, in the exercise of their powers, to
Report o f the Oil-for-Food Inquiry 7
have regard to the maximising of returns to growers who sell into the National Pool.37
R e s p o n s i b i li tie s w it h in AWB Limited
T he Chief E x ec u tiv e O fficer
9.37 When AWB became fully privatised on 1 July 1999 its Chief Executive Officer was Mr Rogers AM. Mr Rogers had previously served as Managing Director of the Australian Wheat Board, having been appointed to that position in 1997.38 He was an Executive Director of both AWB and AWBI.
9.38 In April 2000 Mr Lindberg succeeded Mr Rogers as Chief Executive Officer of AWB (a position that has more recently been described as the Managing Director of AWB).39 Mr Lindberg was also on the Board of Directors of both AWB and AWBI. He continued in his position as Managing Director until 9 February 2006, when he tendered his resignation effective 30 April 2006 and stood down immediately in the interim.40
T h e C hief O p e r a tin g O fficer
9.39 In September 1999 the position of Chief Operating Officer, reporting directly to the Chief Executive Officer, was created within AWB.
9.40 From September 1999 until June 2000 Mr Tighe was employed as Chief Operating Officer.41 During that time he reported initially to Mr Rogers and, following Mr Rogers' departure from AWB in April 2000, to Mr Lindberg.42
9.41 As Chief Operating Officer, Mr Tighe oversaw all parts of AWB business except the human resources, public relations, legal, finance and information technology departments. He was involved in general trading, risk management, group strategy, corporate restructures and trading systems implementation.43
9.42 During the time of his appointment as Chief Operating Officer, the following AWB personnel reported to Mr Tighe:
⢠the General Manager of Grower's Services, Mr Goodacre
⢠the General Manager of Seeds and Logistics, Mr Crosbie
⢠the General Manager of AWB A, Mr Storey
⢠the General Manager of AWBI, Mr Laskie
8 Report o f the Oil-for-Food Inquiry
the General Manager of International Sales and Marketing, Mr Officer.44
9.43 Mr Tighe left AWB in June 2000, after the position of Chief Operating Officer was abolished in May 2000.45
9.44 The position of Chief Operating Officer was reinstated in late 2001, and Ms Gillingham was appointed to the position.46
9.45 Ms Gillingham first commenced employment with AWB in July 2000, as Chief Information Officer. In that position she reported directly to Mr Lindberg.47 When she became Chief Operating Officer she continued with her then existing responsibilities but also gained responsibility for Grain Technology, which she retained until 2002.48
9.46 In October 2002 Ms Gillingham's title changed to Group General Manager Supply Chain, Technology and Business Processes.49 In December 2005 responsibility for the Supply Chain function was transferred from Ms Gillingham to Ms Scales.50
9.47 In November 2005, in addition to her then existing responsibilities, Ms Gillingham was given responsibility for coordinating AWB's response to this Inquiry.51 This became known within AWB as Project Lilac.52
9.48 Ms Gillingham resigned from AWB on 24 August 2006.
The C o m p a n y S e c r e t a r y
9.49 Dr Fuller was appointed Company Secretary of AWB in July-August 2000.53 He replaced Mr McKeown, who had been General Counsel and Company Secretary of the Australian Wheat Board and then AWB since 1988.54
9.50 Except for a brief period between December 2004 and March 2005 (when Mr Cooper served as the acting Company Secretary), Dr Fuller remained Company Secretary until his resignation from AWB in April 2006.55 From early 2005 he was given additional responsibilities in relation to mergers and acquisitions, human resources and stakeholder relations.56 During the time he was Company Secretary, he reported to the Chief Executive Officer and
through him to the Board.57
E x ec u tiv e c o m m i t t e e s
9.51 Between 1999 and 2003 AWB maintained a number of committees responsible for aspects of the management of the company. Of particular relevance are the Executive Leadership Group and the Corporate Risk Review Committee.
Report o f the Oil-for-Food Inquiry 9
The Executive Leadership Group 9.52 The Executive Leadership Group (ELG) comprised the Chief Executive Officer (or Managing Director) of AWB and the senior executives who reported directly to him. These included the Chief Financial Officer, the General
Manager of AWBI and various Group General Managers.58
9.53 The composition of the ELG changed over the years. For instance, it included the Chief Operating Officer during the period when there was such a position.59 Prior to 2000 the ELG was known as 'the Executive'. The role of the Executive was similar to that of the ELG. The ELG met fortnightly, although this changed from time to time. An agenda was circulated prior to each meeting.60
9.54 The ELG represented the executive leadership group of the AWB companies. Its function was to set strategies for the business, to execute against those strategies, and to review the activities of the AWB group of companies.61 One of the topics that was the subject of the group's consideration was Iraq and AWB's sales of wheat to Iraq.
The Corporate Risk Review Committee 9.55 AWB also had a Corporate Risk Review Committee. The purpose of this committee was to assess and consider reports gathered by the Corporate Risk Unit (CRU) and to have some input into those areas of risk reported to the
committee by the unit. The CRU was set up under the office of the Chief Executive Officer. At present it reports through the head of Legal to the Chief Executive Officer. This change occurred some 12 to 18 months ago. The
members of the CRU prepared a monthly report, called the 'Corporate Risk Report', which became a board paper and went to a committee set up by the Board called the Group Corporate Risk Committee (GCRC). The GCRC consisted of members of the Board and the Chief Executive Officer. At meetings of the GCRC, various business representatives presented reports to the committee and the chair of the committee reported to the Board at the monthly board meetings.62
9.56 The CRU would also contact AWB's Chief Financial Officer if there was a significant irregularity caused by the activities of any division of AWB. On receiving such a report, the Chief Financial Officer would immediately contact the relevant division head to find out what was happening and ensure that corrective steps were being taken.63
10 Report o f the Oil-for-Food Inquiry
I n t e r n a t i o n a l s a l e s a n d m a r k e t i n g
9.57 Since 1999 there have been two divisions primarily responsible for the
management of AWB's overseas sales of wheat, including its sales of wheat to Iraq. They are the Pool Management Group and the International Sales and Marketing Division.
The Pool Management Group 9.58 The Pool Management Group is responsible for managing the AWB National
Pool. It is headed by the General Manager of the National Pool (also known as the General Manager of AWBI), who, with the assistance of the members of the group, is responsible for overseeing Australian growers' interests when exporting grain. This includes ensuring that Australian growers receive the greatest margin possible on their wheat and handling some of the logistics of storing and preparing the grain for export.64 The responsibilities and personnel of the Pool Management Group are discussed later in this chapter.
The International Sales and Marketing Division 9.59 In 1999 the International Sales and Marketing Division of AWB was also
known as the Global Sales and Marketing Division.
9.60 The International Sales and Marketing Division was responsible for
negotiating and liaising with the international market for the sale of Australian wheat. Any international orders for the sale of Australian wheat, including all sales of wheat to Iraq, came through this division.65 The division's role was to obtain the best price for the National Pool.66
9.61 The division was headed by the General Manager of International Sales and
Marketing67, who was responsible for all AWB international activities, including sales, marketing, overseas offices, technical services, market development promotions, chartering, shipping and global trading.68 This person reported directly to the Chief Executive Officer of AWB, except for the period between September 1999 and June 2000, when he reported to the Chief Operating Officer.
Operating under the General Manager of International Sales and Marketing were a number of regional managers, among them the Regional Manager for the Middle East - Africa region. Each of the regional managers had executive
responsibility for sales and marketing to their respective countries or region.
9.63 In 1999 the sale of wheat to Iraq was within the responsibility of the Regional
Manager for the Middle East - Africa.
Report o f the Oil-for-Food Inquiry 11
9.64 The regional managers were assisted by a number of account managers and assistants. Together, the Regional Manager for the Middle East - Africa region and his account managers and assistants made up what was described within the AWB group as the Middle East Desk.
9.65 It was the members of the Middle East Desk who were responsible for the negotiation and sale of wheat to Iraq, including during the period from July 1999 to 2003 under the Oil-for-Food Programme.
9.66 In 1999 a number of other officers and staff also reported to the General Manager of International Sales and Marketing. These included a chartering manager, a marketing analysis manager, a market development manager, a shipping manager and the New York office.69
9.67 AWB had also established a number of overseas offices and employed a number of permanent local agents in certain markets that had a stable, continuous flow of grain being sold to them.70 Amongst these was a local representative office in Cairo in respect of the Middle East - Africa business. This office was run by an account manager who reported to the regional manager for that region.
Personnel in the International Sales and Marketing Division Mr Officer 9.68 In June 1999 Mr Officer was General Manager of the International Sales and Marketing Division of AWB. He had held that position since 1995, initially at
the Australian Wheat Board and then subsequently with AWB.71
9.69 During his time in that position, Mr Officer reported to Mr Lawrenson (the Chief Executive Officer of the Australian Wheat Board before Mr Rogers), Mr Rogers, Mr Tighe (during the period of his appointment as Chief Operating Officer) and, from mid-2000, Mr Lindberg.72
Mr Stott 9.70 In July 2000 Mr Stott succeeded Mr Officer as General Manager International
Sales and Marketing.73 At that time Mr Stott reported to Mr Goodacre, who was then Group General Manager and who, in turn, reported to Mr Lindberg.74
9.71 Prior to his appointment Mr Stott had been employed with the Australian
Wheat Board from 1983 until 1996. This included a period as a marketing officer in the International Sales and Marketing Division from 1983 to 1987. From 1988 to 1996 Mr Stott was in charge of the Middle East, Europe and Africa Desk. In this position he was responsible for marketing wheat sold through the Australian Wheat Board to all the non-Asian markets.75 During
12 Report o f the Oil-for-Food Inquiry
this period it was said of Mr Stott that 'he established a strong reputation in the international grain trade and [a] close relationship with AWB's customers'.76 In 1996 Mr Stott left the Wheat Board to take up a position as Manager International Business Development with BHP Petroleum Limited77, where he remained until his appointment at AWB as General Manager International Sales and Marketing in July 2000.
9.72 In November 2001 Mr Stott joined the Executive Leadership Group as head of mergers, acquisitions, strategy and business development. His position as General Manager International Sales and Marketing was thereafter assumed by Mr Long.78 Mr Stott resigned from AWB in June 2006.
Mr Long 9.73 Mr Long initially reported to Mr Goodacre.79 After Mr Goodacre moved to the Corporate Division to take up the role of Group General Manager Corporate in January 2002,80 Mr Long reported to Mr Geary as Group General Manager
Trading.
9.74 In about 2002 the International Sales and Marketing Division was split. At that time Mr Long became the General Manager International Sales and Marketing for Africa, Europe and the Middle East.81 He continued in that position until he resigned from AWB in June 2006, effective July 2006.82
Mr Emons 9.75 In June 1999 the regional manager responsible for the Middle East - Africa region was Mr Emons. Mr Emons commenced employment with the Australian Wheat Board in September 199283 and had been appointed
regional manager in June 1996.84 As regional manager, he reported to Mr Officer.
9.76 In 1999 the Middle East Desk that Mr Emons headed comprised, in addition to himself, Messrs Hogan, Hunter, Hughes and Borlase.85
Mr Hogan 9.77 From August 1998 Mr Hogan was in charge of AWB's office in Cairo.86 From there he made several trips to Iraq, although primary responsibility for the Iraq market lay with Mr Emons until June 2000. In August 2000 Mr Hogan
was appointed Regional Manager - Middle East and returned to the AWB Melbourne office.87 He had responsibility for the Iraq market between August 2000 and July 2002, when he took stress leave. He officially handed over responsibility for the Iraq market in October 2002 to Mr Whitwell. Mr Hogan resigned in July 2003.88 Mr Hogan was assisted as Regional Manager by
Mr Edmonds-Wilson (who was an Assistant Account Manager).
Report o f the Oil-for-Food Inquiry 1 3
Mr Borlase 9.78 Mr Borlase commenced employment with the Australian Wheat Board in July
1995 as a contract administrator. In July 1997 be became Regional Manager, South Australia. From October 1998 to January 2001 he was employed as an entry-level marketing executive in the International Sales and Marketing Division of the Australian Wheat Board and subsequently AWB. In that role his duties included providing general administrative assistance to the regional manager and account managers on the Middle East, Africa and Europe Marketing Desk.89 He acted as a junior cover and assisted with any matter that needed attention.90
9.79 In January 2001 Mr Borlase was transferred to AWB's Cairo office as an account manager, responsible for marketing and negotiating sales to Egypt and Yemen. In September 2003 he returned to Australia as a grain product manager (but not to the International Sales and Marketing Division).91 In September 2004 Mr Borlase was appointed a commodity trader in AWB's
domestic trading division. He continued to hold that position at the time of this Inquiry.
Mr Whitwell 9.80 In July 2002 Mr Long recruited Mr Whitwell to the International Sales and
Marketing Division.92 Mr Whitwell was employed initially as a marketing manager. In October 2002 he replaced Mr Hogan as account manager responsible for the Iraq business.93
C o n tr a c t a d m in is tr a tio n
9.81 The International Sales and Marketing Division was not responsible for the
administration of a contract for the sale of wheat once the contract had been concluded. That responsibility fell to the Contract Administration Department, which was headed by Mr Lister from 1999 until his death in late 2005.94
9.82 Once the International Sales and Marketing Division had concluded a contract
for the sale of wheat, the division prepared a note of the sale and submitted it to the Contract Administration Department. Mr Lister or a member of his staff then prepared a short-form contract setting out the terms of the concluded sale, using the information contained in the note. The Contracts Administration Department forwarded this draft contract back to the International Sales and Marketing Division for it to check, execute and then
forward to the buyer.95
14 Report o f the Oil-for-Food Inquiry
9.83 It was also Mr Lister and his staff who:
⢠dealt with the establishment of the letters of credit under which AWB (and through it AWBI) was paid for the wheat sold pursuant to the contracts it concluded
⢠examined the letters of credit that were established by the buyer in relation to these contracts, to ensure that their terms were in order and in accordance with the contract whose payment they were intended to secure
⢠corresponded with (in the case of the contracts for the sale of wheat to Iraq) the Iraqi Grain Board and AWB's bankers in respect of both corrections that needed to be made to the letters of credit established in relation to these contracts and any amendments AWB wished to be made to the terms of the letters of credit.
9.84 Once it was determined that the terms of the letters of credit were acceptable to AWB, the letters of credit were passed to AWB's Trade Finance Department for processing.96
9.85 Mr Lister also applied to the Department of Foreign Affairs and Trade for the issue of a permission to export under r. 13CA of the Customs (Prohibited Exports) Regulations in relation to each of AWB's shipments of wheat to Iraq.
AWB C h a rte r in g
9.86 AWB Chartering was a division within AWB.97 It provided ocean freight services to the trading division (AWBA) and external customers of AWB, as well as to AWBI. In the case of AWBI, these ocean freight services formed part of the 'supply chain services' AWB provided to the National Pool.
9.87 Prior to September 2000 all the trading activities of the AWB group, including AWB Chartering, were conducted through AWBA.98
9.88 Mr Watson was the Chartering Manager of AWB Chartering. He held that position from December 199699 until he resigned from AWB on 1 November 2000.100 Following Mr Watson's resignation, Mr Jones was appointed Chartering Manager.101
9.89 Whilst he was Chartering Manager Mr Watson had reported to Mr Officer (the then General Manager, International Sales and Marketing Division). After Mr Officer's departure from AWB in July 2000 Mr Watson reported to Mr Beaumont102, who in June 2000 was appointed Group General Manager — Commercial Operations.103 From late 2000 or early 2001 Mr Watson reported
Report of the Oil-for-Food Inquiry 15
to Ms Gillingham, who was then the Chief Information Officer.104 Mr Jones also initially reported to Ms Gillingham after his appointment as Chartering Manager. From February 2003 the Chartering Manager and Division reported to the Group General Manager Trading, who at that time was Mr Geary.105
9.90 Amongst the staff who were employed in the Chartering Division between 1999 and 2003 were Mr Rowland, Ms Gatto, Mr Wall, Mr Alexander, Mr Cowan and Ms Allen.106
AW B's N ew York office
9.91 AWB maintained an office in the United States. It was initially in New York.
9.92 In October 1998 Mr Snowball was appointed Manager of AWB's US office. He replaced Mr Geary, who had been at the US office since 1995.107 As Manager of the US office, Mr Snowball represented AWB (and its related companies) in both North and South America. To this end, he was involved in:
⢠facilitating AWB's trade policy function, managed by Mr McConville, Manager Government Relations, and Ms Martin, General Manager Corporate Affairs, from AWB's head office in Melbourne
⢠marketing Australian grains to North and South America
⢠executing AWB's commodity hedge program in the United States.108
9.93 Mr Snowball's role as Manager of AWB's US office also involved liaising with the Australian permanent mission to the United Nations in relation to the Oil- for-Food Programme and contracts for the sale of wheat to Iraq that AWB (and the Australian Wheat Board before it) had entered into as part of the Programme. Mr Snowball liaised with the Australian mission in order to:
⢠ensure that AWB was paid efficiently and promptly for the shipments of wheat it made to Iraq under the Oil-for-Food Programme
⢠check on the progress of UN approvals of contracts between AWB and the Iraqi Grain Board that were executed under the Oil-for-Food Programme
⢠see to other related matters.109
9.94 During 2000 Mr Snowball communicated with the Australian mission in relation to any inquiries or requests for information that AWB's US office received from the mission. This included responding to those inquiries and requests and reporting them to AWB in Melbourne.
16 Report o f the Oil-for-Food Inquiry
9.95 These functions and responsibilities are to be distinguished from the
operation of AWB (USA) Limited, AWB's wholly owned American subsidiary.
9.96 During his time as Manager of the US office, Mr Snowball reported initially to
Mr Officer. After Mr Officer left AWB in about July 2000 Mr Snowball reported to Mr Geary.
9.97 Mr Snowball returned to Melbourne in October 2001, when he was appointed
International Manager Trading (non-Australian grains).110
Financial o p e r a t i o n s
The Chief Financial Officer 9.98 Responsibility for the financial operations of AWB rests with the Chief
Financial Officer, who reports directly to the Chief Executive Officer and through him to the Board of Directors of AWB.111
9.99 From 1 July 1999 until late October 2006 Mr Ingleby was the Chief Financial
Officer of AWB. He was formerly the Chief Financial Officer of the Australian Wheat Board, having taken up that position in April 1995.112 As Chief Financial Officer, Mr Ingleby was responsible for:
⢠the financial reporting of AWB Limited and its subsidiaries, including preparation of statutory accounts and management accounts. Part of the preparation of these accounts involves ensuring that costs are properly allocated between AWB (and its subsidiaries) and the AWB National Pool
⢠Treasury, which includes funding strategies, capital raising, interest rate management, foreign exchange management and credit ratings
⢠Trade Finance, which includes trade credit, credit reviews, credit arrangements and reviews, credit insurance, and debtor and performance reviews
⢠taxation of AWB and the other members of the AWB group.113
9.100 Amongst the officers in AWB who report directly to the Chief Financial
Officer are the General Manager of Finance, the Head of Taxation, the Head of Trade Finance, the Head of AWB Treasury (the Treasurer), and Group Commercial Managers on financial reporting lines.114
Report of the Oil-for-Food Inquiry 17
The Trade Finance Department 9.101 One of the AWB departments for which the Chief Financial Officer is
responsible is Trade Finance. That department is headed by Mr Aucher, who is the Head of Credit and Trade Finance. Mr Aucher commenced employment with the Australian Wheat Board in 1990, as Senior Finance Manager. That is effectively the same position as the one he currently holds. His position has undergone a number of name changes since then, but his role has essentially remained unchanged.115
9.102 Mr Aucher is assisted by Mr Owen and Ms Gibson. Mr Owen is the National
Trade Finance Manager116, reporting to Mr Aucher.117 He commenced employment with the Australian Wheat Board in 1990.118 Ms Gibson is the Assistant Trade Finance Manager. She commenced employment with AWB in October 1999.119
9.103 At all times between 1999 and 2003, Mr Aucher and Mr Owen shared
responsibility for the functions of the Trade Finance Department.120 Mr Owen had responsibility for all contracts that involved the sale of wheat to Iraq.121
Bank accounts 9.104 Between 1999 and hostilities in Iraq in March 2003 the AWB group
maintained bank accounts in Australia and overseas.
9.105 Amongst the AWB group's overseas bank accounts were two US dollar
accounts held with the Bank of New York, in New York. One of these accounts was in the name of AWB Limited, the other in the name of AWB (Australia) Limited. Both these accounts were operated by the AWB Treasury in Melbourne. Neither account was the bank account of AWB's US subsidiary, AWB (USA) Limited, which had its own accounts with another bank.
9.106 From July 1999 until 2004, subject to any hedging arrangement, the funds
AWB received from the United Nations escrow account for wheat sales to Iraq under the Oil-for-Food Programme were paid into the US dollar account maintained with the Bank of New York in the name of AWB Limited.
9.107 Between 1999 and March 2003 payments were made from both the US dollar
accounts with the Bank of New York. This included inland transportation fees paid between November 1999 and early May 2001 in respect of AWB shipments of wheat to Iraq under the Oil-for-Food Programme during that period.
9.108 Amongst its bank accounts in Australia, the AWB group had a Deutschmark account and a euro account. Both these accounts were with the Commonwealth Bank of Australia, in Sydney. From May 2001 until March
18 Report of the Oil-for-Food Inquiry
2003 AWB used both accounts to pay inland transportation fees in respect of shipments of wheat to Iraq AWB made during that period under the Oil-for- Food Programme.
The AWB Legal Division
9.109 AWB has its own in-house Legal Division. Between December 2000 and 2003
five solicitors were employed in that division. By 2006 the number of employed solicitors had risen to ten.122
9.110 The Legal Division was the responsibility of AWB's General Counsel.
Mr Cooper was appointed General Counsel in December 2000.123 From December 2004 to March or April 2005 Mr Cooper also acted as Company Secretary.124 In April 2005 his role changed to General Manager Risk and General Counsel.125 Mr Cooper continued to be employed in that position until his resignation from AWB in April 2006.
9.111 On his appointment as General Counsel, Mr Cooper initially reported to the Chief Financial Officer, Mr Ingleby.126 This changed in 2002: from that time Mr Cooper reported directly to the Managing Director, Mr Lindberg.127 Mr Cooper continued to report directly to Mr Lindberg until he (Mr Cooper) resigned in April 2006.
9.112 Amongst the solicitors employed in the Legal Division between 2001 and 2006
were Ms Lyons and Ms Peavey.
9.113 Ms Lyons commenced employment with AWB as Corporate Counsel in July
2001.128 Until August 2003 she was generally responsible for matters concerning the International Sales and Marketing and Chartering Divisions of AWB (amongst others).129 During that time she was the principal point of contact for legal advice but was not exclusively responsible for providing
legal advice to those divisions.130 In her position, it was incumbent on Ms Lyons to meet regularly, at least fortnightly, with the managers of those divisions to discuss legal issues confronting them.131
9.114 In early May 2003 Ms Lyons was seconded to the Mergers and Acquisitions
Division to work full time on AWB's acquisition of Landmark Operations Limited from Wesfarmers.132 During that time (apart from a short period in June 2003) Ms Lyons was not performing any day-to-day legal functions for any other division of AWB.133 These functions been transferred to Ms Peavey
in Ms Lyons' absence.134
9.115 After completion of the acquisition of Landmark, Ms Lyons was appointed
Integration Manager, responsible for the integration of Landmark into the
Report o f the Oil-for-Food Inquiry 1 9
AWB group. During her time in that position she reported to the Executive Leadership Group and did not perform any legal functions.135 In January 2004 Ms Lyons was appointed to the position of Corporate Planning Manager. Since then she has remained seconded to AWB's Corporate Development Team.136
9.116 Ms Peavey commenced employment with AWB as in-house counsel in its Legal Division in June 2003.137 Upon Ms Lyons' secondment to Mergers and Acquisitions, Ms Peavey assumed general responsibility within the Legal Division for the International Sales and Marketing Division.138 In November 2005 she was assigned to assist Ms Gillingham in her appointment as coordinator of document production to this Inquiry.139
9.117 In relation to various investigations and reports into AWB's dealings with Iraq during the Oil-for-Food Programme, the AWB Legal Division also engaged the assistance of:
⢠firms of solicitors in Australia —namely, Blake Dawson Waldron (in particular, Mr Chris Quennell), Minter Ellison (in particular, Mr Chesterman) and Arnold Bloch Leibler (in particular, Ms Thompson and Mr Zwier)
⢠barristers — including Mr Tracey QC (now Justice Tracey of the Federal Court of Australia), Mr Richter QC and Dr Donaghue
⢠lawyers in the United States — including Piper Rudnick in New York and Kirkland Ellis in Washington, DC.
The AWB Natio na l Pool
T he S in g le D esk
9.118 The Single Desk (in its current form) arises through the operation of s. 57 of the Wheat Marketing Act 1989.
9.119 Section 57(1) of the Act provides that a person shall not export wheat from Australia unless the Wheat Export Authority has given its consent to that export and the export of the wheat is in accordance with the terms (if any) of that consent. There are two exceptions to this general prohibition.
9.120 The first exception is found in s. 57(1 A) of the Act. This provides that s. 57(1) does not apply to 'nominated company B'. This is a reference to AWBI.140 Thus AWBI, and through it the AWB National Pool, is the only entity
20 Report of the Oil-for-Food Inquiry
permitted to export wheat in bulk from Australia without the prior approval of the appropriate regulatory authority.
9.121 The second exception arises under ss. 57(3A) and 57(3B). If a company other than AWBI applies to the Wheat Export Authority for consent to the export of a shipment of wheat in bulk, s. 57(3A) requires that, before giving its consent, the authority must consult 'nominated company B' (that is, AWBI, as the holder of the Single Desk). Moreover, s. 57(3B) provides that in such circumstances the Wheat Export Authority must not give its consent for the proposed export of wheat in bulk without the prior approval in writing of 'nominated company B'. In this way AWBI, and through it the AWB National Pool, can prevent grain traders, wheat growers, associations of wheat growers or any other would-be exporters from exporting Australian wheat in bulk.141
O p e ra tio n o f t h e N a tio n al Pool
9.122 Wheat delivered to the National Pool is delivered to centralised bulk-handling depots located throughout Australia. The wheat is graded and binned with other deliveries of similar quantity and value, ready for delivery to customers.142
9.123 The pool is required to purchase all wheat presented to it that meets the minimum quality standard.143 It is said that, as a buyer of last resort, the pool facilitates access to international markets for smaller growers who would otherwise find the costs associated with market entry too high.144 Over 35,000 wheat growers contribute to the AWB National Pool annually.145
9.124 AWBI creates separate pools for each wheat-growing season. Each seasonal pool is also made up of sub-pools, depending on the quality of wheat delivered to the pool. A pool typically runs for about 18 months (or about 15 months after harvest).146
9.125 AWBI distributes revenue realised by the National Pool from sales of wheat to the growers who contributed wheat to that pool. The amount AWBI pays to each grower, in effect as the price paid for their wheat, is the aggregated price received for each grade of wheat sold on the international market plus hedging gains or losses, less the cost of transporting the grain to the customer,
sales expenses, supply chain costs and pool operating costs.147
9.126 Included in the 'supply chain costs' is the cost of ocean freight where wheat from the pool has been sold on a CIF, C&F (CFR) or other similar basis. This includes the price AWBI pays to AWB Chartering for ocean freight services.
Report of the Oil-for-Food Inquiry 2 1
9.127 Where wheat from a pool was amongst the wheat sold to Iraq under contracts concluded as part of the Oil-for-Food Programme after June 1999, the expenses borne by the pool included (in addition to the cost of ocean freight) the inland transportation fees148 paid by AWB pursuant to those contracts. The revenue received by the pool included amounts received from the UN escrow account in respect of the sale of that wheat, including the amount by which the price of the wheat sold to the IGB was inflated through the addition of the inland transportation fees and, after November 2000, the after-sales- service fees imposed by Iraq.
M a n a g e m e n t o f t h e N a tio n al Pool
9.128 Responsibility for management of the National Pool rests with the Pool
Management Group. Within that Group is the Pool Manager, one of whose functions is to manage the exposure and revenue of the National Pool during the life of each segment of the pool.149 The Pool Manager oversees the Pricing Team and Export Position Management Team. The latter team looks at domestic logistics capability and allocates wheat parcels through specific port zones to specific contracts.150
9.129 In July 1999 the Pool Manager was Mr Geary.151 Mr Geary had been employed
with the Australian Wheat Board since 1987, initially for three years in the International Sales and Marketing Division on the Middle East, Africa and Europe Desk152 and between 1995 and 1998 in AWB's US office.153
9.130 The Pool Manager reported to the General Manager of the National Pool, also
(latterly) known as the General Manager of AWB (International) Limited.
9.131 In July 1999 the General Manager of the National Pool was Mr Laskie. From
September 1999 Mr Laskie reported to the Chief Operating Officer, Mr Tighe. Prior to that, Mr Laskie had reported directly to Mr Rogers, the Chief Executive Officer.
9.132 In June 2000 Mr Geary succeeded Mr Laskie as General Manager of the
National Pool (AWBI).
9.133 At the same time Ms Scales was appointed Pool Manager.154 Ms Scales had
commenced employment with the Australian Wheat Board in 1992, initially as a domestic trader in pulses and legumes.155 From March 1999 until the time of her appointment as Pool Manager, Ms Scales had been Pricing Manager for AWBI.156
9.134 In March-April 2001 Mr Geary was appointed Group General Manager
Trading157, which position he held until 3 November 2006. When Mr Geary
2 2 Report o f the Oil-for-Food Inquiry
was appointed to that position, Ms Scales was promoted to his former position and appointed General Manager of AWBI158, and Mr Johnson was appointed to Ms Scales' former position of Pool Manager.159
AWB's c o r p o r a t e s t r u c t u r e
9.135 Figures 11.1 to 11.11 in Appendix 11 show the corporate structure of AWB at various times between July 1999 and February 2003.
The W h e a t E x p o rt A u th o rity
9.136 The Wheat Export Authority is a Commonwealth statutory authority established on 1 July 1999 as part of the restructure of the former Australian Wheat Board.160 On 1 July 1999 the authority assumed the regulatory functions that had been exercised prior to that date by the Australian Wheat Board. Since that date the authority has been the statutory authority responsible for both control of the export of wheat, including the export of wheat in bulk, and monitoring the performance of AWBI in relation to its export of Australian wheat.
F u n c tio n s a n d p o w e r s
9.137 The statutory functions of the Wheat Export Authority are specified in s. 5 of the Wheat Marketing Act 1989:
5. Functions and pow ers of the A uthority
(1) The A uthority has the follow ing functions:
(a) to control the export of w heat from A ustralia;
(b) to m onitor nom inated com pany B's perform ance in relation to the export of w h e a t and exam ine and re p o rt on the benefits to grow ers that result from th a t perform ance.
(2) The A uthority has p o w er to do all things th at are necessary or
convenient to be done in connection w ith the perform ance of its
functions.
9.138 Except as specified in s. 5(1), the authority does not have power to investigate or control AWB or AWBI.
9.139 Section 5D of the Wheat Marketing Act confers on the authority compulsory information-gathering powers by which it can require AWBI, and through it AWB, to provide it with information or documents it considers relevant to the
Report of the Oil-for-Food Inquiry 2 3
operation of the pools operated by AWBI under the Single Desk161, including the costs of operating the pools and the returns to growers that result from the pools.162 On one occasion in 2003 the authority used its s. 5D powers to obtain information from AWBI.163 The authority also has the power to request, as opposed to compel, information relevant to its monitoring function.164
9.140 Pursuant to s. 5C of the Wheat Marketing Act, the authority prepares annual
reports to the Minister for Agriculture, Fisheries and Forestry165 (which are confidential) and to wheat growers.166 Each of these reports must report on AWBI's performance in relation to the export of wheat and the benefits to growers resulting therefrom. Section 5C became effective in July 2003.167 Prior to July 2003 reports were made by the authority to the Minister and growers.168 Those reports, called 'performance monitoring reviews', were first prepared in 2001 with respect to the 1999 to 2001 period.169 The monitoring function pursuant to s. 5(l)(b) of the Wheat Marketing Act is undertaken by the authority against the performance management review framework.170
9.141 Between July 1999 and April 2005 the Wheat Export Authority obtained
market and other information from AWBI in relation to both the export control and monitoring functions of the authority. This included documents already in existence and documentary or oral information or reports prepared by AWBI specifically at the request of the authority.171
M e m b e r s a n d s ta f f
9.142 The Wheat Export Authority has a five-member board172 and a supporting
secretariat.
9.143 The Chairman of the authority is Mr Besley AC. He has been Chairman since
1 January 2005 and a member of the authority since 1 July 2002.173 The four other members of the authority currently are Mr Bedbrook, Mr Cooper, Ms Clark and Mr Mortimer.174 The members are appointed by the Minister for Agriculture, Fisheries and Forestry.175
9.144 The authority currently employs 15 full-time staff.176 This includes the Chief
Executive Officer, who reports to the members of the authority.177 Mr Glen Taylor has held the position of CEO since April 2001. Prior to his appointment as CEO he worked for the authority as a manager from its inception in July 1999.178
9.145 Amongst the authority's former employees was Mr Charman, who was
employed with the authority from November 2001 until September 2005, initially as Senior Project Officer Performance Monitoring Review and Communications and subsequently as Senior Manager Performance
2 4 Report o f the Oil-for-Food Inquiry
Monitoring.179 This change in title was said by Mr Charman to more accurately reflect his role at the authority.180
9.146 As Senior Manager Performance Monitoring, Mr Charman was responsible
for monitoring the performance of AWBI and preparing draft reports on that performance for endorsement by the board of the authority. This performance monitoring function was conducted against a performance monitoring review and reporting framework agreed between the Wheat Export Authority, AWBI and industry.181
9.147 In 2004 Ms Amelia Duck was employed by the authority. She was employed
as a project officer and was one of Mr Charman's staff members.182
Report o f the Oil-for-Food Inquiry 2 5
N o te s
1 Ex 503, UN0.0003.0226 at 0228, para. 1. 2 Ex 18, WST.0001.0032 at 0032, para. 4. 3 Ex 55, WST.0001.0101 at 0116, para. 8.14. 4 These amendments were introduced through the Wheat Marketing Legislation Amendment Act 1998. 5 Wheat Marketing Act 1989 s. 4 (as amended by the Wheat Marketing Legislation Amendment Act 1998). 6 Wheat Marketing Act 1989 s. 5 (as amended by the Wheat Marketing Legislation Amendment Act 1998). 7 Ex 956, UN0.0003.0194_R at 0197_R-0198_R. 8 EX 956, UN0.0003.0194_R at 0198_R. 9 In particular, ss. 57(1), (ÎΑ), (3A) and (3B) of that Act. A fuller explanation of the operation of these subsections is set out later in this chapter. 10 That is, wheat that is exported other than in bags or containers — see s. 57(3B) of the Wheat Marketing Act 1989. 11 Neat Domestic Trading Pty Ltd v ATVB Limited (2003) 216 CLR 277,282 [4] (Gleeson CJ) and 291 [32] (McHugh, Hayne and Callinan JJ); see also s. 3 of the Wheat Marketing Act 1989 and Commonwealth Special Gazette, S274,12 June 1998; Ex 493, WST.0018.0008 at 0009, para. 8. 12 Ex 55, WST.0001.0101 at 0102, para. 2.5; Ex 335, WST.0009.0001 at 0010, para. 29; Ex 338, WST.0001.0154 at 0155, para. 6. 13 Ex 335, WST.0009.0001 at 0010, para. 34. 14 Ex 335, WST.0009.0001 at 0009, para. 26. 15 Ex 55, WST.0001.0101 at 0107, para. 4.2. 18 Ex 55, WST.0001.0101 at 0103, para. 2.10. 17 Ex 55, WST.0001.0101 at 0107, para. 4.1. 18 In 1999 AWB was reimbursed from the am ount received by the pool from the sale of the wheat for all of the costs legitimately incurred by AWB in marketing and selling the wheat, together with a mark-up on top of those costs. From October 2001 a new model was introduced which incorporated a base fee on the gross pool value plus a performance fee on top of that base fee calculated as a percentage of the base fee: Ex 335, WST.0009.0001 at 0024, para. 114; Ex 55, WST.0001.0101 at 0107, para. 4.3. 19 Ex 55, WST.0001.0101 at 0107, para. 4.3. 20 T 2814.31. 21 Ex 335, WST.0009.0001 at 0009, para. 25. 22 Neat Domestic Trading Pty Ltd v AWB Ltd (2003) 216 CLR 277, 294 [41] (McHugh, Hayne and Callinan JJ). 23 Ex 335, WST.0009.0001 at 0009, para. 24(c). 24 Ex 335, WST.0009.0001 at 0030, para. 148(a)(i). 25 Ex 335, WST.0009.0001 at 0009, para. 24(d). 26 T 2814.27-38. 27 Ex 355, WST.0001.0009 at 0009, para. 24(d). 28 Ex 1204, EXH.0002.0002 at 0032. 29 This table was sourced both from the listing of directors contained in AWB Limited's annual reports for 1999 to 2005 (Ex 1204, EXH.0002.0002; Ex 1205, EXH.0002.0035; Ex 1206, EXH.0002.0133; Ex 1207, EXH.0002.0216; Ex 1208, EXH.0002.0298; Ex 1209, EXH.0002.0397; Ex 1210, EXH.0002.0511) and from
1999 to 2005 (Ex 1204, EXH.0002.0002; Ex 1205, EXH.0002.0035; Ex 1206, EXH.0002.0133; Ex 1207, EXH.0002.0216; Ex 1208, EXH.0002.0298; Ex 1209, EXH.0002.0397; Ex 1210, EXH.0002.0511) and from
2 6 Report o f the Oil-for-Food Inquiry
» Ex 8, WST.0001,0252_R at 0255_R, paras 10-11. Ex 18, WST.0001.0032 at 0032, para. 2. 40 Statement from the Board of AWB Limited dated 9 February 2006 at
23 Ex 198, WST.0001.0137 at 0138, para. 5. 74 Ex 198, WST.0001.0137 at 0138, para. 5. 25 Ex 198, WST.0001.0137, paras 2-3. 26 Ex 719, AWB.0359.0013. 77 Ex 198, WST.0001.0137 at 0137-0138, para. 4.
28 Ex 198,WST.0001.0137 at 0138, para. 5; Ex 75, WST.0001.0088 at 0088-0089, para. 3. 79 Ex 75, WST.0001.0088 at 0089, para. 4. 8» Ex 420, WST.0012.0001_R at 0003_R, para. 2.5. si Ex 75, WST.0001.0088 at 0088-0089, para. 3. 82 Ex 75, WST.0001.0088, para. 1. 83 Ex 97, WST.0002.0026. 84 Ex 96, WST.0006.0001, para. 2.
Report o f the Oil-for-Food Inquiry 2 7
83 Ex 96, WST.0006.0001, para. 3. 86 Ex 8, WST.0001,0252_R at 0262_R-0263_R, para. 26; Ex 142, WST.0005.0001 at 0002, paras 6-7. 87 Ex 142, WST.0005.0001 at 0002, para. 9. 88 Ex 142, WST.0005.0001 at 0002, para. 10. 89 Ex 354, WST.0001.0061, para. 5. 90 Ex 96, WST.0006.0001, para. 3. 91 Ex 354, WST.0001.0061, para. 7.
Ex 300, WST.0001.0066, para. 1. 93 Ex 75, WST.0001.0088 at 0089, para. 5; Ex 142, WST.0005.0001 at 0002-0003, para. 10. 94 Mr Lister died in late 2005 whilst still employed with AWB Limited as head of the Contracts Administration Department (Ex 21, WST.0002.0167 at 0175). 93 Ex 228, WST.0003.0001_R at 0003_R, para. 13. 98 Ex 395, WST.0010.0029 at 0031, para. 11. 97 Ex 335, WST.0009.0001 at 0007, para. 13. 98 Ex 335, WST.0009.0001 at 0030, para. 148(a)(i). 99 Ex 425, WST.0003.0015_R at 0017_R, para. 7.1(a). 100 Ex 448, MFW.0001.0004. mi Ex 401, WST.0010.0010_R at 0011_R, para. 7. 102 Ex 425, WST.0003.0015_R at 0018_R, para. 7.3(c). i”3 Ex 668, RAB.0001.0001_R at 0002_R, para. 5. ,04 Ex 335, WST.0009.0001 at 0007, para. 13. Mr Ingleby said that Chartering reported to Ms Gillingham from October 2000. However, in her statement (Ex 1024, WST.0042.0002 at 0006-0007, para. 8(g)) Ms Gillingham said she was the executive responsible for the Chartering Division from January 2001. ms Ex 335, WST.0009.0001 at 0007, para. 13. i°8 Ex 425, WST.0003.0015_R at 0018_R, para. 7.2. 107 Ex 55, WST.0001.0101 at 0101, para. 1.3; Ex 383, WST.0001.0054 at 0055, para. 4. i°8 Ex 383, WST.0001.0054 at 0055, para. 5. i°9 Ex 383, WST.0001.0054 at 0055-0057, paras 6, 9 and 10. im Ex 383, WST.0001.0054 at 0055, para. 4. in Ex 335, WST.0009.0001 at 0003, para. 6(a). im Ex 335, WST.0009.0001 at 0003, para. 5(e). “ 3 Ex 335, WST.0009.0001 at 0003, para. 6(b). i» Ex 335, WST.0009.0001 at 0004, para. 6(g). ii3 Ex 395, WST.0010.0029 at 0030, paras 6 and 7. 116 Ex 460, WST.0015.0002_R at 0004_R, para. 7.
I'7 Ex 460, WST.0015.0002JR at 0004_R, para. 8. us Ex 460, WST.0015.0002JR at 0003_R, para. 6. » 9 Ex 460, WST.0015.0002JR at 0005_R, para. 12. 120 Ex 395, WST.0010.0029 at 0032, para. 14 —that is, other than the establishment of banking syndicates w here a buyer requires credit in excess of approximately US$50 million, for which Mr Aucher was alone responsible. 121 Ex 395, WST.0010.0029 at 0032, para. 14; Ex 460, WST.0015.0002_R at 0005_R, para. 13. 122 Ex 408, WST.0001.0350 at 0351, para. 11. 123 Ex 408, WST.0001.0350, para. 2. 124 Ex 408, WST.0001.0350, para. 4. I23 Ex 408, WST.0001.0350 at 0350-0351, para. 6. I28 Ex 408, WST.0001.0350 at 0351, para. 7. 127 Ex 408, WST.0001.0350 at 0351, para. 7. 128 Ex 1026, WST.0043.0001, para. 1. 429 Ex 408, WST.0001.0350 at 0352, para. 14. 130 Ex 1026, WST.0043.0001 at 0002, para. 11.
mi Ex 1026, WST.0043.0001 at 0003, para. 12. 132 Ex 1026, WST.0043.0001 at 0003, para. 15. 133 Ex 1026, WST.0043.0001 at 0003, para. 15.
2 8 Report o f the Oil-for-Food Inquiry
13“ Ex 1026, WST.0043.0001 at 0003, para. 15.
135 Ex 1026, WST.0043.0001 at 0003, para. 16. Ex 1026, WST.0043.0001 at 0003, paras 17-18. 137 Ex 666, WST.0027.0080, para. 1. 138 Ex 408, WST.0001.0350 at 0352, para. 15; Ex 1026, WST.0043.0001 at 0003, para. 15. 13» Ex 666, WST.0027.0080, para. 2. m o Neat Domestic Trading Pty Ltd v AWB Limited (2003) 216 CLR 277,282 [4] (Gleeson CJ).
mi An export of wheat that is not in bulk (that is, an export of wheat in bags or containers) still requires the
Wheat Export Authority's consent. Although the W heat Export Authority is also required to consult with AWBI in relation to any request to export wheat other than in bulk, neither the export nor the Authority's consent to it is conditional on AWBI giving its consent to the proposed export. The Wheat Export Authority may still perm it the export of wheat other than in bulk even w ithout AWBI's consent. The Authority has issued guidelines about those matters it will take into account in determining whether to consent to a request for a shipment of w heat other than in bulk:
i« Ex 55, WST.0001.0101 at 0102, para. 2.6. ms Ex 55, WST.0001.0101 at 0102, para. 2.5; Ex 335, WST.0009.0001 at 0010, para. 29; Ex 338, WST.0001.0154 at
0155, para. 6. M 6 Ex 335, WST.0009.0001 at 0009-0010, paras 27,28 and 31; Ex 55, WST.0001.0101 at 0104, para. 3.2. μ? Ex 335, WST.0009.0001 at 0010, paras 31 and 33; Ex 55, WST.0001.0101 at 0104, para. 3.4; Ex 338,
WST.0001.0154 at 0155, para. 6. ms And associated administration support fees where charged —for example, by shipowners w ho were used
as conduits for the paym ent of inland transportation fees. λ Ex 338, WST.0001.0154 at 0156-0157, para. 13. 15" Ex 338, WST.0001.0154 at 0157, para.14. 151 Ex 55, WST.0001.0101, para. 1.3(d).
is2 Ex 55, WST.0001.0101, para. 1.3(a). is3 Ex 55, WST.0001.0101, para. 1.3(c). 154 Ex 338, WST.0001.0154 at 0157, para. 5. is» Ex 338, WST.0001.0154, para. 3. is8 Ex 338, WST.0001.0154, para. 4. is? Ex 55, WST.0001.0101, para. 1.4. is8 Ex 338, WST.0001.0154 at 0154-0155, paras 1 and 5. is» Ex 490, WST.0018.0002, para. 1. 160 See above in this chapter. 161 And in particular pursuant to AWBI's obligations under s. 84 of the Wheat Marketing Act 1989. 1 62 wheat Marketing Act 1989 s. 5D. 163 Ex 493, WST.0018.0008 at 0011, para. 17(e). Apart from this reference, there does not appear to be any evidence as to w hat that one occasion was, the circumstances in which this power came to be used or the information that was sought pursuant to this section. 364 Wheat Marketing Act 1989 s. 5. 165 Wheat Marketing Act 1989 s. 5C(1). 166 wheat Marketing Actl989 s. 5C(3). 167 Ex 493, WST.0018.0008 at 0009, para. 9.
168 Ex 493, WST.0018.0008 at 0009, para. 10. μ» Ex 493, WST.0018.0008 at 0009, para. 10.
170 Ex 493, WST.0018.0008 at 0020, para. 12. A copy of the PMR framework appears as annexure 'B' to Mr Taylor's statement (Ex 493, WST.0018.0008 at 0020). 171 Ex 493, WST.0018.0008 at 0011, para. 17(d). 172 Ex 493, WST.0018.0008 at 0009, para. 4; see also s. 6(1) of the Wheat Marketing Act 1989. I»3 Ex 496, WST.0018.0021 at 0021, para. 2. 174 Ex 493, WST.0018.0008 at 0008, para. 4.
Report of the Oil-for-Food Inquiry 2 9
175 Wlreat Marketing Act 1989 s. 6(4). Pursuant to s. 6(1) of the Act, in addition to the chairman, the authority is to consist of two members nominated by the Grains Council, one member who is a government member and one other member. 176 Ex 493, WST.0018.0008, para. 5. 177 Ex 493, WST.0018.0008, para. 4. 178 Ex 493, WST.0018.0008, para. 2. 179 Ex 495, WST.0018.0029, para. 2. 180 Ex 495, WST.0018.0029, para. 2. 181 Ex 495, WST.0018.0029, para. 3. 182 Ex 495, WST.0018.0029 at 0031, para. 15.
3 0 Report of the Oil-for-Food Inquiry
10 AWB's sales to Ira q before July 1999
10.1 The Australian Wheat Board and its successor AWB have sold wheat to Iraq continuously since 1948.1
10.2 Iraq has been a very important market for the two organisations. Because of its consistent purchasing of large amounts, Iraq was considered by AWB to be one of the most strategically important buyers of Australian Premium White wheat.2
10.3 For example, during the 1999-2000 season AWB sold a record 2.4 million tonnes of wheat to Iraq. This was by way of direct sales to the Iraqi Grain Board as well as through two trading companies associated with the Russian trade.3 As a consequence of these sales, that season AWB shipped 98 per cent of the wheat supplied to Iraq.4 In April 2000, following their visit to Iraq, Messrs Laskie and Emons reported to the Department of Foreign Affairs and Trade that Australian wheat sales to Iraq through AWB accounted for almost 100 per cent of Iraqi wheat imports for the next phase of the Oil-for-Food Programme and placed Traq in the number one slot for our wheat exports'.5
10.4 During their visit to Iraq in October 2000 Mr Stott and Mr Hogan were told AWB was the fifth-largest source of imports into Iraq at that time.6 In a letter to the Minister for Trade, Mr Vaile, following that visit, Mr Flugge noted that Iraq was extremely important to the returns of Australian wheat growers, the market representing annual sales of 2.5 million tonnes, or approximately
15 per cent of Australia's export program.7 Mr Flugge confirmed that for the 1999-2000 marketing year Iraq was Australia's largest export destination.8 In April 2001 Mr Borlase reported to Mr Miles at Australia's mission in Amman, 'Iraq last year moved to be AWB's biggest customer on the world stage on a
tonnage basis for the first time. Looking to repeat this feat again in 2001'.9 In June 2002 Mr Hogan reported to Mr Miles that Australia had supplied about 2.35 million tonnes of Australian wheat to Iraq in 2001, with a GIF value of about US$400 million.10
10.5 After the Oil-for-Food Programme ended in November 2003 AWB continued to supply wheat to Iraq, initially under the World Food Programme and later directly with the new Iraqi Ministry of Trade.11
Report o f the Oil-for-Food Inquiry 3 1
T he Ira q i Grain Board
10.6 Until March 2003 both the Australian Wheat Board and AWB had dealt
exclusively with the Iraqi Grain Board.12 Part of the Iraqi Ministry of Trade, the IGB was the government agency responsible for Iraq's wheat imports13, for purchasing Iraq's requirements of rice and barley, and for storage and handling of these products.
10.7 The IGB was headed by the Director General, who reported directly to the
Iraqi Minister for Trade. Mr Saleh was the Minister for Trade between 1 July 1999 and March 2003. As at 1 July 1999, Mr Daoud was the Director General of the IGB. He had occupied that position for over 30 years and was a long term and strong supporter of Australian wheat. He left the IGB in January 2000 and became an adviser to the Minister.14 It was reported to AWB in October 2000 that he had died in a car accident whilst returning from Syria.15
10.8 Upon Mr Daoud's resignation in January 2000, Mr Abdul-Rahman was appointed Director General of the IGB. He had previously been the second in charge, under Mr Daoud. Mr Abdul-Rahman remained Director General until the hostilities in Iraq in March 2003. He was subsequently appointed Interim Head of the Iraqi Ministry of Trade16 and Deputy Minister for Trade.
A U S $480 million d o lla r d e b t
10.9 At the time of the first Gulf War, in 1990, the IGB owed the Australian Wheat
Board US$480.4 million in respect of shipments made during 1989 and 1990. Iraq was unable to repay this debt because its overseas funds held in foreign banks had been frozen and its repayment of debts had been deferred by sanctions imposed by the United Nations.17
10.10 Until that time Australian wheat sales to Iraq had been made on credit. The
Australian Wheat Board had insured all its credit sales of wheat with the Export Finance and Insurance Corporation (EFIC). The sales had been insured to the maximum amount permitted, which was 80 per cent of the value of the wheat sold.18
10.11 As a consequence of Iraq's failure to repay its debt, the Australian Wheat
Board lodged claims under its insurance policy with EFIC. The Wheat Board subsequently received from EFIC US$381.2 million in respect of those claims.19 EFIC thereupon became subrogated to the Australian Wheat Board's interests in the Wheat Board's contracts with Iraq. EFIC's payment to the Wheat Board represented between 70 and 80 per cent of the invoiced value of
3 2 Report o f the Oil-for-Food Inquiry
the wheat sales20 and was distributed by the Wheat Board to Australian wheat growers.
10.12 The balance of the debt owed to the Wheat Board in respect of the sales, a sum of US$98,147,446, remained unpaid, and in 1999 that debt was assigned to AWBI when the Australian Wheat Board ceased to function as a statutory body.21
10.13 In 2004, following the lifting of UN sanctions against Iraq, EPIC asked AWB to assign the residual debt to it so that it could participate in attempts to recover it in the Paris Club.22 AWB acceded to this request. Nevertheless, pursuant to its rights under the insurance policy with EPIC, AWBI retained the right to receive pro rata payments of any amounts recovered by EPIC in respect of the residual debt.23
F u rth e r s a l e s to Ir a q a f t e r t h e firs t Gulf W ar
10.14 Notwithstanding the debt that existed after the conclusion of the first Gulf War, the Australian Wheat Board continued to supply shipments of wheat to the IGB, although no longer on credit. For some of these shipments the cost of the wheat delivered to the IGB was paid to the Wheat Board by third parties, among them BHP Petroleum Limited24 and Hyundai Engineering and
Construction Co. Ltd.25
The 'T igris d e b t '
10.15 In early 1996 BHP Petroleum Limited paid the Australian Wheat Board US$5 million for 20,833 tonnes of wheat that was shipped to Iraq on the Ikan Sepat in January 1996.
10.16 At the time the shipment was made, it was said to be a donation to Iraq from BHPP.
10.17 However, in September 2000 BHPP purported to assign to The Tigris Petroleum Corporation Limited (Tigris) a 'receivable' said to be the IGB's liability to repay the cost of the shipment. That cost, together with five years' interest thereon, was subsequently recovered by AWB as part of the payments it received from the UN escrow account for the sale of 1 million tonnes of wheat the Iraqi Grain Board agreed to purchase under two contracts of sale concluded in December 2002 as part of the Oil-for-Food Programme. The contracts were A1670 and A1680, both dated 11 December 2002.
Report o f the Oil-for-Food Inquiry 3 3
10.18 AWB paid interest on the monies recovered. In December 2004 the amount recovered less
⢠a fee of US$500,000 payable to AWBI
and
⢠a further 10 per cent reduction, said to have been due to the 10 per cent reduction in the price of the wheat sold under contracts A1670 and A1680, insisted on by the Coalition Provisional Authority when the two contracts were renegotiated after the fall of Saddam Hussein's regime
was paid by AWBI to Tigris, together with an amount of interest earned. The payment was purportedly made pursuant to an agreement between AWBI and Tigris dated December 2004, in which the payment to Tigris was described as a fee for services rendered by Tigris to AWBI. The amount of US$500,000 deducted and retained by AWBI was described as a 'success fee'.
10.19 Chapter 27 provides a more detailed description of the sale of the Ikan Sepat shipment, the subsequent recovery from the Iraqi Grain Board of the cost of the shipment plus interest (the Tigris debt) and the payment of the funds so recovered by AWB less the 'success fee' to Tigris.
3 4 Report o f the Oil-for-Food Inquiry
Notes
1 Ex 8, WST.0001.0252_R at 0262JR, para. 25; Ex 503, UN0.0003.0226 at 0228. 2 Ex 1400, AWB.0264.0001_R at 0003_R. 3 These sales through the Russian trade are discussed more fully in Chapters 14 and 15. »Ex 438, AWB.0176.0024. 5 Ex 542, DFT.0003.0046. 6 Ex 173, AWB.0084. 0037_R at 0045_R. 7 Ex 542, DFT.0003.0191. 8 Ex 542, DFT.0003.0191. 9 Ex 542, DFT.0004.0051-0052. i" Ex 542, DFT.0005.0094. 11 Ex 330, AWB.0269.0002. 12 Ex 503, UN0.0003.0226 at 0228. 23 Ex 503, UN0.0003.0026 at 0228. « Ex 438, AWB.0176.0024 at 0025. 15 Ex 173, AWB.0084.0037_R at 0045_R. is Ex 542, DFT.0006.0220. 17 Ex 1266, AWB.0289.0240. 18 Ex 1400, AWB.0264.0001_R at 0011_R. 19 Ex 1266, AWB.0289.0240. 2° Ex 1266, AWB.0289.0240. 22 Ex 1266, AWB.0289.0240. 22 The Paris Club is an informal group of official creditors whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor nations. Paris Club creditors agree to rescheduling debts due to them. Rescheduling is a means of providing to a country debt relief through a
postponement and, in the case of concessional rescheduling, a reduction in debt service obligations. See
Report of the Oil-for-Food Inquiry 3 5
11 AWB's participation in the O il-for-Food Program m e
11.1 As discussed in Chapter 1, the Oil-for-Food Programme was established under UN Security Council Resolution 986 and administered by the United Nations. It was established as a temporary measure to alleviate the Iraqi population's hardship until such time as Iraq fully complied with the UN Security Council resolutions imposed on it as a consequence of and following
the first Gulf War.1
11.2 The Oil-for-Food Programme and the resolution under which it was established, permitted Iraq to export a certain value of oil every six months and to purchase from the proceeds of the sale of that oil humanitarian goods such as wheat, rice, milk powder, medical supplies, soaps, detergents, and other essential civilian supplies.
11.3 The procedures established for the operation of the Programme required that the United Nations —in particular, the 661 Committee —approve all contracts for the supply of humanitarian goods and services to Iraq.2
11.4 The Australian Wheat Board and its successor AWB Limited were the single
largest provider of humanitarian goods to Iraq under the Oil-for-Food Programme.3 The first Australian Wheat Board contract under the Programme was negotiated in 1996. Between 1997 and 2003 the Australian Wheat Board and AWB participated in all 13 phases of the Programme.4
11.5 In its final report, dated 27 October 2005, the Independent Inquiry Committee into the United Nations Oil-for-Food Programme found that during the period of their participation in the Oil-for-Food Programme the Australian Wheat Board and AWB sold a total of 6.8 million tonnes of wheat to Iraq and received over $2.3 billion in payments from the UN escrow account.5 In an
AWB briefing note to the Wheat Export Authority, dated 14 November 2005, it was stated that during nearly seven years of the Oil-for-Food Programme, the Australian Wheat Board and AWB supplied nearly 12 million tonnes of wheat over 41 contracts and 285 shipments.6
Report of the Oil-for-Food Inquiry 3 7
T he a lle g e d p a y m e n t of 'k ic k b a c k s ' in re la tio n to c o n tr a c t s for t h e su p p ly of h u m a n ita r ia n g o o d s
T h e fin d in g s of t h e I n d e p e n d e n t In q u i r y C o m m itte e
11.6 In its final report the IIC stated that during the Oil-for-Food Programme the former regime in Iraq had received 'illicit income' by way of payments made to it under the Programme.
11.7 The IIC found that the regime had received this income in two ways. The first was through the imposition of surcharges on its sale of oil under the Oil-for- Food Programme.7 The second and largest source of illicit income came from what the IIC termed:
'kickbacks' p aid by com panies th a t [Iraq] selected to receive contracts for
h um anitarian goods u n d er the Program m e. These paym ents to the Iraqi regim e w ere disguised by various subterfuges and w ere not rep o rted to the U nited
N ations by Iraq or the participating contractors.8
11.8 Evidence available to the IIC indicated that the former regime in Iraq had derived more than US$1.5 billion in income from the payment of such 'kickbacks' in relation to humanitarian contracts.9
T h e a l le g a tio n s re la tin g to AWB Lim ited
11.9 The IIC investigated AWB and reported:
In total, AWB p aid a total of over $221.7 million in side paym ents for w h at it term ed inland transportation fees. This corresponds to m ore th an fourteen percent of the illicit funds collected by the Iraqi regim e u n d e r its kickback schem es.10
11.10 Figure 12.1 in Appendix 12 reproduces the IIC final report schedule showing
its calculation of payments made by AWB.
T he s o u r c e s o f t h e a lle g e d 'k ic k b a c k s '
11.11 In its final report the IIC identified two sources of the alleged 'kickbacks' — inland transportation fees and after-sales-service fees.
Inland transportation fees 11.12 Inland transportation fees were first required to be paid on shipments made
under contracts entered into as part of phase VI of the Oil-for-Food Programme:
The kickback policy em erged only over tim e as the Program m e extended for a longer period an d involved larger am ounts than anticipated. The policy began in
3 8 Report o f the Oil-for-Food Inquiry
mid-1999 from Iraq's efforts to recoup p u rp o rted costs it incurred to tran sp o rt goods to inland destinations after their arrival by sea at the Persian G ulf p o rt of U m m Q asr. Rather th an seeking approval from the U nited N ations for
com pensation of such costs from the P rogram m e's escrow account, Iraq sim ply required hum anitarian contractors to m ake such paym ents directly to Iraqi- controlled bank accounts or to front com panies outside Iraq that, in turn,
forw arded the paym ents to the G overnm ent of Iraq. N ot only w ere these side paym ents not authorized u n d er the Program m e, b u t it w as an easy m atter for Iraq to im pose 'in lan d tran sp o rtatio n ' fees that far exceeded its actual transportation costs.11
11.13 An obligation to pay inland transportation fees was first imposed on AWB
under contracts it concluded in July 1999 under phase VI. The circumstances in which AWB agreed to pay and subsequently paid these fees are discussed in Chapter 13. Initially, the fee imposed was US$12 per tonne. AWB first paid this in November 1999. It continued paying such fees until the incursion into Iraq by coalition forces in March 2003, in respect of all AWB shipments of wheat in bulk to Iraq under contracts concluded as part of phases VI to XIII of the Oil-for-Food Programme. The amount of the inland transportation fee payable increased during this period, from US$12 per tonne in July 1999 to US$15 per tonne during 2000 and US$29 per tonne by December 2002.
After-sales-service fees 11.14 The second source of humanitarian kickbacks identified was a 10 per cent
surcharge, or fee, also called an 'after-sales-service' fee:
By mid-2000, Iraq instituted yet a broader policy to im pose generally a ten percent kickback requirem ent on all h um anitarian contractors — including contractors shipping goods by lan d as well as contractors shipping to U m m Q asr. This
broader policy w as in addition to the requirem ent for contractors to p ay inland tran sp o rt fees. Iraq d u b b ed its m ore general kickback requirem ent as an 'after sales service' fee. A fter-sales-service provisions often w ere incorporated into contracts as a basis to inflate prices an d perm it contractors to recover from the U nited N ations escrow account am ounts they had paid secretly to Iraq in the form of kickbacks. C ontractors ordinarily m ade these paym ents before their goods w ere perm itted to enter Iraq. For ease of reference, this form of kickback is referred th ro u g h o u t [this report] as an after-sales-service fee, although Iraq often collected a ten percent fee w ith o u t labelling it an ' after-sales-service' fee or w ithout
inserting an after-sales-service provision in the applicable contract.12
11.15 This 10 per cent after-sales-service fee was first imposed on AWB in relation
to the contract it concluded with the Iraqi Grain Board in November 2000 (contract A0430). This was as part of phase VIII of the Oil-for-Food Programme. The circumstances in which AWB came to agree to the payment of this additional fee are recounted in Chapter 21. AWB first paid the fee in April 2001, shortly after its first shipment of wheat to Iraq under contract A0430. The fee was thereafter paid in respect of all shipments of wheat to Iraq
Report of the Oil-for-Food Inquiry 3 9
following contract A0430 and until the coalition incursion into Iraq in March 2003.
11.16 From the time it was first imposed until March 2003, the 10 per cent after
sales-service fee was incorporated in and treated (in particular, by AWB and the AWB Pool) as part of the inland transportation fee payable in respect of each shipment. This was done by adding the 10 per cent fee to the trucking fee the IGB designated (usually in its wheat tender) as being payable in respect of contracts concluded under each phase and describing and treating the resultant total as the total of the 'inland transportation fees' payable in respect of each shipment made under that contract. During the period in which the 10 per cent after-sales-service fee was imposed, neither AWB nor the AWB Pool differentiated between
⢠that component of the total amount of the inland transportation fees payable and paid in respect of each shipment referable to the trucking fee as designated by the IGB
and
⢠that part of the total amount of the inland transportation fees payable and paid that represented the additional 10 per cent after-sales-service fee
either for the purposes of the payment of those fees or for recording the amount of the inland transportation fees paid in their books and records.13
T h e re c ip ie n ts of t h e a lle g e d k ic k b a c k s
11.17 The IIC found that the inland transportation fees — including the additional
10 per cent after-sales-service fee where applicable — were paid in four ways and ultimately found their way to the regime then in power in Iraq.14 One of these four ways was 'by bank transfer to accounts held by front companies in Jordan or the United Arab Emirates'.15
11.18 The front companies were described as companies that were controlled
covertly or owned in part by the Government of Iraq.16 The IIC found that, because large volumes of cash were difficult and dangerous to transport and suppliers were hesitant about making bank transfers directly to Iraqi authorities, payments through front companies became the preferred method for many suppliers.17 Further:
W hen the Iraqi regim e introduced the illicit inland transportation scheme, Alia an d A m m an Shipping, both based in A m m an, Jordan, w ere tw o of the m ost frequently used front com panies. These com panies posed as legitim ate providers of transportation services from the p o rt of U m m Q asr, but in practice provided only lim ited services at p o rt and otherw ise functioned as little m ore than conduits
4 0 Report of the Oil-for-Food Inquiry
for the p aym ent of tran sp o rtatio n fees to ISCWT [the Iraqi State C om pany for W ater T ransport]. In exchange, the com panies received a sm all percentage of the fees they channelled to the regim e.18
The reference in the passage quoted to 'Alia' is a reference to Alia for Transportation and General Trade, a company incorporated in Jordan in 1994 and 49 per cent owned by or on behalf of the Iraq Ministry of Transport.19
11.19 All inland transportation fees — including the additional 10 per cent after
sales-service fee where applicable — payable in respect of shipments of wheat to Iraq under the Oil-for-Food Programme between July 1999 and the incursion into Iraq in March 2003 were paid by AWB and the AWB Pool to Alia either directly or indirectly.
R eco v e ry o f t h e a lle g e d k ic k b a c k s fr o m t h e UN e s c r o w a c c o u n t
11.20 The IIC found that the Iraqi regime did not expect the suppliers of humanitarian goods themselves to bear these inland transportation fees and the additional 10 per cent after-sales-service fees when imposed.20 Rather, Iraq incorporated these fees in the contract price of the humanitarian goods it purchased. The contract containing the revised contract price was then submitted to the UN 661 Committee for approval under the Oil-for-Food Programme and for funding from the moneys held in the escrow account. The cost of the inland transportation fees and 10 per cent after-sales-service fees paid by the supplier in respect of shipments made under contracts approved by the United Nations was thereby recovered by the supplier from the UN escrow account as part of the proceeds of sale for goods shipped and in addition to the amount that would have otherwise been paid for the goods on a CIF free out basis.21 In effect, the inland transportation fees and after-sales- service fees were thereby paid from the funds accumulated in the UN escrow account from the sale of oil under the Oil-for-Food Programme.22
11.21 Through this means23 the Iraqi regime was able to obtain access to funds from
the escrow account, which it was then able to use for its own purposes — including purposes other than the purchase of humanitarian goods.
11.22 Moreover, because each phase of the Oil-for-Food Programme provided for
only limited funds to be made available via the escrow account for the purchase of humanitarian goods, withdrawal of funds from the escrow account on account of the inland transportation fees and after-sales-service fees (through their addition to the price of humanitarian goods purchased) had the effect of reducing the total amount available in the escrow account during each phase for the purchase of humanitarian goods and services for the benefit of the people of Iraq.
Report o f the Oil-for-Food Inquiry 4 1
AWB's c o n tr a c t s u n d e r t h e Oil-for-Food P r o g r a m m e
11.23 From 1999 AWB supplied wheat to Iraq under the Oil-for-Food Programme in two ways:
⢠through contracts for the sale of wheat in bulk that AWB entered into directly with the IGB
⢠indirectly, through contracts for the sale of Australian wheat in bulk to be delivered to Iraq that AWB entered into with certain grain traders.24 These traders entered into the contracts with AWB so that they25 could in turn fulfil contracts for the sale of wheat and its delivery to Iraq that they26 had entered into with the IGB.27
11.24 Between July 1999 and the incursion into Iraq in March 2003 AWB entered into 21 contracts with the IGB for the supply of wheat in bulk to Iraq under the Oil-for-Food Programme. Of these, 20 contracts were concluded under phases VI to XIII and in respect of these inland transportation fees were payable by AWB. Although inland transportation fees were not payable in respect of the other contract AWB concluded with the IGB during this period28, AWB in fact paid inland transportation fees for the single shipment made under that contract.29
11.25 So far as AWB was concerned, it was only the contracts for the sale of wheat that AWB concluded with the IGB directly that were the subject of comment in the IIC's final report. Nevertheless, AWB had also agreed to pay, and did in fact pay, inland transportation fees in respect of the wheat it shipped to Iraq under contracts it concluded with the grain traders. Furthermore, the inland transportation fees paid by AWB, and through it the AWB Pool, in respect of its shipments under these contracts were of the same order and were paid in the same manner as the inland transportation fees it paid in respect of its contracts entered into with the IGB directly.
11.26 Between July 1999 and the incursion into Iraq in March 2003 AWB entered into six contracts with grain traders for the supply of wheat to Iraq. Of these, five were contracts concluded under phases VI and VII, and inland transportation fees were both payable and paid by AWB. The sixth was a contract for the shipment under phase V of the Programme.30 Although no inland transportation fees were payable in this instance, AWB in fact paid inland transportation fees in respect of the single shipment made under that contract.31
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The a m o u n t of inland t r a n s p o r t a ti o n a n d a f t e r - s a le s - s e r v ic e fees AWB paid
11.27 Between November 1999 and March 2003 AWB paid in excess of
US$224 million in inland transportation fees, including the 10 per cent after sales-service fee (where that fee was imposed), in respect of 28 contracts concluded under the Oil-for-Food Programme.32
11.28 Table 13.1 in Appendix 13 lists each of AWB's contracts for the supply of
wheat to Iraq during the Programme in respect of which inland transportation fees (including the additional 10 per cent after-sales-service fee where it was also imposed) were paid, showing, for each contract:
⢠the amount of the inland transportation fee payable per tonne
⢠the total amount of the inland transportation fees paid by AWB and the AWB Pool.
11.29 Figure 13.1 in Appendix 13 shows, for those contracts AWB concluded
between July 1999 and December 2002 under phases VI to XIII, the amount of the inland transportation fees33 payable per tonne and the increase in the amount of that fee. Figure 13.2 in Appendix 13 shows, for each contract, the amount of the inland transportation fee payable by AWB as a percentage of
the Z CIF free out' price that would otherwise have been payable for wheat sold under that contract, as well as the increase in those percentages between July 1999 and December 2002.
11.30 Figure 13.3 in Appendix 13 shows the amount of inland transportation fees
paid per tonne and the increase in those fees, as prepared by AWB's solicitors, Blake Dawson Waldron, for their brief to Mr Tracey QC as part of the investigations carried out under Project Rose.34
11.31 Figure 13.4 in Appendix 13 summarises the inland transportation fees paid in
respect of the AWB contracts under the Oil-for-Food Programme, as recorded in spreadsheets prepared by Ferrier Hodgson Forensics35 on instruction from AWB and based on a review of AWB's transactional records. The circumstances in which these spreadsheets came to be prepared are discussed
in Chapter 26.
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T he s t e p s involved in AWB's s a le o f w h e a t to I r a q durin g th e
Oil-for-Food P r o g r a m m e
11.32 The steps involved in the negotiation and subsequent fulfilment of an AWB contract for the sale of wheat to Iraq during the Oil-for-Food Programme36 — in particular, during phases VI and following, from July 1999 to March 2003 — were as follows.
T h e IGB w h e a t t e n d e r
11.33 Wheat tenders were issued by the Iraqi Ministry of Trade and the IGB for the supply of wheat to Iraq under the Oil-for-Food Programme for each phase of the Programme.
11.34 Importantly for present purposes, from phase VI of the Programme these tenders contained two significant changes to the terms of the proposed contracts for the purchase of wheat by the IGB:
⢠The first concerned specification of the price at which the wheat was to be sold to the IGB. The price was no longer expressed to be GIF or GIF free out, as it had been under the earlier phases of the Oil-for-Food Programme. Rather, the price was expressed in 'Free on Truck to silo at all governates' terms. This contractually imposed an obligation on the seller to deliver the wheat to the silos within all governorates of Iraq and not merely to the port of Umm Qasr, as had been AWB's obligation as seller previously.
⢠The second change was the specification in the wheat tender of an obligation on the seller to pay the 'cost of discharge at Umm Quser and land transport' to 'the Land Transport Co.'37 This is the language that appeared in the tender for phase VI. A provision in similar terms appeared in the IGB wheat tenders for subsequent phases.
11.35 This obligation on AWB to pay the cost of discharge and transport in an amount set by the IGB was a feature of each of AWB's contracts with the IGB under phases VI and following. That cost has been variously described as an 'inland transportation fee' and a 'trucking fee'. AWB treated it as a cost of
transportation of the wheat and thus as an expense of the sale of that wheat.38 With the exception of the first four of AWB's short-form contracts under phase VI, the written contracts between AWB and the IGB made no reference to the obligation to pay a set amount for discharge and transport.
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N e g o tiatin g t h e c o n t r a c t f o r t h e s a l e o f w h e a t
11.36 Following the IGB's issue of its wheat tender, AWB would commence negotiations with the IGB for a contract for the supply of wheat under that phase of the Programme. These negotiations were generally conducted by Mr Emons and later Mr Hogan, although not in all instances.
11.37 Initially there was some resistance by AWB to the changes proposed by the phase VI wheat tender.39 However, eventually AWB came to accept the changes and the IGB's amended terms, concluding in July 1999 a significant sale that resulted in three contracts on the amended terms.40 There was little,
if any, discussion thereafter in the course of negotiations between AWB and the IGB as to the terms on which any concluded sale would be made. All of AWB's subsequent contracts with the IGB until March 2003 were on those amended terms.
11.38 The most significant aspect of AWB's negotiations with the IGB of a contract for the sale of wheat was negotiation of the price at which the wheat was to be sold.
11.39 From phase VI onwards, AWB and the IGB would negotiate a GIF free out price for the sale of the wheat. Once a mutually acceptable price had been agreed, the IGB inland transportation fee and, from November 2000, the additional 10 per cent after-sales-service fee would be added to that price in order to give the final contract price.
11.40 In this way the amount of the inland transportation and after-sales-service fees AWB paid was offset by the recovery of a commensurate amount from the UN-controlled escrow account as part of the proceeds of the sale of that wheat. As a result, the imposition by the IGB of both the inland transportation fee and the 10 per cent after-sales-service fee did not directly affect either the
GIF price for which the wheat was sold or the amount from which AWB calculated its profit on the sale. It was in this sense that AWB employees described these fees as 'revenue neutral'.
11.41 It was through the inclusion of these fees in the price of the wheat that the amount of the fees was recovered from the UN escrow account. To the extent that the fees were paid directly or indirectly to Iraq or an Iraqi entity, Iraq thereby obtained the benefit of the monies held in the escrow account. Iraq was able to access monies from the escrow account for use other than in
purchasing humanitarian supplies.
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D o c u m e n ti n g t h e s a l e
11.42 Under the terms of the contracts for sale concluded with the IGB in the period from 1999 until December 2002, the seller of the wheat was AWB, which sold the wheat as agent for AWB (International) Limited.41
11.43 Once a mutually acceptable price had been agreed and a sale thus concluded, there was usually an exchange of facsimiles, telexes or emails between AWB and the IGB, confirming that a sale had been concluded and possibly the terms of that sale. At the very least, this exchange would confirm the price that had been agreed; it would often also confirm the amount of the inland transportation fees payable in respect of shipments made under that contract.
During this period it was also not uncommon for a sale of the large tonnage of wheat by AWB to be split into more than one contract.42
11.44 Once the price had been agreed and the sale concluded, two contracts were prepared to document the sale. One was prepared by AWB; the other was prepared by the IGB; both were sent to the United Nations for approval.
The AWB short-form contract 11.45 Once a sale had been concluded, the details would be passed on to Mr Lister in the Contracts Administration Department of AWB. He and his staff would prepare an 'export sales note', recording details of the sale, including the
names of the persons who had booked and authorised the sales.
They would also prepare a contract for signature on behalf of AWB and the IGB. This was a single-page document that set out only the most salient terms of the sale, such as the price, the quantity and grade of wheat sold, the range of dates for delivery, the destination, and the method of payment. It incorporated the AWB and the IGB standard terms and conditions where these were not inconsistent with the express terms of the contract.
11.46 Once the short-form contract had been prepared, it would be provided to the International Sales and Marketing Division for checking and execution on behalf of AWB. Once executed, a copy of the short-form contract was then forwarded to the IGB for its execution.
11.47 Consistent with the terms of the IGB wheat tender issued for phase VI and following, the short-form contract prepared within AWB for each of the sales:
⢠expressed the price of the wheat sold as a O F Free in Truck price per tonne'
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⢠included an obligation that the cargo be discharged 'Free into Truck to all silos within all Governates of Iraq'.
On their face, the terms of the short-form contracts prepared by AWB for these phases were consistent with there being an obligation on AWB to discharge and deliver the wheat to the silos within all the governorates of Iraq. For the reasons set out in later chapters, and despite the foregoing references and the appearance created by these terms of its short-form contracts, AWB in truth had no contractual obligation to discharge and deliver the wheat within Iraq, and the true terms of its agreement with the IGB were for the sale of the wheat GIF free out (as had been the practice before July 1999 and before phase VI), together with an additional obligation to pay the inland transportation fees and, after November 2000, after-sales- service fees set by the IGB to the IGB-nominated account or recipient.
11.48 The first four short-form contracts prepared within AWB for sales under
phase VI also contained in the shipment clause a provision that referred to a 'discharge cost' of 'a maximum of USD 12.00' that was payable by the seller (AWB) 'to the nominated Maritime Agents in Iraq'. This term was said to have been intended to reflect the 'cost of discharge at Umm Quser and land transport' referred to in the IGB wheat tender from phase VI onwards.
Significantly, this provision was deleted from the short-form contracts prepared within AWB for its subsequent sales to the IGB under phases VII and following, commencing with the three contracts AWB concluded with the
IGB in January 2000.43 The circumstances in which this deletion occurred and the significance of the deletion—in particular, when compared with the retention of a similar provision in the contracts AWB concluded both before and after that date with certain grain traders for the delivery of wheat to Iraq —are examined in Chapter 15.
11.49 Appendix 14 is a list of AWB's contracts for the sale of wheat to Iraq between July 1999 and December 2002, identifying by whom the AWB short-form contracts were signed and by whom they were booked and authorised.
The IGB long-form contract 11.50 The IGB prepared its own contract for each of the sales made by AWB to it
during these phases of the Oil-for-Food Programme. This document was several pages long and is referred to in the following chapters as the 'long- form contract'. A copy of the long-form contract, signed on behalf of the IGB, was provided to AWB.
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Some provisions of the IGB long-form contract (such as price and the quality of the wheat) were substantially the same as in the short-form contract, but the long-form contract contained a number of additional terms.
11.51 The price of the wheat was expressed in the long-form contracts to be O F F.O.T. to silo at all governorate of Iraq via Umm Quser port' or some slight variation thereof, consistent with specification of the price in the IGB wheat tenders from phase VI onwards.
However, no version of the IGB long-form contract for any of the purchases made from phase VI onwards contained any clause or provision referring expressly to the obligation on the seller (AWB) to pay the inland transportation fees or the additional 10 per cent after-sales-service fees for contracts concluded after November 2000. Nor did the long-form contract (or the AWB short-form contract, for that matter) make clear that the inland transportation fees and additional 10 per cent after-sales-service fees for contracts concluded after November 2000 were included in the contract price.
O b ta in in g UN a p p r o v a l o f t h e c o n t r a c t
11.52 Following AWB's conclusion of a contract, it was necessary to obtain from the UN 661 Committee approval for the sale; otherwise, payment from the escrow account would be denied.
11.53 The application for this approval was formally lodged by the Australian mission to the United Nations, using a form entitled 'Notification or request to ship goods to Iraq'. When submitted to the United Nations, the form was accompanied by a copy of both the AWB short-form contract and the IGB long-form contract for that sale. The notification form and the supporting documentation were generally provided by AWB to the Department of Foreign Affairs and Trade in Australia, which in turn passed them on to the Australian mission for submission to the United Nations. The Australian mission would notify AWB when the United Nations had approved its contracts. This was generally done through DFAT in Australia.
11.54 Table 15.1 in Appendix 15 lists details of the submission to DFAT for UN approval of AWB contracts concluded between July 1999 and December 2002.
E sta b lish in g t h e l e t t e r s o f c r e d it
11.55 Part of the advice received upon notification of UN approval of a contract was confirmation that the approved contract was eligible for payment from the funds held in the UN-controlled escrow account.
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11.56 The terms of AWB's contracts with the IGB throughout all phases provided for payment by an irrevocable and non-transferable letter of credit in favour of AWB, opened by the Central Bank of Iraq on behalf of the IGB and drawn on the bank holding the UN escrow account.44 AWB would not commence shipping the wheat to Iraq until the letter of credit had been established. Once the letter of credit was established, it was not necessary for AWB to complete all the shipments under a contract before it received the proceeds of the sale. Once established, the letter of credit was able to be drawn down on by AWB on a shipment-by-shipment basis. Payment was only made in respect of a shipment under the letter of credit following completion of the discharge of the wheat from the ship at Umm Qasr. The amount paid to AWB was based on the tonnage of wheat discharged from the vessel at Umm Qasr, as certified by Cotecna Inspection SA, surveyors appointed by the United Nations for that purpose.
11.57 Despite the terms in which the contract price was expressed AWB was paid for the wheat it sold to the IGB under phases VI and following upon discharge of each shipment at Umm Qasr not after delivery to silos. It did not have to wait for the wheat to be delivered to the silos in all governorates within Iraq. Nor was it paid by reference to the amount of wheat delivered to the silos: it was paid against the quantity of wheat discharged at Umm Qasr. This was no
different from the position that had existed prior to phase VI and the amendments that had been introduced during the phase, when AWB sold wheat to the IGB on a GIF free out basis. The letters of credit established for the initial phase VI contracts contemplated that among the documents AWB would be required to produce in order to obtain payment under the letter of credit were trucking documents evidencing delivery of the wheat to the silos within Iraq. Mr Lister, however, successfully negotiated with the IGB and the
Central Bank of Iraq to eliminate that requirement, so as to allow payment to be made following discharge from the vessel and to record the sale for the purposes of the letter of credit only as a CIF sale, consistent with the true nature of AWB's agreement with the IGB. This renegotiation of the letter of credit by Mr Lister is examined in more detail in Chapter 13.
A r r a n g e m e n ts f o r t h e c a r r ia g e of t h e w h e a t
11.58 Only once the letter of credit had been established would AWB plan for the shipment of the wheat. Since AWB's sales of wheat to the IGB during phase VI and following were on a CIF basis, AWB would arrange for the carriage of the wheat to Iraq. AWB did not itself own any ships, so it had to charter ships to carry the wheat to Iraq. The cost of that carriage formed part of AWB's costs of the shipment that were factored into the price it was willing to accept for
the wheat.
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11.59 The carriage of the wheat to Iraq was arranged through AWB's chartering
division. That division would charter vessels in the name of AWB or AWB (Australia) Limited; AWB Chartering would also be responsible for payment of the ocean freight to the owner of the carrying vessel.
11.60 Between July 1999 and March 2003 AWB Chartering generally chartered
vessels under contracts of affreightment with a number of shipping companies, for the carriage of specified quantities of wheat that AWB was to deliver under the terms of its contracts with the IGB. These contracts of affreightment were generally on voyage charter terms —in particular, on the Auswheat Charterparty form.
AWB Chartering would in turn invoice the AWB Pool 'freight' for the carriage of the wheat to Iraq on the ships it had chartered. The AWB Pool was liable to pay this 'freight' under a series of agreements or contracts of affreightment that AWB Chartering concluded with the AWB Pool for this purpose. The amount of the freight the AWB Pool was liable to pay to AWB Chartering for any one shipment was not necessarily the same as the ocean freight AWB Chartering was liable to pay to the owner of the vessel it had chartered to carry the wheat. To the extent that the AWB Pool had agreed freight at a rate that was greater than the amount AWB Chartering paid, AWB Chartering made a profit on the shipment. Conversely, to the extent that the ocean freight paid by AWB Chartering for any shipment exceeded the freight it recovered from the Pool under the terms of its agreement with the Pool, AWB Chartering made a loss.
Under the terms of its contracts of affreightment with shipowners, AWB Chartering was also generally entitled to retain a specified rate of 'address commission', or 'adcorn'.
11.61 When inland transportation fees were first payable by AWB they were paid
by AWB Chartering in the first instance. These payments were made both directly to the nominated Jordanian trucking company, Alia, and indirectly to Alia via the shipowners whose vessels were used to carry the wheat to Iraq. These arrangements — and, in particular, the use of shipowners as a conduit for the payment of these fees — are examined in more detail in Chapter 18. When these inland transportation fees were paid by AWB Chartering, it would in turn obtain reimbursement for the cost of the fees from the AWB Pool. This would be done in one of two ways. In relation to some of the early shipments, AWB Chartering invoiced the AWB Pool for the amount of the inland transportation fee paid by it in respect of each of those shipments. Subsequently, AWB Chartering factored the cost of the inland transportation fees into the freight it invoiced the AWB Pool for each shipment, such that the amount of freight paid by the AWB Pool to AWB Chartering would be
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sufficient to cover both the ocean freight payable by AWB Chartering to the owner or disponent owner of the vessel employed to carry the wheat and the inland transportation fees payable for that shipment. These arrangements are also discussed in more detail in Chapter 18.
O btaining a p p r o v a l t o sh ip t h e w h e a t fro m A u s tra lia to I r a q
11.62 Before each shipment was able to leave Australia, it was necessary for AWB to obtain from the Department of Foreign Affairs and Trade a permission to export in respect of that shipment, pursuant to r. 13CA of the Customs (Prohibited Exports) Regulations. The permission was issued by an officer of DFAT, as the delegate of the Minister for Foreign Affairs.
11.63 It was invariably Mr Lister who made the application for permission to export a shipment to Iraq. It was made by facsimile sent to DFAT. The application would generally identify the name of the vessel on which the wheat was to be carried to Iraq45, the estimated time of the arrival of the vessel in Australia and its estimated time of arrival in Iraq, the quantity of wheat expected to be loaded, the contract under which the shipment was made, the buyer's reference, and the UN approval number. The basis on which the Minister's
delegate would issue a permission to export is examined in Chapter 12.
11.64 Details of the applications for permission to export made by AWB in relation to its shipments of wheat to Iraq during phase VI and following are provided in Table 15.2 in Appendix 15.
11.65 Before wheat can be shipped from Australia, it is necessary to declare details of the shipment to the Australian Customs Service. This was done electronically in a 'Details of Customs declaration'.46 This generates an export clearance number, or ECN, for the shipment. Upon entry of these details into
the Customs information technology system, EXIT, there is placed within the system a 'red line' hold on the export of wheat until Customs is provided with proof that permission to export has been granted under r. 13CA.
Once AWB had received from DFAT the permission to export in respect of a shipment of wheat, it would provide a copy of that permission to Customs.47 Once the permission to export had been sighted by Customs, the embargo on the particular shipment was lifted and the shipment was cleared and approved for export. Accordingly, it was not possible to export a shipment of wheat from Australia without first applying for and obtaining from DFAT a
permission to export under r. 13CA.
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Liability f o r d e m u r r a g e a n d d e s p a t c h
11.66 Under the terms of the contracts of affreightment and voyage charterparties AWB Chartering concluded for the carriage of wheat to Iraq, demurrage was generally payable by AWB to the owner or disponent owner of the vessel at an agreed daily rate in respect of any delays in the berthing and discharge of the wheat from the vessel in Iraq. However, under the terms of AWB's contracts for the sale of the wheat with the IGB, no demurrage (or despatch) was payable as between AWB and the IGB, including in relation to delays at the discharge port. This was because payment of both demurrage and despatch was prevented by UN sanctions.
11.67 In 2000 and 2001 AWB experienced delays in the discharge of wheat at Umm Qasr for various reasons. These delays, their cause and their significance are examined in Chapters 17,19,20 and 23.
11.68 As a consequence of the delays, AWB Chartering incurred significant demurrage to the owners and disponent owners of the vessels it had chartered to carry the wheat to Iraq. It was unable to recover these costs from the IGB, both under the terms of its contracts with the IGB and by reason of the UN sanctions. This led to discussions between AWB and the IGB in 2000 and again in 2001 about the possibility of demurrage and despatch being paid as between AWB and the IGB in relation to these shipments and the means by which that might be done. These discussions are also examined in Chapters 17,19, 20 and 23.
11.69 During this time, there were also discussions within AWB as to who should bear this demurrage —whether it was an expense that should be borne by AWB Chartering or the AWB Pool or both.
D is c h a rg e o f t h e c a r g o a n d in s p e c tio n by C o te c n a
11.70 Following the discharge of each shipment of wheat at Umm Qasr, surveyors appointed by the United Nations would inspect the shipment. Between July 1999 and March 2003 these inspections were carried out by Cotecna Inspection S.A.
11.71 Cotecna's role was to inspect and certify the shipment —in particular, to confirm the delivery of the goods contracted for and, in the case of AWB shipments, to certify the tonnage of wheat discharged. This was known as 'authentication'. Cotecna's notification of the amount discharged was sent to the UN Treasury. It was against this notification —and, in particular, the tonnage of wheat specified in it —that AWB was paid by the letter of credit drawn down on the escrow account.
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P a y m e n t fr o m t h e e s c r o w a c c o u n t
11.72 Following the discharge of each shipment, AWB, through its bankers, would present to BNP in New York the documents relevant to that shipment of the type called for by the letter of credit. If the documents were in order, and authentication had been received, AWB would be paid for that shipment from
the monies held in the UN escrow account.
11.73 The evidence of Mr Ingleby was that the proceeds of sale payable under the letters of credit were paid into the US dollar account maintained by AWB with the Bank of New York, in New York.48 In relation to the later contracts that were payable in Deutschmarks and euros, his evidence was that the proceeds
of those sales were paid in Deutschmarks and euros respectively into Deutschmark and euro accounts held by AWB49 with the Commonwealth Bank of Australia in Sydney, after BNP had instructed BNP Paris to pay those amounts into those accounts.50
The c o n t r a c t s w ith t h e g ra in t r a d e r s
11.74 In addition to its contracts with the IGB, AWB shipped wheat to Iraq during phases VI and VII pursuant to contracts for the sale of wheat that AWB entered into with certain grain traders. This was so that the traders could fulfil contracts they51 had entered into with the IGB for delivery of wheat to Iraq.
11.75 The steps involved in the fulfilment of these contracts were similar to those associated with AWB's contracts with the IGB directly. Briefly, they were as follows.
Upon AWB concluding a sale to the grain trader, a written contract was prepared, setting out the terms of the sale. Unlike AWB's contracts with the IGB, the contracts with the grain traders were each contained in a single document signed by both parties.
Under the terms of these contracts, AWB, as seller, had an obligation to pay the discharge and transportation costs (inland transportation fees) directly to the IGB-nominated account. This obligation was expressly stated in clause 6 of
each of the contracts.
11.76 Although wheat shipped under each of these contracts was also shipped under the Oil-for-Food Programme, it was not necessary for AWB's contract with the grain trader to be submitted to the Department of Foreign Affairs and Trade or the United Nations for the approval of the 661 Committee. That was because UN approval had already been obtained by the grain trader52
who had contracted to sell the wheat to the IGB (or, more accurately, the
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mission of the country of that company —in each instance here the Russian Federation). AWB was able to rely on that UN approval for its purposes in shipping the wheat to Iraq.
11.77 Under the terms of the contracts with the grain traders, AWB was paid for the
wheat it sold to the grain trader by a letter of credit established by the grain trader in favour of AWB. The grain trader53 in turn was paid for the wheat shipped under a letter of credit established by the Central Bank of Iraq on behalf of the IGB, drawn on the UN escrow account in the trader's favour.54 The letter of credit established by the grain trader in favour of AWB was generally on back-to-back terms55 with that established by the Central Bank of Iraq in favour of the trader. Whilst AWB was not paid for these shipments directly from the UN escrow account, as it was in relation to its sales to the IGB directly, it was nevertheless in effect paid under the letter of credit established in its favour from funds the grain trader received from the UN escrow account for that shipment.
11.78 AWB, through AWB Chartering, would arrange for the carriage of the wheat
that was to be shipped under these contracts in the same way as the shipments made under AWB's contracts with the IGB; AWB would also invoice the AWB Pool for freight for that shipment in the manner already
described. When the time came for the wheat to be shipped from Australia, AWB would apply for a permission to export the wheat under r. 13CA of the Customs (Prohibited Exports) Regulations, in the same way it would with the shipments it made under its contracts with the IGB directly.
11.79 It was also AWB Chartering that paid in the first instance the inland
transportation fees payable in respect of each of the shipments made under these contracts with the grain traders, in the same way as those fees were paid for shipments under AWB's contracts with IGB directly. AWB Chartering was also reimbursed the cost of those fees from the AWB Pool, in the same way it was reimbursed when the shipment was under its contract with the IGB directly.
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Notes
1 Ex 972, AWB.0106.0020 at 0021. 2 These procedures are addressed in detail in Chapter 1. 3 Independent Inquiry Committee into the United Nations Oil-for-Food Programme, Manipulation of the Oil- for-Food Programme by the Iraqi Regime, (Paul A Volcker, Chairman), United Nations, New York, 27 October 2005, p. 311, Ex 13, UN0.0005.0001 at 0318. 4 Volcker report, p. 311, Ex 13, UN0.0005.0001 at 0318. 5 Volcker report, p. 311, Ex 13, UN0.0005.0001 at 0318. 6 Ex 481, WEA.0001.0059. 7 Volcker report, p. 2, Ex 13, UN0.0005.0001 at 0009. 8 Volcker report, p. 4, Ex 13, UN0.0005.0001 at 0011. 9 Volcker report, p. 4, Ex 13, UN0.0005.0001 at 0011. 1 0 Volcker report, p. 314, Ex 13, UN0.0005.0001 at 0321. 1 1 Volcker report, p. 5, Ex 13, UN0.0005.0001 at 0012. 1 2 Volcker report, p. 5, Ex 13, UN0.0005.0001 at 0012. 1 3 Except for some of Mr Lister's file covers, which did record the inland transportation component and 10% fee separately. 1 4 Volcker report, p. 270, Ex 13, UN0.0005.0001 at 0277. 1 5 Volcker report, p. 270, Ex 13, UN0.0005.0001 at 0277. 1 6 Volcker report, p. 250, Ex 13, UN0.0005.0001 at 0257. 47 Volcker report, p. 270, Ex 13, UN0.0005.0001 at 0277. 18 Volcker report, pp. 270-271, Ex 13, UN0.0005.0001 at 0277-0278. 19 Ex 141, WST.0007.0001 at para. 2. 20 Volcker report, p. 269, Ex 13, UN0.0005.0001 at 0276. 2 1 Volcker report, p. 269, Ex 13, UN0.0005.0001 at 0276. 22 Volcker report, p. 269, Ex 13, UN0.0005.0001 at 0276. 23 Namely, the requirem ent that the supplier pay these inland transportation fees and after-sales-service fees, which would then be reimbursed to the supplier from the escrow account through the addition of these fees to the price otherwise payable for the hum anitarian goods being sold to Iraq. 24 Savas Grain & Commodities Limited (Savas Grain) and Commodity Specialists Company (CSC). 2 5 Or others they represented or with whom they had contracted. 26 Or the person they represented or w ith whom they had contracted. 27 These contracts had been allocated by the IGB to the Russian Federation (or companies nominated by it) in return for Russia's support of the then Iraqi regime and its opposition to the UN sanctions. These contracts with the IGB were approved by the United Nations under applications lodged by the Russian Federation. AWB sold wheat to the grain traders in order that they or the third parties who had contracted with the IGB might in turn fulfil their obligations under their contract with the IGB. AWB's contracts with the grain traders were essentially on the same terms as the underlying contract with the IGB, including in relation to the obligation to pay inland transportation fees. However, AWB sold the wheat to the grain traders at a slightly lower price than that payable by the IGB. In this way, the grain traders or other third parties that had entered into contracts with the IGB were able to profit from the margin between the price paid by the IGB and the price payable to AWB. This profit was generally up to US$5 per tonne. The grain trader or other third party who had contracted with the IGB was paid for the w heat under a letter of credit established by the Central Bank of Iraq on behalf of the IGB, draw n upon the UN escrow account. AWB was paid by a letter of credit established by the grain trader and which was generally back to back w ith the letter of credit established by the IGB. 28 Being contract A4821 (Ex 1211, UNO.1211.0293), which was concluded on 14 October 1999. Although this contract was concluded at the same time as contract A4822 (Ex 995, AWB.0420.0068_R) (which was a contract under phase VI of the Oil-for-Food Programme), it was nevertheless treated as a contract under phase IV of the Oil-for-Food Programme, in respect of which no inland transportation fees were payable. 29 The wheat shipped under contract A4821 was shipped on the Pretty Lady along with the last shipment under AWB contract A4334 (Ex 947, AWB.0039.0020_R), which had been earlier concluded with the 1GB under phase V of the Oil-for-Food Programme and in respect of which inland transportation fees were also
Report o f the Oil-for-Food Inquiry 5 5
not payable. Despite not being payable under either contract, inland transportation fees were paid in relation to both shipments on this vessel. 30 Being contract A4907 (Ex 1452, AWB.0057.0204_R), which was concluded on 14 December 1999. Although this contract was concluded at the same time as contract A4908 (Ex 1446, AWB.0056.0243_R) (which was a contract under phase VI of the Oil-for-Food Programme), it was nevertheless treated as a contract under phase V of the Oil-for-Food Programme in respect of which on inland transportation fees were payable. 31 Although no inland transportation fee was payable in respect of wheat shipped under this contract (because it was a phase V contract), AWB in fact paid inland transportation fees of US$12 per tonne in respect of the shipment made under this contract (that w heat having been shipped together with wheat shipped under contract A4822 (Ex 995, AWB.0420.0068_R), in respect of which inland transportation fees were payable). 32 Twenty-six of the 28 contracts were concluded during phases VI to XII of the Oil-for-Food Programme. The 28th contract was the earlier phase V contract (A4334), in respect of which AWB paid inland transportation fees on the last shipment, although none were payable under that contract. 33 Including the additional 10 per cent (after-sales-service) fee where applicable. 34 Ex 995, AWB.0420.0390; this brief and the advice that AWB received is examined in more detail in Chapter 28. 35 Ex 950, INQ.0017.0062. 36 There is a description of these steps by AWB in a briefing paper it prepared for the Australian Government on 10 August 2004 (Ex 330, AWB.0269.0002-0004). 37 Ex 1022, AWB.0058.0453_R at 0454_R (wheat tender for phase VI of the Oil-for-Food Programme). 38 Including as a tax deductible expense. 39 This is discussed in Chapter 13. 40 Namely, contracts A4653 (Ex 1447, AWB.0058.0414_R), A4654 (Ex 1448, AWB.0058.0415_R) and A4655
(Ex 1449, AWB.0058.0416_R). 41 See 1999 financial statements: Ex 1204, EXH.0002.0002 at 0024; see also Ex 504, AWB.0338.0150_R at 0163_R (advice of Sir Anthony Mason). Although it is said in this note that after November 2002 AWBI was the seller of the grain, as the holder of the authority to export wheat from Australia, both contracts A1670 and A1680, concluded in December 2002, w ere concluded in the name of AWB and not AWBI and AWB was expressly named in the contracts as the seller. In November 2003 AWB sought to amend the letter of credit for contract A1670 so as to refer to AWBI and not AWB as the beneficiary (Ex 1211, UN0.0003.1753), presumably on the basis that AWBI was the ultimate beneficiary of the sale. That request was denied, however, because AWB (not AWBI) was named as the exporter/seller in the contract and in documents lodged with the 661 Committee (Ex 1211, UN0.0003.1746 and UN0.0003.1736). 42 For example, the first sale concluded as part of phase VI in July 1999 was split into three contracts. 43 Contracts A4970 (Ex 1453, AWB.0059.0565_R), A4971 (Ex 1454, AWB.0059.0551_R) and A4972 (Ex 1455, AWB.0059.0542_R). 44 Namely, BNP. 45 In the copies of the documents referred to in these chapters and tendered in evidence, the name of the carrying vessel was generally deleted following a claim by AWB for commercial confidentiality in relation to that information. 46 Ex 953, AWB.0042.0137. 47 For example, Ex 953, ACS.0002.0011. 48 Ex 787, WST.0027.0010 at 0011, para. 4. 49 And later AWB Harvest Finance Limited, so Ex 787, WST.0027.0010 at 0011, para. 6. 51 Or others they represented or with whom they had contracted. 52 Or others they represented or with whom they had contracted. 53 Or its principal. 54 This was in much the same way AWB was paid under its contracts with the IGB. 55 Except as to price.
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12 The role of the D ep artm en t of Foreign Affairs and Trade
12.1 The Department of Foreign Affairs and Trade played a significant role in relation to the participation of Australian companies in the Oil-for-Food Programme. That role arose for three related reasons.
12.2 First, the legislative regime that gave domestic effect to the Security Council resolutions that imposed sanctions on Iraq and established the Oil-for-Food Programme directly involved the Minister for Foreign Affairs. It was the Minister for Foreign Affairs who was empowered by r. 13CA of the Customs
(Prohibited Exports) Regulations to grant permission for the exportation of goods to Iraq. That permission was to be granted only if the Minister was satisfied that 'permitting the exportation will not infringe the international obligations of Australia'. Interpretation of r. 13CA and the obligation it imposed on the Minister is discussed in Chapter 2. It is sufficient here to observe that, in satisfying himself that an exportation would not infringe Australia's international obligations, it might reasonably be expected that the
Minister (or his delegate) would rely on the knowledge and advice of his department in relation to the proposed terms of the exportation and compliance with the sanctions regime.
12.3 Second, because the Oil-for-Food Programme involved international affairs, liaison with the United Nations and compliance with Australia's international obligations in connection with the sanctions imposed on Iraq, the Programme naturally fell within DFAT's administrative domain. It was DFAT that was primarily involved in providing advice and assistance to Australian companies in relation to the sanctions regime and the requirements of the Programme.
12.4 Third, the UN agencies responsible for administering the Programme would not communicate directly with companies seeking to be involved in the Programme.1 The procedures the United Nations adopted provided that communication with the United Nations was to take place via the permanent or observer missions of the exporting states. Accordingly, during the operation of the Programme DFAT was involved in communicating with and transmitting relevant documentation to the Office of the Iraq Programme via Australia's permanent mission to the United Nations in New York.
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12.5 A consideration of DFAT's role in the Programme, and the systems and procedures it established to seek to ensure that participation by Australian companies complied with the UN sanctions, is relevant to a consideration of whether the actions of AWB, BHP Petroleum, Tigris, Rhine Ruhr, Alkaloids or any persons associated with those companies might have constituted a breach of any Commonwealth, State or Territory law. There are several reasons for this.
12.6 First, it is necessary to consider DFAT's role so that the actions of each of those companies can properly be considered in context. To understand the communications between, for example, AWB and DFAT, it is necessary to understand why it was that AWB was required to communicate with DFAT and to what one might reasonably expect the communications would relate.
12.7 Second, the information and advice available from DFAT and the systems and practices it established in relation to the Programme are of importance in considering the knowledge and intention of these companies; in particular, whether they knew or ought reasonably to have known that their actions involved, or might have involved, a breach of the sanctions.
12.8 Third, a number of the offences that might have been committed by the companies that participated in the Oil-for-Food Programme concern the making of statements or the provision of information to DFAT that might have been misleading or deceptive, or the withholding of information from DFAT that was material to the decisions and actions its officers took in relation to the Programme.
12.9 Broadly, there were four ways in which DFAT played a role in the Oil-for- Food Programme and interacted with companies that exported goods to Iraq during the period of the operation of the sanctions:
⢠first, the dissemination of general information and the provision of specific advice to exporters or potential exporters about the sanctions and the requirements for participation in the Programme
⢠second, the 'processing' and transmission to the United Nations of applications for UN approval of contracts for the shipment of goods to Iraq by Australian companies under the Programme and liaison with the Office of the Iraq Programme in relation to such applications
⢠third, the granting of permissions to export goods to Iraq under the Customs (Prohibited Exports) Regulations
58 Report o f the Oil-for-Food Inquiry
⢠fourth, liaising with the UN 661 Committee (also called the Sanctions Committee) and the Office of the Iraq Programme in relation to alleged or potential breaches of the Programme by Australian companies.
12.10 DFAT also liaised with the United Nations regarding delays and problems associated with payment from the UN escrow account. As this generally occurred after approval had been given by the United Nations and permission to export was granted by the Minister, this aspect of DFAT's involvement is of limited relevance.
G eneral in fo rm a tio n a b o u t t h e P r o g r a m m e d i s s e m in a t e d by DFAT
12.11 In December 1996 DFAT produced a pamphlet entitled Exporting to Iraq.2 It may be inferred that the pamphlet was disseminated to, or at least available to, prospective exporters. A copy of it was sent to AWB.3 It included the following:
EXPORTING TO IR A Q -C U R R E N T PROCEDURES
The export of goods to Iraq is m onitored by the U nited N ations Sanctions
C om m ittee, also k now n as the '661 C om m ittee'. All M em ber States of the U N are obliged to ensure th at exports are und ertak en only in accordance w ith the U N sanctions regim e ... The resolutions pertaining to trade w ith Iraq are im plem ented in A ustralia th ro u g h Sections 4QA of the C ustom s (Prohibited Im ports)
R egulations (and am endm ents) and 13CA of the C ustom s (Prohibited Exports) R egulations (and am endm ents). A pplications m ade u n d e r the above-m entioned provisions are processed by the D epartm ent of Foreign Affairs and T rade and provided as a free service on behalf of A ustralian exporters.
The M inister for Foreign Affairs and T rade (or his delegate) m ust be satisfied that the export of goods to Iraq w ill not infringe the international obligations of
A ustralia, before he m ay grant a perm ission for the export to proceed.
Export of Goods to Iraq U nder 'Oil-for-Food' Resolution 986
The U N Security C ouncil ad o p ted UNSCR 986 in 1995 as a tem porary m easure to provide for the Iraqi pop u latio n 's im m ediate h u m an itarian needs u n til such tim e as Iraq fully com plies w ith the relevant UNSCRs. UNSCR 986 allow s Iraq to
export u p to US$2 billion of oil every six m onths in re tu rn for a U N -m onitored distribution of im ported h u m an itarian aid to the Iraqi populace. O n 20 M ay 1996 Iraq signed an agreed M em orandum of U nd erstan d in g (MOU) w ith the UN Security Council w hich provides a fram ew ork for the im plem entation of UNSCR 986. This MOU is n o w operational u n d er a set of guidelines com prising E xpedited Procedures and a D istribution Plan ...
The item ised list of supplies and D istribution Plan for the initial six m o n th period (January to June 1997) as agreed betw een the U N and the G overnm ent of Iraq m ay be obtained from the D epartm ent on re q u e s t...
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There are tw o avenues for A ustralian exporters to p u rsu e com m ercial benefits from the provisions of UNSCR 986 —direct procurem ent of supplies through Iraqi G overnm ent M inistries and im porting agencies, an d m ultilateral procurem ent program s adm inistered by the U N 's Inter-A gency H um anitarian Program .
A ustralian traders proposing to export approved item s to Iraq u n d e r UNSCR 986 should:
⢠C onclude the appropriate contractual arrangem ents for the supply of
h u m an itarian goods to Iraq directly w ith the G overnm ent of Iraq (for central and so u th ern Iraq) or the U N Inter-A gency H um anitarian Program (for the n o rth ern Iraqi governates) as set out in the MOU
⢠A ttach this docum entation to the com pleted U N 'N otification or R equest to Ship G oods to Iraq' form
⢠R eturn the form to the A rabian Peninsula, Iran, Iraq Section of the
D epartm ent of Foreign Affairs an d Trade, addressed to the 'Iraq desk officer'
The D epartm ent, once satisfied th at the form has been properly com pleted, and that the transaction does n o t infringe the sanctions regime, will:
⢠Subm it the form an d docum entation to the U N Sanctions C om m ittee in N ew York.
Experts in the U N Secretariat w ill exam ine each contract on a case-by-case basis, including the details of price an d value, and w hether the item s to be exported are for hum anitarian purposes an d are on the 986 D istribution List. The expert panel w ill also check the availability of funds in the Iraq account (established by the U N at the N ew York branch of Banque N ationale d e Paris [BNP] into w hich all
proceeds of oil sales w ill be paid and from w hich all paym ents to exporters w ill be m ade) and w ill inform the Sanctions C om m ittee of its findings ... W hen U N
Sanctions C om m ittee acknow ledgm ent or 'n o objection' approval is provided through our m ission in N ew York, the D epartm ent of Foreign A ffairs and T rade w ill issue a 'Perm ission to E xport' u n d er Section 13CA of the C ustom s (Prohibited Exports) R egulations. Perm issions to export to Iraq are presently issued on a shipm ent-by-shipm ent basis.
Disclaimer
In assessing the com m ercial viability of entering into contracts for export to Iraq of foodstuffs or m aterials and supplies for essential civilian needs, A ustralian exporters should take careful note of the conditional nature of approvals provided u n d er R egulation 13CA. The A ustralian G overnm ent has an obligation under the U N Sanctions regim e to ensure that its nationals do not indirectly breach sanctions by being p arty to a transaction involving direct breaches by others. Should a perm ission to export be revoked, or the provisions of UNSCR 986 become inoperable d ue to action by the U N or the Iraqi G overnm ent, the A ustralian G overnm ent w ould not accept any liability for losses caused to any party, either directly or indirectly.
6 0 Report o f the Oil-for-Food Inquiry
Attachments:
M ethods of Paym ent an d Im port restrictions
U N N otification or R equest to Ship G oods to Iraq form
UNSCR 986 E xpedited Procedures (on request)
UNSCR 986 D istribution Plan (on request)4
12.12 The attached 'methods of payment' document included the following
warning:
W hen filling out the authorisation request form you sh o u ld clearly indicate the n atu re of the p roposed transaction (at no. 15) ensuring th at it com plies w ith
norm al com m ercial practice an d is not designed to contravene the sanctions regim e.5
12.13 DFAT updated the information in this pamphlet at least once. A version of
Exporting to Iraq dated January 20016 contained a number of changes and included some information additional to that contained in the 1996 version. The 2001 version was also placed on DFAT's website. At the beginning of that 2001 version, the following note or disclaimer appears:
The follow ing inform ation on U nited N ations policy an d procedures regarding exports to Iraq is for the convenience of A ustralians considering exporting to Iraq and is a g uide only. The inform ation below is largely sourced from the U N 's Office of the Iraq Program w eb site (w w w .u n .o rg /d e p ts /o ip ), an d persons
w ishing to export to Iraq m u st consult this site for com prehensive advice and instructions before proceeding.7
12.14 The following additional information was provided in relation to relevant UN
Security Council resolutions that had been passed since 1996:
UNSCR 1284 (w hich in itself d id not initiate a new phase) altered the term s of earlier Resolutions (norm ally rolled-over w ith o u t change) in a nu m b er of w ays including the lifting of the oil-for-food ceiling on revenues and stream lined
procedures for the approval of selected basic hum anitarian exports to Iraq. The selected item s listed for stream lined (also know n as accelerated) approval procedures are sourced from the existing U N D istribution Plan. The com plete lists of categories of goods eligible for accelerated processing are located at on the U N 's Office for the Iraq Program (w w w .u n .o rg /d e p ts/o ip /c p s/0 0 0 7 1 9 a c c .h tm l). The categories are food, education, agriculture, health, oil (spare parts), and w ater &
sanitation.
UNSCR 1284 enables the '661' Sanctions C om m ittee Secretariat to approve applications for exporting selected item s listed u n d er the ap p ro v ed categories w ith o u t the application being circulated to the Sanctions C om m ittee proper.
R egardless of w hether an item is eligible for accelerated procedures, u n d er the 'oil-for-food' program , only item s listed on the U N 's D istribution Plan may be
Report o f the Oil-for-Food Inquiry 6 1
exported to Iraq. That is to say, the item s on the lists for accelerated procedure are in them selves sourced from the D istribution Plan.
UNSCR 1330 re-states the key elem ents of UNSCR 1284, nam ely the stream lined processing am endm ents an d the allocation of cash for the purchase of certain h um anitarian goods an d services locally w ithin Iraq. UNSCR 1330 also created lists of specific item s ap p ro v ed for stream lined processing in the housing and electrical sectors.
The item ised list of supplies an d the current D istribution Plan for 'p h ase IX' (UNSCR1330) is available on the Office of the Iraq Program w eb site
(w w w .u n .o rg / depts / o ip / dpSpdf / sg8.htm l).
Suppliers should be aw are that the signing of contracts an d the preparation and subm ission of applications for goods w hich m ay qualify for expedited processing should be carried out in the norm al m anner outlined below . Based on the criteria set out in R esolution 1284 (2000), the Office of Iraq Program w ill determ ine w hich applications are eligible for clearance u n d er the new procedures. A pplications will
continue to be circulated to the '661 C om m ittee' for approval if they contain any item s not on the lists approved by the Com m ittee, including any spare parts, accessories or consum ables specifically m entioned in the lists. A pplications will also continue to be circulated if they are deem ed to contain any item s to w hich resolutions 1051 (1996) m ay apply (see below ).8
12.15 The outline of the processes in the 2001 version of the document was similar to that in the 1996 version. There were, however, some important differences. The relevant passage appearing in the 2001 version was as follows:
O utline of the process required to export to Iraq under UNSCRs 986/1330
A ustralian traders proposing to export approved item s to Iraq u n d e r UNSCRs 986 to 1330 should:
⢠consult the U N 's D istribution Plan to determ ine if the proposed items to be exported are perm itted by the UN, only item s on the D istribution Plan
(w w w .u n .o rg /d e p ts /o ip ) m ay be exported. If satisfied th at the item s are listed on the D istribution Plan (including the lists of item s approved for accelerated processing);
⢠conclude the appropriate contractual arrangem ents (sam ple contracts and letters of credit are available on the Office of the Iraq Program w eb site) for the supply of hum anitarian goods to Iraq either directly w ith the relevant arm of the G overnm ent of Iraq (for central and southern Iraq) or the UN Inter-A gency H um anitarian P rogram (for the northern Iraqi governates) ...
⢠attach this contractual docum entation to a com pleted U N 'N otification or R equest to Ship G oods to Iraq' form ; and
⢠retu rn the form to the Iraq Desk Officer, M iddle East Section, D epartm ent of Foreign A ffairs and T rade (by fax [02 6261 2640], w ith the original following by mail).
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DFAT, once satisfied th at the form has been properly com pleted an d that the transaction does not appear to infringe the U N sanctions regim e, w ill subm it the form an d docum entation to the U N Sanctions C om m ittee in N ew York. Experts in the U N Secretariat w ill exam ine each contract on a case-by-case basis, including the details of price a n d value, and w hether the item s to be exported are for
h um anitarian purposes and are on the UNSCR 986 D istribution List.
Im portant note: A contract that follow s the sam ple provided by the U N Sanctions C om m ittee (see the Office of Iraq Program ), and w hich is straightforw ard, tran sp aren t and m arket-priced has a better chance of gaining rap id approval ...
W hen [the] U N Sanctions com m ittee provides an acknow ledgem ent or 'n o objection' approval for the export, an d also approves the issue of the letter of credit, the D epartm ent of Foreign Affairs an d T rade w ill issue a 'P erm ission to E xport' u n d e r Section 13CA of the C ustom s (Prohibited Exports) R egulations.9
12.16 The extent to which these publications reflected the procedures and systems implemented by DFAT in relation to the processing of applications to the United Nations and the granting of permissions to export is discussed in detail later in this chapter. The following may be noted here:
⢠The information DFAT conveyed to potential exporters in these documents was in general terms and relied on material taken from the UN website10: the 2001 version of the pamphlet directed the reader to the UN website if more detailed information was required.
⢠There were no specific instructions in relation to completion of the UN 'notification' form issued by DFAT, although the UN issued a comprehensive document entitled 'How to complete the application form under Resolution 986 Oil-for-Food Programme' on its website.11
⢠There were no explicit statements to the effect that payments to Iraqi entities, including payments that were ancillary to the exportation of goods under the Programme, such as fees and charges associated with transportation or delivery, were contrary to the sanctions or prohibited by any Australian law.
⢠No advice or instruction was given about what Australian exporters should do if the concluded contractual arrangements they had entered into required or obliged the exporter to pay any fee or charge to, or at the direction of, an Iraqi entity.
⢠The 1996 version of the document stated that DFAT would submit the notification form and contractual documents to the United Nations 'once satisfied that the form has been properly completed and that the transaction does not infringe the sanctions regime', whereas the 2001
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version of the document stated that DFAT would submit the documents 'once satisfied that the form has been properly completed and that the transaction does not appear to infringe the UN sanctions regime', [original emphasis]
⢠The impression conveyed by both versions of the document is that the granting of permission to export would follow automatically once the United Nations had approved the contract. That position was explicitly stated in the 2001 version.
Specific a d v ic e a n d a s s i s t a n c e to e x p o r t e r s
12.17 DFAT's 2001 Exporting to Iraq publication referred potential exporters to the UN Office of the Iraq Programme website for more comprehensive advice and instructions. If requested DFAT also provided more specific advice and assistance to exporters in relation to the operation of the Programme.12
12.18 Officers from the Middle East Section provided advice about the scope and operation of the Oil-for-Food Programme by telephone and sometimes in writing.13 The Middle East Section had an 'information pack' consisting of a set of guidelines and the UN application form that was provided to potential exporters by mail, email or fax on request.14 Exporters were also often referred to the UN website.15 If officers in the Middle East Section were unable to answer a specific query or request for advice, they sought the advice of Australia's mission to the United Nations or DFAT's Legal Branch.16 The advice so obtained was then conveyed to the exporter by the Middle East Section. On occasion, exporters or potential exporters sought advice directly from Australia's mission.17 When its advice was sought, the mission would approach the UN Office of the Iraq Programme or the 661 Committee if it required guidance or advice before it could answer the request.
12.19 Officers in the Middle East Section and the mission were in relatively frequent
contact with officers and employees of AWB in relation to aspects of AWB's participation in the Oil-for-Food Programme and regularly gave advice to AWB.18
12.20 The following two examples are illustrative of DFAT's response to requests
for advice during the currency of the Oil-for-Food Programme. They demonstrate DFAT's willingness and ability to respond to AWB requests for advice in relation to the operation of the Programme and compliance with the sanctions.
6 4 Report o f the Oil-for-Food Inquiry
AWB r e q u e s t f o r a d v i c e in r e la t io n t o c o n t r a c t t e r m s : A u g u s t 2 0 0 0
12.21 On 7 August 2000 Mr Hogan of AWB sent a facsimile to DFAT, to the attention of Mr Bowker, then Director of the Middle East Section.19 In the facsimile Mr Hogan asked for DFAT's advice in relation to proposed changes in the terms of AWB's wheat contracts and a proposed change in the way contracts were submitted to the United Nations. The proposed changes to the contract terms related to certification of weight and quality, and despatch and
demurrage. Mr Hogan sought DFAT's advice about whether the proposed changes would be accepted by the United Nations. The proposed change to the contract submission procedure was that AWB would submit one contract signed by both parties, rather than separate contracts from each party; again, the advice sought was whether this was likely to be acceptable to the United Nations.
12.22 Although Mr Bowker had no recollection of receiving the letter from
Mr Hogan, it appears that he referred the request for advice to Ms Courtney, who at the time was a director-level officer assigned to the Middle East Section as a 'Special Projects' officer.20 Either Mr Bowker or Ms Courtney
sought advice from the DFAT Legal Branch in relation to AWB's proposals.
12.23 On 25 August 2000 Ms Simm, a solicitor in DFAT's Legal Branch, prepared a
minute to Mr Bowker, recording her advice in relation to Mr Hogan's facsimile of 7 August 2000.21 Ms Simm advised that the proposed contract term relating to weight and quality and the proposed change in the procedure relating to the submission of contracts to the United Nations were matters that could be negotiated with the United Nations, and that it was a policy question for the Middle East Section whether it would ask the mission to negotiate these matters with the United Nations on behalf of AWB. In relation to the proposal concerning despatch and demurrage, Ms Simm's advice included the following:
The AWB states th at it currently incurs substantial dem urrage bills d u e to delays in u n lo ad in g w heat shipm ents at the Iraqi p o rt of U m m Qaser. It proposes
establishing a type of tru st account, controlled by the AWB and held for the
benefit of Iraq, into w hich the AWB w o u ld pay despatch (a bonus w here
shipm ents are u nloaded ahead of time) an d presum ably, although it does n o t state this, dem urrage (a fine w hen shipm ents are u n lo ad ed late). The AWB proposes to use these funds to pro v id e grain handling eq u ip m en t a n d technical training to Iraq.
The p ro p o sal to establish a type of tru st account for Iraq controlled by the AWB w o u ld breach U N sanctions. M oney paid to Iraq m u st be p aid into an escrow account established by SCR 707 and 712 or in accordance w ith SCR 986. The sale or su p p ly of grain h an d lin g eq u ip m en t is p rim a facie prohibited by SCR 661 OP 3(a) a n d (b) an d w o u ld need to be ap proved by the 661 sanctions com m ittee.22
Report of the Oil-for-Food Inquiry 6 5
12.24 On 28 August 2000 Ms Courtney sent a facsimile to Mr Hogan, attaching a copy of Ms Simm's minute to Mr Bowker.23 In the facsimile Ms Courtney stated:
I have left the docum ent [the m inute] in its internal form as I think it will give you an inform al steer as to possibilities. O ur und erstan d in g in MEA is that you w ish to deal directly w ith the Iraqi G rain Board to negotiate these possibilities that should be consistent w ith oil-for-food provisions b u t should you w ish to have us talk to our m ission in N ew York or have them ru n adm inistrative options p ast the
Secretariat a n d /o r Sanctions Com m ittee, we w ould of course be h appy to discuss this fu rth er w ith y o u .24
AWB r e q u e s t f o r a d v i c e in r e l a t i o n t o p a y m e n t o f p o r t f e e s : M arch 2 0 0 1
12.25 On 23 March 2001 Ms Moules, First Secretary of Australia's permanent mission to the United Nations, was contacted by Mr Snowball, manager of AWB's US office. Mr Snowball sought DFAT's advice in relation to the payment of port fees in Iraq.25 Ms Moules recorded the terms of this request for advice in a cable she sent to DFAT in Canberra on 26 March 2001:
AWB (USA) L td (Snowball) contacted us on the evening of 23 M arch to seek our advice about the paym ent of p o rt fees in Iraq. In relation to its latest shipm ents of w h eat u n d er the Oil-for-Food Program , AWB has been advised by the Iraq State P ort A gents th at it cannot discharge its vessels until a p o rt fee of U.S.50 cents per tonne is p aid in cash to the p o rt agents. The Iraq State Port A gents have told AWB that the p o rt fees will be applied retrospectively back to 11 M arch 2001, and to all future shipm ents.
AWB Ltd asked us if w e could clarify w hether these port fees w ere perm issible u n d er the sanctions regim e. They also noted their concern that, if applied, the port fees w ould am o u n t to considerable sum s given the quantities of w heat AWB exports to Iraq (as you know , the tw o m ost recent contracts for w hich AWB has received U N approval to export to Iraq cover, in total, one m illion tonnes of w heat).26
12.26 Ms Moules subsequently spoke with the Office of the Iraq Programme and the
Norwegian mission in its capacity as Chair of the 661 Committee. Ms Moules was advised that, whilst a full answer could not be given, a legal opinion obtained in relation to the discharge and transportation of humanitarian supplies in Iraq was to the effect that such fees were not inconsistent with the sanctions regime, provided they were a 'reasonable' amount and provided they were paid in Iraqi dinars, not US dollars.27 Informal advice received from the Norwegian mission was to the same effect. Both the OIP and the Norwegian mission acknowledged to Ms Moules that this was not a 'practical solution' because dinars were difficult to purchase outside Iraq and could not be purchased in Iraq without breaching the sanctions. They also advised that the 661 Committee was looking further into the matter, but that it would take some time to develop a response.28 On 26 March 2001 Australia's Ambassador
6 6 Report o f the Oil-for-Food Inquiry
to the United Nations, Ms Wensley, wrote to the Chairman of the 661 Committee, seeking 'guidance on how the Australian Mission should advise AWB Ltd to proceed' in relation to the demand for the payment of port fees.29
12.27 On 26 March 2001 Ms Moules conveyed to Mr Snowball the substance of the
advice she had received from the Office of the Iraq Programme and the Norwegian mission.30 Part of the advice conveyed was that any payments in US dollars to Iraq would breach the UN sanctions31 and that the 661
Committee was aware of the problem concerning port fees and was looking into the matter.32 In a cable to DFAT Ms Moules recorded the advice she gave to Mr Snowball in the following terms:
We conveyed the prelim inary inform ation p ro v id ed by O IP and the N orw egian M ission to AWB (USA) Ltd (Snowball) today, em phasising that, for the m om ent, the only advice w e could pro v id e w as that p o rt fees could only be p aid in Iraqi dinars. Snow ball m entioned th at the M aster of vessels carrying AWB shipm ents to
Iraq h ad, until now , been p aying USD 1,500 p er shipm ent direct to the p o rt agents as p o rt fees, and asked if this too w ould be inconsistent w ith sanctions. We
reiterated the advice th at p o rt fees should only be paid in dinars. AWB said that, p en d in g an y further advice from the sanctions com m ittee — w hich, AWB is aw are, could take som e tim e —they m ight take u p the m atter directly w ith their Iraqi contacts, since, even if there w ere an easy m eans to m ake paym ents in dinars, AWB considered the US 50 cents per tonne p o rt fees too high. We n oted that the negotiation of the am o u n t of ports fees w as a m atter for the su p p lier and
p urchaser.33
12.28 On 27 March 2001 Mr Snowball emailed Mr Rowland:
M ark
Bronte M oules cam e back to m e w ith the following:
Iraq has the ability to charge p o rt fees, b u t p ay m en t of these fees need to be in Iraq currency. A ny paym ents in USD to Iraq are breaching sanctions. The USD15.00 the vessel has been p aying on p ast shipm ents is therefore technically in breach of sanctions. The sanctions com m ittee has actually been aw are that these types of paym ents have been hap p en in g b u t have been turning a blind eye if the am ounts are n o t excessive. If the USD am ounts are quite large, there has been cases w here the sanctions com m ittee has p u t contracts on hold, even if the am ounts are
included in the actual contract. The only w ay aro u n d this is to pay in Iraq
currency, not USD, b u t this is obviously quite difficult.
The sanctions com m ittee are aw are of the problem w e have w ith the U SD 0.50/m t charge an d they have prom ised to look into it. This w ould be expected to take 1-2 weeks.
W hat is the Iraq G rain Board saying about this? We have just agreed a 1.0 m m t contract an d had it a p p ro v ed by the U N , an d now Iraq is asking for a U SD 0.50/m t discount that is also retrospective against old business.34
Report o f the Oil-for-Food Inquiry 6 7
It is unlikely the expression 'blind eye' was used by Ms Moules. Mr Snowball's contemporaneous note made no mention of such an expression35, and Ms Moules had no recollection of using words to that effect.36
Both accounts of the discussion make clear that Ms Moules told Mr Snowball that payments of any kind to Iraq in US dollars breached sanctions, and Mr Snowball understood that.
12.29 AWB subsequently advised DFAT that it had been permitted to discharge two
shipments without having to pay port fees. In a cable to DFAT in Canberra on 10 April 2001 Ms Moules reported as follows:
F urther to reftel, concerning AWB L td's inquiry about the p aym ent of p o rt fees to the Iraq State P o rt agents, AWB L td has now inform ed us th at the tw o shipm ents in question (w hich w ere not being allow ed to take berth until a p o rt fee of U.S. 50 cents per tonne w as p aid in cash to the p o rt agents) have been allow ed to
discharge their cargo w ith o u t insistence on the paym ent of the p o rt fees. AWB Ltd told u s it w as n o t clear, how ever, w h eth er the p o rt fee w ould be applied to future shipm ents, and therefore intended to discuss the issue w ith the Iraqi G rain Board. W e reiterated that the advice from the sanctions com m ittee w as th a t port fees can only be p aid in Iraqi D inars, not U.S. Dollars.
The Iraqi M ission has, very inform ally, raised the issue of p o rt fees w ith us. W hile w aiting to receive a briefing on a recent sanctions com m ittee m eeting (the m eeting itself is closed to non security council m em bers, though the C hairm an generally provides a briefing to interested delegations follow ing each m eeting) a m em ber of the Iraqi delegation approached us in the corridors at the U N to ask w hy A ustralia h ad sou g h t advice from the sanctions com m ittee on the question of port fees. The Iraqi delegate suggested it w ould be better for the A ustralian com pany to talk to other suppliers, since 'th ey know how to deal w ith this', an d that the sanctions com m ittee could 'com plicate' the m atter. We said w e w ere sim ply responding to a request for clarification from an A ustralian supplier.
The current environm ent of increased scrutiny of the operation of the Oil-for-Food program an d heightened aw areness of attem pts by Iraq and by som e suppliers to circum vent the sanctions regim e underlines the im portance of AWB adhering closely to the cu rren t regulations concerning the paym ent of p o rt fees. It is not yet clear w hether AWB will be placed u n d er further pressure by Iraqi agents to pay p o rt fees in a m anner inconsistent w ith sanctions, and AWB N ew York has said it w ill stay in touch w ith us if needed regarding forthcom ing shipm ents. Iraq's interest in keeping p o rt fees outside the Oil-for-Food Program appears self- evident from the Iraqi delegation's approach to us, though w e w ould note that
there w as no suggestion in the casual nature of Iraq's approach that the issue of p o rt fees is being linked to AW B's securing of future w heat contracts.37
12.30 These examples illustrate the capacity of AWB to consult with and seek advice from DFAT and the United Nations concerning the operation of the Oil-for-
6 8 Report o f the Oil-for-Food Inquiry
Food Programme and the propriety of contemplated dealings with Iraq. They also illustrate the willingness of DFAT to give advice to AWB concerning those matters, and where necessary to obtain the view of the United Nations about such matters. The examples make clear that there was nothing to prevent AWB from seeking the advice of DFAT concerning the payment of trucking fees, or the payment of the 10 per cent after-sales-service fees to Iraq via Alia. AWB never sought such advice from DFAT.
The p r o c e s s in g of UN c o n t r a c t a p p ro v a l a p p lic a tio n s : did DFAT 'a p p r o v e ' c o n tr a c t s ?
12.31 DFAT's first direct involvement in a transaction under the Oil-for-Food Programme occurred when, in accordance with the instructions contained in its Exporting to Iraq publication, it received from potential exporters a completed 'Notification or request to ship goods to Iraq' form together with the relevant contractual documentation.
12.32 The notification form was a UN form and represented the first formal step in the UN approval procedure. Although notification forms invariably related to a specific contract entered into by an individual or corporate exporter, the 661 Committee procedures provided that applications for the export of humanitarian supplies were to be submitted by the 'exporting States'.38 This was a requirement of the Memorandum of Understanding signed by the
United Nations and Iraq implementing Security Council Resolution 986.39 Notification forms submitted on behalf of Australian exporters were certified by affixation of the seal of the Australian mission to the United Nations. The reason the form was certified and submitted by the exporting country rather than the exporter itself was that the United Nations eschewed any direct contact with individual exporters. There is nothing in Resolution 986, the UN 'notification' form, the UN instructions for its completion, or the UN procedures document which suggested that 'certification' by a member state constituted a finding or determination by that state that the contracts the subject of the application complied with UN sanctions.
12.33 DFAT's instruction on its website envisaged that the prospective exporter would complete the form and forward it to DFAT with the contract documentation. AWB generally followed this instruction40, although it appears that in some instances DFAT altered or supplemented the particulars
on the notification form submitted to it41 and in other instances DFAT completed the form using information in documents provided by AWB.42 Both Rhine Ruhr43 and Alkaloids44 prepared the notification forms that were lodged in respect of their contracts.
Report o f the Oil-for-Food Inquiry 6 9
12.34 Once DFAT received a notification form and the accompanying contract
documents, the next step was submission of the documents to the UN 661 Committee. A number of AWB officers or employees claimed they believed or understood that DFAT 'approved' the contracts before sending them on to the United Nations.45
12.35 It is not clear what various AWB executives meant when they spoke of DFAT
'approving' AWB's contracts.
12.36 'Approving' could mean one of at least three things:
⢠checking to see that the information in the 'Notification to export to Iraq' form contained the same information as that in the accompanying contracts
⢠checking the contracts to ensure that they reflected the true contractual arrangements between AWB and the Iraqi Grain Board
⢠checking the contracts and certifying or warranting that the contracts did not infringe UN resolutions or sanctions.
12.37 If they meant that DFAT checked the details in the UN Notification form to
see that the information there shown accorded with that in the accompanying contracts, that is in substance what DFAT did. The product wheat was known to be on the permitted list of exports to Iraq: that required no checking or approval. There remained to check only formal details — quantity, price, seller, purchaser, origin and distribution. That was mechanical checking, not
approval.
12.38 Regarding price, DFAT had no expertise to determine if the price shown in
the contract was reasonable or inflated. No doubt DFAT assumed that the price shown was that which was commercially negotiated, and it knew that price would be checked by the United Nations. It is to be remembered that exports to Iraq were of more than wheat. Rhine Ruhr exported valve trays for a stabiliser tower, and Alkaloids of Australia exported hyoscin-N-butyl bromide. To expect DFAT to be aware of the reasonable prices for such products, commercial shipping and air freight costs, and insurance charges for the wide variety of products able to be exported is unrealistic. DFAT no
doubt approached its task on the basis that it did not expect Australian companies, particularly those of good repute, to be attempting to deceive or mislead it by submitting to it contracts that did not reflect the true price of the goods sold or other arrangements in the accompanying contracts. DFAT had no way of determining whether the contracts reflected the true contractual arrangements between buyer and seller.
7 0 Report of the Oil-for-Food Inquiry
12.39 If by 'approving' it was meant that DFAT was certifying or warranting that it had checked the contracts as submitted, and found that such contracts were consistent with United Nations sanctions, that occurred only if officers of DFAT had cause to suspect that they were not being provided with the true arrangements in the accompanying contracts. Submission to them repetitively of apparently standard wheat contracts — wheat being a known permitted export — reasonably did not invite suspicion.
W ritten d ir e c tio n s o r g u id e lin e s
12.40 Nothing in the Customs (Prohibited Exports) Regulations, or any other
domestic legislation or subordinate legislation, provided that DFAT or the Minister was required to approve the contents of a notification form or the accompanying contract documentation before it was submitted to the 661 Committee. No domestic statutory provision obliged DFAT or the Minister to check the notification form and the accompanying documentation for the purpose of confirming or certifying that the contract was one properly within the Oil-for-Food Programme or that its terms did not contravene the terms of the Programme or the UN sanctions. There was no specific box or question on
the notification form that required such a confirmation or certification.
12.41 Neither DFAT nor the Minister issued any, or any detailed or comprehensive,
policy directive, guideline or instruction to DFAT officers about what, if anything, DFAT was to do with notification forms and contract documents before forwarding them to the United Nations. The only written indication of DFAT's approach to the notification form and contracts submitted to it was in the Exporting to Iraq pamphlet first published in December 1996 and subsequently updated and placed on DFAT's website. The updated pamphlet and the website were published by at least January 2001.
12.42 The December 1996 version of the pamphlet provided that, on receipt of the
notification form, DFAT would submit it and the contract documentation to the 661 Committee 'once satisfied that the form has been properly completed, and that the transaction does not infringe the sanctions regime'. The impression gained from this statement is that, prior to sending the documents
to the United Nations, DFAT would form a view that the contract the subject of the application did not infringe the sanctions. One would expect that this would require, at the very least, an examination of the contract terms. There is, however, no explicit statement to this effect in the pamphlet. Nor is there any other elaboration of what, if any, action DFAT would take in order to reach the requisite state of satisfaction.
12.43 The January 2001 version of the pamphlet restated DFAT's approach to the
submission of documents to the United Nations. It stated that DFAT would
Report o f the Oil-for-Food Inquiry 7 1
submit the documents to the United Nations once it was satisfied that the form had been properly completed and that the transaction did not appear to infringe the UN sanctions regime. The impression to be gained from the January 2001 version of the instruction is that DFAT's scrutiny of the
transaction was limited to seeing if anything in the documentation obviously suggested that the transaction was in breach of the sanctions. The instruction suggests that it was unnecessary for DFAT to positively satisfy itself that the transaction did not infringe the sanctions, only that it did not appear to do so. There is no evidence that identifies who at DFAT was responsible for this change in the published document or how or, importantly, when it came about, other than that it was some time prior to February 2001. It is, however, apparent that someone at DFAT made a decision prior to February 2001 to change the description of DFAT's scrutiny of the transaction. There is no evidence to suggest the change flowed from any policy change by Minister Downer or within the Department. The predominance of evidence suggests the change may have been made administratively to more accurately reflect the process actually followed within DFAT.46
12.44 The instructions in both the 1996 and 2001 versions of the pamphlet simply directed prospective exporters to 'return' the form and contractual documents to the relevant DFAT desk officer. This was ordinarily done under cover of a letter from the prospective exporter.47 There was no requirement to provide any certification of the truth and accuracy of the particulars in the notification form. Nor did DFAT's instructions or systems require any officer of the prospective exporter to verify or certify the correctness and completeness of the notification form and contract documents. As the notification form was certified not by the exporter but by the Australian mission to the United Nations, it follows that the procedures did not require any officer of the exporting company to verify or certify the accuracy and completeness of the notification document and the accompanying contract documents. The existence of such verification would be of assistance were it to become necessary for an applicant to be prosecuted for providing false or misleading information to the Commonwealth.
DFAT o ff ic e rs ' u n d e r s ta n d in g o f t h e p r o c e d u r e s
12.45 A number of current and former DFAT officers gave evidence about their understanding of, and belief about, DFAT's systems and procedures in relation to the submission of notification forms and contracts to the United Nations. None of them understood that DFAT was required to scrutinise or approve the terms of the contract before submitting the documents to the 661 Committee.
7 2 Report o f the Oil-for-Food Inquiry
Early phases of the Programme 12.46 Mr Pierce was Assistant Secretary of the Middle East and Africa Branch from
February 1996 to November 1997, during the initial phases of the Oil-for-Food Programme. Mr Pierce's evidence was that DFAT did not scrutinise the price in AWB's wheat contracts.48 He understood that DFAT's view at the time was that no scrutiny of prices was required for three reasons: first, because the department relied on the fact that under international legal arrangements applying to the Programme the United Nations, not the Australian Government, was responsible for checking and vetting the price and value of contracts; second, because his understanding was that DFAT had no mandate to seek review of prices charged in commercial transactions by another statutory authority which was part of the Australian government at that time, and which was operating as a statutory authority pursuant to the Wheat Marketing Act 1989; and, third, because officers of DFAT did not have the necessary technical capacity, expert skills or specialised background to assess
the pricing of wheat contracts.49 The key matter for Mr Pierce was that under Resolution 986 the United Nations had for the first time established a system where it had experts who were capable of and authorised to assess price and value in contracts.50
12.47 Mr Skelly was Director of the Arabian Peninsula, Iran, Iraq Section of the
Middle East Branch from July 1994 to March 1997. His recollection was that it was the role of his section to provide information on Programme guidelines to exporters and to 'undertake initial vetting of applications with the guidelines before submitting these to the UN Security Council Sanctions Committee for approvals'.51 Mr Skelly did not suggest that the 'initial vetting' involved scrutiny of the price or any other term or terms of the contract.
12.48 Mr Feakes worked in the Middle East and Africa Branch and was responsible
for sending AWB's applications to Australia's mission in New York for submission to the United Nations and for informing AWB of the results of the United Nations' consideration of the application.52 He recollected that DFAT was concerned to ensure that it was acting in accordance with the requirements of the Oil-for-Food Programme. He did not suggest that this involved scrutinising the terms of the applications or the contracts.
12.49 Mr Bowker was a Director in the Middle East Section during the period
January 1995 to July 1996 and 8 February 1999 to 5 January 2001.53 He occasionally acted as Assistant Secretary of the Middle East and Africa Branch. Mr Bowker's understanding of the ambit of DFAT's obligations in relation to the Programme was as follows:
I u n d ersto o d our obligations to be to assist the A ustralian entity, or entities,
w ishing to do business w ith Iraq to conduct their activities w ithin the fram ew ork
Report o f the Oil-for-Food Inquiry 7 3
of U N Security Council R esolutions. T hat entailed giving them accurate advice as to w h a t the policies of the A ustralian governm ent w ere, w h at the requirem ents of the Security Council w ere and how the U N Office of the Iraq Program conducted its activities an d w hat inform ation it required. I did n o t see a w id er obligation on the p art of DFAT than that.
I w as also conscious th at from the period w here I h ad som e contact w ith these issues in '95, an d again in 2000, the legal basis for the d ep artm en t to investigate the com m ercial affairs of A ustralian com panies w as very severely lim ited, an d w e w ould be reliant upon the advice and inform ation p ro v id ed by A ustralian
com panies in determ ining w hether, for exam ple, the p ro d u ct w hich w as being proposed for export w as a perm issible export or n o t.54
12.50 Mr Bowker considered that DFAT's obligation to investigate the commercial
terms on which an export was being proposed was very limited:
Q: W ould you have regarded it as p a rt of DFAT's responsibility in 1995 and 1996 to ensure that the paym ent term s disclosed on any contract w hich w as forw arded to the U N and w hich contract w as approved by the U N w ere in fact the real
paym ent term s as betw een the contracting parties?
A: The approach w e took in 1995 w as to determ ine w hether the approach being proposed w as consistent w ith policy — policy of the governm ent an d policy of the U nited N ations sanctions com m ittee. In other applications for export, particularly w here a process w as w ell established, such as, for exam ple, in regard to w heat exports, w e did not regard it as an obligation to investigate the com m ercial term s upon w hich the export w as being pro p o sed .55
12.51 From late 1995 to mid-1996, officers of BHP Limited and AWB put a series of proposals to DFAT that involved, in general terms, an AWB shipment of wheat to Iraq that was to be financed by a long-term (five-year) letter of credit that AWB would subsequently assign to BHP. This was a precursor to what later became know as the Tigris transaction. It was not a transaction under the Oil-for-Food Programme. DFAT officers gave lengthy and detailed consideration to the proposals and ultimately briefed the then Ministers for Trade and for Foreign Affairs about them. In a draft ministerial submission prepared by Mr Feakes or Mr Skelly in late 1995 the following passage appears after reference is made to r. 13CA of the Customs (Prohibited Exports) Regulations:
Thus, a perm ission to export could be denied if the M inister or his delegate w as of the view th at the m ethod of paym ent w ould not be com patible w ith A ustralia's obligation u n d er the UNSCRs [UN Security Council resolutions] w hich im posed sanctions on Iraq. In this regard w e assess that our obligations u n d er the dom estic
legislation w ould require us to ensure th at in all future AWB applications to the U N Sanctions C om m ittee the existence of third p arty paym ents should be m ade explicit. We also believe that in order to acquit our obligations u n d e r the dom estic legislation w e n eed to ensure that AWB, and any other com m ercial entity seeking to export hum anitarian goods to Iraq, reveals to DFAT sufficient inform ation to
7 4 Report of the Oil-for-Food Inquiry
enable us to ensure th a t such transactions do n o t involve the unfreezing of Iraqi assets or the repaym ent of a d ebt before the lifting of sanctions.
We are also concerned to ensure that our rep u tatio n w ith the U N for frankness an d transparency is m aintained. We believe th a t a failure by DFAT to ensure that applications p u t forw ard by u s com ply fully in all respects w ith the relevant R esolutions could jeopardise o u r standing w ithin the U N and w ith individual C om m ittee m em bers, an d also p u t at risk future applications both by the AWB an d by other [exporters].56
12.52 In a ministerial submission prepared on 7 May 1996 Mr Pierce canvassed whether it would be permissible for DFAT to submit to the 661 Committee an AWB application that specified the payment terms as being by letter of credit without disclosing that the term of the letter of credit was five years and
therefore not normal commercial terms. Mr Pierce wrote:
Since the im position of sanctions against Iraq (the first and m ost substantial sanctions resolution, UNSC 660, dates from A ugust 1990, w ith 30 follow ing that), the AWB has continued to ship w heat to Iraq, at ab o u t one tenth the level
prevailing before the G ulf W ar ($40 m illion w orth).
The w h eat sales, like all food shipm ents, have been classified as 'h u m an itarian goods' for the purposes of the sanctions resolutions, a n d therefore qualify as a perm itted export (as w o u ld m edicine). N onetheless, the shipm ents still require approval th rough the U N sanctions com m ittee, and w e are obliged (not least because the sanctions have been ad o p ted into dom estic law, through the C ustom s (Prohibited Exports) Regulations) to vet the applications carefully. The w h eat has been sh ip p ed on a cash on delivery basis, in order to avoid giving the Iraqis credit,
allow ing them to postpone p aym ent until sanctions are lifted, giving them any opp o rtu n ity illicitly to offer oil in retu rn for food, or assisting Iraq in using frozen assets as collateral.
In sum m ary, if w e p u t u p to the U N sanctions com m ittee docum entation w hich accurately an d fully reflected the term s of the deal, w e do not think it w ould be approved. We could n o t collude in presenting deliberately incom plete
docum entation (not specifying the period for the letter of credit, for instance). In addition, any suggestion th at w e w ere abetting a breach of sanctions w ould dam age o u r standing, including for o u r candidacy for the body, the UNSC, w hich regulates the application of the sanctions.
We have consulted ILD [International Legal Division], w hich notes that the proposed transaction is n o t categorically prohibited by the w ord in g of the
sanctions resolutions, b u t u n d erstan d s that the transaction does n o t conform w ith the likely judgm ents of the sanctions com m ittee itself. T hat com m ittee has m ade it clear th at the responsibility for determ ining w h eth er a given transaction com plies
Report o f the Oil-for-Food Inquiry 7 5
w ith the sanctions regim e lies w ith exporting countries b u t the Security Council reserves the rig h t to disapprove of transactions ...57
12.53 Both Mr Peakes' and Mr Pierce's submissions acknowledged that responsibility for determining whether a transaction complied with the sanctions regime lay with the exporting country, rather than the United Nations, and that DFAT was obliged to 'vet the applications carefully'. That being said, the circumstances discussed in the submissions were unusual because DFAT had been specifically put on notice by AWB and BHP of aspects of the proposed transaction that may have been contrary to the sanctions, and DFAT was specifically considering whether it was acceptable to send the 661 Committee documentation that did not fully reveal the nature of the relevant contract. That distinguished the circumstances addressed in the ministerial submissions from the usual case whereby AWB simply forwarded a notification form and contract to DFAT. Ms Moules explained the matter in the following terms:
Q: T hat m em o [the m inisterial subm ission of 7 May 1996] w o u ld seem to m ake plain an acknow ledgm ent w ith in DFAT in M ay of 1996 th at the responsibility for determ ining w hether a transaction com plied w ith the sanctions regim e lay w ith, in this case, A ustralia. W as th at as you understood the situation w hilst you w ere at the U N m ission?
A: It does to the extent that w e w ould not have p u t forw ard an application if w e h ad any concerns about any aspect of it or if w e knew that an aspect of it w ere
inconsistent w ith the sanctions regime.
Q: But y o u w o u ld say, at least to the extent th at you u nderstood the practice of DFAT at that time, it d id not extend to DFAT digging into m aterial behind the contracts unless it w as aw are of inform ation that indicated that it ought to?
A: I w ould —yes, I w ould say unless it w as aw are of inform ation that it ought to. If the contract appeared to be som ething relatively straightforw ard and there appeared to be no grounds for digging into it, then m y u n d erstan d in g is th at w e w o u ld n 't have. In this particular instance I can see w hy there w o u ld have been — there w as a com plexity here th at needed to be explored, but as —if there appeared to be a stan d ard contract w hich conform ed to a p attern of contracts that had been subm itted before, and in the absence of any other inform ation or any reason to query it, th en I w ould say an additional independent exam ination w asn 't done, because there w o u ld n 't have been a need to do so. But w ere there any questions regarding any aspect of it or any queries or anything that appeared to be
potentially inconsistent w ith sanctions, then, yes, that exam ination w ould have been done before A ustralia or the A ustralian m ission w ould have subm itted the application to the UN.
Q: In '95- 96 it appears th at DFAT w as on notice of a possibility th at w heat m ight b e provided to Iraq in circum stances w here DFAT and the U N m ight be told that this w as a provision of w heat w here the arrangem ent w as cash to be provided by th ird parties, b u t w here the real arrangem ent w as one w here the w heat w as
provided u n d e r the cover of a letter of credit for deferred paym ent. A gainst that
7 6 Report of the Oil-for-Food Inquiry
background, DFAT instituted the regim e that w e have seen in those m inutes. Is it in th at context that you say, w here DFAT m ight be on notice, that it w o u ld dig deeper?
A: Yes, if there appeared to be a reason to.58
Later phases of the Programme 12.54 In later phases of the Oil-for-Food Programme, including in the years 1999 to 2002, the process of receiving notification forms and contracts from AWB and forwarding them to the Australian mission to the United Nations for
submission to the 661 Committee became an essentially routine procedure performed by lower level DFAT officers — so much so that DFAT's role came to be described as nothing more than a 'post box'.
12.55 Ms Moules' understanding of the procedure by which the contract approval process operated in respect of Australian companies was as follows:
a. The com pany or p erson w ishing to export goods to Iraq ('the exporter') sent to DFAT C anberra a one page pro-form a application to the U N Security C ouncil's 661 C om m ittee ('the 661 C om m ittee') and a copy of the contract that the exporter h ad negotiated w ith the then Iraqi G overnm ent. The pro-form a application form w as a docum ent th at h ad been p rep ared an d issued by the 661 C om m ittee entitled 'N otification or request to ship goods to Iraq.'
b. W hen DFAT C anberra received an application and contract, they exam ined the docum ents for the purp o ses of ascertaining that the application h ad been com pleted in accordance w ith its term s, so that it included the inform ation for w hich the 661 C om m ittee h ad asked in the application, an d that the goods that w ere the subject of the application and contract appeared to be w ithin the scope of the hum anitarian item s perm itted u n d er the OFFP.
c. W hen it had com pleted this prelim inary exam ination of the application and contract, DFAT C anberra faxed a copy of both docum ents to the U N Mission. The fax w as usually directed in the first instance to a locally em ployed staff m em ber at the U N Mission.
d. The U N M ission checked again th at the pro-form a application w as filled in in accordance w ith the requirem ents of the 661 C om m ittee, gave it a U N M ission reference num ber, a n d affixed the stam p of the U N Mission.
e. A U N M ission cover sheet w as then attached to these docum ents, all of w hich w ere th en sent to th e U N Office of the Iraq Program m e (OIP) for processing.59
12.56 Ms Moules' evidence was that neither DFAT in Canberra nor the mission in New York had any role in checking or considering whether the pricing or any of the other conditions in the contracts were appropriate.60 The mission performed essentially a 'post box' function with respect to contract processing.61 The evidence of Ms Hamilton, who was posted to the mission from early 1995 to late 1998, Ms Wensley, Australia's Ambassador and
Report o f the Oil-for-Food Inquiry 7 7
Permanent Representative to the United Nations from 1997 to 2001, and Mr Stephens, who was posted to the mission from January 2002 to January 2005, was to the same effect.62
12.57 Ms Drake-Brockman was Assistant Secretary of the Middle East and Africa Branch between April 1999 and December 2000. She did not personally examine any notification forms or contracts. That process was handled by junior to mid-level staff in her branch. Her understanding was that, apart
from checking that the goods to be supplied under the contract were not obviously outside the Programme, the DFAT officers did not examine the detailed terms of the contract because responsibility for contract approval lay with the United Nations63:
Q: Well, w h at did the process involve so far as y o u r u n d erstan d in g w as
concerned?
A: M y u n d erstan d in g is that the com pany w hich h ad obtained a contract w ould then dow nload the U N request form , com plete it and send to us th at form plus a copy of the contract. In effect, m y branch provided a free service, if you like, to A ustralian com panies, in that w e assisted w ith the processing of that
docum entation th rough to the U N for approval. We w ere req u ired to ensure that the contract at least looked like a genuine contract and th at the inform ation that the com pany h a d provided on the U N form w as consistent w ith the contract, that the docum entation w as p roperly filled out. A nd there m ay have been an
additional requirem ent to satisfy ourselves that it w as a bona fide com pany — the A ustralian one — b u t th a t's n o t an elem ent that ever arose w hen I w as in the
branch. So w e h a d a ... w e w ere an initial sieve th ro u g h w hich the docum entation w ent to see that there w a sn 't obviously anything that w as outside the sanctions regime; in other w ords, th at the p ro d u ct to be exported from A ustralia fell w ithin the definition of 'h u m a n ita ria n '.64
12.58 The statement on DFAT's website that DFAT would send the notification
form and contract to the United Nations if it did not 'appear' to infringe the sanctions regime was consistent with Ms Drake-Brockman's understanding of the role of DFAT's office in Canberra. She understood that DFAT only considered whether the contract 'appeared to' infringe the sanctions because ultimately it was up to the United Nations to determine whether there was an infringement:
Q: By 'n o t ap p ear to infringe the U N sanctions' w hat did you u n derstand th at to include?
A: It m eans th at w e w ere only the first sieve, w e're not undertaking, in forw arding it, that it d o esn 't infringe; w e'v e satisfied ourselves, b u t the U N m ay yet determ ine that there's an infringem ent, m ay yet identify one. So w e satisfied ourselves that it w as consistent w ith the regim e, b u t w e d id n 't u ndertake or prom ise to any
A ustralian com pany that, in forw arding it to the U N, w e w ere guaranteeing in any w ay that it d id n 't infringe the U N sanctions regime, in term s of their being able to proceed w ith the export.65
7 8 Report of the Oil-for-Food Inquiry
12.59 Mr Cuddihy was the Iraq Desk Officer in the Middle East and Africa Branch from early 2000 to early 2003.66 His duties included dealing with the application forms and contracts submitted by prospective exporters.67 For him, the 'most important first step was to get the contract and the application form off to the UN mission as soon as possible'.68 His understanding was that DFAT in Canberra had no role in approving the applications and that his scrutiny of the documentation was limited to checking that all sections of the application form had been completed and that the form was accompanied by the appropriate contract and any relevant supporting material.69 DFAT's role was that of a 'post box'70 or conduit for information flowing between the
United Nations and specific companies.71
12.60 Mr Cuddihy did not check whether any of the terms of the contract might be in breach of the UN sanctions.72 He did not believe that he had the competence to perform such a check: that was the job of the UN Security Council.73 If Mr Cuddihy saw anything in a contract that caused him 'discomfort' or that did not accord with his understanding of the Oil-for-Food Programme, he would seek advice from his supervisor74 but only if it was obvious or stood out. His focus was not on satisfying himself that the transaction did not appear to infringe the sanctions:
Q: Well, d id you have in m ind to perform the task th at's set out on page 9 of 15 from the [DFAT] w ebsite? O nce satisfied th at the form h ad been properly
com pleted, w ould you satisfy yourself th at the transaction did not app ear to infringe the U N sanctions regim e?
A: I m u st adm it I c a n 't say I really read the stuff on the w ebsite closely, an d I
certainly h a d n 't focused on that particular paragraph in the past.
Q: So it m ay be th a t w hen you actually dealt w ith these applications and the
contracts, you never h a d in m in d to satisfy yourself th at the transaction did not appear to infringe U N sanctions?
A: Well, certainly I d id n 't see th at I h ad the com petence to know that. I m ean, I u n d ersto o d that th e U N w ent th rough the contracts on a line-by-line basis. They probably had their com m ercial law yers w h o could say w hether this w as a
stan d ard sort of th in g th at y o u 'd have in a contract or w h eth er there w as
som ething unu su al about it. We certainly d id n 't have the com petence, and it w as never explained to m e that that w as our role. O ur role w as to m ake sure that all the docum entation w hich the U N h ad requested w as given to them in a clear and readable form. So I w as looking for anything obvious. If there w as som ething that really stood out, I'd probably talk to the boss and say, 'W hat do w e do about
th is?'75
12.61 In relation to AWB, the first step in the procedure was that Mr Cuddihy would receive from AWB a facsimile that included a copy of the notification form and a copy of the signed AWB contract with the Iraqi Grain Board.
Report o f the Oil-for-Food Inquiry 7 9
Following is a typical example of a facsimile received by Mr Cuddihy from AWB.76
<%
OD AWB
To
Name: Don Cuddihy
Company: DFAT
Fax: 02 6261 2640 -
Fron,
Name: Dominic Hogan
Direct F ax: +613 9670 5539
Direct T elephone: +613 9209 2035 Email dhooan(8>awb.com.au
No. of pages: 1 ol \S | Dale: 22nd January 2002
Subject: 2 x 500,000 tonne Contracts - Iraq
*1111AWB.0111.0316u.C
AWB LIMITED ACN081 890459 Ceres House 528 Lonsdate Street
Melbourne Me 3000
GPO Box 4562 Melbourne Me 3001
â¦613 9209 2000 Facshile 61X 0670 6630
k llfyouhave i
f | named addi
Anile K stncBy eonlidtnlml end intended tc notify I» tron»di«t«iy and destroy tM» copy
Dear Don, ' '
Please find the following attachments;
1. 2 x Copy o f signed Iraq contract w ith AWB. 2. 2 x Copy o f signed (AWB) AWB Limited Contract with IGB. (Short form). 3. 2 x Copy o f UK “Notification to ship goods to Iraq"
These submissions are for 2 x β · Î tonne contracts concluded between Iraq and AWB in December 2001. Please note that due to a m inor contractual issue, the confirmation dates are different. We agreed the contract on the 20ft o f December 2002 (hence our contract is dated on the date the first agreement was struck), however, the Grain Board did not sign the final contract until the l? * o f January 2002 (after all terms were agreed), and hence their contract is dated 1701 January 2002.
J am sure this should not be an issue, as it related only to the agreement date, and for our records we need to date on the original agreement date.
The shipment commences in March, so we w ould appreciate your assistance to submit these contracts to the United Nations for approval."
If you have any questions regarding the contract, please do not hesitate to contact me.
Dominic Hogau Regional M anager M iddle East
The Australian Grains Marketer L:V.(EDESKtMAI)KrTSW_USJ\!kAQVDFATConrroei_AIII)_Alll]J001Joc
12.62 Mr Cuddihy would then check that the notification form had been completed. Following is a copy of the notification form that accompanied AWB's facsimile of 22 January 2002.77
8 0 Report o f the Oil-for-Food Inquiry
12.63
12.64
AuglWt 1997 REVISED FORM
SECURITY COUNCIL COMMITTEE ESTABLISHED BY RESOLUTION 661 (WO) CONCERNING THE SITUATION BETWEEN IRAQ AND KUWAIT NO TIFICA TIO N OR R EQ U EST TO SHIP G O ODS TO-IRAQ
fT O BE C O M P L E T E D BY PR O SP EC T IV E EX PO RTIN G CO U N T R Y o r IN T 'L ORG .) 1. MISSION OR INTERNATIONAL CERTIFYING SIGNATURE
ORGANIZATION AND OFFICIAL SEAL (Î ÎÎÎΡÎίβÎÎ
AW B.0111.0317.* A WB LIMITED 528 Lonsdale Slicet MELBOURNE VICTORIA AUSTRALIA
2. DATE OF SUBMISSION 24* December 2001
3. MISSION REFERENCE No.
AWB Limited Contract Number A l l 11
4*. SECTOR/ m CODE (5CR 986; 1b. ns TARUT CODE
I I. EXPORTER Name and Address
S. POODS TO gE SHOTS? (H»«t « κ)/ογ docriplloa. Attack additional ihectifat NUMBERS MEASUREMENT
Australian wheat in BULK
Phostoxin | Canons
. Hatch Sealing Tape
Free of Charge
Free o f Charge
AWB LIMITED
528 LONSDALE STREET ·
MELBOURNE VICTORIA AUSTRALIA
Ϊ2. ORIGIN of GOODS (if diffcrcni fiom applicant State) .
ONE OR TWO PORTS IN AUSTRALIA AT, S E L I M S OPTION
GRAIN BOARD OF IRAQ P.O. BO X 329
BAGHDAD IRAQ
14. SHIPPING ARRANGEMENTS: i) Border Point or Port of E ntry Into Iraq
UMM QASR, (UMM QASER) IRAQ
;) Other Information (e.g. route, major ports, etc.)
DIRECT OR INDIRECT AS PER CHARTER PARTY
15. METHOD OF PAYMENT
F ro m th e Ira q A ccount in accordance â¡ By o th e r a rrange m e nt (Provide as many ·
with SC resolution 986 (1995) details as possible)
[Relevant documentation including contracts) must be attached) -
16. ADDITIONAL INFORMATION· End-use and End-user (Attach additional Ikeet if accessary)
SUPPLY TO THE GOVERNMENT OF IRAQ FOR GENERAL FOOD DISTRIBUTION IMPORTANT NOTICE
1. P rovide only one item per line in Box 5. 2. Sector/]tem Codes (Box 4a) are mandatory, and are found in the Annexes to the Distribution Plan of SCR 986. 3. H S T ariff Codes (Box 4 b), i f used, must be 6 digit codes o f the International Harmonised System of TariffNom enclature as determined by the Customs Co-Operation Council in Brussels, Belgium.
4. Information entered must match shipping documents presented to customs officials. 5. Incomplete, incorrect or illegible applications will be returned by the Committee's Secretariat for completion.
Mr Cuddihy would check that each of the fields on the form had been completed. He would also check the particulars of the point of delivery and that the name of the exporter appeared to be correct.7» Because he knew that wheat was on the distribution list, he did not check the particulars provided in relation to the sector item code.79 He would also check to see that the quantity and price disclosed in the contract were the same as the value disclosed in the form.80
In relation to the AWB contracts, Mr Cuddihy was aware that AWB was an experienced 'user' of the Programme and so knew the process to be followed.81 As a result, he tended to give AWB contracts less scrutiny and simply passed them on to the United Nations. He did not really read the contracts82:
Report o f the Oil-for-Food Inquiry
8 1
Q: ... the sum m ary of your statem ent to the IIC investigators ... records that you said — an d I w an t to ask you about it:
Because the AWB had been contracting regularly with Iraq since 1996 and had great familiarity with the program, DFAT simply passed the contracts to the UN.
Is that a tru e reflection of the w ay in w hich you processed the contracts?
A: Pretty well. I m ean, I took the view that they probably knew m ore about the w ay the Oil-for-Food Program o p erated than I did; they w ere very experienced users. They probably d id n 't certainly need advice on filling o u t the form or the general process, but I w ould, nonetheless, just quickly check that they h a d n 't inadvertently forgotten to fill in the form , sent in a w ro n g form , attached a
contract for, you know , trade w ith Iran instead of Iraq, an d th a t the num bers in the contract seem ed to m atch the num bers on the form . I m ean, everyone can m ake a m istake. Even if you k n o w w h a t you should be doing, you can alw ays, you know , inadvertently send the w ro n g contract or m ake a typo, so I checked for those sorts of things very quickly.83
12.65 Mr Cuddihy was unable to nominate any specific instructions or any written policy issued by DFAT or the Minister that had informed his view of DFAT's role in processing the applications under the Programme. Rather, he had learnt about the role and picked up the procedures from his colleagues in the course of his duties.84
12.66 Mr Grenenger and Ms Brodtmann were both officers in the Middle East Section, of similar standing to Mr Cuddihy. Their evidence about their role in relation to the processing of applications and contracts was to the same effect as Mr Cuddihy's. Mr Grenenger described his role as being of a routine nature, which could be described as a 'post box'.85 His responsibilities did not include checking the documents he transmitted to the Australian mission and he had no recollection of ever looking at contracts or considering their terms.86 Ms Brodtmann's scrutiny of contracts was similar: with AWB contracts, she would simply transmit them by facsimile to the Australian mission87; with
other contracts, she would check that the goods the subject of the contract were on the Programme's distribution list and then transmit the documentation to the mission.88
12.67 Ms Courtney's role in relation to the applications and contracts was also very limited. She occasionally received notification forms and contracts. When she did, she would simply pass them on to someone else, without reading them, with instructions to transmit them to New York.89 She understood and believed that DFAT's role in relation to the documents did not involve any
scrutiny and was essentially procedural.90
8 2 Report of the Oil-for-Food Inquiry
12.68 The conclusion drawn is that DFAT was of the view that 'certification' of a 'Notification' to the UN did not constitute approval in the sense of a certification or warranting that the contract the subject of the Notification did not in any way infringe the UN resolutions or sanctions. In particular, DFAT did not consider the certification to constitute any approval of the terms of the contract insofar as they related to 'price and value' because this was a matter to be examined by customs experts at the United Nations. DFAT considered that its role was to receive applications from potential exporters and to satisfy itself that the applications were appropriate for consideration by the United Nations. As a practical matter, this involved DFAT in considering whether
there was anything on the face of the contract, or any other information otherwise conveyed to DFAT by the exporter in relation to the contract, that suggested that the contract did not comply with the United Nations sanctions. An example would be if the contract was for the export of goods that were not on the list of goods permitted to be exported to Iraq under the distribution plan. Nothing in the notification itself, or in the relevant United Nations resolutions, suggested that certification and transmission of documents to the UN by member states amounted to anything beyond this.
G ra n tin g p e r m is s io n s to e x p o r t u n d e r t h e R e g u la tio n s
12.69 Regulation 13CA of the Customs (Prohibited Exports) Regulations
empowered the Minister for Foreign Affairs and Trade, or a person authorised in writing by the Minister, to grant a permission to export goods to Iraq. In practice, the power was invariably exercised by a delegate of the Minister. Table 15.2 in Appendix 15 lists details of all permissions to export to Iraq granted to AWB from late 1999 until early 2003. The permissions granted to Rhine Ruhr and Alkaloids were signed by delegates on 22 January 2002 and 20 June 2002 respectively.91
12.70 Both the 1996 and the 2001 versions of DFAT's Exporting to Iraq publication
convey the impression that permission to export would be granted as a matter of course once the United Nations had approved payment of a contract under the Programme. The January 2001 version of the document (which also appeared on DFAT's website) made this explicit:
W hen [the] U N Sanctions com m ittee p rovides an acknow ledgem ent or 'n o objection' approval for the export, and also approves the issue of the letter of credit, the D epartm ent of Foreign Affairs an d T rade w ill issue a 'P erm ission to E xport' u n d e r Section 13CA of the C ustom s (Prohibited Exports) R egulations.92
Report o f the Oil-for-Food Inquiry 8 3
12.71 The fact that the granting of permission followed automatically once the
United Nations had approved the contract was confirmed by a number of former and current officers of DFAT.
12.72 Ms Drake-Brockman, who, as Assistant Secretary of the Middle East and
Africa Branch, was a delegate of the Minister for the purpose of r. 13CA93, described the procedure in the following terms:
9. W hen U N approval h ad been obtained, the next step in the process w as a
dom estic step, nam ely the issuing of an export perm it u n d e r the C ustom s
(Prohibited Exports) Regulations 1958. There h ad to be a specific export perm it for each separate shipm ent of goods w ith in any given contract.
10. D raft export perm its w ere p rep ared in MAB [the M iddle East and Africa Branch] by junior to m id-level staff. The practice I ad opted in relation to the signing of the export perm its w as th at I asked th e staff m em ber w ho presented the draft export perm it to m e for signature w hether the shipm ent h ad been approved by the UN. If the officer inform ed m e th at the shipm ent h ad been approved by the
UN, I w ould sign the perm it.94
12.73 The evidence of other delegates who signed permissions to export was to the
same effect.95 Signing of such permissions came to be regarded as a routine administrative task.96 A number of officers who acted as Assistant Secretary of the Middle East and Africa Branch for brief periods and signed permissions as delegate in those circumstances recalled little other than that they signed the permissions on the basis of an assurance from a staff member that it was normal procedure and part of an ongoing program.97
12.74 As Iraqi Desk Officer during most of the period 2000 to 2002, Mr Cuddihy
was responsible for preparing and submitting permissions to export to a number of delegates, including Ms Drake-Brockman, Mr Bowker, Mr Atkin, Ms Owen and Mr Quinn.98 Mr Cuddihy described the procedure adopted by him in the following terms:
... W hen a contract w as approved by the U N, w e w o u ld typically get a copy of the U nited N ations letter of approval by facsimile from the A ustralian UN m ission an d the original w ould follow by diplom atic bag. W here possible, the relevant com pany w o u ld then be pro v id ed w ith a copy of the approval by facsimile. The original w ould be sent to the com pany by mail once it arrived in Canberra.
10. Typically, the next p a rt of the process w as that the com pany concerned w ould request export perm ission(s) to fill the contract. The export perm ission docum ent w as prepared w ithin the M iddle E ast Section an d sent to the delegate for his or her signature. Typically, no subm ission or m em orandum addressed to the delegate accom panied the export perm ission docum ent. I do, how ever, recall that M r G eorge A tkin asked for a m inute explaining the export perm ission docum ent w hen he w as first asked to sign an export perm ission.99
8 4 Report of the Oil-for-Food Inquiry
12.75 Permissions to export were applied for and granted to AWB regularly during the currency of the Oil-for-Food Programme, including during the period in which Mr Cuddihy was Iraqi Desk Officer. As a result, the procedure adopted by Mr Cuddihy and the staff who assisted him became a routine clerical task.
Mr Cuddihy would first receive from Mr Lister of AWB a facsimile that requested a permission to export and contained some basic contract details. Following is a copy of such a request from Mr Lister in relation to a planned shipment under AWB contract A llll, that being the contract that was the
subject of the facsimile and notification form shown earlier in this chapter.100
AWB LIM IT E D FACSIMILE
yiifli* A W B .0062.0173,1
TO: DEPARTMENT OF FOREIGN AFFAIRS AND TRADE CANBERRA
ATTN: JANE POULTER AFRICA/MIDDLE EAST BRANCH.
FROM: REX LISTER FAX NO. 9 670 5539 W ORK
FAX NO. 9 434 1546 HOME
DATE: 19 M ARCH 2002
D E A R JA N E,
I WOULD GREATLY APPRECIATE YOU ARRANGING TO FORWARD THE NECESSARY "PERMISSION TO EXPORT” CERTIFICATE FOR THE FOLLOWING VESSEL WHICH HAS BEEN FIXED / NOMINATED TO LOAD AS UNDER:
M .V.” ” REPEAT *’ "
UP TO METRIC TONS OF BULK WHEAT
ETA 24 MARCH 2002 (BASIS MELBOURNE) ETA 21 APRIL 2002 (UMM QASER)
WE WILL ALLOCATE THIS VESSEL AS UNDER:
CONTRACT NO.A1111 BUYERS REF.NO. 2002/112/97 S/AC.25/2002/986/OC. 1100014 VESSELS LIFT MTNS PCT MORE/LESS
LEAVE YOU TO TAKE THE APPROPRIATE ACTION / ADVICES.
AWB LIMITED ABN 99 081 890 «19
Ceres House 528 Lonsdale Street Melbourne Vic 3000 GKO Box 4562 Melbourne Vic 3001 Australia telephone 03 9209 2000 Facsimile 03 9670 2782 www.awb com.au
The Australian Grains Marketer
12.76 On receipt of Mr Lister's request for a permission to export, Mr Cuddihy would first check that the contract referred to (in this case contract A llll) had been approved:
Report o f the Oil-for-Food Inquiry 8 5
Q: All right. How would you do that?
A: Well, we'd usually retain a copy of the approval. We also used to set up, from memory, I think it was Deb Watson who — that was Jane's [Drake-Brockman] PA at the time —who would do this. We'd have a spreadsheet, one for each contract. Once the contract was approved, we'd set up the spreadsheet with the total tonnage listed there. As each shipment was issued, we'd keep a running total so that we could be sure that we hadn't issued 600,000 tonnes of approval for a 500,000 tonne contract.
Q: Is it fair to say, then, that the process undertaken by you was one driven by information contained in and the fact that you had a UN approval document?
A: Oh, without the approval document, we couldn't—you know, we wouldn't issue an approval — an export permission.
Q: With the approval document, and after having ensured that the tonnage was within the approved tonnage, you would then prepare a permission to export for signature by the delegate; is that correct?
A: Correct. These were essentially a template document. We'd just change the relevant name of the ship, the tonnage, the relevant dates and the name of the delegate. I think several people had delegation or could be acting delegates, so you would change that, print it out and submit it for signature.
Q: You would then take the permission to export document, or template, to the delegate for signature; would that be part of the responsibility?
A: Well, whoever prepared the document. We tried to do these pretty quickly. We were aware that AWB —you know, they might have had a boat sitting at the dock. We didn't want to delay it. So whoever spotted the fax from Rex on the fax machine usually did it pretty promptly.101
12.77 The permission to export that was signed by a delegate of the Minister in relation to the shipment referred to in the documents extracted is reproduced below.102
12.78 Mr Grenenger's evidence in relation to the preparation and signing of permissions to export was in substance the same as Mr Cuddihy's.103 Preparation of a permission to export was essentially a clerical task that Mr Grenenger performed on receiving a copy of the UN approval
documentation.104
8 6 Report of the Oil-for-Food Inquiry
i i i i e i A W B .0 0 6 2 .0 1 7 L / ?
CUSTOMS (PROHIBITED EXPORTS) REGULATIONS
PERMISSION TO EXPORT
I. GEORGE ATKIN, Assistant Secretary, Middle East and Africa Branch. Department of Foreign Affairs and Trade, being an officer delegated for this purpose by the Minister for Foreign Affairs, hereby give permission, pursuant to Regulation 13CA of the Customs (Prohibited Exports) Regulations as amended, to the AWB Limited for the export from Austridia to Iraq of the goods specified In Part 1 of the schedule hereto, subject to the conditions specified in Pari 2 of the schedule hereto, for the reasons specified in Part 3 of the schedule hereto.
S C H E D U L E P A R T 1
Up to metric tonnes of Australian Hard Wheat shipped in bulk (Including Phostoxln fumigant tablets), to be supplied to the Grain Board of Iraq and loaded on board the vessel MV for an
estimated time of delivery at the port of Umm Qascr, Iraq around 21 April 2002.
This permission may he revoked by the Minister for Foreign Affairs or his delegate at any time, without notice.
SCHEDULE PART 3
This permission is granted because the exportation from Australia of the goods destined tor Iraq specified in Part 1 of this schedule does not infringe UN Security Council sanctions against Iraq.
Dated this nineteenth day of March 2002.
G E O R G E ATKIN Assistant Secretary Middle East and Africa Branch
Department of Foreign Affairs and Trade
DFAT' s r o l e in i n v e s t i g a t i n g b r e a c h e s o r p o t e n t i a l b r e a c h e s o f
t h e P r o g r a m m e
12.79 The terms of r. 13CA(2) of the Customs (Prohibited Exports) Regulations permitted the Minister to grant permission to export if he was satisfied that permitting the exportation would not infringe the international obligations of Australia. Regulation 13CA(4) also provided that the Minister could revoke or modify a permission that had been granted if he was satisfied that permitting or continuing to permit the export of goods in accordance with the permission would infringe Australia's international obligations. It follows that, if DFAT became aware of circumstances that suggested that a specific export or
proposed export of goods to Iraq by an Australian company contravened or
Report o f the Oil-for-Food Inquiry 8 7
would contravene the sanctions, the Minister could refuse to grant permission to export the goods or could revoke the permission already granted.
12.80 Apart from r. 13CA, no other domestic legislation or delegated legislation
required DFAT to consider or investigate whether the conduct of any Australian company amounted to a breach of the sanctions or whether the company had breached the sanctions in the past. Nor did any legislation confer on DFAT any specific powers to investigate such matters. In these circumstances, if DFAT did become aware of an allegation or information suggesting that an Australian company was contravening or had contravened the sanctions in some way, DFAT had limited options in relation to investigation of the matter. This was a point made by the Hon. Alexander Downer MP, Minister for Foreign Affairs, in the context of questions concerning the extent of the investigations DFAT officers conducted in response to the so-called Canadian complaint. Mr Downer's evidence was as follows:
Q: But it does appear th at nobody up to this point in tim e d id any m ore than
accept denials from AWB?
A: Well, w ith the greatest of respect, the d epartm ent d o esn 't have legal authority to —and it is im portant to m ake this point: the d epartm ent d o esn 't have the legal authority to go into AWB Lim ited a n d access all of their files an d inform ation. The only scope th at w ould have been available to the dep artm en t w o u ld be to refer the m atter to the Federal Police, an d to refer the m atter to the Federal Police requires substantial evidence.105
12.81 A similar point was made by Mr Bowker, again in the context of the Canadian complaint and DFAT's response to it:
Q: N ow if, as you suggest may be a possibility, the O IP had no ability to judge the accuracy [of the allegation], that w as one thing you could do w a sn 't it?
A: The operation of the p rogram w as based upon the U nited N ations investigating concerns and it h ad the inspection arrangem ents in place to do that. The capacity of the A ustralian governm ent to investigate such allegations w as lim ited
essentially to the advice th at w o u ld be forthcom ing from the A ustralian com pany or com panies concerned.106
12.82 Ms Armstrong, Director of the Iraq Rehabilitation Unit within DFAT's Iraq
Task Force from March 2003 to May 2004, also referred, in a different context, to the fact that DFAT was not empowered to investigate alleged breaches of the sanctions. In early 2003 she became aware of allegations by officers in the Coalition Provisional Authority that prices in contracts for the supply of humanitarian goods under the Programme had been inflated. Ms Armstrong conducted a 'layman's'107 assessment of the prices in some of AWB's contracts, and this indicated to her that AWB's contract prices were within the
8 8 Report of the Oil-for-Food Inquiry
range of prices in other countries' wheat contracts under the Programme. Ms Armstrong's evidence was:
Q: W hat w ould you have done if you had fo u n d som ething on your assessm ent of the contracts w hich d id raise y o u r suspicions?
A: I possibly w ould have gone back to AWB to ask for a m ore detailed exposition of the figures, b u t I w a s n 't em pow ered to conduct any investigation.108
12.83 DFAT, and specifically the Australian mission to the United Nations, was the
only contact point with the 661 Committee or the Office of the Iraq Programme to raise any concerns in relation to the actions of Australian companies participating in the Programme. As noted, the United Nations did not deal directly with any of the companies participating in the scheme but instead liaised with the mission of the country of the participating company. DFAT's role undoubtedly included liaising with the United Nations and investigating matters raised with it in relation to the conduct of Australian companies participating in the scheme. Its actions in connection with the Canadian complaint demonstrate that DFAT did assume the role of or responsibility for making inquiries about allegations or information conveyed
to it by the United Nations.
12.84 Although DFAT did not have any specific investigatory powers conferred on
it, one avenue open to it in the event that it received information suggesting a breach or potential breach of sanctions was to request specific information from the relevant exporting company. If the information was not forthcoming, it would be open to the Minister to refuse to grant permission to export or to revoke an existing permission on the basis that, without the information, he could not be satisfied that the exportation would not infringe Australia's international obligations. This was potentially a powerful threat that could have been effectively used by DFAT in order to investigate allegations had its
suspicions been aroused that AWB was acting in breach of United Nations sanctions. However, the occasion to consider the exercise of such a power did not arise during the Oil-for-Food Programme. The only occasion when any suggestion of such conduct was made during the Oil-for-Food Programme was the Canadian complaint. AWB unequivocally denied to DFAT that it was acting in breach of sanctions or outside the Programme.
C o n c lu s io n s a n d fin d in g s
12.85 DFAT played a pivotal role in relation to Australian companies' participation in the Oil-for-Food Programme. It was the principal, if not the sole, point of contact both for companies that participated in the Programme and for the UN 661 Committee and the Office of the Iraq Programme. It provided general
Report o f the Oil-for-Food Inquiry 8 9
and, on request, specific advice to companies in relation to participation in the Programme. Companies, including AWB, that participated in the Programme were able to, and on occasion did, seek DFAT's advice about whether their actions or proposed actions were within the terms of the Programme and whether they did or did not amount to a breach of the sanctions. Such advice was not sought by AWB in relation to the payment of 'inland transportation fees' o r'after-sales-service fees'.
12.86 More significantly, DFAT was directly involved in domestic implementation of the sanctions regime. It was DFAT, through Australia's mission to the United Nations, that submitted to the United Nations applications for Australian companies to participate in the Programme. These applications were certified not by the participating companies but by the mission, as required by the United Nations. Before granting permission to export wheat, the Minister or his delegate, who acted on the advice of DFAT, was required to be satisfied that the export of wheat did not infringe Australia's international obligations. DFAT, and thus the Minister's delegate, was so
satisfied if the United Nations approved the contracts submitted to it as being permissible under Resolution 661 and approved for payment under the Oil- for-Food Programme.
9 0 Report of the Oil-for-Food Inquiry
Notes
1T 4463.19-34; Ex 543, DFT.0013.0225 at 0225.01, para. 9. 2 Ex 972, AWB.0106.0020-0026. 3 Ex 972, AWB.0106.0028. 4 Ex 972, AWB.0106.0020 at 0021,0024, 0025. s Ex 972, AWB.0106.0020 at 0026. 6 Ex 49, RRP.0001.0048; Ex 69, AOA.0001.0732. 7 Ex 49, RRP.0001.0048; Ex 69, AOA.0001.0732. 8 Ex 49, RRP.0001.0048 at 0053-0054; Ex 69, AOA.0001.0732 at 0735-0736. 9 Ex 49, RRP.0001.0048 at 0005-58; Ex 69, AOA.0001.0732 at 0737-0738. i" Ex 574, DFT.0013.0149, para. 5. 11 There were instructions for the completion of the notification form on the UN website: see Ex 969, UN0.0013.0002-0006. 12 Ex 578, DFT.0013.0157_R, para. 6; Ex 823, DFT.0023.0051_R at 0052.R, paras 5-9; Ex 588, DFT.0013.0140.R at 0141_R, para. 8; Ex 596, DFT.0013.0196, para. 3; Ex 597, DFT.0013.0202-0203, paras 5-6; Ex 843, DFT.0013.0479 at 0480, para. 5; Ex 863, DFT.0020.0169_R at 0170_R-0171_R, paras 6, 8. 13 Ex 578, DFT.0013.0157.R, para. 6. m Ex 574, DFT.0013.0149, para. 5.
is Ex 823, DFT.0023.0051_R at 0052_R, para. 8. “ Ex 574, DFT.0013.0149, para. 5. 17 Ex 543, DFT.0013.0622 at 0626, para. 13. 18 Ex 811, DFT.0020.0548 at 0551, paras 16-17; Ex 823, DFT.0023.0051_R at 0054_R, para. 13; Ex 575, DFT.0013.0616 at 0617, paras 9-15; Ex 578, DFT.0013.0157_R at 0158_R, paras 11-12; Ex 597, DFT.0013.0202 at 0204-0205, paras 16-19; Ex 543, DFT.0013.0225 at 0225_01, paras 11-14; Ex 624, DFT.0013.0602 at 0603, para. 6. 19 Ex 149, AWB.0013.0127-0128. 20 Ex 588, DFT.0013.0140_R, para. 3. 21 Ex 152, AWB.0106.0100. 22 Ex 152, AWB.0106.0100 at 0102. ” Ex 152, AWB.0106.0099. 24 Ex 152, AWB.0106.0099. 25 The genesis of Mr Snowball's request for advice was an email he received from Mr Rowland on 23 March 2001: Ex 383, WST.0001.0054 at 0059, para. 25 ; Ex 384, SN0.0001.0068. 28 Ex 552, DFT.0001.0161. 27 Ex 543, DFT.0013.0225 at 0225_01, para. 11. 28 Ex 543, DFT.0013.0225 at 0225_01, para. 11; Ex 552, DFT.0001.0161. 29 Ex 393, DFT.0001.0458. 30 Ex 543, DFT.0013.0622 at 0625, para. 10. 31 T 3078.46- T 3079.1 22 T 3102.11-20. 33 Ex 552, DFT.0001.0161 at 0163. 34 Ex 391, AWB.5044.0331. 35 Ex 391, SN0.0001.0115. 38 Ex 543, DFT.0013.0622 at 0626. 37 Ex 394, DFT.0001.0193. 38 Section III, para. 30, of 661 Committee procedures, S/1996/636,12 August 1996. 39 M emorandum of Understanding, S/1996/356, para. 22, 20 May 1996; Section III, para. 30, 32 of 661 Committee procedures, S /1996/636,12 August 1996; see also Ex 554, UN0.0009.0334 at 0339. 40 Ex 687, WST.0027.0082_R at 0102_R, para. 77 III; Ex 76, WST.0004.0063 at 0082, para. 62. 41 Ex 729, AWB.0061.0250 (copy of application prepared within the Australian mission); compare with Ex 729, AWB.0061.0254 (copy of application AWB sent to DFAT and the Australian mission). Both forms relate to AWB contract A0430.
Report of the Oil-for-Food Inquiry 9 1
42 Ex 729, AWB.0058.0245, AWB.0058.0247 and AWB.0058.0248, being the application forms for contracts A4653, A4654 and A4655 respectively; See also the evidence of Ms Monies to the effect that she understood that the notification forms were completed either by DFAT in Canberra or by the Australian mission to the
UN (T 4494.37 - T 4496.24). « Ex 52, RRP.0005.0570 at 0571, para. 8. 44 Ex 69, AOA.0001.0444; Ex 66, AOA.0007.0003 at 0015, para. 29. 45 See, for example, the evidence of Mr Rogers at T 568 - T 569; Evidence of Mr Long at T 1594 - T 1596;
Evidence of Mr Stewart at T 4071, T 4075; Evidence of Mr Hockey at T 5852, T 5855-6. “6 Ex 771, DFT.0028.0001 at 0008; T 4615; Ex 625, DFT.0020.0177, para. 4. 47 See above. « Ex 625, DFT.0020.0177, para. 4. 49 Ex 625, DFT.0020.0177, para. 4. μ T 5082.8-18.
51 Ex 911, DFT.0013.0474, para. 4. s2 Ex 843, DFT.0013.0479, paras 4-7. 53 Ex 566, DFT.0013.0076 at 0088, para. 34(d). 54 T 4604.23-41. ss T 4605.16-28. 56 Ex 544, DFT.0013.0509 at 0510. s7 Ex 535, DFT.0010.0101. ss T 4474.3-47. See also T 4469.36 - T 4470.1; Ex 863, DFT.0020.0169_R at 0171_R, paras 9-10. se Ex 543, DFT.0013.0622, para. 2. 60 Ex 543, DFT.0013.0225 at 0225_01, para. 8. See also Ex 586, DFT.0017.0039. 61 Ex 543, DFT.0013.0225 at 0226, para. 10. 62 Ex 850, DFT.0013.0642_R, para. 6; Ex 940, DFT.0020.0002 at 0004, para. 11; Ex 917, DFT.0013.0565_R, para. 3. 63 Ex 578, DFT.0013.0157_R, para. 7. 64 T 4820.10-30. 65 T 4821.3-14. 66 T 4638.12-41. 67 T 4641.43-6. 68 Ex 574, DFT.0013.0149, para. 7. 69 Ex 574, DFT.0013.0149, para. 7. 70 T 4710.46- T 4711.15 71 T 4714.3-16. 72 T 4642.10-16. 73 T 4642.10-16; T 4642.31-8. 74 T 4643.32 - T 4644.18. 75 T 4648.30- T 4649.8. 76 Ex 729, AWB.0111.0316_R. 77 Ex 729, AWB.0111.0317JR. 78 T 4647.29-40. 79 T 4647.29-40. «Î¿ T 4648.10-20. si Ex 574, DFT.0013.0149, para. 7; T 4652.9-17. 82 T 4654.1-5. 83 T 4651.28- T 4652.7. 84 T 4642.40 - T 4643.4; T 4707.14-21; T 4708.8 - T 4709.7; T 4710.16-32. 85 Ex 596, DFT.0013.0196, para. 2; Ex 597, DFT.0013.0202 at 0203, para. 10; T 4903.31-5. so T 4903.5-12. 87 Ex 823, DFT.0023.0051_R at 0053_R, para. 10(a). ss Ex 823, DFT.0023.0051_R at 0053_R, para. 10(b). See also Ex 937, DFT.0023.0312, para. 7.
89 T 4765.38-9. 90 Ex 588, DFT.0013.0140_R at 0141J U para. 8.
9 2 Report of the Oil-for-Food Inquiry
91 Ex 49, RRP.0001.0126; Ex 69, AOA.0001.0146. 92 Ex 49, RRP.0001.0048 at 0057; Ex 69, AOA.0001.0732 at 0739.
93 T 4816.47 - T 4817.5. 99 Ex 578, DFT.0013.0157_R at 0158_R, para. 9. 95 Ex 982, DFT.0037.0006 at 0013, paras 33-39; Ex 811, DFT.0020.0548 at 0549, paras 9-12; Ex 566, DFT.0013.0076 at 0088, para. 34(d); Ex 890, DFT.0023.0074, paras 6-10. ’6 Ex 982, DFT.0037.0006 at 0008 and 0014, paras 10 and 38. 97 Ex 983, DFT.0037.0021_R at 0024_R, paras 19-22; Ex 980, DFT.0037.0029 at 0031, para. 12-15; Ex 987, DFT.0037.0047_R at 0049_R, paras 15-16; Ex 818, DFT.0013.0646, para. 3(a) and 6. 98 Ex 575, DFT.0013.0616 at 0618, para. 17. 99 Ex 574, DFT.0013.0149 at 0150, paras 9-10. ⢠Ex 729, AWB.0062.0173JR. â¢T 4676.10-45. ⢠2 Ex 729, AWB.0062.0171_R. 103 The only difference of substance between Mr Grenenger's account of the procedure and Mr Cuddihy's was the sequence of the documentation. Mr C uddihy's account was consistent w ith the dates of the relevant documents and the evidence of AWB witnesses in relation to the sequence. 104 T 4903.47 - T 4906.27. I»5 T 6541.40 - 6542.2. 106 Ï 4623.13-21; See also, in a different context, the evidence of Ms Armstrong at T 4940.3-8.
107 Ï 4939.27; T 5007.27-8. los x 4940.3-8; See also T 4955.2-4.
Report o f the Oil-for-Food Inquiry 9 3
13 July to Decem ber 1999: Ira q introduces an inland transportation fee
13.1 Prior to June 1999, and for each of the first five phases of the Oil-for-Food
Programme, the usual basis on which AWB (and the Australian Wheat Board before it) sold wheat to the Iraqi Grain Board was GIF free out Umm Qasr.1
13.2 Under the GIF element of those terms, the price per tonne for which the wheat
was sold included:
⢠the cost of the wheat2
⢠the freight, or the cost of the carriage of the wheat from Australia to Iraq (the ocean carriage)
⢠the cost of insuring the shipment against the risk of loss of or damage to the wheat during its carriage to Iraq (marine cargo insurance).
As the seller of the wheat on such terms, AWB was required to arrange, and in the first instance pay for, both the cost of the ocean carriage and the cost of the marine cargo insurance for each shipment. It would in turn recover those costs from the proceeds of the sale of the wheat. In determining the price at which it was prepared to sell its wheat, AWB took into account the anticipated costs of the ocean carriage and marine insurance that would need to be recouped from the proceeds, as well as the FOB price it wished to obtain.
13.3 Wheat AWB sold free out Umm Qasr during this period did not include in the
sale price any allowance for the cost of the discharge of the wheat from the vessel on its arrival at Umm Qasr.
13.4 It was known within AWB that the Iraqi Grain Board had full responsibility
for operation of the port facilities at Umm Qasr, as well as for the wheat's accumulation, storage and distribution to flour mills.3
13.5 Under the terms of the IGB's contracts with AWB, the obligation to effect or
arrange for the discharge of the wheat from the vessel at Umm Qasr rested with the purchaser, the IGB. The costs of discharge, along with the usual port dues, were also to be borne by the IGB.4 AWB had no obligation to discharge the wheat shipped to Iraq or to arrange for its discharge. Nor did it have any obligation to pay for the cost of the wheat's discharge or the costs of
Report o f the Oil-for-Food Inquiry 9 5
distributing the wheat within Iraq. Under the terms of its contracts with the IGB, AWB had no obligation to make any payments in Iraq.
13.6 However, with effect from July 1999, during phase VI of the Oil-for-Food Programme, the IGB proposed a significant change to the terms on which it would purchase wheat.
A c h a n g e t o t h e t e r m s
T h e w h e a t t e n d e r fo r p h a s e VI
13.7 Phase VI of the Oil-for-Food Programme commenced on 25 May 1999 and continued until 11 December 1999.5
13.8 In June 1999 the IGB issued a wheat tender calling for the supply of Australian Hard Wheat to be shipped to Iraq between October and December 1999 on the terms and conditions set out in the tender.6 The tender, which invited offers by 28 June 1999, was expressed to be 'in accordance with the M.O.U. signed between the UN Secretariat and Iraq on the implementation of the Security Council resolution Phase VI'.7 The wheat called for by the tender was to be shipped as part of phase VI of the Oil-for-Food Programme.
13.9 The wheat tender included a number of changes to the terms and conditions on which wheat had previously been supplied to the IGB. Among the changes was a change to the elements within the price at which the wheat was to be sold and delivered. In particular, clause 10 of the tender called for the supply of wheat at a price that was expressed to be:
CIF free on truck to silo at all governarate. Cost of discharge at Umm Quser and land transport will be U.S.D. 12 per metric ton. To be paid to the Land Transport Co. For more details contact Iraqi Maritin in Basrah.8
13.10 For the first time in the history of its dealings with AWB, the IGB required the supplier to pay both the cost of the discharge of the wheat from the vessel at the port of Umm Qasr and the cost of transporting the wheat by road from the port of Umm Qasr to the various governorates throughout Iraq. This was in addition to the cost of the ocean carriage and marine cargo insurance, which the seller would have to continue to bear in the first instance.
13.11 The seller would recoup the additional costs from the proceeds of the sale of the wheat.9 For the first time, the IGB required (or envisaged) that the additional costs would also be included in the tender price.
9 6 Report of the Oil-for-Food Inquiry
13.12 However, the additional costs were not costs the seller incurred in discharging and transporting the wheat or arranging for some one else to do that on the seller's behalf.10 Rather, under the terms of its wheat tender, the IGB required the costs of discharge and land transport, fixed at US$12 per tonne, to be paid by the seller to the 'Land Transport Co/
13.13 The reference in clause 10 of the wheat tender to 'Iraqi Maritin in Basrah' was a reference to the Iraqi State Company for Water Transport or the State Enterprise for Water Transport. This was the entity appointed to act as the agent of the vessel under both phase VI contracts11, as well as contracts concluded under earlier phases.12 It is not clear, however, on the face of the
tender whether this reference to the 'Land Transport Co.' was a reference to the Iraqi State Company for Land Transport or a reference to the company that was to arrange the transportation of the wheat by road from Umm Qasr to the various governorates. AWB did not inquire of 'Iraqi Maritin in Basrah' what was meant by 'Land Transport Co.' The reasons for this will become apparent.
13.14 The wheat tender provided that any offer that did not comply with IGB's terms and conditions 'will be disregarded' and that 'any amendment for the L/C [letter of credit] will not be acceptable only for adjustment of shipment date.'13
J u n e 1 9 9 9 : t h e L ondon G ra in s C o n fe r e n c e
13.15 In June 1999 Messrs Flugge, Officer and Emons attended an International Grains Conference in London. They attended a conference dinner that was also attended by representatives of Ronly Holdings Limited, Mr Bali and Mr Yaha.14 AWB was giving consideration to buying Ronly. Mr Flugge recalled
the dinner but could not recall any discussions that occurred.15 He did not recall the matter of trucking fees being raised16 and did not recall Iraq being discussed.17 His evidence was that there was general one-to-one discussion at the dinner and a one-sided hearing defect impeded his hearing on such occasions.18
13.16 Mr Emons' recall was much more specific. His evidence was that by the time of the conference he was aware that most, if not all, of the European companies dealing in cereals who sold to Iraq had to pay some form of inland transportation fee. He said this was common knowledge amongst the traders with whom he spoke at the conference and on other occasions in 1999.19
13.17 Mr Emons recalled a conversation at a Grains Conference dinner during which the subject of Iraq and trucking fees was raised in the context of a discussion about the potential purchase of Ronly and the areas in which Ronly
Report o f the Oil-for-Food Inquiry 9 7
felt it could help AWB in its global trading expectations.20 Ronly was an English company that carried on business as a grain trader. In 1999 AWB entered into discussions with Ronly in relation to a possible joint venture and acquisition of a company for the purposes of such a joint venture. Mr Emons said that at the dinner Mr Flugge, Mr Officer, representatives of Ronly, himself and others sat together. Mr Emons asserted that at the dinner the issue of payment of inland transportation charges in Iraq arose.21 Someone from
Ronly said, 'We can help you with this. We'll take a fee but we can discuss that later'.22 Mr Emons said the matter was discussed openly with the AWB group attending the dinner, including Mr Flugge.23
13.18 The evidence of Mr Emons was challenged by Senior Counsel for Mr Flugge on a number of bases. First, Mr Emons incorrectly placed the dinner after the meeting in Baghdad at which trucking fees were raised, whereas in fact it was before. This is of little significance if one accepts his (Mr Emons') evidence that payment of trucking fees was common knowledge amongst traders. Second, it was unlikely that there would have been such a discussion with
Ronly if at that time the payment of trucking fees was not seen as improper. It was said Mr Emons' view at that time was that payment of such fees was not improper. That was not his evidence.
Mr Emons drew a distinction between UN approval of the distribution plan, which had been approved, and the method or mechanism for payment of trucking fees, which had not.24 It would have been likely for there to have been a discussion with Ronly about methods of achieving payment of the trucking fees insisted upon by Iraq.
13.19 Having regard to the general reliability of Mr Emons, it is probable the discussion occurred as Mr Emons stated. Mr Officer's evidence did not assist: he could not recall the conversation, although he did not doubt Mr Emons' account. The more difficult issue is whether Mr Flugge heard the discussion. That depends upon whether I accept his denial of hearing any such conversation.
13.20 The evidence of Messrs Emons and Officer is to be preferred to that of Mr Flugge.25
J u n e 19 9 9 : AWB v is its I r a q
13.21 Following the issue of its wheat tender, the IGB invited representatives of AWB to visit it and discuss in person the proposed terms and conditions of the new tender. The IGB did not wish to discuss the new terms by facsimile or telephone. It was decided that Mr Emons and Mr Hogan should travel to Iraq.
9 8 Report o f the Oil-for-Food Inquiry
13.22 At that time Mr Emons was the Regional Manager of the Middle East, African
and European section of the International Sales and Marketing Division of AWB.26 Ele was the officer with prime responsibility for Iraq. Mr Hogan was a marketing executive on the Middle East Desk in the International Sales and Marketing Division; at that time he was based in the Cairo office.27
13.23 On 16 June 1999 Mr Hogan, from Cairo, circulated an email addressed to
Mr Geary and copied to Ms Scales and Messrs Borlase, Tighe, Hunter, Hughes, Owen, Watson, Morrison and Snowball, seeking information in preparation for his imminent visit to Baghdad.28 The information he sought related to UN restrictions on trade with Iraq. He wrote:
H ence M ark [Emons] requires —copy of contract, copy of their contract, copy of MOU (Copy of MOU is in a fo ld er—I know that m uch) a n d copy of U N contract conditions —not sure how m uch I stipulated on U N docs regarding the contract conditions —b u t if you find anything relevant regarding please fax th ro u g h .29
13.24 On 17 June 1999, in an email to Mr Borlase and copied to Messrs Emons,
Hogan, Lister and Aucher, Mr Owen (AWB's National Trade Finance Manager) commented on the IGB's wheat tender, including the proposed new price terms (item 10): O ur price has to include Land transport costs of USD 12 per tonne. Why ??? and how do we pay Land Transport company when all Iraqi funds frozen ????????'30 It is clear from this that Mr Owen believed the 'Land Transport company' to be an Iraqi company. Although Mr Borlase suggested otherwise in his evidence, that evidence should not be accepted.31
13.25 Thus the problem of how such contract conditions could be met while UN sanctions were in place was raised widely within AWB before representatives of AWB met with the IGB in Iraq to discuss the new tender conditions.
13.26 On 21 June 1999 Mr Hogan and Mr Emons travelled to Baghdad and there met with the then Director General of the IGB, Mr Daoud.32
Mr H o g a n 's r e p o r t of his tr ip to I r a q
13.27 Following his return from Baghdad to Cairo, Mr Hogan sent an email to Mr Emons at AWB in Melbourne on 24 June 1999, reporting on the outcome of the meeting with the IGB.33 The email was circulated widely within AWB. A copy was sent to Mr Geary34, Ms Scales35, Mr Snowball36, and Messrs Watson,
Lister and Owen. Mr Hogan included in this email a report on the new terms for the price at which wheat was to be supplied:
1. FREE IN TRUCK
IGB have requested that the offers are subm itted GIF, FREE IN TRUCK, IRAQ. The cost for this is USD 12.00 p er tonne w hich the supplier adds to their offer.
Report of the Oil-for-Food Inquiry 9 9
H ence this p a rt is n o t an issue.
The problem which still needs to be resolved is the paym ent mechanism as all Iraq accounts have been frozen. IGB have stated that w e w ill be required to pay the M aritim e Agents, and one possible w ay w ould be to pay this to an Iraq bank in Amman.
IGB w ill provided details of the banks w hich we can pay this through.
MICHAEL37— as m entioned to you, there may be a way to pay this through the vessel owners. M ark w ill discuss this w ith you, so you have to think about the possibilities.38
Reason for w anting suppliers to pay this am ount is due to the excessive am ount of Iraqi D inars placed into the m arket by the M inistry of Finance for every Phase (Phase V = 23 billion Dinars, w hich has an im pact on their currency rates).39 [em phasis added]
Mr Hogan's email makes clear two things:
⢠The 'Maritime Agents' to whom the US$12 fee was to be paid was an Iraqi entity.
⢠The 'Maritime Agents' was the maritime agent at Umm Qasr. The maritime agent at Umm Qasr was, and had always been, the Iraqi State Company for Water Transport or the State Enterprise for Water Transport.
13.28 The email makes clear that Messrs Emons and Hogan had discussed with Mr Daoud the problem of making payments of US dollars to an Iraqi entity in Iraq. A possible solution was to pay the US dollars into an account in an Iraqi bank situated in Jordan. Irrespective of into which account the sums were to be paid, or where that account may have been situated, it is apparent that the payment was to be, directly or indirectly, to an Iraqi entity. That was prohibited by the UN sanctions.
13.29 Mr Hogan's email does not discuss:
⢠which company was to perform the discharge or physical transportation of the wheat within Iraq
⢠the need to obtain quotations from companies either within or outside Iraq for the discharge or transportation of grain within Iraq
⢠the need to enter into a contract with a company, wherever situated, to perform the discharge or transportation AWB was, by the contract, undertaking to perform.
1 0 0 Report of the Oil-for-Food Inquiry
The only discussion was how to pay the funds to Iraq, possibly to an Iraqi bank in Amman, Jordan.
13.30 The reason for this is that, from the outset of the introduction of the inland
transportation fee, it was understood by AWB that, notwithstanding the terms of the wheat tender and of the contract AWB subsequently concluded with the IGB, AWB had no obligation to arrange or effect the discharge or transportation of the wheat within Iraq. Its obligation was to pay a fee to an Iraqi entity. The difficulty was how to achieve that when payments to an Iraqi entity were prohibited by UN sanctions.
13.31 Mr Hogan's evidence was that he believed in 1999 that contracts would
require approval from the United Nations and that the fee to be paid was a fee required to address the cost of transportation in Iraq.40 It is difficult to understand, if that was the case, why there was difficulty in paying the fee direct to Iraq if the United Nations approved of the payment. The need to find
a means to pay the fee to Iraq necessarily involves absence of UN approval of such payments.
13.32 Mr Hogan concluded his email with a 'To do' list. The last item on the list was
directed to the Manager of AWB Chartering, Mr Watson. It read, '4. Watson — payment method of USD 12.00 Free in Truck (via owners)'.41 The reference to 'owners' was a reference to the owners of the ships used to carry the wheat from Australia to Iraq.42
13.33 Mr Hogan's email was based on discussions he and Mr Emons had had with
Mr Daoud in Iraq. Mr Daoud told Mr Hogan that Iraq was standardising all grain and commodity contracts for goods coming into Iraq through Umm Qasr.43
13.34 From their discussions in Iraq in June 1999 it was understood by Messrs
Hogan and Emons that:
⢠Payment of the inland transportation fees (or trucking fees) was to be made to the 'Maritime Agents' in Iraq.44
⢠One way of making the payments might be to pay to an Iraqi bank in Amman. The IGB would supply details of the bank through which the inland transportation fee could be paid.45
⢠The need for the inland transportation fee to be paid in US dollars was to address inflation in Iraq.46 Previous internal payments for trucking by Iraq had resulted in the issue of billions of dinars, with consequential hyperinflation.47
Report of the Oil-for-Food Inquiry 1 0 1
⢠The monies to be paid for inland transportation were to be received by Iraq in US currency. They would be used, at least in part, to cover the cost of moving the grain within Iraq.48
⢠Iraq was standardising the conditions for the import of all grain. If the standardised conditions were not met, Iraq would not contract with the supplier to buy grain.49
13.35 Thus AWB had either to agree to the new conditions of tender or risk losing its Iraq market. According to Mr Hogan, AWB at first rejected the amended terms and complained to the IGB but was told that it was a presidential decree and that every supplier supplying Iraq would be operating under the same terms and conditions.50 But for that initial reluctance, there is no evidence that suggests that AWB ever contemplated the possibility of losing the Iraq trade. Indeed, AWB was determined to do what it had to in order to safeguard that trade. Finding a method of satisfying the conditions of tender was required. This was reflected in conversations within AWB. For instance, Mr Officer spoke of the new contract terms with the Chairman, Mr Flugge, and Mr Flugge's response reflected an attitude of 'do whatever you have to in
order to secure the trade with Iraq':
Q: W hat d id you say to the chairm an about the paym ent of the $12 a m etric tonne?
A: Well, as I recall, to the best of m y ability, this w as an im position that w as
placed u p o n u s by the buyer, the Iraqi G rain Board. There was no option. There was no choice. It was $12 or not, or if you do n 't make that paym ent then, of course, there w ould be no business. That was m ade very clear. It was in that context that I discussed it w ith the chairman, and that was the nature of those discussions.51 [em phasis added]
And later:
Q: W hat d id the chairm an say to you w hen you told him about his m atter?
A: H e w ould have said that this w as a necessary p a rt of doing business w ith Iraq and that the role w e h ad at AWB w as to maxim ise opportunities an d sales returns for the com m odities w e w ere dealing w ith, and th at w e should proceed.
Q: W hen you say 'he w ould have said', is that y o u r recollection of the substance of w hat he said, or is that som ething that you have supposed he said?
A: That is the recollection of the substance of w h at he w ould have said —of w hat he said .52
13.36 Mr Hogan accepted Mr Daoud's explanation for the imposition of an inland transportation fee. He also accepted that the fee was to be used by the Iraqis to meet the costs of inland transport, which were said not to have otherwise been covered under the Oil-for-Food Programme. Mr Hogan believed that the
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imposition of an inland transportation charge would be notified to the United Nations for its approval.53
13.37 Mr Hogan said:
Q: So y o u 're saying at this tim e at least you believe th at the Iraqis w anted the
m oney to apply it tow ards the cost of transport?
A: Yes.
Q: A nd w h at they w an ted w ere US dollars because they w anted, in effect, the assist their econom y by n o t h aving to p rin t dinars b u t by being able to use US dollars?
A: Correct. T hat w as m y u n d erstan d in g of it.
Q: So it follows, d o esn 't it, that w hen M r Z uhair [Daoud] gave you this
explanation about dinars and inflation, it w as absolutely fundam ental to his explanation that w h a t the Iraqis w anted w as the release of US dollars from the escrow account to com e back to the Iraqis in Iraq?
A: T hat the m oney w o u ld go into Iraq, yes.
Q: A nd y o u 'v e never h ad any d o u b t about that?
A: No, n o t really, n o .54
13.38 Thus, from June 1999 Mr Hogan and AWB knew:
⢠The purpose of the newly imposed inland transportation fee was to extract US dollars from the escrow account to be paid back to Iraq.
⢠AWB did not have to arrange or effect transportation of the wheat within Iraq. The IGB would attend to that, as it had before, but now using in whole or in part the US dollars so provided to it.
⢠No question existed of AWB having to enter into a trucking contract — that is, an agreement with a transportation company to transport the wheat for AWB or on its behalf within Iraq.
13.39 Within AWB it was widely understood that the money for the inland transportation fees was going to the Iraqis. Mr Hogan never had any doubt about that.55 Neither did Mr Emons56 or Mr Watson57 or Mr Officer.58 Mr Owen believed that the inland transport fee was to be paid 'into Iraq'.59
13.40 The problem confronting AWB, however, was how to make the payments to Iraq in the light of the existing UN sanctions. Again, Mr Hogan recognised as much in his evidence to the Inquiry.60 Mr Emons discussed this problem of
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how to pay the inland transportation fee to the Iraqis with others at AWB, including Messrs Watson, Owen and Officer.61
13.41 Mr Owen believed that the UN sanctions prevented payments to Iraq.62 He understood that payment of the inland transportation fee would be a breach of the sanctions.63
13.42 On 25 June 1999 Mr Watson responded to Mr Hogan's email of 24 June 1999:
Freight
reverting on this regarding p ay m en t of USD 12.00 I will discuss this w ith M ark [Emons] u p o n his re tu rn to find a suitable m ethod.
M y concern re CIF to trucks is th at w e are also now insuring cargo once unloaded from the vessel —i.e. truck —tfore o u r liability does not cease u p o n passing the sh ip 's rail.
This leads to next problem , regarding shortage as I anticipate loss will take place from ship to truck.
Above for reflection, n o t insurm ountable b u t we need to ensure that w e fully aw are and p u t into place suitable procedure etc.64
13.43 In evidence Mr Watson65 admitted66:
⢠He knew that the inland transportation fee was to be received by an Iraqi organisation.67
⢠He discussed means of payment of that fee with others within AWB, so that payments would not be obvious to the United Nations.68
⢠He discussed the disguising of such payments with others within AWB from June 1999 onwards.69
⢠One of the ways to disguise payments discussed within AWB and later used by AWB was to use the owners of the ships carrying the wheat to Iraq (including Ronly) to make the payments for AWB.70
13.44 Mr Snowball (from AWB's US office) also responded to Mr Hogan's email of 24 June 1999. This was in an email dated 25 June 199971, in which he sought advice in relation to the proposed changes to the contract conditions: 'Can you advise what proposed changes to contract terms and conditions are to be agreed between IGC and UN, and what will be agreed between AWB and IGC only'.72 Thus Mr Snowball contemplated, as early as June 1999, arrangements with Iraq that were not to be disclosed to the United Nations.
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13.45 Mr Snowball also reported, 'The Australian mission to the UN spoke to the UN today. The UN said that they were looking at some proposed changes to contract terms and conditions, but we will not find out much more until it is finalised'.73
13.46 Mr Hogan replied to Mr Snowball's email by faxing a copy of the wheat tender to him.74 On 25 June 1999 Mr Hogan sent a further email to Mr Snowball75 (copied to Mr Emons, Ms Scales76 and others), passing on the proposed changes to the terms and conditions and comments Mr Hogan had received from Mr Owen on 17 June 1999, annotated with his own comments.77
In relation to Mr Owen's comment on item 10 of the wheat tender, Mr Hogan added, 'The USD 12.00 will be added onto GIF price —so no skin off our nose —however we need to find a way to implement the payments as iraq
a/c's frozen. Discretion is required here'.78
13.47 Although Mr Hogan had accepted what Mr Daoud had told him about approval being sought from the United Nations for the imposition of an inland transport fee, he had reservations about whether the United Nations would be informed by the Iraqis of the payment of the fee in US dollars or how the fee was to be paid. Those reservations led to his reference to 'discretion' in this email.79
13.48 The clear implication of Mr Hogan's evidence was that the wheat trade with Iraq was paramount, and he did not want to put it in jeopardy. If the Iraqis had not sought or obtained approval for the inland transportation fee, he did not want AWB to raise the issue with the United Nations. The message from Mr Daoud had been clear: it was one of 'pay the inland transportation fee or Iraq will not buy your wheat'. The fee was going to be paid by AWB whether
or not the United Nations had approved it.
13.49 As Mr Hogan said in evidence:
A t th at tim e — and this relates back to the first trip rep o rt — w hat h ad h appened is Z uhair h ad said th at the inland transport fee or the p aym ent —this h ad been p u t w ithin the distribution p lan a n d subm itted to the U nited N ations for approval, so th at's w hat they've advised us. W e still d id n 't know a t th at tim e w hether it w as — all right, the fee so u n d ed reasonable, b u t w e d id n 't know if it had been subm itted
to the U nited N ations, w as it p a rt of the d istribution plan, w ere the U nited
N ations going to m ake som e form of concession to allow this to actually happen? But w e d o n 't w an t to be the one raising i t —you know , w aving the flag, w e're the AWB raising this in front of the U nited N ations, because the Iraqis, say if it w asn 't legitim ate or it w as legitim ate, w e could actually dam age our business by doing it. T hat's w hy w e're saying, like, a bit of discretion here, d o n 't start w aving our nam e all over the U nited N ations about the inland tran sp o rt paym ent system . So w e d id n 't know if it w as legitim ate or n o t legitim ate. B ut d o n 't start flagging that it's us raising the issue, because if it w asn 't legitim ate an d the U N said, 'T his is not going to h ap p en ', th at's all good an d well, b u t then th ey w ould say 'AW B w as the
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com pany th at raised this', so they go back to their sta n d ard CIF contracts, but AWB w o u ld n 't sell a tonne of w h eat to Iraq because they knew it w as us w ho actually raised the issue.80
13.50 Mr Hogan's reference to a 'concession' by the United Nations to allow a fee to be paid to Iraq is consistent only with an understanding that payment of the fee was otherwise prohibited by UN sanctions.
S u m m a r y
13.51 In summary, following AWB's receipt of the wheat tender for phase VI of the Oil-for-Food Programme and the visit of Mr Emons and Mr Hogan to Iraq in June 1999, there had been widespread communication amongst Messrs Officer, Lister, Emons, Owen, Watson, Geary and Hogan and Ms Scales regarding the terms of the new tender and how they could be met. It was understood by those discussing these terms within AWB that:
(a) The inland transportation fee (or trucking fee) was fixed by Iraq.
(b) It was being paid to Iraq.
(c) It was being paid for the benefit of the Iraqis.
(d) Imposition of the inland transportation fee was a method of obtaining US dollars from the UN escrow account.
(e) AWB did not have to arrange or effect the discharge of the wheat at Umm Qasr.
(f) AWB did not have to arrange or effect the transportation of the wheat within Iraq.
(g) AWB was not required to enter into a contract with any transport company.
(h) The Iraqis would continue to organise the discharge, transportation and distribution of wheat in Iraq, as they had under the earlier phases of the Oil-for-Food Programme and under their earlier contracts with AWB.
(i) AWB's obligation was limited to payment of the fee set by the Iraqis.
(j) The Iraqis had said they either had obtained or would obtain UN approval for the payment of the inland transportation fee.
(k) The method of payment of that fee had not been approved.
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(l) It was up to AWB to find a method of payment that was acceptable to the Iraqis.
(m) One method of payment suggested by Iraq was payment to an Iraqi bank in Amman.
(n) AWB was not prepared to raise with the United Nations the issue of the transportation fee for fear the fee might be prohibited by the United Nations, thus costing AWB its Iraq market.
13.52 By that time Mr Flugge was aware of the new contract terms requiring
payment of US$12.00 per tonne, that the term had been imposed by Iraq and that the sums had to be paid if the Iraq business was to be retained. On that basis he had approved AWB making such payments. There is no specific evidence before me that, at that time, Mr Flugge knew that the US$12.00 per tonne was being paid to Iraq, but he did know that the fee had been imposed by Iraq.
13.53 In the case of Mr Snowball, who received only the emails from Mr Hogan of
24 and 25 June 1999 and the tender document81, having read those emails, as I am satisfied he did, in June 1999 he had the knowledge referred to in points (a) to (i) inclusive, as well as (k) and (m).
13.54 In the case of Mr Geary, although he received the emails of 24 and 25 June
1999, the evidence does not establish that he read them or that he derived any knowledge from them.
13.55 Under the terms of the proposed sale, AWB was not required to discharge the
wheat and effect delivery to all governorates in Iraq, despite the specification of the price in terms to that effect in the wheat tender (and subsequent written contracts). The obligation to transport the wheat sold by AWB to all governorates within Iraq was to rest upon the Iraqis, as it always had. Suggestions to the contrary in the tender (and in the subsequently concluded written contracts) were a sham.
K n o w le d g e o f Mr I n g le b y
Mr Emons' evidence 13.56 Upon his return from the International Grains Conference in London,
Mr Emons met with Mr Officer to discuss Ronly's offer.82 Mr Emons' evidence was:
I recall saying som ething like:
Î think it w ill be a good idea to use R only to m ake these paym ents.'
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I also said words to the effect
'T here w ill be fees involved in this.'
In response, he [Mr Officer] said w o rd s to the follow ing effect:
'T h at all sounds reasonable. Let m e have a think about it, I'll probably discuss this w ith M uzza.'
I u n d ersto o d him to be referring to M urray R ogers.83
13.57 Following this meeting, Mr Officer convened a further meeting with Messrs Emons and Watson84 regarding Ronly. Mr Emons' evidence was that they had a discussion about the implications and the methodology for the payment of the trucking fee. Mr Officer then telephoned Mr Ingleby (AWB's Chief Financial Officer) and requested that he (Mr Ingleby) attend the meeting.85 Mr Emons' evidence was:
M r Officer said to him [Mr Ingleby] w ords to the follow ing effect:
'You know w e have to p ay this trucking fee. The guys are proposing that w e pay Ronly and the shipping com panies to do it directly and save o u r involvem ent. Are you com fortable w ith that?'
There then follow ed discussion about procedural aspects of w hat w as being proposed. M r Ingleby said w ords to the effect of:
'I'm quite com fortable w ith th a t.'86
13.58 In cross-examination by counsel for Mr Ingleby, Mr Emons said:
Q: It w as a discussion on the various w ays in w hich p aym ent of a trucking fee approved by the U nited N ations could be im plem ented so th at the w heat could be m oved from the ship to the trucks to the governorates of Iraq in com pliance w ith the contract th at had been aw ard ed to AWB?
A: Yes.
Q: The discussion that you h ad w ith Mr Officer, your recollection is that at some stage Ingleby w as called in?
A: Correct.
Q: Did you u n d erstan d the p u rp o se of M r Ingleby being called into that
discussion w as to ru n the m ethodology, or the possible m ethodology, of m aking a paym ent p ast him to see w h eth er or not, as the chief financial officer, the
m ethodology could be accom m odated in the books of AWB?
A: Correct.
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Q: A nd that M r Ingleby w a sn 't told any great detail —he w as asked w h eth er or not the principle of paym ents to a th ird party of trucking fees w ould be acceptable — th at is, a n acceptable accounting practice?
A: Yes, I w ould agree w ith that.
Q: A nd th at he said that, recognising that the trucking fees had to be paid, it
w o u ld be acceptable if they w ere p aid to a th ird party such as shippers a n d /o r Ronly?
A: Yes.
Q: A nd that w as the extent of M r Ingleby's involvem ent in that discussion?
A: I can recall specifically th at w e asked h im about u sin g —the use of Ronly, and his agreem ent to do so.
It is to be noted that one question asked included a suggestion the trucking fee was 'approved by the United Nations'. Such fees were never approved by the United Nations, as Mr Emons knew, but he did not pick that up in counsel's question. The discussion was held on the basis that the United Nations had not approved such fees; it was for that reason that methods of hiding payments required to be made to Iraq as a condition of the tender were being
discussed.
13.59 Mr Emons gave further evidence about this meeting:
Q: So d id you keep any p a rt of the deal secret from M r Ingleby d u rin g the course of these discussions?
A: N o, there w ould be no need to.
Q: A n d so then w as it openly said th at the proposal w as to u se Ronly and
sh ip p in g com panies to pay the US$12 a tonne to the Iraqi m aritim e agent in —
A: Yes.
Q: — Iraq?
A: Correct.
Q: D uring the course of this m eeting, did anybody p resen t raise an y issue about w h eth er or not this w as proper, im proper, law ful, unlaw ful?
A: In th e context, if I can answ er that, th a t w e w ere uncertain ab o u t any legality about this m atter. H ow ever, the issue of the process w as approved.
Q: W hen you say 'th e issue of the process w as ap p ro v ed ', w hich approval are you referring to?
A: I am referring to the process of paying th ro u g h either the shippers or Ronly.
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Q: A pproved by w hom ?
A: By M r Ingleby an d M r Officer.87
Mr Officer's evidence
13.60 Mr Officer's evidence in relation to the discussions that took place following the International Grains Conference was:
In relation to the discussions after the conference, concerning how the transport fees w ere to be paid, including the role of Ronly, M ark Em ons' recollection is accurate. G iven m y reporting to M urray Rogers, I believe I then told him about the general proposal (to use interm ediaries to pay these costs) and he raised no objection. I k ept him inform ed in a general w ay about the state of our relationship w ith the IGB and how the M iddle East Desk w as dealing w ith the IGB's
requirem ents. A lthough I cannot recall any specific conversation, I have no doubt that M urray w as aw are of the IGB's requirem ent to pay the transport fees, that AW B's stan d ard contract h ad to be changed to allow for p aym ent of these fees by increasing the contract price, th at the contract price (including the uplift for tran sp o rt fees) be paid by the U N (from the escrow account) to AWB and that AWB w o u ld then rem it those fees to a party nom inated by the IGB either directly or via an interm ediary. This w as because w e all w ithin AWB, that is, the M iddle
East Desk an d those Executive T eam m em bers w ith w h o m I spoke, including M urray Rogers, Paul Ingleby and others w ho attended th e regular Executive Team m eetings, w ere aw are that the p aym ent of these fees w as the price for doing
business in Iraq.88
Mr Watson's evidence 13.61 Mr Watson could recall meeting with Mr Ingleby and Mr Officer in about June 1999 to discuss the payment mechanism for the trucking fee. His evidence was:
In substance, the discussion w o u ld have revolved aro u n d w e had to find a
m ethod to p ay this trucking fee, a n d there w ere different w ays of doing it, one aspect w as via a ship ow ner, and th at aspect w as discussed, as to w hether ship ow ners w o u ld be agreeable to do this.89
Mr Watson said Mr Ingleby was involved in this discussion because he was the Chief Financial Officer and he would have been responsible for the payments.90
13.62 In cross-examination, Mr Watson accepted that all Mr Ingleby was asked by Mr Officer was whether or not there was any problem with the mechanics within AWB of making payments to third parties for trucking fees.91
Mr Ingleby's evidence 13.63 Mr Ingleby had no recollection of a meeting with Messrs Officer, Emons and Watson. He accepted that it was not uncommon for him to meet with Mr Officer and that he may well have attended a meeting with Mr Officer
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and/or Mr Watson to discuss chartering matters in 1999. However, he denied that he had received an explanation of the process that had been decided upon in relation to the payment of trucking fees, that he had been made aware of any illegal payment or illegal methods of payment by Mr Emons or Mr Officer or that he had approved an illegal payment at any such meeting.92 His evidence was:
If it w as the case, a n d I have no m em ory of it being so, that M r Officer asked m e about a system for m aking paym ents then (if all that he said to m e w as w hether or not m y division could be com fortable w ith AWB m aking paym ents to R only and shipping com panies to pay for the trucking th at w as being carried out for our w h eat in Iraq), I w o u ld have said that w e could accom m odate such a p aym ent because there w o u ld be no objection, from a n accounting perspective, to the p ay m en t for services via an interm ediary. Such a process has no illegal
connotations an d if M r Officer had asked m e questions in relation to such a
proposal (and I cannot recall th at he did) th e n in all probability I w ould have
agreed th at such a m ethodology w as possible a n d th a t I w as com fortable w ith it.93
13.64 The evidence establishes that Mr Ingleby was called into a meeting when payment of the inland trucking fee was being discussed and at a time when the payment of such a fee to Iraq was known to be a breach of the UN sanctions. The purpose of that meeting was to find a way to meet the IGB's demands. It cannot be accepted that Mr Emons and Mr Officer discussed this matter in Mr Ingleby's presence and that the purpose of and reason for making indirect payments to the IGB never came up. Mr Ingleby was the Chief Financial Officer of AWB. There is no reason why Mr Emons and Mr Officer would have kept secret from Mr Ingleby the true facts as they knew them concerning the proposed payments to the IGB. Messrs Flugge and Lister were aware of them. International Sales and Marketing required Mr Ingleby's consent to the arrangement in order for AWB to make the necessary payments — hence the need to tell him of what was proposed to be done. In the very least this was the payment by AWB of a fee to the Iraqis, in breach of sanctions and in circumstances where AWB proposed to distance itself from the payments.
AWB c o n c l u d e s t h r e e c o n t r a c t s for t h e s a l e of w h e a t
AWB's n e g o tia tio n w ith t h e IGB
13.65 On 28 June 1999 Mr Emons sent an offer to the IGB for the supply of 600,000 tonnes of Australian Hard Wheat.94 The price offered was expressed to be 'GIF Free in Truck'.95 It included allowance for the inland transportation fee, which was now to be paid by AWB.
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13.66 The terms of this offer provided that:
⢠AWB would submit the contract and application to the UN 661 Committee within 21 days of the date of signing the contract and would provide to the IGB a copy of the application and the UN sequence number.
⢠All other terms and conditions would be as per AWB and IGB standard terms and conditions for Australian wheat, of which the parties admitted they had knowledge and notice and which the parties agreed would apply to this contract where not inconsistent with the other specified terms.96
13.67 By telex dated 5 July 1999 the IGB rejected AWB's offer and countered by offering to purchase a higher quantity but at a lower price.97 This lower price was expressed to be 'GIF F.O.T. to silo at all governorates of Iraq via Umm Quser port'.
13.68 On 6 July 1999 the IGB's counter-offer was rejected by Mr Emons, who responded with a revised price, again expressed as a 'GIF Free in Truck' price.98 On 9 July 1999 Mr Emons sent a further offer to the IGB, after discussions with the IGB.99 His offer was again expressed to be 'a GIF Free in Truck' price. That offer was rejected by the IGB on 12 July 1999100; the IGB then made a counter-offer at a price again expressed to be 'GIF F.O.T. to silo at all governorates of Iraq via Umm Quser port', consistent with its earlier offers.
13.69 AWB responded by facsimile on 13 July 1999, rejecting that offer and countering with a new price that was expressed to be '... per metric tonne GIF Umm Qasr delivered onto truck at a cost of USD 12. This clause remains subject to UN approval of the Iraq distribution plan. All other terms remain unchanged and as agreed in our discussions'.101
13.70 On 14 July 1999 AWB sent an 'electronic message' to the IGB, confirming the sale of 700,000 tonnes of wheat split between three contracts.102 The agreed price was expressed to be a 'GIF Free in Truck price'. AWB numbered the three contracts A4653, A4654 and A4655.
13.71 That message also listed the terms and conditions applicable to the sale, including one in the following terms:
The cargo will be discharged free into truck to all silos within all governates of Iraq at the average rate of 3000 metric tonnes per weather working day of 24 consecutive hours. The discharge cost w ill be a maximum of USD12.00 and shall by paid by seller's to the nom inated maritime agents in Iraq. This clause is subject to UN approval of the Iraq distribution plan.103 [emphasis added]
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The w r i t t e n c o n t r a c t s
13.72 Two written contracts were prepared and signed for each of the three contracts comprising this sale. The first was a single-page (short-form) contract prepared by AWB.104 The second was a contract several pages long and prepared and signed by the Iraqi 'Ministry of Trade, Grain Board of Iraq'
(the long-form contract).105
The AWB short-form contract 13.73 The AWB short-form contract identified the quantity and quality of wheat sold under that contract. It specified that the wheat was to be shipped to one safe berth Umm Qasr, Iraq, during the period from 1 October to 31 December
1999, subject to receipt of UN approval.
13.74 The short-form contract was substantially in accordance with the short-form contracts AWB had prepared for the sales it had concluded with the IGB under earlier phases of the Oil-for-Food Programme. That is, except for one difference.
13.75 The shipment clause in the short-form contract for these three contracts also contained the following provision:
The cargo will be discharged Free into T ruck to all silos w ithin all G overnates of Iraq at the average rate of 3,000 m etric tons per w eather w orking day of 24
consecutive hours. The discharge cost w ill be a maximum of USD 12.00 and shall by paid by Sellers to the nom inated M aritime Agents in Iraq. This clause is subject to UN approval of the Iraq distribution plan.106 [em phasis added]
An identical clause had also appeared in AWB's 'electronic message' of 14 July 1999. This provision, and in particular the emphasised sentence, had not previously appeared in AWB's earlier contracts.107 Despite the inclusion of this reference to 'discharge cost', this clause (and short-form contract) made no mention of 'land transport' or 'the land transport co.' (see clause 10 of the IGB's wheat tender).
13.76 Mr Emons explained that he used the expression 'discharge cost' in the short- form contract as a kind of shorthand for the expression 'discharge and land transport' costs after speaking to Mr Daoud.108 He also explained that he had used the expression 'up to a maximum of USD 12.00' to 'try and cap any further increases'.109
13.77 The price at which the wheat was sold was expressed in this short-form contract to be a 'C.I.F. Free in Truck price per tonne'.110
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13.78 At its conclusion, the short-form contract provided:
All other terms and conditions as per AWB LIMITED and GRAIN BOARD OF IRAQ Standard Terms and Conditions for Australian wheat of which the parties admit they have knowledge and notice, to apply to this Contract where not inconsistent with the above.111
13.79 The AWB short-form contracts were signed by Mr Emons on behalf of AWB. A copy of each short-form contract was also signed on behalf of the IGB, although the copies were not faxed to AWB until 1 September 1999.112
The IGB long-form contract 13.80 The IGB long-form contract was prepared, signed and sealed by the Iraqi 'Ministry of Trade, Grain Board of Iraq'.113 It was dated 18 July 1999 and sent to AWB under cover of a facsimile dated 24 July 1999, which read:
We here by enclose a copy of said contract with copy of confirmation of order already signed by our side.
Pis sign it from yr side and present it to U.N.S.C. 661 for approval and fax again asigned copy to us114
13.81 This long-form contract was not in identical terms to the short-form contract prepared by AWB. In particular, the IGB long-form contract contained no clause equivalent to either the shipment clause in the AWB short-form contract (just quoted) or clause 10 of the IGB's wheat tender. The IGB long- form contract contained no mention whatsoever of the costs of discharge or land transport or any obligation on AWB to pay those costs or the IGB- nominated fee of US$12 per tonne. This was notwithstanding that the obligation to pay this fee was part of both the terms of the wheat tender and the subsequently concluded agreement for the sale of the wheat. Nor did the IGB long-form contract mention that a component of the purchase price was the US$ 12 per tonne fee payable in respect of such costs.
13.82 The price for which the wheat was sold was also expressed in terms slightly, although not materially, different from the terms used in the short-form contract.115 It was described in clause 6 of the IGB long-form contract to be 'GIF F.O.T. to silo at all governerate of Iraq via Umm Quser port'.116 Although this carried with it the implication that the price included the cost of discharge and transportation of the wheat within Iraq, it did not disclose the amount of that cost or that the 'cost' was in truth a fee nominated by the IGB to be paid to the person nominated by the IGB and which was added to the GIF price of the wheat. Further, although the use of these terms to describe the price in the long-form contract may have carried with it the implication that the seller (AWB) was responsible for the discharge and transportation of the wheat within Iraq and was including the costs incurred by it in discharging those
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obligations, the reality was that under the contract AWB concluded with the IGB these obligations remained with the IGB, and AWB's only obligation was to pay the fee nominated by the IGB to the person nominated by the IGB (which obligation the long-form contract did not disclose).
The a p p ro v a l of t h e U nited N a tio n s
13.83 On 27 July 1999 Mr Borlase faxed to Ms Brodtmann117 at DFAT in Canberra a
copy of the long-form contracts for two of the three contracts118 that had recently been concluded between AWB and the IGB (contracts A4653 and A4654).119 On 29 July 1999 he faxed to Ms Brodtmann the IGB long-form contract for the third contract (contract A4655).120
13.84 On 3 August 1999 AWB faxed to DFAT in Canberra a copy of both the short-
form and the long-form contracts for each of contracts A4653, A4654 and A4655.121 The short-form contracts sent were signed by Mr Emons on behalf of AWB. They had not been signed on behalf of the IGB.122
13.85 Later that same day Ms Brodtmann sent a copy of those long- and short-form
contracts by facsimile to Ms Moules at the Australian mission in New York.123 She wrote:
F urther to your em ail, I hope this helps clarify m atters. A ccording to the AWB the m aterial sent to y o u w as all they received from the Iraqis. H ow ever their ow n contracts m ay help. Let m e know if you need the m aterial sent th ro u g h the bag so it is clearer.124
13.86 An application for the approval of the UN 661 Committee was completed by
the Australian mission for each of the three contracts.125 The applications were dated 3 August 1999 and lodged with the United Nations that same day.126
13.87 The material before this Inquiry does not reveal the clarification apparently
required by the Australian mission and which Ms Brodtmann had hoped to provide by her facsimile and its attachments. Nevertheless, the following is apparent:
⢠No application for UN approval had been lodged by the Australian mission for these three contracts prior to the mission's receipt of Ms Brodtmann's facsimile of 3 August 1999 and the accompanying short- and long-form contracts.
⢠The application for approval was only lodged once the mission had received both the long- and short-form contracts.
⢠A copy of each of the long- and short-form contracts DFAT had received from AWB on 3 August 1999 accompanied the application by the mission
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for UN approval in respect of these three contracts when the application was lodged with the United Nations later that day.
13.88 On 13 August 1999 the Office of the Iraq Programme wrote to the Australian
mission, informing it that the 661 Committee had no objection to the applications lodged in respect of the three contracts and that AWB may therefore be eligible for payment from the UN Iraq Account. The letter stated that approval letters would be forwarded when the requisite funds were available.
13.89 On 16 August 1999 Ms Moules faxed a copy of the Office of the Iraq
Programme letter to Mr Snowball at AWB's US office.127
13.90 On 27 August 1999 Ms Moules sent a further facsimile to Mr Snowball,
enclosing a copy of the approval notices, dated 13 August 1999, that had been issued by the United Nations on 24 August 1999 in respect of contracts A4653, A4654 and A4655.128 On 14 October 1999 Ms Moules forwarded to Ms Brodtmann at DFAT in Canberra a copy of the forms seeking UN approval bearing the Australian mission's seal for each of contracts A4653, A4654 and A4655, together with a further copy of the approval notices.129 A copy of that facsimile was also sent to Mr Lister at AWB.
O v e r s ig h t a t t h e U nited N a tio n s
13.91 Contracts A4653, A4654 and A4655 were subject to two examinations at the
United Nations prior to their approval by the 661 Committee. The first examination was conducted by a 'reporting officer' and the second by a 'checking officer'. In each instance the officer was to examine the contract to determine:
⢠that the goods the subject of the contract were on the distribution plan for the relevant phase
⢠that the quantities were within the limits specified in the distribution plan
⢠that the price was fair and reasonable
⢠that the contract terms did not breach UN sanctions.
13.92 Both the reporting officer and the checking officer overlooked the clause in
these three AWB short-form contracts that included the words:
The cargo w ill be discharged Free into Truck to all silos w ithin all G overnates of Iraq at the average rate of 3,000 m etric tons per w eather w orking day of 24
consecutive hours. The discharge cost w ill be a m axim um of USD 12.00 and shall
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by p aid by Sellers to the n om inated M aritim e A gents in Iraq. This clause is subject to U N approval of the Iraq distribution p lan .130
13.93 Had this clause been noted at the time of examination, the contracts would have been put on 'under evaluating status', and the reporting officer would have written to the Australian mission to inquire what that clause referred to.13i
13.94 Ms Johnston was the reporting officer for these three contracts. Her evidence was 'Well, I think the clause indicates that potentially payments are being made for services within Iraq, which while not always inconsistent with Sanctions, would be something that one would wish to clarify'.132 Ms Johnston said she had not received any training to teach her that payment to an Iraqi entity of amounts other than in Iraqi dinars was a breach of sanctions.133 The contractual term in question had not been seen by Ms Johnston in any other contract that she had seen.134
13.95 It is therefore apparent that the UN 661 Committee approved these three contracts without it having been noted by those charged with checking the contracts that they provided for a discharge cost to be paid in US dollars to an Iraqi entity. Moreover, the approvals were issued in circumstances where the UN inspectors had no knowledge that it was proposed that AWB would pay an inland transportation fee to the IGB or its nominee, although it would have been known, had the two inspectors properly checked the contracts, that a fee
of up to US$12 per tonne was to be paid to 'Maritime Agents in Iraq'.
The e f f e c t o f t h e c o n t r a c t t e r m s
13.96 Neither AWB's short-form contract nor the IGB's long-form contract expressly provided for the payment of an 'inland transportation fee'—or, more particularly, the inland transportation fee AWB had agreed to pay (and which had been added to the price of the wheat to be paid from the UN escrow account).
13.97 It was explicit in the terms in which the price was quoted in both the signed and approved long- and short-form contracts that responsibility for discharging the grain from any vessel into trucks and for transporting the grain from the discharge port to the silos in each of the governorates of Iraq (or for arranging for that discharge and transportation) rested contractually with AWB.
13.98 The reality, however, was that AWB had no responsibility for either the discharge of the wheat from the vessel at Umm Qasr or the inland transportation of the wheat within Iraq. This was notwithstanding the terms
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in which the price was expressed. Every aspect of the arrangement for the discharge and transportation of the wheat rested with the Iraqis, as it had under contracts concluded before July 1999 and under earlier phases of the Oil-for-Food Programme. Under the terms of the agreement it concluded with the IGB, AWB's only obligation in these respects was to pay the Iraqis a fee as dictated by the IGB. AWB was aware of this.
13.99 That this was appreciated at AWB is reflected in Mr Enrons' email to
Mr Officer on 4 November 1999:
To d ate IGB have not advised the trucking co. to w hom p aym ent should be m ade. We have been approached by a com pany in Jordan b u t o u r response has been to ask for confirm ation from IGB before discussing further.
We are not responsible for trucking in Iraq only the paym ent. Paym ent to us occurs as p er existing contract after U N inspectors cert is issued at discharge.
W hen I see Z uhair at the end of N ov I hope to clear a nu m b er of the details u p .135 [em phasis added]
13.100 Mr Officer agreed that this email was final confirmation that AWB was not
responsible for 'the actual trucking' of the wheat136 and that from at least that time onwards (November 1999) he believed that, whilst AWB was paying a fee to the Iraqis said to be on account of trucking, AWB was not itself
responsible for the trucking of the wheat within Iraq.137 At no time prior to late 2003 did AWB seek to make any arrangements with any contractor for the discharge or transportation of grain within Iraq.
R e n e g o tia tio n o f t h e t e r m s o f t h e l e t t e r of c r e d it
13.101 The terms of the contract between AWB and the IGB provided for payment
for the wheat by an irrevocable and non-transferable letter of credit opened by the Central Bank of Iraq on behalf of the IGB and drawn on the bank holding the Iraq account, BNP.
13.102 On 10 September 1999 AWB received from its bankers (SG Australia) notice of
the establishment of the letter of credit in favour of AWB for the proceeds of sale under contract A4653138, together with a copy of the letter of credit.139
13.103 On 11 September 1999 Mr Lister wrote to the IGB, requesting that a number of amendments be made to this letter of credit.140 Some of these amendments were minor and for the purpose of correcting typographical errors in the letter of credit. Other changes proposed reflected a request for an alteration to the substantive terms of the letter of credit.
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13.104 The terms of the letters of credit initially established in respect of each of these three contracts provided that amongst the documents required to be produced by AWB in order to obtain payment under the credit was:
5) CMR Truck consignm ent notes, issued in 3 originals an d 6 copies in the nam e of the M inistry of T ra d e /G rain Board of Iraq, B aghdad, N otify M inistry of T ra d e /G ra in B oard of Iraq, B aghdad m arked / freight p re p a id /ev id en cin g shipm ent from U m m -Q aser p o rt to GIF all provinces as m entioned below.
13.105 In his letter of 11 September 1999 Mr Lister asked that the requirement to produce these documents be deleted from the letter of credit. This request was made on the basis that 'The AWB Limited has no control over the issuance of this documentation and as such could not then present these documents to our bankers when negotiation procedures are being effected'.141 The position would have been otherwise if AWB had engaged the services of the company employed to transport the wheat within Iraq —in particular, in fulfilment of a contractual obligation to perform or arrange for the performance of that task. That this reason was given by Mr Lister in support of his request for this change to the letter of credit is consistent with (and an acknowledgment of) AWB having no such contractual obligation and no contract (or any expectation of entering into any such contract) with a transportation company.
13.106 The letter of credit further provided that the documents required were to be presented only after the United Nations had advised that the standardised confirmation of the arrival of the goods in Iraq had been issued, evidencing shipment of the goods. The description of the goods for this purpose in the letter of credit included:
⢠a description of the price of the goods in terms expressed to be CIF — 'F.O.T. to silo at all provinces as mentioned below via Um-Qaser port'
⢠a statement that the goods were to be shipped not later than 9 January 2000 by sea from Australia to Umm Qasr and 'then by trucks to final destination CIF F.O.T. to silo at all Iraqi provinces as follows: Naynawa, Tammem, Baghdad, Babylon, Najef, Salahaldin, Diala, Anbar, Wasit, Karbala, Almuthana, A1 Qadisia, Misan, Basrah, Thi-Qar'
⢠a statement that partial shipments were allowed and that transhipment was allowed only from Umm Qasr 'to CIF F.O.T. to silo at all provinces as mentioned above'.
In his letter of 11 September 1999 Mr Lister asked that each of the passages just quoted be deleted from the terms of the letter of credit.142
13.107 Initially the IGB resisted AWB's request for these amendments.143
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13.108
13.109
13.110
13.111
On 17 October 1999 Mr Lister repeated his request for these amendments.144 In relation to the requirement to produce truck consignment notes, he again stated, 'The AWB Limited has no control over the issuance of this documentation and as such could not present same to our bankers come the time of negotiation of documents'.145
In relation to the other amendments, following discussions with AWB's bankers in Australia, who in turn were awaiting comments from BNP in New York, Mr Lister proposed to the IGB:
All that w as required w as for the associated clauses defining shipm ent term s w o u ld be read as only 'GIF F.O .T............... ' w ith o u t any m ention of the
governates/provinces.
W e /th e Bank w ould suggest th a t any m ention of all of the provinces — i.e.
B aghdad, Babylon, Basrah, S alah u d d in etc does not need to be incorporated in the L / C redit as the final destination is entirely u n d er your control and w here the goods destined after arrival in U m m Qaser is at the discretion/ direction of your goodselves.146
On 19 October 1999 Mr Emons had a lengthy telephone conversation with Mr Daoud. On 20 October 1999, in an email to Mr Officer and copied to Messrs Watson, Lister and Owen, Mr Emons explained that the purpose of his conversation with Mr Daoud had been 'to resolve quickly the amendments that we have requested to the L/C and the payment of the trucking cost as per our contract back to 1GB'.147 [emphasis added] The email continued:
W ith p ay m en t of the trucking fee w e are prevented of doing this direct to Iraq for obvious reasons. O ur contract w hich com plies w ith the tender docum ent details approved by the U N does not specify how this paym ent will be undertaken. As a result of this w e requested of Z u h air [Daoud] that he supply us w ith suitable bank details to facilitate this paym ent.
We have alw ays been aw are from the outset that this issue is som e w h at grey how ever I realised d u rin g m y conversation w ith Z u h air th at we need to be
particularly careful on the execution of the contracts. Z uhair stated that he will supply details of the com pany to be paid and the account details. He also stated that the trucking fee m ay vary in the future.
To rem ove any potential criticism potentially of AWB or longer term
considerations relating to facilitation paym ents etc as previously discussed I have recom m ended that the C harter P arty be am ended to include the trucking fee and therefore the paym ent of this fee w ill be carried o u t by the shipping com panies.148
Mr Emons' evidence was that in his lengthy discussion with Mr Daoud the night before he had made the point that, although the contracts might be approved by the United Nations, it was the execution of the contracts that worried AWB. As at the time of that conversation there had been no
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resolution about how the payment for inland transport to the Iraqis would be effected.149
13.112 What Mr Emons and Mr Daoud were looking for was a method of effecting the payment without it being apparent that the payment was being made.150 In Mr Emons' words, 'We knew that it was outside the sanctions and also there was no way that a US dollar could be paid to an Iraqi in Iraq through the UN Treasury'.151 [emphasis added]
13.113 On 21 October 1999 the IGB sent a telex to AWB, advising of its agreement to AWB's request that the requirement to produce truck consignment notes be deleted from the letters of credit.152 It also advised that it agreed that:
S hipm ent clause w ill read GIF free out U m m Q user p o rt an d that is in L /C s only. But in our contracts w ill rem ain (GIF F.O.T. to silo a t all governerates of Iraq via U m m Q user port) an d shipm ent excution is according to contract term s regarding tran sp o rt charges already rem ain as w e agreed u p o n for aconveniant tim e to confirm on yr request. A w aiting yr reply in o rd er to act accordingly.153
13.114 By telexes dated 25 October 1999154 and 28 October 1999155 the IGB confirmed to AWB that it had instructed the Central Bank of Iraq to agree to the requested changes. By telex dated 31 October 1999 the IGB further advised that the Central Bank of Iraq had instructed BNP on 25 October 1999 'regarding all required amendments' to the letters of credit.156 On 3 November 1999 the IGB faxed to AWB the text of the amendments the Central Bank of Iraq had sent to BNP.157
13.115 On 18 November 1999 BNP sent by facsimile to the UN Treasury a copy of the amendments sought by AWB.158 In doing so, BNP advised that it had approved the text of this amendment and was prepared to issue it to the beneficiary (AWB). BNP further advised that it noted no inconsistencies with
the requirements of the letter of credit, as specified in its Agreement for Banking Services dated 12 September 1999 pursuant to Security Council Resolutions 986, 111, 1143, 1153, 1210 and 1242. Finally, BNP asked, 'Please pass this FAX on to the 661 Committee so that they can review the amendment and approve its issuance in writing to BNP'.
13.116 On 19 November 1999 the UN Treasury sent a facsimile to BNP stating that it had reviewed the proposed amendments to the letter of credit and repeating BNP's advice as to the purpose of the amendments.159 A letter of credit containing the amendments requested by AWB was subsequently issued by BNP to the United Nations on 19 November 1999.160
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13.117 On 22 November 1999 AWB received advice from its bankers (SG Australia Limited) of the amendments to the letter of credit161, together with a copy of the amendments.162
13.118 AWB also received notification of the establishment of the letters of credit called for under contracts A4654 and A4655. AWB requested, and the IGB agreed to, similar changes being made to these letters of credit and, in due course, to all other letters of credit established in favour of AWB in respect of its contracts with the IGB that contained provision for the payment of inland transportation fees.
13.119 Thus:
⢠AWB and the IGB agreed that the provisions in the contracts for delivery — namely, GIF FOT to silo at all governorates of Iraq via Umm Qasr port—would remain binding between them but that, to obtain payment under the letters of credit, AWB would need to deliver documents establishing only 'GIF free out Umm Qasr port'.
⢠This was necessary because in truth AWB had no control over discharge or delivery and no real contractual obligation to deliver beyond Umm Qasr, that being the responsibility of the IGB.
⢠The letters of credit were amended accordingly. This had the advantage, from the IGB's and AWB's points of view, of reducing the risk of detection of payments to Iraq known by both AWB and the IGB to be contrary to UN sanctions, because whilst the contracts, which had by then been approved by the United Nations, referred to a payment of US dollars to 'Maritime Agents in Iraq', if a person looked only at the letters of credit no such payment was disclosed.
⢠BNP advised, and the United Nations accepted, that the letters of credit were not inconsistent with UN resolutions or prohibitions. They were not inconsistent because the letters of credit did not disclose any payments to any Iraqi entity or any payment of any 'discharge' or trucking fee.
13.120 The amendments to the letter of credit sought by Mr Lister, to which the IGB agreed, and the reasons Mr Lister gave for those amendments were consistent with the agreement AWB had, in reality, concluded with the IGB. The agreement was one in which AWB had no contractual obligation to arrange or effect the discharge of the wheat or its subsequent transportation to all governorates within Iraq, in which responsibility for these functions remained with the Iraqis, and in which AWB's only obligation was to pay to the person or account nominated by the IGB the fixed fee nominated by the IGB, which fee was said to be for the costs of discharge and transportation and was added
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to the CIF price at which AWB would have otherwise agreed to sell the wheat to the IGB on a CIF free out basis.
13.121 One of the documents AWB was required to produce under the letter of credit in order to obtain payment for each shipment under it was an invoice for the cost of that shipment. The invoice that was produced by AWB was addressed to the IGB; it referred to the contract under which the wheat had been shipped, the quantity of wheat shipped, and the total amount due based on the contract price.163
13.122 The price of the wheat shipped was expressed in the invoice to be 'CIF'— and not 'CIF free in truck' or some variation thereof consistent with the way in which the price was expressed in both the AWB short-form and IGB long- form contracts.164
13.123 The AWB invoice also stated that 'charges and expenses are included in the CIF price'.165 This was consistent with the terms of the letter of credit.166 Although the invoice did not specifically identify the charges or expenses comprised in the CIF price (as the letter of credit permitted), it did identify that both 'ocean freight' and 'insurance' were for the seller's care. There was, however, no similar reference to the cost of the inland transportation of the wheat within Iraq or any statement that this was for the seller's care, consistent with the manner in which the contract price had been expressed in both the short-form and long-form contracts. The manner of preparation of
the invoice and the information it contained — which was no different in this regard from the form of invoice AWB had issued in relation to shipments prior to July 1999 and the commencement of phase VI of the Oil-for-Food Programme —was consistent with the true agreement that existed between AWB and the IGB; that is, of a sale on CIF (free out) terms in the same way as its sales before phase VI had been.
I n la n d t r a n s p o r t a t i o n fe e s : tw o m a t t e r s re q u irin g c o n s id e r a tio n
13.124 After contracts A4653, A4654 and A4655 had been concluded and approved by the United Nations and the details of the letters of credit had been settled, there were two matters that required further consideration before the contracts could be fulfilled.
13.125 One was the method by which the inland transportation fees were to be paid to Iraq by AWB. This had already been the subject of some discussion in June 1999, before the contracts had been negotiated. The other matter was through whom those fees were to be paid.
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T h e m e t h o d o f p a y m e n t
13.126 On 30 September 1999 Mr Emons emailed Mr Hogan in preparation for a further trip to Iraq. He wrote:
1. There is the issue of the USD 12 inland transport p aym ent that w e are required to m ake u n d e r the new contract. Speaking w ith [Mr Owen] he suggests that the only w ay w e can m ake the p aym ent w ould be either hold the m oney in an account in A ustralia until sanctions etc. are lifted or, w e can m ake a paym ent into a Jordanian account. Because of sanctions w e can 't do any of this th ru an OECD country. A lternatively w e d ro p the USD 12 from the contract. Suggest that you discuss w ith Z u h air.167 [em phasis added]
This demonstrates, yet again, that Messrs Emons, Hogan and Owen knew that UN sanctions prohibited payments of monies to Iraq.
13.127 In October 1999 a visit to Iraq by representatives of AWB was planned. Mr Emons was to accompany Messrs Flugge and Rogers. The visit was to coincide with an IGB grains conference in Baghdad, and Mr Flugge was to open the conference. Mr Emons was unable to attend. Mr Hogan went in his stead at short notice.
13.128 On 9 October 1999 Mr Hogan, in company with Mr Flugge and Mr Rogers, met with Mr Daoud and representatives of the IGB in Baghdad. Mr Flugge and Mr Rogers were present throughout Mr Hogan's conversations with Mr Daoud concerning the inland transportation fee.168 Although Mr Flugge and Mr Rogers took no part in the discussion, it is not credible that they did not listen to what was being said.
Mr Hogan's evidence, which I accept, was that at the meeting:
1. The ITF [inland tran sp o rt fee] w as discussed being $12 pm t.
2. 1 p rotested about the prep ay m en t of the ITF based on the Bill of Lading
w eights.
3. Proposed m echanism s for p ay m en t w ere discussed.169
13.129 Mr Flugge agreed that it was common to be briefed before such meetings. Although he could not recall any briefing from Mr Hogan or anyone else prior to this visit, he did not deny Mr Hogan's evidence that such a briefing must have taken place.170
13.130 By the end of this trip to Baghdad in October 1999, Mr Flugge was aware of negotiations between the IGB and AWB as to how payments of inland transport fees could be made and had been present during Mr Hogan's discussions with Mr Daoud regarding the manner of payment.
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13.131 Although Mr Rogers was also present during Mr Hogan's discussions with
Mr Daoud and although he said it was likely that he paid no attention to those discussions171, it is probable that Mr Rogers was aware of the matters discussed at the time.172
13.132 On 11 October 1999 Mr Hogan reported on the outcome of the meeting in an
email to Mr Emons.173 His email was circulated widely within AWB, including to Mr Borlase, Mr Geary, Ms McCartney, Mr Watson and Mr Lister. At the conclusion of his email, Mr Hogan stated, 'Mark, I will send a separate note on the FIT [free in truck] payment system'.174
13.133 This email also referred to 'carrying costs' of grain from delayed shipments.
Mr Hogan wrote:
S a ra h /P e te r/S tu — I w ill explain the no d esp atch /d em u rrag e. Iraq have no
m echanism to settle any am ounts ... w e w ill need to do som e w ork on the IGB to in tro d u ce carry into contracts, w hich I believe can be included u n d er 986???175
The UN sanctions were thus to mind.
13.134 On 11 October 1999 Mr Hogan sent an email to Messrs Emons, Borlase and
Owen in relation to the inland transport fees in the following terms:
I d id have a brilliant idea how to settle the USD12 Free in Truck p aym ent to the tran sp o rt C O 's —w e do a contract w ith them w hen en o u g h equity w as built up an d th en they sell to IGB an d IGB pay them in USD (via 986 system).
H ow ever Z uhair advised that the P resident has issued to all m inisters bringing p ro d u c t into Iraq that suppliers m ust pay the USD 12.00 before ship arrive so that u n lo ad in g could proceed. If the USD 12.00 w as not in place then they w ould not be unloaded.
I voiced our protest to this system as w e already w ait so long for paym ent, that we w o u ld be u n h ap p y to p rep ay this am ount. Also w ith the w eight discrepancies — there w o u ld be a lot of juggling w ith paym ents etc.
Z u h air could u n d erstan d this p o in t and w as approaching the m inister for a special concession for AWB. We w ill w ait upon outcom e.
The system that w ill be the m ost w orkable w o u ld be th at AWB create an account in Jordan and transfer funds to this account. From this account, w e w ould transfer to a special account (nom inated by IGB) for each vessel.
(We could probably by pass the A ccount in Jordan an d transfer directly to the 'special' nom inated acco u n t- a s long as the link is not apparent that the funds w ere going into Irq.
I w ill let you an d G raham have a think abt it and w ait for Z uhairs decision from the M inister.
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(other option is to use M aritim e ag en ts/v essel ow ners a c c o u n t/o r buy a very large suitcase).176 [em phasis added]
13.135 The following day Mr Owen replied, asking, 'Why do we try and make our business more difficult?'177 In his email Mr Owen reported that he had checked the possibility of opening an account in 'our name' in Jordan and set out the requirements were such an account to be opened with a friendly bank, such as the ANZ. One requirement was 'copy of board resolution authorising the opening of an account and nominating signatories. This assumes senior management/audit will sign off on opening an account'.178 Mr Owen concluded that in view of these requirements:
I do n o t th in k that this proposal is a possibility to handle the paym ent of USD 12 per tonne for inland tran sp o rt costs to Iraq.
I do n o t th in k that w e need to open an account, I think that w e could effect
p aym ent to the Iraqi transport companies USD account w ith a bank in Jordan from A ustralia. D espite the problem s w ith USD paym ents to Iranian com panies w e are able to effect USD to GTC [the Iranian G rain T rading C om pany] for m onies ow ed to them via their bankers in Europe. To enable paym ent, w e w ould need to know the Banks nam e in Jordan and also w here the bank conducts its USD
account in USA. O n paym ent for each shipm ent, w e arrange the USD p aym ent to the Iraqi tran sp o rt com pany via A N Z thru their office's in Jordan.179 [em phasis added]
13.136 The emphasised words show an understanding that Iraqi companies were to perform the transportation but that such Iraqi companies could be paid in Jordan since payment to them in Iraq was not possible.
13.137 Mr Borlase stated that he did not recall reading Mr Hogan's email180 and that his involvement was limited.181 He added that he was not fully aware of the sanctions and how the proposed payment mechanism worked.182 He also claimed to have been unaware of the Iraqis receiving the monies because there was an ongoing debate about how the payments could be made.183 This evidence is not credible. There was no reason for Mr Borlase not to have read the email, and the content of the email is unambiguous: it clearly indicates that AWB was looking for a way to disguise the payment, as Mr Borlase accepted when he read the email in the course of his evidence in 2006.184 No experience or seniority was required to comprehend what was being proposed. Mr Borlase also could not explain why AWB had to resort to subterfuge if it was complying with the sanctions. He subsequently participated in the operational aspects of these and other contracts with the IGB, at which time he was clearly aware of how the 'free in truck' clause was going to operate.185
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13.138 Mr Emons responded to Mr Owen's email on 12 October 1999, with a copy to both Mr Hogan and Mr Borlase, suggesting 'a couple of ideas to follow on with'186:
1. If w e had an operable L /C could w e not p repay the USD 12 p rior to discharge in Iraq? I know w e are risking USD 12 if the vessel does not get U N inspectors approval b u t w ith o u r ongoing shipping p ro g ram are w e really risking that m uch?
2. Iraq should th en be in a position to p u t in place an L /c that does not require
truck receipts.
3. W e w o u ld then n o t be n eeding U N approval as w e already have this for the existing contract an d if w e are to p a y / or have another contract w ith IGB or a third p arty w e w ould th e n need approval. A m I correct?
T houghts any w ay, please rev ert.187
The recognised difficulty was the absence of UN approval for a payment AWB intended to make.
13.139 As noted, the IGB subsequently agreed to the deletion of the requirement for truck receipts referred to in the second of Mr Emons' paragraphs just quoted. This was discussed in a conversation between Mr Emons and Mr Daoud prior to 20 October 1999 and confirmed by the IGB's facsimile the next day.
13.140 By 20 October 1999 Messrs Emons, Watson and Officer had decided that the inland transportation fee for shipments of wheat to Iraq under contracts A4653, A4654 and A4655 would be paid via the shipping companies that were to carry that wheat to Iraq. Mr Emons said this plan followed on from discussions he had had with Messrs Watson, Lister, Officer and Owen.188 The plan included a component whereby the shipowners would debit AWB for the trucking charge together with a handling fee and the cost of the freight.189
13.141 On 19 October 1999 Mr Emons and Mr Daoud agreed that the trucking fee would be paid to a company nominated by the IGB.190 Mr Daoud was to provide to AWB the name of the company and its bank details. To whom the money was to be paid was thus resolved. How the payment would be made remained unresolved.
13.142 At 8.15 on the morning of 20 October 1999 Mr Watson sent to Mr Emons an email headed 'Iraq' in which he stated:
F urther to our discussion concerning the best m eans in w hich to arrange to
refund the trucking charges to Iraq, I have arranged w ith the various shipow ners to han d le this on behalf of AWB Limited.
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Therefore the O w ners w ill debit AWB this extra trucking charge, plus their handling fee together w ith the freight w hich has been finalised, u p o n com pletion of loading.
I therefore w ould suggest th at you am m end the contract system to reflect both the agreed freight rate and the req u ired trucking charges, as C hartering w ill need to debit the pool for both am ounts a n d pay sam e to the O w ners.
Please let me know in due course the banking details that Iraq w ill require as w ill then ensure th at O w ners rem it the 100 pet of trucking costs directly to that a /c u p o n com pletion of loading.
A ssum e this will overcom e the cu rren t difficulty that arising from L /c w ording etc.191 [em phasis added]
13.143 Mr Watson sent a further version of his email of 8.15 am to Mr Emons at 11.41 am.192 The only difference was that, whereas the first paragraph of his earlier email had stated, Î have arranged with the various shipowners to handle this on behalf of AWB Limited', the later version stated, Î will arrange with the various shipowners to handle this on behalf of AWB Limited'.
Mr Emons immediately forwarded Mr Watson's email to Mr Lister and Mr Owen.193
13.144 Both Mr Emons and Mr Watson confirmed that Mr Watson's email of 20 October 1999 accurately reflected their discussions at that time.194
13.145 At 11.01 am on 20 October 1999 Mr Emons sent an email to Mr Officer, copied to Messrs Watson, Lister and Owen.195 This followed his lengthy discussion with Mr Daoud the previous evening. Mr Emons wrote:
I needed to resolve quickly the am endm ents th at w e have requested w ith L /C and the p aym ent of the trucking cost as p e r out contract back to the IGB.
W ith p aym ent of the trucking fee w e are prevented of doing this direct to Iraq for obvious reasons. O ur contract w hich com plies w ith the tender docum ent details approved by the U N does not specify how this paym ent w ill be undertaken. As a result of this w e requested of Z u h air that he supply us w ith suitable bank details to facilitate this paym ent.
W e have alw ays been aw are from the outset that this issue is som e w h at grey how ever I realised d u rin g m y conversation w ith Z uhair th at we need to be
particularly careful on the execution of the contracts. Z uhair stated that he will supply details of the com pany to be p aid and the account details. He also stated that the trucking fee m ay vary in the future.
To remove any potential criticism potentially of AWB or longer term
considerations relating to facilitation paym ents etc as previously discussed I have recom m ended th at the C harter Party be am ended to include the trucking fee and therefore the p aym ent of this fee w ill be carried o u t by the shipping
com panies.
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I trust that this action meets with your approval.196 [emphasis added]
13.146 Mr Emons drafted this email because he decided he wanted to record in writing his position.197 He sent it to Mr Officer because Mr Officer was his superior, the person to whom he reported at AWB.198 According to Mr Emons, after he sent the email Mr Officer was not happy.199 They had a discussion in which Mr Officer asked why Mr Emons had sent the email to him. Mr Emons replied:
'So th at you know w h at is going on and w h at w e are doing?'
Mr. Officer then said w ords to the effect:
'O f course I d o .'200
13.147 It was the common understanding of each of Messrs Emons201, Officer202 and Watson203 at that time that the inland transportation fees were to be paid to ('refunded to') the Iraqis. This was reflected in the first paragraph of each of Mr Watson's and Mr Emons' emails. Mr Emons also acknowledged that at the time he sent his email he knew that payments to the Iraqis were outside the UN sanctions204 and that what AWB was then looking for was a way in which these payments could be made without it being apparent that it was being
done.205
13.148 At 2.12 pm on 20 October 1999 Mr Owen responded to Mr Emon's email to Mr Officer.206 In this email, which was copied to Messrs Officer, Watson and Lister, Mr Owen stated:
I have a num ber of problem s w ith the suggested proposal in regards to paym ent of USD12 per tonne to Iraqi trucking com pany. I details below m y com m ents on this issue.
1. I believe it is contractual obligation of AWB to pay the fee and w e are
transferring that responsibility to a 3rd party.
2. I am concerned if the shipping com pany incorrectly effects paym ent the m oney w ill be frozen in N ew York, then Iraq m ay not release the vessel, until m oney is received in their n om inated account. W hat hap p en s then.
3. W hat happens if shipping com pany goes broke, (this has already happened to us a num ber of tim es in the last 18 m onths) an d p ay m en t has not been effected to Iraq's.
4. A t any one tim e, w e could have 5-6 vessel on the w ater an d if they are all
Panam ex vessels w e could be talking ab o u t approx. USD3.3 m illion to USD4 m illion a n d p ay m en t d o esn 't have to be m ad e p rio r to vessel's arrival in U m m Q asr. Shipping com pany w o u ld have the benefit of th at m oney.
5. O ver all the contracts w e are talking ab o u t USD11.34 m illion w hy can't w e rem it those funds to BNP for use by the Iraqi G overnm ent to purchase approved
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com m odities as is done w ith the Oil for food agreem ent. If the U N has approved the USD12 per tonne paym ent. O r get a one off approval to allow paym ent of the USD12 p er tonne back to Iraqi tracking com pany.
6. H old funds in an account w ith AWB for buyers benefit. Even if w e have to pay interest on the fu n d s and repay funds back once sanctions rem oved. They still ow e us in excess of USD400million, so they should be able to trust us for USD11 million.
M ark I tru st you find m y com m ents constructive I just have a problem relying on a 3rd p arty to perform this adm inistrative function of o u r contract and w orry if they stuff-up, w e have to explain, w hy w e h ad to pay the USD12- twice.
I am h ap p y to discuss fu rth er if required.207
13.149 Mr Emons responded to Mr Owen in an email later the same day, at 3.26 pm. He rejected Mr Owen's concern about shipping companies going broke. He stated:
I w ill reply in reverse order.
6. This is not an issue that the Iraqi G overnm ent recognise as the funds are frozen in US accounts by the US G overnm ent.
5. The U N is an unnecessary com plication an d w ould delay the C urrent contracts by som e 3 to 6 m onths. A re you prepared to w ear the storage an d finance costs?
4. Presidential decree requires prepaym ent of the fee p rior to arrival. Therefore we have to resolve paym ent in the least potentially dam aging m ethod to AWB.
3. C om panies going bust are n atu ral com m ercial risk, how ever our Iraq trade is conducted by a sm all num ber of reputable com panies that have to date show n no evidence of financial stress. Also w ith o u t p aym ent being m ade there could be no discharge and I w ould therefore expect that w e could arrest the vessel, after all we do have the dox's.
2. G ood p o in t but that is a m anageable issue w ithin the tim e fram e of shipm ent to Iraq.
1. Correct, that is w hy w e p u t the requirem ent in the charter p arty .208
13.150 Mr Watson also responded to Mr Owen's email. This was in an email to Mr Emons, copied to Messrs Owen, Officer and Lister, at 3.51 pm.209 Mr Watson also dismissed Mr Owen's concern about 'shipowners going bust'.
13.151 Mr Owen sent a further email to Mr Emons on 20 October 1999 at 4.38 pm. It stated, 'How can we manage somebody else doing a payment ????????'210 Mr Owen did not receive a response.
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13.152 On 22 October 1999 Mr Emons sent to Mr Daoud a facsimile in which he advised:
W e have instructed the sh ip p in g com panies concerned to m ake p aym ent as directed for the trucking fee.
A s discussed w e believe that paym ent should be carried out by a third party to remove any complications. I w ill discuss w ith you next w eek w h en I am in L o ndon.211 [em phasis added]
13.153 Thus by late October 1999 the following was widely known within AWB:
⢠The inland transportation, or trucking, fee was fixed by the IGB.
⢠The President of Iraq required funds on account of the trucking fee to be paid to Iraq before any cargo of wheat was unloaded in Iraq.
⢠The fee was to be paid to Iraq, being a 'refund' of trucking charges 'to Iraq'.
⢠Because payments of US dollars to Iraq could not be made because of UN sanctions, a method of payment to circumvent those sanctions had to be found.
⢠Payment of the fee could be hidden by having the shipowners pay it to the entity nominated by Iraq, with the charterparty (between AWB and the shipowner) being amended to accommodate that payment.
⢠Payment of the fee to a Jordanian entity nominated by the IGB would further disguise the fact that the payment was being made to Iraq and represented an obvious breach of the sanctions.
To w h o m t h e in la n d t r a n s p o r t a t i o n f e e s w e r e to b e paid
13.154 What remained was to receive from the IGB the name and account number of the company to whom Iraq required the money to be paid.
Introduction of Alia 13.155 In his conversation with Mr Emons during the night of 19 October 1999, Mr Daoud had promised to send Mr Emons details of the company to whom the inland transport payments were to be made.212
13.156 Later that evening AWB received a facsimile from Alia for Transportation and General Trade.213 The facsimile was addressed to 'Australian Wheat Board', to the attention of 'Mr Murray Roges Manager Director'. It read:
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W e w o u ld like to introduce to you o u r com pany being one of the Jordanian
E stablishm ents specialized on the fields of overland and ocean freight
transportation m oreover, o u r com pany is a m em ber of the syndicate of shipping agents in Jordan also we are agents of the state com pany for Iraqi land Transport and Iraq.
W e have inform ed officially th at y o u r com pany w on a contract to supply Iraq by (921000) tons of (Wheat).
So, w e are pleased to offer o u r services on the field of tran sp o rt form U m Q aser p o rt in B asrah to the other governorate in Iraq and w e well re tu rn all the
docum ents of the goods to y o u .214 [em phasis added]
13.157 The copy of the facsimile from Alia bears a manuscript note 'Mark Emons', suggesting that it had been passed on to Mr Emons. Mr Emons said he was shown the facsimile from Alia by Mr Officer on 20 October 1999.215 Mr Officer did not recall passing the fax to Mr Emons.216 He recognised the handwriting in the manuscript note as being that of Mr Rogers' personal assistant. Although Mr Officer conceded he may have passed the fax to Mr Emons, he suggested the most likely course was that it had been passed to Mr Emons by Mr Rogers' personal assistant.217
13.158 Until this time Mr Daoud had not mentioned Alia by name to Mr Emons. Mr Emons did not relate the company Alia to the company Mr Daoud had told him he would nominate as the recipient of the inland transport fees.218
13.159 Neither AWB nor the Australian Wheat Board had previously dealt with Alia.
13.160 Alia was incorporated in Jordan in 1994. At all times since 1994 it had been 49 per cent owned by or on behalf of the Iraqi Ministry of Transport. The remaining shares were owned by Mr Qtaishat, an Associate of Sheikh Al- Khawam. Sheikh Al-Khawam was a director and the Chairman of Alia. The other directors were two nominees of the Iraqi Ministry of Transport. The Ministry of Transport directors were rotated every six to 12 months.219
13.161 On 27 October 1999 Alia sent a further facsimile to 'Australian Wheat Board', this time addressed to Mr Emons.220 It was in similar terms to the earlier facsimile. It repeated that Alia was one of the Jordanian establishments specialised in the field of overland and ocean freight transportation, a member of the syndicate of shipping agents in Jordan, and 'agents of the state company for Iraqi land Transport and Iraq'.
This facsimile was sent following a telephone call from Alia to AWB earlier that day, during which Alia was informed that Mr Emons was 'in charge of this matter'. Mr Hogan had received an inquiry from Alia, asking who was in charge of the Iraq account, and he referred Alia to Mr Emons. Alia then faxed
1 3 2 Report o f the Oil-for-Food Inquiry
the letter of introduction221 to Mr Emons in Melbourne, with a copy to Mr Hogan.222
13.162 On 13 November 1999 Alia entered into an agreement with the Iraq State Company for Water Transport to collect inland transportation fees on behalf of the ISCWT.223 The agreement provided:
⢠Alia was to provide to the Basra branch of the Iraqi State Company for Water Transport the following information before a vessel's arrival at Umm Qasr and the ISCWT would supply any new information about the following matters to Alia —vessel's name and nationality, supplier's name, beneficiary, carrier's name, tonnage, quantity and kind, and total
transportation fees.
⢠The ISCWT was to provide the following to Alia upon the vessel's arrival at port — arrival and berth date, completion of discharge date and departure date, tonnage, discharge port, and discharged quantity.
⢠Alia would deposit the full amount (less 1 per cent commission) of the transportation fee into the ISCWT's account at the Rafidain Bank in Jordan within five days of receipt.
⢠The services to be provided by Alia were described as being 'restricted to receiving amounts and depositing them into the ISCWT's account'.224
Alia thus had no transport obligations in respect of arriving goods. Its only obligation under its agreement with the ISCWT was the provision of information about future shipments and the receipt and payment on to the ISCWT of the inland transportation fees payable in respect of those shipments. Although AWB was not aware of Alia's agreement with the ISCWT at this time, it did know that the IGB had said it would provide details of the name and account into which the inland transportation fee was to be paid, for payment back to Iraq.
The first shipment 13.163 The first shipment of wheat under contract A4653 was shipped on board the Pretty Ruby.
13.164 On 7 October 1999, in a facsimile to Mr Grenenger at the Department of Foreign Affairs and Trade, Mr Lister applied for permission to export the shipment pursuant to r. 13CA of the Customs (Prohibited Exports) Regulations.225 Mr Grenenger faxed a copy of DFAT's permission to export to AWB the following day.226 The vessel completed loading on 1 November 1999, whereupon she sailed for Iraq.227 As she did, the
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arrangements for payment of the inland transportation fees in respect of that shipment had still not yet been finalised.
13.165 On 3 November 1999 Mr Hogan in Cairo submitted to Mr Emons a report for the benefit of Mr Rogers' forthcoming report to the Board.228 Under the heading 'Iraq' Mr Hogan reported:
AWB is currently negotiating the Free in Truck clause that Iraq has included in all new contracts. W hilst AWB does n o t have an issue w ith the actual clause, there is som e disagreem ent as to w h en the tran sp o rt com pany should be paid and w hat tonnage. This is a concern for the AWB as Iraq is the only m arket contracted on final w eight and quality after inspection by U N inspectors at U m m Qasr. (all other m arkets in the w orld are contracted on w eight and quality final at load port). Subsequently, AWB do n o t w ish to pay for transport costs u p o n A ustralian Load Port w eight, as these invariably differ to the U N Inspectors discharge w eights.
Two vessels have been loaded u n d e r the n ew contracts th at include Free In Truck clauses, a n d the issue w ill be resolved in the near fu tu re.229
13.166 On 4 November 1999 a copy of Mr Hogan's email was forwarded by Mr Emons to Mr Officer's personal assistant. Later that evening Mr Officer emailed Mr Emons: 'Where are we with the trucking fee issue ? Even if we find a way through this issue do we take on any increased risk/exposure by contractually being responsible for trucking within Iraq?'230
13.167 Mr Emons replied 30 minutes later:
To date IGB have n o t advised the trucking co. to w hom p aym ent should be m ade. We have been approached by a com pany in Jordan b u t our response has been to ask for confirm ation from IGB before discussing further.
We are not responsible for trucking in Iraq only the payment. P aym ent to us occurs as p er existing contract after U N inspectors cert is issued at discharge.
W hen I see M r D aoud at the end of N ov I hope to clear a num ber of the details
u p .231 [em phasis added]
13.168 In his email to Mr Officer Mr Emons was doing no more than passing on what Mr Daoud had told him — that the Iraqis' imposition of an inland trucking fee was simply a mechanism whereby money was to be paid to the Iraqis.232 It was not the imposition of a contractual term that required AWB to take any responsibility in fact to provide trucking to all governorates in Iraq.233
13.169 On 8 November 1999 the IGB faxed AWB: 'You are kindly requested to advise us the date of transfer Transportation charges (12 USD per Ton) of A.M Pretty Ruby vessel. Under M./O.U. phase Six also other coming vessels'.234
13.170 On 10 and 11 November 1999 Alia faxed Mr Emons with its bank account details. (There was an error in the details provided in the facsimile of
1 3 4 Report o f the Oil-for-Food Inquiry
10 November 1999235, which was corrected by the facsimile sent the following day.236)
13.171 On 11 November 1999 AWB received a copy of an email from the operators of
the Pretty Ruby, advising that they had received the following telex from the port agents (the ISCWT) at Umm Qasr and asking for AWB's advice on how to respond:
Pretty R uby —ETA UM Q 25/11
C argo (42,000 MT w h eat in bulk) required oncarriage to consignees w arehouses cost being USD 504,000 — (at USD 12.- perton) please liaise w ith AWB and advise m eth o d pym ent enabling us do needful.
T h a n k s/b e st regards
V aroojan Krikor ISCWT Basrah. 237
13.172 Mr Emons was to meet with Mr Daoud later in November, when Mr Daoud
had proposed that he would give Mr Emons the full details of the identity of the company that would be handling the inland transport fees.
However, on 18 November 1999 Mr Emons spoke with Mr Daoud about payment of the trucking fee for the Pretty Ruby cargo.238 Mr Emons recorded the outcome of his conversation in an email, headed 'Iraq trucking fee', to Mr Watson on 19 November 1999:
M ore confusion as ever w ith the trucking fee an d m y Iraqi's.
I spoke tw ice last n ig h t w ith Zuhair. I explained that w ith o u t the L /c am endm ents no th in g w as going to happen. H e assures m e that this w ill take place and Rex this m o rn in g tells m e th a t tw o of the contract 1 /c's am endm ents have com e through.
O n the trucking fee, I am still having som e problem s w ith him. H e un d erstan d th a t w e can 't p ay Iraq direct b u t he says he w ants to tell m e personally w h en I see him how it should all operate. This all w ell an d good b u t as I said to him w e have a vessel arriving before w e see him and the IGB will not discharge until the m oney is rec'ved.
H e then came back to m e a n d said for the first vessel only that w e should pay 90% (USD 10.80) to:
ALIA for T ransportation an d G eneral T rade
A ccount N o............
ARAB LAND BANK
.................JO R D A N .....................
Report o f the Oil-for-Food Inquiry 1 3 5
I know this is a little to direct but he assures m e that it is a one off and that the full details w ill be supplied w h en w e m eet him of the com pany that w ill be handling this m atter in the future.
So if you can m ake it you can m ake the paym ent as above rath er than the shipping com pany im m ediately an d w e can sort the detail w hen in Iraq.239
Mr Officer expressed concern to Mr Emons that AWB had been asked to pay money directly into the Jordanian bank account of Alia. However, he expressed no objection to the matter proceeding that way when reassured by Mr Emons that this was the procedure that had been stipulated by Mr Daoud.240
13.173 On 23 November 1999 AWB received a facsimile from Alia further to a telephone call earlier that day setting out the details of the Arab Land Bank's correspondent bank in New York.241
13.174 The following day Alia sent a further facsimile to AWB, advising:
We have ju st received a Fax M essage from the state C om pany for W ater T ransport in B asrah (Iraq) w herein they advise us that w hereas the M.V. 'P retty R uby' is due to arrive at the p o rt of U m Q aser today, y o u r rem ittance in respect of over-land transportation charges am outing to USD (504,000) has n o t been received yet.
As you are aw are, the renitence in question should be received here Five days prior to vessel's arrival at U m Qaser. therefore you are kindly requested to for our us urgently w ith the Bank Transfer detail to enable us follow -up the m atter w ith the appropriate Bank here an d the G rain Board of Iraq, B aghdad as well as
aforesaid C om pany accordingly and rem it the subject funds to them .242 [em phasis added]
As is plain on the face of this facsimile, Alia was proposing to remit the 'over land transportation charges' to the Iraqis.243 This was in accordance with the arrangement Mr Emons had made with Mr Daoud.244
13.175 The facsimile bore a note indicating that it was to be copied to both the IGB and the ISCWT. This was an indication of the interest of these Iraqi organisations in the payment of the monies to Alia, inconsistent with the payment being for the benefit of Alia or for services it was providing. Further correspondence AWB received in 2000 and through until 2002245, from the IGB and the ISCWT and from Alia enclosing correspondence from the ISCWT, revealed to AWB the Iraqis' continuing interest in these payments.246
13.176 On 26 November 1999, US$453,600 was remitted to Alia from one of AWB's US dollar accounts with the Bank of New York in New York.247 This was pursuant to an internal AWB US dollar payment request dated 25 November 1999.248 The amount of US$ 453,600 represented 90 per cent of the inland transportation fees payable in respect of the Pretty Ruby shipment. The
1 3 6 Report of the Oil-for-Food Inquiry
payment request was signed by Mr Officer and authorised by Mr Laskie. On 26 November 1999 AWB faxed a copy of its payment request to Alia.249
13.177 The Pretty Ruby completed the discharge of her cargo in Umm Qasr on
7 December 1999. The following day, Alia sent a facsimile to AWB requesting remittance of the remaining 10 per cent of the cost of inland transportation.250 The balance owing (less an adjustment for a small portion of the cargo that was short-delivered) was paid to Alia on 13 December 1999.251 That payment was made by AWB Chartering.
13.178 On 7 December 1999 Alia sent a facsimile to AWB in the following terms:
Reference is m ade to the agreed term s an d conditions of the contract betw een AWB L im ited/IG B covering the sale of 700,000 5 pet m ore or less bulk w heat.
A lia for T ransportation & G eneral Trade, A m m an Jordan is ap pointed to arrange all trucking u n d e r this contract and it is to be und ersto o d that rem ittance to Alia for T ransportation and G eneral T rade of trucking costs involved should in no w ay be delayed for m ore th an seven (7) days prior to the arrival of, th e vessel to U m Q asr p o rt Iraq. M oreover, Alia is to be notified of vessel's nam e, details of cargo load ed on board an d ETA at U m Q asr w ithin the aforesaid period of tim e to
enable us m ake appropriate arrangem ent w ith the State C om pany for W ater T ransport Iraq.
All paym ents relating to the agreed trucking costs to be rem itted u p o n com pletion of loading of each vessel to Alia for T ransportation & G eneral T rade nom inated account as follows: ...252
13.179 Mr Watson replied by facsimile the same day :
Ref: A ustralian W heat, Inland Trucking, Iraq, Phase 6
T hank you for y o u r advice th a t you have been ap p o in ted to arrange all the inland trucking w ithin Iraq u n d e r this phase.
For sake of good order, I w o u ld confirm th at the trucking fee of USD 12 p / m t basis B /L w eight at load port, w ill be rem itted to y o u r nom inated account upon sailing of the vessels from A ustralia.
Please advise y o u r banking details enabling funds to be rem itted.
W e w o u ld take this o p p o rtu n ity to th an k you for y o u r cooperation an d look
forw ard to w orking w ith you on this phase of the above contract.253
13.180 On 8 December 1999 the inland transportation fee of US$504,000 for the
second shipment under contract A4653 was paid by AWB to Alia. This was 100 per cent of the fee due, and it was paid pursuant to a US dollar payment request by AWB Chartering, completed by Ms Gatto and authorised by Mr Watson.254
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S u m m a r y
13.181 Alia was established by the IGB as the company to receive the inland transportation fees, and such fees were to be paid into its nominated bank account in Jordan. AWB knew that it was not responsible for trucking grain within Iraq: it was simply required to pay the inland transportation fee to Alia. AWB made no commercial arrangements with Alia or any other entity for the transportation within Iraq of the wheat sold to the IGB under contracts A4653 to A4655. This is to be contrasted with what occurred in late 2003, following the incursion into Iraq, when AWB was required by the Coalition Provisional Authority and the World Food Programme to fulfil its then subsisting contracts with the IGB which had not been completed in the terms in which they appeared — such that AWB was thereby obliged to discharge and deliver the wheat to all governorates within Iraq —and concluded an Agency and Transport Services Agreement with Alia for this purpose. From the time it first paid inland transportation fees to Alia, AWB knew Alia was the conduit for the payment of those fees to Iraq and that a Jordanian company had been nominated to receive these payments because the UN sanctions prohibited the payment of US dollar amounts to Iraq or an Iraqi entity directly. Alia received these fees pursuant to its agreement with the ISCWT, which obliged Alia immediately to remit the fees (less a commission) to the ISCWT and under which Alia was not required to undertake or arrange any trucking services at all.
13.182 Moreover, by October 1999 AWB had determined that the inland transportation fees payable in respect of its shipments would be payable through the conduit of shipowners (and Ronly Holdings Limited). There was no sound commercial reason for interposing both the shipowner who carried
the wheat to Iraq and later Ronly (and its nominee, Tse Yu Hong Metal Limited) between AWB and Alia or for using these companies as a conduit for the making of payments to Alia. This is especially the case where neither the shipowners nor later Ronly had undertaken to effect or arrange for the discharge or delivery of the wheat in Iraq and had not entered into (or proposed to enter into) any contractual relationship with Alia for that purpose.
13.183 The reason this indirect method of payment was adopted by AWB was to mask (or 'disguise'255) its payment of the inland transportation fees. This was thought desirable because AWB knew that to make payments to the IGB or some other Iraqi entity directly was in breach of the UN sanctions. AWB also knew that making payments to Alia was an indirect method of making payments to Iraq or an Iraqi instrumentality. Using Ronly or shipowners to make these payments to Alia was regarded by AWB as further distancing or isolating AWB from the payment to the Iraqi entity.
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In su ra n c e of t h e w h e a t s h ip p e d to I r a q
C ontracts m a d e p rio r t o Ju ly 1 9 9 9
13.184 Under a contract for sale on GIF terms, there is an obligation on the seller to procure insurance against the risk of loss or damage to the goods sold under the contract of sale. This obligation is not merely for the seller's benefit: under the terms of the GIF sale, the policy of insurance taken out by the seller is assigned to the purchaser upon payment of the purchase price, so that in the event of loss or damage the purchaser is also able to obtain the benefit of that insurance.
13.185 The duty of a seller under a contract for sale on GIF terms, so far as insurance is concerned, is to procure such insurance cover as is required by the express provisions of the contract of sale. In the absence of any special provisions in the contract of sale, the seller's duty is to effect insurance that, amongst other things, covers the transit contemplated by the contract.256
13.186 Under the terms of the contracts AWB257 concluded with the IGB prior to July 1999, AWB's responsibilities —as a seller of the wheat on GIF terms — included an obligation to procure insurance against the risk of loss or damage to the wheat sold under those contracts, including loss or damage during the wheat's transit from Australia to Iraq. Moreover, since the contracts AWB concluded with the IGB prior to July 1999 were on GIF free out terms258, AWB's obligation under the terms of those contracts was to transport the wheat to the nominated port of discharge in Iraq, where it was to be delivered to the IGB.259 Accordingly, AWB's obligation under those contracts, so far as insurance was concerned, was to procure marine cargo insurance cover for the shipment of wheat up until the nominated port of discharge, Umm Qasr.
13.187 To this end, prior to July 1999 AWB maintained an open cover policy of marine cargo insurance, under which it would declare each shipment of wheat to Iraq at or about the time the shipment was made. Upon each such declaration, a certificate of insurance was then issued by the insurer to AWB in respect of that shipment.260 Amongst the documents AWB (as seller) was required to deliver to the IGB in order to obtain payment for each of its shipments of wheat to Iraq under the terms of the letters of credit established in favour of AWB was a policy of insurance or certificate of insurance in respect of that shipment.
13.188 Amongst the documents AWB produced to the Inquiry were a number of certificates of insurance in respect of shipments made by AWB under contracts for the sale of wheat concluded before July 1999 and on GIF free out terms. The form of these certificates is consistent with the duration of the
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insurance cover thereby provided, being from the nominated port of loading to the nominated discharge port (Umm Qasr), commensurate with the duration and extent of AWB's obligations under its contract of sale.261
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13.189 In relation to those contracts for the sale of wheat to the IGB that AWB
concluded after July 1999, AWB remained a seller on GIF terms. Accordingly, under the terms of those contracts AWB (as seller) was still obliged to procure, both for its benefit and for the benefit of the purchaser, insurance of the wheat shipped to Iraq under those sale contracts.
That AWB remained under such an obligation was made plain, for example, by clause 7 of the IGB's wheat tender for phase VI of the Oil-for-Food Programme, which expressly provided that insurance was to be the seller's responsibility.262 This obligation was also acknowledged by AWB in its 'electronic message' of 14 July 1999263, confirming the sale that became contracts A4653, A4654 and A4655. It was repeated in clause 8 of the long- form contract AWB subsequently received from the IGB for each of those contracts and submitted to the United Nations.264
Although there was no corresponding provision in the AWB short-form contract expressly referring to or dealing with insurance, each of the short- form contracts nevertheless incorporated the AWB-IGB standard terms and conditions265, which included the following clause:
INSURANCE Sellers to provide M arine, W ar and Strike Risk insurance
on the usual term s an d conditions of the G rain and Feed T rade A ssociation C ontract No. 12.266
13.190 Consistent with that obligation, amongst the documents AWB was required to
produce in order to obtain payment under the letter of credit established in respect of contracts A4653, A4654 and A4655 was an insurance policy or certificate of insurance.267
13.191 This was also the position under both:
⢠those contracts AWB subsequently concluded with the IGB under later phases of the Oil-for-Food Programme —right up until the incursion into Iraq in March 2003
⢠those contracts AWB later concluded with the grain traders for the delivery of wheat to Iraq.268
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13.192 Also amongst the documents AWB produced to this Inquiry were certificates
of insurance issued to AWB for a number of shipments of wheat to Iraq made by it under contracts for the sale of wheat to the IGB concluded after July 1999, including, for example, shipments made under contract A4653, dated 14 July 1999.269 These certificates were issued following declarations of those shipments by AWB under the same marine open cover policy of insurance referred to in the certificates of insurance that were issued to AWB in relation
to shipments of wheat to Iraq under its contracts with the IGB concluded before July 1999.
13.193 There is no evidence that AWB negotiated any change to the terms of its
marine open cover policy or the cover provided by that policy, either for the period after November 1999 (when the first shipments under phase VI contracts were made) or specifically in relation to shipments made by AWB under those contracts it concluded with the IGB after July 1999 — in particular,
so as to extend the duration and scope of cover beyond the ship's rail at the nominated port of discharge and thereby insure the shipments of wheat for any loss or damage that might occur after completion of the voyage and discharge from the vessel and until the time the wheat is delivered to the silos in the governorates of Iraq.
13.194 Further, it appears that AWB's marine open cover policy was renewable in
October of each year. It would have therefore been renewed shortly before the first of AWB's shipments under phase VI of the Oil-for-Food Programme and shortly before the first of its shipments under its contracts under which it appeared to have this extended obligation to deliver the wheat within Iraq. Yet there is no evidence that, upon its renewal in October 1999 or in any of the following years (prior to the policy lapsing in October 2002), the terms of this
marine open policy were renegotiated — in particular, to extend the duration and scope of the cover provided by that policy beyond the port of discharge so as to include the inland transportation of the wheat.
13.195 Had AWB in fact agreed under the terms of its contracts with the IGB270 to
discharge and deliver the wheat to the silos in all governorates of Iraq or arrange for that discharge and delivery to be effected, as the terms of its written contracts suggested, then AWB would have been obliged to insure the wheat against any loss or damage that might occur not only during the ocean voyage but also during that inland transportation within Iraq. As observed, this would have been both for AWB's own benefit and for the benefit of the wheat's purchaser (the IGB), to whom the policy of insurance would be assigned upon payment for the goods.
13.196 But, despite the terms of its written contracts with the IGB and the appearance
of an obligation to arrange for the discharge and delivery of the wheat within
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Iraq, AWB continued to declare the shipments under the marine open cover policy it maintained when its obligations were limited to those of a CIF seller on free out terms. It did not insure the wheat it shipped to Iraq for any loss or damage during inland transport. The absence of such insurance is consistent not only with AWB in fact having no obligation under its contracts with the IGB271 to effect or arrange for the discharge and delivery of the wheat within Iraq but also with AWB's recognition of that.272
13.197 In his email to Mr Hogan dated 25 June 1999, Mr Watson wrote (when AWB was first informed of the changes that the IGB proposed to the terms of its contracts), 'My concern re CIF to trucks is that we are also now insuring cargo once unloaded from the vessel — i.e. truck—tfore our liability does not cease upon passing the ship's rail'.273
13.198 But, despite that observation and Mr Watson's (correct) recognition at that time of the effect of the terms proposed, no steps were in fact taken to insure the wheat shipped under the first contracts on the proposed new terms (or any later contracts) to cover this additional risk. The reason for this was, as Mr Emons recognised in his email of 4 November 1999, that 'We are not responsible for trucking in Iraq only the payment'274; Mr Watson also came to understand this to be the position.275
13.199 AWB's failure to take out any insurance in respect of the inland transportation of the wheat, despite the apparent changes in the terms of its contracts from July 1999, is to be contrasted with the steps it took when, after the commencement of hostilities in March 2003, it was held by the Coalition
Provisional Authority and the World Food Programme to the express terms of its as then unfulfilled contracts and the obligation to arrange for the discharge and delivery of wheat within Iraq contained within those terms. At that time AWB actively investigated obtaining insurance for the inland transportation of the wheat within Iraq, as well as imposed an obligation on Alia, as part of the Agency and Transport Services Agreement it concluded with Alia at that time, to take out insurance for the carriage of the wheat within Iraq that covered not only Alia but also the rights and interests of AWB and the AWB Pool. These steps are examined in more detail in Chapter 25.
C h a n g e in AWB's i n s u r e r b u t r e le v a n tly no c h a n g e in t h e t e r m s
13.200 In September 2002 AWB did not renew its marine open cover policy with its then existing insurers. This was because of problems that had arisen concerning contamination claims that had been made by the IGB in relation to a number of shipments that year. Instead, AWB took out a marine open cover policy with another insurer.
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13.201 In November 2002 AWB declared a shipment to Iraq under that new open cover policy.276 This was a shipment under AWB's contract A1441, which was expressed in the same terms as its July 1999 contracts so far as price and delivery were concerned. In particular, both the AWB short-form contract and the IGB long-form contract for contract A1441 referred to the shipment being GIF free in truck277 to all silos within all governorates278, thereby creating the appearance that AWB was obliged to effect or arrange for the discharge and delivery of the wheat within Iraq.279
13.202 Yet, despite that appearance, the voyage was described in this certificate of insurance to be:
From (com m encem ent of transit) PORT ADELAIDE and PORT LINCOLN, AUSTRALIA
to (final destination) UM QASER PORT280
13.203 Moreover, the terms of the certificate of insurance expressly provided:
C over attaches from the tim e the goods pass the dock loading facilities sp o u t for the p urpose of loading for com m encem ent of transit and ceases at either the unlo ad in g facilities sp o u t & /o r suction sp o u t or ships rail as applicable.281
13.204 The insurance provided for by these certificates was not coextensive with the terms of the written contracts for contract A1441 and AWB's apparent obligations under those terms. If AWB in truth had an obligation to effect or arrange for the discharge and delivery of the wheat, it did not take out insurance in respect of that part of its obligations. The reason for this was because it in truth had no such obligation and did not regard itself as having
any such obligation.
13.205 Certificates of insurance were also issued for other shipments under contract A1441 in the same limited terms, consistent with AWB's true obligations and responsibilities and inconsistent with the terms of its written contracts.282
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N otes
1 Ex 748, AWB.0416.0001_R at 0003_R. In the IGB long-form contracts for these sales the sale price was expressly said to be 'GIF free out Umm Qaser' (for example, Ex 1573, AWB.0135.0190 being the long-form contract for AWB contract A4333). Although in AWB's short-form contract the sale price was expressed to be O F ' only, it was nevertheless a GIF free out sale by reason of the incorporation of the AWB-IGB standard terms and conditions which required the purchaser (the IGB) to pay for the costs of discharge. 2 This is commonly referred to as the FOB price. Where cargo is sold on GIF terms, the FOB price is equal to the GIF price less the cost of the ocean carriage and the cost of the marine insurance (and any other expenses that are incurred by the seller after the port of loading). 3 As reported by Mr H art and Mr Bunn in a memo (in the form of a trip report) dated 13 July 1998 to Mr Emons following a visit to Iraq from 17 to 25 June 1998 (T 1994; Ex 1469, AWB.0084.0006). 4 See p. 3 of the AWB and IGB standard terms and conditions for Australian wheat contracts (fixed price) (Ex 387, SN0.0001.0018_R at 0020_R). To the extent that it was suggested in para. 3 of the Project Rose instructions to counsel (Ex 748, AWB.0416.0001_R at 0003âR) that the costs of discharging the w heat from the vessel formed part of the price paid for the wheat, it would appear that those instructions were incorrect. 5 Phase VI was extended twice from its original expiry date of 20 November 1999 (Ex 585, UN0.0009.0009). 6 Ex 1022, AWB.0058.0453_R. The w heat tender bears the fax tracer line dated and timed 16 June 1999 at 12.27 hours. 7 Ex 1022, AWB.0058.0453_R. The w heat tender bears the fax tracer line dated and timed 16 June 1999 at 12.27 hours. 8 Ex 1022, AWB.0058.0453_R at 0454_R. 9 This was essentially in the same way that the seller would recoup the cost of the ocean carriage (freight) and marine cargo insurance and had in the past recouped those expenses under contracts for the sale and shipment of wheat concluded under the first five phases of the Oil-for-Food Programme. That is except for the one significant difference identified above. 10 In the same way as the freight and marine insurance payable in respect of the shipment. 11 Ex 729, AWB.0058.0427 at 0429, clause 11.4. 12 Ex 1573, AWB.0135.0190 at 0192, clause 11.4. 13 Ex 1022, AWB.0058.0453_R at 0455_R. i“ T 3557. is T 3558. I» T 3558. 17 T 3560. is T 3558. μ T 1866-7; Ex 96, WST.0006.0001 at 0004, paras 24-27.
29 T 1867.12. 21 T 1867.30. 22 Ex 96, WST.0006.0001 at 0004, para. 26. 23 T 1867.30. It is to be expected that a matter such as the imposition by Iraq of new contract terms requiring
the payment of inland transport fees in respect of all grain imported into Iraq w ould be the subject of discussion at an industry conference such as the Grains Conference in London. Mr Daoud had said that Iraq was standardising its contracts for the importation of all grain. This applied therefore to barley, rice, and so on, and would no doubt have affected many exporters of grain from around the world. Mr Emons was cross-examined to the effect that the Grains Conference had occurred on 10 June 1999, yet the w heat tender notifying the imposition of a discharge and inland trucking fee had not been received until 16 June 1999. It was put to Mr Emons in substance that as AWB was not aware of the proposed new term until 16 June the matter could not have been a matter of discussion six days earlier at the Grains Conference in London. Mr Emons maintained that the matter was discussed notwithstanding. In his statement, Mr Emons had said that Mr Daoud had told him that President Hussein had 'asked the UN commission for Iraq to get inland transport covered and discharge covered' (Ex 96, WST.0006.0001 at 0003, para. 13). Mr Emons said he met Mr Daoud in Bangkok when he met him unaccompanied and that Mr Daoud had told him that the United Nations had approved the trucking fee. Mr Emons confirmed this in evidence given on 19 December 2005 in private session, a transcript of which w as tendered in public session and adopted by him on 2 February 2006
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(Ex 95, INQ.0004.0001 at 0012-0013). Business records of AWB indicate that arrangements had been made for Mr Emons to meet with Mr Daoud in Bangkok on 23 March 1999 (Ex 999, AWB.0135.0181_R, AWB.0135.0183_R and AWB.0135.0186). It is apparent therefore that the w heat tender w as not the only or first source of knowledge of the imposition of fees for discharge and inland trucking. 24 T 6027. 25 There is also a body of evidence that renders it more probable than not that in October Mr Flugge was present with Messrs Hogan and Rogers in Baghdad during negotiations between Mr Hogan and representatives of the IGB. Mr Flugge opened the Iraq Grain Conference and attended meetings with Mr Daoud and Mr Saleh (Exhibit 453, WST.0012.0033_R at 0040_R, para. 55) which involved contract negotiations. Mr Hogan's evidence was that Mr Flugge would have been briefed before the trip 'about any matters which were on the table, including the inland transport fee' (Ex 142, WST.0005.0001 at 0015, para. 51), although he could not recall giving Mr Flugge a copy of the brief. Mr Flugge did not recall the discussions (Ex 453, WST.0012.0033_R at 0040_R-0041_R, para. 56) or negotiating contracts at the meetings (Ex 453, WST.0012.0033_R at 0041_R, para. 58). Mr Hogan sent an email on 11 October 1999 reporting on the negotiations (Ex 1376, AWB.5058.0070_R). This email included reference to the inland transportation fee. Mr H ogan's evidence was that both Messrs Flugge and Rogers had attended the meetings he had with Mr Daoud when these matters were discussed — the obvious inference being that both would have heard the conversation and, it follows, been aware of the issue of inland transportation. Mr Hogan believed that Mr Flugge w ould have heard the discussions in the meetings relating to the contract (T 5590.8) and did not believe there was any impropriety in the process (T 5590.20). There is also evidence from Mr Emons concerning his discussing 'some finer points of the trucking fee' with Mr Flugge at the end of May - early April 2000 (Ex 127, AWB.0138.0349 at 0349, point 1) and Mr Emons' evidence (T 1940.11 - T 1943.8), wherein Mr Emons said he had had discussions with Mr Flugge concerning (a) the imposition of the fee by Iraq; (b) the nature of the mechanism for the payment of the trucking fee; (c) the payment of the fee through Ronly; and (d) the nomination by the IGB of Alia as the recipient of the fee. Mr Flugge denied he was ever aware that Ronly was a conduit for the paym ent of the inland transport fee (T 3562.35). However, there is evidence to contradict Mr Flugge on this point, and again his evidence in this regard ought not to be accepted. Mr Lindberg gave evidence that he did tell Mr Flugge in early 2001 of the fact that A rthur Andersen had investigated AWB's use of Ronly to make payments to Alia. In this regard Mr Lindberg said that he was concerned about AWB's interest in Ronly, he was opposed to the takeover of Ronly, and it was in this context he would have discussed the matter with Mr Flugge (T 921.43 - T 922.21). On 16 September 2002 Mr Long wrote an email to Mr Geary setting out the background (Ex 1311,
AWB.5066.0344): ... Ronly were involved in paying inland trucking charges and chartering vessels for us because of alleged problemns with the UN / IGB. AWB paid Ronly in advance ($12 per tonne) and Ronly paid (via some shelf company) the Jordanian trucking company. Mark Emons and Mike Watson set the deal up. Based on the paper work we have from Ronly (our files are thin) there is not enough evidence to prove that AWB has liability or agreed to indemnify Ronly for acting as charterer. AWB paid Ronly USD20 cents per tonne facilitation fee. ROnly argue the opposite but can't substantiate it to our satisfaction.
Nori has mentioned that PAul and Trevor are aware of the deal and sanctioned it. Nori called T Flugge Fri night complaining about our position. TF called me and wants to distance himself. To the extent that this email relays a conversation between Mr Long and Mr (Nori) Bali about Mr Flugge having sanctioned the arrangement whereby Ronly was used as a conduit for the paym ent of the trucking fee it supports Mr Emons' evidence concerning Mr Flugge's knowledge of Ronly's role. 26 Ex 96, WST.0006.0001 at 0001, paras 1-4.
27 Ex 142, WST.0005.0001 at 0001-0002, paras 3-10. 2s Ex 407, AWB.0135.0085. 2» Ex 407, AWB.0135.0085. 30 Ex 356, AWB.0135.0075 at 0076. 31 Mr Borlase denied that Mr Owen's email indicated that the 'Land Transport company' was Iraqi or that sanctions prohibited AWB from making US dollar payments to an Iraqi company (T 2963.16). He said there
Report of the Oil-for-Food Inquiry 1 4 5
was then a great deal of confusion about the identity of the company (T 2962.35) and that he was not involved in discussions about this issue because of his junior position (T 2963.17). This evidence should not be accepted. The 'Land Transport co.' referred to in the tender was plainly Iraqi. The concern raised was that payment could not be effected when 'Iraqi funds' were frozen. Further, as at this time, there was no suggestion that a company other than an Iraqi one would be undertaking the transportation of the wheat. There is no evidence of any 'confusion' as to that company's identity — the evidence was that the identity was at that time not yet known. But that of itself does not amount to 'confusion' and did not detract from the clear inference that it w ould be an Iraqi entity that carried out the transportation of the wheat inland. 32 T 2003. 33 Ex 995, AWB.0420.0020_R. 34 Mr Geary initially could not say for certain whether it was more likely than not that he had read this email (T 1334.25). He later stated that it was likely that he had read it (T 1337.22). This later evidence should be accepted and his earlier reluctance to acknowledge that he had read it rejected. That earlier position was not open to Mr Geary. He had, only seven days earlier, written to Mr Hogan about the IGB tender. Further, Mr Hogan's email plainly addressed issues which affected the Pool, such as the IGB's stated wish to slow the shipping program dow n and the weight and quality at final destination issue. These would have been of interest to Mr Geary. Mr Geary also acknowledged that the 'To do' list in the email (in particular the instruction to Mr Watson) suggested that there was a problem with the payment mechanism (T 1330.12) and that the problem had arisen from the freezing of Iraq bank accounts. Mr Geary admitted that this had to do with the UN sanctions, when he gave the following evidence:
Q: That implies, w ithout doubt, that this payment was in effect to be a payment to the Iraqis, and that the problem was to find a mechanism by which it could be made, does it not? A: That's w hat it implies there, yes. Q: That would have been a clear breach of the UN sanctions, would it not? A: My memory of the sanctions at the time, it would appear so. [emphasis added] (T 1330.22-31). 35 Ms Scales did not recall doing anything with this information. Her evidence was that she did not turn her mind to this aspect of the report for two reasons. The first was that there were other aspects of the report which would have interested her as Pricing Manager, as she then was (T 2929.31). The second was that there were other more senior recipients on the addressee list who were 'subject matter experts with respect to the free in truck' (T 2848.28). Although UN sanctions were not the stated reason for the accounts being frozen, given Ms Scales' broad knowledge of the effect of the sanctions, had she read this passage she would have been aware that the reason Iraqi accounts were frozen was to prevent payments to Iraq under the sanctions. She w ould also have been aware that AWB employees were trying to find a way to pay money to Iraq
indirectly (and thereby avoid the effect of those sanctions). When Mr Hogan's email was draw n to Ms Scales' attention during her examination, she said she understood it to mean finding a way around the sanctions. However, she denied having this understanding at the time of the email (T 2930). 36 Although Mr Snowball's evidence w as that he could not recall whether he read this email, he admitted he must have read parts of it as he subsequently responded to those parts. He also conceded that he probably read the email, although he could not say for sure (T 3019). Mr Snowball also agreed that if he had read the email it would have been evident to him that the Iraqis were imposing a US$ 12 per tonne fee, that the fee was to be paid to the Iraqis via the maritime agents, that this w as a problem because Iraqi accounts were frozen, that one way to avoid this problem was to pay to an Iraqi bank in Amman, that the IGB had agreed
to provide details of a bank account in Jordan through which the payment of the US$12 per tonne fee could be made, and that AWB personnel were discussing the way in which this could be paid, including via the owners of the vessels used to carry the wheat to Iraq (T 3017-19). 37 The reference to 'Michael' was a reference to Mr Michael Watson, Chartering Manager with AWB.
Mr Watson said in his last statement (Ex 428, WST.0014.0001 at 0001, para. 4) that, whilst he 'w as not the primary architect for the payment mechanism' he was 'part of a core strategy group who were responsible for implementing the paym ent mechanism'. Mr Watson said in evidence that he could not recall the conversation Mr Hogan referred to in this email when Mr Hogan wrote, 'M ichael—as mentioned to you there may be a way of paying this through the vessel owners ...' However, he conceded that when he read this email it was plain to him that the plan was to pay money to the Iraqis. He was aware that the UN sanctions prevented payments being made w ithout UN approval (T 3402). He also agreed that when he read
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this email from Mr Hogan he was aware that Mr Hogan was proposing a means of paying the money to the Iraqis whilst avoiding UN scrutiny. (T 3402). ^Mr Hogan could not recall whose idea it was to pay the inland transportation fee through vessel owners (T 2006). 39 Ex 995, AWB.0420.0020_R at 0021_R. *> T 2005.18-21; T 2008.20-33; T 6996.1-27. 41 Ex 995, AWB.0420.0020_R at 0023_R. Mr Watson said he did not recall doing anything in relation to the 'To do' list Mr Hogan had provided at the time of this email. However, he said in evidence that he did act on it at a later time. Once he had discussed with others within AWB what was to be achieved he raised the matter of having shipowners make the payments on AWB's behalf with various shipowners. Some 'were agreeable to looking at this idea and some were not' (T 3404). 42 Which, in this regard, and for the purposes of these chapters generally, included disponent owners of these ships. 43 T 2004. 44 Ex 142, WST.0005.0001 at 0010, para. 40; T 2005.10-21, T 1863.4-18. 45 Ex 142, WST.0005.0001 at 0010, para. 40; T 2005.23 - T 2006.5, T 1863.4-18. 46 Ex 1027, WST.0044.0001, para. 3. 47 Ex 142, WST.0005.0001 at 0010, para. 36; T 2008.18 - T 2009.09 and T 2010.11-19; Ex 96, WST.0006.0001 at 0003-0004, para. 20; T 1863.34 - T 1864.4. 48 T 2008.31; T 2010.1-19. 49 Ex 142, WST.0005.0001 at 0010, para. 37; T 2003.35 - T 2004.23, T 1865.35-42. 59 T 7004.42. 51T 2318.18-25. 52T2320.46-T2321.il. 53 T 2008-9. 54 T 2010.01-19. 55 T 2010; Ex 1027, WST.0044.0001 at 0001, para. 4, 'A t the time I believed that the transport fee w ould go to the Iraqis' and at para. 3, 'They said that the reason for the inclusion of the fee was due to the high level of inflation in Iraq'; See also T 7000.38. 54 T 1872; T 1886. 57 T 3420-T 3421.
se T 2319.29. 39 T 3614; T 3634. 60 'But I was concerned that the arrangem ent was skirting around the UN sanctions' (Ex 1027, WST.0044.0001 at para. 4). 61 T 1887. 62 T 3615; Ex 460, WST.0015.0002_R at 0008_R, para. 28. 63 T 3635; Mr O wen was also aware that US embargoes made it likely that any money paid through a bank to Iraq w ould be frozen (T 3615). Mr Owen was adamant that he always believed the paym ent was genuine in the sense that it was a payment for inland transport services (T 3650; Ex 460, WST.0015.0002_R at 0009_R, para. 33). Although he maintained he was not aware of the entity that w ould be undertaking the inland trucking, he did believe that, whichever entity it was, he assumed it was in Iraq (T 3646). On the basis of Mr Owen's oral evidence before the Inquiry there can be no doubt that he was aware of the proposal to make payments of an 'inland trucking fee', that the payments were to be made to an entity in Iraq, and that the payments w ould be contrary to UN sanctions. In his statement Mr Owen said, 'Again I viewed the matter as simply an operational m atter and a problem that needed to be solved in an operational context, rather than a problem involving any breach of sanctions' (Ex 460, WST.0015.0002_R at 0017_R, para. 55(d)). This does not fit with the content and tenor of the emails he wrote and received, as referred to. Clearly, on
their face these emails establish that he was aware that it was intended to make payments to an Iraqi entity and that this w ould be in breach of sanctions. In fairness to Mr Owen, it should be noted that he never counselled others to breach sanctions, however, beyond forwarding some of the email traffic referred to to his superior, Mr Aucher; neither did he take it upon himself to report this in an effort to restrain others from breaching sanctions. 64 Ex 99, MAE.0002.0037.
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65 The person referred to as 'Michael' in the last email. 66 T 3400. 67 T 3400.27.
68 T 3400.29. 68 T 3400.42. 70 T 3400.39. 71 Ex 63, AWB.5073.0086. 77 Ex 63, AWB.5073.0086. 73 Ex 63, AWB.5073.0086. 78 Ex 1394, AWB.5000.0140JR; Ex 1023, AWB.0100.0350. 75 As to whether Mr Snowball read Mr Hogan's email, Mr Snowball said, Î don't recall reading it, but there is every chance I did read it, and that reading may have been a skimming or it may have been a detailed reading, and I just don't recall' (T 3026.25-8). He gave further evidence as follows: 'Q: If you read it, then you now had two emails indicating to you that the AWB was looking for a way to satisfy the Iraqis, but without bringing to the attention of the UN any breach of sanctions; would you agree with that? A: You could infer that, yes, sir. Q: Did that give you concern? A: I don't recall, but possibly' (T 3026.30-7). The only conclusion open on the material before the Inquiry is that Mr Snowball did read Mr Hogan's email. Mr Hogan's email was a direct response to Mr Snowball's questions about changes to the contract terms. It is inconceivable that Mr Snowball w ould have been moved to write the email asking questions and then for him not to have read an email which responded to those questions. It follows then that Mr Snowball was aware from at least the time of Mr Hogan's email of 25 June 1999 that AWB was looking for a method of meeting the Iraqis' demands, in the knowledge that it would be acting in breach of the sanctions, all the time wishing to avoid draw ing the attention of the United Nations to the breach of sanctions. This is the effect of Mr Hogan's email. 76 When Mr Hogan's email was draw n to Ms Scales' attention during the course of her examination, she said that it was likely that she read the email, although she did not recall reading it or replying to it. She also said that it did not strike her at the time that this email was discussing finding a way around UN sanctions (T 2931.2) — that is, a way to make a paym ent to Iraq (T 2930.42) — but conceded that that was how she understood the email as at the date of her evidence before the Inquiry (T 2931.12). 77 Ex 100, MAE.0002.0038. The email was copied to Messrs Hunter, Officer, Geary, Richardson, Hart, Morrison, Watson, Lister and Owen and Ms Scales. 78 Ex 100, MAE.0002.0038 at 0039. 79T 2010.45 - T 2011.22; T 5668.2-11; Ex 1027, WST.0044.0001 at 0001, para. 7. 'My email to [Mr Snowball] of the 25th of June included the statement that 'discretion is required here'. This was a reference to my concern that inquiries about the fee were to be made discreetly so as not to make it appear that the AWB was raising difficulties in dealings with Iraq. At this time I did not know whether the UN had approved the fee'; see also T 6995, especially at T 6995.40—Mr Hogan did not accept at that time what the Iraqis had told him. so T 2010.45- T 2011.22. 81 T 3027.3-7. 82 Ex 96, WST.0006.0001 at 0005, para. 28. 83 Ex 96, WST.0006.0001 at 0005, para. 28. 88 T 1868.27. 85 T 1868.24-33. 86 Ex 96, WST.0006.0001 at 0005, para. 30. 87 T 1868.39- T 1869.18. ss Ex 230, WST.0007.0014_R at 0020_R-0021_R, para. 33. 89 T 3408.28 - T 3409.2. 90 T 3409.13-17. « T 5434.45. 92 Ex 335, WST.0009.0001 at 0022-0025, paras. 105-109. â > 3 Ex 335, WST.0009.0001 at 0023, para. 111. 99 Ex 101, AWB.0058.0450_R. 95 Consistent with the 1GB's wheat tender. 96 A copy of these terms can be found at Ex 387, SN0.0001.0018_R.
1 4 8 Report of the Oil-for-Food Inquiry
» Ex 1447, AWB.0058.0449. * Ex 214, AWB.0058.0446. » Ex 214, AWB.0058.0444_R. it” Ex 1377, AWB.0058.0443_R. ⢠Ex 454, WST.0012.0206.
Ex 214, AWB.0058.0437_R. ⢠Ex 214, AWB.0058.0437_R. ⢠Ex 1225, DFT.0059.0375, DFT.0059.0364; Ex 1449, AWB.0058.0458. 105 Ex 729, AWB.0058.0427. 106 See, for example, Ex 995, AWB.0420.0385_R. [emphasis added in the quote] 107 See, for example, Ex 1514, AWB.0109.0272_R (which was in this respect identical to the short-form
contracts for contracts A4332 (Ex 1515, AWB.0109.0206_R) to A4336 (Ex 1516, AWB.0109.0174_R) all with the same date). me T 1876. ίο» T 1876. n0 Consistent with the prices expressed by AWB in its negotiations with the IGB. 111 Ex 995, AWB.0420.0385_R. This was a reference to the standard terms and conditions at Ex 387, SN0.0001.0018_R. 112 Ex 384, SNO.OOOl.OOKLR, SN0.0001.0011_R, SN0.0001.0012_R. ns Ex 729, AWB.0058.0426, AWB.0058.0427. 11» Ex 729, AWB.0058.0426, AWB.0058.0427. no Although the terms in which the price was expressed in the short-form contract were limited to 'free in truck' and did not expressly refer to 'to silo at all governerate ...' and so on, there was a reference to that effect in the shipment clause of the short-form contract. 118 See, for example, Ex 729, AWB.0058.0427. U7 Who was incorrectly described in the facsimile as Ms Gai Brockman, us Ex 729, AWB.0058.0426, AWB.0058.0427, AWB.0058.0432. u» Ex 729, AWB.0058.0425. 12° Ex 729, AWB.0058.0419, AWB.0058.0420, AWB.0058.0421. 121 Ex 1225, DFT.0059.0357, DFT.0059.0358, DFT.0059.0364, DFT.0059.0365, DFT.0059.0375, DFT.0059.0376. 122 Ex 1213, UN0.0003.3323_R; Ex 995, AWB.0420.0387_R, AWB.0420.0386_R. 123 Ex 1225, DFT.0061.0096. 12» Ex 1225, DFT.0061.0096. 125 Ex 729, AWB.0058.0245, AWB.0058.0247, AWB.0058.0248. 126 This is confirmed by the manuscript note appearing on DFAT's facsimile to Ms Moules of 3 August 1999 (Ex 1225, DFT.0061.0096), which reads 'lodged with UN 3 August 1999 BM'. 'BM' is a reference to Ms Moules. 127 Ex 542, DFT.0002.0018. 128 Ex 729, AWB.0058.0251, AWB.0058.0252, AWB.0058.0253, AWB.0058.0254. 12» Ex 549, AWB.0058.0244, AWB.0058.0245, AWB.0058.0246, AWB.0058.0247, AWB.0058.0248,
AWB.0058.0249, AWB.0058.0250. no t 6719-21. «I T 6720.1. 132 T6720.ll. 133 T 6720.21. Ms Johnston's evidence was that her situation in this regard represented the situation of other customs reporting officers at the time (T 6720.29). 134 T 6722.5.
135 Ex 245, AWB.5056.0395. 136 T 2342.4. 137 T 2342.4-25. us Ex 1447, AWB.0058.0401.
13» Ex 1447, AWB.0058.0402-0407. wo Ex 1447, AWB.0058.0398-0400. mi Ex 1447, AWB.0058.0398 at 0399.
Report o f the Oil-for-Food Inquiry 1 4 9
142 Ex 1447, AWB.0058.0398 at 0399. 143 Ex 1447, AWB.0058.0397, AWB.0058.0391, AWB.0058.0390. 444 Ex 1447, AWB.0058.0388. 443 Ex 1447, AWB.0058.0388. we ÎÏ 1447, AWB.0058.0388 at 0389. 147 Ex 108, MAE.0001.0015 at 0016. 148 Ex 108, MAE.0001.0015 at 0016. 149 T 1896. ⢠T 1896-97. 151 T 1896. 152 Ex 1376, AWB.0058.0269. 153 Ex 1376, AWB.0058.0269. 154 Ex 1376, AWB.0058.0268. 155 Ex 1376, AWB.0058.0265. 156 Ex 1376, AWB.0058.0264. 157 Ex 1376, AWB.0058.0261. 158 Ex 1211, UNO.1211.0065. 139 Ex 1211, UNO.1211.0064. 160 Ex 1211, UN0.1211.0060. 161 Ex 1376, AWB.0058.0377. 162 Ex 1376, AWB.0058.0378. 163 See, for example, Ex 1447, AWB.0042.0046. 164 See, for example, Ex 1447, AWB.0042.0046. 165 See, for example, Ex 1447, AWB.0042.0046. 166 Ex 1447, AWB.0058.0401 at 0403-0404: 'If the goods are invoiced on inclusive cif terms, details of charges and expenses are not necessary to be shown provided the invoice states that such charges and expenses are included in the cif price'. 167 Ex 98, AWB.5044.0241. 168 Ex 142, WST.0005.0001 at 0015, paras. 51-52. Neither Mr Flugge nor Mr Rogers denied being present during the meeting with Mr Daoud and IGB representatives. Mr Hogan's evidence was consistent with the AWB practice that employees of AWB would not negotiate contracts in person alone. 489 Ex 687, WST.0027.0082_R at 0093J ? , para. 36. I7" T 3488.39-46; WST.0005.0001 at 0015, para. 51. 474 T 3265.7; T 3266.35. 172 See also the other discussion at the conclusion of this chapter. 473 Ex 995, AWB.0420.0041_R. 474 Ex 995, AWB.0420.0041_R. 473 Ex 995, AWB.0420.0041_R. 473 Ex 1469, MAE.0002.0050. 177 Ex 10, AWB.5035.0338. 478 Ex 10, AWB.5035.0338. 479 Ex 10, AWB.5035.0338. iso Ï 9267.30. 484 T 2968.26. 182 T 2969.28-46 m x 2967.40. 484 T 2968.19. 483 T 2970.29. 483 Ex 103, AWB.5035.0341. 487 Ex 103, AWB.5035.0341. ins x 1893-4. 489 Including disponent owners. 490 Ex 214, MAE.0002.0060. 494 Ex 106, MAE.0002.0059.
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1® Ex 107, MAE.0002.0061.
I” Ex 107, MAE.0002.0061. 194 Ex 106, MAE.0002.0059; T 1893.14; T 3406.47; Mr Watson's comments on Mr Emons' transcript of evidence to this Inquiry (Ex 427, MFW.0002.0002 at 0005,1893). i» Ex 242, AWB.5056.0374. »6 Ex 242, AWB.5056.0374. M 7 Ex 96, WST.0006.0001 at 0007-0008, para. 47. μ Ï 1898.40.
199 Ex 96, WST.0006.0001 at 0007-0008, para. 47. ⢠Ex 96, WST.0006.0001 at 0007-0008, para. 47. 201 Ï 1897.22. 202 T 2336.46-T 2337.1. 203 Ï 3406.41; Mr Watson's comments on Mr Emons' transcript of evidence to this Inquiry (Ex 427, MFW.0002.0002 at 0005,1897). 204 T 1896.40 (and also that it could not be paid to an Iraqi in Iraq through the US Treasury). 2® T 1896.47- T 1897.3. 206 Ex 243, AWB.5056.0157_R.
Ex 243, AWB.5056.0157_R. ⢠Ex 108, MAE.0001.0015. 299 Ex 109, AWB.5057.0063. 210 Ex 110, MAE.0001.0018. 211 Ex 112, MAE.0001.0052; AWB.0058.0270. a 2 Ex 96, WST.0006.0001 at 0007, para. 46; T 1896.
Ex 12, AWB.0087.0006. 214 Ex 12, AWB.0087.0006. 215 Mr Emons, T 1902-1903; Ex 111, AWB.0002.0195. 216 Ex 230, WST.0007.0014_R at 0025_R, para. 52. 217 Ex 230, WST.0007.0014_R at 0025_R, para. 52. 218 Ex 96, WST.0006.0001 at 0008, para. 52. 2» Ex 141, WST.0007.0001 at 0001, para. 2. 22» Ex 113, AWB.0071.0223. 221 Ex 144, MAE.0002.0066. 222 Mr Hogan, T 2019. Mr A1 Absi stated that Alia provided letters of introduction to AWB Limited in October 1999 at the request of Mr Watson and Mr Emons. The copy of the facsimile that is Ex 144,
MAE.0002.0066, bears a manuscript note from Mr A1 Absi m arked to the attention of Mr Hogan: 'reference our telephone call today'. 223 Ex 141, WST.0007.0001, para. 4, and accompanying minutes of a meeting between the 1SCWT and Alia and English translation thereof at Ex 141, WST.0007.0008. 224 Ex 141, WST.0007.0008. ^ Ex 729, AWB.0058.0239. 226 Ex 729, AWB.0042.0058. 227 Ex 1376, AWB.0042.0042_R. 228 Ex 244, AWB.5056.0390_R.
229 Ex 244, AWB.5056.0390_R. bo Ex 245, AWB.5056.0395.
231 Ex 245, AWB.5056.0395. It is apparent from this email, and was confirmed by Mr Emons in evidence, that Mr Emons had not linked Alia w ith the company Mr Daoud had said he would nominate (Ex 96, WST.0006.0001 at 0008, para. 52). 232 Ex 245, AWB.5056.0395. 233 T 1907. 234 Ex 116, A WB.0136.0642. ” 5 Ex 117, MAE.0001.0060. ” 6 Ex 117, MAE.0001.0061. 237 Ex 1013, MFW.0001.0012.
Report o f the Oil-for-Food Inquiry 1 5 1
238 According to Mr Emons, Mr Daoud told him that that the payment of 90 per cent of the inland transportation fee to Alia was to be a 'one-off' relating to the shipment on the Pretty Ruby, which was close to docking (T 1901 - T 1911). AWB could not use the shipowner to effect this payment (as had been envisaged) because the Pretty Ruby was already on the seas and there was no charter party set up which would support the paym ent (T 1912). As a consequence, Mr Daoud asked that AWB make the payment directly to Alia, on this one occasion only (T 1912). 23» Ex 118, MAE.0002.0069. 240 Ï 1912-13.
244 Ex 1368, AWB.0001.0007. 242 Ex 119, AWB.0002.0198. 243 Ï 1914.
244 T 1914. 245 In relation to the period of 2001 and 2002 — see Ex 960, INQ.0019.0001. 246 As is noted in later chapters, AWB also received correspondence from the ISCWT, both directly and from Alia, chasing payments of these fees and also questioning whether fees had been paid for particular shipments and vessels. 247 Ex 1376, AWB.0163.0003_R. 248 Ex 1447, AWB.0042.0009. 248 Ex 1376, AWB.0001.0167_R. 250 Ex 1470, AWB.0001.0105_R.
254 Ex 1447, AWB.0063.0029. 252 Ex 120, MAE.0001.0063. 253 Ex 429, AWB.0089.0309. 254 Ex 1376, AWB.0042.0080_R. 255 Ex 1347, AWB.0469.0106. 256 In the absence of any special provisions in the contract of sale, the duty of a seller under a CIF contract with regard to insurance is to effect at his own cost w ith reputable insurers a valid policy of marine insurance that shall be available for the benefit of the buyer, covering the transit contemplated by the contract, of the kind and on the terms current in the trade (with reference to the particular goods in question, the type of vessel, the route contemplated, the port of destination and any other considerations that may affect the risk), and in an amount representing the reasonable value of the goods (Biddell Bros, v E. Clemens Horst Co. [1911] 1 KB 214 at 220; [1912] AC 12; C Groom Ltd v Barber [1915] 1 KB 316 at 324; Johnson v Taylor Bros & Co. Ltd [1920] AC 144,149,156). 257 And the Australian Wheat Board before it. 258 See above. 259 This was also reflected in the bills of lading issued in respect of these shipments, which provided for the carriage of the w heat referred to from the nominated port of loading to the nominated port of discharge
(Umm Qasr). 260 See, for example, Ex 1447, AWB.0055.0235; Ex 1517, AWB.0026.0009; Ex 1519, AWB.0027.0059_R. 261 In the certificates the port of loading in Australia is nominated, as is the port of discharge. The box labelled 'Final destination / Transhipment' is blank or, in a very few certificates, completed by reference to 'Iraq'. This is also consistent with the recollection of Mr Johnstone, AWB's Chief Risk Officer from January 2001, which was that AWB had the wheat insured up until it passed the ship's rail as the 'dis-port' under AWB's 'corporate insurance program'. 282 Ex 1022, AWB.0058.0453_R at 0454_R. 283 Ex 214, AWB.0058.0437 at 0438, clause 8. 264 por example, Ex 729, AWB.0058.0426, AWB.0058.0427 at 0428, clause 8. 265 This was through the final clause of the short-form contract. 266 Ex 387, SN0.0001.0018_R at 0019_R. 267 Ex 1447, AWB.0058.0401, AWB.0058.0402 at 0405, clause 12. This requirement was not changed under the amendments to the letter of credit negotiated by Mr Lister (discussed in paras 13.60ff). 268 Being the contracts discussed more fully in Chapters 14 and 15. 289 Ex 1520, AWB.0042.0155_R; Ex 1518, AWB.0042.0293__R. 270 And also the grain traders.
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271 Or the grain traders. 272 This can be contrasted with, for example, when, in October 2001, AWB wished to ship some equipment from Toowoomba to Umm Qasr on one of its vessels and inquiries were made to arrange for the insurance of that equipment not only during the ocean transit but also during its transportation by road within A ustralia-see Ex 1521, AWB.5064.0315_R; Ex 1522, AWB.5060.0106_R. 273 Ex 99, MAE.0002.0037. m Ex 245, AWB.5056.0395. 273 Ex 427, MFW.0002.0002 at 0006, para. 1907. ⢠Ex 1523, AWB.0104.0296_R. 277 Although expressed to be free on truck in the long-form contract, this was to the same effect. 273 Ex 1376, AWB.0018.0028_R; Ex 542, DFT.0006.0014, DFT.0005.0147. 279 The circumstances in which this contract came to be concluded are examined in Chapter 23. so AWB.0104.0296. si AWB.0104.0296. 232 Ex 1524, AWB.0018.0300_R; Ex 1525, AWB.0248.0364_R; Ex 1526, AWB.0021.0014_R.
Report o f the Oil-for-Food Inquiry 1 5 3
14 October 1999: fu rth e r sales of w h e a t to Ira q
14.1 After Messrs Flugge, Rogers and Hogan visited Iraq in October 19991 AWB concluded two further contracts with the Iraqi Grain Board for the sale of wheat to Iraq. These became known as contracts A4821 and A4822. Both were dated 14 October 1999.
C ontract A 4821
14.2 Contract A4821 was for the sale of 25,000 tonnes of wheat, to be shipped to Iraq in November-December 1999. An offer had been made during the AWB delegation's discussions with the IGB in October 1999.2 The sale was subsequently confirmed in a facsimile from Mr Emons to the IGB dated 11 October 1999.3
14.3 A short-form contract dated 14 October 1999 was prepared for the sale.4 It was signed by Mr Emons on behalf of AWB. A copy was also signed in due course on behalf of the IGB.
14.4 This contract was treated as a contract under phase IV of the Oil-for-Food Programme.5 As a consequence, the wheat was shipped on GIF free out terms and sold for a CIF free out price.
14.5 There was no inland transportation fee payable by AWB in respect of this contract. The AWB short-form contract6 did not contain any reference to 'discharge costs' or an obligation on AWB to pay such costs.7
14.6 UN approval was sought in an application dated 29 October 1999.8 The application was accompanied by a copy of both the AWB short-form contract9 and the IGB long-form contract.10 Approval was not granted until 10 January 2000.11 The report12 that accompanied the approval indicated that the 'checking officer' had been Ms Johnston. The terms of the AWB short-form contract subsequently assumed some significance in relation to Ms Johnston's inquiries into what became known as the 'Canadian complaint'.13
14.7 The wheat was shipped to Iraq on the Pretty Lady II in March 200014, together with another parcel of approximately 20,000 tonnes remaining under an earlier contract, A4334, dated 24 December 1998.15 The wheat under that contract had also been sold by AWB to the IGB on CIF free out terms.16
Report o f the Oil-for-Food Inquiry 1 5 5
14.8 Although both parcels were shipped on the Pretty Lady II under contracts in respect of which no inland transportation fees were payable, AWB nevertheless paid inland transportation fees of US$12 per tonne on the shipment. The fees were paid by AWB Chartering to Tse Yu Hong Metal Limited for payment on to Alia.17 This was pursuant to the arrangement AWB then had in place to pay inland transportation fees to Alia through shipowners.18 The total amount paid was US$565,541.76.19 Of this, US$315,000 was for the wheat shipped under contract A4821.
14.9 The inland transportation fees paid to Tse Yu Hong Metal Limited were included by AWB Chartering in its invoice to the AWB Pool for 'freight'.20 Accordingly, the cost of the inland transportation fees for both parcels was ultimately borne by the AWB Pool.
14.10 Because the contract price (under contracts A4821 and A4334) was a CIF free out price and contained no inland transportation fee component, the AWB Pool was not reimbursed from the UN escrow account for the inland transportation fees paid in respect of both these parcels. As a result, the AWB Pool bore the cost of the inland transportation fees from the profit it otherwise
derived from those sales.
14.11 AWB Chartering also paid Tse Yu Hong Metal Limited an administration support fee of US$0.20 per tonne in respect of the two parcels shipped on the Pretty Lady II. The amount paid was US$9,425.70.21 This was as part of the arrangement AWB then had in place to pay inland transportation fees via Ronly Holdings Limited or its nominee.22 The payment was unnecessary: no inland transportation fee should have been paid in respect of either parcel on the Pretty Lady II in the first place.
14.12 In September 2000 AWB Chartering obtained reimbursement from the AWB Pool for all the administration support fees it had paid to Tse Yu Hong Metal Limited, including in relation to the shipment on the Pretty Lady 77.23 Accordingly, the AWB Pool also ultimately bore the cost of these administration support fees, among them the fees unnecessarily paid in respect of this shipment.
14.13 The Pool paid a sum of US$574,967.46 to AWB Chartering to reimburse it for moneys it paid for inland transport fees to Iraq and commission to Ronly. Neither AWB nor AWB Chartering had any contractual obligation to make such payments; nor were they entitled to charge the pool for moneys AWB Chartering wrongly disbursed.
1 5 6 Report o f the Oil-for-Food Inquiry
Contract A 4822
14.14 Contract A4822 was for the sale of a further 200,000 tonnes of wheat.
14.15 The offer of this wheat was dated 11 October 1999 and was made in a
facsimile from Mr Borlase to the IGB.24 The offer provided:
The cargo will be discharged free into truck to all silos w ithin all G overnates of Iraq at the average rate of 3000 m etric tonnes per w eather w orking day of 24 consecutive hours. The discharge cost w ill be a m axim um of USD12.00 and shall by p aid by Seller's to the nom inated M aritim e agents in Iraq.25
14.16 The offer was accepted by facsimile dated 17 October 1999. AWB was asked to
postpone submitting this contract to the UN 661 Committee for its approval until it (AWB) received further notice from the IGB.26 On 20 October 1999 the IGB asked that the contract not be submitted to the 661 Committee until the end of that month.27
14.17 The price offered by AWB was expressed as a O F Free in Truck' price.28 It
was exactly US$12 per tonne more than the price payable by the IGB under contract A4821.
14.18 A short-form contract29 and a long-form contract30 were prepared. On
27 October 1999 AWB faxed to the IGB a copy of the short-form contracts for both A4821 and A4822.31 Mr Borlase advised the IGB that contract A4821 had been submitted for UN approval but contract A4822 had been held back in accordance with the IGB's faxed instructions of 20 October 1999.32 On 15 November 1999 the IGB returned a signed copy of the short-form contract.33
14.19 The shipment clause in the AWB short-form contract was in the same terms as
the corresponding clause in the short-form contracts for contracts A4653 to A4655. It provided:
The cargo will be discharged Free into T ruck to all silos w ithin all G overnates of Iraq at the average rate of 3,000 m etric tons per w eather w orking day of 24
consecutive hours. The discharge cost w ill be a m axim um of USD12.00 an d shall by p aid by Sellers to the n om inated M aritim e A gents in Iraq. This clause is subject to U N approval of the Iraq distribution p lan .34
14.20 On 29 October 1999 Mr Borlase forwarded to Ms Watson of the Department of
Foreign Affairs and Trade a copy of both the AWB short-form contract and the IGB long-form contract with a request that DFAT forward the documentation to the United Nations on 1 November 1999.35 The 661 Committee approval was issued on 7 December 1999.36 It was accompanied by the customs officer's report that identified Ms Johnston as the reporting officer.37
Report of the Oil-for-Food Inquiry 1 5 7
14.21 The Australian permanent mission to the United Nations received the
approval on 9 December 1999. That day Ms Monies sent a copy of the approval by facsimile to DFAT in Canberra and to Mr Snowball in AWB's New York office.38 In her facsimile to Mr Snowball, Ms Monies advised that
the application for approval of contract A4821 was still before the United Nations, having been 'indirectly caught up' by some 'larger legal problem in the UN' 'concerning the legality or otherwise of making contracts null and void'.39
14.22 The wheat shipped in fulfilment of contract A4822 was shipped from
Australia between 16 March and 16 April 2000.40 An inland transportation fee was paid by AWB Chartering in respect of each of the shipments to Tse Yu Hong Metal Limited for payment to Alia.41 The cost of the inland transportation fee paid by AWB Chartering was recovered from the AWB Pool as part of the freight.42
14.23 For all but the last shipment under contract A4822, the amount of the inland
transportation fee paid by AWB Chartering was calculated at US$12 per tonne shipped. This was consistent with the 'discharge cost' appearing in the short- form contract. The AWB Pool was effectively reimbursed this cost from the escrow account through the addition of the inland transportation fee to the price payable by the IGB for each of these shipments.
14.24 For the last shipment under this contract, however, the inland transportation
fee paid by AWB Chartering was calculated at US$15 per tonne.43 This was notwithstanding the provision in the contract that the 'discharge cost' would be a maximum of US$12 per tonne.44 Accordingly, AWB bore an additional cost of US$3 per tonne in respect of this last shipment, for which it obtained no reimbursement.
C o n tra c ts for t h e in d ire c t s u p p ly of w h e a t to Ira q : t h e
R u ssian t r a d e
14.25 In December 1999 AWB concluded three further contracts for the sale of
wheat destined for Iraq. These contracts were not made with the IGB; instead, they were concluded with traders who purchased Australian wheat from AWB in order to fill contracts the traders had earlier concluded with the IGB.45 These earlier underlying contracts had been made by IGB as part of a deliberate policy of the Iraq Government allocating a certain proportion of its purchases under the Oil-for-Food Programme to companies in countries sympathetic to it and its attempts to remove the UN sanctions. The Russian Federation was a favoured country.
1 5 8 Report of the Oil-for-Food Inquiry
14.26 AWB sold wheat to these traders on the terms — other than price — on which
the IGB had agreed to purchase the wheat under the underlying contracts. The traders purchased the wheat from AWB at a price per tonne that was slightly less than the price payable by the IGB under the underlying contracts. The traders thus made a profit from the difference between the purchase price and the sale price.46
14.27 AWB sold the wheat to the traders on a 'GIF FOT to silo all governerates'
basis. Inland transportation fees were payable in respect of each shipment. The transportation fee was included in the wheat price. This was the basis on which the IGB had agreed to purchase the wheat under its underlying contracts. It was also the basis on which AWB sold wheat to the IGB directly
during this phase of the Oil-for-Food Programme.
14.28 The traders received payment for the wheat pursuant to letters of credit
established in their favour by the IGB, drawn on the UN escrow account. AWB was paid by the traders pursuant to 'back-to-back' letters of credit the traders established in AWB's favour, for the slightly lower price payable under AWB's contract.
14.29 In its final report, the Independent Inquiry Committee did not record the sales
AWB made to these traders in calculating the inland transportation fees paid by AWB during the Oil-for-Food Programme.47
14.30 None of the contracts between AWB and the traders was submitted to the
United Nations for its approval. Nor were they submitted to DFAT.48 AWB relied on approvals the 661 Committee had issued for the underlying contracts with the IGB.49 It was on the basis of these approvals that AWB sought and obtained, under r. 13CA of the Customs (Prohibited Exports)
Regulations, permission to export from Australia the wheat shipped under each of these contracts.50
C o n tra c t A 4 9 0 8
14.31 On 2 December 1999 AWB agreed to sell to Commodity Specialists Company
(CSC), a company based in Minneapolis, 100,000 tonnes of wheat.51 The contract was negotiated, booked and authorised by Mr Borlase52, under the supervision of Mr Emons.53 A written contract was prepared, embodying the terms of the agreement.54 It was signed by Mr Emons. It became known as contract A4908.
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United Nations Approval 14.32 The wheat sold under contract A4908 was shipped to Iraq in two shipments,
each leaving Australia in March 2000.55 The wheat was shipped pursuant to approvals that had been obtained from the UN 661 Committee by the Russian Federation in October 199956 on behalf of ZAO Concern Interrosagro.57 These were UN approval numbers 600400 and 600401. A copy of the approvals was provided by CSC to AWB on 1 February 2000.58 It was also against these approvals that the two shipments were declared to DFAT for the purposes of obtaining permission to export the wheat from Australia under r. 13CA of the Customs (Prohibited Exports) Regulations.59 Because of its reliance on these earlier approvals, AWB did not provide a copy of its contract with CSC to DFAT, either for the purposes of submission to the United Nations or for obtaining permission under r. 13CA.
Inland transportation fees 14.33 Clause 6 of contract A4908 provided:
6. PRICES
USD 150.00 per tonne CIF EOT to silo at all governates of Iraq via U m m Q asr port.
This price includes a fee of USD12.00 per tonne to be p aid directly by Sellers to G rain B oard of Iraq advised account, for each shipm ent at latest 3 days prior to the arrival of each shipm ent.60
A clause to similar effect appeared in AWB's export sales note.61
14.34 This contract clause makes clear that AWB knew that the US$12.00 per tonne
was a 'fee' that was going to the 'Grain Board of Iraq'. Any pretence that the 'fee' was for a 'discharge' cost or was a payment to a transportation company was dropped.
14.35 AWB Chartering paid inland transportation fees of US$12 per tonne in respect
of both shipments under this contract.62 The inland transportation fees for the first shipment were paid directly to Alia63; those for the second shipment were paid to Tse Yu Hong Metal Limited for payment on to Alia.64 AWB Chartering was reimbursed the cost of these fees by the AWB Pool. The AWB Pool in turn obtained reimbursement of the cost of these fees from the proceeds of sale drawn from the back-to-back letter of credit established in AWB's favour by CSC.
Negotiation of the letter of credit 14.36 The contract provided for payment to be made by a confirmed irrevocable
sight letter of credit to be established by the buyer (CSC) and advised through and confirmed by an Australian bank acceptable to AWB (as seller) for an
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amount equal to the full CIF value of the shipment, payable to one of AWB's US dollar accounts in New York.65
14.37 On 28 December 1999 CSC advised of its receipt from the IGB of the IGB letter
of credit (presumably in favour of CSC) and asked AWB whether any amendments were required.66 Mr Lister replied on 29 December 1999, enclosing a copy of the most recent letter of credit AWB had received from the IGB, together with a copy of the required amendments.67 Mr Lister wrote:
Y our attention is particularly d raw n to the am endm ents regarding the end
destination of the goods after discharge at U m m Q asr w hich w e w ere able to get deleted as w e have no control of these goods and U N inspectors role is based on arrival of vessel a t d isp o rt—no further.68
14.38 Later that same day CSC sent a fax to AWB, inquiring in relation to the amendments AWB had sought to the letter of credit:
4) Please advise w h y the follow ing w as deleted on y o u r LC:
'FO T to silo at all provinces as m entioned below via U m Q aser port'
'th e n by trucks to final destination CIF FOT to silo at all Iraqi provinces ... Thi-Q ar'
'o n ly from U m Q aser to CIF Iraqi Provinces listed above'
This shipm ent w as sold CIF all Iraqi provinces —
w o u ld n 't it be necessary to just delete CMR docum ent and prepare statem ent that goods w ill be delivered to all Iraqi provinces?69
14.39 Mr Lister replied on 30 December 1999:
4. F.O.T. to silo etc:
W ithout going into a lengthy diatribe on this m atter w e /o u r bankers w ere initially concerned w ith n o t only the tw o incoterm s included in the L /C re d it b u t in regards to w here the control / paym ent m echanism is triggered by the U nited N ations secretary designee.
A fter m uch discussion and given th at the stan d ard ized confirm ation by U.N. inspector is d ep en d en t only on the arrival of the exported goods in Iraq w e w ere able to convince IGB to delete any reference to the final destination of these goods to the various nam ed provinces from the letter of credit as long as it rem ained in our contract of sale.
I am confident that given o u r previous arrangem ents w ith IGB th at you should have no difficulty getting these am endm ents processed and to offer extra com fort to you the am endm ents th at w e have requested over our recent letters of credit u n d er the U.N. / B.N.P. facility are invariably alw ays the
sam e —it w o u ld ap p ear th at nobody at the I.G.B. w orries about am ending
Report o f the Oil-for-Food Inquiry 1 6 1
their letter of credit application that they present to the C entral Bank of Iraq. W e just have to be tolerant w ith them as it all w orks o u t in the end an d they n ever refuse to arrange all the am endm ents.70
14.40 Although an amended letter of credit was subsequently produced by the IGB, it was not in the terms proposed by AWB. On 29 February 2000 CSC sent a facsimile to Mr Lister in which it asked whether AWB would be prepared to accept what was being proposed.71 Mr Lister replied on 1 March 200072:
Thanks your facsimile dated 29 February 2000.
C ontents of sam e have been n oted and I share your frustrations as to w h at
direction this is taking. It w ould appear that in the change of operational
personnel at the G rain Board of Iraq that the ongoing problem s w ith regards to the free from live and d ead inspects and fungus spots clausing are now
accom panied by their need to m ake unnecessary references in the L / C redit to the end destination (i.e. govern ates/p ro v in ces etc).
W e h ad a long and protracted exchange of m essages w hen the trucking is su e /e n d destination w as first included in our co n tracts/cred its w ith our direct business back in O ctober 1999 an d w e argued (successfully) that as far as the U nited
N ations designees role in this exercise w as that they w ould only issue the
standard confirm ation based on the vessel arriving and discharging at U m m Qaser.
W hat transpired after that was entirely in the hands of the trucking
company/I.G.B. as to w h at governates and provinces w ere serviced and
distribution of tonnage w hich w as after the sign o ff/a p p ro v a l and beyond the role of the U.N. Inspectorate at U m m Q asr.73 [em phasis added]
14.41 On 6 March 2000 CSC sent a facsimile to AWB, providing a copy of two telexes CSC had received from the IGB and asking74, 'Please advise what approach we should use regarding the "CIF F.O.T. to silo to all governerates of Iraq'".75 The first telex76 was relevant to CSC's request of Mr Lister. It read:
... W ould like to clarify to you that as w e already agree w ith correspondent bank (BNP) to rem ain the condition of (CIF F.O.T. to silo to all governerates of Iraq) and you should pay the tran sp o rt charges like other com panies contracted w ith also AWB Lim ited. So w e can not delete this condition.
A nd be advised that C otecna rep o rt is for the p urpose of paym ent of shipm ent valu and w ill be w hen w e receive the w heat in U m m Q user port, w e confirm that the vessel not discharge unless you pay the tran sp o rt charges.
So you are kindly requested to coordinate w ith Iraqi State Co. for W ater
T ransport — Basrs ... Att. Mr W arojan Fax 00873761226137.77
14.42 Mr Lister replied on 7 March 200078:
T hanks y o u r facsimile dated 06 M arch and contents of sam e have been noted.
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1. I u n d erstan d th at o u r M r M ark Em ons has been discussing these issues w ith M oiz and in a nutshell his com m ents to m e (to an sw er your query) is th at w e do not w ish for there to be any reference in o u r ([deleted] L /C ) letter of credit w ith regards to the governates / provinces —w e fought a long an d protracted battle w ith IGB to have this excluded from our L /C s w ith IGB and do not consider that sam e needs to form p a rt of our L /C s. Once the vessel has
arrived an d discharged an d standardized confirm ation is issued by the U.N. Inspectorate w h at hap p en s to the goods after th at is strictly beyond o u r / y o u r control an d as such should not im pinge on L /C requirem ents.79
14.43 On 14 March 2000 CSC faxed to AWB two further telexes it had received from
the IGB.80 The first telex referred to the first shipment of the wheat under this contract: 'Pis advise us in details regarding inland transport charges of a.m. vessel as the transfer should be before five days of arrival vessel ...'81 The second telex repeated what had been said in the IGB's telex that accompanied CSC's fax of 6 March 2000:
RY tlx d 'd 9 /3 /2 0 0 0
W ould like to inform you th a t w e can not am end L /C as you requested in above tlx as CBI already agree w ith correspondent b ank (BNP) to rem ain the condition of (CIF F.O.T. to silo to all governerates of Iraq) and y o u should p ay the tran sp o rt
charges like other com panies contracted w ith also AWB Lim ited ,..82
CSC asked of AWB, 'Please advise your comments'.83
14.44 Mr Lister responded on 15 March 2000:
T hanks your facsimile dated 14 M arch an d contents of sam e have been noted.
I have also passed a copy of sam e to our M r M ark Em ons an d suggested that he n eeds to call M oiz and discuss this m atter further.
I am com pletely a t loss w ith the lam e brain excuse given you by the G rain Board of Iraq w ith regards to their non-ability to change as the C entral Bank has already agreed w ith BNP —if they request CBI to am end the L / C then BNP w ill surely act on those instructions — they d id for AWB direct business — w here is the difference.
W e p u sh ed long an d h a rd to get this sam e term inology rem oved from the letter of credit(s) that w e had w ith o u r IGB direct business an d pointed o u t to them that (A) how could w e have tw o incoterm s obviously at variance w ith each other —i.e. you either have CIF or FOT not both an d (B) w e successfully argued that after
they initially set up o u r LCs they h ad firstly one of the requirem ents being
trucking consignm ent notes for tonnage delivered to all of the various governates an d provinces (w hat a nightm are that w o u ld have been if I h ad not deleted said clause) an d secondly th at th e trigger for p ay m en t is solely b ased on the U.N. Inspectorate issuing the standardized confirm ation for the cargo at the p o rt of U m m Q asr — not at various provinces as this can n o t be m onitored and is strictly o u t of the U.N. / o u r / your control.
I do n o t see any h arm in you m entioning th a t it has been rem oved from o u r L / Cs an d given th at y o u r / o u r L /C is basically back to back w e w ould greatly
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appreciate them review ing the situation an d assisting you / AWB in finalizing this m atter as it could inevitably cause problem s for both you / AWB m aintaining their cu rren t program m e.
I feel the problem is still related to the new changes in personnel at the IGB and a lack of understan d in g as to how the process w orks ...
Do you feel that m entioning that AWB are p u sh in g you for the am endm ents to o u r L/ C redit w o u ld help y o u r cause ??M
14.45 On 27 March 2000 AWB received from Rabobank a copy of the letter of credit that had been established by CSC.85 Relevantly, that letter of credit:
⢠identified the price per tonne in terms 'CIF all Iraqi governorates via Um- Qaser'
⢠described the final destination as 'CIF all Iraqi governorates. A declaration from beneficiary stating that the goods will be delivered to all Iraqi governorates is required'.86
14.46 By facsimile to CSC dated 27 March 2000, Mr Lister asked that these provisions be amended so that both the price per tonne and the destination were described as 'CIF Um-Qaser'.87 These requests were again rejected by the IGB. In a telex dated 26 March 200088, which CSC copied to AWB on 27 March 200089, the IGB said of these amendments:
But w e can not delete the following:
- all Iraqi governerates via U m m Q user
- final destination CIF all Iraqi governerates
As these procedures agreed u p o n w ith U.N.S.C 661.
- regarding procedure of w heat delivery to all Iraqi governerates is inserted in all L/Cs.90
14.47 With a view to resolving this impasse, AWB sought to approach the IGB directly to obtain its agreement to its proposed changes.91 In particular, Mr Emons was to discuss the matter with the IGB during a forthcoming visit.
14.48 Mr Lister repeated AWB's position regarding these provisions of the letter of credit in a facsimile to CSC dated 6 April 2000:
We cannot / will n o t m ention or refer to the Iraqi governorates / provinces and w hen M ark [Emons] goes into B aghdad next M onday he will be stressing sam e to our buyers.
We require to issue o u r invoice strictly show ing 'CIF Free o u t U m -Q aser p o rt' as per initial L /c re d it.92
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Conclusion 14.49 Whilst the price at which AWB sold its wheat under its contract A4908 with CSC was expressed to be 'CIF FOT to silo all governates of Iraq via Umm Qasr port', AWB did not regard itself as being contractually bound to arrange for
the delivery of the wheat shipped to the silos or otherwise beyond the port. So much is apparent from Mr Lister's attempts to amend the letter of credit for the payment of the wheat sold by deleting any reference to such an obligation. As Mr Lister wrote in his facsimile of 7 March 200093, 'what happens to the wheat once the vessel has arrived and it has been discharged is strictly beyond the control of AWB and even CSC'.94
14.50 Moreover, it was the Iraqis (whether it be the IGB or the Iraqi State Company for Water Transport95) who were not only responsible for the discharge and transportation of the wheat on arrival in Umm Qasr but whom AWB viewed as being responsible. This was so notwithstanding that, in relation to the
shipments made under this contract, there was no contractual relationship between AWB and the IGB.
14.51 The only obligation on AWB under the terms of its contract with CSC was as seller to pay the fee of US$12 per tonne to the 'Grain Board of Iraq advised account' at least three days prior to the arrival of each shipment, as provided for by clause 6 of the contract. There can be little doubt from the plain terms of clause 6 that this fee was to be paid to the Iraqis: it was to be paid to their nominated account. The fee was paid by AWB to Alia in respect of both shipments under this contract as the IGB advised account (consistent with clause 6), not because Alia had contracted to transport the wheat within Iraq or because AWB had, under the terms of its contract with CSC, contractually assumed that obligation and employed the services of Alia to discharge that obligation. So much is apparent from Mr Lister's attempts to amend the terms of the letter of credit in the way he did.
C o n tr a c ts A 4 9 0 6 a n d A 4 9 0 7
14.52 In December 1999 AWB concluded the sale of 125,000 tonnes of wheat to Savas Grain and Commodities Ltd (Savas Grain). This sale was split between two contracts, A4906 and A4907, both dated 14 December 1999.
14.53 In the negotiation and execution of both of these contracts, AWB corresponded with Mr de Spoelberch and Mr Lossev.
Contract A4906 14.54 Contract A490696 was for the sale of 100,000 tonnes.97 This contract was booked and authorised by Mr Borlase.98
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14.55 The wheat sold under this contract was shipped by AWB in two shipments,
leaving Australia on 21 and 24 February 2000."
14.56 The shipments were made pursuant to an approval obtained from the UN 661
Committee by the Russian Federation on 14 September 1999100 on behalf of JSC 'International Economic Cooperation' of Moscow.101 This was UN approval number 600020. The General Manager of Savas Grain, Mr Lossev, was also Vice President of JSC 'International Economic Cooperation'.102 This approval was subsequently extended.103
14.57 AWB sought and obtained from DFAT permission to export these two
shipments from Australia to Iraq under r. 13CA of the Customs (Prohibited Exports) Regulations, relying on this UN approval.104
14.58 Because of its reliance on this earlier approval the United Nations had issued
to the Russian Federation, AWB did not provide to DFAT a copy of its contract with Savas Grain for the purposes of submission to the United Nations or to obtain permission to export under r. 13CA.
14.59 Clause 6 of the contract was in the same terms as clause 6 of contract A4908. It
provided:
6. PRICES
USD [deleted] per tonne GIF EOT to silo at all governates of Iraq via U m m Q asr port.
This price includes a fee of USD12.00 per tonne to be p aid directly by Seller to G rain Board of Iraq advised account, for each shipm ent at latest 3 days prior to the arrival of each shipm ent.105
14.60 On 24 February 2000 the IGB sent a telex to Savas Grain, referring to the two
shipments under this contract (which at that stage were loading) and inquiring, 'Also advise us in details regarding inland transport charges as transfer of in land transport charges should be before five days of arrival vessels'.106 Savas Grain faxed a copy of this telex to Mr Emons with a request that AWB prepare a response and fax it back to Savas Grain for forwarding to the IGB.107
14.61 AWB Chartering paid the inland transportation fees in respect of both
shipments under contract A4906. The fee payable was calculated at US$12 per tonne, consistent with clause 6 of the contract. It was paid in two instalments.108 The first instalment, of 90 per cent of the total amount payable, was paid by AWB Chartering to Alia directly on 3 March 2000109 and 10 March 2000.110 The documents produced by AWB to this Inquiry do not show whether the second instalment, the remaining 10 per cent, was paid or,
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if so, when.111 There is no reason for it not to have been paid, and it is assumed that it was paid.
14.62 AWB Chartering was fully reimbursed by the AWB Pool for the cost of the inland transportation fees payable. This was through the 'freight' AWB Chartering charged the pool for the carriage of these two shipments to Iraq.112
Contract A4907 14.63 Contract A4907113 was for the sale of 20,575 tonnes114 for delivery at Umm Qasr. This contract was also booked and authorised by Mr Borlase.115
14.64 The contract was for the balance of the purchase of wheat that remained unfulfilled under two earlier contracts under phase V of the Oil-for-Food Programme116, being the contracts the subject of UN approval numbers 50071117 and 50173.118 Both of these approvals had been obtained by the Russian Federation.
14.65 Savas Grain advised AWB on 9 December 1999 that 'the payment of USD12 per mton for inland transportation is not required'.119 Contract A4907 did not require payment of any fee.120
14.66 AWB was also advised in a facsimile of 9 December 1999 that the price for the sale of wheat under contract A4907 was 'O F Free Out Umm Qasr port'.121 The price at which the wheat was sold by AWB to Savas Grain was exactly US$12 per tonne less than the 'O F FOT to silo all governates of Iraq' price payable under contract A4906.122
14.67 Because of its reliance on the approvals the UN 661 Committee had issued to
the Russian Federation, AWB did not provide a copy of this contract with Savas Grain to DFAT, either for the purposes of submitting it to the United Nations or for obtaining from DFAT permission to export the wheat from
Australia pursuant to r. 13CA of the Customs (Prohibited Exports) Regulations.
14.68 AWB shipped 20,506.97 tonnes under contract A4907.123 It was shipped on the
same vessel as one of the shipments under contract A4822.
14.69 Although no inland transportation fees were payable in respect of the wheat shipped under contract A4907, on 31 March 2000 AWB Chartering paid inland transportation fees equivalent to US$12 per tonne for all the wheat carried on board that ship (including that portion referable to contract A4907).124 The fees were paid to Tse Yu Hong Metal Limited for payment on to Alia.125
14.70 This payment was made at the same time and in conjunction with the
payment made by AWB Chartering in respect of the wheat shipped on board
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the Pretty Lady II under contracts A4821 and A4334. This was notwithstanding that no inland transportation fees were payable under those two contracts either.126
14.71 AWB Chartering was reimbursed by the AWB Pool for the cost of the inland transportation fees paid to Tse Yu Hong Metal Limited in respect of the wheat shipped under contract A4907. This was as part of the 'freight' that AWB Chartering invoiced the pool for its carriage to Iraq.127
14.72 Since the inland transportation fee did not form part of the price and thereby payment that the AWB Pool received for the wheat sold and shipped under contract A4907128, the pool ultimately bore the cost of this inland transportation fee as a reduction in the profit it otherwise would have earned on the sale.
14.73 AWB Chartering also paid Tse Yu Hong Metal Limited an administration support fee of US$0.20 per tonne in respect of the wheat shipped under contract A4907.129 This payment was unnecessary: no inland transportation fee should have been paid in respect of that portion of the wheat shipped on
that vessel referable to contract A4907. The amount of this administration support fee paid by AWB Chartering to Tse Yu Hong Metal Limited for this shipment under contract A4907 was US$4,101.39. This was paid at the same time that AWB Chartering paid the administration support fees for the shipment under contract A4821 on the Pretty Lady IT130
14.74 AWB Chartering obtained reimbursement from the AWB Pool for the cost of the administration support fee it paid in respect of this shipment under contract A4907.131 Accordingly, it was the AWB Pool that ultimately bore the cost of this administration support fee, which ought not to have been paid at all.132
C o n clu sio n
14.75 The AWB Pool paid US$250,185.03 to AWB Chartering to reimburse it for moneys it paid for inland transport fees to Iraq and commission to Tse Yu Hong Metal Limited for commission. Neither AWB nor AWB Chartering had any contractual obligation to make such payments; nor were they entitled to charge the pool for monies AWB Chartering wrongly disbursed.
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Notes
1 This visit is dealt with more fully in Chapter 13. 2 Ex 1376, AWB.5058.0070 at 0071.
3 Ex 1450, AWB.0058.0153. 4 Ex 1450, AWB.0058.0143_R. An earlier copy signed only by Mr Emons was submitted to the United Nations (Ex 729, AWB.0058.0128). ' '
5 The sale represented part of an unallocated portion of the phase IV wheat purchases. 6 Ex 1450, AWB.0058.0143_R; Ex 729, AWB.0058.0128. 7 Compare with the short-form contracts for contracts A4653 to A4655 (discussed in Chapter 13) and A4822
(discussed in this chapter). 8 Ex 729, AWB.0058.0127. 9 Ex 729, AWB.0058.0128. 10 Ex 729, AWB.0058.0129-33. 41 Ex 729, AWB.0058.0125-6. 12 Ex 729, AWB.0058.0134. 13 See Chapter 16. 14 Ex 1450, AWB.0045.0028, AWB.0045.0017_R. 15 Ex 1450, AWB.0039.0103_R (bill of lading), AWB.0045.0026_R (AWB invoice for shipment referred to in the bill of lading indicating the contract under which that shipment was made) and AWB.0039.0020_R (short- form contract for AWB contract A4334). 16 The price under that contract was expressed simply as a CIF price. That contract also contained no clause providing for the payment of discharge costs to the nominated maritime agents. 17 Ex 1450, AWB.0045.0013_R, AWB.0163.0170_R, AWB.0045.0003_R, AWB.0046.0058_R. 18 See Chapter 18 for a more complete discussion of this arrangement. 19 This formed part of payment of a larger sum (US$1,140,953.76) paid by AWB Chartering to Tse Yu Hong Metal Limited in respect of the shipments on board both the Pretty Lady 11 and the Agios Nikolas K (Ex 1450, AWB.0045.0013JR). 20 Ex 1450, AWB.0045.0016_R. The ocean freight AWB Chartering invoiced the AWB Pool for this voyage was US$14 per tonne more than the ocean freight AWB Chartering paid the owners of the vessel (Ex 1450, AWB.0045.0015_R). Presumably part of that additional US$14 per tonne included the recovery of the US$12 per tonne inland transportation fee that AWB Chartering paid in respect of the two shipments carried on this voyage. 21 Ex 1450, AWB.0046.0058_R, AWB.0046.0002_R, AWB.0045.0013_R. 22 This arrangement is discussed in more detail in Chapter 18. 23 On 22 September 2000 AWB Chartering invoiced the AWB Pool for US$300,000, for the total amount of administration support fees payable by AWB Chartering to Tse Yu Hong Metal Limited under the arrangement that AWB concluded w ith Ronly in March 2000 (Ex 349, AWB.0088.0351_R). In this way, the cost of these fees was passed on by AWB Chartering to the AWB Pool. 24 Ex 1451, AWB.0058.0079_R. 25 Ex 1451, AWB.0058.0079_R at 0080_R. 28 Ex 1451, AWB.0058.0078_R. 27 Ex 1451, AWB.0058.0069_R. 28 Ex 1451, AWB.0058.0079_R at 0080_R. 29 Ex 729, AWB.0058.0075; Ex 1451, AWB.0058.0068_R. 30 Ex 729, AWB.0058.0070_R-0074_R; Ex 1451, AWB.0058.0070_R-0074_R. 31 Ex 1451, AWB.0058.0064_R. 32 Ex 1451, AWB.0058.0064_R. 33 Ex 1451, AWB0058.0067_R. 34 Ex 729, AWB.0058.0075; Ex 1451, AWB.0058.0068_R. 33 Ex 729, AWB.0106.0069.
36 Ex 729, AWB.0058.0061. 37 Ex 729, AWB.0058.0063. 38 Ex 561, AWB.0058.0059; Ex 729, AWB.0058.0059.
Report o f the Oil-for-Food Inquiry 1 6 9
39 Ex 729, AWB.0058.0059. 40 This included a shipment of w heat from Port Kembla on the Prima II, a cape-size carrier, which was the first attempt by AWB to use a vessel of that size for the delivery of w heat to Iraq. This w heat was transhipped from the Prima II onto three feeder vessels in the Middle East before the Prima II arrived at Iraq. These three feeder vessels were then used to carry the w heat from the transhipm ent point to the berth at Umm Qasr. 41 This was pursuant to the arrangement AWB made in late 1999 to pay inland transportation fees through
shipowners. See Chapters 13 and 18 for a more complete description of this arrangement. 42 For each shipment made under this contract, AWB Chartering charged the AWB Pool 'freight' at a rate per tonne (for example, Ex 1451, AWB.0046.0082_R) that was sufficient to cover both the ocean freight AWB Chartering had to pay the owners/ disponent owners of the vessels used to carry this w heat to Iraq (for example, Ex 1451, AWB.0046.0081_R) and the inland transportation fee of US$12 per tonne payable in respect of that shipment (for example, Ex 1451, AWB.0046.0079_R). 43 Ex 1451, AWB.0046.0068_R. ' 44 Ex 1451, AWB.0046.0068_R, AWB.0052.0251_R. 45 T 2987.24-28. 46 This difference was usually up to about US$5 per tonne. 47 See Figure 12.1 in Appendix 12 for a list of the contracts the Independent Inquiry Committee attributed to AWB in its final report. This is to be compared with Table 13.1 in Appendix 13, which sets out a complete list of the contracts for the supply of w heat to Iraq in the period from July 1999 in respect of w hich AWB paid inland transportation fees, including the contracts it entered into w ith these traders. 48 T 2987.38 - T 2988.3. 49 T 2987.30-32. This is considered in more detail later in this chapter in the context of each of the individual contracts. so Ï 2987.34-6. This is considered in more detail later in this chapter in the context of each of the individual contracts. 51 Plus or minus 5 per cent at seller's option (Ex 1446, AWB.0056.0237âR). 52 Contract A4908 (Ex 1446, AWB.0056.0242_R). 53 T 2976.20-24. 54 Ex 1446, AWB.0056.0243_R. 55 The first shipment was shipped from Portland in Victoria on 4 March 2000 (Ex 1446, AWB.0049.0017_R); the second shipment was from Geelong in Victoria on 30 March 2000 (Ex 1446, AWB.0049.0004_R). 56 Ex 729, AWB.0056.0182-0183. 57 Ex 729, AWB.0056.0151. 58 Ex 1446, AWB.0056.0181_R. 59 Ex 1446, AWB.0049.0009_R, AWB.0056.0141_R-0142_R (in relation to the first shipment); Ex 1446, AWB.0049.0018_R, AWB.0056.0085_R-0086_R (in relation to the second shipment). 6(1 Ex 1446, AWB.0056.0243_R at 0244_R. 64 Ex 1446, AWB.0056.0242_R. 62 Ex 1446, AWB.0163.0112_R, AWB.0163. 0113J ? (in relation to the first shipment); Ex 1446, AWB.0163.0125_R, AWB.0163.0126_R (in relation to the second shipment). 63 Ex 1446, AWB.0163.0112_R. 64 Ex 1446, AWB.0163.0125_R. This was again pursuant to the arrangement that AWB then had in place to pay inland transportation fees to Alia via shipowners. 65 Ex 1446, AWB.0056.0243_R at 0244_R. 66 Ex 1446, AWB.0056.0215_R. 67Ex 1446, AWB.0056.0204_R-0213_R. 68 Ex 1446, AWB.0056.0204_R. 69 Ex 1446, AWB.0056.0200_R. 70 Ex 1446, AWB.0056.0197_R at 0198_R. 71 Ex 1446, AWB.0056.0137_R. 72 Ex 1446, AWB.0056.0134_R. 73 Ex 1446, AWB.0056.0134JC 74 Ex 1446, AWB.0056.0124_R.
1 7 0 Report o f the Oil-for-Food Inquiry
75 Ex 1446, AWB.0056.0124_R. 76 Ex 1446, AWB.0056.0125JU 77 Ex 1446, AWB.0056.0125JU 78 Ex 1446, AWB.0056.0122JU 79 Ex 1446, AWB.0056.0122_R. 80 Ex 1446, AWB.0056.0117_R. si Ex 1446, AWB.0056.0118_R. 82 Ex 1446, AWB.0056.0118_R. 88 Ex 1446, AWB.0056.0117__R. 84 Ex 1446, AWB.0056.0114_R-0115_R. ss Ex 1446, AWB.0056.0078_R-0084_R. 8« Ex 1446, AWB.0056.0078_R at 0082_R. 87 Ex 1446, AWB.0056.0075_R. 88 Ex 1446, AWB.0056.0074_R. 88 Ex 1446, AWB.0056.0073_R. 90 Ex 1446, AWB.0056.0074_R. 91 Ex 1446, AWB.0056.0065_R. 97 Ex 1446, AWB.0056.0061_R. 93 Ex 1446, AWB.0056.0122_R. 94 Notwithstanding the terms of CSC's contract w ith the IGB. 95 Which is referred to in this context in the IGB's telex at Ex 1446, AWB.0056.0125_R. 96 Ex 1445, AWB.0057.0209_R-0212_R. 97 Plus or minus 5 per cent at seller's option. 98 Ex 1445, AWB.0057.0208_R. Mr Borlase was also the author of the AWB correspondence with Savas Grain and recipient of the correspondence from Savas Grain in the negotiation of this contract. 99 Ex 1445, AWB.0047.0021_R (in relation to the first shipment), AWB.0047.0040_R (in relation to the second
shipment). 100 Ex 729, AWB.0057.0161. 101 Ex 729, AWB.0057.0162 (application for UN approval). 103 Ex 1513, AWB.0057.0058; Ex 1376, AWB.0057.0059. m3 Ex 720, AWB.0057.0029. 104 As to the first shipment under this contract, Ex 729, AWB.0057.0101, AWB.0057.0099-0100; as to the second shipment under this contract, Ex 729, AWB.0057.0097, AWB.0057.0095-0096. 405 Ex 1445, AWB.0057.0209_R at 0210_R. The price payable by Savas Grain under this contract was also the price AWB received under contract A4908. 106 Ex 1445, AWB.0102.0024_R. 107 Ex 1445, AWB.0102.0024_R.
108 This was notwithstanding that there was no term to this effect in the contract between AWB and Savas Grain and no agreement between them otherwise to that effect. It appears that these inland transportation fees for these two shipments under this contract were paid in two instalments, consistent with arrangements AWB had made w ith IGB in relation to shipments under AWB's contracts with IGB directly at that time. i” Ex 1445, AWB.0047.0020_R, AWB.0064.0009_R. 14(1 Ex 1445, AWB.0087.0081_R, AWB.0064.0012JT 444 The circumstances surrounding payment of this remaining instalment and the documents establishing it are also not identified in the Perrier Hodgson spreadsheet for this contract: A4906 (Ex 1377, AWB.0130.0006JR). 442 For example, in relation to the first shipment, the 'freight' charged by AWB Chartering (Ex 1445,
AWB.0047.0023_R) was sufficient to cover both the ocean freight that AWB Chartering had to pay the ow ner/disponent owner of the vessel (Ex 1445, AWB.0047.0024_R-0025_R) as well as the inland transportation fee of US$12 per tonne payable in respect of that shipment. 443 Ex 1452, AWB.0057.0204_R.
444 Plus or minus 5 per cent at seller's option. 445 Ex 1452, AWB.0057.0203_R. Mr Borlase was also the author of the AWB correspondence with Savas Grain and recipient of the correspondence from Savas Grain in the negotiation of this contract.
Report o f the Oil-for-Food Inquiry 1 7 1
U6 Ex 1452, AWB.0057.0008J2; Ex 729, AWB.0136.0071, AWB.0057.0092, AWB.0057.0113. 117 The first was a contract that had been initially approved by the United Nations on 2 February 1999 (UN approval num ber 50071). This contract had been for the supply of 50,000 tonnes of Ukrainian w heat (plus or minus 5 per cent). The total quantity of w heat able to be shipped under that contract w as 52,500 tonnes. Of this 50,220.68 tonnes had already been delivered. An addendum signed by the IGB and JSC International Economic Cooperation was submitted to the United Nations to change the origin of the w heat being purchased from Ukrainian w heat to Australian w heat and to reduce the price for the unfulfilled balance of the contract (2,279.35 tonnes). The effect of this addendum and the amendments it contained was to allow the supplier (JSC International Economic Cooperation) to fill the balance of this earlier contract with Australian w heat at the agreed reduced price. The supplier also successfully sought an extension of the validity of the letter of approval to allow for this further shipment to take place (see Ex 729, AWB.0136.0071). 118 The second contract had been initially approved by the United Nations on 12 February 1999 (UN approval no. 50173). That contract was also for the supply of 50,000 tonnes (plus or minus 5 per cent). Of a total quantity of 52,500 tonnes able to be shipped, 34,272.38 tonnes had been delivered. An addendum signed by the IGB and JSC International Economic Cooperation was submitted to the United Nations in relation to this contract, again to change the origin of the w heat being purchased from Ukrainian wheat to Australian w heat and to reduce the price for the unfulfilled balance of that contract. The effect of this addendum and the amendments it contained w ould result in the supplier (JSC International Economic Operation) filling the outstanding balance of that earlier contract (namely, 18,227.62 tonnes) w ith Australian wheat at the reduced price. The supplier had also successfully sought an extension of the validity of the letter of approval to allow for this further shipment to take place (see Ex 1452, AWB.0057.0092). 119 Ex 1452, AWB.0057.0192_R at 0193_R. ‘ 120 Ex 1452, AWB.0057.0204.R at 0205_R. 121 Ex 1452, AWB.0057.0192_R at 0193_R. 122 Confirming that the inland transportation fee was simply added to what was the otherwise CIF free out price to yield the CIF FOT to silo all governorates price. 123 Ex 1452, AWB.0046.0102_R, AWB.0046.0095_R. I2» Ex 1452, AWB.0046.0079_R. 125 This was again pursuant to the arrangement that was then in place for payment of inland transportation fees via shipowners. See Chapters 13 and 18 for a more complete description of this arrangement. 126 See above. 117 Ex 1452, AWB.0046.0082_R —the freight being an amount sufficient to cover the ocean freight paid by AWB to the shipowners (Ex 1452, AWB.0046.0081_R) together with the inland transportation fee of US$12 per tonne that was incorrectly paid by AWB Chartering in respect of this shipment. 128 As noted, the price at which the w heat was sold under this contract was US$12 per tonne less than the price paid to AWB under its contract where inland transportation fees were payable (such as contract A4906). 129 Ex 1452, AWB.0046.0002_R.
130 See above.
131 This was at the same time and in the same way discussed above (and also in Chapter 18). 132 This is in the same way that the pool also bore the cost of the administration support fees paid in respect of the two parcels under contracts A4821 and A4334 shipped on the Pretty Lady II, which ought not to have been paid for the same reason.
1 7 2 Report of the Oil-for-Food Inquiry
15 January 2000: a deletion to the AWB short-form contract
N egotiation of a f u rth e r sa le of w h e a t
The c o m m e n c e m e n t of n e g o tia tio n s
15.1 In January 2000 AWB commenced negotiations with the Iraqi Grain Board for a further sale of wheat to Iraq as part of phase VII of the Oil-for-Food Programme. Phase VII operated from 12 December 1999 to 8 June 2000.1
15.2 Clause 10 of the Iraqi wheat tender specified:
10 —Price:
CIF Free on Truck to silo at all governarate of Iraq. C ost of discharge at U m m Q user and land tran sp o rt w ill be U.S.D (14) per m etric ton. To be p aid to the Land T ransport Co. for m ore details contact Iraqi M aritim in Basrah
Iraqi State Co. for W ater T ransport — Basrah Tel - F a x .......
T lx ...............
E n m a rs a t: ............
A t t : M r W arojan
Fax : ............... 2
15.3 On 6 January 2000, after rejecting on price AWB's initial offer, the IGB responded with a counter-offer in which the price was expressed to be 'GIF free in truck to silos all Governate of Iraq via Umm Qaser'.3 This was the term used in the phase VI contracts.
15.4 AWB rejected the counter-offer from the IGB and responded with its own counter-offer. By facsimile to the IGB dated 7 January 2000, Mr Emons wrote, 'In the spirit of good will and our long friendship we are prepared to re-offer under the same terms as phase 6, but with the inclusion of a higher transport cost and also reflecting higher market values at USD [deleted] per tonne'.4 That offer was not accepted by the IGB. Further offers were made by both AWB and the IGB, in the same terms as their earlier offers except as to price.
Report of the Oil-for-Food Inquiry 1 7 3
Offering to pay a 'higher transportation cost' to the IGB makes sense only if it is known the sum is going to the IGB.
15.5 On 19 January 2000 AWB made a further and 'final offer' open for 24 hours at a price per tonne that was expressed to be '... CIF on IGB terms as per our previous contract A4822'.5 (Contract A4822 was a phase VI contract with the term 'The C.I.F., Free in truck price per tonne of ... USD [deleted] per tonne'.6)
T he c o n c lu s io n o f c o n t r a c t s A 4 9 7 0 , A 49 7 1 a n d A 49 7 2
15.6 Eventually, following discussions between Mr Emons and Mr Daoud on 19 or 20 January 2000, a sale was agreed. The total quantity of wheat to be sold was split between three contracts —AWB contracts A4970, A4971 and A4972.
15.7 On 20 January 2000 Mr Emons confirmed the terms of the agreement and sale. The agreed price was stated to be a 'CIF free in truck' price. Paragraph 5 of Mr Emons' facsimile included, under the heading 'Shipment', a provision in the following terms:
The cargo w ill be discharged free into truck to all silos w ithin all G overnates of Iraq at the average rate of 3000 m etric tonnes p er w eather w orking day of 24 consecutive hours. The discharge cost shall be p aid by Seller's to the nom inated m aritim e agents in Iraq. This clause is subject to U N approval of the Iraq
D istribution P lan.7
Although this clause did not specify the amount of the 'discharge costs' to be paid, there was recorded on the last page of the facsimile a manuscript note of the Î/Rate', FOB price and inland transportation fee ('Truck') and the amount of each. The amount given for the inland transportation fee was US$15 per tonne.8 This coincided with the inland transportation fee that was recorded in the initial draft of AWB's short-form contract9 and that was eventually paid by AWB in respect of shipments made under these contracts.10
15.8 Following conclusion of these contracts, both AWB and IGB prepared short-
form and long-form contracts respectively for execution in the usual way.
The Iraqi Grain Board's long-form contract 15.9 The IGB prepared a long-form contract for each of contracts A4970, A4971 and
A4972. Each was essentially on the same terms as the IGB's recent contracts with AWB under phase VI of the Oil-for-Food Programme. Each contract was dated 20 January 2000 and signed by Mr Abdul-Rahman as Director General of the IGB. The contracts provided, 'Price: USD [deleted] PMT CIF FOT to silo at all governorate of Iraq via Umm Qasr Port'.11 Receipt by AWB of each of
1 7 4 Report o f the Oil-for-Food Inquiry
these signed contracts was acknowledged by Mr Borlase in a facsimile to Mr Abdul-Rahman on 2 February 2000.12
The AWB draft short-form contracts 15.10 A draft short-form contract was prepared within AWB for each of the three contracts A4970, A4971 and A4972.13 Each was dated 20 January 2000. Apart from the price, tonnages sold and shipment dates, each was in substantially
the same terms as the short-form contracts that had been prepared for the earlier phase VI contracts between AWB and the IGB (contracts A4653, A4654, A4655 and A4822). In particular, each of the draft short-form contracts initially prepared for contracts A4970, A4971 and A4972 contained the following provision in the shipment clause:
The cargo w ill be discharged Free into Truck to all silos w ithin all G overnates of Iraq at the average rate of 3,000 m etric tons per w eather w orking day of 24
consecutive hours. The discharge cost w ill be a maximum of USD 15.00 and shall by paid by Sellers to the nom inated M aritime Agents in Iraq. This clause is subject to U N approval of the Iraq d istrib u tio n .14 [em phasis added]
15.11 This clause was in terms identical to those of the corresponding clause that appeared in the short-form contracts for the earlier phase VI contracts save for:
⢠the presumably inadvertent omission of the word 'plan from the end of the clause
⢠the 'discharge cost' payable being expressed to be a maximum of US$15 per tonne (rather than US$12 per tonne, as it had been in each of the earlier contracts).
The clause was also consistent with the terms of the shipment clause set out in Mr Emons' facsimile of 20 January 200015, except that the amount of the 'discharge costs' was now expressly stated.
15.12 There is no evidence as to when these draft short-form contracts were prepared or by whom.
15.13 Short-form contracts were not executed by AWB or the IGB until February 2000. Further, the short-form contracts that were signed were in terms materially different from those of the drafts.
Report o f the Oil-for-Food Inquiry 1 7 5
E x e c u tio n o f t h e AWB s h o r t - f o r m c o n t r a c t s fo r c o n t r a c t s A 4 9 7 0 , A 4 9 7 1 a n d A 4 9 7 2
15.14 On 2 February 2000 Mr Borlase sent a facsimile to Mr Grenenger of the Department of Foreign Affairs and Trade, advising of AWB's recent sale to the IGB, advising that the sale had been split between three individual contracts, enclosing a copy of the IGB's long-form contracts and AWB's short-form contracts for each of the contracts, and asking that this documentation be forwarded to the United Nations for approval.16
The same day Mr Borlase sent a facsimile to Mr Abdul-Rahman, acknowledging receipt of the IGB's signed long-form contracts, enclosing a signed copy of each of AWB's short-form contracts, and advising that the contracts had been sent to the United Nations for processing.17
15.15 Each of the AWB contracts had been signed by Mr Emons, although incorrectly in the place for execution by the IGB. As a result, Mr Borlase sent a further facsimile to the IGB, dated 2 February 200018, asking that the contracts that had been forwarded earlier be ignored. Enclosed with this facsimile was a further copy of the short-form contracts A4970, A4971 and A4972, again signed by Mr Emons (but in the correct place this time). Mr Borlase asked that each of the contracts be signed by the IGB and sent back promptly because the UN 661 Committee had stipulated to AWB that it would not process the documentation without the signature of both parties on the same document.19
15.16 A copy of the short-form contracts was subsequently signed by Mr Abdul- Rahman on behalf of the IGB20 and returned to AWB on 7 February 2000.21
UN a p p r o v a l
15.17 By facsimile dated 4 February 2000, Mr Borlase sent to DFAT a copy of the three AWB short-form contracts signed by AWB and the IGB stating:
A s a result of the U nited N ations sanction com m ittee requesting both signatures on AWB contracts, please find attached the three contracts in question returned w ith the appropriate signatory. C ould you please replace the contracts sent on Feb 2nd 2000 and forw ard to U nited N ations for ap p ro v al.22
15.18 On 7 February 2000 a 'Notification or request for shipment of goods to Iraq' for each of these contracts was submitted to the United Nations for the approval of the UN 661 Committee.23 Each was accompanied by a copy of the short-form contract signed by both AWB and the IGB.24
The contracts were approved by the 661 Committee under approval letters dated 1 March 2000 and issued 3 March 2000.25 A copy of the approval was
1 7 6 Report o f the Oil-for-Food Inquiry
sent by facsimile by Ms Monies (at the Australian permanent mission to the United Nations) to Mr Snowball at AWB's US office on 6 March 2000.26
15.19 On 7 March 2000 Mr Emons sent a facsimile to the Iraqi Minister for Trade (Mr Saleh), copied to the Director General of the IGB (Mr Abdul-Rahman).27 This followed a telephone conversation between Mr Emons and the Minister the preceding Sunday. In his facsimile, Mr Emons advised that AWB had received '... UN approval for all three contracts [that is, A4970, A4971 and A4972] totalling [deleted] tonnes with inclusion in the price of the trucking fee and 60 cartons of Phostoxin per contract'.28 [emphasis added]
15.20 Although the price in each of the contracts AWB submitted to the United Nations included reimbursement of the inland transportation fee of US$15 per tonne that AWB had to pay prior to discharge of each shipment, the short- form contract submitted to DFAT, and through it to the United Nations, contained no reference to that fee, AWB's obligation to pay it, or its inclusion as a component of the price for which the wheat had been sold. Moreover, also deleted from the short-form contracts before they were submitted to DFAT and the United Nations was the clause referring to the 'discharge costs' in the same amount.
The c h a n g e in t h e t e r m s o f t h e AWB s h o r t - f o r m c o n t r a c t s
15.21 The short-form contracts that were eventually signed in February 2000 for each of contracts A4970, A4971 and A4972 were not in terms identical to those of the draft contracts previously referred to.
15.22 In particular, the words 'The discharge cost will be a maximum of USD 15.00 and shall by paid by Sellers to the nominated Maritime Agents in Iraq. This clause is subject to UN approval of the Iraq distribution'29, which had appeared in the shipment clause in the draft short-form contracts (as well as the short-form contracts for the earlier phase VI sales, save only for a change in the amount of the discharge fee), had been deleted from the version of the
short-form contracts that was eventually signed and submitted to the United Nations for approval.
15.23 This was notwithstanding that the same words (apart from the specification of the amount of the discharge cost payable) appeared in Mr Emon's facsimile of 20 January 2000 confirming the terms of the sale and that AWB did agree with the IGB to pay a fee of US$15 per tonne in respect of the wheat to be shipped.30
Report of the Oil-for-Food Inquiry 1 7 7
15.24 Thus, the true agreement reached between AWB and the IGB, that the wheat would be sold
CIF Free on T ruck to all silos w ithin all governates of Iraq .... A trucking fee of
USD 15 p er tonne w ill be paid ... As per p revious contracts, this p ay m en t w ill be m ade as p er y o u r instruction to the T ransport com pany nom inated by yourself31
became
The cargo will be discharged Free into T ruck to all silos w ith in all G overnates of Iraq ... The CIF Free in Truck price per tonne of 1000 kilos is U nited States of
A m erica D ollars as follows: US$ [deleted] p er to n n e32
in the contracts submitted to the United Nations for approval.
15.25 The short-form contracts AWB submitted to the United Nations did not reflect the terms of the agreement AWB had concluded with the IGB.
15.26 Mr Borlase could not recall whether he prepared these contracts, although he said that in the ordinary course they would have been prepared by Mr Lister or someone from Mr Lister's group.33
Mr Borlase's evidence was that he believed the change was made in compliance with instructions from the Account Manager, Mr Emons, to bring the terms of the AWB short-form contract into line with those of the long-form contract prepared by the IGB, which was also submitted to the United Nations.34 Although Mr Emons had no specific recollection of the circumstances in which this change had been made, he said, 'It may well have been ... We didn't want to advertise the fact that we were paying a fee'.35
15.27 Mr Officer assumed that a conscious decision had been made to remove the clause.36 He said removal of the clause was consistent with AWB's position not to highlight the payment of the discharge (or trucking) fees.37 Mr Officer did not recall any conscious decision or discussion leading to a decision to change the contract term.38 His belief was that the change was likely to have been made by Mr Emons or one of his team. He believed that Messrs Emons, Borlase and Lister would have been made aware of the change. Mr Officer did not believe the change was discussed with anyone else within AWB.39
According to Mr Officer, one reason the contract term was changed might have been that this was an attempt to avoid attention being drawn to the trucking arrangements when the 'Canadian complaint' was still current.40 This would have been consistent with AWB's position of downplaying the matter of trucking fees and not drawing attention to the arrangement, despite the IGB's advice to Mr Emons that the United Nations had approved the trucking arrangements.
1 7 8 Report o f the Oil-for-Food Inquiry
15.28 There can be no sensible justification for the change in the terms of the AWB written contract to delete the reference to 'a trucking fee of USD 15 per tonne' in the short-form contracts to be submitted to the United Nations, whilst between AWB and the IGB the obligation to pay that sum remained, other
than a desire to hide from the United Nations the fact of payment of significant sums in US dollars to an Iraqi entity and to avoid drawing attention to the fact that such sum was included in the contract price that would be paid from the UN escrow account. That was the reason the change was made.
I n la n d t r a n s p o r t a t i o n f e e s
15.29 Despite the deletion of the reference to discharge costs from the AWB short- form contracts, there was nevertheless still an agreement by AWB to pay an inland transportation fee in relation to the shipments under contracts A4970, A4971 and A4972. That fee was US$15 per tonne, as provided for in the draft
short-form contract.41
Mr Emons confirmed that AWB would pay the 'trucking fee of USD 15' in a facsimile to Mr Abdul-Rahman on 9 February 2000:
To confirm our conversation of yesterday. AWB Ltd agree with the terms of the contract that a trucking fee of USD 15 per tonne will be paid on the three contracts of 300,000 tonnes each. As per previous contracts, this payment will be made as per your instruction to the Transport company nominated by yourself.42
15.30 There was further confirmation of this agreement on 1 April 2000, in a facsimile from Mr Watson to Alia43 headed 'Australian wheat, inland trucking, Iraq phase VII', in which Mr Watson wrote, 'For sake of good order, 1 would confirm that we have been informed that the trucking fee will be USD15 p/m t for this phase and will be effected for vessels sailing ex Australia from 1st April 2000'.44 Mr Watson went on to advise that these fees were to be remitted to Alia's nominated account upon the vessels sailing from Australia.
15.31 On the evidence before the Inquiry, there is no indication why the fee of US$15 per tonne was paid when the cost disclosed in the wheat tender45 was US$14 per tonne, when it was that the inland transportation fee payable under this contract (or phase VII) was increased from US$14 per tonne to US$15 per tonne, and when it was that AWB agreed to the increase.
15.32 AWB Chartering paid inland transportation fees of US$15 per tonne on each of the shipments made in fulfilment of contracts A4970, A4971 and A4972. For each shipment, the full amount of the fee due, calculated by reference to the tonnage of wheat loaded, was paid by AWB Chartering prior to each vessel's arrival at Umm Qasr. A total of US$13,954,493.55 was paid between April and
Report o f the Oil-for-Food Inquiry 1 7 9
September 2000 in respect of the inland transportation fees for these shipments.
15.33 AWB Chartering was in turn reimbursed the cost of these fees by the AWB Pool. This was through the 'freight' the pool paid to AWB Chartering for the carriage of each shipment to Iraq. The AWB Pool in turn recovered the cost of the fees through the proceeds of the letters of credit drawn on the UN escrow account, which were paid following the discharge of the wheat from the vessels at Umm Qasr.
15.34 All the inland transportation fees paid by AWB in respect of each of the shipments made under these three contracts were paid to Alia. For some shipments, the payments were made by AWB Chartering to Alia directly. For others, the payment was made indirectly, through shipowners and Ronly Holdings Limited. This indirect method of payment is examined in
Chapter 18.
A lia's n o m in a tio n o f H a r d y 's A g e n ts
15.35 On 10 February 2000 Alia sent to AWB a facsimile in terms very similar to those of its facsimile of 7 December 199946:
Reference is m ad e to the agreed term s and conditions of the contract for the sale and delivery of A ustralian W heat to U m m Q asr, Iraq.
Alia for T ransportation & G eneral Trade, A m m an, Jordan is ap pointed to arrange all trucking u n d er this contract an d it is u n d ersto o d that rem ittances to Alia for T ransportation & G eneral trade for agreed trucking fees should be effected at least seven (7) days prior to the arrival of vessels at U m m Qaser.
M oreover, Alia for T ransportation & G eneral T rade to be advised of the vessel's nam e , Q uantity of cargo on board, enabling necessary arrangem ents to be m ade at port.
Pyam ents relating to the agreed trucking costs to be rem itted to the follow ing nom inated com pany unless otherw ise advised
H ard y 's A gents Lim ited ... [bank details deleted] H ong Kong A ccount N o ... [details deleted]47
Mr Watson did not inquire of Alia why it was nominating payment to a bank account in Hong Kong or the bank account of a company in Hong Kong for 'trucking fees' in Iraq.48
15.36 On 10 February 2000 Mr Emons sent a facsimile headed 'Payment instructions' to Mr A1 Absi at Alia, advising, 'Our shipping company has
1 8 0 Report o f the Oil-for-Food Inquiry
informed us this morning that they have been advised of problems in transferring the trucking fee to your account. As a result will be transferred directly to your previously nominated account'.49 There then appeared the details of the Alia bank account in Jordan, as set out in the facsimile of
7 December 1999.50
15.37 There is no evidence about the circumstances in which this facsimile of
10 February 2000 was sent by Mr Emons. Nevertheless, it would appear to have been sent because of difficulties that were being experienced in remitting funds to the account of Hardy's Agents nominated in Alia's facsimile of the
same date.51 The 'shipping company' referred to in Mr Emons' facsimile was, in all likelihood, Hyundai Merchant Marine Co. Limited, with whom it was later said there was an arrangement to pay inland transportation fees to Hardy's Agents.52 Hyundai was one of the shipping companies used by AWB
to pay inland transportation fees indirectly to Alia (in the manner discussed in Chapter 18). The thrust of Mr Emons' message was that, despite Alia's facsimile of 10 February 2000 and the instruction it contained, inland transportation fees would continue to be paid to its earlier advised account in Jordan.
15.38 On 20 February 2000 Mr Watson sent a facsimile to MrAlAbsi at Alia,
thanking him for Alia's letter of 10 February 2000 and stating, Î would confirm that in accordance with our telephone conversation, the trucking payments will be made accordingly until such time as you advise otherwise'.53
Mr Watson could not recall the circumstances in which this facsimile came to be sent by him.54 There is no evidence either as to what was said during the telephone conversation with Mr A1 Absi that is referred to in Mr Watson's facsimile or as to the manner in which the trucking fees were to be paid,
including the recipient of those fees, as a consequence of that conversation. Nevertheless, having regard to the payments that were made by AWB Chartering shortly after this facsimile55, it is inferred that what Mr Watson was here agreeing to was the same as Mr Emons' earlier proposal —payment
to the bank account of Alia in the manner nominated in its facsimile of 7 December 1999.56
Report o f the Oil-for-Food Inquiry 1 8 1
Two f u r t h e r c o n tr a c t s w ith S a v a s G rain & C o m m o d itie s Limited
15.39 At the same time as AWB was documenting its contracts A4970, A4971 and A4972 it was also negotiating a further sale of wheat to Savas Grain & Commodities Limited for delivery to Iraq. Savas Grain was purchasing wheat from AWB in order to fill an underlying contract the IGB had allocated to the Russian Federation.
C o n tr a c t A 49 9 3
15.40 On 4 February 2000 Mr Emons sent a facsimile to Savas Grain57, confirming a sale of wheat 'as a result of discussions held with Mr Mark Emons'. The facsimile set out the terms of the contract; clause 6 was in the following terms:
(6) PRICES
USD [deleted] p er tonne CIF FOT to silo at all governates of Iraq via U m m Qasr port.
This price includes a IGB nom inated trucking fee to be p aid directly by Sellers to T rucking C om pany advised account, for each shipm ent at latest 3 days prior to the arrival of each sh ip m en t.58
15.41 On 7 February 2000 Savas Grain proposed a reduction in the quantity of grain to be sold and some other changes to the terms of the contract pertaining to quality and payment.59 None of these changes, which were agreed to by AWB on 11 February 200060, affected in any way clause 6 or AWB's obligation under this contract to pay the 'trucking fee' contemplated by that clause. This sale became AWB contract A4993.
15.42 Savas Grain was buying this wheat from AWB so that it might in turn satisfy the underlying contract between the IGB and JSC 'International Economic Cooperation' dated 7 February 2000.61 That contract was in the standard IGB long form. The price at which the IGB agreed to purchase wheat from JSC 'International Economic Cooperation' was expressed to be 'GIF F.O.T. to silo at all governerate of Iraq via Umm Quser port'. The contract otherwise made no mention of discharge costs or inland transportation (or trucking) fees. A copy of the IGB's underlying contract with JSC 'International Economic
Cooperation' was provided to AWB by facsimile from Savas Grain on 14 February 2000.62
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15.43 An export sales note was prepared within AWB, setting out the terms of this sale. It was dated 14 February 2000 and the details included:
Export Contract Comment: Px includes a IGB nom trucking fee to be paid drctly to sellers to truck co for each shpt at latest 3 days prior shpt.63
15.44 A four-page contract was prepared and signed on behalf of both AWB and Savas Grain.64 It incorporated the changes agreed on 11 February 2000.
Clause 6 of that contract was in the same terms as clause 6 of the facsimile of 4 February 2000:
(6) PRICES
USD [deleted] per tonne CIF FOT to silo at all governates of Iraq via Umm Qasr port.
This price includes a IGB nominated trucking fee to be paid directly by Sellers to Trucking Company advised account, for each shipment at latest 3 days prior to the arrival of each shipment.65
15.45 This clause differed slightly from that appearing in AWB's earlier phase VI contract with Savas Grain.66 In particular:
⢠The fee was now described as 'a IGB nominated trucking fee'.
⢠The amount of the fee was no longer disclosed (although there can be no doubt that AWB was aware of the amount of the fee payable under this contract at the time).
⢠Payment was now expressed to be to the 'Trucking Company advised account', rather than 'Grain Board of Iraq advised account'.
15.46 This clause was retained in both AWB's facsimile of 4 February 2000 and the contract signed by AWB, despite the deletion of the reference to the discharge costs from AWB's short-form contracts for contracts A4970, A4971 and A4972, which were concluded and signed at about the same time.
15.47 Consistent with the agreement contained in clause 6 of contract A4993, AWB paid inland transportation fees of US$15 per tonne for each of the shipments made under this contract. The fees were paid by AWB Chartering in the same way as the inland transportation fees paid by AWB in relation to the
shipments made under its contracts with the IGB directly. AWB Chartering was in effect reimbursed the cost of these fees by the AWB Pool through the 'freight' it charged the pool in relation to each shipment under this contract.
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15.48 AWB did not obtain the approval of the UN 661 Committee for its contract with Savas Grain. Approval of the underlying contract was obtained by the Russian Federation67, which had lodged an application on behalf of JSC 'International Economic Cooperation' as exporter.68 A copy of that approval
(including the accompanying report and the application) was faxed to AWB by Savas Grain on 28 March 2000.69 As a result, AWB did not lodge a copy of its contract with Savas Grain with DFAT.
15.49 In applying to DFAT for permission pursuant to r. 13CA of the Customs (Prohibited Exports) Regulations to export the wheat sold under this contract from Australia, AWB relied on the UN approval obtained by the Russian Federation for the underlying contract between the IGB and JSC 'International Economic Cooperation' (approval number OC. 700143).70
C o n tr a c t A 0 6 6 2
15.50 After contract A4993 had been concluded, AWB entered into a contract for the sale of a further parcel of wheat to Savas Grain. This was contract A0662, dated 15 March 2000.71 The sale was for the amount by which contract A4993 had been reduced on 7 February 2000. It was at the same price and on the same terms and conditions as contract A4993, including clause 6.72 Under the terms of this contract, AWB was liable to pay, and did in fact pay, inland transportation fees in respect of the wheat shipped. These fees were paid by AWB Chartering in the same way as has already been described for AWB's earlier contracts.
15.51 As with contract A4993, AWB did not obtain UN approval for contract A0662. UN approval of the underlying contract was obtained by the Russian Federation73, which lodged an application on behalf of JSC 'International Economic Cooperation' as exporter.74 A copy of that approval (including the accompanying report and the application) was faxed to AWB by Savas Grain on 4 May 2000.75
A n o th e r s a le to C o m m o d ity S p e c ia lis ts C o m p an y
15.52 On 6 April 2000 AWB concluded another sale of wheat to Commodity Specialists Company of Minnesota.76 This was contract A0101.
15.53 Clause 6 of that contract was in the following terms:
6. PRICES
USD [deleted] per tonne CIF FOT to silo at all governates of Iraq via Umm Qasr port.
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This price includes a fee of USD 15.00 per tonne to be paid directly by Sellers to Grain Board of Iraq advised account, for each shipment at latest 3 days prior to the arrival of each shipment.77
The same clause had also appeared in AWB's fax confirming the terms of the contract.78 Both clauses were in terms substantially similar to those appearing in AWB's earlier contracts with CSC79 and Savas Grain.
15.54 As with those earlier contracts, AWB did not obtain UN approval for contract A0101. That approval was obtained by the Russian Federation. The approval (number OC.700498) was dated 3 May 2000 and issued on 12 May 2000.80 A copy was provided by CSC to AWB under cover of a facsimile dated 13 July 2000.81
15.55 The letter of credit to be established in favour of AWB was (as with earlier shipments) amended so as to delete references to the price being 'FOT to silo at all Iraqi governorates ,..'82
15.56 Consistent with the agreement contained in clause 6 of this contract, AWB paid inland transportation fees of US$15 per tonne in respect of the three shipments made under this contract. These fees (which amounted to more than US$1.3 million) were paid by AWB Chartering and reimbursed from the AWB Pool in the same way as AWB's other contracts with both Savas Grain and the IGB directly.
C oncluding o b s e r v a t i o n s
15.57 Under the contracts for the sale of wheat that AWB concluded with both the IGB and the grain traders Savas Grain and CSC in early 2000, AWB agreed to pay a trucking fee of US$15 per tonne to a company nominated by the IGB.
15.58 AWB's agreement to pay that fee was not included in its short-form contracts with the IGB, which contracts had to be submitted to the United Nations for approval. Moreover, the reference to 'discharge costs' and AWB's obligation to pay those costs that had earlier appeared in the drafts of AWB's contracts with the IGB (as well as in AWB's earlier phase VI contracts with the IGB) was deliberately deleted from the copy of the contracts signed by AWB and the IGB in February 2000.
15.59 AWB's agreement to pay this trucking fee was, however, expressly referred to in the terms of its contracts with Savas Grain and CSC, which contracts did not have to be submitted to the United Nations. This was so even in respect of the contracts AWB concluded with Savas Grain and CSC after AWB's decision
Report of the Oil-for-Food Inquiry 1 8 5
to delete the reference to 'discharge costs' from its contracts with the IGB and despite that decision.
15.60 It is obvious that the agreement to pay the fee was omitted from contracts to be submitted to the Department of Foreign Affairs and Trade and the United Nations in order to prevent discovery of payment of the fee. A conscious decision must have been made within AWB to deceive the Department of Foreign Affairs and Trade and the United Nations.
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Notes
1 Ex 585, UN0.0009.0052. 2 Ex 802, MAE.0001,0066_R at 0067_R.
3 Ex 1376, AWB.0136.0605_R. 4Ex 1376, AWB.0136.0604_R. 5 Ex 1376, AWB.0136.0149_R. 6 Ex 1451, AWB.0058.0068_R. 7 Ex 1376, AWB.0136.0133_R at 0134_R. s Ex 1455, AWB.0059.0530 at 0532. 8 See below; see also Ex 773, AWB.0420.0090_R, AWB.0420.0091_R, AWB.0420.0092_R. 10 See further below. 11 Ex 801, AWB.0059.0561_R, AWB.0136.0120_R, AWB.0136.0125_R. 12 Ex 407, AWB.0136.0137. 13 Ex 773, AWB.0420.0090_R, AWB.0420.0091_R, AWB.0420.0092_R.
14 For example, Ex 805, WST.0031.0008_R. is Ex 1376, AWB.0136.0133_R at 0134_R. 16 Ex 799, AWB.0069.0046JR. 47 Ex 797, AWB.0136.0137_R. is Ex 798, AWB.0136.0143_R. 18 Ex 798, AWB.0136.0143_R. 20 Ex 800, AWB.0110.0255_R, AWB.0110.0256_R, AWB.0110.0257_R. 21 Ex 773, AWB.0420.0109_R, AWB.0420.0110_R; Ex 997, AWB.0420.0111_R, AWB.0420.0112_R. 22 Ex 551, AWB.0069.0047, AWB.0069.0048, AWB.0069.0049, AWB.0069.0050. 23 Ex 729, AWB.0059.0559, AWB.0059.0550, AWB.0059.0541. 24 Ex 1221, UN0.1212.0009, UN0.1212.0010-0014,UN0.1212.0119, UN0.1212.0120-0125, UNO.1212.0236, UNO.1212.0237-0241. 25 Ex 560, AWB.0059.0527, AWB.0059.0528, AWB.0059.0529. 23 Ex 560, AWB.0059.0526. 27 Ex 132, AWB.0136.0088. 23 Ex 132, AWB.0136.0088. 28 For example, Ex 805, WST.0031.0008_R. 30 Ex 1376, AWB.0136.0133_R. 34 Ex 1376, AWB.0136.0133_R; Ex 128, MAE.0001.0080. 32 Contract A4970 at Ex 1453, AWB.0059.0565JC 33 T 6682.39. 34 p 2985.31. Although this was the only change made to the short-form contracts. None of the provisions of
the long-form contracts were sought to be introduced into the short-form contracts. No other provision of the short-form contract was am ended so as to match the long-form contract. In so far as the short-form and long-form contracts were brought into line, it was by the omission from both written contracts of the trucking fee or cost of discharge and transportation that AWB had agreed (as a term of the contract for sale) to pay to the company nominated by the IGB. 35 Ex 95, INQ.0004.0001 at 0092. 36 Ex 805, WST.0031.0001 at 0003, para. 12. 37 Ex 805, WST.0031.0001 at 0003, para. 12. 38 Ex 805, WST.0031.0001 at 0003, para. 13. 38 Ex 805, WST.0031.0001 at 0003-0004, paras 12,13,14 and 17. 43 Ex 805, WST.0031.0001 at 0004, para. 19. 44 Compare with US$14 per tonne in the wheat tender (Ex 802, MAE.0001.0066_R at 0067_R). 42 Ex 128, MAE.0001.0080. 43 Ex 434, AWB.0001.0077. 44 Ex 434, AWB.0001.0077. 45 Ex 802, MAE.0001.0066 at 0067. 46 Ex 120, MAE.0001.0063.
Report o f the Oil-for-Food Inquiry 1 8 7
47 Ex 995, AWB.0420.0117_R. 48 T 3425.13-18. 49 Ex 1368, AWB.0001.0009. 50 Ex 120, MAE.0001.0063. 51 Mr Emons' facsimile was headed 'Payment instructions', which would appear to be a reference to Alia's facsimile of 10 February 2000, having regard to its contents. 52 On 6 June 2000 Hyundai Merchant Marine Co. Limited were (via their brokers) referred to the 'current agreement' in place for H yundai to pay trucking fees to H ardy's Agents and were instructed that these fees were henceforth to be paid to Tse Yu Hong Metal Limited (Ex 437, AWB.5079.0223âR). There is no evidence before this Inquiry as to whether any payments were ever m ade by Hyundai Merchant Marine Co. Limited to H ardy's Agents and, if so, in respect of which AWB shipments. In particular, there is no evidence as to whether any payments were in fact made to H ardy's Agents under the agreement referred to in Ex 437, AWB.5079.0223_R, having regard to Mr Emons' facsimile of 10 February 2000. 83 Ex 431, AWB.0001.0087. 84 T 3425.2; T 3425.6. 88 The first payments of inland transportation fees to be made by AWB following Mr Watson's and Mr Emons' exchanges with Alia on 10 February and 20 February 2000 were paid by AWB Chartering to Alia directly on 3 March and 10 March 2000 (Ex 1449, AWB.0064.0011_R, AWB.0087.0081_R) to the bank account of Alia nominated in its facsimile of 7 December 1999. 86 Ex 120, MAE.0001.0063. 87 Ex 1376, AWB.0059.0260. 88 Ex 1376, AWB.0059.0260_R at 0261_R. 89 Ex 1376, AWB.0059.0258_R. 60 Ex 1376, AWB.0059.0259_R. 61 Ex 729, AWB.0059.0247, AWB.0059.0248, AWB.0059.0249. 62 Ex 729, AWB.0059.0247. 83 Ex 1376, AWB.0059.0265_R. 64 Ex 1376, AWB.0053.0080_R. 68 Ex 1376, AWB.0053.0080_R at 0081_R. 66 Ex 1445, AWB.0059.0542_R. 87 Ex 1376, AWB.0059.0242_R. 88 Ex 1376, AWB.0059.0244_R. 89 Ex 1376, AWB.0059.0241_R, AWB.0059.0242_R, AWB.0059.0243_R, AWB.0059.0244_R. 70 Ex 1376, AWB.0053.0057_R; Ex 1456, AWB.0053.0058_R. 71 Ex 1376, AWB.0059.0254JL 72 Ex 1376, AWB.0059.0254J? at 0255_R. 73 Ex 1376, AWB.0059.0236JL 74 Ex 1376, AWB.0059.0237_R. 78 Ex 1457, AWB.0059.0235_R, AWB.0059.0236, AWB.0059.0237_R, AWB.0059.0238_R. 78 Ex 360, AWB.0059.0123_R. 77 Ex 360, AWB.0059.0123_R. 78 Ex 363, AWB.0059.0117_R. 79 Ex 1446, AWB.0056.0243. See also Chapter 14. 80 Ex 1377, AWB.0059.0116_R. 81 Ex 1377, AWB.0059.0115_R. 82 Ex 1376, AWB.0059.0104_R at 0105_R; amendment confirmed at Ex 1376, AWB.0059.0065 at 0066. As to the earlier negotiations, see Chapter 13.
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16 January to March 2000: the Canadian com plaint
Ja n u ary 2 000: th e initial q u e ry
16.1 On 4 January 2000, MrAlmstrom, the Director Chief of the Contracts Processing Section of the Office of the Iraqi Programme sent a note to Mr Sevan, the Executive Director of the OIP, headed 'Irregularity in Iraqi contracting'.1
16.2 In his note, Mr Almstrom reported to Mr Sevan that on 21 December 1999 he had received:
... a query from M r Berne S aunders at the C anadian perm an en t m ission
p ertaining to a contract betw een the [Iraqi] M inistry of T rade an d the C anadian W heat B oard in w hich the seller is req u ired to deposit $700,000 in a Jordanian b ank account, allegedly to cover 'tra n sp o rt costs in Iraq for 141 MT of w h eat.'2
16.3 Mr Berne Saunders was a Lieutenant Colonel stationed at the Canadian permanent mission to the United Nations. The reference in Mr Almstrom's note to transport costs for Î41 MT' of wheat was a typographical error and should have read transport costs of '$14 per MT' of wheat.3
16.4 Mr Almstrom reported that he had advised Lt Col Saunders:
that all paym ents for procurem ent by the G overnm ent of Iraq u n d er the 'oil for food' program m e w ere to be m ade to the U nited N ations Iraq A ccount in N ew York. W ere th e contract to pass th ro u g h the C anadian governm ent an d be
subm itted to OIP, w e w ould therefore re tu rn it for am en d m en t to paym ent term s.4
16.5 Mr Almstrom provided a copy of this note to Ms Johnston on 4 January 2000 and asked her to investigate Lt Col Saunder's query.5
16.6 Ms Johnston was engaged by the OIP in its Contracts Processing and Monitoring Division on secondment from British Customs.6 She was employed in the as Chief Customs Expert, having previously acted as Deputy Chief Customs Expert from July to November 1999.7 The customs experts were responsible for reviewing contracts submitted under the Oil-for-Food Programme for 'price, value and conformity with the resolutions and
guidelines of the 661 Committee'.8
Report of the Oil-for-Food Inquiry 1 8 9
Ms J o h n s t o n ' s c o n v e r s a t i o n w ith Lt Col S a u n d e r s
16.7 On 13 January 2000 Ms Johnston telephoned Lt Col Saunders and discussed with him the query he had raised with Mr Almstrom.
Lt Col Saunders told Ms Johnston that, in the course of negotiating a contract for the supply of wheat to Iraq, the Canadian Wheat Board had been requested to remit US$14 per tonne to a bank account in Jordan to cover inland transportation costs.9 Lt Col Saunders informed Ms Johnston that 'the grain board of Iraq has indicated that similar arrangements were made with the Australian Wheat Board in relation to a recent large contract and with various suppliers from Thailand'.10 Ms Johnston advised Lt Col Saunders that a payment such as that sought would not fit within the Oil-for-Food Programme and suggested alternative measures such as delivery to Umm Qasr at a lower cost per tonne.11 According to Ms Johnston, Lt Col Saunders advised her that the Government of Iraq had stated that the bank account details into which the funds were to be paid would not be made available before the contract was signed. Further, it was evident from her conversation with Lt Col Saunders that, unhappy with the Canadian Wheat Board response concerning inland transportation fees, the Government of Iraq had refused to finalise the contract.12
16.8 In her evidence before this Inquiry Ms Johnston said it was at about this time that she was informed or learned that 'the designated transportation was affiliated with the son of Saddam Hussein'.13 There is no note from Ms Johnston recording either this affiliation or the source of her belief or understanding in this regard. There is also no reference either to the trucking company (in particular by name) or to the alleged affiliation between that company and a son of Saddam Hussein in the memorandum that Ms Johnston sent to Mr Almstrom following her conversation with Lt Col Saunders or Ms Moules.14 Nevertheless Ms Johnston's evidence that she believed there was this affiliation at this time is corroborated by the account of her conversation with Ms Moules on 13 January 2000 that appears in Ms Moules' cable of that date.15
16.9 How Ms Johnston came to be informed or otherwise learn of this supposed affiliation is unclear. Ms Johnston could not now recall whether Lt Col Saunders provided her with this information or whether he had provided her with the name of the trucking company and she (or other employees from within her section of the Contracts Processing and Monitoring Division) did
their own research and discovered this supposed connection.16
16.10 Despite Ms Johnston's evidence as to her belief at that time, there is nothing in the material before this Inquiry, including the material produced by the United Nations, which establishes or otherwise supports the existence of any
1 9 0 Report o f the Oil-for-Food Inquiry
alleged affiliation between the 'designated transportation' or otherwise unnamed trucking company and any of the sons of Saddam Hussein.
Ms J o h n s t o n 's in q u ir ie s o f t h e A u s tr a lia n m issio n
16.11 Following her conversation with Lt Col Saunders, Ms Johnston asked a
member of her staff to obtain the most recent AWB contract.17 She was subsequently provided with the AWB short-form contract for contract OC498818, which had recently been approved by the UN 661 Committee on 5 January 2000.19 Upon her review, this contract appeared to Ms Johnston to be standard for an AWB contract. She found no evidence of any irregular activity in this contract.20
16.12 The contract Ms Johnston reviewed was AWB contract A4821 dated
14 October 1999.21 It was approved by the United Nations as a contract under phase IV of the Oil-for-Food Programme22 and so was one in respect of which no inland transportation fee was payable.23 The short-form copy of the contract that Ms Johnston reviewed thus did not have the clause providing for
the payment of a 'discharge cost' to 'nominated Maritime Agents in Iraq' that appeared in AWB contract A4822 also dated 14 October 199924, which had been approved by the United Nations on 22 November 199925, and in the three earlier phase VI contracts dated 14 July 1999.26
16.13 Following her review of the AWB contract on 13 January 200027 Ms Johnston telephoned Ms Moules from the Australian permanent mission to the United Nations. Ms Moules was posted at the Australian mission between January 1999 and January 2002, initially as First Secretary and subsequently as Counsellor28, and during that time had primary responsibility within the mission for the Oil-for-Food Programme.29
16.14 According to Ms Johnston, she informed Ms Moules that she wished to draw the Australian mission's attention to information received about possible irregularities in the way AWB may have received payment for wheat supplied to Iraq under the Oil-for-Food Programme. Ms Johnston then recounted to Ms Moules the substance of Lt Col Saunder's query, although without identifying the mission from which that query had emanated.30
At the conclusion of her conversation with Ms Moules, Ms Johnston asked Ms Moules to make some discrete, high-level inquiries at AWB 'to ensure that the AWB is not inadvertently involved in any payment scheme which might be in breach of the Iraq sanctions regime'.31
16.15 Ms Johnston said that she clearly recalled her thought processes in advance of her conversation with Ms Moules. She considered the reputation of AWB, and
Report of the Oil-for-Food Inquiry 1 9 1
the Australian Government, and the fact that the allegation involved hearsay backed by no tangible evidence. She therefore decided that her inquiry of the Australian mission should be handled as delicately as possible and that it was not appropriate to request information in written form as this might be
deemed to be accusatory in nature. However, Ms Johnston realised the importance of providing Ms Moules with all the details she had so that the Australian Government could conduct a reasonable and specific inquiry.32
16.16 Ms Johnston insisted that she referred to 'inland transport' in her conversation with Ms Moules.33
16.17 In contrast, Ms Moules insisted that no one she dealt with from the United Nations, including Ms Johnston, referred to trucking fees or referred to a Jordanian or any other trucking company.34
16.18 Following her conversations with Lt Col Saunders and Ms Moules, Ms Johnston reported the outcome of her inquiries to Mr Almstrom on 13 January 2000 in a note headed 'Irregularity in Iraqi contracting'.35
Ms Johnston reported that she had confirmed to Lt Col Saunders '... that money should not be paid to a Government of Iraq bank account in Jordan for transport costs of wheat within Iraq'36 and:
I have spoken to Ms Bronte M oules at the A ustralian perm an en t m ission. W ithout indicating m y source, I have asked her to enquire, discreetly, at a senior level, w ithin the A ustralian G rain Board if any financial arrangem ents have been m ade outside the BNP Iraq account w ith the G overnm ent of Iraq.37
Resolution of conflict as to whether Ms Johnston spoke o f‘inland transport' ivith Ms Moules 16.19 Ms Johnston made no note at the time of her conversation with Ms Moules. Her recollection of having referred to 'inland transport' was unassisted.
Ms Moules' cable to DFAT in Canberra was contemporaneous with her conversation with Ms Johnston.38 It contained no reference to 'inland transport', although it did contain all of the other information Ms Johnston believed she had told Ms Moules.39 There is no reason why Ms Moules would have deliberately left such a reference out of her cable.
16.20 In her email reporting on her conversation with Ms Moules, Ms Johnston did not refer to having spoken in terms of 'inland transport' with Ms Moules; rather she referred to 'any financial arrangements have been made outside the BNP Iraq account'.40
16.21 In these circumstances it is more likely that Ms Johnston did not refer to 'inland transport' in her conversation with Ms Moules.
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S u b s e q u e n t i n q u i r i e s u n d e r t a k e n b y DFAT
Ms Moules' request that inquiries be made
16.22 As a consequence of Ms Johnston's inquiry, Ms Moules sent a cable to the Department of Foreign Affairs in Canberra on 13 January 2000:
W e w ere contacted today by th e Office of the Iraq P rogram (OIP) (Johnston, chief, C ontracts Processing Section), w ho w ish ed to draw to o u r attention inform ation they had received about possible irregularities in th e w ay the A ustralian W heat B oard m ay have received p ay m en t for w h eat supplies to Iraq u n d er the Oil-for- Food P rogram .41
Ms Moules reported that she had been informed by Ms Johnston:
... th at the O IP h ad been contacted by a m ission in N ew York (Johnston could not reveal w hich country the m ission represents, due to com m ercial confidentiality), advising that its national w h eat board, w h en recently negotiating a contract w ith the Iraqi G rain Board u n d er the O il-for-Food Program had been asked to agree to a p ay m en t system w hereby USD14.00 p er m etric tonne of w h eat w ould be paid 'o u tsid e the oil-for-Food P rogram '. The su p p lier w as to have been provided w ith the details of a bank account outside Iraq —in Jordan —into w hich the additional m oney w as to be paid. W hile the O IP does n o t have precise details, they
u n d erstan d the arrangem ent w as to have been for th e w heat supplier to be paid u sing funds from the U N 's Iraq account, b u t at a slightly inflated price. The
su p p lier w o u ld th en —in a highly irregular m ove —p ay a re tu rn percentage of the value of the contract, in USD, to the non-Iraqi account. In short, it appears to be a system designed to generate illegal revenue in USD. The O IP believes the
com pany involved in the schem e is ow ned by the son of Saddam Hussein.
3. The OIP told us th at the country of the w h eat board concerned, having
d ra w n the m atter to the U N 's attention an d ascertained th at such form s of
p ay m en t w ere n o t perm issible u n d er the Oil-for-Food Program , had declined the Iraqi request and w as, as a consequence, penalised by Iraq —i.e. the country concerned failed to secure contracts ap p aren tly because of its refusal to becom e involved in the kickback schem e. The country in question told the OIP that, w hen it declined the Iraqi request, the Iraqi G rain Board had indicated that 'o th er
com panies' — the AWB and one other country w ere specifically m entioned — had concluded contracts sim ilar to the one w hich had been requested of this country.
4. The O IP n o ted it had no w ay of ju d g in g the accuracy or otherw ise of the
claim s the Iraqi G rain Board is alleged to have m ade about the AWB. H ow ever, given the highly irregular n atu re of the transactions cited, an d the possibility of a com pany's agreeing to a p ay m en t system an d being unaw are of its irregularity, the O IP asked if A ustralia could m ake som e discreet, high level inquiries to ensure
th at the AWB is n o t inadvertently involved in any p ay m en t schem e w hich m ight be in breach of the Iraq sanctions regim e.42
DFAT’s initial response to Ms Monies' request 16.23 On 18 January 2000, Mr Bowker sent a cable to Ms Moules responding to her cable of 13 January 2000.43 His response to Ms Moules was twofold. First, he
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advised that DFAT in Canberra would follow up her inquiry 'in discussions with AWB when a suitable opportunity arises'.44
Second, Mr Bowker responded to the substance of the query. He wrote:
2. At this stage, we think it unlikely that AWB would be involved knowingly in any form of payment in breach of the sanctions regime. We had reason last month to discuss AWB strategy regarding Iraq at senior level (Nigel Officer, General Manager, Global Sales and Marketing). We were told that while competition in the Iraq market was growing, and AWB had concerns about the effect on their long term dealings with the Iraq Grains Authority of the imminent retirement of a key contact, AWB was confident its overall position would remain strong. It was fully aware of, and respected, Australian Government obligations and UN Security Council sensitivities and would act accordingly.
3. For your information, AWB confirmed our understanding that it had been approached by an international oil trader seeking AWB's assistance in gaining access to Iraqi oil. AWB advised it had not rejected the idea, but had taken the position that any such arrangements would only be considered by AWB after sanctions were lifted.45
16.24 Mr Bowker's statement that he thought it unlikely that AWB would be knowingly involved in any form of payment in breach of the sanctions regime was not based on any particular inquiry that he or any one else at DFAT had made of AWB in specific response to Ms Moules' cable of 13 January 2000. Rather it was based upon:
⢠Mr Bowker's belief based on past experience of the honesty and integrity of AWB and its officers46, and his belief that it was unlikely that AWB would be involved in any corruption47
⢠a discussion that Mr Bowker had earlier had with Mr Officer (and other representatives of AWB) on 13 December 199948
⢠an assurance that Mr Bowker had been given by AWB (presumably at his December meeting with Mr Officer) that it was fully aware of and respected the obligations of the Australian Government and the UN Security Council sensitivities, and would continue to act appropriately.49
16.25 Mr Bowker elaborated upon the first of these three factors during his evidence before the Inquiry. He said that in responding to Ms Moules' cable he took account of his understanding, based on his own extensive experience of commerce in the Middle East:
⢠of the importance of integrity in business dealings on the part of those Australian and other companies wishing to engage in high level business activity50
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⢠of AWB being a company that relied upon providing a superior product in a timely and reliable fashion and paying particular attention to managing all stages of the supply chain of the product51
⢠that resort to systematic corruption would not have enhanced or secured AWB's market share but would inevitably have damaged its business reputation and its relationship in the country or countries concerned and probably more widely52
⢠that AWB, which enjoyed an enviable reputation for integrity in the Middle East, was unlikely to jeopardize that reputation and its stature.53
16.26 He had taken account of there being no evidence at that time of systematic corruption in Iraq involving wheat (as opposed to certain other Middle East countries). Nor had there been any suggestion that AWB was prepared to go down the path of corruption or was under pressure to go down that path.54
16.27 Mr Bowker's evidence was that, in the course of his meeting with Mr Officer in December 1999, he had extensive discussions with senior officers of AWB 'about their market strategy in regard to Iraq'.55 His recollection was that Messrs Officer, Emons and McConville were present at the meeting56, although his discussions were primarily with Mr Officer. In the course of that meeting neither Mr Officer nor any one else from AWB alerted Mr Bowker to 'any concerns on their part about the sustainability of their market position'. They did mention some concerns about the imminent retirement of a senior official with whom they had long dealings.57 They also mentioned that there was increasing competition in the market. But essentially the discussion addressed AWB's strategy.58 According to Mr Bowker 'there was no basis from their comments to me for me to assume or believe that they were facing
any unusual or different circumstances in the market.'59 During that meeting, Mr Officer did not discuss with Mr Bowker or seek Mr Bowker's (or DFAT's) advice:
ab o u t internal or inland transport, or trucking, or p aym ents for inland tran sp o rt or tru ck in g u n d er the Oil-for-Food Program . There w as no discussion about the use of Jordanian trucking com panies. There w as no m ention of a com pany called A lia.60
16.28 Although Mr Officer did recall attending a meeting with Mr Bowker and his colleagues from DFAT in December 1999, to the best of Mr Officer's recollection, this was a general discussion with respect to AWB's activities in the Middle East.61 That accords with Mr Bowker's recollection of what was
discussed.
16.29 Mr Officer confirmed that in his discussions with Mr Bowker he did not refer to the inland transportation or trucking fee, did not raise with Mr Bowker any
Report of the Oil-for-Food Inquiry 1 9 5
issue about the payment of that fee and did not inform Mr Bowker of any concerns that he had about the payment of that fee.62 He agreed that the trucking fee was not something that he really wanted to draw to the attention of DFAT, although he said that AWB did not go out of its way not to draw it to the attention of DFAT.63
16.30 Mr Bowker's evidence was that at the time he received the cable from the Australian mission he had (given the factors identified earlier) 'no reason to anticipate, or to believe it likely, that this allegation was going to be found to have substance'.64 The allegation was being made by an unnamed party, contained essentially hearsay, and the connection of AWB to the allegation rested upon a claim by the Iraqis to this unnamed complainant that AWB had been a willing participant to the scheme the Iraqis were proposing. The allegation was, in the mind of Mr Bowker, hearsay upon hearsay and therefore in his opinion a far from established accusation.65 Furthermore, according to the report that he had received from Ms Moules, the Office of the Iraq Programme had said that it had no means of judging the accuracy of the claim and allowed for the possibility that AWB, if it was engaged in such activity, may have been doing so without being aware of the irregularity of the payments process.66 These were further factors that shaped Mr Bowker's initial response to Ms Moules' cable.67
Mr Bowker's subsequent inquiries of AWB 16.31 About one week after his cable of 18 January 2000, Mr Bowker did raise the detail of Ms Johnston's query about AWB in a telephone conversation with Mr McConville.68
16.32 Mr McConville was AWB's Manager, Government Relations. He had been employed in that position since July 1998 and remained in that role until April 2000 when he was appointed General Manager, Corporate Affairs.69 As Manager, Government Relations, Mr McConville was responsible for developing and maintaining relationships with all levels of government, including State and Federal governments in Australia, overseas governments including the United States and Canada, and international organisations such as the World Trade Organisation.70 He reported to Ms Joanne Martin, who was the then head of Corporate Affairs.
16.33 Mr Bowker said that when he raised Ms Johnston's query with Mr McConville, his response was immediate and emphatic.71 Mr McConville said, 'This is bullshit'.72
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16.34 Mr B ow ker's evidence w as th at M r McConville:
...w e n t on to fu rth er em phatically d eny the allegations. H e indicated that AWB w o u ld continue to up h o ld its responsibilities tow ards the A ustralian governm ent in reg ard to Iraq .73
16.35 Mr McConville could not recall the specific details of the complaint or how he became aware of it. He also had no specific recollection of how he responded to the complaint.74 However, Mr McConville did say that:
m y n atu ral response to such a com plaint w ould hav e been th at it w as norm al m anoeuvring a n d com petitive behaviour on the p a rt of C anada an d that I w ould have rejected it as such.75
This is consistent with Mr Bowker's evidence of Mr McConville's response.
16.36 Mr Bowker understood Mr McConville to be a 'senior officer responsible for dealings with the government', and that in his conversations with Mr McConville he found him to be frank and well informed. Accordingly, he was prepared to accept advice that Mr McConville gave him.76 This was notwithstanding that Mr McConville's response was immediate and without the benefit of investigation. It was also notwithstanding that Mr McConville was not involved in the negotiation or administration of the wheat contracts
themselves77 and thus would not have had personal knowledge of the subject matter of the query which Ms Moules had passed on for investigation. Mr Bowker said that he seriously believed that Mr McConville could provide an adequate response to his query.78 He specifically asked Mr McConville to respond to the allegation that payments were being made, and even quoted the $14 a tonne payment into a bank account in Jordan.79
16.37 Mr Bowker said that he was not surprised or taken aback by the fact that Mr McConville provided an immediate response. The answer that Mr McConville gave was in accord with the reputation for integrity of AWB, its briefing of Mr Bowker in December 1999 and the situation which Mr Bowker believed historically to apply to Australian wheat exports to Iraq.80
16.38 Mr Bowker rejected the suggestion put to him in cross examination by counsel for AWB that he had asked Mr McConville about the allegations raised by Ms Moules' cable knowing that he would get the response that he did, and did not call Mr Officer because he knew that he might get a response which was unpalatable.81
There is no credible basis on which it might be suggested that Mr Officer, who was at that time aware of the subject matter of the query and of the payment of the inland transportation fee, would have been forthcoming of those details
Report of the Oil-for-Food Inquiry 1 9 7
had the query been put to him by Mr Bowker. This is borne out by Mr Officer's initial evidence before this Inquiry when he was less than frank concerning his knowledge regarding payment of inland transport fees.82
16.39 Mr Bowker was satisfied on the basis of his discussion with Mr McConville, coming in the aftermath of his earlier discussion with Mr Officer the previous December, that the issue need go no further.83
16.40 There is no evidence that, at the time he spoke with Mr Bowker, Mr McConville was aware or had been informed of the imposition of the inland transportation fee, its payment by AWB, to whom it was paid, the methods by which it had been paid up until that time, or the discussions that had taken place within AWB as to the method of its payment. Mr McConville had not seen any of the AWB contracts with IGB.84 Although Mr Emons suggested during his examination that the issue of the inland transportation fee and what was happening with Iraq was discussed with Mr McConville and his immediate superior, Ms Martin85, he did not say when this occurred. Nor did he identify a particular meeting at which this discussion took place. He referred only to 'broad discussions across the entire organisation'. Mr Emons conceded he had 'no specific recollection' of speaking to the people in the government relations department; but asserted that he 'would have
done so'.86 Mr McConville had no recollection of participating in any such discussion87, although did not deny that discussions about this matter ever occurred.88 Despite Mr Emons' assertion of what he says he would have done, the totality of the evidence is not sufficient to find that any such discussion took place with Mr McConville prior to his conversation with Mr Bowker in January 2000.
16.41 There is no evidence that, following his conversation with Mr Bowker, Mr McConville made any inquiry of any one within AWB in respect of the matters raised by Mr Bowker. Whilst Mr McConville said that he would have made an inquiry of Mr Officer or Mr Emons89, he had no recollection of doing so.90 Mr Officer had no recollection of Mr McConville having contacted him or discussed with him the queries raised by Mr Bowker.91 Mr Emons gave no evidence of any inquiry having been made of him by Mr McConville of the matters raised by Mr Bowker. Despite Mr McConville's statement as to what he would have done, the evidence is not sufficient to support a finding that any inquiry was in fact made by him. But even if Mr McConville had made such an inquiry of Mr Emons or Mr Officer, there is no evidence of what it revealed or what if anything Mr McConville was told. There is no suggestion from Mr McConville that he conveyed to Mr Bowker or any one else at DFAT any further information in relation to the allegation, let alone informed Mr Bowker, or any one else at DFAT at that time that AWB was paying inland
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transportation fees in respect of its shipments to Iraq or the method by which those payments were being made.
16.42 Mr Bowker did not report the result of his inquiry of Mr McConville to Ms Moules92, or the Australian mission to the United Nations, prior to Ms Moules' cable of 10 March 2000.93 Mr Bowker did not communicate to anybody in DFAT, or at the Australian mission, the substance of Mr McConville's reply.94 When pressed on this point, Mr Bowker's evidence was:
M y m em ory on this is som ew hat w eak. I cannot specify any particular advice that I conveyed to any other person or to N ew York follow ing m y conversation w ith M r M cConville. Its conceivable that I talked to colleagues about it, but I cannot recall doing so .95
16.43 No cable has been produced by DFAT from Mr Bowker or any one else at DFAT to Ms Moules or the Australian mission reporting Mr McConville's comments.
16.44 Mr McConville's response to Mr Bowker's inquiry did inform Mr Bowker's subsequent advice to 'New York' in his follow up cable dated 22 March 200096, especially the final sentence referring to AWB's dismissal of that allegation. This was the first advice of AWB's denial that he sent to the Australian mission.97
The A u s tra lia n m i s s i o n 's r e p o r t b a c k to Ms J o h n s t o n
16.45 The evidence of Ms Johnston was that Ms Moules telephoned her, within a month of their earlier telephone conversation, in response to the issues that Ms Johnston had raised on 13 January 2000.98 According to Ms Johnston in that conversation:
Ms M oules stated that inquiries had been m ade at the highest level and AWB had 'categorically d en ied ' m aking any paym ents outside the escrow account.99
Ms Johnston did not recall whether Ms Moules had said that DFAT (Canberra) was following up the query or that she would provide more information to Ms Johnston.100
16.46 Ms Moules said that she advised Ms Johnston that the matter was being followed up.101 She recalled passing on to Ms JoJmston the information that she had received from Canberra to the effect that AWB had denied the allegations.102 Ms Moules could not recall when it was that she had relayed
this information to Ms Johnston.103
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Ms Moules did say that she could not recall Mr Bowker getting back to her with the result of any further enquiry he had made, as foreshadowed in his cable of 18 January 2000.104
16.47 At the time that Ms Johnston said that Ms Moules reported back to her:
⢠Mr Bowker's only written response to Ms Moules' cable of 13 January 2000 had been his initial cable of 18 January 2000.
⢠In that cable Mr Bowker's response had been twofold:
- first, that he would follow up the query raised by Ms Moules 'in discussions with AWB when a suitable opportunity arises'
- second, to otherwise dismiss as 'unlikely' any knowing involvement on the part of AWB in any form of payment in breach of the sanctions regime based in part on his discussions of 'AWB strategy regarding Iraq' at 'senior level' with Mr Officer the preceding month, and in part based on his belief as to the honesty and integrity of AWB and its officers.
⢠When Mr Bowker subsequently raised the query with Mr McConville, Mr McConville's response was to reject the allegations out of hand and without any prior inquiry or investigation within AWB.
⢠Mr McConville did not offer to undertake any inquiries in relation to these allegations and report back to Mr Bowker.
⢠Mr Bowker did not press Mr McConville to make any further inquiries within AWB and come back to him with a response once those inquiries had been made. Nor did Mr Bowker pursue this inquiry further with Mr McConville at some later time after Mr McConville had had time and a reasonable opportunity to make inquiries within AWB.
⢠Mr Bowker did not raise the allegations with any one else at AWB including any one at a 'senior level' such as Mr Officer with whom Mr Bowker had previously had dealings over the preceding six to twelve months, with whom he had spoken as recently as a month beforehand and upon whose earlier advices Mr Bowker relied in part in his initial dismissal of the allegation.
⢠In particular, there is no evidence that, at any time between
18 January 2000 and 10 March 2000, Mr Bowker advised Ms Moules in writing that:
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- he had spoken with Mr McConville or of the result of that
conversation
- he had followed up the allegations with AWB as he had offered to do in his cable of 18 January 2000 or the results of his efforts in that regard
- he had made 'high level inquiries' of AWB specifically in relation to the allegations raised by Mr Johnston as Ms Moules had requested, or the results of those inquiries.
⢠Ms Moules' evidence was that she could not recall Mr Bowker getting back to her as a result of any inquiry he made after his cable of 18 January 2000.
16.48 If Ms Moules reported back to Ms Johnston in the terms that Ms Johnston contended and when Ms Johnston said she did, it would appear, on the material before this Inquiry, that the only basis for Ms Moules having done so was Mr Bowker's initial response in his cable of 18 January 2000.
16.49 However, against that suggestion, it can be said that Ms Moules would have had no interest in denying such a claim on AWB's behalf without having heard of the results of any inquiries that her cable of 13 January 2000 sought to generate. This is especially bearing in mind that Mr Bowker's initial response to Ms Moules did not purport to pass on any denial by or on behalf
of AWB of the allegations that Ms Moules asked to be investigated. One of two situations must have pertained: either Ms Moules was informed of the denial that had been made by Mr McConville and passed it on to Ms Johnston before 10 March 2000, or Ms Johnston's evidence concerning the timing of her conversation with Ms Moules concerning AWB's denial of the allegation was not an accurate estimate. It is not necessary to resolve this issue. Nevertheless, it seems likely that at some time after he had spoken with Mr McConville,
Mr Bowker passed onto Ms Moules the results of his conversation with Mr McConville and that at some time after 10 March 2000, Ms Moules passed on AWB's denial to Ms Johnston.
March 2 0 0 0 : t h e IIC r a i s e s t h e is s u e a g a in
16.50 On 7 February 2000, Mr Almstrom sent a note to Mr Farid Zarif in which he wrote:
A s a result of a query from a potential supplier, w e learned th at aside from
contracts w e see, the M inistry of T rade m ay be req u irin g paym ents, into a bank in Jordan, for tran sp o rt fees from entry point to destination further in Iraq.
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A ny h a rd currency paym ents, other th an into the escrow account, are of course contrary to resolution 661, so w e m ay have stum bled across a case of sanctions evasion.
I have looked at an A ustralian w h eat contract, an d it seem s to refer to (but not to include) som e other agreem ent. Felicity is looking into this.
Felicity is also surveying o u r w heat contracts to see if w e m ight have overlooked an in appropriate paym ent arrangem ent as foodstuffs, being stan d ard an d priority contracts, tend to get processed quickly.105
Mr Zarif was in the Contracts, Processing and Monitoring Division of the OIP106 and was the supervisor of Ms Johnston.107
16.51 In February 2000, Ms Johnston undertook a survey of AWB wheat contracts to see if an inappropriate payment arrangement might have been missed.108 She looked at one AWB short-form contract dated October 1999 for 25,000 tonnes with United Nations approval no. OC4988 (namely AWB contract A4821).109 This was the same contract that she had earlier looked at prior to her conversation with Ms Moules on 13 January 2000.110 Ms Johnston said, in undertaking this survey in February 2000, she also looked at AWB contract A4822 (United Nations approval no. 600744). This was a phase VI contract which contained the clause about a 'discharge cost' of US$12 per tonne to be paid to a 'nominated maritime agency in Iraq'.111 This contract also referred to 'standard terms and conditions' which 'implied that additional conditions were attached to the contract but not included in the paper supplied to the UN'.112 Ms Johnston was unable to recall whether she reviewed any other contracts at that time and if so what those contracts may have been.113
Ms J o h n s t o n 's in q u irie s o f A u s tr a d e
16.52 In early March 2000, Ms Johnston attended a routine meeting with Mr Alistair Nicholas114 who was at that time the Australian Trade Commissioner in Washington DC.115 Ms Johnston had reviewed both contracts A4821 and A4822 before meeting with Mr Nicholas.
16.53 Ms Johnston informally raised two issues with Mr Nicholas. The first was the concerns that she had earlier communicated to Ms Moules in January 2000. Ms Johnston advised Mr Nicholas that there were still outstanding concerns in regard to those matters.116
The second arose out of Ms Johnston's review of the AWB contracts in February 2000, in the course of which she had noticed that the standard short- form contract used by AWB and IGB contained a clause which implied additional conditions were attached to the contract, which were not included
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in the copy of the contract submitted to the United Nations.117 That clause was in the following terms:
A ll other term s and conditions as per AWB L im ited an d G rain Board of Iraq sta n d ard term s a n d conditions for A ustralian w h eat of w hich the parties adm it they have know ledge and notice, to ap p ly to this contract w here n o t inconsistent
w ith the above.118
Ms Johnston referred Mr Nicholas to this clause and asked for a copy of these standard terms and conditions.119 She said at the time she made this request she provided Mr Nicholas with a copy of the short-form contract A4822 that contained this clause.120
16.54 Ms Johnston said that although she had already received the categorical denial from AWB through Ms Moules some time after their conversation on 13 January 2000, she was still concerned that something might be amiss. She therefore decided to raise both the original allegation and her query concerning the standard terms and conditions of AWB's contracts with Mr Nicholas.
16.55 Mr Nicholas' evidence of his meeting with Ms Johnston broadly coincided with the evidence of Ms Johnston. According to Mr Nicholas, Ms Johnston had said that a third country had raised concerns about 'irregularities' in AWB's contracts that implied the existence of 'parallel contracts' that had not been submitted to the OIP. She requested that AWB be asked to submit other contracts that may exist since a clause in the existing contracts referred to the possible existence of parallel contracts. Ms Johnston emphasised that it was imperative that the complaint made by the third country that AWB had agreed to the irregular payment terms required by the Grain Board be put to rest.121
16.56 Ms Johnston's recollection of events was revived a day before she made her statement to this Inquiry122 when she saw a copy of the short form of contract A4822 in the 'Irregularities File' which she had maintained at the United Nations.123 There was nothing in this file in the way of a file note to assist her in her recollection of the meeting with Mr Nicholas, other than a copy of this short-form contract.124
16.57 Mr Nicholas did not accept that Ms Johnston had specifically referred to 'discharge costs' during their meeting. This did not accord with his recollection and, significantly, he had not referred to this when he composed his cable on 11 March 2000 dealing with his meeting with Ms Johnston and what followed thereafter. In this cable, Mr Nicholas referred to 'irregularities in AWB contract' as being a matter of concern, rather than 'discharge costs'.125
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16.58 Mr Nicholas' evidence is to be preferred to that of Ms Johnston. His evidence is supported by his cable.126 It is also consistent with Ms Moules' evidence that, when she spoke to Mr Nicholas after his meeting with Messrs Flugge, McConville and Snowball in Washington DC, he made no mention of discharge costs or trucking.127
On the other hand, Ms Johnston was reliant upon her recollection alone. When Ms Johnston reported the course of her investigation to Lt Col Saunders in January 2000, she had said that she had asked Ms Moules 'to enquire, discreetly, at a senior level, within the Australian Grain Board if any financial arrangements have been made outside the BNP Iraq account with the Government of Iraq'.128 There was no reference then to 'inland transport' or 'discharge costs'.
16.59 This is in keeping with Ms Johnston being non-specific in referring to the terms of the inquiry she had made of Ms Moules. It is also consistent with her doing the same when speaking to Mr Nicholas on the occasion that she met with him. It is unlikely that she would have given Mr Nicholas more information about the matter than she gave Ms Moules; if anything one would have expected Ms Johnston not to have been as forthcoming with Mr Nicholas as she was with Ms Moules. This was acknowledged by Ms Johnston:
Q: W ould you agree w ith me, Ms Johnston, th at your discussion w ith M r Nicholas w as less detailed in relation to the third-country com plaint than y o u r discussion w ith M s M oules h ad been?
A: I believe it w as som ew hat less detailed, y es.129
16.60 It follows that Mr Nicholas was not aware of any issue concerning 'discharge costs' or inland transportation costs or trucking as a consequence of his meeting with Ms Johnston and when he subsequently met with Messrs Flugge, McConville and Snowball.
Mr N ic h o la s' m e e tin g w ith AWB
16.61 On 9 March 2000, Mr Nicholas met with Messrs Flugge, McConville and Snowball in Washington DC.130 The planned meeting with Mr Nicholas was to be a courtesy call by Mr Flugge.131 It had already been arranged by the time of Mr Nicholas' meeting with Ms Johnston.
16.62 In the course of his meeting with Messrs Flugge, McConville and Snowball, Mr Nicholas raised Ms Johnston's concerns with them.132 Mr Snowball said that the discussion was principally between Mr Nicholas and Mr Flugge.133 Mr Nicholas told the three representatives from AWB that in the previous week he had met with Ms Johnston from the United Nation's Office of Iraq
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Programme (OIP) in New York, and that she had told him that she had raised concerns about irregularities in AWB contracts with the Australian mission in New York, and that she still did not have an answer.134 He also told them that a third country had concerns that AWB was making irregular payments as required by the Iraqi Grain Board, and that the OIP had requested it be provided with a copy of any parallel contracts between AWB and IGB.135
16.63 Mr Nicholas was assured by the AWB representatives that there were no irregularities in AWB's dealings with Iraq.136 He stressed that it was necessary for AWB to provide copies of any contracts in order to ease the concerns of the OIP.137 Mr Snowball expressed the view that all clauses in the contract were
standard and that it was not necessary to supply OIP with any additional information.138 However, after Mr Nicholas had explained to the AWB delegation the possible consequences of not providing this information, in particular that failure to provide the additional information to the OIP could result in a formal complaint and jeopardize future AWB sales under the Oil- for-Food Programme, Mr Flugge and Mr McConville said that the matter would be taken seriously and a full response would be forthcoming for the
United Nations.139
16.64 I accept Mr Nicholas' version of what was said during his meeting with Messrs Flugge, McConville and Snowball. It is supported by his cable to Austrade the next day.140 It is therefore reliable and to be preferred to the evidence of Messrs Flugge and McConville who admitted to poor recollections of this meeting.141 Mr Snowball's evidence was that his subsequent email of 15 March 2000 to Mr Emons142 was a pretty accurate account of what occurred.143 However, to the extent that Mr Snowball's account is inconsistent with Mr Nicholas' version, it should not be accepted. Reasons are given later in this chapter.
16.65 Following this meeting, Mr Nicholas spoke with Ms Moules. The substance of their conversation was recorded by Ms Moules in a cable to DFAT Canberra dated 10 March 2000:
Our REFTEL reported on information which the office of the Iraq Program (OIP) drew to the mission's attention earlier this year concerning possible irregularities in the way the AWB may have received payment for wheat supplied to Iraq under the Oil-for-Food program. You will recall that the possible irregularity had been
drawn to OIP's attention by a third country (whose identity the OIP was not at liberty to reveal), the third country claiming to have been told by the Iraqi Grain Board that the AWB had concluded contracts involving irregular payment methods. We noted your response (REFTEL).
2. Austrade Commissioner in Washington (Nicholas) has advised that in a routine meeting with the OIP late last week, the OIP (Johnston, Chief, Contracts Processing Section) again raised the matter. Johnston noted that the third country
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w hich claim s it has failed to secure contracts w ith the Iraqi G rain Board on the grounds that it is n o t prepared to enter into contracts involving irregular paym ent m ethods (m ethods w hich, it claims, the AWB has been involved in) rem ained
concerned about the m atter.
3. Johnston m entioned to N icholas an additional point w hich the OIP h ad not previously raised w ith the M ission. The custom s area of OIP h ad recently noticed that the stan d ard contract used by the AWB an d the Iraqi G rain Board contained a p arag rap h w hich im plied additional conditions w ere attached to the contract, but not included in the p aper subm itted to the UN. The relevant p arag rap h is the one at the en d of the one-page stan d ard contract u sed by the A W B /Iraqi G rain Board and read s as follows: 'A ll other term s an d conditions as per AWB Lim ited and G rain B oard of Iraq standard term s and conditions for A ustralian w h eat of w hich the parties ad m it they have know ledge an d notice, to apply to this contract w here n o t inconsistent w ith the above'.
4. W hile the 'sta n d a rd term s a n d conditions' are doubtless ju st th at (i.e.
'stan d ard '), Johnston asked N icholas if it w o u ld be possible to obtain a copy of the 'stan d ard term s and conditions' as, strictly speaking, this w as required for the U N 's custom s clearance process (although it h ad not previously been picked up by the OIP). W e follow ed-up separately w ith Johnston on this point, w ho
confirm ed that, irrespective of the third country issue, the O IP having now noticed this p arag rap h in the A W B /Iraqi G rain B oard contract, is legally obliged to clarify it.
5. N icholas h ad a m eeting on 9 M arch w ith visiting AWB Ltd C hairm an (Fluge) an d AWB Ltd N ew York office vice chairm an (Snowball) (the m eeting having been arranged prior to A ustrade's m eeting w ith OIP). A t the 9 M arch m eeting, N icholas took the opportunity to advise the AWB of the inform ation w hich OIP had d raw n to his attention. AWB said this w as not an issue, but undertook to consult w ith their headquarters and pro v id e a response. Based on discussions we subsequently h ad w ith N icholas and AW B's N ew York Office, w e u n derstand AWB's preference is that follow -up discussions be p u rsu ed w ith DFAT, b u t w ith A ustrade kept in the loop.
6. W hile all indications from the AWB are, as expected, that the concerns of the OIP an d the third country have no basis, until w e are able to provide a formal reassurance of this, there will rem ain a question m ark over the m atter from the point of view of both the OIP and the third country referred to above. The fact that the OIP has recently picked up w hat they see as a potentially anom alous elem ent of the A W B /Iraqi G rain Board contract confirm s that a form al response (from UNNY to OIP) including a copy of the 'sta n d a rd term s and conditions', will be needed to clarify the m atter.
7. If for any reason it is not possible to provide a copy of the 'stan d ard
term s and conditions', w e/A W B w ould still need to provide som e assurance to the OIP as to their contents (i.e. som ething m ore th an the reference in the
paragraph in question to conditions applying 'w here n o t inconsistent w ith the above'), though w e assum e th at for legal reasons w e w ould need to be cautious about any u n d ertak in g to provide assurances concerning business contracts.
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8. Please n ote th at N icholas is rep o rtin g separately to A ustrade C anberra on his m eetings w ith O IP an d AWB, noting the u n d erstan d in g regarding follow -up discussions as referred to in p ara 5 above.144
16.66 The following day, 11 March 2000, Mr Nicholas sent a cable to Austrade in Canberra, and Ms Penny Wensley at the Australian mission to the United Nations, reporting on his meetings with both Ms Johnston and the representatives from AWB.145 The purpose of this cable was:
... to alert A ustrade D eputy M anaging D irector L anghorne of the situation.
A lthough the m atter is being h andled by the M ission to the U N and DFAT in A ustralia, the D eputy M anaging D irector m ay see fit to advise the M inister for T rade.146
There is no evidence suggesting the matter was referred to the Minister for Trade.
16.67 The cable commenced with a summary in the following terms:
T rade C om m issioner W ashington m et w ith A ustralian W heat Board
representatives w ho w ere visiting W ashington on other business to advise them of U N concerns about suspected irregularities in AWB contracts w ith Iraq u n d er the Oil for Food Program . T rade C om m issioner is concerned th at AWB do not u n d erstan d the seriousness n o r the urgency of the m atter. It m ay be necessary to advise the m inister of the situation.147
As to his discussions with Ms Johnston, Mr Nicholas reported:
2. I m et w ith Office of the Iraq P rogram (OIP) (Johnston, Chief C ontracts
Processing Section) in N ew York last w eek. Johnston advised that O IP h ad inform ally raised concerns about irregularities in AWB contracts w ith the A ustralian M ission to the U N in January how ever, Johnston said she had received a n insufficient response to enable h er to close the m atter (refer cables 0.UN8311 of 13 January a n d 0.CE987696 of 18 January.) Johnston said there w ere continuing concerns b y the M ission of a th ird country that the AWB h ad agreed to the
irregular p aym ent term s required by the G rain B oard of Iraqi (GBI). She said that it w as conceivable that the AWB h ad entered into irregular term s 'unknow ingly'. Johnston referred to a clause in AWB contracts w ith the GBI th at im plied there w as a separate contract in place an d of w hich the O IP h ad n o t been m ade aw are.
3. Johnston asked w h eth er w e (A ustrade) could follow u p w ith the AWB and obtain a copy of any 'p arallel' contracts for the perusal of the OIP. Johnston
em phasised th a t it w as im perative th at this m atter be 'p u t to rest' before the
m ission of the th ird country m akes a form al com plaint against the AWB.148
Mr Nicholas then reported on his discussions with the representatives of AWB:
5. AWB assu red us there w ere no irregularities in their dealings w ith Iraq, b u t I em phasised th at AWB needed to p ro v id ed copies of any other contracts in order to ease the concerns of the OIP. Snow ball expressed the view that all clauses in the
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contract were standard and that it was not necessary to provide additional information to the OIP.
16.68
16.69
6. A fter the possible consequences of n o t providing O IP w ith the requested inform ation w as explained, M cConville an d Flugie expressed the view that this w ould be tak en seriously by AWB an d th a t a full response w ould be forthcom ing for the UN.
7. I advised AWB that it could resp o n d to the O IP either via A ustrade
W ashington or via DFAT and o u r m ission to the U N .149
He concluded his cable:
8. This m atter has been discussed by M ission and A ustrade W ashington and we have agreed to keep each inform ed of developm ents.
9. A ustrade W ashington is concerned to ensure that the AWB follow through and provide O IP copies of any other contracts in place w ith the G rain Board of Iraq an d that the T rade M inister is advised of the situation if necessary.150
It follows that after their meeting with Mr Nicholas, Messrs Flugge, McConville and Snowball were aware that:
⢠There had been earlier concerns on the part of the OIP concerning irregular payment terms between AWB and Iraq.
⢠These concerns had not been addressed to the satisfaction of the OIP.
⢠The OIP wished to have those concerns addressed.
⢠The OIP was also concerned that there was a separate contract in place between AWB and Iraq of which it was not aware.
⢠The OIP wanted to be provided with any parallel contracts or additional terms of which it was not aware.
Mr Nicholas' evidence was that he did not refer to inland transport or trucking fees during his meeting with Messrs Flugge, McConville and Snowball on 9 March 2000.151 1 accept that evidence.
Neither Mr Flugge nor Mr McConville gave evidence to the contrary.152 Mr Nicholas' account is supported first by his evidence that Ms Johnston did not refer to inland transportation or trucking fees during his conversation with her, and second by the absence of any reference to inland transportation or trucking fees in his cable of 11 March 2000.153 The copy of the contract that he was given by Ms Johnston154 did not refer to a 'trucking fee' or to 'trucking' or 'inland transportation'.155
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16.70 In both his email of 15 March 2000156 and his evidence of his meeting with Mr Nicholas157, Mr Snowball sought to attribute the references to 'discharge' and 'trucking' to Mr Nicholas. Mr Snowball's evidence was that Mr Nicholas intimated during their meeting that the United Nations was concerned that the standard terms and conditions some how related to 'discharge' or 'trucking' and that this was the extent of the inquiry that he understood Mr Nicholas to be making.158 I reject this evidence and Mr Snowball's attribution of the use of these words to Mr Nicholas.
16.71 Two notes in Mr Snowball's notebook indicate that, prior to his meeting with Mr Nicholas on 9 March 2000, he was not only aware that AWB was paying a trucking fee to a Jordanian trucking company but also that Canada had raised a query with the United Nations about trucking fees.159
16.72 The first note is of a conversation that Mr Snowball had with Mayo Schmidt of the Saskatchewan Wheat Pool (Canada) in early March 2000, in which he had been told by Mr Schmidt that the Canadian Government had disrupted or delayed a Canadian Wheat Board sale because of the trucking payment.160 The note, which appeared at an angle towards the foot of the page, read:
C an G ovt d is ru p te d / delayed a CWB sale —because of trucking p a y m en t161
Mr Snowball's evidence was that he telephoned Mr Schmidt at the request of Mr Officer and discussed various things with Mr Schmidt about shipment delays. During that conversation, Mr Schmidt mentioned:
... som ething to do w ith delay of a —disruption or delay of C anadian W heat
B oard sale.
Q: Because of a trucking p aym ent ? A: Yes.162
As a result of this conversation, Mr Snowball had become aware, prior to his meeting with Austrade, that there had been some questions from the Canadian Government about trucking and payments for trucking.163
After receiving Counsel Assisting's submissions, Mr Snowball's solicitors provided further documents which became Exhibit 1442. They were said to show that the handbook note was made after rather than before the meeting of 9 March 2000. The documents suggest a conversation with Mr Mayo after 9 March but it is not at all clear it was the same conversation recorded in the handwritten notes.
16.73 There was on the same page of Mr Snowball's notebook and immediately beneath this note another entry that referred to 'Can Grain Comm'.164 This
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was a reference to the Canadian Grain Commission.165 This entry contained references to Tnsp. in Canada' and '[obscured] test authority'.166 According to Mr Snowball, this was a note about the e-coli problem and vessels having been rejected at the discharge port for this reason.167
This problem was also referred to in another of Mr Snowball's notes in his notebook.168 This was a note of another conversation that Mr Snowball had had. The note read:
Can —vessels rejected at U m m Q asr rejected for E-coli
- asked ab o u t trucking fee
- AWB pays the Jordan trucking co.169
16.74 Mr Snowball had no recollection of this conversation but said (in his supplementary statement) that he believed that the information contained in his note came from Ms Moules.170 In his oral evidence he was less firm. He said:
I w ould expect that the diary note w o u ld have been the result of a conversation w ith the M ission to the UN, b u t I d o n 't know that for su re.171
16.75 Ms Moules had no recollection of a conversation with Mr Snowball that raised the subject of the trucking fee and AWB paying the Jordan trucking company. She conceded that it was a matter of possibility but said that it was not consistent with her recollection.172 Ms Moules' evidence was that the issue of any third party complaint was something that Mr Snowball discussed with her only after his meeting with Mr Nicholas.173
16.76 It is unlikely that the information in this second note came from Ms Moules because at that time Ms Moules was not aware that AWB paid a Jordanian trucking company and was not aware of the significance of a trucking fee. She had not been given this information by Ms Johnston and Ms Johnston did not in any event have information that AWB paid a trucking fee to a Jordanian trucking company. Mr Snowball's evidence of a belief174 that the information contained in this note came from Ms Moules can not be accepted.
The information is likely to have come from Mr Emons in a conversation that Mr Snowball had with Mr Emons in relation to the manner of payment of the trucking fee.175 The conversation was some time in either late February or early March 2000 and prior to Mr Snowball's meeting with Mr Nicholas in Washington on 9 March 2000.
16.77 The presence of the phrase 'discharge/trucking' in Mr Snowball's email of 15 March 2000 was not because Mr Nicholas used those terms during his meeting with the representatives of AWB on 9 March 2000. Rather, its
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presence in that email reflected Mr Snowball's association of the discharge costs referred to in the early AWB contracts176 to the trucking fee177 that AWB was then paying and Mr Snowball's understanding that the inquiry that Mr Nicholas had conveyed to AWB in the meeting of 9 March 2000 related to AWB's payment of that trucking fee.
AWB's r e s p o n s e to Mr N ic h o la s' in q u iry
16.78 Following their meeting with Mr Nicholas, it was agreed between Messrs Flugge, Snowball and McConville that Mr Snowball would telephone the Australian mission to the United Nations and let Ms Moules know exactly what had occurred at the meeting.178 It was desired to confirm precisely what the United Nations was asking for. It was agreed that Mr Snowball would also telephone and inform Mr Emons.179
16.79 Mr Snowball telephoned Ms Moules and informed her that AWB had been approached by Mr Nicholas, that Mr Nicholas had met with the Chairman of AWB, Mr Flugge, in Washington, and that Mr Nicholas had presented certain information at that meeting. Mr Snowball asked Ms Moules to speak with Mr Nicholas to make sure that she had a full understanding of what Mr Nicholas needed and the background to the issue, and to follow it up.180
16.80 Ms Moules subsequently confirmed to Mr Snowball that the United Nations was asking for information on the contract clause 'All other terms and conditions as per AWB Limited and Grain Board of Iraq standard terms and conditions'.181
16.81 Mr Snowball reported on his conversation with Ms Moules in his email of 15 March 2000 below.182 Mr Snowball also spoke by telephone with Mr Emons.183
16.82 Following his conversation with Mr Snowball, on 15 March 2000 Mr Emons sent a facsimile to IGB to the attention of Mr Abdul-Rahman.184 It was headed 'UN enquirey concerning trucking fee' and read:
W e w ish to advise that the office of AWB Ltd in N ew York has been approached by the C ustom s office of the U nited N ations w ho are questioning the paym ents by AWB to the Jordanian trucking com pany.
W e are very concerned to learn from the U N th at the C anadian G overnm ent has taken action w ith in the U nited N ations to discover the m anner of AWB paym ents.
W e ask your assistance in this m atter and w o u ld ask th at no inform ation of a
confidential n atu re is released.
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We w ill be seeking y o u r u n d erstan d in g on this m atter w hen AWB visit's Iraq in April.
We thank you in anticipation.185
Mr Snowball never saw this facsimile, however he agreed that Mr Emons was passing on information that he had provided.186
16.83 The IGB responded the same day by telex headed 'U.N. Equirey concerning trucking fee':
We received w ith tks y r fax d d t 15. M arch 2000 and w e are pis to inform you that the necessary action already have been taken regarding the m atter.187
16.84 Although Mr Emons' facsimile to IGB was headed 'UN enquirey concerning trucking fee', neither Mr Bowker nor Mr Nicholas188 expressly referred to the inland transportation fee or trucking fee in their discussions with representatives of AWB. Even though the particular aspect of the wheat contracts that had prompted the United Nations' inquiries of the Australian mission and Austrade had not been expressly made known to the representatives of AWB by either Mr Bowker or Mr Nicholas, it is clear from Mr Emons' facsimile that those representatives (and certainly both Mr Emons and Mr Snowball after his conversation with Mr Emons in late February 2000) were well aware of what had lead to the inquiries that had been made of AWB and the gravamen of the issue at the heart of those inquiries. Yet in none of AWB's subsequent dealings with DFAT in response to these inquiries was any
disclosure or reference made to the inland transportation fees or trucking fees or to their payment by AWB.
16.85 On 15 March 2000, Mr Snowball sent an email to Mr Emons189, reporting on his discussions with both Mr Nicholas and Ms Moules. It was not received in Melbourne until early the following morning 16 March 2000, after Mr Emons had sent his facsimile of 15 March 2000 to the IGB. Mr Snowball wrote:
Follow ing on from m y discussion w ith you last w eek, here is a recap of w hat happened and the follow up:
1. A listair N icholas, A ustrade asked to m eet w ith us in W DC (Trevor, A ndrew McC, myself)
2. A listair h ad visited the U N in NY the w eek before. A U N official had asked him for clarification of the follow ing w o rd in g in our short form contract w ith the grain B oard of Iraq
'A ll other term s and conditions as per AWB Lim ited an d G rain Board of Iraq S tandard Term s and C onditions ...'
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A listair m entioned that som e [one] a t the U N w as asking him quietly / inform erly about p aym ents AWB w as m aking to Iraq for discharge/trucking. A listair suggested to u s that the req u est for inform ation on the above contract clause w as linked to this discharge/trucking p ay m en t issue.
3. We played dow n the issue and said w e w ould look at the U N request.
4. 1 called the A ust M ission to the U N an d asked B ronte M oules to speak to UN to m ake sure U N h ad actually requested som e inform ation. I also asked Bronte to call Alistair.
5. Bronte confirm ed th a t the U N w ere asking for inform ation on the contract clause above. She has p u t this request th rough to DFAT in C anberra an d DFAT w ill contact you. If all the UN w ants is some understanding on standard
term s and conditions in AWB contract then I th in k we have nothing to worry about. We should ensure th at we do provide som ething to DFAT w h en they contact you.
I deal solely w ith Bronte on U N /Ira q , and see no role for A ustrade. A listair is alw ays trying participate ... I think B ronte is the b etter option for us anyw ay. We do not w an t A listair sticking his nose into our Iraq business and causing us
problem s. If this w as a big issue he should have picked u p the phone straight after his visit to the U N to tell m e rath er than w aste our C hairm an's tim e in
W ashington!!190 [em phasis added]
16.86 It is apparent from Mr Snowball's use of the phrase 'discharge/trucking' in this email that he related the discharge fee referred to in the early AWB contracts to the trucking fee that AWB was paying191, and that he related the inquiry that Mr Nicholas made to AWB's payment of a trucking fee.192
16.87 Mr Snowball said that when he wrote in this email:
W e played d o w n the issu e....... If all the U N w an ts is som e und erstan d in g on
stan d ard term s an d conditions in AWB contract th e n I think w e have nothing to w orry about
he did not know whether what he had in mind was the United Nations finding out about the manner in which AWB made the payments of the trucking fee.1931 do not doubt that it was.
On this issue generally he also said:
I'v e covered it in m y em ail in term s of I w as taken b y surprise by w hat seem ed to be in A listair's m ind a big issue, an d w hen I've looked at w hat h e's provided me a n d the follow -up discussion w ith Bronte M oules, it d id n 't app ear to m e to be as if there w as a problem that w e needed to be w orrying about. T hat's all I can recollect from w h at I've w ritten th ere.194
16.88 This evidence does not explain the reference to 'We played down the issue' and, 'If all the UN wants is some understanding on standard terms and conditions in AWB contract then I think we have nothing to worry about' in
Report of the Oil-for-Food Inquiry 2 1 3
this email. The email describes playing down the issue as something that occurred during the meeting yet the explanation, such as it is, for the use of the phrase relates to matters that occurred after the meeting. The issue to be played down was the significance of the United Nations' inquiry concerning the discharge fee, which the AWB representatives at the meeting understood to be related to the payment of a trucking fee or inland transportation cost.
16.89 Mr Snowball said that the reason he wrote 'nothing to worry about' in his email to Mr Emons was that he was trying to protect the commercial position of AWB against some stiff competition from major competitors such as Canada and the United States of America.195 In respect of the words 'we played down the issue' at paragraph 3 of his email to Mr Emons, Mr Snowball said:
A lthough I have w ritten 'w e played it d o w n ', it w ould have been T revor w ho set the tone of AW B's response to A listair in the m eeting. I know th at I w as surprised by A listair suggesting that there w as potentially some problem w ith AWB's sales to Iraq and it w as unu su al for A ustrade to be inform ing AWB of this rather than the A ustralian M ission in the U N inform ing AWB.196
16.90 When asked whether it was the Chairman who 'played down the issue', Mr Snowball said:
I d o n 't recall everything that w e n t on in the m eeting, sir, but from w h at I can
recall an d w h a t I've w ritten here, I suggest th at the m eeting w as ru n by Alistair and Trevor. I d o n 't believe I w o u ld have participated m uch in the m eeting at all. I've recapped w h at h appened in the m eeting and I suggest I've got a feeling that Trevor gave a low -key response to the suggestion from A listair an d I've used the term 'p lay ed d o w n ' h ere.197
16.91 Mr Flugge could not recall the meeting with Mr Nicholas. When questioned about Mr Snowball's evidence that he controlled the meeting, Mr Flugge said:
Well, the problem I have, M r A gius, is th at I d o n 't actually recall the m eeting or even —I can't even think about w h at M r A listair N icholas looks like. I had never m et him before and I have never seen him since, so it is extrem ely difficult to recall that.
If it w as an A ustrade representative, and having read the em ail th at M r Snowball has sent, clearly, again, as w e talked about before, there probably w ould have been a briefing at least before w e w en t into this m eeting, and I'm assum ing that Mr Snow ball had actually set the m eeting up, because I certainly d o n 't recall setting the m eeting up. Clearly he w anted to see m e and obviously m ade
com m ents.
N ow , he w ould have been talking about things that I really have very little
detailed know ledge of. I had n o t seen Iraqi contracts or the w ay that w as dealt w ith. It is not an area that I w ould have had detailed know ledge of. A nd so I guess I w ould have sim ply said, 'Look, w e will take that on bo ard .' A nd I c o u ld n 't have entered into discussion on it. So th at's —it is not a recollection of a m eeting,
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Mr Agius, it is trying to assume how that meeting may or may not have played out according to the answer or the email that Snowball has given. But that's as much as I can add on that.198
16.92 When questioned as to whether he 'played down the issue', Mr Flugge said:
... So quite clearly, in terms of the context and trying to imagine how I would have played that at that time, and depending also on what Mr Snowball would have briefed me initially about the meeting or the individual, you know, I may have just simply said, 'Look, we'll take it on board, we're not here' — I couldn't discuss the details of those documents. I had never seen Iraqi contracts, I certainly wouldn't have been in a position to explain what was going on or what wasn't going on ...
Q: Why would you play down what Mr Nicholas of Austrade had told you?
A: I don't necessarily think — I don't agree that it would have necessarily been played down. Had I —if I had a recollection of the meeting, I could probably try and give you the context, but it is extremely difficult to hypothesise on why we
would have anything—I never wrote the email. They are Mr Snowball's words, not mine.199
16.93 When read together, Mr Nicholas' and Mr Flugge's evidence suggests that Mr Snowball played a much greater role in the meeting with Mr Nicholas than Mr Snowball contended. Mr Snowball was aware of the complaint prior to the meeting, he had the discussion with Mr Emons in late February
(recorded in the note in his notebook) in which both 'trucking fees' and payment to a 'Jordanian trucking company' were mentioned, and his email to Mr Emons following the meeting with Mr Nicholas discloses a greater level of knowledge about the complaint than he maintained. I accept Mr Nicholas' evidence regarding the meeting which is consistent with his and Ms Moules' contemporaneous cables.
16.94 When asked about Mr Snowball's email, Mr Emons' evidence was:
Q: ... It is the next sentence that I want to ask you about:
If all the UN wants is some understanding on standard terms and conditions in AWB contracts then I think we have nothing to worry about.
That seems to imply that there was something to worry about, Mr Emons?
A: You are correct. What he was implying there is that if the contract terms just listed the quality specifications, conditions, et cetera, it wouldn't be an issue, but if there was a mention of the trucking discharge fee, then there would be an issue.
Q: Something to worry about?
A: Something to worry about.
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Q: So if the UN inquiry could be satisfied by providing the standard terms and conditions, then there would be nothing to worry about because there was nothing in the standard terms and conditions which related to trucking fees or the payment of money to Alia or to Iraq or anybody?
A: Correct.
Q: But if the UN inquiry could not be so satisfied, then there would be something to worry about?
A: Correct.
Q: And that's the way in which you understood it?
A: That's correct.
Q: And, in effect, that's what you were being told to keep in mind if and when you were contacted by DFAT?
A: That's right.200
16.95 That evidence should be accepted. At the conclusion of this email, Mr Snowball indicated that he expected DFAT to be in contact with Mr Emons. Clearly Mr Snowball left Mr Emons to deal with DFAT on the basis of Mr Emons' understanding of what he, Mr Snowball, had written.
Each had an understanding that there was something to worry about if the United Nations' inquiry was not limited to the standard terms and conditions. This is the effect of Mr Emons' evidence and it is against his interest. It is also consistent with the ordinary and natural way of reading Mr Snowball's email. There is no warrant to depart from this approach.
16.96 After Mr Emons' receipt of this email, there was a discussion at AWB about it. Included in the discussion were Messrs Emons, Officer and McConville.201
M arch 2 0 0 0 : c o n c lu s io n s a b o u t AW B's k n o w le d g e a n d t h e C a n a d ia n c o m p la in t
16.97 From the above analysis the following conclusions are drawn:
⢠In early 2000 Ms Johnston investigated a complaint that had been made by the Canadian Mission to the effect that IGB had said that AWB had an agreement to remit US$14.00 per tonne to the Iraqis to a bank account in Jordan to cover inland transportation costs.
⢠Ms Johnson reviewed contract A4821 between IGB and AWB and found nothing untoward about it. This contract had been agreed as a contract under phase IV of the Oil-for-Food Programme and did not contain any reference to discharge cost, inland transportation costs or trucking fees.
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⢠On 13 January 2000, Ms Johnston contacted Ms Monies by phone and asked her to make some discrete, high level inquiries at AWB to ensure that AWB was not inadvertently involved in any payment scheme which might be in breach of the Iraq sanctions regime.
⢠Ms Johnston did not mention trucking fees or inland transportation in her conversation with Ms Moules.
⢠On the same day, Ms Moules sent a cable to DFAT, Canberra, setting out the issue as it had been explained to her by Ms Johnston. She did not refer to trucking fees or inland transportation costs in her cable.
⢠On 18 January 2000, Mr Bowker responded to Ms Moules by cable indicating in substance that he did not believe that AWB would engage in such conduct and that he would take the matter up with AWB.
⢠About a week later, Mr Bowker spoke to Mr McConville about the issue. He did not refer to trucking fees or inland transportation costs. Mr McConville immediately flatly denied the allegation. He did not consult with anyone about the allegation before or after making the
denial.
⢠It is likely that, at some time thereafter, Mr Bowker passed onto to Ms Moules the result of his conversation with Mr McConville.
⢠Ms Moules in turn passed on AWB's denial to Ms Johnston some time after 10 March 2000.
⢠In February 2000 Ms Johnston re-examined contract A4821. She also examined AWB contract A4822. She observed that this contract referred to 'all other terms and conditions as per the AWB and IGB standard terms and conditions'.
⢠Prior to 9 March 2000, Ms Johnston met with Mr Nicholas, the Australian Trade Commissioner in Washington DC. She told him of the complaint that she had spoken to Ms Moules about in January and said in substance that the issue had not been satisfactorily resolved. She gave Mr Nicholas a copy of AWB contract 4822. This contained a clause referring to a 'discharge cost' of US$12.00 per tonne to be paid to a 'nominated
Maritime Agents in Iraq'.
⢠In early March 2000, Mr Snowball received information about the Canadian complaint from Mr Schmidt (of the Saskatchewan Wheat Pool). He made a note in his note book of this. At about the same time, Mr Snowball spoke with Mr Emons about the mechanism of the payment
Report o f the Oil-for-Food Inquiry 2 1 7
of the trucking fee. He was told by Mr Emons that this fee was paid by AWB to the Jordanian trucking company. Mr Snowball also made a note about this which included the words 'asked about trucking fee and AWB pays the Jordan trucking co.'.
⢠M Snowball's conversations with Mr Schmidt and Mr Emons preceded his meeting with Mr Nicholas on 9 March 2000. Accordingly, prior to that meeting with Mr Nicholas, Mr Snowball knew of the trucking fee, that AWB paid a the trucking fee to the Jordanian trucking company and that the Canadian Government had disrupted or delayed a Canadian Wheat Board sale because of the trucking fee.
⢠On 9 March 2000, Mr Nicholas met with Messrs Flugge, McConville and Snowball and informed them of the OIP's concerns and the reference to AWB's standard terms and conditions.
⢠Following their meeting with Mr Nicholas, these representatives of AWB knew at least the following: there had been earlier concerns on the part of the OIP concerning irregular payment terms between AWB and Iraq; these concerns had not been addressed to the satisfaction of the OIP; the OIP wished to have those concerns addressed; the OIP was also concerned that there was a separate contract in place between AWB and Iraq of which it was not aware; and the OIP wanted to be provided with any parallel contracts or additional terms of which it was not aware.
⢠Mr Snowball drew the connection between the 'discharge costs' referred to in contract A4822 and the trucking fees paid by AWB. He reflected this in an email to Mr Emons on 15 March 2000 in which he set out a record of the meeting with Mr Nicholas. The email betrayed a concern that the United Nations not discover information concerning trucking fee payments made by AWB to IGB.
⢠Mr Emons had the same concern. On 15 March 2000, he faxed IGB asking that 'no information of a confidential nature be released'.
16.98 Although he was not a participant in the discussions concerning the IIC's query, either initially or when raised again by Mr Nicholas, Mr Watson was nevertheless aware of these inquiries and the Canadian complaint, albeit in general terms.202
Mr Watson's evidence was that he had been told about these inquiries (complaints) by either Mr Officer or Mr Emons.203 The issue was discussed in management group meetings, although only in general terms.204 He had been told that the Canadians were trying to find out how the trucking fees were
being paid205 —in particular how these payments were structured, because
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they could not make these payments and were being kept out of doing business in Iraq as a result.206 As a result, Mr Officer had stressed to Mr Watson that this was one of the reasons why AWB had to ensure confidentiality.207 He was not however informed of how the inquiry was being dealt with within AWB208 or in the context of DFAT and the United Nations209, and did not put his mind to it any further as he was concerned about his shipping program.210
AWB a g r e e s t o p r o v id e its s t a n d a r d t e r m s a n d c o n d itio n s
16.99 On 17 March 2000, Mr Bowker sent a cable to the Australian mission to the United Nations in response to Ms Moule's cable of 10 March 2000211 advising:
The Office of Iraq Program (OIP) concerns will be addressed with AWB next week. Initial contacts have confirmed advice already provided by AWB General Manager Americas (C.UN8555 paragraph 5).212
Mr Bowker subsequently spoke with Mr McConville and raised with him the additional query concerning AWB's standard terms and conditions that had been raised in Ms Moules' cable of 10 March 2000. Mr McConville advised that AWB was happy to provide a copy.213
16.100 Mr Bowker did not recall there being any discussion about payments into Jordanian accounts or trucking214, although he had some recollection of Mr McConville saying something like 'our competitors, probably Canada, are throwing mud at us because that is how competition between wheat traders
works'.215 Mr McConville had no recollection of this conversation.216
Mr Bowker's evidence was that he did not recall that 'trucking' was part of the initial discussion in January 2000 and he believed that the inquiry in March about standard terms and conditions was something arising from an allegation about inflated payments generally being recycled to the Iraqis. He did not have a specific recollection that it was with regard to trucking.217 Mr Bowker had no other source of information as to the nature of the complaint other than what he read in Ms Moules' cables.218 Mr Bowker did not have any suspicion regarding whether the alleged payment of US$14 a tonne was related to inland trucking.219
16.101 On 22 March 2000, following his discussion with Mr McConville, Mr Bowker sent a further cable to the Australian mission:
Start Summary
AWB (McConville, Government Relations) advise that the mention in the standard contract used by AWB and the Iraqi Grain Board of 'standard terms and conditions' is simply a reference to a long-standing MOU between AWB and the
Report o f the Oil-for-Food. Inquiry 2 1 9
Iraqi Grain Board on which its standard contract is based. AWB is happy to provide a copy of the MOU to the Office of the Iraq Program to avoid any misperceptions
End Summary
Grateful if post would follow up with AWB office in New York and provide a copy of the relevant document to the Office of the Iraq Program. AWB suspect, but cannot prove, that the allegations of irregularities on its part —which AWB dismisses — are being promoted by its Canadian competitors.220
16.102 On 30 March 2000, Mr McConville spoke with Mr Emons. Mr McConville had no recollection of what was said on that occasion.221 He said:
but it certainly follows a logical course of action that I would have taken, and that is if we received an inquiry, I would have gone to the desk, asked for the relevant information, put that in a form to go back to DFAT, or whomever was making the inquiry, check that those who provided the information —in this case Mark Emons —were comfortable with the form of words I used and then provide that information as appropriate.222
16.103 The following day, Mr McConville sent an email to Mr Emons headed 'Standard Terms and Conditions' in which he asked:
can you give me some words to address the para in the standard terms and conditions that refers to demurrage/discharge as discussed yesterday.223
16.104 Mr McConville also sent a facsimile to Mr Snowball in AWB's US office enclosing a copy of the:
Australian Wheat Board
Australian Wheat Contract (Fixed Price)
Standard Contracts Terms and Conditions
Australian Wheat Board and Grain Board of Iraq.224
The facsimile read:
Tim
Spoken with Canberra — they are OK with waiting for Mark's O.K.
Message was if he is OK, could you then deliver copy of Terms & Conditions to our UN Mission.225
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16.105 On 3 April 2000, Mr Emons replied to Mr McConville's email of 31 March 2000:
The Standard Terms and conditions apply except as and when these are in contradiction to UN policy to trade with Iraq. This is pertinent to the clauses covering Despatch/Demurrage and the cross referencing clause guaranteeing a minimum discharge rate. As the UN contract specifically excludes such contractual conditions then the terms and conditions quoted are superseded. The relevance now of these terms and conditions may appear relatively minor however both parties have elected to maintain said agreement until there is a change in trading circumstances whence an update will take place. The IGB have continued to place importance on particular terms such as the age of ships not greater than 15 years.
As a side note we have asked the IGB to begin a review of these terms in expectation of some change in the UN sanctions policy.
Trust this meets your needs.226
16.106 Later that same morning, after receiving Mr Emons' email, Mr McConville sent an email to Mr Snowball:
Tim
Further to my fax of the standard terms and conditions, we can now provide to the UN —Mark has reviewed. In forwarding to them you should include words to the effect of Mark's note below which addressed the last para on the first page re demurrage / despatch.227
16.107 Mr Snowball in turn sent a facsimile to Ms Moules that day enclosing a copy of the AWB Standard Terms and Conditions that he had received from Mr McConville.228 Mr Snowball wrote:
Please find attached the standard terms and conditions between Australian Wheat Board and Grain Board of Iraq as requested by UN.
The Standard Terms and conditions apply except as and when these are in contradiction to UN policy to trade with Iraq. This is pertinent to the clauses covering Demurrage/ Despatch and the cross referencing clause guaranteeing a minimum discharge rate. As the UN contract specifically excludes such contractual conditions then the terms and conditions quoted are superseded. For your information, the relevance now of these terms and conditions may appear relatively minor however both parties have elected to maintain said agreement until there is a change in trading circumstances whence an update will take place. The IGB has continued to place importance on particular terms such as the age of ships not greater than 15 years.
Please call if you have any questions.229
Report of the Oil-for-Food Inquiry 2 2 1
16.108 Whilst these exchanges were taking place, on 1 April 2000, Mr Watson sent a facsimile to Alia confirming the inland transportation fees payable for shipments under the next phase of the Oil-for-Food Programme:
Ref: Australia Wheat, Inland Trucking, Iraq, Phase 7
For sake of good order, I would confirm that we have been informed that the trucking fee will be USD15 p/m t for this phase and will be effected for vessels sailing ex Australia from 1st April 2000,
As per the previous phase, these costs will be remitted to your nominated account upon sailing of the vessels from Australia.
Please advise any change to your banking details enabling funds to be remitted.
Once again, we would take this opportunity to thank you for your cooperation and look forward to working with you on this phase of the above contract.230
16.109 Despite the characterisation by Mr Snowball of the query that had been passed on by Mr Nicholas as one concerning the inland transportation fees that AWB was being asked to pay, there was no disclosure by AWB, to DFAT, Austrade or the United Nations, of the existence of that fee or the arrangements for its payment.
AW B's s t a n d a r d t e r m s a n d c o n d itio n s p r o v id e d to Ms J o h n s t o n
16.110 On 5 April 2000, Ms Moules sent a facsimile to Ms Johnston enclosing a copy of:
the Standard Contract Terms and Conditions between the Australian Wheat Board and the Grain Board of Iraq.231
She advised:
Please note that AWB Ltd has advised that the standard terms and conditions apply except as and when these are in contradiction to UN policy on trade with Iraq. This is pertinent to the clauses covering Demurrage/Despatch and the cross referencing clause guaranteeing a minimum discharge rate. As the UN contract specifically excludes such contractual conditions, the terms and conditions which follow are superseded in these respects.232
16.111 On 5 April 2000, Ms Moules sent a cable to DFAT in Canberra advising:
Further to REFTELS AWB Ltd (New York office) has now provided to the Mission a copy of the Standard Terms and Conditions used by the AWB and Iraqi Grain Board. As agreed by AWB Ltd, we provided a copy of the standard terms and conditions to the Office of the Iraq Program (OIP) on 5 April. OIP has confirmed that this clarifies the matter and removes and grounds for misperception.233
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16.112 After receiving Ms Monies' fax, Ms Johnston considered there were no other
avenues left for her to explore the Canadian complaint without diplomatic incident. She thought it was not possible to refer an unsubstantiated allegation to the 661 Committee, and AWB had responded to her inquiries via the Australian mission with categorical denials and plausible explanations. Ms Johnston therefore considered she had no option but to accept the conclusions reached by 'Australian officials'.234
16.113 Ms Johnston said she would have continued to have had concerns regarding
the standard terms and conditions had the covering letter from the Australian mission not stated that the discharge/ demurrage terms referred to in the standard terms did not apply since they were not permitted under the United Nations Security Council regulations.235 Ms Johnston did not thereafter take
any further action regarding this matter in connection with AWB.236
However, she did instruct the Customs Experts within the OIP to pay particular attention to any unusual payment arrangements and to refer any irregular cases directly to her.237
16.114 Ms Johnston's evidence was to the effect that she had read the covering
explanation from AWB concerning the standard terms and conditions to mean that the clause in contract A4822 that she had earlier examined and which referred to a payment of a discharge cost of US$12.00 per tonne did not apply.238 As she was assured the 'demurrage/dispatch' clause did not apply
because of UN sanctions, she assumed the 'discharge cost of up to US$12.00' did not apply where it appeared in contract A4822.239 She formed the view that the US$12.00 per tonne fee was therefore not being paid as it was inconsistent with United Nations sanctions.240
16.115 Her view was erroneous. The explanation had not indicated that the
'discharge fee' was not being paid. 'Discharge Costs' are not related to any damages payable by way of 'demurrage/despatch' for delayed loading or unloading. Discharge costs normally relate to the cost of discharge, though here the nominated discharge fee in US dollars in truth related to the cost of inland transportation. Significantly, the standard terms and conditions were silent in respect of any trucking fee or inland transportation fee. The short- form contract had not referred to a trucking fee or transportation fee. There was nothing in the documents provided to Ms Johnston which indicated that
the 'discharge fee' was not being paid.
16.116 The United Nations ceased investigation of the Canadian complaint because
Ms Johnston believed that, as payment of a 'discharge fee' in US dollars to an Iraqi maritime agent would be contrary to the United Nations' sanctions, such payments were not being made notwithstanding the contractual provision in
Report of the Oil-for-Food Inquiry 2 2 3
contract A4822 requiring such payment. She held that belief because AWB, through the Australian mission, had advised that 'standard terms and conditions apply except as and when these are in contradiction to UN policy on trade with Iraq'. However the 'standard terms and conditions' said nothing at all about discharge, trucking fees or inland transportation fees.
16.117 On 6 April 2000, Ms Johnston sent a facsimile to Lt Col Saunders in which she advised:
Further to our earlier conversation please see attached the correspondence from the Australian mission.
Thank you for raising the matter of irregularities in Iraqi wheat contracts. We have raised our vigilance in this area.
Please do not hesitate to contact me if I can be of any further assistance.241
Accompanying that facsimile was a copy of the facsimile that Ms Johnston had received from the Australian mission dated 5 April 2000 together with Mr Snowball's fax of 3 April 2000 and the AWB Standard Terms and Conditions.242
16.118 On 6 April 2000, Mr Snowball sent an email to Mr Emons (with a copy to Mr McConville) reporting243:
I sent the contract standard terms and conditions via Aust Mission to the UN. The UN has now confirmed that everything in the contract is fine and there is no issue.244
Ms J o h n s t o n ' s I r r e g u l a r i t i e s File
16.119 By April 2000, the OIP had heard 'another rumour of potential kickbacks within the system'.245 As further clues began to emerge concerning the manipulation of the Oil-for-Food Programme by the Government of Iraq, Ms Johnston began to maintain a file concerning potential irregularities.246 This became known as the 'Irregularities File'. Ms Johnston instructed Customs Experts to bring any case of irregularities to her attention. She handled follow up inquiries concerning any irregular payment issues and added the information to the Irregularities File.247
16.120 By October 2001, Ms Johnston considered that she had sufficient tangible evidence to warrant presentation of a report concerning potential kick- backs.248 She drafted a 'Note for the File' entitled 'Potential Illicit Payments to the Government of Iraq'. This note, which is referred to in the IIC final report as 'the Johnston Note'249, outlined the cases from her Irregularities File.250 The
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note detailed each case where there was tangible evidence that kick-backs might be occurring.251
16.121 According to the IIC final report, Ms Johnston's purpose in drafting the
Johnston Note was to summarise compelling evidence that an illicit payments scheme existed, and present the information to her supervisor, Mr Zarif, and to Mr Sevan, to encourage action by the Secretariat. The IIC final report found that a copy of the Note had been provided to both Mr Zarif and Mr Sevan. It was never provided to the 661 Committee.252
16.122 Ms Johnston did not include the Canadian complaint regarding AWB in the
Johnston Note. As there was no evidence in support of the Canadian complaint, Ms Johnston felt that including any unsupported material would jeopardise potential action in connection with the Note.253
Report of the Oil-for-Food Inquiry 2 2 5
N o te s
1 Ex 546, UN0.0006.00030. 2 Ex 546, UN0.0006.00030. 3 T 6722.30-38. 4 Ex 546, UN0.0006.00030. 5 Ex 965, WST.0032.0001_R at 0002_R, para. 12. 6 Ex 965, WST.0032.0001_R, para. 2. 7 Ex 965, WST.0032.0001_R, para. 3. 8 Ex 965, WST.0032.0001_R, para. 8. 8 Ex 965, WST.0032.0001_R at 0002_R, para. 14. 10 Ex 547, UN0.0006.0037. 11 Ex 965, WST.0032.0001_R at 0002_R, para. 14. 12 Ex 965, WST.0032.0001_R at 0002_R, para. 14. 43 Ex 965, WST.0032.0001_R at 0002_R, para. 14. 14 Ex 547, UN0.0006.0037—see below. 15 Ex 456, DFT.0001.0179, para. 2 —see below. 16 Ex 965, WST.0032.0001_R at 0002_R, para. 14. 17 T 6723.41. 18 OC4988 is the United Nations' approval number that was given to the contract after it had been approved by the 661 Committee. 18 Ex 1211, UNO.1211.0291. 20 Ex 965, WST.0032.0001_R at 0002_R-0003_R, para. 14. 21 Ex 542, DFT.0002.0053; see also Ex 729 at AWB.0058.0128. 22 Ex 1450, AWB.0058.0152. 23 The inland transportation fee was only imposed from phase VI of the Oil-for-Food Programme (see
Chapter 13). Although no inland transport fee was payable in respect of this contract, such a fee was in fact paid by AWB in respect of the one shipment made under this contract. 24 Ex 542, DFT.0006.0153; see also Ex 729, AWB.0058.0075. 25 Ex 729, AWB.0058.0061; Ex 1211, UN0.0003.3627 at 3627-3629. 26 Contracts A4653 (Ex 1211, UN0.0003.3323), A4654 (Ex 1211, UN0.0003.3411) and A4655 (Ex 1211, UN0.0003.3533). 27 Ex 965, WST.0032.0001_R at 0003_R, para. 15. 28 Ex 543, DFT.0013.0225, para. 2. 28 Ex 543, DFT.0013.0225, para. 5. 30 Ex 965, WST. 0032.0001_R at 0003_R, para. 17(d). 31 Ex 965, WST. 0032.0001_R at 0004_R, para. 17(i). 32 Ex 965, WST. 0032.0001_R at 0003_R, para. 16. 33 T 6736.12-17; although in her statement, Ms Johnston does not say that she spoke of 'inland transportation' with Ms Moules: Ex 965, WST.0032.0001_R at 0003_R, para. 17(d). 34 Ï 4480.43 - T 4481.17; T 4521.39-41.
35 Ex 547, UN0.0006.0037. 36 Ex 547, UN0.0006.0037. 37 Ex 547, UN0.0006.0037. Ms Moules agreed that she had been asked by Ms Johnston to make discrete high level inquiries of AWB (T 4476.28); see also Ms Moules' cable: Ex 456, DFT.0001.0179 at 0180, para. 4. 38 Ex 456, DFT.0001.0179. 39 T 6736.34-37. 40 Ex 547, UNO.0006.0037. 41 Ex 456, DFT.0001.0179. 42 Ex 456, DFT.0001.0179-0180. 43 Ex 457, DFT.0001.0177. 44 Ex 457, DFT.0001.0177. 45 Ex 457, DFT.0001.0177. 46 Ex 565, DFT.0013.0057, para. 6; see also T 4580.14-T 4581.22.
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47 T 4580.14 - Τ 4581.22. 48 Ex 565, DFT.0013.0057, para. 6; Τ 4581.13. 49 Τ 4581.42-44. a Τ 4580.14. si Τ 4580.36-41. 52 Τ 4580.46- Τ 4581.3. Î’ Τ 4580.28-31. 54 Τ 4581.18-22. 55 Τ 4581.24-26. 56 Τ 4624.36. Neither Mr McConville nor Mr Emons gave any evidence as to whether they were present at this December meeting or w hat was then said. Mr McConville gave evidence before Mr Bowker and before it was first suggested that he had been present at the meeting. Although Mr Emons gave no evidence about this meeting, possible corroboration for his presence may be found in his email of 20 December 1999 which refers to a visit to AWB by Mr Bowker the preceding week: Ex 246, AWB.5035.0351. 57 Presumably Mr Zuhair Daoud. 58 T 4581.27-36. 59 T 4581.37-40. “ Ex 565, DFT.0013.0057, para. 5. 64 T 6070.38 - T 6071.6. 62 T 2343.20-38. 63 T 2343.20-38. 64 T 4581.44 - T 4582.1. 65 T 4582.3-10. 66 T 4582.12-17. 67 T 4582.17. 68 Ex 565, DFT.0013.0057 at 0058, para. 7. 89 Ex 484, WST.0004.0171, para. 2. ⢠Ex 484, WST.0004.0171, para. 4. 71T 4589.20. 72 Ex 565, DFT.0013.0057 at 0058, para. 7. 73 Ex 565, DFT.0013.0057 at 0058, para. 7. 74 Ex 484, WST.0004.0171 at 0172-0173, para. 9. 75 Ex 484, WST.0004.0171 at 0172-0173, para. 9. 76 T 4589.37-41. 77 T 4590.21. 78 T 4625.7. 79 T 4625.39. 80 T 4626.1-6. 84 T 4626.25-33. 82 Compare, for example, Mr Officer's evidence initially that he did not recall why shipping companies were used to make payments to Alia (Ex 229, INQ.0006.0001 at 0029, T 301.3), his speculation that the shipping companies had been used because of their familiarity with Alia (Ex 229, INQ.0006.0001 at 0029, T 301.9) and his statement that he was unaw are of any discussion involving the use of Ronly as a conduit for payment (Ex 229, INQ.0006.0001 at 0035, T 307.19) w ith his later evidence in paragraphs 24, 33, 40 and 45 of his supplementary statement: Ex 230, WST.0007_R-0034_R. 83 T 4592.31-34. 84 T 3786.23. 85 Ex 95, INQ.0004.0001 at 0068, T 75.1. 86 Ex 95, INQ.0004.0001 at 0070, T 77.15. 87 T 3802.7 and T 3802.21. 88 T 3802.25. 89 T 3783.7; T 3785.24; T 3786.8; T 3787.45 - T 3788.2. 90 T 3785.44. 91T 6071.25 - T 6072.39.
Report of the Oil-for-Food Inquiry 2 2 7
92 Τ 4593.31- Τ 4594.2. 93 Ex 586, DFT.0017.0072. 94 Τ 4593.29. 93 Τ 4593.35-40. 96 Τ 4593.21. 97 Τ 4596.9; Τ 4600.38-43. 98 ÎÏ 965, WST.0032.0001_R at 0004âR, para. 18. 99 Ex 965, WST.0032.0001_R at 0004_R, para. 19. 100 Ex 965, WST.0032.0001_R at 0004_R, para. 19. 101T 4567.8-10. 102 T 4568.20-32; T 4570.2-4. 103 T4569.47-T 4570.4. 104 x 4571.21-29. 105 Ex 548, UN0.0006.0029. 106 Independent Inquiry Committee into the United Nations Oil-for-Food Programme, The Management of the
United Nations Oil-for-Food Programme, Paul A Volcker (Chairman), United Nations, New York, 7 September 2005, at vol. Ill, ch. 1, p l2 ('Volcker report'). ίο? Volcker report, vol III, ch. 4, p. 94, Ex 595, UN0.0011.0019 at 0123. 108 Ex 965, WST.0032.0001_R at 0004_R, para. 20. 109 Ms Johnston confirmed that the reference to contract '4921' in para. 21 of her statement (Ex 965, WST.0032.0001_R at 0004_R) was a typographical error and should have read '4821': T 6715.31. 110 See above. 111 Ex 965, WST.0032.0001_R at 0004_R, para. 22 —Ms Johnston had not remembered that she had reviewed this contract in February 2000 until her view of her 'Irregularities File' on 9 May 2006 (see para. 22). 112 Ex 965, WST.0032.0001_R at 0005_R, para. 28. 113 Ex 965, WST.0032.0001_R at 0005_R, para. 23. 114 Ex 965, WST.0032.0001_R at 0005_R, para. 26. 115 Ex 702, DFT.0013.0702_R, para. 4; Ex 701, DFT.0013.0059, para. 2. 116 Ex 965, WST.0032.0001JR at 0005_R, para. 27. 117 Ex 965, WST.0032.0001_R at 0005_R, para. 28. 118 Ex 965, WST.0032.0001_R at 0005_R, para. 28. 149 Ex 965, WST.0032.0001_R at 0005_R, para. 28. 120 Ex 965, WST.0032.0001_R at 0005_R, para. 29. Mr Nicholas agreed that he had received a copy of that contract from Ms Johnston at that time: T 5785.8-33. 121 Ex 702, DFT.0013.0702_R at 0703_R, para. 13. 122 Ex 965, WST.0032.0001_R at 0004_R, para. 22. 123 Ex 965, WST.0032.0001_R at 0004_R, para. 22; T 6725.7-14. 124 T 6762.23-32. 125 In evidence Ms Johnston agreed that the 'm ain focus' of her discussion with Mr Nicholas 'w as on the standard terms and conditions' (T 6762.7) but she did say that she would have read both clauses (one referring to discharge costs and the other referring to standard terms and conditions) to Mr Nicholas (T 6762.7-9). 128 Ex 701, DFT.0013.0599, para. 7; the cable is Ex 459, DFT.0001.0261. 127 T 4503.30-45. 128 Ex 547, UN0.0006.0037. Ms Moules agreed that she had been asked by Ms Johnston to make discrete high level inquiries of AWB (T 4476.28). See also para. 4 of Ms Moules' cable: Ex 456, DFT.0001.0179 at 0180. 129 T 6762.11-15. 130 Ex 701, DFT.0013.0599 at 0601, para. 4. 131 Ex 702, DFT.0013.0702_R at 0703_R, para. 14. This meeting had not been called specifically for the purposes of discussing the concerns that Ms Johnston had raised with Mr Nicholas or as a consequence of his meeting with Ms Johnston. This issue about the alleged AWB contract irregularities was not part of the original agenda for that meeting: Ex 702, DFT.0013.0702_R at 0703_R, para. 14. 132 Ex 702, DFT.0013.0702_R at 0703_R, para. 11. 433 T 3035.14-17.
2 2 8 Report o f the Oil-for-Food Inquiry
434 Ex 701, DFT.0013.0599, para. 3. 433 Ex 701, DFT.0013.0599, para. 4. ο» Ex 701, DFT.0013.0599, para. 5; see also Ex 702, DFT.0013.0702_R at 0703_R, para. 14. i37 Ex 702, DFT.0013.0702_R at 0703_R, para. 14. η» Ex 701, DFT.0013.0599, para. 5; see also Ex 702, DFT.0013.0702JR at 0703_R, para. 14. us Ex 701, DFT.0013.0599, para. 5; see also Ex 702, DFT.0013.0702_R at 0703_R, para. 14. 440 Ex 701, DFT.0013.0599, para. 7; the cable is Ex 459, DFT.0001.0261.
141 Mr McConville had no specific recollection of this meeting with Mr Nicholas or what was said at it (Ex 484, WST.0004.0071 at 0073, para. 10; T 3788.37 and T 3789.3). Mr Flugge also had no recollection of the meeting (Ex 453, WST. 0012.0033 at 0054, para. 134; T 3489.47 - T 3490.4). He did not recall making the statement attributed to him by Mr Nicholas: T 3497.23. 142 See below; the email is Ex 121, MAE.0002.0091.
m3 T 3031.1.
144 Ex 458, DFT.0001.0171; also Ex 570, DFT.0001.0174. 145 Ex 701, DFT.0013.0599; Ex 459, DFT.0001.0261-0262. 146 Ex 459, DFT.0001.0261, at para. 1. 147 Ex 459, DFT.0001.0261. 148 Ex 459, DFT.0001.0261 at 0261-0262, paras 2-3. 449 Ex 459, DFT.0001.0261 at 0262. 150 Following his meeting with the representatives of AWB and subsequent cable reporting the matter, the issue about contract irregularities was taken up by DFAT with an agreem ent that Ms Moules w ould keep Mr Nicholas in the loop. Mr Nicholas believed that this w as done via subsequent cable traffic. None of this was with him directly: Ex 702, DFT.0013.0702_R at 0703_R, para. 15. The OIP did not raise the matter again with Mr Nicholas. N or did Mr Nicholas raise it with the OIP: Ex 702, DFT.0013.0702_R at 0703_R, para. 16. 154 T 5782.24 and T 5782.44. 152 As already noted, they had no specific recollection of this meeting or w hat was said (see above). 153 Ex 459, DFT.0001.0261. 154 Contract A4822, Ex 1451, AWB.0058.0068. 155 Although the contract did refer to 'discharge costs' there was nothing to link that to trucking or inland transportation. 156 See below; the email is Ex 121, MAE.0002.0091; see T 3035.27-34. 157 which was largely based on the account in that email.
158 T 3035.27-34. ⢠Ex 386, AWB.0187.0226_R and AWB.0187.0231_R; T 3048.33-36. 160 Ex 384, WST.0010.0053 at 0058, para. 21; T 3049.46 - T 3050.2; the note is Ex 386, AWB.0187.0231_R. 161 Ex 386, AWB.0187.0231_R. 462 T 3048.7. 463 T 3048.33-36. Although Mr Snowball also visited the Canadian W heat Board with Messrs Flugge and McConville immediately after their meeting in W ashington with Mr Nicholas, Mr Snowball did not recall any discussion on the Iraq trucking fees at that meeting (Ex 384, WST.0010.0053 at 0059, para. 22). That later meeting was therefore not the source of either the information about the trucking payment disrupting Canadian sales in the diary note or Mr Snowball's knowledge in that regard. 464 Ex 386, AWB.0187.0231_R. 465 T 3047.34. 488 Ex 386, AWB.0187.0231_R. 467 T 3047.35. 468 Namely, the note in Ex 386, AWB.0187.0226_R. 469 Ex 386, AWB.0187.0226_R. 470 Ex 384, WST.0010.0001 at 0006, para. 20. 474 T 3054.25-28. 472 T 4520.28-32; see also Ex 543, DFT.0013.0622 at 0625, para. 9. 473 T 4526.42. 474 Which was not based on recollection. 475 T 3057.23-43:
Report o f the Oil-for-Food Inquiry 2 2 9
Q: Can I draw this circumstance to your attention: the contract that we looked at yesterday discloses a payment for discharge fees of up to US$12 a metric tonne, but it is silent as to the manner or mechanism of that payment. Exhibit 122, which is Mr Emons' fax to Yousif Rahman, says this:
We are very concerned to learn from the UN that the Canadian Government has taken action within the United Nations to discover the m anner of AWB payments.
He uses the phrase 'the m anner of'. Did you have some discussion with Mr Emons about the manner of payments of the discharge fees?
A: I think it's possible 1 would have asked him, and, from my recollection, I don't think I learnt any more than really w hat's displayed in that diary note, that AWB pays a Jordan trucking company. I don't believe I uncovered any information other than w hat I already knew, or seemed to have known. 17« Such as contract A4822 (Ex 1451, AWB.0058.0068). 177 Or 'inland transportation fees'. 178 T 3036.11.
179 Ex 384, WST.0010.0001 at 0005, para. 14.
18" 1 3036.25. “ i T.3036.34. 182 Ex 121, MAE.0002.0091. m Ï 1919.08. 184 Ex 122, AWB.0136.0524. 185 Ex 122, AWB.0136.0524. 186 T 3039.31; T 3056.24-38. 187 Ex 122, AWB.0136.0526. 188 T 5782.24 and T 5782.44.
189 Ex 383, WST.0001.0054 at 0058, para. 15; the email is at Ex 121, MAE.0002.0091. 190 Ex 121, MAE.0002.0091 (emphasis added). 191 Including contract A4822. 192 Mr Snowball was aware that AWB paid a trucking fee to a Jordanian trucking company prior to his meeting with Mr Nicholas on 9 March, 2000: Ex 386, AWB.0187.0226; T 3048.33-36. i” T 3059.28-30. 194 T 3058.15-21. 195 Ex 384, WST.0010.0001 at 0005, para. 16. 196 Ex 384, WST.0010.0001 at 0004-0005, para. 13. 197 T 3030.31. 198 Ï 3489.47- T 3490.24. 199 T 3549.3-26. 200 Ï 1921.26- T 1922.14. mi T 1922.19-25. 2°2T 3438.3 and following 2® T 3438.3. 204 T 3438.26-37. 288 T 3438.9. 206 T 3438.41. 207 T 3438.9-12. 208 T 3438.16. 289 T 3438.46 - T 3439.2. 2io T 3438.20. 2" Ex 458, DFT.0001.0171. 212 Ex 485, DFT.0001.0008. 213 Ex 565, DFT.0013.0057 at 0058, para. 8. 2« Ex 565, DFT.0013.0057 at 0058, para. 8; T 4598.4-24. 215 Ex 565, DFT.0013.0057 at 0058, para. 8. 216 Ex 484, WST.0004.0171 at 0173, para. 12. 217 T 4597.20-26. 218 Ï 4 5 9 7 . 4 0 .
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⢠Τ 4597.42-45. 220 Ex 486, DFT.0001.0169; also Ex 765, DFT.0001.0169.
221 T 3799.19. 222 T 3799.19-27.
223 Ex 487, AWB.0173.0285; a clearer copy can be found at Ex 123, AWB.5117.0226. 224 Ex 387, SN0.0001.0018_R; Ex 387, AWB.0172.0330_R.
225 Ex 387, AWB.0172.033CLR.
226 Ex 123, AWB.5117.0226.
227 Ex 123, AWB.5117.0226.
228 Ex 383, WST.0001.0054 at 0058, para.16.
229 Ex 124, DFT.0001.0438.
230 Ex 434, AWB.0001.0077. 231 Ex 489, DFT.0001.0437. 232 Ex 489, DFT.0001.0437. 233 Ex 488, DFT.0001.0009. 234 Ex 965, WST.0032.0001_R at 0005_R-0006_R, paras 31 and 33. 235 Ex 965, WST.0032.0001_R at 0006_R, para. 34. 236 Ex 965, WST.0032.0001_R at 0006_R, para. 35. 237 Ex 965, WST.0032.0001_R at 0006_R, para. 35. 238 T 6729.31- T 6732. 239 T 6729.34- T 6730.46. 240 T 6732.4-12. 241 Ex 966, UN0.0012.0003. 242 Ex 966, UN0.0012.0004, UN0.0012.0005, and UN0.0012.0006_R. Ms Johnston had earlier conversations with Lt Col Saunders in which she kept him informed of developments concerning his inquiry including the categorical denial of payments outside the Oil-for-Food Programme by AWB's managers: Ex 965, WST.0032.0001_R at 0006_R, para. 32. 243 Ex 383, WST.0001.0054 at 0058, para. 16.
244 Ex 130, AWB.0172.0093. 245 T 6733.45-47; Ex 965, WST.0032.0001_R at 0006_R, para. 38. 246 Ex 965, WST.0032.0001JR at 0007_R, para. 39. 247 Ex 965, W S T .0 0 3 2 .0 0 0 1 at 0007_R, para. 40. 248 Ex 965, WST.0032.0001_R at 0007_R, para. 41. 249 Volcker report, vol III, ch. 4, p. 94, Ex 595, UN0.0011.0019 at 0123; Ex 965, WST.0032.0001_R at 0007_R, para. 42. .
250 Ex 965, W S T .0 0 3 2 .0 0 0 1 at 0007_R, para. 43. 251 WST.0032.0001_R at 0007_R, para. 43. 252 Volcker report, vol III, ch. 4, p. 94, Ex 595, UN0.0011.0019 at 0123. 253 Ex 965, WST.0032.0001_R at 0007JR, para. 45.
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17 April to July 20 0 0 : delays and dem urrage
17.1 Following the appointment of Mr Yousif Abdul-Rahman as Director General of IGB in early 2000, IGB implemented a significant change in the discharging and testing procedures of AWB's wheat shipments to Iraq in March 20002 The introduction and operation of these new procedures resulted in delays in the berthing and discharge of AWB's vessels at Umm Qasr.
At the same time, the Iraqis were experiencing a reduction in the rate at which cargoes could be discharged at Umm Qasr, resulting in further delays both to the berthing of AWB's vessels and the discharge of wheat from them.
17.2 These problems were exacerbated by the large quantity of wheat being shipped by AWB to Iraq and the bunching of shipments within the AWB shipping program. In a report prepared following his visit to Iraq in May 2000, Mr Emons observed:
For the 1999/2000 season the AWB has sold a record 2.4 m illion tonnes to Iraq. This business has been conducted direct to the IGB an d tw o Russian com panies. A s a consequence of this tonnage being sold AWB has shipped w hat is in effect 98% of the su p p ly of w h eat to Iraq.
The facility at U m m Q asr has been u n d er intense pressure from the AWB
shipm ent program . This volum e has coincided w ith a change of Director General of the IGB on 1 January 2000 and a dram atic decline in discharge capacity since m id February 2000.2
17.3 As a result of these delays, AWB Chartering was incurring demurrage to the owners of the ships it was chartering. It was facing an increasing demurrage bill. From early 2000, these delays and their financial consequences began to be of concern to AWB and the AWB Pool.
Under the terms of its contracts, IGB was not liable to reimburse AWB for the demurrage or any other costs that AWB incurred as a result of these delays. This demurrage and other costs had to be borne by AWB or the AWB Pool from its profit.
17.4 In negotiating its contracts with IGB and determining the price at which it was prepared to sell its wheat, AWB included an allowance for the demurrage that it anticipated might be incurred in respect of the shipments made under that contract.3 There was however from early 2000 onwards a concern within AWB and the AWB Pool that, with these increased delays in the berthing and
Report o f the Oil-for-Food Inquiry 2 3 3
discharge of AWB vessels and associated increased demurrage, this allowance may not be sufficient.
In those circumstances, from early 2000 onwards there was an issue within the AWB Group as to who within the Group should bear the increasing cost of this demurrage. The issue was whether these costs should be borne by AWB Chartering4 (which chartered the vessels and had to bear the cost initially) or by the AWB Pool (through the arrangements that it had with AWB Chartering pursuant to which AWB Chartering provided the vessels it chartered for the carriage of Pool wheat), or whether they should be shared between them.5
17.5 Delegations from AWB visited Iraq in April 2000 and again in May 2000 to discuss the delays in discharge with representatives of IGB. Other topics discussed with IGB during these trips included the inland transportation fee and the possibility of future sales to Iraq. These discussions are examined in this chapter.
17.6 In October 2000, a delegation from AWB (headed by Mr Stott) visited Iraq and had discussions with the Minister for Trade and representatives of IGB in relation to amongst other topics the continued delays in the discharge of AWB's vessels. That visit and the discussions that took place during it are considered in Chapter 19. The delays to AWB's vessels and the reduction in the rate of discharge were also said to be the reason for Mr Stott's exchange with Ms Drake-Brockman (from DFAT) in late October and early November 2000, following Mr Stott's return from his visit to Iraq in October 2000. This exchange and the circumstances in which it occurred are examined in detail in Chapter 20.
April 2 0 0 0 : a v isit to J o r d a n a n d I r a q
17.7 In April 2000 Messrs Emons, Watson and Laskie travelled to the Middle East, including Jordan and Iraq.6 During their visit, they met with Mr A1 Absi from Alia in Jordan. They also travelled to Iraq and there had discussions with both the Iraqi Minister for Trade and representatives of IGB.
P r e p a r a t i o n s
17.8 On 4 April 2000 Mr Emons sent an email to Mr Watson in preparation for their forthcoming trip in which he wrote:
C ouple of issues before w e take off for Iraq at the w eekend.
1. We need to clarify when we get to Baghdad that the fee on the new contract is USD 15 and that the method of payment remains the same
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to Alia etc and in w hat am ounts. This is an increase on the last phase w hich w as USD12 you w ill recall. I suspect w e w ill be confronted w ith proposals th at w ill be com plicated b u t w e w ill cross th at bridge w hen w e get to it. For your inform ation I had a discussion w ith Trevor
Flugge last w eek to discuss some of the finer points of the trucking fee. He is happy for us to carry on in fact he is determ ined that we
should be accom modating to the Iraqi's so that our business does not come under threat from our US or CWB freinds.
2. W ith the above in m ind w e need to take w ith us a list of vessels paid so far and vessels scheduled to load. I have asked [Mr O wens] for a U N paym ent schedule for Friday before w e d e p a rt.7 [em phasis added]
17.9 By this time, Mr Flugge knew, from his discussions with Mr Emons (referred to in Mr Emons' email of 4 April 2000) of the finer points of the payment of the inland transportation fees.8 In particular, Mr Flugge knew of AWB's payment of the inland transportation fee, that the fee had been set by IGB, of the mechanism for that payment of that fee (namely that the payments were being made to Alia and via Ronly and other shipowners), that IGB had nominated Alia as the recipient of the fee and that the payments to Alia were
payments to Iraq. Moreover, in those discussions, Mr Flugge urged Mr Emons to be accommodating to the Iraqis, including by accommodating Iraq's demands concerning the inland transportation fees.
17.10 On 5 April 2000, Mr Emons sent a facsimile to IGB advising of a change in his travel commitments.9 In that facsimile he also wrote:
O u r C hairm an has asked m e to discuss w ith you w hile I am in B aghdad the issue of the position of the U nited N ations on trucking fee and also future phases of the Food for Oil p ro g ra m .'10
In this instance Mr Emons used Mr Flugge's name without consulting him in order to add importance to his request.
17.11 Initially, the Director General of IGB, Mr Abdul-Rahman, was not available to meet with Mr Emons on the dates that had been proposed. On 7 April 2000, Mr Emons sent a facsimile to IGB advising of his decision to defer his proposed meeting for that reason, although Mr Emons stated he was nevertheless still planning to meet with the transport company in Jordan.11
Mr Emons wrote:
For good o rd er w e had w ished to discuss the follow ing issues:
1. W e h ad h oped to discuss at o u r m eeting the issue of the paym ent of the
trucking fee. You w ill be aware of the restrictions that the UN has placed on such paym ents and as you are aw are this now m eans that w e m ust halt further paym ents. W e have endeavoured to m eet the requirem ents of the IGB b u t w ithout direct consultation we are now restricted to the accepted m ethods of paym ent to
Report of the Oil-for-Food Inquiry 2 3 5
be used. W e h ad h oped that w e could discuss personally w ith y o u r good selves this issue due to its sensitivity how ever if you w ould prefer we can discuss w ith the UN as to the appropriate method for paying for the trucking fee ? Please respond by M onday 10th A pril so an alternative action can be u ndertaken that does not result in the delay of vessels.
2. We h ad also w ished to discuss the dem and by IGB for the inclusion of
delivery to Iraq G overnates an d additional quality requirem ents over and above those agreed at the tim e of tim e of contract negotiation. If this rem ains a dem and of IGB in the L etter of C redit then AWB w ill be obligated to h o ld IGB liable for insurance costs an d other relevant costs for such a clause and as such we seek a relevant increase in contract price. Please confirm by re tu rn that this is in order. If this is n o t forthcom ing all shipm ents m u st be halted as IGB will be considered to be in default of contract term s as previously agreed. W e w ould h ope th at this does not becom e an issue as it has not previously been a hindrance to our trad e.12 [em phasis added]
17.12 Mr Emons gave evidence of his motivation for sending this facsimile:
Q: M r Em ons, you seem to be d raw in g direct attention to the fact that the
paym ents that w ere being m ade w ere outside the U N sanctions; is that right?
A: To give you som e background, as you can tell by the tone of this fax, w e w ere getting very frustrated w ith the lack of response from Rahm an. H e w as actively avoiding taking o u r phone calls. H e changed the dates of our arrivals. H e
w o u ld n 't be available. H e w as ju st being, shall we say, uncooperative. So w e took it u p o n o u r selves to send this fax, w hich w as basically, as you can tell, fairly threatening, suggesting that w e w o u ld have to halt the paym ents of the trucking fee for the reasons discussed there and, if he w asn 't in a m ood to talk to us, then w e w o u ld take that action.
The Com m issioner: It w asn 't just halting the paym ents for trucking fees; it w as going to the U nited N ations about it?
A: Exactly. T here w as a direct threat there. As I say, it w asn 't very subtle, but at that stage of the relationship subtlety h ad rath er disappeared.
M r A gius: Q uite directly, you w ere using the fact of the illegality as a threat.
A: Q uite; correct.
Q: You knew at that time, from the evidence you've given to this p o in t —I think w e can infer — that the Iraqis w ere im posing sim ilar conditions on other traders.
A: T hat's correct.
Q: A nd if you w anted to trade w ith Iraq — that is, export goods to Iraq —you had to pay such a fee. So w hat you w ere threatening w as the reporting in effect of the w hole system ?
A: Correct. M r A gius, to p u t it in context, I m ean, AWB h ad tw o choices: w e either com plied w ith the IGB's requirem ents u n d er their contract; or w e allow ed the w heat m arket to disappear altogether to other com panies. W e w o u ld n 't allow that
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to h ap p en w ith o u t taking som e action against the Iraqis, and this is w here the suggestion w o u ld com e th rough, th a t w e w ould m ake the U N aw are com pletely of the trucking arrangem ents for everybody. Therefore, hopefully, w e m ight be able to have a m ore reasonable response.13
17.13 Mr Emons had discussed this course of action with his colleagues in the International Sales and Marketing Division and his manager, Mr Officer.14
17.14 From the date of this email, 7 April 2000, there can be no suggestion by AWB that:
a. it believed that the inland transportation fee had been approved by the United Nations;
b. it believed that the inland transportation fee was a payment to a legitimate transport company for transport services;
c. it did not know that the inland transportation fee was a payment to Iraq; and
d. it did not believe that the inland transportation fee was prohibited by the UN sanctions.
17.15 It is clear that Mr Emons was threatening IGB with exposure to the United Nations as a lever to force it to the negotiating table to deal with the demurrage problem. This much was confirmed by later evidence from Mr Emons:
Q: There are som e fairly solid threats in th at fax, M r Emons. D id you ever follow u p on them ?
A: Well, thankfully, M r R ahm an decided he w ould m eet us, an d hence o u r trip to B aghdad.
M r Agius: M ay I take it, then, that you never follow ed th ro u g h on the threats of going to the U N about the trucking fee and the m anner of paym ent?
A: Of course not, no.
The Com m issioner: D id you get a w ritten reply, do you know ?
A: N o, I d id n 't. I think the only reply I got w as 'W elcom e m e to y o u r co u n try '.15
17.16 Mr Emons was able to arrange to meet with representatives from IGB during the April visit, although as events turned out not the Director General, Mr Abdul-Rahman.
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17.17 Mr Emons concluded his facsimile to Mr Abdul-Rahman of 7 April 2000 by stating:
I w ill forw ard to you a copy of the letter from our C hairm an to the M inister w hich w e w o u ld ask you to forw ard to M inister Saleh.16
17.18 Included amongst the documents produced by AWB was a letter purporting to be from Mr Flugge to Minister Saleh.17 The letter, which is not signed or dated, began:
M ay I take this opp o rtu n ity d u rin g the visit by AWB to B aghdad to pass m y
personal good w ishes to you and y o u r fam ily and to thank the G overnm ent and people of Iraq on behalf of A ustralian w h eat farm ers for the continued trade w ith A ustralia.18
After recounting a message that is said to have been conveyed to the Australian Government following his visit to Baghdad in October 1999, the letter continued:
W hile in B aghdad I will ask AWB to discuss the recent com m unication from U nited N ations concerning trucking fees. A s you are aw are, both the C anadian and A m erican G overnm ents have raised this issue w ith the U nited N ations. It is out intention to rem ain com m itted to the term s of trade agreed betw een IGB and AWB. The A ustralian governm ent su p p o rts this com m itm ent to o u r trad e.19
17.19 Mr Flugge's evidence was that he had never seen this letter before20 and did not arrange for it to be drafted.21 He did not recall any discussions with Mr Emons on that topic22, although conceded that he may have had one.23 He could not rule it out.24 He submitted that his travel arrangements meant he could not have signed the letter.25
17.20 However, Mr Emons' evidence was that he left it for Mr Flugge's signature and later collected it. It was delivered by Mr Laskie to Minister Saleh in Baghdad on 15 April 2000.26 The letter is an endorsement by the Chairman, Mr Flugge, of the arrangements previously made between IGB and AWB, which included the payment of a fee to Iraq via Alia.
17.21 On 10 April 2000, Mr Emons sent a facsimile to Mr Abdul-Rahman at IGB advising:
I have arranged to m eet w ith the trucking com pany in Jordan on o u r w ay into Baghdad. I hope to re arrange the m ethod by w hich w e deal w ith the trucking. I w ill then be able to pass this inform ation to y o u r office w hile I am in Baghdad.
We w ould prefer th at in the m eantim e that the IGB did not com m unicate w ith AWB directly on this issue until these discussions have taken place.
We tru st w e have y o u r u n d erstan d in g on this issue.27
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17.22 Mr Emons explained his thinking when he wrote this email:
Q: In the first p arag rap h you indicated an intention to m eet w ith the trucking com pany in Jordan on y o u r w ay to B aghdad, so you w ere going to be there before you m et w ith th e director-general of the grain board, and you spoke of hoping to rearrange the m eth o d by w hich you deal w ith trucking. W hat w as the background to that?
A: Well, w e w e re n 't h a p p y w ith the w ay the tru ck in g fee w as taking place.
Because of the problem s w e w ere h aving w ith discharge, it obviously w asn't w orking. W e need ed to discuss it w ith them to see if w e could resolve some
issues.
Q: Issues ab o u t the m ethod of paym ent?
A: N o, issues like the delaying of paym ent. W hile w e m ight have been paying the shipow ner, the sh ipow ner w as taking an extraordinarily long tim e to pay the Alia com pany, an d th u s w as delaying the discharge potentially.
Q: There w ere com plaints from the ISCWT of pay m en ts n o t having been received by it.
A: Exactly, yes.
Q: W as th at on your list of things to discuss w ith —
A: T hat w as one of the things, yes.
Q: — Alia in Jordan?
A: In Jordan, yes.
Q: D id y o u intend at th at tim e to have any discussions w ith Alia about th e actual provision of trucking by Alia?
A: W e w o u ld have discussed trucking, b u t not the provision of trucking by Alia. W e w o u ld discuss the — in fact, if I recall, we d id discuss tru ck in g in the broadest context and the problem s of the lack of trucks and asked them to see if they could
find som e explanation for us to give back to M elbourne.28
17.23 As to why he did not want IGB to communicate directly with AWB in relation to these issues, Mr Emons said:
A: W e w ere very concerned at one stage that inform ation w as being leaked to our com petitors about the n atu re of o u r operations. W e w ere starting to get questions asked on the phone, w hatever, from different people. We w e re n 't sure w here the source of inform ation w as. W e w ere p retty sure th a t it w as com ing from the IGB
itself. We d id n 't w ant any, shall w e say, controversial docum ents sent to the AWB —ie, w e d id n 't w a n t docum ents from R ahm an him self m aking dem an d s of som e sort or other. Purely it w as a w ay of trying to contain w h a t he w as doing.
Q: You d id n 't w ant M r R ahm an corresponding w ith the AWB?
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Q: I ju st d o n 't quite follow as to w hy yo u w o u ld n 't w an t that to happen?
A: Well, as I explained, w e h ad a suspicion th at R ahm an w as talking to a num ber of traders, particularly R ussian traders. H e h ad a very close relationship w ith the R ussian am bassador, w ho w as in B aghdad. There seem ed to be a lot of
inform ation passing to those R ussian traders about our business. We w ere
concerned about the nature of his com m unications to us and w e w an ted to discuss that w ith h im .29
A: Not until we'd spoken with him.
A m e e t i n g w ith Mr Al Absi
17.24 On 14 April 2000, the delegation from AWB met with Mr Othman Al Absi, General Manager of Alia, in Jordan. This was prior to travelling to Iraq to meet with the representatives of IGB. They met with Mr Al Absi initially at their hotel and then again later that same afternoon for coffee. That second meeting lasted for about an hour.30
During their meeting, there was a discussion with Mr Al Absi on a range of issues, mainly relating to the vessel discharge problems at Umm Qasr.31
17.25 In his statement, Mr Laskie said that during their meeting he asked Mr Al Absi how the road trucking program was proceeding and was told that it was not the trucking program that was the problem. Rather, he was told that AWB needed representation at the port, and that Mr Al Absi was keen to appoint a representative to look after AWB's interests. Mr Al Absi described the representative as a 'protective agent' and said to Mr Laskie that he felt that it would speed up discharge.32
Mr Laskie could not recall if Alia was appointed protective agent at that time33, although he did recall that there was a discussion during their meeting about the possible appointment of Alia as the protective agent.34 There was also a discussion at that time about the indicative costs of such an appointment, which Mr Laskie recalled to be 'in the region of cents per ton of wheat'.35
17.26 Mr Watson also had discussions with Mr Al Absi during this visit, in particular in relation to logistical issues concerning the discharge port and the discharge of the wheat at Umm Qasr.36 It was this discussion that led to the AWB's appointment of Alia as its protective agent37, to look after the interests of vessels carrying AWB wheat upon their arrival at Umm Qasr.38 The terms of that appointment were reduced to writing on 17 April 2000. They are set out later in this chapter. The appointment of Alia as AWB's protective agent was authorised by Mr Officer.39 According to Mr Watson, the object of these negotiations and Alia's appointment was as set out in his email dated
2 4 0 Report o f the Oil-for-Food Inquiry
16 April 2000 reporting on the trip40, namely to turn AWB's vessels around quickly, to process and follow up the documents enabling payment of funds to AWB by the United Nations and to attend to a number of other services. In a subsequent email dated 29 May 2000, Mr Watson stated that Alia had been employed as protective agent 'to handle admin and logistical issues at Umm Qasr'.41 In that same email, Mr Watson wrote that Alia had been appointed protective agent in Iraq 'at the suggestion of IGB'.42 Mr Watson explained how this arose in his evidence on 6 January 2006.43
Mr Emons confirmed that this agreement was negotiated by Mr Watson. Mr Emons' evidence as to the circumstances in which Alia was appointed was:
A: The background, as I u n d erstan d it, w as that the chartering division felt that they needed a protective agent at U m m Q asr, an d obviously, having already started dealing w ith Alia, they h ad the qualifications to look after the interests of our vessels at arrival an d to un d ertak e the necessary activities that protective agents do at ports of arrival.44
17.27 Mr A1 Absi's evidence was to the effect that he recalled meeting with Messrs Emons and Watson at about the time that the protective agency agreement was entered into with AWB. He said that the discussions with them related only to the protective agency agreement and delays at the port and
demurrage. He did not recall either Mr Emons or Mr Watson asking him whether Alia provided the trucking at Umm Qasr. He was not asked anything about whether Alia had the capacity to provide trucks to transport wheat out of Umm Qasr. This is consistent with the knowledge of AWB that Alia was in fact not providing trucking services. Mr A1 Absi also confirmed to this Inquiry
that Alia was not providing any trucking services at that time and did not provide any transportation until after the incursion into Iraq in March 200345 and AWB and Alia entered into an Agency and Transportation Agreement in October 2003.46
M ee tin g s w ith t h e M inister o f T ra d e a n d r e p r e s e n t a t i v e s of t h e IGB
17.28 The following day, 15 April 2000, Messrs Emons, Watson and Laskie travelled to Iraq and there met with Mr Daoud (the former Director General of IGB) and Ms Moona (the Assistant to the Director General).47 The delegation was unable to meet with the new Director General of IGB, Mr Abdul-Rahman, who (the delegation was told) was travelling, and replaced by Mr Daoud for these meetings.48
The meetings with IGB were completed within the day and Mr Emons and his delegation returned to Jordan on 16 April 2000, arriving there that afternoon.49
Report o f the Oil-for-Food Inquiry 2 4 1
17.29 Following his return to Jordan, Mr Watson sent an email to Mr Officer (copied to Mr Cowan in AWB Chartering) dated 16 April 2000 reporting on the previous day's meetings with IGB, which he described as 'productive'.50
17.30 Mr Watson reported that all berths at Umm Qasr were available to AWB vessels and that 'AWB have priority now and for the future'.51 He also reported that 'Umm Qasr being kept for AWB cargoes as this clearly the more effective port for both AWB/IGB'.52 Mr Watson went on to advise that there was a new process for testing at Umm Qasr 'whereby vessels are being tested with samples having to be sent to Baghdad which causing around 48 hrs delay'.53 This test could only take place at the berth and Mr Watson reported that he was seeing whether it could be carried out on the wheat whilst the vessel was still at the anchorage waiting to berth in order to save time.54
17.31 Mr Watson also reported that there was a problem in that some vessels were infested with live insects, causing a further 5 to 6 days at the berth, due to the need to fumigate the cargo.55 He suggested that the probable cause of this problem was that whilst cargo was fumigated in Australia, this killed any insects but not the eggs in the cargo. During the voyage the eggs were hatching.56 Mr Watson indicated that he was seeing if this extra fumigation could be done at the anchorage at Umm Qasr before the vessels berthed in order to save time. He also posited that an alternative and better solution would be 'to do better job at load port'.57 As to the consequences of these
delays, Mr Watson suggested that the time required to fumigate the cargo in Iraq should be to the account of the AWB Pool and not AWB Chartering or owners as it was 'clearly cargo problem'. This was an issue that Mr Watson noted would need to be discussed further.58
17.32 Mr Watson concluded his email:
- A m in the process of appointing a protective agent at discharge p o rt to do follow ing - tu rn the vessels around quickly - p ro cess/fo llo w up the docum ents enabling p aym ent of funds to
AWB by U N - a nu m b er of other services, w hich I am currently finalising all
designed to assist us.
IGB (Z uhair an d the M inister) w ent to great lengths to say how m uch they appreciate A ustralian w h e a t/s h ip p in g p ro g ra m / AWB and fully receptive to the issues that w e raised w ith them (delays on
discharge/ delays on paym ent etc.) an d have confirm ed they will do all they can to rectify an d assist us.
C anada — def n o t in their good books.59
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17.33 In a later email dated 29 May 2000 and sent by Mr Watson to Mr Officer during his subsequent visit to Jordan and Iraq, Mr Watson summarised the topics discussed at the meeting with IGB during this earlier visit in April 2000 in the following terms:
D uring this visit
- issues of quality discussed (fungal s ta in in g / insect in festatio n /ro d en t
contam ination and higher m oisture th a n (99)).
- logistical issues, relating to testin g /fu m ig atio n an d discharge rates
- lack of phostoxin tablets onboard all vessels, causing delay w hen infestation discovered — requiring treatm ent, before discharge, approx 5 further days.60
A p p o i n t m e n t o f Alia a s p r o t e c t i v e a g e n t
17.34 Alia was appointed protective agent for AWB vessels discharging at Umm
Qasr, by a Letter of Appointment dated 17 April 2000 signed by Mr Watson as Chartering Manager of AWB Limited.61
This document set out the obligations upon Alia. They were to:
3) ... liaise w ith all vessels an d w ill rep o rt to AWB vessels on berthing prospects a n d any other reports w hich m ay assist to arran g e the quick tu rn aro u n d of the vessel at the port.
4) A ttend the vessel's on arrival at the P ort and assist the M aster to prep are the vessel to discharge
5) Exercise du e diligence in co-ordinating w ith th e Iraqi Port A uthorities for securing berthing arrangem ents in such a m an n er th at the highest capacity
gatew ays are allocated for all AWB vessels in o rd e r to ensure highest discharge tu rn o v er an d secure the quickest d espatch w henever such is feasible.
6) E xpedite the follow u p of sam ples w hich are norm ally taken to Al-Taji
Laboratories for exam ination and testing to en su re receiving of results from appropriate authorities w ith in 48 hours. F urtherm ore to explore all possibilities of seeking alternative solutions and m ethods to ensure quickest results to avoid any delay to vessel's discharge.
7) Follow u p docum entation process w ith COTECH N A INSPECTION at the various locations to arrange release of relevant confirm ation of A rrival and confirm ation of cargo discharged to the ap p ro p riate authorities to enabling sm ooth and expedient negotiation of shipping an d banking docum entation
8) Provide from time to tim e or upon request m aterial or any other report on
p o rt conditions prevailing at U m m Q asr and p ro v id e any recom m endations that could im prove discharging form alities an d procedure at U m m Q asr.62
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17.35 The Letter of Appointment provided that Alia was to be paid US$9,000 per ship inclusive of all assistance, fees, services, communications and tasks. This fee was to be paid in two instalments. The first instalment of US$6,000 was to be paid upon the vessel's departure from the load port and against relevant invoice from Alia. The second instalment of US$3,000 was to be paid upon receipt of all amounts due to AWB against the vessel.63
17.36 According to Mr Watson, the services that Alia provided included arranging for the provision of fuel and fresh water to the vessels (where this was AWB's responsibility), liaising with AWB in relation to the discharge of the vessels and the resolution of problems as they arose. Alia also provided daily reports in relation to discharge operations within the port generally, delays to the berthing of AWB's vessels, the testing of AWB wheat and notification of any shortages.64
17.37 Alia's appointment as AWB's protective agent was from 17 April 2000.65 It was not for a fixed period. The Letter of Appointment provided that Alia's appointment could be terminated by either party upon two month's written notice.66
17.38 The Letter of Appointment contained the details of the person who was to be the protective agent at Umm Qasr, namely Mr Varoojan Kirikor.67 AWB had previously had communications in late November 1999 with Mr Kirikor on behalf of ISCWT.®
17.39 It is to be observed that AWB thought it appropriate to document its appointment of Alia as a protective agent and the terms of its arrangement with Alia (including Alia's obligations thereunder), notwithstanding that the amount payable to Alia as protective agent was of the order of a few cents per tonne of the wheat shipped under each shipment. This is to be contrasted with the absence of any similar agreement and the complete lack of any documentation at all, in relation to the services associated with the markedly more substantial inland transportation fees that AWB was also paying to Alia at this time.
17.40 The absence of any such agreement and of any documents recording or evidencing such an agreement makes plain that:
⢠AWB had no agreement with Alia pursuant to which Alia was to provide transportation services to AWB in respect of its cargoes and for which it received the inland transportation fees paid to it;
⢠those within AWB did not consider that there was any such agreement between AWB and Alia;
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⢠the inland transportation fees paid by AWB to Alia were not a payment pursuant to any such agreement between AWB and Alia; and
⢠the inland transportation fees paid by AWB to Alia were not a payment in return for the provision by Alia of services (in particular transportation services) to AWB.
If there had been an agreement between AWB and Alia to provide transportation services within Iraq or if those at AWB had genuinely thought that AWB had such an agreement with AWB and that the inland transportation fees were paid in return for the provision of such services by Alia to AWB under such an agreement, that agreement would have been
documented, as AWB did with the protective agency agreement in April 2000, and as AWB did in October 2003 when AWB was forced by the Coalition Provisional Authority (CPA) and World Food Programme to honour the bargain apparent in the terms of its written contracts and arrange for the inland transportation of the wheat within Iraq.
17.41 This circumstance, namely the absence of any documentation that would support any claim by AWB that it had an agreement with Alia to transport wheat within Iraq, is corroborative of AWB's understanding of the relationship, exemplified in Mr Emons' email to Mr Officer on 4 November 1999:
To date IGB have not advised the trucking co to w h o m p aym ent should be made. W e have been approached by a com pany in Jordan but o u r response has been to ask for confirm ation from IGB before discussing further.
We are not responsible for trucking in Iraq only the paym ent. Paym ent to us occurs as per existing contract after U N inspectors cert is issued at discharge.
W hen I see Z u h air at the end of N ov I hope to clear a n u m b er of the details u p .69 [em phasis added]
A p ril-M a y 2 0 0 0 : s t r a t e g i e s a n d d o n a t i o n s
T h e AWB p r o p o s a l t o d o n a t e G ra in V acs
17.42 In the course of discussions with representatives of IGB during his visit in April 2000, Mr Emons promised that AWB would assist the Iraqis by supplying laboratory equipment.70 This equipment was for use in the testing of the quality of the wheat.
17.43 After the AWB delegation's meeting with the Minister for Trade and representatives of IGB, Mr Laskie was introduced to one of IGB's technical
Report of the Oil-for-Food Inquiry 2 4 5
people. They discussed a number of technical problems that IGB had experienced with the testing of the wheat. According to Mr Laskie, IGB seemed to lack testing equipment, which was slowing the results at the port and thereby in turn slowing discharge. Mr Laskie indicated that AWB would support the process with some new testing equipment and, if necessary, technical expertise.71
17.44 On 30 April 2000, Mr Watson forwarded to Mr Emons a telex that AWB Chartering had received from IGB addressed to Mr Emons.72 It was headed 'After Sales Service'. After referring to Mr Emons' promise in April to supply IGB with laboratory equipment as after sale service, the telex listed the equipment required by IGB and sought Mr Emons' confirmation as to when it would be shipped. All of the equipment listed in the telex appeared to be capable of being used for the testing of the quality of wheat.
17.45 In April 2000, consideration was also being given by AWB to a proposal to donate to IGB, at a cost to AWB of $126,740.39, two Grain Vacs73 to assist with the discharge of wheat at Umm Qasr.74
17.46 On 28 April 2000, Mr Borlase sent a facsimile to Mr Grenenger at DFAT75 advising him of this proposal and the reason behind it:
In recent m onths AWB has facilitated a very com prehensive shipping program in o rd er to m eet contractual requirem ents. This has translated into a regular stream of vessels leaving A ustralian shores w ith the result being long w aiting times at U m m Q asr and great costs to the charters involved. A n add ed h um anitarian cost is the w heat can not be discharged at a n appropriate rate affecting the distribution chain to the Iraqi people.
To assist the discharging process AWB w ould like to take the action of donating the G rain Vacs w hich will be utilised at U m m Q asr to speed u p the discharging process.76
17.47 Mr Borlase advised Mr Grenenger that AWB intended to load this machinery 'on the next available vessel expected to berth at an Australian port a week from this notification' and sought DFAT's assistance in providing an export permit for this equipment, or verifying with the relevant authorities that AWB was able to export this machinery to Iraq.77
A t e a m t o c o n s id e r s t r a t e g i e s f o r r e m e d y in g d e la y s a n d d e m u r r a g e
17.48 On 8 May 2000 Mr Watson reported in an email to Mr Officer that he had instigated a small core team (Mr Cowan and Mr Richardson):
... to look into the Iraqi p ro g ram from an AWB big picture perspective and to
provide thoughts on an overal strategy.78
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This core team was to report to Mr Emons (from International Sales and Marketing), Ms Scales (from AWB Pool) and Mr Watson (from AWB Chartering) amongst others. The intention was to provide a strategy to address a number of issues including:
phostoxin tablets, fum igation, costs, dem urrage an d paym ents to AWB w hich are being incurred u n d e r the Iraqi P ro g ram .79
An i n c r e a s e d n u m b e r o f G ra in V a c s f o r d o n a t i o n
17.49 On 11 May 2000, Mr Borlase sent another facsimile to Mr Grenenger.80 This was in similar terms to Mr Borlase's earlier facsimile of 28 April 2000, except that it stated that AWB now wished to donate eight Grain Vacs at a cost of $257,272 (or $32,159 each). Again, the assistance of DFAT was sought in the provision of an export permit or verification with the relevant authorities that AWB was able to export this equipment to Iraq. Mr Borlase's facsimile was accompanied by specifications of the equipment that AWB intended to purchase and donate. Mr Borlase advised that AWB intended to load this machinery 'over an eight week period which coordinates with the next available vessels in our Iraq shipping program. The next vessel is due on 26th June 2000'. si
Mr Borlase's facsimile concluded:
It w ould be appreciated if the situation could be expedited as G rain Board of Iraq has expressed genuine concern at discharge and distribution at U m m Q asr.82
17.50 The proposed donation of these eight Grain Vacs by AWB did not proceed. It was replaced by a proposal to donate to IGB bobcats instead, to assist in the discharge of the wheat. This change was a result of a request for bobcats made by representatives of IGB in meetings with Messrs Emons and Watson in May 2000.
M e e t i n g s o f t h e S m a l l E x e c u t i v e M a n a g e m e n t G r o u p
17.51 The potential exposure to AWB financially of the demurrage incurred in respect of Umm Qasr was considered by the Small Executive Management Group at a meeting on 23 May 2000.83
17.52 The demurrage at that time was estimated to be 'potentially a $10m problem'.84 Mr Ingleby raised the issue of whose problem it was —AWB's or the Pool's. The forecast of the demurrage bill until that time was between US$6 million and US$7 million. It was reported that provision had been made in the Pool's chartering contract with AWB Chartering of about US$1.5 million.
Report of the Oil-for-Food Inquiry 2 4 7
The issue is th at AWB(I) [the Pool] m u st m ake these sales to m ove the w heat out of A ustralia. C hartering m ade a contract based on certain unlo ad in g expectations in Iraq as d one by the selling agent (Global Sales & M arketing), th u s unloading provisions have n o t been m ade and hence there is som e 'greyness' as to w hether chartering can claim back against AWB(I) as it as not m et the term s of this sale.
This is w here w e are at the m om ent. H ence potential exposure to Lim ited is an additional US$5% to US$6.
H ow m uch of this is claim able back from AWB(I) is w h at is in contention.85
17.53 This issue was discussed again at the meeting of the Small Executive Management Group on 30 May 2000. The minutes of that meeting record:
[Mr Ingleby] rep o rted that the situation w ith C hartering has w orsened and it has been confirm ed that w e do not have a w ritten contract betw een I [the Pool] and C hartering. M ark Em ons and M ichael W atson both still in Iraq trying to resolve the situation.
This issue is sum m arised in the CEO R eport going to the Board.
As there is no contract, it is extrem ely difficult to allocate the responsibility. AL confirm ed th at the Board m ust be inform ed. MT has changed his position
regarding proportioning of liability betw een (I) [the Pool] and L [AWBL], PJI reported that Peter G eary is driving this m atter in o rd er to have the issues
resolved. The issue will be m aking sure this is all done on a com m ercial basis.
AL: this highlights an issue of m anagem ent.86
May 2 0 0 0 : r e p o r t s f r o m Mr W a t s o n p r io r t o a n o t h e r v is it to
I r a q
17.54 On 24 May 2000, during a trip to Greece, Mr Watson sent an email to Mr Officer87 in which he offered some comments on the Iraq program and AWB's ongoing concerns regarding demurrage:
- There is no form al agreem ent betw een P o o l/C h arterin g for Ira[q] there has never been the need. It is understood that C hartering w ill look after dem urrage at
discharge port, should there be congestion etc or variance in discharge rates etc.
We have allow ed som e USD 1-1.50 apprx for dem urrage an d have on som e of the contracts played around w ith discharge rates w ith O w ners to provide some further buffer for days used. The above has been as a result of experience gained over the past 4 years.88
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17.55 Mr Watson also referred to the problems with insect infestation and delays caused by the need to fumigate. He wrote:
- C hartering has taken action to try an d m itigate the expenses currently being incurred,
- initially by the ap p o in tm en t of a protective agents w hich has already assisted in speeding u p the discharge process an d I believe the p aym ent by the UN to AWB.
- The present shipping p ro g ram has been slow ed to further assist in reducing the nu m b er of vessels at discharge ports
- A rranging for the testing an d fum igation of the cargo at anchor in U m m Q asr
- A rranging for supply of phostoxin tablets to be placed onboard those vessels w hich sailed from A ustralia w ith no tablets.89
and
... Both M ark E an d m yself are travelling to Iraq to m eet both the protective agents an d IGB to see w h at fu rth er action can be taken to increase the tu rn aro u n d of the vessels w hich clearly is the m ost positive m an n er in w hich to reduce the
dem urrage exposure
In conclusion, w hilst the Pool m ay w ish to w ash their h an d s of this m atter, is it clear th at the ships u sed are not at fault, as such the Pool has a responsibility to cover costs incurred as a result of their supplying poor cargo w hich clearly outside areas of C hartering, the Ship O w ner and the ships them selves.
C hartering w ishes to be placed back into the sam e financial position as w ould have been the case, should the cargo have been of so u n d specification and
fum igation in a m anner to kill all insects an d eggs.90
17.56 Five days later, on 29 May 2000 following his arrival in Jordan and shortly prior to his meetings with both Alia and IGB, Mr Watson described in an email to Mr Officer the then current position and action plan in the following terms:
C urrent
- There is no form al agreem ent betw een Pool/ C hartering, for Iraq
- C hartering has w orked on the term s of the M OU an d IG B/A W B agreed term s an d conditions as per the U N Contract. UN Contract does not allow for payment of dem urrage/despatch, i.e. no transfer of funds, w ith exception of trucking fees, as agreed in the contract and approved by UN security council
MOU provides for 3000 m t discharge rate per vessel
- C u rren t discharge rate does not m eet the term s of the MOU
- AWB has been approached by IGB to provide 'after sales service'
Report o f the Oil-for-Food Inquiry 2 4 9
Current Action Plan
- D eterm ine am o u n t and severity of quality issues
- D eterm ine best possible perform ance of discharge rates at U m m Q asr
- D eterm ine if any further eq uipm ent required to assist discharge rates
- D eterm ine w h at 'after sales service required' i.e. eq u ip m e n t/c a sh (Board
approval m ay be required for this)
- P resent options to IGB to
(a) slow present shipping period (upto A ugust)
(b) IGB to contribute tow ards cu rren t projected dem u rrag e expense.91 [em phasis added]
17.57 It seems from this email that Mr Watson was suggesting that the approval of contracts which referred specifically to a 'discharge cost of up to US$12.00' by the United Nations was an indication that the payment of inland transportation fee referable to those contracts had thereby been approved. The email is silent as to whether the mechanism for payment had been approved and whether payment of such a fee in US dollars to the Iraqis had been approved. Neither had been approved. Further, the recipient of the email, Mr Officer, knew that the payment of trucking fees to Iraq had not been approved by the United Nations, as did Mr Watson.92
17.58 The following day Mr Officer circulated a copy of this email from Mr Watson within AWB with the following message:
Please see attached m essages from M ark E m ons/M ichael W atson. We hope to be in a position to rep o rt a m ore positive scenario post their visit to B aghdad. Iraqis are acutely aw are of our concerns on dem urrage, changed testing procedures, etc and have given full com m itm ent to rectify the situation. These issues will be p u rsu ed rigorously by AWB this w eek in B aghdad. As far as references by IGB to quality problem s are concerned, w e have indicated that w e need h ard facts etc. In any event, the key issue is to speed u p discharge/m axim ise unloading potential an d im prove substantially on the cu rren t w orst case dem urrage scenario w hich everybody is focusing on.93
17.59 Mr Officer's email was sent to Messrs Ingleby, Tighe, Dimopoulos, Owen, Cowan, Laskie and to Ms Catherine Hale. Mr Emons and Mr Watson were also copied in.94 Further copies of this email were also sent later that same day to Mr Snowball and Mr Geary and then by Mr Geary to Ms Scales and Mr Richardson.95
17.60 Mr Geary's evidence was that he may have 'skimmed' the email, but did not read it in detail.96 His evidence was that others within AWB were more
2 5 0 Report of the Oil-for-Food Inquiry
interested in the issues raised in the email.97 He forwarded it to Mr Richardson and Ms Scales.
May 2 0 0 0 : Mr E m o n s ' a n d Mr W a t s o n 's f u r t h e r trip to J o r d a n and I ra q
17.61 in May 2000 Messrs Emons and Watson again travelled to Jordan and Iraq to meet with representatives of Alia and IGB. This was in conjunction with their trip to London98 to meet representatives of Ronly" and Mr Watson's visit to Greece.100
17.62 The itinerary for this trip was:
⢠29 May 2000 — meeting protective agents/ transport company and the Iraqi Trade Commissioner in Jordan;
⢠30 May 2000 — travel to Iraq;
⢠31 May 2000 — meetings in Iraq; and
⢠01 June 2000 — return to Melbourne.101
M ee tin g s in J o r d a n
17.63 In a second email which Mr Watson sent to Mr Officer (and copied to Ms Hale) on 29 May 2000102, Mr Watson reported the outcome of the meetings that had taken place in Jordan earlier that day:
M et w ith T ransport C o /P ro tectiv e A gent an d also Iraqi T rade C om m issioner
1) D elay in discharge started to occur o n /a b o u t 1 5 /2 /0 0 du e introduction of testing procedure by D irector G eneral as a result of quality on cargoes received
(H ard facts to be clarified from IGB)
2) Fum igation also req u ired du e to infestation of cargo by live insects
3) M arch —trucks dispatched to E gypt to collect cargoes thereby reducing discharging capacity at U m m Q asr
4) M inister instructed th at all trucks re tu rn to U m m Q asr effective 21 M ay
5) 5th b erth being p rep ared to facilitate discharge —tim e of w hich to be clarified w hilst in Iraq
Report of the Oil-for-Food Inquiry 2 5 1
6) Iraq claim th at m ore cranes req u ired to aid discharge, but protective agents at p o rt suggest that evacuvators faulty, du e to lack of spares and m aintenance due to extrem e w eather conditions (h eat/d u st)
7) N ew D irector G eneral together w ith AWB protective agent visited U m m Q asr to determ ine reasons for delay at first h and
8) M inister has confirm ed purchase of V iagan vacuvators u n d e r U N Food for Oil Program — im m ediate delivery sought, w e will clarify tim ing
9) C urrently 39 vacuvators being u sed 24 hrs p /d a y , w ill clarify if all being used in a 24 h r perio d given (6) above
10) Protective agent looking at prospect u sing m obile vacuvators into barges for vessel's w aiting. AWB to seek confirm ation from IGB this respect.
11) Clearly, inform ation to date indicates that pro v id ed discharge rates can be increased, th en current dem urrage projection overstated an d focus is on achieving this
12) P rovided balance of contract can be extended to allow shipm ent u p to A ugust, this w ill further facilitate financial retu rn to AWB
13) Protective agents have finalised 'ag reem en t' w ith C otechna agents to expedite final docum entation to U N
14) Protective agents have arranged m eeting betw een A W B /D irector G eneral inland transportation, Iraq together w ith IGB in B aghdad.103
The paragraphs numbered 3), 4) and 14) above make clear that inland transportation was the responsibility of 'Director General, inland transportation, Iraq' and not Alia. Mr Watson conceded that this was also his understanding.104
17.64 A copy of this email was circulated on 30 May 2000 by Mr Officer's personal assistant (Ms Wilson) to Messrs Ingleby, Tighe, Dimopoulos, Owen, Cowan, Mr Laskie and to Ms Hale.105 A copy of the email was also forwarded to Mr Snowball and Mr Geary later that same day and then by Mr Geary to Ms Scales and Mr Richardson on 31 May 2000.106
17.65 Whilst Mr Geary admitted that the paragraphs numbered 3) and 4) in this email indicated that the Iraqi Minister was controlling the availability of trucks at Umm Qasr107, he denied that these paragraphs indicated this to him at the time he received the email.108 He could not recall reading the email.109 In any event he said that this was a matter for International Sales and Marketing110 and the AWB Pool.111
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M eetings w i t h t h e IGB
17.66 On 31 May 2000, the AWB delegation met with the Director General of IGB,
Mr Abdul-Rahman, Ms Moona, Dr Obeidy, a technical representative and a representative from Engineering.112 The former Director General of IGB, Mr Zuhair Daoud, also met with the delegation later in the day.
17.67 Mr Emons and Mr Watson sent an email to Mr Officer on 1 June 2000 (the day
after the meetings) reporting on their outcome.113 A copy of that email is reproduced as Figure 16.1 in Appendix 16.
17.68 Mr Emons also subsequently prepared a file note dated 13 June 2000 reporting
on his discussions with IGB during these meetings on 31 May 2000.114 A copy of that file note is reproduced as Figure 16.2 in Appendix 16. Mr Emons said that, upon his return to Australia, he gave a copy of this file note to Mr Officer.115
Discussion of delays and reduced rates of discharge 17.69 According to Mr Emons' file note of 13 June 2000, the purpose of this visit to
Iraq and the meetings with IGB was:
1. To d iscu ss/reso lv e ongoing discharge problem s a t U m m Qasr.
2. D iscuss fu tu re needs (Phase 8) u n d e r U N Food for Oil p ro g ram .116
In relation to the first of these topics, Mr Emons and Mr Watson noted in their email to Mr Officer that the:
IGB fully acknow ledge the build u p of vessels at U m m Q asr and delay being incurred a n d have advised as follow s to the reasons w hy this has occurred.117
The email then listed a number of reasons for the delays.
17.70 It is apparent from the reports of these meetings with IGB that there were two
principal causes for the delays.
⢠The first was associated with the introduction and operation of the new procedures for testing and re-testing of the wheat on board the vessels prior to their discharge and the fumigation of those cargoes where required. This was compounded by a number of the vessels arriving with no phostoxin118 on board.
⢠The second was associated with the condition of the equipment on the berths at Umm Qasr that were used for the discharge of the wheat from the vessels.
Report of the Oil-for-Food Inquiry 2 5 3
17.71 In their email, Messrs Emons and Watson observed that the anticipated average discharge rate for each of the four berths at Umm Qasr was not currently being achieved due to:
a) lack of spare parts
b) lack of m aintenance c) dam age to 4th arm of silo b erth .119
17.72 In his file note of 13 June 2000, Mr Emons wrote:
D uring the first ro u n d of m eetings AWB highlighted the su d d en d o w n tu rn in discharge rates at U m m Qasr. In reply IGB adm itted that the discharge rate had been effected significantly by dam age to the 4th gantry of the silo. A fter further discussion it w as adm itted th at m aintenance an d spare parts for the Vigan
vacuators w as causing further delays. IGB highlighted that they h ad placed an o rd er before the U N for the supply of 4 p erm anent an d 12 m obile vacuators but this had been d e lay e d /refu sed by the UN.
AWB also u n d erto o k to seek clarification through AWB N ew York of the reasons for the delay in approval of the discharging equipm ent.120
17.73 In their email of 1 June 2000, Messrs Emons and Watson reported on a number of matters associated with the provision of equipment to the IGB. They recorded:
⢠the report that they had received during their meeting with
representatives of IGB of the problems that IGB had encountered in purchasing vacuvators and their offers (on behalf of AWB) of assistance in this regard
⢠that Mr Snowball was to be provided with details of these problems and was to be asked to follow this up with the United Nations121
⢠that AWB would also try and assist expediting the delivery of these machines122
⢠that IGB had provided them with a list of spare parts essential for maintenance of current machinery and that AWB would seek to assist in the supply of those parts123
⢠discussions that had taken place about the potential use of mobile cranes on board gearless vessels to assist in discharge operations and that this was now being investigated to source supply124
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⢠that IGB expected to increase the rate of discharge at the silo berth once repairs had been completed to the 4th arm, with a further increase once spares had been received for vacuvators125
⢠that a 5th berth (the sugar berth) was being commissioned, that this berth and its machinery were in need of an overhaul and that Ministerial permission had been sought to expedite this.126
In relation to the last point, Messrs Emons and Watson reported that the Director General of IGB (Mr Abdul-Rahman) had:
personally tak en charge an d will be visiting U m m Q asr on w eekly basis at the instruction of the M inister to ensure ongoing action.127
17.74 During these meetings, AWB's assistance was also sought by IGB in supplying bobcats to assist in discharge operations.128 AWB agreed to this request129 and, as has already been observed, substituted the bobcats for vacuvators that it had been earlier considering as a donation.
Reduced discharge and delays not caused by a lack of trucks 17.75 Neither the email from Messrs Emons and Watson of 1 June 2000 nor Mr Emons' subsequent file note of 13 June 2000 record that there was any suggestion made in the course of their meetings with IGB in May 2000 that the
reduced rates of discharge then being experienced at Umm Qasr were in any way attributable to a lack of trucks or transportation to remove the cargo from the berth.
Indeed, their email of 1 June 2000 was to the contrary. In it, Messrs Emons and Watson reported that:
Trucks are available to m et increased discharge rate.130
This becomes of significance when considering the evidence of Mr Stott.
Other matters discussed 17.76 During these meetings with IGB, there was also a discussion about possible compensation or reimbursement to AWB of the increased demurrage being experienced at that time.
17.77 In their email of 1 June 2000, Messrs Emons and Watson wrote:
IGB fully prepared to assist in some form of com pensation in future contracts, either by reduction of trucking fee or increase in prices and hav e asked for supply of a further 1 m illion tons.131 [em phasis added]
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17.78 Mr Emons addressed this topic in more detail in his file note dated 13 June 2000:
D uring discussion w ith IGB the AWB proposed that a m ethod of recovering the cost of dem urrage w ould be to hold part or all of the trucking fee or as an
alternative there could be a reduction for future contracts. D iscussion to a degree took place how ever it w as clear th at the option of AWB holding p art or all of the trucking fee w o u ld not be acceptable to the M inister (and therefore the Regime). It becam e d e a r that there w as som e confusion in the IGB as to the am ount of
trucking due, w ith explanations th at the rate on the AWB contracts w as different to that charged to som e Russians, Thai a n d A lgerian com panies. Comment was made that the M inister had proposed to increase the trucking fee to USD 18 per tonne for phase 8 contracts but at the tim e of the m eeting no approval had been received from the President.
The form er D irector G eneral for IGB an d now advisor to the M inister Salah Dr Z uhair joined us for lunch. H e h ad been w ell briefed prior to joining us from his im m ediate com m ents on the discharge problem s. H e opened w ith the com m ent th at although the AWB w as suffering som e im m ediate problem s w hich w as recognised by Iraq w e had enjoyed periods of considerable earnings of dispatch.
His comment on Trucking cost, m ade privately away from the m ain group as we departed the restaurant, was that he had advised the M inister to consider reducing costs b u t if this did occur there could be a considerable increase in the costs of the 'after sales service' required.132 [em phasis added]
17.79 It is apparent from these two documents that it was well understood by each of Mr Watson and Mr Emons that the so called 'trucking fee' was a guise for fees payable to Iraq. Both documents spoke of compensation to AWB for future delays in discharge being met by 'reduction of trucking fees or increases in prices'. The former option would not be possible if the trucking fees were the true cost of trucking. Nor would it be possible if the fee was a genuine fee negotiated with and paid to the supposed trucking company in Jordan, Alia. Similarly, Mr Emons' note that Dr Zuhair's 'comment on
Trucking cost... was that he had advised the Minister to consider reducing costs but if this did occur there could be a considerable increase in the costs of the 'after sales service' required' is explicable only on the basis of an understanding that each of the 'trucking fees' and 'after sales service costs' were methods of paying funds or providing goods to Iraq.
17.80 Mr Emons' references (within the extract from his file note quoted above) to the confusion in IGB as to the amount of the trucking fees due by AWB, to the potentially different rates charged to Russian, Thai and Algerian companies from the fees paid by AWB and to the purposed increase in the trucking fee which was at that time still awaiting the approval of the President further demonstrate that the inland transportation fee ('trucking fee') was an Iraqi levy not related to the cost of transport.
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June an d Ju ly 2 0 0 0 : f u r t h e r d e v e l o p m e n t s
Mr W a ts o n 's r e p o r t fo llo w in g his r e t u r n fro m I r a q
17.81 Upon his return to Melbourne, Mr Watson prepared a memorandum dated
13 June 2000 dealing with the issue of increased demurrage including his meetings in Iraq in May. The report was addressed to Mr Geary, Ms Scales, Mr Richardson and Mr Emons. It was copied to Mr Beaumont.133
17.82 In his memorandum, Mr Watson referred to the delays caused by the
introduction of testing procedures for cargoes at the discharge berth (3 to 5 days), fumigation and the absence of phostoxin tablets on board many vessels134, and that:
D ischarge rates at U m m Q asr adversely effected d u e to lack of m aintenance, spares, dam age to silo b erth an d lack of eq u ip m en t.135
He concluded that:
Significant dem urrage expense has been incurred to date and is further projected on [deleted] mt.
D em urrage has been incu rred m ainly d u e to a resu lt of testing procedures and fum igation req u ired by the Receivers d ue to their concern over cargo quality related issues. This has resulted in delay an d has h ad a com pounding effect on other vessels w hich regardless of cargo issues or n o t.136
Later in the memorandum, he also concluded:
1) The discharge rates at U m m Q asr have been adversely effected due
- lack of m aintenance, lack of spares and lack of equipm ent - change in D irector G eneral and M anagem ent team at IGB - introduction of new testing procedures
- fum igation
- lack of cargo at the front end of the shipping program - delay in restarting shipm ents, resulting in b unching - C argo only being sh ip p ed from the South an d E ast of A ustralian Ports
All the above contribute to the cu rren t dem urrage expense.137
17.83 Mr Watson summarised the action that had been taken to date in relation to
these delays and reduced rates of discharge:
A ction to date
- A ppointm ent of protective agent at U m m Q asr to oversee and rep o rt on
actual facts at the port.
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A gent to also assist w ith C otechna to process delivery docum ents for expedient p aym ent to AWB
- T esting of cargo now conducted at anchor, w hilst w aiting for berth
- C hange in fum igation process a t load port, to kill eggs. R esults not yet know n
- Fum igation, w here req u ired to be conducted at the anchor, w hilst w aiting for berth, w here feasible and pro v id ed phostoxin onboard
- System now in place [to] ensure th at all vessel's sail w ith phostoxin tablets on board
- S hipping p rogram slow ed to allow backlog of vessels to com plete discharge
- AWB exploring prospect of p ro v id in g spare parts and supplying other
equipm ent, including the hire of m obile vacuvators to assist in increasing
discharge rates at U m m Q asr.138
17.84 Again, there was no suggestion within this memorandum that any of the delays that were being experienced with the discharge of cargoes at Umm Qasr at this time were in any way attributable to a lack of trucks or transportation at the port to receive the cargo.
An o f f e r to d o n a t e b o b c a t s in s te a d o f G rain Vacs
17.85 One of the topics that was discussed during the AWB delegation's visit to Iraq in May 2000 was 'after sales service'.
Indeed, the issue was raised by IGB shortly prior to the arrival of Mr Emons and Mr Watson in Iraq, in a telex from Mr Abdul-Rahman to AWB dated 25 May 2000. It was headed 'After Sale Service' and expressed hope that AWB would be cooperative with IGB in facilitating and developing the work of IGB by supplying a '[bobcat] for Umm Qasser silo'.139
17.86 In his email to Mr Officer from Iraq on 29 May 2000140, Mr Watson included amongst the current issues:
- AWB has been approached by IGB to provide 'after sales service'141
Under the heading 'Current Action Plan', Mr Watson also included amongst the matters requiring attention:
- D eterm ine w h at 'after sales service required' i.e. eq u ip m e n t/c a sh (Board
approval m ay be required for this)142
17.87 In their email report of 1 June 2000, Mr Emons and Mr Watson recounted the substance of their discussions regarding spare parts, in the terms that have already been examined.143 As a consequence of those discussions, AWB also
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changed its earlier proposal to donate Grain Vacs to a donation of eight bobcats.
Before the arrangements to substitute the bobcats for the Grain Vacs could be concluded, AWB received a telex from IGB on 27 June 2000 stating:
WE CONFIRM OUR PREVIOUS TLXS AS WE ARE STILL W AITING ADVISE US SH IPM ENT POSITION OF A.M LAB. EQU IPM EN T.144
17.88 Mr Borlase replied by facsimile that day. He referred to AWB's agreement to provide equipment to IGB to assist in the discharge process in the following terms:
L aboratory & Bobcat E quipm ent
AWB is currently in the process of organising laboratory equipm ent to further assist IGB in testing all future w heat cargos of all origins.
AWB have also ordered bobcats to be placed u p o n the next available vessel leaving A ustralia, w hich w e anticipate w ill speed u p the discharging process resulting in quicker supply of w h eat to people of Iraq. The application to export the bobcat is presently w ith U nited N ations. We expect to have U N approval by the end of this w eek w ith perm ission to export docum entation follow ing.145
17.89 The following day, 28 June 2000, Mr Matheson146 sent an e-mail to Mr Emons confirming he had acquired the required laboratory equipment and requested written authority to send it to Jordan.147
17.90 On 30 June 2000, Mr Hart, a chemist with Agrifood Technology, a subsidiary of AWB, sent an email to Mr Hogan stating that AWB had not provided any equipment to IGB for microbiological testing yet, however $20,500 worth of equipment had been purchased and this equipment was waiting to be sent to Iraq.148 Mr Hart noted that
there is currently som e concern su rro u n d in g this eq u ip m en t in so far as it alm ost certainly contravenes U N restrictions.149
Mr Hogan wrote a note on a hard copy of this email:
H o w do w e get equipm ent in. I assum e reagents are problem . Speak w ith IGB regarding this issue.150
17.91 Mr Hart took some of the equipment with him and gave it to IGB when he visited Iraq in July 2000.151 Some of the remaining equipment could be used for micro biological procedures and AWB did not wish to send it without approval.
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17.92 On 30 June 2000, Mr Borlase sent a facsimile to Mr Grenenger at DFAT:
Since o u r last correspondence w e have h ad som e m inor changes to our p ending donation of G rain Vacs. The G rain Board of Iraq have now indicated the
discharging process at U m m Q asr w o u ld be better served by using Bobcats instead of G rain Vacs.
To assist in the discharging process AWB like to take the action of donating 8 Bobcats w hich w ill be utilised at U m m Q asr and in particular for the purpose of m oving w h eat in the bottom of the ships hull resulting in a m ore rapid
discharge.152
17.93 The cost to AWB of this donation was still $257,272 or $32,159 per piece of equipment. This was the same figure that had been given in Mr Borlase's earlier facsimile to DFAT of 11 May 2000, despite the fact that the equipment being donated had changed from Grain Vacs to bobcats.
17.94 Mr Borlase again sought the assistance of DFAT in the provision of an export permit or verification with the relevant authorities that AWB was able to export the bobcats to Iraq. Mr Grenenger was advised that AWB intended to load this machinery over an eight week period 'which coordinates with the next available vessels in our Iraq shipping program'.153 Mr Borlase concluded:
It w ould be appreciated if the situation could be expedited as G rain Board of Iraq has expressed genuine concern at discharge rates at U m m Q asr consequently affecting distribution of food to the people of Iraq.154
17.95 Following receipt of Mr Borlase's facsimile of 30 June 2000, Ms Penny Holliday from the Australian Mission to the United Nations sent a facsimile to Mr Verne Kulyk in the United Nations Office of the Iraq Programme (OIP) advising that AWB wished to withdraw its application to donate grain vacs and that in consultation with IGB, AWB had decided to donate eight bobcats.155 Ms Holiday concluded her facsimile by seeking the OIP's advice on how to proceed with the application.
17.96 On 4 July 2000, Mr Borlase circulated widely within AWB156 an email headed 'Iraq Update'157 which in which he noted:
D onation of 8 bobcats currently w ith U N. N ew York office trying to get answ er from US. MED basing w ith DFAT. Bobcats will hopefully speed up discharge ,158
17.97 On 24 July 2000, Mr Borlase sent an email to Mr Hogan:
W e are donating $20k of laboratory equipm ent, h ow ever need U N approval. I h av e n 't approached DFAT or U N for this to date as w aiting to get approval for Bobcats first before ham m ering them on Lab eq uipm ent.159
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Ju n e 2 0 0 0 : p a r t o f a s h i p m e n t r e j e c t e d
17.98 In the meantime, in June 2000, part of a shipment of wheat on board the Pacific Champ was rejected by Iraq part way through its discharge at Umm Qasr, as a result of concerns as to its quality. Initially e-coli was said to have been detected in the wheat in two of the vessel's holds.160 It was later said that the portion of the shipment was rejected because of concerns about the quality of the wheat, the Iraqis having discovered fungal stained grain and black point.161 Under the terms of the contract between the AWB and IGB, the wheat was to be free of fungus and insect infestations.162
17.99 The rejection of part of this shipment gave rise to a number of problems for AWB. The remaining wheat on board the vessel could not be discharged in Iraq. In her then condition, the vessel was not able to sail beyond the Gulf. Accordingly, an alternate market had to be found for the sale of this wheat in the Gulf. AWB was also concerned about its reputation.
17.100 This incident gave rise to concerns within AWB as to the terms of its contracts with IGB and whether they could be changed. For instance, on 10 July 2000 Ms Scales wrote in an email addressed to Mr Jones the following comment directed to Mr Snowball:
W e cannot continue to do business into Iraq u n d e r cu rren t cak term s and
conditions i.e. q u a lity /w e ig h ts final at discharge p o rt ... (standard grain trade term s are: q u a lity /w e ig h t final at load port) ... Surely, w e can get the UN to
change the term s an d conditions to Load port ... or get U N inspectors based in
A ustralia stam ping each vsl or get Iraq inspectors in A ustralia etc etc ...
A nyw ay plenty to talk about w ith the U N H ead honchos.163
Mr Snowball took up these concerns up with the Australian Mission to the United Nations in an attempt to enlist the Mission's assistance in addressing these issues with the United Nations Office of the Iraq Programme.164
17.101 This incident also raised the possibility of similar quality results occurring in relation to other shipments of wheat (including those that had already left Australia and from the same sources as this shipment), and the need for a strategy if a claim like this occurred again in the future.165
The AWB ' I r a q ' m a r k e t brief
17.102 On 10 July 2000, Mr Jones addressed the issues raised by Ms Scales in an email he sent to Mr Geary and Ms Scales and headed 'Iraq'. He wrote:
W ith the Iraq issues still brew ing AWB(I) highlights the follow ing as those requiring resolve.166
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There was then listed eleven points under the heading 'Short Term (Current Contract)' and a further three points under the heading 'Long Term (any future contracts)'.
Apart from reference to the recent shipment that had been rejected in part for quality concerns, the short term issues listed by Mr Jones included:
4. Protective Agent: Please pro v id e details of the protective ag en t in Iraq and w ho is m anaging the internal freight logistics.
5. Ronly: W hat is Rorily H oldings involvem ent in the process i.e. chartering services
6. D em urrage: Vessel delays are causing h uge dem urrage bills thereby reducing the attractiveness of the m arket. In the sh o rt term w e need to w ork o u t a solution that ensures vessels are discharged.167
When asked whether he had ever received a reply to question 4 above Mr Jones said:
A: I w as told th at Alia w as responsible for delivering the grain to all governorates of Iraq after delivery by the vessel.
Q: W ho told you that?
A: Well, I c a n 't —it is that long ago I c a n 't specifically rem em ber, b u t it w ould have been som ebody in m arketing, potentially C harles Stott or D om inic H ogan or m aybe som eone from the pool, like S arah Scales or m aybe even Peter G eary.168
17.103 Amongst the long term issues listed by Mr Jones was:
3. The d e m /d e s [d em u rrag e/ despatch] term in the contract also m ay need
review ing.169
17.104 Mr Jones concluded his email with some suggestions:
We need to resolve the cu rren t contract issues as a m atter of urgency and before w e begin to negotiate any fu rth er contracts. Once the current issues have been resolved the term s that w e sell to Iraq w ill need to be review ed prior to w riting further contracts.
AWB should have the u p p e r h an d into this m arket, so lets position ourselves to ensure w e d o n 't lose o u r pow er.
Please provide y o u r strategy for the sh o rt term an d long term as soon as
possible.170
Accompanying Mr Jones' email was a copy of Mr Borlase's market brief.171
17.105 Amongst the topics addressed in that market brief was 'Demurrage and Discharge'.172
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Since February 2000 AWB has scheduled a com prehensive shipping p rogram to m eet contractual requirem ents. The m axim um discharge rate achieved at U m m Q asr over a period of tim e is about 14,000 tonnes p er day over 4 berths. As a result of the discharge rate vessels have b u nched at discharge p o rt w ith AWB incurring considerable dem urrage. C ontracts w ith IGB do not have a clause that covers
dispatch o r dem urrage.
C om plicating the discharge rate is m ost vessels are tested at the pilot station and retested again on the berth. Sam ples are tested in B aghdad hence delays often occur w hilst w aiting for resu lts.173
17.106 A number of issues were listed under the heading 'Summary of Issues' in this market brief. These included the rejection of part of the recent shipment and the possibility both of this re-occurring on other vessels which have similar quality grain and future shipments. They also included the method of testing 'at the pilot station and again at berth where vessels stay until results returned from Baghdad delaying discharge'. Under this heading the market brief recorded:
⦠AWB have applied to U N for donation of 8 bobcats ($250,000) to assist discharge process
⦠O ffered to supply IGB w ith quality testing equipm ent ($20,000) yet to be
shipped. ...
⦠Boxes of phostoxin need to be placed aboard each vessel at rate of 1 box per 5,000 tonne
⦠AWB have [deleted] tonnes left allocated for Iraq. Costs to take into account include late paym ent (issue of arrival notice to BNP in N ew York), tonnage loss, dem urrage, phostoxin, bobcat donation, discharge rates (only capable of 250 300,000 tonnes p er m o n th m axim um ), testing procedures and freight rates.174
17.107 The inland transportation fee was also identified as an issue under this heading in the market brief. This was in the following terms:
⦠M echanism of paym ent for trucking fee. In existing contracts the fee is $15.00 per tonne. IGB have indicated the fee w ill be reduced to $14.00 for future business. C urrent mechanism of paym ent is via transport company/s in Jordan.175 [em phasis added]
The emphasised words in the passage above, particularly the reference to the 'current mechanism of payment', betray an understanding that the 'trucking fee' was not a payment to the trucking company for services, but rather a payment to IGB 'via transport company/s in Jordan'.
17.108 Ms Scales acknowledged this in her evidence concerning this market brief:
Q: W ould you have read that?
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A: Possibly, yes.
Q: It is likely you w ould have read it, isn 't it?
A: Yes — the brief, yes.
Q: Well, you w ill recall the earlier em ail from M r H ogan speaking of the problem in term s of finding a m echanism for paym ent, and this now speaks of a current m echanism of paym ent being via tran sp o rt com panies in Jordan?
A: Yes.
Q: This reinforces, doesn 't it, the strong inference th at these tran sp o rt fees w ere actually being p aid to the IGB?
A: Well, yes, on the face of it, it does.176
17.109 Mr Borlase, the author of that document, also reluctantly acknowledged that this inference could be drawn from the documents.177 By June 2000, he was aware that the mechanism for payment of the trucking fee to IGB was via the transport company in Jordan.178 He learned this in general discussion around the marketing desk and correspondence (including telexes) that he had seen from IGB in late 1999 or the beginning of 2000.179 Although Mr Borlase suggested in his evidence that at the time he did not appreciate that the inland transportation fees paid by AWB were being received by Iraqis —and that he did not have knowledge of this until his February 2001 trip —that evidence is not accepted. He knew that IGB was setting the fee.180 In December 1999, he had prepared the contracts with Savas Grain & Commodities Limited and Commodity Specialists Company which expressly provided in clause 6 for the payment by AWB of US$12 per tonne inland transportation fee to 'Grain Board of Iraq advised account'.181 He was also aware of AWB's use of Ronly, in particular that it was 'used a conduit to pay the trucking component'.182 He did not ask why it was used. He was not told why. Mr Borlase conceded that it seemed odd with the benefit of hindsight, but said that he did not think it odd at the time; he put this down to his inexperience at that time.183
17.110 Mr Geary could not recall Mr Jones' email or the market brief attached to it; nor could he recall providing any response to Mr Jones.184 He also denied understanding in 2000 that the inland transportation fee was fixed by IGB.185 This evidence can not be accepted. It is likely that Mr Geary read the email and the attached market brief and would have therefore appreciated that the inland transportation fee was a payment to Iraq. This email not only raised important issues concerning the operation of the Pool (for which Mr Geary was then responsible) but also sought from the addressees their short term and long term strategies for resolving 'current contract issues' which Mr Jones thought needed urgent resolution. It is unlikely that Mr Geary would have ignored so explicit a request for information. Indeed, Mr Geary acknowledged
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that he would have looked at matters that might be relevant the national Pool.186 Further, the terms of the email were clear. The emphasised passage quoted earlier did not refer to Alia setting the 'trucking fee' but characterised Alia as being only the 'current mechanism' for the payment of that fee. In this context, the reference to IGB foreshadowing a reduction in the inland transportation fee plainly indicated that it was IGB who in fact determined the amount of that fee. Lastly, Mr Geary was a poor witness and his evidence should be treated with caution unless contrary to his interest or independently confirmed. Mr Geary had also previously read on 24 June 1999187 Mr Hogan's trip report188 which indicated that a possible method of payment of the inland transportation fees was via ship owners. That report indicated that United Nations sanctions would be breached, which of course would only be so if the fee was a payment to Iraq.189
F u r th e r c o n s i d e r a t i o n o f t h e r e je c t e d c a r g o
17.111 On 10 July 2000, following receipt of Ms Scales' email of that date, Mr Snowball contacted Ms Moules at the Australian Mission to discuss IGB's rejection of part of the shipment from the Pacific Champ. Mr Snowball advised that AWB was treating the matter very seriously and that a team from AWB was visiting Iraq to discuss the matter with IGB representatives in an effort to reverse IGB's decision that part of this shipment was unfit for consumption.
Mr Snowball asked if the United Nations could do anything to pressure Iraq to accept the wheat.
17.112 Later that day, Ms Moules sent a cable to DFAT referring to Mr Snowball's approach and the issues raised by him. Ms Moules noted:
In response to AWB's queries we have explained th at there is little the U N can do in cases w here Iraqi purchasers do n o t accept goods (even w hen repeat tests by the U N 's in dependent inspection agents show the goods as being fit for
consum ption), b u t th at consideration could be given to the A ustralian
g overnm ent's R egistering concern w ith Iraq over this latest developm ent.
Snow ball accepted the lim itations on the capacity of the U N and A ustralian governm ent to change the GBI's decision, b u t asked th at the A ustralian
governm ent do all it could to assist. He com m ented that if a trend w ere to develop w hereby AW B's shipm ents to Iraq w ere routinely rejected AWB m ight have to reconsider w hether the risks involved in trading u n d er the Oil-for-Food Program m ad e such trade w orthw hile, noting th at the C anadian W heat Board h ad 'h a d its fingers b urnt'.
4. Snow ball then asked if the U N or the A ustralian G overnm ent could provide assistance w ith som e difficulties AWB w as having w ith the term s and conditions of its contracts w ith the GBI. Snow ball said that the term s an d conditions (which
Report of the Oil-for-Food Inquiry 2 6 5
w e u n d erstan d have been the basis for the A W B/GBI contracts at least since the beginning of AW B's trad e w ith Iraq u n d e r the Oil-for-Food Program ) 'clearly favoured Iraq', an d AWB w an ted to try to re-negotiate these term s. H e asked if the U N Secretariat could bring p ressu re to bear on Iraq to change the term s and
conditions. W e explained the n eith er the U N n o r the A ustralian G overnm ent could g et involved in this aspect of trad e u n d er the O il-for-Food Program .
N egotiation of contracts w as a com m ercial m atter betw een suppliers and Iraqi purchasers.190
17.113 Following his conversation with Ms Monies, Mr Snowball reported to Ms Scales in an email dated 11 July 2000:
The U N 's stance on this oil for food p ro g ram is: Iraq agrees to a contract for
supply of w h eat from A ustralia. This is a com m ercial agreem ent and has no involvem ent from UN. U N w ill not a rb itra te / influence the term s an d conditions of the contract as long as there is no th reat of the oil m oney being u sed for things like p u rchasing w eapons. The U N secretariat has a responsibility to execute the Oil for Food program m e, b u t their role is centred aro u n d ensuring the goods Iraq purchases are for h u m an itarian fo o d /m e d ic in e and th at there are fu n d s from the sale of oil to p ay for the goods. A n im p o rtan t p art of this is inspection of goods at specific points of entry into Iraq.
U N is n o t p erm itted to o p erate an inspection procedure at load p o rt u n d er the current oil for food program .
U N has in sp e c te d /te ste d the Pacific C ham p twice an d both tim es has confirm ed the w h eat is fit for h u m an consum ption. H ow ever Iraq has decided the rem aining tonnage cannot be accepted. The U N can n o t force Iraq to accept the w heat. Iraq can take the vessel off the berth, U N have no control over this. The vessel can com e an d go from U m m Q asr w ith o u t U N control.
Iraq is in total control here. U nfortunately, I think the only influence AWB m ay have w ith the U N is at a policy level w ith the U N Security Council via the
A ustralian G overnm ent. I have spo k en to th e U N m ission today an d they w ill be follow ing this u p w ith C anberra again. The U N do n o t w ant to see the Oil for
Food Program fail, so it w ill be in their best interests to encourage A ustralian w h eat supply w herever possible. The U N know s there is no quality issue, and that Iraq is only playing gam es to attem p t to force the eventual rem oval of sanctions.
AWB as a supplier should have som e leverage given that the Iraqi's have to come to us for the bulk of their w h eat su p p ly (refer Stu's com m ents).
AWB has p u t contract term s and conditions in place w ith Iraq, and the
responsibility rests w ith AWB to change them . AWB is the only supplier bending to Iraq's needs. Stu has also p ro v id ed som e inform ation on T radigrain's use of SGS for inspection.191
17.114 On 11 July 2000 Ms Moules sent an email to Mr Greneger at DFAT advising that Mr Snowball had telephoned her again that morning to ask if she had a response to AWB's request for Australian Government assistance in addressing the Iraqi rejection of AWB wheat —'a rather eager follow up call given that he'd only made the request yesterday'. Ms Moules reported:
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I asked Snowball if he could clarify whether AWB wanted the Australian Government to raise with Iraq specifically the issue of GBI's rejection of wheat, noting that this appeared to differ from AWB's past preferences for dealing with the Iraqi authorities. Snowball said he would check on this and get back to me.192
July 2 0 0 0 : a n o t h e r v isit t o I r a q
17.115 Due to the seriousness of IGB's claims of contamination of part of the Pacific Champ shipment and the problems that this was causing, AWB proposed that a technical and marketing delegation be sent to Baghdad immediately to discuss quality issues with IGB's technical staff. That proposal was conveyed by Mr Borlase in a facsimile to Mr Abdul-Rahman on 27 June 2000.193 Mr Borlase proposed that Mr Hogan and Mr Hart would travel to Iraq for this purpose.
17.116 The visit took place in mid July 2000. A 'team' comprising Mr Hogan, Mr Hart, Mr McCuIlum and Mr Watson travelled to Iraq and met with the Minister, Mr Abdul-Rahman, Mr Daoud and various technical personnel.194
17.117 On 17 July 2000, Mr Watson sent an email to Mr Rowland reporting on the outcome of the visit.195 The email was circulated by Mr Rowland to Messrs Geary, Stott, Beaumont, Lister, Tyas, Jones and Gomersall, Ms Scales and the 'Middle East Account Managers' later that day.196 A copy of that email is reproduced as Figure 16.3 in Appendix 16.
17.118 The purpose of the meeting was, according to Mr Watson's report:
- Discuss various technical issues relating to quality of cargo
- testing procedure of cargo
- rejection of 14,000 m t loaded on board Pacific C ham p
- C hartering issues, relating to discharge rates/b a lan ce of shipm ents u n d er current p h ase/ equipm ent at discharge p o rt
- If feasible travel to U m m Q asr to see the p o rt.197
17.119 In relation to delays, Mr Watson reported that 4 berths were currently in use for AWB vessels and:
- silo berth being d redged to increase d ep th at b erth to excess 12 m, m aintenance w ork being carried o u t to increase discharge rate to excess 10,000 per day, hoping to achieve about 12,000 m t p /d a y . Silo berth expected to be operational o n /a b o u t 20 July.
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- 5 berth being activated, as yet no discharge equipm ent available a n d order has already been placed to V igan for equipm ent, U N approval req u ired for the
purchase.198
17.120 During this trip, Mr Hogan and Mr Watson were able to travel to Umm Qasr and visit the port. Mr Watson reported his observations of the discharge of a vessel:
- M obile vacuvators used on each of th e vessels, 6 vacuvators for each vessel, discharging 3 holds
- V acuvators of sm all type an d look in need of repairs
- D ischarge rate slow s at cargo is reduced in each hold, and very slow w hen about 2000 m t left in the hold as necessary for cargo to be m anually shovelled into the centre of the holds, hence need for bobcats to assist in m oving the cargo into the centre of h o ld s.199
Mr Watson concluded his report:
C onclusion
- E quipm ent is an issue an d the ongoing m aintenance /s p a re s etc.
- Sam ple collection and testing thereof, n eeds to be review ed as clearly this does have an im pact on discharging term s
- hatch sealing tap e needs to be placed on each vessel at load p o rt together w ith phostoxin tablets
- Fum igation procedure needs to be review ed as potential loss of 6 days at
discharge port, d u e to need to fum igate, this m ay im prove once w eather in Iraq becom es cooler
- Bob cats should be sent soonest to assist discharge operatio n 200
17.121 Mr Hogan's evidence was to similar effect. According to Mr Hogan, during this trip, he identified four issues in relation the discharge of grain at Iraq and that were causing delays.201 These were the outdated equipment at the port; the difficulty in cleaning the hatch bottoms (the offer of bobcats was an attempt to ameliorate this issue); the testing of the grain; and the discovery of infestations of the wheat and the consequences of dealing with them.202
17.122 Lack of trucks was not a cause of the delays to discharge. Based on his observations during his visit to Umm Qasr, Mr Watson reported:
- N o shortage of trucks apparent, aro u n d 1000 trucks w aiting at the port
- railw ay also in u se.203
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Similarly, Mr Hogan did not attribute any delays at this time to a lack of trucks.204
The d o n a tio n of b o b c a ts fin a lise d
17.123 On 20 July 2000, Ms Holliday from the Australian Mission to the United
Nations sent an email to Messrs Bowker and Cuddihy at DFAT, copied to Ms Moules notifying them that the Mission had been informed that AWB's proposed donation of eight bobcats had been approved by the United Nations.205 Ms Moules subsequently sent a message to Messrs Bowker and Cuddihy stating that the approval notice should be received within the week and that AWB should be able to move forward with their preparations to ship the bobcats.206
17.124 On 21 July 2000, Mr Cuddihy faxed Mr Borlase attaching an email from the
Australian Mission stating that DFAT could not issue a permission to export prior to seeing the actual approval paperwork from the Office of Iraq Programme (OIP).
17.125 On 28 July 2000, the OIP issued an approval notice in respect of the bobcats.
This was tied to an existing UN approval of an earlier wheat contract (contract A4972).207 That approval earlier was to expire on 31 August 2000 (as would the approval for the bobcats). There was a concern within AWB that this did not leave enough time to ship the bobcats to Iraq and that an extension of the approval expiry date may be required. Ms Moules faxed the approval documents to Mr Snowball.208
17.126 On 30 July 2000, Mr Cuddihy emailed Ms Moules, Mr Bowker and
Ms Holliday in relation to the likelihood of AWB seeking an extension from the United Nations in relation to the shipment of bobcats. He informed them that AWB was considering applying for an extension and that:
Based on their assum ption that th e 30 A ugust deadline refers to the bill of lading date, rath er th an the d ate of delivery, they think th ey w ill have enough tim e to com plete the shipm ent. H ow ever, they'll get back to m e tom orrow if they change their m ind.
I'm inclined to agree th at w e should apply for an extension regardless, b u t I guess w e have to be g uided by w h a t the AWB w an t.209
17.127 On 31 July 2000, Mr Borlase faxed Mr Cuddihy attaching the UN approval
documents and requested a Permission to Export for the eight bobcats.210
Report of the Oil-for-Food Inquiry 2 6 9
Later that day, DFAT issued a permission to export the eight bobcats to Iraq before 31 August 2000.211
17.128 On 2 August 2000, Ms Moules sent a letter to Ms Johnston at the OIP seeking an extension of the UN approval for the export of the bobcats.212
17.129 On 9 August 2000, the bobcats were shipped on board an AWB chartered vessel which was also loaded with wheat bound for Iraq.213 On 14 August 2000, Mr Hogan informed IGB in a facsimile that the bobcats had been loaded and shipped and were expected to arrive Umm Qasr by 3 September 2000.214
17.130 On 4 September 2000, Mr Hogan sent an email to Mr Snowball informing him that the vessel on which the bobcats had been loaded had arrived in the Gulf but had not been permitted to berth as the inspectors at MIS stated that the eight bobcats on board did not have a United Nations approval certificate. Mr Hogan asked Mr Snowball to 'contact the UN mission and get this vessel accepted'.215
17.131 On 5 September 2000, Mr Alexander of AWB sent a facsimile to the master of the vessel on which the bobcats were loaded attaching the United Nations approval certificate in relation to wheat, phostoxin FOC and eight bobcats aboard his vessel.216
17.132 The bobcats were eventually delivered to IGB in September 2000. In an email dated 10 May 2001 in which Mr Hogan reported on discussions he had recently had in Iraq, he observed:
Bobcats Being u sed —very appreciative an d increasing discharge tim es.217
J u ly 2 0 0 0 : c o n s i d e r a t i o n by t h e ELG m e e t i n g
17.133 The concern within AWB in relation to the increasing demurrage and the financial effect of this is recorded in the Chief Financial Officer's report within the Minutes of the Executive Management Group Meeting for 18 July 2000.218
This m onth C hartering has raised an additional provision of AUD $4.0M (bringing the total provision to AUD$6.0M) in relation to dem urrage expenses associated w ith the Iraqi shipm ent program . C hartering has reached an interim resolution w ith AWB(I) w hereby AWB(I)'s exposure w o u ld be cap p ed at USD$6.9M. Total forecast dem u rrag e expenses are currently AUD$13.9M. A n assessm ent will be m ade d u ring the m onth on w hether C hartering needs to take u p the additional AUD$1.0M shortfall
2 7 0 Report o f the Oil-for-Food Inquiry
PJI [Mr Ingleby] stated th at C hartering need to review their num bers as they d o n 't seem to know w hat they are doing re costs etc. PG [Mr Geary] stated that poor risk m anagem ent has ad d e d to the significant problem s w ith Iraq. PJI stated that C hartering w as the biggest problem —not looking financially healthy. PJI stated he w o u ld be m eeting w ith M ichael W atson re his recent visit to Iraq —Michael W atson w as w riting a re p o rt on this visit. T here w ere also significant contract execution issues that need to be addressed. RB stated a new system w as com ing on line w hich should assist in im proving processes in C hartering. AL stated that AWB should consider com m issioning A rth u r A ndersen to review C hartering and p u t fo rw ard recom m endations for im proving this section of the com pany. PJI to
give this review d ue consideration an d discuss this w ith relevant personnel.219
17.134 There was also recorded in those Minutes under the heading Commercial Operations Report:
C hartering — M ichael W atson w as currently in Iraq an d w ould be going to the port in the next few days to identify an d hopefully resolve the issues. A report will be p rovided at the Board m eeting.
R only —A m eeting w ith Ronly is d u e to be held on 18th July. AL an d RB stated there have been significant changes a n d this now no longer appears to fit w ith AW B's global strategy. The deal has also changed from w h at it w as originally and this is a JV from w hich AWB w ould ap p ear not to be m ake a profit.220
17.135 The reference to 'Ronly' in the foregoing passage was a reference to discussions that AWB had entered into with Ronly Holdings Limited (Ronly), a grain trader based in England, with a view to the establishment of a joint venture. Ronly was also at that time assisting AWB by acting (through its Liechtenstein nominee, Tse Yu Hong Metal Limited) as a conduit for the payment of inland transportation fees to Aha on AWB's behalf. This use of this method for the payment of inland transportation fees and the circumstances in which it came to an end are discussed in more detail in Chapter 18.
17.136 Mr Stott also provided an update on Iraq Shipping at this meeting, which was reported in the following terms:
CS rep o rted on p ro b lem s/issu es re the Iraq shipping situation after w hich
discussions took place on same.
Some of the problem s associated w ith this include: over-estim ated production rate at discharge p o rt (27,000 b u t actual 14,000); quality problem . Some of the solutions include: representation w as m ad e to the M inister on Pacific C ham p
(unsuccessful) — the vessel w as rejected and sold as distressed cargo to Sharja ; SWAT team in Iraq to resolve the situation. Rex L ister's m anaging the program on a go forw ard basis; w ritten confirm ations betw een groups re w ho is doing w hat, w hen and how etc. ; d e m /d e s accruals/ provisions in accounts ; m anage the
situation.221
Report of the Oil-for-Food Inquiry 2 7 1
17.137 At the same meeting Mr Stott reported on his proposed new structure for International Marketing. Following a discussion at the meeting this new structure was approved.222
17.138 On 31 July 2000, Mr Stott sent an email to Mr Snowball (copied to others within AWB) in which he wrote:
We need to have a chat about Iraq. We have a num ber of contractual problem s that need to be sorted and m any of these involve the U N. For example:
⢠the Iraq 's claim shortage claims on the basis of U N inspectors signing off on w eight certificates. It costs AWB about 0.50 to 0.75 cents p er cargo. Solution: change to, w eight, quality condition final at load port ... A lthough Iraq claim th at this is not acceptable to the UN. A s a fall back, sim ply m ake it w eight final at load port..
⢠Iraq does not guarantee discharge rates at UM M Qasr, n o r do they p ay
d e m u rra g e / dispatch at discharge port. The arg u m en t is that it is a US$
transaction w hich is n o t allow ed by the UN. The affect is, that the Iraq's
discharge o u r vessels at low rates an d w e get hit w ith m assive dem urrage bills. Solution, change contract to guaranteed discharge rate w ith Iraq being obliged to pay Dem a n d earn dispatch. AWB to keep the d e m /d e sp a tc h account for Iraq and settle w ith ow ners on behalf of Iraq', su rp lu s funds if an d w h en available to be refunded Iraq.
⢠p ay m en t m echanism is very slow, w e need to find o u t w hy an d get it sped
up, it currently cost aro u n d US$3 p er tonne to finance the shipm ents, we pay cash for freight on shipm ent, but do n o t receive proceeds until approxim ately 3 m onths after bill of lading date. The Iraq's claim the UN is slow, the U N claim it is BNP. AWB needs to fix it because at the m om ent the A ustralian W heat grow ers is financing the U N system .
⢠2 contracts, w ith different contractual term s, go to the U N for the sam e
business.
The Iraq contractual arrangem ents have got to the stage w here they are alm ost inoperative an d w e urgently need to fix them . Let's discuss tactics, before we talk to any external parties. Suggest w e urgently arrange a phone hook up to
discuss.223
17.139 The second dot point makes clear that Mr Stott was aware of restrictions on the payment of moneys to Iraq.
17.140 The observation in relation to AWB having to finance the freight on shipment until it was paid from the proceeds of the sale of the wheat applied equally to the inland transportation fees that AWB was at that time paying before the cargo had been discharged, and which AWB or the AWB Pool was having to fund until such time as the proceeds of the sale of the shipment were received under the letter of credit drawn on the United Nations escrow account.
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The p ossibility of a d e s p a tc h a n d d e m u r r a g e a c c o u n t
17.141 The possibility of AWB maintaining a despatch/ demurrage account with IGB mentioned in the second dot point of Mr Stott's email of 31 July 2000 was subsequently taken up by AWB with DFAT. This topic has already been briefly touched upon in Chapter 12.
17.142 On 7 August 2000, Mr Hogan sent a facsimile to Mr Bowker (at DFAT)224 in
which he advised Mr Bowker that AWB was in the process of reviewing its wheat contracts with Iraq and had identified several conditions which were non commercial and hindering its ability to conduct cost effective business with Iraq. Mr Hogan continued:
C onsequently, w e w ould like to investigate the possibility of changing several term s, an d w e seek y o u r advice as to w hether these changes w ould be accepted by the U nited N ations.225
The particular terms sought to be changed were those identified by Mr Stott in his email to Mr Snowball.226 These included a desire to change the contract terms to 'weight and quality final at load port', as per international trading terms and conditions. They also included the reintroduction of despatch and demurrage. Mr Hogan wrote:
Iraq does not guarantee discharge rates at U m m Qaser, nor do they pay
d em u rrag e/d isp atch at the discharge port. The despatch/dem urrage condition has been removed due to the sanctions, w hereby direct paym ents to Iraq are no longer possible. The com m ercial im plications of a 'no d e sp a tc h /n o dem urrage' contract is that Iraq have no requirem ent or incentive to discharge vessels in a
tim ely an d efficient m anner, and consequently AWB L im ited is incurring
substantial dem urrage bills.
AWB L im ited w ould like to reintroduce despatch an d dem urrage into the Iraq contract. A ny despatch earned by Iraq could be h eld in an account controlled by AWB Lim ited, and these funds could be utilised annually to su p p ly grain
handling equipm ent and technical training.227 [em phasis added]
Mr Hogan also stated that AWB would like to submit only one contract signed by both the seller and buyer to the United Nations, rather than the then existing arrangement of submitting a contract from each of the seller and buyer with inconsistent terms. He stated that 'The UN 986 procedures, require the submission of a separate contract from each party.'228
Mr Hogan's facsimile followed a conversation that he had had with Mr Bowker that afternoon. According to Mr Hogan, he had discussed the demurrage/despatch issue in that conversation.229 Mr Hogan is also likely to have informed Mr Bowker in that conversation that AWB was looking to negotiate with IGB.230
Report of the Oil-for-Food Inquiry 2 7 3
17.143 Whilst Mr Bowker had no recollection of having received the facsimile from Mr Hogan, it nevertheless appears that he referred it to Ms Courtney, who at the time was a Director level officer assigned to the Middle East Section as a 'Special Projects' officer.231 Either Mr Bowker or Ms Courtney sought advice from the DFAT Legal Branch in relation to AWB's proposals.
17.144 In the meantime, Mr Hogan sent an email to Mr Paul Jamieson (in AWB Trading) on 18 August 2000, on the topic of 'Iraq despatch/demurrage':
In regards to Iraq d esp atch /d em u rrag e.
C urrent contracts are being m onitored extrem ely closely w ith g roups from ME D esk, C ontract A dm in, AWB(I) and AWB C hartering m eeting w eekly to plan vessels an d m anage risk exposures.
Vessels on existing contracts are evenly sp read so that there is no congestion at the p o rt of U m m Qaser.
The 1 m illion tonne contract (due to com m ence O ct 2000) does n o t include a d e sp a tc h /d e m u rra g e clause and th e sam e procedures w ill be im plem ented. Vessels w ill be evenly spread to m anage this risk. W e have also declined to offer additional tonnage for N ovem ber-Janaury supply, as this could create logistical congestion.
8 Bobcats have been supplied by AWB L im ited to assist w ith the scraping of vessel holds, a job w hich is currently perform ed by m anual labour. The productivity of this labour force dim inishes w hen the tem peratures exceeds 50 degrees Celcius. The bobcats w ill increase the discharge rates.
AWB Lim ited have approached DFAT to investigate the legalities of
im plem enting a d esp actch / dem urrage account, w hich w ill a d d an incentive for the G rain Board of Iraq to increase discharge rates.232
17.145 On 28 August 2000 Mr Hogan received a facsimile from Ms Courtney in response to his earlier facsimile of 7 August 2000.233 Ms Courtney's facsimile was accompanied by:
... an internal [DFAT] m inute com m enting on the questions you p u t to DFAT in respect of the contracts to supply w h eat to Iraq an d possible changes to
m ethodology w hich w ould be consistent w ith sanctions. DFAT's com m ents w ere prep ared in consultation w ith A ttorney G eneral's.234
In her facsimile, Ms Courtney advised that she had left the minute in its internal form 'as I think it will give you an informal steer as to possibilities' and that in that form the attached minute was for Mr Hogan's 'informal guidance and background only'.235 Ms Courtney went on to say that should AWB wish to use the advice in a formal way, then DFAT would need to provide an 'edited form of the document, as you can appreciate.'236
2 7 4 Report o f the Oil-for-Food Inquiry
Ms Courtney also said that DFAT's understanding was that AWB wished to deal directly with IGB to negotiate 'those possibilities that should be consistent with the oil-for-food provisions' but that should AWB wish DFAT speak to the Australian mission to the United Nations in New York or have the mission 'run administrative options past the Secretariat and/or Sanctions Committee', DFAT would be 'happy to discuss this further with you'.237
17.146 The accompanying minute had been prepared by Ms Gabrielle Simm, in the DFAT Legal Branch.238 It was addressed to Mr Bowker and dated 25 August 2000. It began:
I refer the request of the A ustralian W heat Board (AWB) for advice on possibility of m aking certain changes to their contracts to su p p ly w heat to Iraq. The AWB seeks to m ake certain changes w hich w o u ld ren d er the contracts m ore
com m ercially beneficial from their p o in t of view , and has requested advice as to w hether their proposed changes w o u ld be consistent w ith the U N sanctions regim e against Iraq. I n ote that AWB has requested this D epartm ent n o t to verify this advice w ith our p o st at UNNY, as the AWB has recently raised these and related question w ith the U N T reasury officials (O.UN9314 refers) and they are ap parently a sensitive issue. I have discussed this advice w ith Ben O lbourne of the Office of International Law, A ttorney-G eneral' s D epartm ent, an d have
incorporated his com m ents.239
17.147 Ms Simm noted in her minute that her advice related only to the UN sanctions against Iraq; that she had not seen the contracts between AWB and IGB; and that she was not providing any advice on the terms of AWB's contracts with IGB. The minute then went on to provide Ms Simm's advice on four topics, namely time at which contract terms weight and quality of shipments are final, proposal to establish a trust account as an incentive for Iraq to unload
shipments on time, delays of payments to AWB and requirement for two contracts with inconsistent terms.
17.148 It was the second of those four topics that dealt with the proposal contained in Mr Stott's email of 31 July 2000. In relation to that topic, after identifying the various UN Security Council resolutions that control the ability to make payments to Iraq and summarising their effect240, Ms Simm provided the following advice on AWB's proposal:
8. The AWB states th at it currently incurs substantial dem urrage bills due to delays in unloading w h eat shipm ents at the Iraqi p o rt of U m m Qaser. It proposes establishing a type of tru st account, controlled by the AWB and held for the
benefit of Iraq, into w hich the AWB w ould pay despatch (a bonus w here
shipm ents are unloaded ahead of time) and presum ably, although it does not state this, dem urrage (a fine w h en shipm ents are u n lo ad ed late). The AWB proposes to use these funds to provide grain handling eq u ip m en t an d technical training to Iraq.
Report o f the Oil-for-Food Inquiry 2 7 5
9. The proposal to establish a type of tru s t account for Iraq controlled by the
AWB w o u ld breach U N sanctions. M oney p aid to Iraq m ust be p aid into an
escrow account established by SCR 707 a n d 712 or in accordance w ith SCR 986. The sale or su p p ly of grain handling eq u ip m en t is p rim a facie prohibited by SCR 661 OP 3(a) an d (b) and w ould need to be approved by the 661 sanctions
com m ittee.
10. It m ay be possible to negotiate w ith the U N to introduce som e form of
incentive for tim ely unloading of shipm ents into the contracts for provision of w h eat to Iraq. O ne w ay w o u ld be to ap p ro ach the U N to m ake incentive paym ents o u t of the escrow account, rath er than setting u p a new tru st account controlled by the AWB, w hich w o u ld breach cu rren t U N sanctions.241
Ms Simm subsequently summarised her advice on this issue in the following terms:
14. The AW B's proposal to establish a tru st account for Iraq as an incentive to u n lo ad shipm ents m ore quickly breaches current U N sanctions against Iraq. It m ay be possible to discuss w ith the U N T reasury other m ethods of encouraging Iraq to u n lo ad w heat shipm ents m ore quickly w ith o u t breaching the sanctions regim e, for exam ple, an incentive paym ents schem e operating w ith in the escrow account.242
17.149 At the top of Ms Courtney's facsimile to Mr Hogan, there is a manuscript note from Mr Stott to Mr Hogan stating 'we need to set up a phone hook up'.243 It is dated 31 August 2000. Mr Hogan thought that he and Mr Stott may have had a telephone hook up with DFAT on this issue at about this time.244 He did not give any evidence as to what was discussed during any such hook up,
save that it concerned this issue of despatch and demurrage and that there was no discussion of the inland transportation fees at that time. Ms Courtney could not recall having any discussion with AWB in relation to this minute or issue.245 Neither could Mr Bowker.246
17.150 On 13 September 2000, Mr Hogan sent a facsimile to Ms Courtney (DFAT) stating:
As m entioned in A ugust, AWB Lim ited w an ted to exam ine the current U nited N ations p aym ent m echanism for vessels th a t discharge at U m m Q aser, Iraq. O ur objective is to reduce the tim e taken from th e com pletion of vessel discharge to the time actual p ay m en t is received by AWB Lim ited.
AWB Lim ited w o u ld like to be advised, w h y this paym ent m echanism takes an extrem e am o u n t of time.
We are confident that DFAT w ould su p p o rt AWB's view th at these delays are excessive, given the frequency an d volum e of A ustralian w heat contracts executed u n d er the UNSCR986 Oil for Food program since D ecember 1996.
2 7 6 Report o f the Oil-for-Food Inquin/
W e w o u ld appreciate DFAT's assistance in d eterm ining the cause of these
excessive paym ent delays, w ith a v iew to im proving the system and reducing the cost for the A ustralian grow ers.247
17.151 There was no mention in this facsimile of Mr Stott's earlier
demurrage/ despatch proposal.
17.152 As at August 2000, the clear and unequivocal advice from DFAT to AWB was that AWB could not reintroduce liability for demurrage and despatch under its contracts with IGB and manage those payments by a scheme along the lines proposed by Mr Stott in his email of 31 July 2000. To do so would contravene UN sanctions. Mr Hogan recognised as much.248 If demurrage/ despatch was to be payable as between AWB and IGB, then it would have to be either operated though the United Nations escrow
account249 or dealt with in some other way.
17.153 This possibility of a demurrage/despatch account was raised again by Mr Stott and Mr Hogan when they visited Iraq in October 2000. This is examined in Chapter 19. It also arose in the context of Mr Stott's correspondence with DFAT in October and November 2000, following that trip (including in relation to the draft letter that Mr Hogan prepared for Mr Stott at that time). This is examined in Chapter 20.
July 2 0 0 0 : a n o t h e r s a le to t h e IGB
17.154 Phase VIII of the Oil-for-Food Programme commenced on 9 June 2000 and operated until 5 December 2000.250
17.155 IGB had issued a wheat tender for phase VIII, clause 10 of which was in the following terms:
10 —Price
CIF F.O.T to silo to all governerates of Iraq. Cost of discharge at U m m Q user and land tran sp o rt will be USD (14) p er m etric ton to be p aid to the Land T ransport C om pany. For m ore details contact Iraqi Mari tim es in Basrah. Iraqi State Co. for W ater T ran sp o rt—B asrah.251
This was in similar terms to clause 10 of IGB's wheat tenders for the earlier phases VI and VII of the Oil-for-Food Programme.
17.156 This 'cost of discharge at Umm Quser and land transport' of US$14 per tonne was a slight reduction from the US$15 per tonne charge that had been imposed during phase VII252 and was in accordance with the reduction in the
Report of the Oil-for-Food Inquiry 2 7 7
trucking fee that the IGB had informed Mr Emons and Mr Watson of during their visit to Iraq in May 2000.
17.157 On 16 July 2000, AWB concluded a further sale of 1 million tonnes of wheat to IGB. This sale, which was part of phase VIII of the Oil-for-Food Programme, was split into three contracts, known as AWB contracts A0265, A0266 and A0267. Each contract was on substantially identical terms.253
As with AWB's contracts under phases VI and VII, the price at which the wheat was sold under these three contracts was expressed to be 'GIF Free in Truck price per tonne'.
17.158 An Export Sales Note prepared within AWB for each of contracts A2065, A0266 and A0267 stated:
Export C ontract Com m ent: Terms as p er contract A4970.254
This was a reference to the contract that AWB had concluded with IGB in January 2000.255
The Export Sales Note recorded these contracts as having been booked by Mr Hogan and authorised by Mr Borlase.256
17.159 A short-form contract was prepared for each of contracts A0265, A0266 and A0267. Each of these short-form contracts was in similar terms to AWB's last contracts with IGB, namely contracts A4970, A4971 and A4972. All of these short-form contracts was signed on AWB's behalf by Mr Stott. The short-form contracts did not contain any reference to the payment of a 'discharge cost'257, or to any inland transportation fee, or obligation to pay that fee, or the amount of that fee.
17.160 Long form contracts were prepared by IGB in respect of each of these three contracts.258 These were in similar terms to IGB's long-form contracts for its earlier contracts under phases VI and VII. They were each countersigned by Mr Hogan on behalf of AWB. Like the long-form contracts under phases VI and VII, the long-form contract for each of contracts A0265, A0266 and A0267 contained no reference to the inland transportation fee, the amount of that fee or AWB's obligation to pay it. As with the long-form contracts for the preceding two phases, the price was described as 'C/F F.O.T. to silo to all governerates of Iraq via Umm Quser port'
17.161 The contracts were forwarded by Mr Hogan to Ms Courtney at DFAT on 14 August 2000 for submission to the United Nations for its approval.259 The signed copies of both the long and short-form contracts were received by the United Nations.260 That approval was issued for each of the contracts on
2 7 8 Report o f the Oil-for-Food Inquiry
31 August 2000.261 Each approval was dated 29 August 2000. Copies of these approvals were sent by the Australian Mission to DFAT in Canberra on 7 September 2000.262 Ms Courtney in turn sent the approvals to Mr Hogan on 8 September 2000.263
17.162 Despite the absence of any reference to it in both the long and short-form contracts, an inland transportation fee of US$14 per tonne was paid in respect of each of the shipments made by AWB under these three contracts A0265, A0266 and A0267. The fee for each shipment was paid in full prior to the vessel's arrival at Umm Qasr and calculated by reference to the quantity of
wheat shipped. All of the inland transportation fees for shipments under these three contracts were paid by AWB Chartering to Alia directly.
Report o f the Oil-for-Food Inquiry 2 7 9
N o te s
1 Ex 253, AWB.5076.0360. 2 Ex 438, AWB.0176.0024. 3 In 2000 AWB included an allowance of between US$1 and US$1.50 per tonne (Ex 251, AWB.5107.0012 _R). 4 And thereby AWB Limited of which AWB Chartering was a division or AWB Australia under which AWB Chartering entered into a number of its charters. 5 For example there is a discussion of these issues in the minutes of the Small Executive Management Group meeting dated 23 May 2000, Ex 20, WST.0002.0014 at 0015 and 30 May 2000, Ex 20, WST.0002.0021. 6 This visit coincided with the arrival of the Prima II, a capesize vessel that had been used by AWB for the shipm ent of wheat under its contract A4822 with IGB. The w heat was transhipped from the Prima II at Dubai onto three smaller panamax vessels for the final leg of the carriage to Umm Qasr. This was the first occasion that a cape size vessel had been used for shipments to Iraq and was considered an innovative process at the time (Ex 791, WST.0037.0001 at 0006, para. 33). The use of this vessel for this shipment was reported in the trade press at the time (Ex 1509, AWB.0136.0185). 7 Ex 127, AWB.0138.0349. 8 Mr Emons' evidence was that the discussion that he w as referring to in his email of 4 April 2000 was a discussion he had had w ith Mr Flugge regarding complications attending the trucking fee, which included the execution of the payments through Alia and problems relating to discharge (T 1940.13). By the time of that discussion, Mr Flugge (according to Mr Emons) knew w hat the trucking mechanism was (T 1940.37). Mr Emons had told Mr Flugge that the trucking fee had been imposed by IGB (T 1941.19), that contractually AWB was obliged to deliver w heat to all governorates in Iraq (T 1941.30) but that despite that appearance in the contract, AWB had not actually contracted physically to deliver the w heat (T 1941.36-42). He also told Mr Flugge that IGB had nominated Alia as the recipient of the inland transportation fee (T 1941.44). According to Mr Emons, his discussion with Mr Flugge also encompassed the delays that AWB was experiencing receiving money from the United Nations and the problems that those delays were causing
(T 1942.13). Mr Emons assured Mr Flugge the problems then under consideration were in hand (T 1943.6). Mr Flugge stated that he could not recall having such a discussion with Mr Emons (T 3492.37-T 3493.17). Nevertheless, Mr Emons' evidence of this discussion should be preferred. His email to Mr Watson of 4 April 2000 is a contemporaneous record of his discussions with Mr Flugge. There is no reason for Mr Emons to have exaggerated or distorted w hat had been said. Moreover, when interviewed by Mr Quennell in April 2004, Mr Flugge recalled 'Effectively we paid money back to IGB then they did inland transport —we paid it back through Ronly —they paid Alia Transport. I remember discussions with Emons — in contract — yes we can do this —never detailed discussion —not issue for board — management issue.' (Ex 1287, AWB.0468.0012).
Mr Flugge's recollection was broadly consistent with Mr Emons' conversation. 9 Ex 129, AWB.0136.0466. 10 Ex 129, AWB.0136.0466. The effect of Mr Emons' evidence was that he had used the reference to 'our Chairman' to add gravitas, to secure an audience with the new Director General of IGB, w ith whom he did not have a good relationship, and that in fact the chairman, Mr Flugge was not involved in this matter
(T1944.28-T1945.ll). 1 1 Ex 133, MAE.0002.0108. 12 Ex 133, MAE.0002.0108-0109. 13 T 1950.43-T 1951.40. 14 T 1952.3-11. 15 T 1954.41-T 1955.15. 46 Ex 133, MAE.0002.0108 at 0109. 17 Ex, 1364, HDD.0014.1454.
is Ex 1364, HDD.0014.1454. 19 Ex 1364, HDD.0014.1454. 20 T 7601.44. 21T 7602.1. 22 T 7602.6. 23 T 7603.37. 24 T 7603.37.
2 8 0 Report o f the Oil-for-Food Inquiry
23 Submissions of Mr Flugge, para. 4.146-147. * Ex 1423, MAE.0006.0002_R at 0004_R, paras 8-10. 27 Ex 134, AWB.0136.0433. 28 T 1956.18-T 1957.6. 29 T1955.40-T 1956.16. 30 Ex 791, WST.0037.0001 at 0006, para. 35. μ Ex 791, WST.0037.0001 at 0006, para. 36.
32 Ex 791, WST.0037.0001 at 0006, para. 36. 33 The evidence discloses that a letter of appointm ent was sent to Alia on 17 April 2000 (this is dealt with later in this chapter). m Ex 791, WST.0037.0001 at 0006, para. 36.
33 Ex 791 WST.0037.0001 at 0006, para. 36. 36 Ex 424, INQ.0014.0001 at 0065-0066 (pp. 435.29-436.22). 37 Ex 427, MFW.0002.0002 at 0009 (1957); Ex 424, INQ.0014.0001 at 0065 (pp. 435 and following); T 1957.37 47. 38 Ex 427, MFW.0002.0002 at 0009 (1957). 39 Ex 424, INQ.0014.0001 at 0067 (p. 437.1); Ex 425, WST.0003.0015_R at 0021_R, para. 6(c). <° Ex 247, AWB.5076.0373. « Ex 253, AWB.5076.0360 at 0361. 42 Ex 253, AWB.5076.0360 at 0361. 43 Ex 424, INQ.0014.0001 at 0064 (p. 434.1-27). 44 T 1957.29-35. 43 Ex 141, WST.0007.0001 at 0003, para. 11. « Ex 954, AWB.0211.0001-0014. 47 Ex 791, WST.0037.0001 at 0006, para. 37. 48 Ex 253, AWB.5076.0360 at 0361; Ex 791, WST.0037.0001 at 0006, para. 37. 49 After a 10 hour drive from Baghdad; Ex 247, AWB.5076.0373. so Ex 247, AWB.5076.0373. si Ex 247, AWB.5076.0373. 52 Ex 247, AWB.5076.0373. 33 Ex 247, AWB.5076.0373. 34 Ex 247, AWB.5076.0373. 33 Ex 247, AWB.5076.0373. 36 Ex 247, AWB.5076.0373. 37 Ex 247, AWB.5076.0373. 58 Ex 247, AWB.5076.0373. 59 Ex 247, AWB.5076.0373. 60 Ex 253, AWB.5076.0360 at 0361. 61 Ex 135, AWB.0087.0105-0107; Mr Watson said that he was authorised by Mr Officer, the manager
International Sales and Marketing to enter the protective agency agreem ent w ith Alia: Ex 425, WST.0003.0015_R at 0021_R, para. 6(c). 62 Ex 135, AWB.0087.0105. 63 Ex 135, AWB.0087.0105 at 0106. 64 Ex 427, MFW.0002.0002 at 0009 (1957). 63 Ex 135, AWB.0087.0105 (clause 1). 66 Ex 135, AWB.0087.0105 at 0107. 67 Ex 135, AWB.0087.0105. 68 Ex 1013, MFW.0001.0012.
39 Ex 245, AWB.5056.0395. 73 Ex 678, AWB.0235.0050. 74 Ex 791, WST.0037.0001 at 0007, para. 41. 72 Ex 678, AWB.0235.0050. 73 A 'grain vac' is a piece of equipment which relies upon suction to move large quantities of grain, for
example to move grain from a silo to a truck or to move grain from the hold of a ship to a bin or truck.
Report of the Oil-for-Food Inquiry 2 8 1
74 Ex 598, DFT.0013.0212. 75 Ex 598, DFT.0013.0212. 76 Ex 598, DFT.0013.0212. 77 Ex 598, DFT.0013.0212; Ex 597, DFT.0013.0202 at 0205, paras 17-18. 78 Ex 250, AWB.5079.0221. 79 Ex 250, AWB.5079.0221. 88 Ex 542, DFT.0003.0065; Ex 598, DFT.0013.0213. 81 Ex 542, DFT.0003.0065. 82 Ex 542, DFT.0003.0065. 88 Ex 20, WST.0002.0014 at 0015. 84 Ex 20, WST.0002.0014 at 0015. 88 Ex 20, WST.0002.0014 at 0015. 88 Ex 20, WST.0002.0021. 87 Ex 251, AWB.5107.0012_R-0014_R. 88 Ex 251, AWB.5107.0012_R. 89 Ex 251, AWB.5107.0012_R at 0013_R. 90 Ex 251, AWB.5107.0012_R at 0013_R. 91 Ex 253, AWB.5076.0360 at 0361. 92 T 5411.22 93 Ex 70, AWB.5105.0253. 94 Ex 70, AWB.5105.0253. 95 Ex 70, AWB.5105.0253. 96 T 1463.23-34; T 1464.28-35. 97 T 1455.20-42. 98 In an email dated 3 May 2000 from Mr Emons to Mr W atson Mr Emons said of their proposed visit to London T suggest we do it separately so as to avoid scrutiny' (Ex 679, AWB.0182.0161). 99 Ex 680, AWB.0235.0058. 100 Ex 680, AWB.0235.0058; this was presumably in order for Mr Watson to meet with some of the ship owners from whom AWB Chartering chartered vessels (Ex 251, AWB.5107.0012_R-0014_R). 101 Ex 253, AWB.5076.0360 at 0362. 182 Ex 254, AWB.5076.0358_R. 183 Ex 254, AWB.5076.0358_R. 104 In the context of this visit and w hat he learned, in particular as noted in paragraphs 3) and 4) of this email, Mr Watson agreed that he was aware that IGB controlled the transportation and distribution of wheat from Urrvm Qasr (Ex 427, MFW.0002.0002 at 0010 (1958)). 185 Ex 137, MAE.0001.0036-0037. 186 Ex 71, A WB.5105.0258-0260. 187 T 1466.43. 188 T 1466.37; T 1468.33. 189 T 1468.3. 118 T 1466.37; T1468.3. 111 T 1468.26. 142 Ex 438, AWB.0176.0024; Ex 1376, AWB.0102.0077_R. 113 Ex 1376, AWB.0102.0077_R. 114 Ex 438, AWB.0176.0024-0025. 115 Ex 96, WST.0006.0001 at 0011, para. 70. 116 Ex 438, AWB.0176.0024. 117 Ex 1376, AWB.0102.0077_R. 118 Aluminium phosphide tablets which produce phosphine gas, a popular fumigant for the treatment of insects in stored grain. In one instance a vessel was required to leave the berth until phostoxin could be obtained from other vessels (Ex 1376, AWB.0102.0077JR at 0078_R). 119 Ex 1376, AWB.0102.0077_R at 0078_R. 128 Ex 438, AWB.0176.0024. 121 Ex 1376, AWB.0102.0077_R at 0078_R.
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122 Ex 1376, AWB.0102.0077_R at 0078JR. 123 Ex 1376, AWB.0102.0077_R at 0078_R. 124 Ex 1376, AWB.0102.0077_R at 0079_R. 125 Ex 1376, AWB.0102.0077_R at 0078_R. 126 Ex 1376, AWB.0102.0077_R at 0078_R. is? Ex 1376, AWB.0102.0077_R at 0078_R. i2s Ex 1376, AWB.0102.0077_R at 0079JR; Ex 438, AWB.0176.0024. 125 Ex 1376, AWB.0102.0077_R at 0079JR; Ex 438, AWB.0176.0024.
130 Ex 1376, AWB.0102.0077JR at 0078_R.
131 Ex 1376, AWB.0102.0077_R at 0079_R. 132 Ex 438, AWB.0176.0024 at 0025. 133 Ex 1501, AWB.0087.0432_R. 134 Ex 1501, AWB.0087.0432_R at 0433_R. 135 Ex 1501, AWB.0087.0432_R at 0433_R. 136 Ex 1501, AWB.0087.0432_R at 0434_R. 137 Ex 1501, AWB.0087.0432_R at 0435_R. I3» Ex 1501, AWB.0087.0432_R at 0433JR. 139 Ex 1377, AWB.0138.0290. «Î¿ Ex 253, AWB.5076.0360-0363. «I Ex 253, AWB.5076.0360 at 0361. M 2 Ex 253, AWB.5076.0360 at 0362. 143 See above. 144 Ex 1376, AWB.5058.0252. ms Ex 1376, AWB.0088.0042_R at 0043JR.
146 Who was employed at AWBL as Market Promotions at that time. 147 Ex 1376, AWB.0148.0293.
148 Ex 1376, AWB.0138.0068.
149 Ex 1376, AWB.0138.0068. ⢠Ex 1376, AWB.0138.0068. 151 Ex 995, AWB.0420.0162JR; Ex 1470, AWB.0084.0025_R at 0031JR. 152 Ex 542, DFT.0003.0088. Mr Borlase's facsimile was in very similar terms to his earlier facsimiles of 28 April 2000 (Ex 598, DFT.0013.0212) and 11 May 2000 (Ex 542, DFT.0003.0065-0066). 153 Ex 542, DFT.0003.0088. 154 Ex 542, DFT.0003.0088 at 0089. 155 Ex 1376, DFT.0001.0267.
156 The email w as sent to Messrs Richardson, Geary, Goodacre, Stott, Beaumont, Hughes, Lister, Rowland, Watson, Hogan, Hart, Gomersall, Morison, Snowball and Ms Scales and Ms Gatto. 157 Ex 1376, AWB.5046.0316JR.
158 Ex 1376, AWB.5046.0316JR.
is» Ex 1376, AWB.5033.0359JR. i6° Ex 389, AWB.5117.0080JR-0081JR—see Ms Scales' email to Mr Jones. 161 Ex 995, AWB.0420.0154JR at 0157JR. 162 Ex 1455, AWB.0059.0544JR—Long form contract no. A 4972. 163 Ex 389, AWB.5117.0080JR at 0081JR —Mr Snowball's response is also at Ex 389, AWB.5117.0080JR. 164 See below. 165 Ex 57, AWB.5059.0281. 166 Ex 57, AWB.5095.0281. 167 Ex 57, AWB.5095.0281. 168 Ï 3137.4-13. μ» Ex 57, AWB.5095.0281 at 0282.
i7o Ex 57, AWB.5095.0281 at 0282. iTi Ex 57, AWB.5095.0281 at 0282; the market brief is Ex 995, AWB.0420.0154JR-0159JR. Mr Borlase had forwarded a copy of the market brief to Mr Jones on 10 July 2000 (Ex 379, AWB.5033.0333). 172 Ex 995, AWB.0420.0154JR at 0158JR.
Report of the Oil-for-Food Inquiry 2 8 3
173 Ex 995, AWB.0420.0154_R at 0158_R. 174 Ex 995, AWB.0420.0154_R at 0159_R. 175 Ex 995, AWB.0420.0154_R at 0159_R. 176 T 2936.4-18. 177 T 2993.5-9. ns Ï 2989.46-T 2990.2. 179 T 2990.4-10. iso j 2990.39-46. 181 The negotiation of contracts with that clause. Mr Borlase's involvement in those negotiations and the conclusion of those contracts is set out in more detail in Chapter 14. 182 T 3007.29. Although Mr Borlase in his evidence admitted that he had this knowledge in late 1999, he must be mistaken as to the date, as AWB did not conclude its agreement with Ronly and start to use Ronly (or its nominee Tse Yu Hong Metal Limited) in this way until March 2000. This is discussed in more detail in Chapter 18. Nevertheless, Mr Borlase's evidence was consistent with him having knowledge of the use of Ronly from an early time. 183 T 3007.42-T 3008.5 184 T 1213.34-T 1219.13. 185 T 1215.36-40. 186 T 1218.33-37. 187 T 1330.5 188 Ex 214, AWB.5073.0125_R at 0128_R. is» x 1330.5, and not a paym ent to a Jordanian trucking company for services that it was to provide. 190 Ex 564, DFT.0017.0080. 191 Ex 389, AWB.5117.0080_R.
192 Ex 567, DFT.0013.0128_R. 193 Ex 1376, AWB.0088.0042 at 0043_R. 194 Ex 675, AWB.5040.0247. 198 Ex 675, AWB.5040.0247. 198 Ex 675, AWB.5040.0247. 197 Ex 675, AWB.5040.0247. 198 Ex 675, AWB.5040.0247 at 0248. 199 Ex 675, AWB.5040.0247 at 0248. 200 Ex 675, AWB.5040.0247 at 0249. 201 Ï 7044.10.
202 T 7044.io -36. 203 Ex 675, AWB.5040.0247 at 0249. 204 x 7044.38-45. According to Mr Hogan, that was reported later, during his October trip. 205 Ex 542, DFT.0003.0127. 206 Ex 542, DFT.0003.0127. 207 Ex 542, DFT.0003.0122; Ex 1376, AWB.0050.0167_R. 208 Ex 542, DFT.0003.0122. 209 Ex 542, DFT.0003.0126. 240 Ex 542, DFT.0003.0123. 214 Ex 1376, AWB.0050.0161_R. 242 Ex 1376, DFT.0012.0308. 243 Ex 1453, AWB.0050.0173_R. 244 Ex 1376, HDD.0014.1624_R. 245 Ex 1376, AWB.5053.0268_R. 246 Ex 1376, AWB.0050.0166_R. 247 Ex 183, AWB.0141.0420. 218 Ex 20, WST.0002.0044 at 0045. 249 Ex 20, WST.0002.0044 at 0045. 220 Ex 20, WST.0002.0044 at 0046. 221 Ex 20, WST.0002.0044 at 0051.
2 8 4 Report of the Oil-for-Food Inquiry
222 The restructure of the International Sales and Marketing Division is examined in more detail in Chapter 18. 222 Ex 147, AWB.0141.0540. 224 Ex 149, AWB.0106.0092-0093.
225 Ex 149, AWB.0106.0092. 226 Ex 147, AWB.0141.0540. 222 Ex 149, AWB.0106.0092. 228 Ex 149, AWB.0106.0092 at 0093. 229 T 7068.16-19. 230 T 7068.19-21. 231 Ex 588, DFT.0013.0140_R at paras 3-4. 232 Ex 1510, AWB.5053.0262_R. 233 Ex 152, AWB.0106.0099. 234 Ex 152, AWB.0106.0099. 235 Ex 152, AWB.0106.0099. 238 Ex 152, AWB.0106.0099. 237 Ex 152, AWB.0106.0099. 238 Ex 152, AWB.0106.0100-0103. 239 Ex 152, AWB.0106.0100. 240 Ex 152, AWB.0106.0100 at 0101. 241 Ex 152, AWB.0106.0100 at 0102. 242 Ex 152, AWB.0106.0100 at 0103. 243 Ex 152, AWB.0106.0099. 244 T 2034.6-T 2036.9. 243 T 4758.41-47; T 4762.11-17. 246 Ex 566, DFT.0013.0076 at 0084, para. 19. 247 Ex 154, AWB.0069.0062. 248 X 7019.24; Ï 7042.32
249 T 7043.20; T 7046.41. 250 h ttp :// w w w .un.org/D epts/oip/background/phases.htm l: Office of the Iraq Programme. 234 Ex 1460, AWB.0137.0452_R at 0453_R. 232 Although the wheat tender for phase VII had also specified a cost of US$14 per tonne, the cost that was in fact imposed and paid by AWB was US$15 per tonne. There is no explanation before this Inquiry as to the reason for this slight increase (see Chapter 15). 233 The significant difference between the three contracts were the quantity of w heat sold (one contract was for a lower tonnage than the other two) and period of shipment. They were each for the same quality of grain. 234 Ex 1459, AWB.0061.0554_R; Ex 1460, AWB.0061.0553_R; Ex 1461, AWB.0061.0552_R. 253 See Chapter 15. 238 Ex 1459, AWB.0061,0554_R; Ex 1460, AWB.0061.0553_R; Ex 1461, AWB.0061.0552_R. 257 Compare the short-form contracts for contracts A4653, A4654, A4655 and A4822, which are consistent with the final short-form contracts for contracts A4970, A4971 and A4972 dated 20 January 2000. 238 Ex 1459, AWB.0061.0530_R-0534_R; Ex 1460, AWB.0061.0535_R-0539_R; Ex 1461, AWB.0061.0540_R- 0544_R. 239 Ex 729 at AWB.0110.0330 and AWB.0110.0356 280 Ex 1211, UNO.1212.0349; Ex 1211, UNO.1212.0345-0348. 261 Ex 729, AWB.0061.0464, AWB.0061.0484 and AWB.0061.0475. 282 Ex 729, AWB.0061.0465. 283 Ex 729, AWB.0061.0465 at 0466.
Report of the Oil-for-Food Inquiry 2 8 5
18 April to July 2000: changes w ithin In te rn a tio n a l Sales and M arketing
April 2 000: th e r e s tr u c tu r e of I n te rn a tio n a l S ales and M arketing u n d e r Mr Lindberg
The a p p o in tm e n t of Mr L indberg
18.1 In April 2000, Mr Lindberg was appointed Chief Executive Officer of AWB, following the retirement of Mr Rogers.1 Upon joining AWB, it became apparent to Mr Lindberg:
that the extended transition period d u rin g w hich the restructuring arrangem ents for the privatisation w ere form ulated by G overnm ent, in d u stry and the W heat Board h a d the effect of im p ed in g the developm ent of the organisation in m any respects.2
Mr Lindberg set out to remedy this. Amongst the tasks that Mr Lindberg perceived he had when he arrived at AWB were to develop a strategic, commercial and diversified growth agenda for the company and to list it on the Australian Stock Exchange, to build the capability (systems, processes, people and controls) that would support this growth agenda and to deal with a number of high level policy issues.3
18.2 Mr Lindberg decided to implement a number of changes within AWB, including to senior personnel within the management team, in order to achieve these tasks. For the purpose of determining what changes were necessary, Mr Lindberg interviewed the top 50 to 60 managers within AWB. He also spoke with the Chairman and a significant number of stakeholders.4
Mr L in d b e rg 's k n o w le d g e o f AWB's s a l e s to I r a q
18.3 Mr Officer's evidence was that during his interview with Mr Lindberg, he informed Mr Lindberg of various matters including matters relating to AWB's business with Iraq:
Report of the Oil-for-Food Inquiry 2 8 7
I told him [Mr Lindberg] about m y role and those in m y [Global Sales &
M arketing] G roup. I explained the state of our G roup perform ance and the fact th at w e w ere well ahead of targets for th at year. I gave him a sum m ary of the
im portant issues affecting the G ro u p an d how the G roup w as travelling w ith its im p o rtan t custom ers. This w ould hav e included Iraq as one of AW B's im portant custom ers. I believe I told him ab o u t the general operation of the Oil-for-Food Program and how that w as being operated. I also believe that I explained to him the im p o rtan t changes that had occurred w ith AWB's stan d ard contracts in Iraq.5
18.4 Mr Enrons' evidence was:
W hen M r L indberg took over at the AWB, he interview ed the m ajority of the m iddle m anagem ent of the organisation —broad-ranging chat lasting perhaps an h o u r or so. H e w as seeking opinion about the organisation, personnel, resources, and, in m y case, issues w ith in the m arket place, opportunities, et cetera —very b ro ad range. I brought u p the issue there, the discussion ab o u t the m ethodology of som e of o u r trades, highlighting Iraq as particularly one of them , an d w hat w e w ere doing in th at m arket an d the problem s that w e w ere h aving at that time, w hich w as the considerable d em u rrag e.6
18.5 Mr Emons said that during his discussion with Mr Lindberg he referred to the payment of trucking fees7, that AWB had been instructed by IGB to pay these fees8 and that the inland transportation fee was set by the Iraqis.9 He could not recall explaining to Mr Lindberg 'the methodology in terms of Alia paying Iraq'.10
18.6 MrLindberg's evidence was that he became aware of the Oil-for-Food Programme at meetings of the Corporate Risk Committee in 2000.11 He was told at these meetings that a trucking cost was incorporated into AWB's contracts with Iraq and that all contracts were approved by the United Nations.12 At this time, he did not know of the mechanism by which AWB ensured that delivery occurred13 or who was paying for it.14 He was unaware of the details of the tenders and the contracts.15
T h e c h a n g e s in tr o d u c e d by Mr L in d b erg
18.7 On 5 June 2000, Mr Lindberg announced a restructure of the AWB's executive team. Mr Lindberg decided to make these changes, having formed the belief that:
the incum bent m anagem ent team could not effectively lead the transform ation [of AWB] req u ired .16
The details of Mr Lindberg's restructure were set out in his note entitled 'AWB Limited Organisation Restructure'.17 Regarding the International Sales and Marketing Division, Mr Lindberg wrote in his note:
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Equally I am concerned to ensure th at our core business activities of international grain m arketing and trad in g have the necessary sharp professional and
com m ercial edge to provide the highest retu rn s to our grow ers th ro u g h the
operation of the 'single desk'. O u r grow er services activities need to be better linked into our grow ers' needs an d also w hat is h ap p en in g in the m arketplace. This w ill ensure that w e have the rig h t mix of grow er and m arket driven products and services. I have created the n ew role of G roup G eneral M anager Trading, w ith overall responsibility for both o u r grow er an d custom er trading interface to bring this about.
As a resu lt of these m ajor changes an d others rep resen ted in the O rganisation C hart in the A ttachm ent, a n u m b er of new positions are created, a n u m b er of cu rren t positions becom e re d u n d a n t an d ro les/resp o n sib ilities and reporting relationships alter.
Staff in re d u n d a n t roles have been advised and w ill be leaving the organisation accordingly. Those people are M ichael Tighe, N ick D im opoulos, Ron Storey, Ted Laskie, Joanne M artin, N igel Officer and Peter M cK eow n.18
Mr Goodacre and Mr Ingleby were the only two members of the then existing executive team to be retained.19 Mr Goodacre was appointed by Mr Lindberg to this newly created position of Group General Manager Trading. Mr Ingleby remained as Chief Financial Officer.
18.8 The organisational structure of AWB as at June 2000, following Mr Lindberg's changes, is reproduced as Figure 11.4 in Appendix 11.
Mr O fficer's d e p a r t u r e
18.9 On 5 June 2000, Mr Nigel Officer met with Mr Lindberg and was presented with a letter advising that, as a result of the decision to restructure AWB, his position had been made redundant, effective from the close of business that day. The letter also indicated that Mr Officer's organisational responsibilities were to cease on that date, with his employment with AWB to cease on 9 June
2000.2o
18.10 On 30 June 2000, Mr Officer entered into a Deed of Release with AWB in relation to the termination of his employment.21 Clause 8 of that Deed provided:
8. AWB acknow ledges th at it (by its B oard a n d Chief Executive Officer)
authorised agency paym ents d u rin g the period 15 D ecem ber 1999 to
9 June 2000 to overseas agents for sales.22
Clause 8 was included in the Deed at Mr Officer's insistence. His evidence was that his concern was focused primarily on the legality of the payment of agency fees in Pakistan (notwithstanding the review that had been earlier undertaken of AWB's arrangements in that market), but also on how the
Report of the Oil-for-Food Inquiry 2 8 9
payment of the Iraq transport costs might be characterised.23 Mr Officer said that although initially he did not think of the payment of the inland transportation fees as 'facilitation payments', by June 2000:
I began to realise that the paym ents m ay be questionable as a m atter of law .24
Mr Lindberg approved the Deed of Release based upon advice that he had received from legal and human resources.25
Notwithstanding the terms of clause 8, the AWB Board was not informed of its inclusion in the Deed. Nor was the Board's approval of the Deed sought.26
18.11 Mr Lindberg's evidence was that whilst he did not inform the Board of the release, he did discuss it with the Chairman, Mr Flugge, and with Mr Goodacre.27 When asked what aspect of the release he discussed with Mr Flugge, Mr Lindberg said:
Well, I discussed w hy M r Officer w as seeking the release and I raised the m atter of agency arrangem ents. He said th at h e believed that w as a m atter for m anagem ent, but, as I described it to him , d id n 't see there w as any difficulty.28
18.12 Mr Flugge disputed Mr Lindberg's evidence. He said that he never saw the Deed of Release. He did not believe that he gave any authorisation for the clause regarding authorised agency payments to be inserted.29
18.13 Mr Goodacre's evidence was that he was not aware that Mr Officer had signed a Deed of Release with AWB at the time.30 He said that he did not see the Deed31; nor was he aware that there were negotiations going on between Mr Officer and AWB to have the clause included in the Deed.32
18.14 Mr Lindberg's understanding of the clause was:
th at there w ere agency paym ents au thorised by the b o ard an d chief executive. There m ay have been other agency paym ents that w eren 't, b u t this covered the ones th at w ere.33
Mr Lindberg could not explain why acknowledgement was required for payments that had been authorised by the Board and the Chief Executive.34 Nor could Mr Lindberg confirm whether there were other agency payments that had not been authorised by the Board.35
18.15 In his new role as Group General Manager of Trading, Mr Goodacre was the person to whom the General Manager of International Sales and Marketing, the General Manager of AWBA (Domestic Trading) and General Manager of Grower Services were to report.36 At the time of Mr Goodacre's appointment, each of these positions was vacant.
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18.16 Following Mr Officer's departure, Mr Goodacre took over responsibility for the International Sales and Marketing Division until he found a replacement to head that Division.37 In June 2000, Mr Goodacre recruited Mr Stott to that position.38 Mr Stott, who was with BHP Petroleum Limited at that time, had previously been employed with the Australian Wheat Board, including in the
sales and marketing division during the 1990s. Mr Stott had considerable experience as a manager in the Middle East markets.
Mr E m o n s ' d e p a r t u r e
18.17 In June 2000, Mr Emons had a conversation with Mr Lindberg in which Mr Lindberg advised Mr Emons of the imminent termination of the employment of a number of executives and that he would be manager of International Sales.39 Following the departure of Mr Officer from AWB, Mr Emons held the title of Acting General Manager of the International Sales and Marketing Division for a few weeks. During that time, Mr Emons reported to Mr Goodacre.40
18.18 Shortly after Mr Goodacre's appointment, Mr Emons had a conversation with him in which Mr Emons briefed Mr Goodacre on his areas of responsibility and provided him with an overview of each of the markets in which AWB was involved. He also raised with Mr Goodacre his expectation that he would be appointed to the position of General Manager of International Sales.41
18.19 Within two weeks of that discussion, Mr Emons had a further conversation with Mr Goodacre on 19 June 2000 in which he challenged Mr Goodacre with the fact that Mr Stott had been appointed to the position of General Manager of International Sales and Marketing. When Mr Goodacre confirmed Mr Stott's appointment, Mr Emons informed Mr Goodacre that he was going on
leave immediately.42 He subsequently resigned on 28 June 2000, effective immediately.43 The reason for Mr Emons' resignation was because he had taken over Mr Stott's position after Mr Stott had left the Australian Wheat Board in 1996 and did not feel 'as though it would be tenable' to work under Mr Stott.44
18.20 On 3 July 2000, Mr Goodacre sent an email to AWB employees advising that Mr Emons had resigned as Manager, Middle East/ Africa in the International Sales division.45
That day, Mr Emons entered into a Deed of Release with AWB.46 Clause 7 of that Deed was in substantially the same terms as clause 8 of Mr Officer's Deed of Release. It provided:
Report of the Oil-for-Food Inquiry 2 9 1
AWB acknow ledges that it (by its B oard an d Chief Executive Officer) authorised agency paym ents d u ring the period 15 D ecem ber 1999 to 3 July 2000 to overseas agents for sales.47
On his last day at AWB, Mr Emons met with Mr Lindberg who executed the Deed of Release in Mr Emons' presence. Mr Emons signed the Deed at the same time. Mr Lindberg said to Mr Emons at that time:
'AW B is com fortable about signing this docum ent as it has a sim ilar one w ith N ig el'.48
Mr Emons did not have any discussion with Mr Lindberg about the detail of the agency payments that were referred to in clause 7 of the Deed.49
18.21 Mr Emons gave evidence that he told Mr Goodacre of the 'true nature of the payments that were being made as trucking payments', 'the methods by which payments were being made' but did not tell him that Alia did not do any trucking. He said he told Mr Goodacre that 'a fee was charged by the IGB to ensure our vessels were discharged'.50 However he later said that his conversation was 'in the briefest terms' and that the 'only issue that was occupying Mr Goodacre's attention at the time in international marketing was the fact that we had an enormous demurrage bill in Iraq and how we were gong to fix it'.51
Mr Goodacre denied being told by Mr Emons of the 'true nature of the trucking fees, or their link with IGB'.52 He acknowledged that Mr Emons may have referred to arrangements regarding trucking but not in any context of there being concerns or problems in relation to such fees.
Whatever was said in the brief conversation between Mr Emons and Mr Goodacre, I am satisfied nothing was said of sufficient detail to attach to Mr Goodacre's knowledge of the true arrangements made between AWB and IGB by Mr Emons the previous year. Nothing was said to or understood by Mr Goodacre to raise concerns of impropriety or illegality of such trucking payments.
Mr S t o t t 's r e tu r n
18.22 Mr Stott's appointment as General Manager, International Marketing was announced by Mr Lindberg on 22 June 2000.53 Although Mr Stott's appointment did not officially commence until 10 July 2000, he spent some time in the offices of AWB prior to taking up his appointment, observing and investigating the Division.54 Following his appointment, Mr Stott proposed some changes to the International Sales and Marketing Division. His
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proposed restructure was approved at an Executive Management Group Meeting on 18 July 2000.55
18.23 On 27 July 2000, Mr Stott sent a memorandum to the International Marketing
team, the Executive of AWB and AWBI on the subject of 'Restructure of International Marketing'. In that memorandum, he wrote:
T oday I am announcing a n u m b er of structural changes to AWB L im ited's
International M arketing team to ensure our division is strongly positioned to m eet the challenges of the fu tu re in a com petitive international business environm ent.
These internal changes w ill assist us in delivering significant im provem ents in pro d u ct an d service delivery, w hich w ill lead to benefits for o u r custom ers and w ill enable AWB to capture superior returns for grow ers.
The Chief Executive and Executive C om m ittee fully su p p o rt these changes.
Those staff w hose positions have been m ade re d u n d a n t th ro u g h the process of this restructure have been advised. I w ould like to recognise and thank them for their contribution to AWB, in m ost cases over a n extended period, and w ish them w ell in their next role.
The new leaner structure w ill give the International M arketing gro u p a m ore robust an d com m ercially oriented structure. The structure w ill reposition us for a bright future based on a culture of accountability, com m erciality and team w ork, com m itted to unrelenting perform ance im provem ent.
Stream lining the structure w ill enable us to b etter identify an d deal w ith our core business, m ake us stronger in a range of com petitive m arket places and develop m utually profitable relationships w ith our custom ers.56
18.24 Attached to this memorandum was a copy of the new organisation chart for
International Marketing.57 A copy of this chart is reproduced as Figure 11.6 in Appendix 11. The key changes introduced were:
⢠the creation of a separate division for the Africa/ AIDAB/ Europe market. Mr Simon Burgess was Regional Manager, with Mr Borlase (account manager) and Mr John Bunn making up the remainder of the division; and
⢠the promotion of Mr Hogan to acting Regional Manager, Middle East, following the resignation of Mr Emons. The Middle East division was now a separate division in itself; it was no longer in the same division as Africa/ AIDAB /Europe.
⢠Following the restructure, the remaining staff in the Middle East division were Mr Phillip Hughes (account manager) and Mr Peter Hart. Mr Borlase, who had previously occupied the role of marketing executive
Report o f the Oil-for-Food Inquiry 2 9 3
in the former Middle East/Africa/Europe division, was transferred to the new Africa/ AIDAB/ Europe division.
18.25 One of the first steps taken by Mr Stott in July 2000, was to change the method by which inland transportation fees were being paid by AWB at that time. With effect from early August 2000, Mr Stott put an end to AWB's use of Ronly Holdings Limited (Ronly) and its Liechtenstein nominee, Tse Yu Hong Metal Limited, as well as other shipowners, as a conduit for the payment of these fees to Alia.
Before considering the circumstances in which Mr Stott's decision was made and the implementation of that decision, it is convenient first to identify the methods by which inland transportation fees had been paid by AWB up until that time and to examine in particular AWB's use of shipowners as a conduit for the payment of those fees to Alia.
The m a n n e r of p a y m e n t of inland t r a n s p o r t a t i o n f e e s prio r to
A u g u s t 2 0 0 0
18.26 Inland transportation fees were first paid by AWB in November 1999. This was in respect of the first shipments under contract A4653. AWB thereafter paid inland transportation fees in respect of both:
⢠wheat shipped to Iraq under contracts that AWB had entered into with IGB directly under phases VI and following of the Oil-for-Food Programme
⢠wheat shipped to Iraq in fulfilment of the contracts that AWB had concluded with the grain traders, Savas Grain & Commodities Limited (Savas Grain) and Commodity Specialists Company (CSC). These fees were paid by AWB pursuant to clause 6 of those contracts.58
The method of payment of the inland transportation fees did not differ as between these two categories of contracts.
T h e d if f e r e n t m e t h o d s u s e d by AWB C h a rte r in g
18.27 Between November 1999 and August 2000, all of the inland transportation fees paid by AWB were paid:
⢠in the first instance, by AWB Chartering
⢠in US dollars, drawn upon one of two US dollar bank accounts held by AWB in New York.
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These accounts were maintained in the name of AWB (Australia) Limited and AWB Limited respectively. Most inland transportation fees paid by AWB Chartering during this period were paid from the first of these two accounts.59
18.28 All of the inland transportation fees paid between November 1999 and August 2000 were paid by AWB Chartering either:
⢠directly to Alia's bank account
or
⢠indirectly to Alia, via the owners60 or operators of the vessels chartered by AWB to carry the wheat to Iraq. This included those payments made via Tse Yu Hong Metal Limited under the arrangements AWB concluded with Ronly in March 2000.61
Mr Stott put an end to the latter method in August 2000.62
18.29 Under this second method, the inland transportation fees were paid by AWB Chartering to the owner of the vessel chartered to carry that shipment to Iraq. These fees were paid either along with the ocean freight payable to the owner or as a component of that ocean freight. The payments would usually be made by AWB Chartering shortly after completion of the loading of the vessel and her departure from Australia.
Following its receipt of these monies from AWB Chartering, the shipowner would:
⢠retain that portion of the amount paid referable to the ocean freight
and
⢠remit the amount of the inland transportation fees payable in respect of that shipment to Alia prior to the vessel's arrival at Umm Qasr.
Where inland transportation fees were paid under this second method, AWB Chartering sometimes paid the ship owner a small administration fee in return for its assistance.63 These fees were ultimately borne by the AWB Pool.64
18.30 Table 17.1 in Appendix 17 lists AWB's shipments of wheat to Iraq between November 1999 and August 2000, indicating those shipments where the inland transportation fees were paid to Alia directly and indirectly via shipowners. In all but one instance65 where inland transportation fees were paid by AWB Chartering to Alia directly the payment was made in two instalments. The first instalment was for 90 per cent of the fees due for the
Report o f the Oil-for-Food Inquiry 2 9 5
shipment and paid prior to the vessel's arrival at Umm Qasr. The second instalment was for the 10 per cent balance paid following the completion of discharge.
From August 2000, all inland transportation fees paid by AWB Chartering were paid 100 per cent in full to Alia prior to the arrival of the vessel at Umm Qasr, with the exception of the fees for one shipment.66
18.31 Where inland transportation fees were paid indirectly via ship owners, AWB Chartering paid to the ship owner 100 per cent of the fee payable for that shipment. This was paid some time after completion of loading in Australia. In many instances, the ship owner would pay the inland transportation fee to Alia in two instalments. In those circumstances, the ship owner obtained the benefit of the second instalment of 10 per cent until such time as that second instalment was paid. This benefit was in addition to any administration fee that may have been paid.
18.32 Appendix 17 contains a number of diagrams depicting the different methods by which inland transportation fees were paid by AWB prior to early September 2000. Within that appendix, Figures 17.1 and 17.2 in Appendix 17 depict the two ways in which inland transportation fees were paid by AWB Chartering to Alia directly. Figures 17.3 and 17.4 in Appendix 17 depict the two ways in which inland transportation fees were paid indirectly by AWB Chartering, through shipowners other than Ronly and its nominee, Tse Yu Hong Metal Limited. Figures 17.5 to 17.7 in Appendix 17 depict the different ways in which Ronly and Tse Yu Hong Metal Limited were used by AWB to pay inland transportation fees to Alia. Figure 17.8 in Appendix 17 depicts a fourth way in which AWB had proposed to use Tse Yu Hong Metal Limited
as a conduit for payment of inland transportation fees shortly before Mr Stott's decision in July 2000 to put an end to the payment of those fees via Ronly (and the other shipowners). As a result of that decision, this fourth method was not implemented.
AWB C h a r te r in g r e im b u r s e d by t h e AWB Pool
18.33 AWB Chartering obtained reimbursement from the AWB Pool of the inland transportation fees that it paid. It did so in two ways.
18.34 The first was by invoicing the AWB Pool directly for the amount of the fees payable.67 This was in addition to, but invoiced separately from, the 'freight' that the AWB Pool was also liable to pay to AWB Chartering. This method was employed in respect of four shipments to Iraq made in late 1999.
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18.35 The second method was by including the amount of the fees payable in respect of the shipment as a component of the 'freight' that the Pool was liable to pay to AWB Chartering. In this way, the 'freight' covered both the 'ocean freight' and the inland transportation fees payable. This was the method used by AWB Chartering for the recovery from the Pool of most of the inland transportation fees paid by it.
Figure 17.9 in Appendix 17 depicts these two methods by which the AWB Pool reimbursed AWB Chartering for the inland transportation fees paid by it.
The u s e of s h i p o w n e r s a s a c o n d u it fo r p a y m e n t
18.36 It was decided within the International Sales and Marketing and Chartering Divisions of AWB in October 1999 that the inland transportation fees payable would be paid to Alia via the shipping companies used to carry the wheat from Australia to Iraq. Consequent upon that decision, on 22 October 1999, Mr Emons sent a facsimile to Mr Daoud at IGB stating:
We have instructed the shipping com panies concerned to m ake paym ent as directed for the trucking fee.
As discussed w e believe th at p aym ent should be carried o u t by a third party to rem ove any com plications. I w ill discuss w ith you next w eek w hen I am in
L ondon.68
18.37 However AWB's first two payments of inland transportation fees were paid by AWB Chartering to Alia directly.69 These were the inland transportation fees for the first two shipments under contract A4653. At the time the first of these payments was made, it was described by Mr Emons as a 'one off'.70
D e c e m b e r 1 9 9 9 : t h e first p a y m e n t s m a d e via s h i p o w n e r s
18.38 The first payments via shipowners were made in December 1999. These were in respect of five shipments under contracts A4653 and A4654 and were paid through two shipping companies with whom AWB had contracts of affreightment (COAs), namely Hyundai Merchant Marine Co. Limited71 and Atlantic and Orient Shipping Company.72
P a y m e n t s initially m a d e via H y undai M e r c h a n t M arine
18.39 Hyundai Merchant Marine Co. Limited (Hyundai) was used by AWB Chartering for the payment of inland transportation fees for two shipments in December 1999. Both shipments were under contract A4653 and were shipped
Report of the Oil-for-Food Inquiry 2 9 7
to Iraq under a contract of affreightment between AWB (as charterer) and Hyundai (as disponent owner) dated 23 July 1999.73
18.40 For each shipment, Hyundai's invoice included the total amount of the inland
transportation fee payable in respect of that shipment. This was described as a 'Trucking Charge'74 and was separate from the ocean freight payable for that voyage. AWB Chartering paid to Hyundai the amounts invoiced on 9 December 1999 and 15 December 1999. There was included in each invoice a fee for arranging for the payment. This fee was described as an Overhead for Trucking Charge' and was calculated at one half of one per cent (0.5 per cent) of the amount of the Trucking Charge payable.
The arrangements for the payment by Hyundai of these fees on AWB's behalf were not stated within its contract of affreightment of 23 July 1999 or any addendum or amendment to that contract produced to the Inquiry.
18.41 After the completion of loading, AWB Chartering invoiced the AWB Pool for
the 'freight' payable for each shipment. The amount invoiced was a composite amount covering both the ocean freight and inland transportation fee. The Pool was subsequently reimbursed the costs of the inland transportation fees from the United Nations escrow account by exclusion of the fees in the wheat price.
18.42 The inland transportation fees paid to Hyundai in respect of these two
shipments were paid by Hyundai to Alia in two instalments. On 16 January 2000, Alia sent a facsimile to Mr Emons dated 15 January 2000 setting out the inland transportation fees that it had received for AWB's shipments up until that date.75 That facsimile recorded that Alia had received the first instalment of 90 per cent of the inland transportation fees payable in respect of the two Hyundai shipments from December 1999 on 3 January and 16 January 2000. On 30 April 2000, AWB received a telex from IGB requesting payment of the remaining 10 per cent for a number of shipments, including the two Hyundai
shipments.76 Although there is no direct evidence of the payment of the second instalments for each of these shipments, it can be assumed that the payment was made.
P a y m e n t s m a d e via A tlan tic a n d O rie n t S h ip p in g C o m p a n y
18.43 AWB Chartering paid inland transportation fees to Alia through Atlantic and Orient Shipping Company (Atlantic and Orient Shipping) in respect of three shipments made in November and December 1999. The first two shipments, on 18 November and 3 December 1999, were both shipments under contract A4653. The third, on 18 December 1999, was a shipment under contract A4654.
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18.44 All three shipments were shipped under a contract of affreightment between AWB (as charterers) and Atlantic and Orient Shipping (as disponent owners) for the carriage of approximately 500,000 tonnes of wheat.77 This contract was concluded on 25 October 199978, just three days after Mr Emons' facsimile of 22 October 1999 to Mr Daoud, in which he advised that AWB had:
instructed the shipping com panies concerned to m ake p aym ent as directed for the trucking fee.
and that AWB believed:
p aym ent should be carried out by a th ird party to rem ove any com plications.79
The terms of the contract of affreightment dated 25 October 1999 18.45 The terms of this contract of affreightment were initially set out in a 'recap' telex from Pacific Rim Shipping Pty Limited — acting as agents for Atlantic and Orient Shipping —to AWB dated 25 October 1999.80 Relevantly, that telex
provided:
TRUCKING/DISBURSEMENTS WILL BE H AN DLED BY SEPARATE INVOICE»!
18.46 A formal contract of affreightment, on the Australian Wheat Charter 1990 form and dated 25 October 1999, was subsequently prepared and signed by Mr Watson on behalf of AWB and Mr Kudelka of Pacific Rim Shipping Pty Limited as agents for Atlantic and Orient Shipping.82
Three Addenda to this contract of affreightment were produced to the Inquiry.83 The first two were signed.84 Although the third was not, it does appear to have been given effect to.85 None of the Addenda were dated.86
There was no evidence before the Inquiry to indicate when or in what circumstances the first two Addenda were concluded. Nevertheless, having regard to their terms, both are relevant to the instruction to the shipping companies referred to in Mr Emons' facsimile of 22 October 1999 and the arrangement that AWB Chartering sought to put in place.87
18.47 Addendum No. 1 was in the following terms:
It is hereby m utually agreed that all agreed costs associated w ith trucking charges incurred on the above to be re-im bursed by C harterers and rem itted im m ediately by O w ners u p o n com pletion of lo ad in g to the follow ing nom inated account
C ornflow er H oldings Lim ited S tandard C hartered Bank
...................... H ong Kong
A ccount N o .......
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A / C N am e: C ornflow er H oldings Lim ited
All other term s, conditions and exception to rem ain.88
18.48 In this Addendum, 'Charterers' refers to AWB; 'Owners' to Atlantic & Orient Shipping; and 'trucking charges' to the inland transportation fee payable by AWB in respect of the wheat being shipped.
Addendum No. 2 provided:
It is hereby fu rth er agreed that any shortfall of trucking fees am o u n t to be p aid by O w ners from freight, b u t m axim um US$1.50 PMT gross from first 150,000/5% m ore or less O w ners option cargo only.
All other term s, conditions an d exception to rem ain.89
Addendum No. 3 provided for the shipment of an additional tonnage of wheat in the period between February and March 2000 as part of this contract of affreightment.90 This was pursuant to an agreement AWB concluded with Pacific Rim Shipping Pty Limited (on behalf of Atlantic and Orient Shipping) on 4 February 2000.91
The payment of the inland transportation fees 18.49 AWB Chartering made two payments of inland transportation fees via Atlantic and Orient Shipping. The first was on 9 December 1999 for two shipments under contract A4653. The second was on 20 December 1999 for the
shipment under contract A4654.
18.50 For each of these three shipments, Pacific Rim Shipping Pty Limited issued (as agent) two invoices to AWB Chartering. The first was for the ocean freight.92 The second invoice93 was for 100 per cent of the 'trucking fee' payable in respect of that shipment, calculated on the tonnage of the shipment (as loaded) at the rate of US$12 per tonne applicable to contracts A4653 and A4654.94 Both the ocean freight and trucking fees were to be paid by AWB Chartering to the nominated bank account of Euro-Asia Chartering Corporation in Singapore (Euro-Asia Chartering), as 'agents to disponent owners'.
18.51 After AWB Chartering had paid each of these invoices:
⢠instructions were given by Pacific Rim Shipping Pty Limited for payments of the 'trucking fees' for each shipment to be made on behalf of Atlantic and Orient Shipping to Cornflower Holdings Limited in accordance with Addendum No. 1 to the contract of affreightment95
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⢠the instructions were given by Pacific Rim Shipping Pty Limited to FSSL Singapore96
⢠Cornflower Holdings Limited received these payments97
⢠the payments made to Cornflower Holdings Limited were made from the monies that AWB Chartering had paid to Euro-Asia Chartering (as agents of Atlantic and Orient Shipping Company) in respect of AWB's three shipments under its contract of affreightment with Atlantic and Orient Shipping98
⢠those monies included the amounts that AWB Chartering had paid to Euro-Asia Chartering on account of the inland transportation fees payable in respect of the three shipments.
18.52 There was no evidence before the Inquiry identifying who nominated Cornflower Holdings Limited — a British Virgin Islands company99 —and the company referred to in Addendum No.l to the contract of affreightment — as the company to receive these payments. Nor is there any evidence indicating who it was that stood behind that company at that time.
Mr Watson was not able to recall who it was that nominated Cornflower Holdings Limited100 or the purpose for its use.101 Although he suggested that it would have been nominated by the shipowner102 or the Iraqis103 or Alia104, he could not say which; there were no documents produced supporting any of these possibilities.105 Mr Watson denied that he had nominated Cornflower Holdings Limited to be the recipient of these fees.106 He also denied that he had anything to do with that company. Whilst a file note that AWB's Corporate Counsel, Ms Peavey, prepared of a conference she had with Mr Jones (AWB Chartering) and Mr Quennell on 29 October 2003 contains an assertion that Cornflower Holdings Limited was a shelf company for Alia, there is no indication of the source of that assertion.
18.53 Despite Pacific Rim Shipping Pty Limited having described the amounts that were to be paid to Cornflower Holdings Limited as 'trucking fees' in its instructions to make those payments, the amount paid in respect of each of these three shipments was calculated at a rate of US$13.44 per tonne107 rather
than the US$12 per tonne payable under AWB's contract with IGB, and remitted by AWB Chartering. Accordingly, the amount paid to Cornflower Holdings Limited included an additional US$1.44 per tonne over and above the inland transportation fee.
This additional amount was paid from the ocean freight that Atlantic and Orient Shipping was entitled to under the contract of affreightment. It was apparently paid in purported compliance with Addendum No. 2 to the
Report o f the Oil-for-Food Inquiry 3 0 1
contract of affreightment, although there is no evidence of 'any shortfall of trucking fees amount' as contemplated by that document. Mr Watson was not able to recall or explain the reason for this additional payment.108 He was also unable to recall the reason for Addendum No. 2 in the first place or the need for AWB and Atlantic and Orient Shipping to address the possibility of any shortfall in the payment of the trucking fees. Nor was Mr Watson able to explain why the provisions of that Addendum applied only to a limited tonnage, which was less than the full amount to be shipped under that contract.109 He was also unable to say whether Addendum No. 2 and the additional payment it contemplated was related to the 'additional 1.50' referred to in Mr Emons' facsimile to Mr Daoud dated 8 November 1999.110 The evidence before this Inquiry does not reveal who ultimately obtained the benefit of these additional funds. Mr Watson denied having received the payment himself.111 But irrespective of who ultimately obtained the benefit of this additional amount, it was not a payment by AWB or from funds belonging to AWB.
18.54 The payments to Cornflower Holdings Limited in relation to these three shipments were subsequently the subject of an inquiry by the Singaporean monetary authorities in relation to the possibility of money laundering, and an audit inquiry by Pacific Rim Shipping Pty Limited to AWB dated 15 March 2000.112
The receipt of the inland transportation fees by Alia 18.55 The monies that AWB Chartering paid to Euro-Asia Chartering for the inland transportation fees for these three shipments were eventually paid to Alia.
18.56 In relation to the third shipment, that under contract A4654, Mr Watson sent an email to Mr Emons on 8 January 2000 in which he stated:
2) You saw m y m essage to G race — to contact y o u in m y absence. W aiting
confirm ation th at 650,000 recvd being du e o n [vessel nam e deleted] w hich needed to cover trucking [am ount deleted] m t w hich eta aro u n d 11/1 —
if this am o u n t received, then w ould ask th a t you instruct grace to rem it 521110 to Alia — ref [vessel nam e deleted] she has details for Alia therefore no need to repeat to h e r.113
Mr Watson's reference in this email to '650,000' is a reference to the payment that was to be made to Cornflower Holdings Limited in relation to the third shipment and which Pacific Rim Shipping Pty Limited had instructed be made the previous day.114 His reference to '521110' is a reference to US$521,110 —which was 90 per cent of the inland transportation fees payable in respect of that third shipment. This was the amount that (according to the email) 'Grace' was to remit to Alia. This is consistent with AWB's agreement
3 0 2 Report of the Oil-for-Food Inquiry
with IGB at that time for inland transportation fees to be paid in two instalments, the first instalment being 90 per cent of the amount due.
By way of this email, Mr Watson seems to be asking Mr Emons to instruct 'Grace' to remit to Alia the first instalment of the inland transportation fees payable in respect of this third shipment115, upon confirmation of the receipt by Cornflower Holdings Limited of the monies116 that it was to receive in respect of this shipment.117
18.57 Despite this email, on 18 January 2000 Alia sent a facsimile to AWB, to the attention of Mr Emons, advising that it had still not received the inland transportation fees for this third shipment and requesting that they be paid to avoid any delay to the vessel.118
18.58 On 22 January 2000, Alia sent a further facsimile to Mr Emons confirming receipt of US$578,976.92 on account of the inland transportation fees for this shipment.119 The amount received represented payment in full of the fees for that shipment.120 The payment was presumably made from the monies that AWB Chartering had earlier paid to Euro-Asia Chartering in respect of this shipment (and which Pacific Rim Shipping Pty Limited subsequently instructed FSSL Singapore to pay to Cornflower Holdings Limited as the 'trucking fees' for this shipment).
18.59 In the meantime, on 10 January 2000, Pacific Rim Shipping Pty Limited received a telex from ISCWT Basra requesting payment of the inland transportation fees for the second shipment made in December 1999:
Still n o t rcvd confirm ation from AWB of rem ittance funds being cost inland tran sp o rt w heat in b u lk USD (12 p er tone) pis laises w ith AWB and advise m ethod p aym ent order avoid unnecessarily delays of vsls sailing.121
Pacific Rim Shipping Pty Limited replied the following day in a telex to the State Enterprise for Water Transport (SEWT)122 Basra, to the attention of Mr Krikor:
T ru ck in g /tran sp o rtatio n fees w ere paid on 2 7 /1 2 /9 9 . Pis check an d ensure no delays to vessel's sailing please.123
18.60 On 16 January 2000, Mr Emons received a facsimile from Alia setting out the inland transportation fees that it had received to date.124 The facsimile, dated 15 January 2000 and said to have been sent further to 'a telephone call' earlier that day, recorded that the first instalment of 90 per cent of the inland transportation fees payable in respect of AWB's first two shipments had been received by Alia on 23 December 1999 and 3 January 2000 respectively.125
These payments had presumably been made from the monies that AWB Chartering had paid to Euro-Asia Chartering in respect of these two
Report o f the Oil-for-Food Inquiry 3 0 3
shipments and which had in turn been paid on to Cornflower Holdings Limited (upon the instructions of Pacific Rim Shipping Pty Limited and as contemplated by Addendum No. 1 to the contract of affreightment).
18.61 On 21 February 2000, Alia sent a facsimile to AWB, to the attention of Mr Emons, requesting payment of the 10 per cent balance of fees for a number of shipments including the three shipments under AWB's 25 October 1999 contract of affreightment.126
18.62 On 7 March 2000, AWB received a telex from IGB requesting details of the payment of the 10 per cent balance of the fees payable in respect of a number of shipments under contract A4653, including the two shipments shipped under AWB's 25 October 1999 contract of affreightment with Atlantic and Orient Shipping (as well as the two Hyundai shipments).127 On 8 March 2000, Mr Emons replied, advising that AWB had not received payments from the United Nations on the vessels listed in the IGB message.128 The clear inference from his response was that the second instalment was either not yet due or would not be paid until those funds were to hand. This was notwithstanding that AWB Chartering had already paid 100 per cent of the inland transportation fees payable in respect of two of these shipments to Atlantic and Orient Shipping (and to Hyundai in respect of two of the other shipments listed).
18.63 On 30 April 2000, Mr Watson received a telex from IGB headed 'Inland Transport Charges' and which read, 'Pis be advisd that full amount of following vessels were paied'.129 There followed a list of five vessels and a date of payment for each. The list included each of the three shipments shipped under AWB's contract of affreightment with Atlantic and Orient Shipping. The telex concluded, 'So you are kindly requested to transfer 10 ./.
[per cent] from amount of inland transport charges of a.m. [abovementioned] vessel's cargo'.130
This telex was confirming that payment in full had by then been made for each of the shipments listed and that, having regard to both the agreement between AWB and IGB for the payment of inland transportation fees by instalments and Mr Emons' facsimile of 8 March 2000, payment of the second instalment of 10 per cent should then be made. This request for payment was repeated by IGB on 25 May 2000.131
18.64 There is nothing in the material before the Inquiry to suggest that the final 10 per cent of the inland transportation fees for these shipments was not paid to Alia in due course. In October 2000, AWB investigated whether there were any payments of inland transportation fees still outstanding, following
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complaints by IGB that monies were still owing, and it was found that they all had been paid.132
F e b ru ary 2 0 0 0 : p a y m e n t s d ire c tly to Alia
The F e b r u a r y 2 0 0 0 s h i p m e n t s
18.65 AWB resumed its shipments to Iraq in February 2000 and between 11 February and 7 March 2000 exported eleven shipments under contracts A4654, A4655, A4906 and A4908.133
18.66 The first instalment of the inland transportation fees payable in respect of the first seven of these shipments was paid on 3 March 2000134; the first instalment of the next four shipments was paid on 10 March 2000.135 In both instances, the inland transportation fees were paid by AWB Chartering to Alia directly.
Nine136 of these first eleven shipments were shipped with Atlantic and Orient Shipping. Each of those nine shipments was shipped by AWB under its 25 October 1999 contract of affreightment with Atlantic and Orient Shipping (as extended by Addendum No. 3) which contemplated that inland
transportation fees payable in respect of shipments would be paid through Atlantic and Orient Shipping. Yet, none of the inland transportation fees payable in respect of any of those nine shipments was paid via that company. They were all paid to Alia directly.
AWB's f u r t h e r a g r e e m e n t s w ith A tla n tic a n d O r ie n t S h ip p in g
A further contract of affreightment 18.67 On 3 February 2000, AWB Chartering concluded a further contract of affreightment with Atlantic and Orient Shipping for the carriage of shipments of wheat to Iraq in the first half of 2000.137
It was into this agreement that Ronly and its Liechtenstein nominee, Tse Yu Hong Metal Limited, were subsequently interposed when the formal contracts of affreightment were prepared and signed in early April 2000.138
Mr Watson’s facsimile to Pacific Rim Shipping Pty Limited 18.68 On 3 February 2000, Mr Watson sent a facsimile to Pacific Rim Shipping Pty Limited in which he recorded an agreement for the payment of inland transportation fees to Alia via the principals of Pacific Rim Shipping Pty
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Limited, Atlantic and Orient Shipping. That facsimile was in the following terms:
Further to o u r conversation, I am w riting to confirm as follow s in respect of the contract of affreightm ent in place, betw een AWB an d yourself in respect of the Iraqi cargoes.
- AWB has sold w heat for delivery Iraq u n d er the U nited N ations, oil for food program
- The C ontracts betw een A W B /Iraq includes the requirem ent th at AWB arrange inland trucking of the w h eat w ithin Iraq. This contract has been ap p ro v ed by the U nited N ations.
- AWB has entered into an agreem ent w ith an established trucking com pany based in Jordan to m anage and arrange trucking.
- It is possible th at different trucking com panies w ill be u sed over the course of the contract(s) and I will inform you accordingly of an y change
- As agreed, under the term s of the contract of affreightm ent betw een our two companies, upon completion of loading AWB w ill rem it to you the agreed freight together w ith the agreed trucking fees and require that you imm ediately rem it the trucking fees to the trucking com pany's nom inated account as provided
- D ue to the need to ensure that trucks are available to m eet the vessel at
discharge port, the trucking com pany requires that funds be rem itted to them im m ediately u p o n receipt by you of the fu n d s from AWB.
I tru st that the above covers the points of our discussion, please advise if any further clarification required.
I w o u ld like to take this o pportunity to thank you for y o u r continued su p p o rt and professional service enabling us to carry out the Iraqi program successfully.139 [em phasis added]
18.69 The circumstances in which this facsimile was prepared and sent are unclear. Mr Watson was unable to give evidence of those circumstances. There is no evidence of the conversation referred to. The facsimile was described by Mr Watson during his examination as a zrecap' of the terms of an agreement that had been made.140 Although the facsimile referred to this agreement having been made in the context of and forming part of 'the contract of affreightment in place', it is not apparent which of AWB's contracts of affreightment with Atlantic and Orient Shipping was being referred to — namely AWB's contract of affreightment dated 25 October 1999, which was extended by an agreement concluded on 4 February 2000 to allow further shipments to be made in February and March 2000141 or the further contract of affreightment that AWB concluded with Atlantic and Orient Shipping on 3 February 2000, the same day as Mr Watson's facsimile.142
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Mr Watson also agreed during his examination that this facsimile was in the nature of a 'letter of comfort'143 and that Pacific Rim had wanted such a letter, although he did not state why. One possible reason was in response to a request that Mr Watson said he had received from Mr Kudelka, Managing Director of Pacific Rim, for written verification from AWB that the transportation fees included in the contracts of affreightment for payment to Alia were in order with the United Nations.144 According to Mr Watson, AWB responded to this request by its letter to Pacific Rim dated 16 March 2000. That letter and the letter from Mr Kudelka dated 15 March 2000 are discussed below. But if the words 'contract of affreightment in place' in the first paragraph of Mr Watson's facsimile of 3 February 2000 refers to AWB's contract of affreightment with Atlantic and Orient Shipping dated 25 October 1999, then this facsimile could be a response to Mr Kudelka's request. That is so having regard to the third paragraph which expressly stated that AWB's contracts with Iraq had been approved by the United Nations and thus addressed the subject matter of the request that, Mr Watson
says, was made by Mr Kudelka.
18.70 There are a number of observations that may be made about this facsimile.
First, the passage emphasised in the quote above records an agreement that the inland transportation fees145 payable by AWB for wheat shipped under 'the contract of affreightment in place'146 between AWB and Atlantic & Orient Shipping147 were to be paid to Alia's nominated account via Atlantic and Orient Shipping. Moreover, the facsimile confirms the existence of such an agreement at the date of the facsimile, namely 3 February 2000, which was shortly before the resumption of AWB's shipments to Iraq in 2000.
18.71 Second, this agreement was consistent with both the decision made within AWB in October 1999 to pay inland transportation fees via shipowners and AWB's earlier arrangement with Atlantic and Orient Shipping under which that company acted as a conduit for the payment to Alia of the inland
transportation fees payable in respect of the three shipments to Iraq in November and December 1999 under AWB's contract of affreightment dated 25 October 1999.
18.72 Third, whilst there may be some uncertainty as to whether the agreement recorded in the emphasised passage was intended to be part of AWB's contract of affreightment with Atlantic and Orient Shipping dated 25 October 1999 or its more recently concluded contract of 3 February 2000,
the agreement reflected a preparedness on the part Atlantic and Orient Shipping, shortly before AWB resumed its shipments of wheat to Iraq in 2000, to continue to assist AWB in the payment of inland transportation fees
indirectly to Alia as it had in December 1999.148
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Yet no further fees were paid through that company beyond the two payments made in December 1999.
18.73 Fourth, Mr Watson's facsimile of 3 February 2000 was false in two material respects.
Contrary to what was asserted in the third paragraph of that facsimile, the terms of the contracts that AWB had concluded with IGB by that time — including their the four contracts since July 1999 —did not include a 'requirement that AWB arrange inland trucking of wheat within Iraq'. AWB's only obligation under its contracts with IGB was to pay a fee, variously described as an inland transportation or trucking fee, in the amount stipulated by IGB and to the IGB advised recipient or account. Under the terms of the agreement that AWB reached with IGB, AWB was under no obligation to effect or arrange for the inland trucking of the wheat within Iraq.149 Mr Watson knew this.150 By February 2000, no one at AWB had taken any steps either to arrange for the inland transportation of the wheat within Iraq or to appoint a transport company for that purpose. Mr Watson had himself taken no such step or entered into any such contract with any transportation company, including Alia, notwithstanding that it was AWB Chartering —the Division which Mr Watson headed — that was paying the inland transportation fees. Although the terms used to describe the price at which the wheat was being sold in both AWB's short-form contracts and the IGB long- form contracts were consistent with AWB having an obligation to arrange for the inland transportation of the wheat within Iraq, the written form of contracts did not in fact reflect the true terms of AWB's agreement with IGB.
The same position applied in relation to the contracts AWB had concluded in late 1999 for the indirect supply of wheat to Iraq via the Russian trade151 where the true nature of AWB's obligation, being an obligation to pay the IGB stipulated fee, was expressed in clause 6 of those contracts.152
18.74 Further, contrary to what was said in the fourth paragraph of Mr Watson's facsimile, AWB had not 'entered into an agreement with an established trucking company based in Jordan to manage and arrange trucking'. As at 3 February 2000, AWB had not entered into any such agreement with Alia as Mr Watson knew.153 Mr Watson knew that AWB had no contractual relationship with Alia154 and that the inland transportation fees being paid to Alia were going to an Iraqi organisation.155 Even if Mr Watson believed that Alia had been appointed to arrange the inland transportation of the wheat within Iraq, he knew that AWB had not appointed Alia to do this and that it had been IGB that had made any arrangements with Alia.156 It was not until after the commencement of hostilities in March 2003, when AWB found itself obliged by the Office of the Iraq Programme and World Food Programme to
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arrange for the discharge and delivery of wheat within Iraq, that AWB first concluded a transportation agreement with Alia.157
An extension of the 25 October 1999 contract of affreightment 18.75 On 4 February 2000, Mr Watson received a 'recap' telex from Pacific Rim setting out an agreement to extend AWB's 25 October 1999 contract of affreightment with Atlantic and Orient Shipping, by way of a proposed
addendum to that contract.158 This agreement contemplated the carriage of a further significant amount of wheat from Australia ports to Umm Qasr in February and March 2000. This agreement subsequently became Addendum No. 3 to that contract of affreightment.159
The terms of the agreement in the 'recap' telex included the following:
- O w ise per usual CP, w ith am ended arbitration ap pointm ents clause including trucking fees/d isb u rsem en ts to be onpaid by O w ners from C harterers for
C harterers account p er a d d e n d u m .160
18.76 The agreement that was concluded on 4 February 2000 to extend the operation of AWB's 25 October 1999 contract of affreightment with Atlantic and Orient Shipping expressly provided for the payment of the inland transportation fees for shipments made under that contract to be paid to Alia, through Atlantic
and Orient Shipping (as Owners') in the same way as the two payments made in December 1999. Yet the payments were made directly by AWB to Alia.
The reason for this departure was because some time between 4 February 2000 and 3 March 2000 (when the inland transportation fees were first paid in 2000), Atlantic and Orient Shipping withdrew from its arrangement with AWB.
The Pacific Rim S h ip p in g P ty Lim ited a u d i t in q u iry
Background 18.77 In late 2000, the firm of accountants, Arthur Andersen, was retained by AWB to investigate international business transactions conducted by International Sales and Marketing.
18.78 In the course of their investigations Arthur Andersen spoke with Mr Watson in relation to the circumstances in which AWB came to enter into its arrangements with Ronly. Mr Watson informed them that, when consideration was first being given to the use of the shipping companies to pay the inland transportation fees on AWB's behalf, some of the shipping
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companies that he had approached had refused to make the payment.161 Mr Watson was reported as having said that he had:
approached another com pany w ho did m ake the paym ents. This com pany m ade tw o paym ents to the Jordanian trucking com pany. They w ithdrew from m aking any other paym ents to the trucking com pany after inquiries w ere m ade by the Singapore M onetary A uthority for suspicion of m oney laundering. AWB w ere
asked to su p p o rt the transactions w ith a letter.162
The 'company' Mr Watson was referring to was Atlantic and Orient Shipping. The reason it withdrew from its then existing agreements to assist AWB with the payment of inland transportation fees — most recently reaffirmed on 3 February and 4 February 2000 — was because of the inquiries made of it in Singapore by the monetary authorities.
The audit inquiry from Pacific Rim Shipping Pty Limited and AWB's response 18.79 On 15 March 2000, Mr Kudelka sent by facsimile a letter to AWB, advising of the audit inquiry that had been made of his principals (Atlantic and Orient Shipping) in relation to the inland transportation fees that had been paid in
December 1999. He requested confirmation from AWB that these payments had been sanctioned by the United Nations and Australian Government:
W e are agents for the O w ners of vessels u n d er A W B /A tlantic and O rient
S hipping A usw heat COA charterparty d ated 25th O ctober 1999, w h eat A ustralian to Iraq.
O ur principals have h ad an au d it enquiry regarding the p aym ent of 'trucking fees' for the aforem entioned contracts first 3 vessels, being ... [details deleted] ... all A ustralian w heat for Iraq in /a ro u n d D ecem ber 1999.
C an you please confirm by retu rn th an k y o u that the fees of US$13.50 pm t w ere required by contractual obligations to be rem itted to M essrs. C ornflow er H oldings Ltd, a British V irgin Island com pany at their bank account ... Such fees w ere
rem itted US$12.00 p m t from AWB via O w ners and the balance of US$1.50 pm t w as paid o u t by O w ners freight as per ad d en d u m no.2 of the aforem entioned C harterparty.
We w ould appreciate y o u r confirm ation of sam e as well as confirm ation that all such w h eat contracts and requirem ents thereto, including such fees are sanctioned by the U nited N ations and approved by A ustralian G overnm ent.
Y our p ro m p t attention an d reply w o u ld be appreciated.163
The audit inquiry that Mr Kudelka referred to was either the inquiry that had been made of Atlantic and Orient Shipping Company by the Singaporean monetary authorities or an audit inquiry prompted by their inquiry.164
18.80 Mr Kudelka's letter was addressed to Mr Ingleby. It was also seen by Mr Watson. He denied that he had asked or arranged for it to be sent by
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Mr Kudelka or for it to be sent to Mr Ingleby.165 He said that AWB's receipt of this letter had come out of the blue.166
AWB replied to Mr Kudelka's request by a facsimile sent the following day, over the hand of Mr Ingleby:
I refer to y o u r fax of the 15th M arch 2000 concerning shipm ents from A ustralia to Iraq covered u n d er a charter p arty d ated 25th O ctober 1999 and w ould confirm as follows:
1) All w h eat contracts betw een A ustralia an d Iraq are ap p ro v ed by the U nited N ations and the A ustralian G overnm ent.
2) The p ay m en t of trucking fees as rem itted via y o u r principals w as in accordance w ith AWB instructions an d form p a rt of the contractual obligations of AWB.
I tru st th a t the above satisfies y o u r a u d it en q u iry .167
18.81 Mr Ingleby did not recall receiving Mr Kudelka's letter, although presumed that he had.168 His evidence was that it would have been dealt with in accordance with his usual practice for dealing with audit inquiries, namely he would have given it to his personal assistant to identify the relevant person to prepare a response.169 That would not usually be some one in his department.170 Mr Ingleby did not recall who prepared the reply on this occasion. He believed he did not draft the response; it was most likely prepared by some one from the Chartering Division.171 If that were so, it is inconceivable that Mr Watson, as the head of that division and the person who up until that time had been corresponding with Pacific Rim Shipping Pty
Limited in relation to AWB's agreement with Atlantic and Orient Shipping Company would not have been involved in or at the very least known of the preparation of any draft response.
Mr Ingleby's evidence was that when he received the draft reply, he would have quickly read it to see that it made sense, assumed that the person who prepared it had done it correctly and if it had made sense, signed it and sent it out.172 He said that he would not have paid much attention to the detail.173 This was notwithstanding his concession that the subject matter of
Mr Kudelka's inquiry, namely a shipping company being used to pay trucking fees, was unusual.174
18.82 Mr Watson gave very different evidence of the circumstances in which Mr Kudelka's letter was considered and Mr Ingleby's reply came to be drafted. According to Mr Watson, following his receipt of Mr Kudelka's letter (most likely from some one in AWB), he met with Mr Officer and Mr Emons to discuss its contents. Mr Ingleby was also called into that meeting. According to Mr Watson, during that meeting they 'fully discussed all aspects
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of the letter and the response that would be given to Pac Rim'.175 This was because the letter 'went to the heart of what AWB was trying to avoid'176, namely discovery of the payment of the trucking fee that AWB was trying to disguise.177 According to Mr Watson, a reply was drafted at that meeting, which Mr Ingleby signed there. The letter was then sent to Pacific Rim Shipping Pty Limited.178
Mr Emons could not recall 'a specific meeting' which he attended and at which Mr Kudelka's letter was discussed.179 Mr Officer did not give any evidence about this letter or whether he had any meeting in relation to it.
18.83 Whoever drafted the letter in reply, it was cleverly crafted. It stated that all wheat contracts between Australia and Iraq were approved by the United Nations and the Australian government, and that the payment of trucking fees remitted through the shipowners was in accordance with AWB's instructions and in fulfilment of AWB's obligations. It did not address whether AWB had contractual obligations to pay 'trucking fees' to Cornflower Holdings or whether the payment of such trucking fees were sanctioned by the United Nations and approved by the Australian government, as the letter from PacRim had asked.
At the time AWB's reply of 16 March 2000 was sent, AWB was actively taking steps to conceal the fact it was paying inland transportation fees to Iraq. It did not want information regarding these fees to be known outside of AWB.180 It went to lengths to keep this information and information pertaining to these payments confidential.181
AWB's response of 16 March 2000 to Mr Kudelka's request of 15 March 2000 was deliberately crafted in the way that it was to appear to provide the assurances sought and to otherwise deflect the inquiry that had been made of AWB, without disclosing the true and full position.
Postscript to the audit inquiry 18.84 On 20 June 2003, the Managing Director of Atlantic and Orient Shipping Company sent an email to Mr Ingleby182, which was also copied to Mr Jones in AWB Chartering, seeking further information from AWB, supplementary
to Mr Ingleby's letter of 16 March 2000. In particular, the email sought:
to include specific inform ation and references in order to avoid further auditing for the p u rp o se of determ ining illegal banking activity.
As you are probably aw are new regulations to stem the flow of funds for illegal terrorist and d ru g activities have been adopted in m ost banking centers that pertain to all transactions w hether p a st/p re s e n t/fu tu re .
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The short list of requirem ents as specified below need only refer to the
aforem entioned letter an d again w e very m u ch regret any inconvenience this request m ay cause.183
Two of the questions that AWB was asked to answer were:
BB) th a t said funds transferred via A tlantic an d O rient S hipping w ere for law ful purposes
DD) th a t noth in g contained w ith in the transfers a n d /o r paym ents m ade betw een AWB an d A tlantic a n d O rient S hipping w o u ld in any w ay cause extraordinary legal liability to A tlantic and O rient Shipping.184
18.85 On 22 June 2003, Mr Ingleby forwarded a copy of this email to Mr Jones with the following request:
C an u fix this or refer to G ordon to sign if som ething needs signing.185
Mr Jones, in turn sent an email to Ms Caldwell to 'dig out' the letter that Mr Ingleby had originally sent.186
On 25 June 2003, Atlantic and Orient Shipping Company sent to Mr Jones by facsimile a copy of both Mr Kudelka's letter of 15 March 2000 and AWB's reply of 16 March 2000.187
18.86 On 27 June 2003, Mr Jones forwarded to Ms Lyons, one of AWB's Corporate Counsel, a copy of the 20 June 2003 email, stating:
I'll p u t a copy of the original on y o u r desk.
Is there any reason as to w hy w e should not com ply w ith their request ?188
18.87 On 1 August 2003, Atlantic and Orient Shipping Company sent to AWB, at its request, a copy of the contract of affreightment and addenda relevant to its inquiry.189 On 16 October 2003, Mr Lee from Atlantic and Orient Shipping Company sent an email to Mr Jones chasing AWB's response to their earlier inquiry.190 He wrote:
regretably, after n um erous chances to response to our expressed concerns on the m atter of 'C ornflow er' AWB has still not replied. O w ners have no choice b u t to tu rn to alternative channels to seek inform ation an d protect their interests.191
18.88 On 23 October 2003, Mr Jones replied to Mr Lee's email.192 Mr Jones expressed regret for the delay in responding because 'the persons who handled this COA left AWB's employ some time ago [and] it has take some time in which to investigate the specific matters'193 referred to in the original inquiry.
Mr Jones continued:
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I can confirm th at M r Ingleby's letter of 16 M arch 2000 w as in ten d ed to refer to the COA betw een AWB Lim ited an d A & O [Atlantic an d O rient S hipping Com pany] d ated 25 O ctober 1999.
I can also confirm that each sale contract in respect of w hich w heat w as shipped u n d er the COA received prior U N ap p ro v al.194
The email concluded by stating that AWB was not in a position to provide advice as to whether payment made by AWB to Atlantic and Orient Shipping Company would cause 'extraordinary legal liability to Atlantic & Orient Shipping' and was not in the business of providing advice on legal issues, especially in relation to 'recent banking laws' in Hong Kong and Singapore.
18.89 Whilst the confirmation provided by Mr Jones was correct in the narrow terms in which it was expressed, like AWB's letter of 16 March 2000 it did not disclose the complete picture regarding the payment of inland transportation fees. The statement that the sale contract was UN approved was apt to be construed as meaning that the payment of the inland transportation fees had also been UN approved.
Further, although Mr Jones' email specifically addressed the subject matter of paragraph DD) of the original request in the email of 20 June 2003195, it did not address the question posed in paragraph BB) of that email at all.
18.90 On 28 October 2003, Mr Lee responded to Mr Jones' email:
Fyg O w ners have tried their best to avoid any appearance of confrontation
how ever the reply to our enquiry leaves us no choice b u t to ask AWB for an explanation as to w hy a vendor for a grain contract betw een AWB and an U.N. agency required 'trucking fees' to be paid via the shipping com pany carrying the freight.
W hy this requirem ent w as only necessary for four shipm ents an d w hy the
shipping com pany cannot be afforded som e w ritten docum entation specifically explaining these otherw ise strange banking transactions. The sh ip p in g com pany now stands unprotected from possible accusations in the face of an au d it of grain shipm ents into Iraq.
The shipping company was asked to receive and pay out substantial sums in the name of 'trucking fees' w ithout any supporting docum entation. In
retrospect, these paym ents look questionable to an outside enquirer and we w o u ld like to receive solid supporting docum ents. Y our reply hardly fits that n eed .196 [em phasis added]
18.91 On 28 October 2003, Mr Jones sent a copy of Mr Lee's email to Ms Peavey, Mr Quennell and Mr Cooper, and sought their advice as to the next step.197 The following day, Mr Jones met with Ms Peavey and Mr Quennell to discuss this issue.198 At the end of Ms Peavey's note of that meeting, she records:
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G et P Jones call Lee (A&O) - w ho is he - purpose - to say AWB can 't do anything fu rth er Feedback resp o n se199
No further participation by Atlantic and Orient Shipping Company 18.92 Despite what was said in both Mr Watson's facsimile of 3 February 2000 and AWB's letter of 16 March 2000, Atlantic and Orient Shipping did not assist AWB any further by making payments of inland transportation fees to Alia on
AWB's behalf, as it had in December 1999 and as it had agreed to do again in the agreements recorded on 3 February and 4 February 2000.
Rather, after 10 March 2000, the inland transportation fees payable in respect of shipments of wheat to Iraq made under AWB's contracts of affreightment with Atlantic and Orient Shipping were instead facilitated by the arrangement that AWB concluded with Ronly in March 2000 and the interposing of Tse Yu Hong Metal Limited (as Ronly's nominee) into AWB's then existing contracts of affreightment with Atlantic and Orient Shipping.200 Consequently from 16 March 2000 onwards, AWB Chartering paid the inland transportation fees payable in respect of those shipments made under both its contracts of affreightment with Atlantic and Orient Shipping of both 25 October 1999 and 3 February 2000, as well as with other shipowners, to Tse Yu Hong Metal
Limited who in turn paid those fees on to Alia on AWB's behalf.
I n t e r p o s i t i o n of Ronly a n d T se Yu Hong Metal Limited
18.93 Ronly Holdings Limited is a company incorporated in England that carries on
business as a grain trader.
In mid 1999, AWB entered into discussions with Ronly regarding the possible establishment of a joint venture grain trading company. The proposed vehicle for this joint venture was Corgrain Limited, a company incorporated in and carrying on business in the United Kingdom. In 1999, representatives of AWB travelled to England to meet with representatives of Ronly, and to carry out a due diligence on that company. The discussion of this proposed joint venture continued through into mid 2000. During this period, AWB Chartering also concluded a number of charters with Ronly for the carriage of grain on that company's behalf.
18.94 When consideration was first being given within AWB in 1999 to possible
methods for the payment of the inland transportation fees introduced by Iraq from phase VI of the Oil-for-Food Programme, it was suggested that Ronly could be used to pay these fees on AWB's behalf.201 The proposal was not
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implemented at that time. AWB initially approached and used the shipowners. Ronly was not approached until early 2000.
18.95 On 6 March 2000, AWB concluded an agreement with Ronly under which Ronly agreed to assist in the payment of inland transportation fees on AWB's behalf. This agreement and the need for the arrangements that flowed from it were, at least in part, a consequence of the failure of some shipowners to assist when approached and the withdrawal of Atlantic and Orient Shipping from its earlier agreement to assist AWB Chartering.
T h e c i r c u m s t a n c e s in w h ic h t h e a g r e e m e n t w ith Ronly w a s c o n c lu d e d
18.96 The circumstances in which AWB concluded its agreement with Ronly are described in correspondence
Mr Nori Bali, a director of Ronly, wrote to Ms Rosemary Peavey, AWB Corporate Counsel, on 22 July 2002 after AWB's agreement with Ronly had come to an end in the context of a disputed claim by Ronly for an indemnity from AWB for a claim made against Ronly by Atlantic and Orient Shipping Company arising out of the collision of the Amarantos in 2000. Mr Bali's letter was in the following terms:
I w as p resent d u rin g the m eetings an d discussions w hich took place w ith Trevor Flugge, the then C hairm an of the AWB; Michael W atson, the then head of
chartering an d N igel Officer and M ark Em ons w ho, at that tim e w ere responsible for AWB's business w ith Iraq. Paul Ingleby head of AWB's finance departm ent w as also fully aw are of and au thorised these transactions.
Prior to being approached by the AWB w e had no involvem ent either direct or indirect w ith the AWB's sales of w h eat to Iraq. In early 2000 the AWB became concerned at w hether paym ents w hich they were m aking for inland trucking in Iraq were in breach of UN sanctions against Iraq. The AWB approached us for assistance. A t the time w hen the relevant discussions took place the AWB had already concluded the contract of affreightm ent w ith A tlantic and O rient p u rsu an t to w hich the 'A m arantos' w as chartered. A tlantic and O rient Shipping only agreed to the transfer of the contract to Ronly on the basis that the AWB w ould rem ain responsible for the m anagem ent and control of the vessels chartered and for all financial obligations. Equally w e w ere only prepared to front the business for the AWB because at that tim e w e w ere about to enter into a joint venture partnership w ith the AWB. We required and were given the assurance that this business w ould be fronted by us and an offshore company on a full indem nity basis.
In these circumstances your bald statem ent that you are 'not satisfied' that there is an obligation to indem nify Ronly in respect of any liability that Atlantic and O rient may successfully establish, is totally unsatisfactory and unacceptable. Ronly are neither interested in nor involved in this claim nor care w hether this claim ends up being circular or not. My only concern is that you accept
responsibility for w hat is an AWB problem .
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If I do not receive a response from you by our opening on 30th July I will
assum e that you are not prepared to provide the confirm ation required.202 [em phasis added]
18.97 The second piece of correspondence is an email headed 'Iraq freight and trucking fees' that Mr Emons sent to Mr Bali on 7 March 2000, at about the time AWB concluded its agreement with Ronly.203 Mr Emons wrote:
N ori,
Just w an ted to touch base w ith you. W hen Erol w as in tow n last w eek Michael W atson had a brief discussion w ith him on R only handling the trucking fee and vessel freight for the AWB into Iraq.
If I can clarify:
1. W e have received approval from the U nited N ations to ship to Iraq 900,000 tonnes in March, A pril a n d May.
2. A requirem ent in the tender docum ent an d in o u r contract price is the
inclusion of a p aym ent of USD15 p er tonne for trucking in Iraq. I have confirm ed this figure w ith the Iraqi official I deal w ith b u t he has n o t as yet confirm ed how he w ants to have it p aid specifically.
3. This is the tw ist, u n d er U N /A u stra lia n policy no paym ent can be m ade
directly to Iraq how ever our contracts have been en dorsed by both parties to pay this trucking fee to a th ird party.
U nder the last contracts w e have instructed the shipping com panies u n d er the C harter p arty to m ake p aym ent to a Jordanian trucking com pany. W e did this to a) sim plify the process from o u r p o in t of view b u t b) to divorce clearly from the FOB price any connection w ith a sh ip p in g /lo g istics chrge should the contracts come under scrutiny. The only difference is u n d e r our ow n Time charters w e have m ade the p aym ent ourselves.
4. N ow this has been going quite sm oothly until recently w hen tw o of our
com panies ra n into internal problem s w ith m aking the paym ent. O ne w as
obviously an issue w here its offshore senior m anagem ent ran scarred of getting caught up in sanctions etc. and everything th at could entail for their business. The other com panies problem stem m ed from its banking ro u te th rough Singapore w here there are alw ays serious concerns in that environm ent on money
laundering an d despite assurances from ourselves they obviously have more to lose th an w e can guess at.
5. N ow w hy do w e w ant to use Ronly ? It w ould be ideal from o u r point of
view if w e have a th ird party th at handles the freight and trucking as a n item. This not only saves us tim e but does disguise the fee.
6. O u r proposal is this. We pass to Ronly the C harter parties from the ship
ow ners. A t Shipm ent Ronly invoices AWB for the freight and trucking fee to be paid after B /L ad in g date. Ronly pay the shipper [i.e. ship ow ner] and then
approxim ately 15 days after B /L [bill of lading] pay 90% of the trucking fee to the tran sp o rt CO in Jordan. Some 45 to 95 days later AWB is notified by the U N of the
Report o f the Oil-for-Food Inquiry 3 1 7
final w eights. A t this point of tim e the final paym ents are m ade by Ronly for the trucking fee to the relevant parties.
7. W hat's in it for Ronly? The exercise is one of adm inistration but in sim ple term s there are funds available 10 to 15 days and a balance sitting for a further 30 plu s days. O n top of this no d o u b t y o u see to advantages of w orking w ith a
p a r tn e r !
Call m e w h en you have a m om ent so w e can talk, needless to say please be
discreet w ith w hom you discuss in AWB.204 [em phasis added]
18.98 The first paragraph referred to AWB contracts A4970, A4971 and A4972 with IGB, which AWB had concluded in January 2000205 and which were approved by the United Nations on 3 March 2000. A copy of the UN approval was provided to AWB's office in New York on 6 March 2000.206 AWB had only just received that approval at the time of this email.
The 'tender document' referred to in the second paragraph was the wheat tender for phase VII of the Oil-for-Food Programme. This in fact specified a 'cost of discharge and ... land transport' of US$14 per tonne.207 However when contracts A4970-A4972 were concluded, AWB agreed with IGB to pay an inland transportation fee of US$15 per tonne.
The second part of the first sentence in paragraph three was incorrect. The payment of the 'trucking fee' to a third party was not 'endorsed' on either the AWB short-form or IGB long-form contracts for the three contracts that Mr Emons referred to in the first paragraph of his email, namely contracts A4970, A4971 or A4972. Although AWB's four earlier contracts from the
second half of 1999208 had contained a clause referring to the payment of 'discharge costs' to 'nominated Maritime Agents in Iraq', a clause in similar terms which had been included in the original drafts of contracts A4970, A4971 and A4972 was deleted prior to those contracts being signed by Mr Emons.209 It was also not included in the copies of those contracts that were submitted by AWB to the United Nations for its approval or that were the subject of the approval subsequently given. This was notwithstanding that the clause had been included in Mr Emons' earlier facsimile of 20 January 2000 to the IGB, confirming the terms of these sales and was clearly part of AWB's agreement with IGB.
The second of the two companies referred to in paragraph 4 was Atlantic and Orient Shipping Company, which withdrew from its agreement to assist AWB in the circumstances described earlier in this chapter. The 'assurances' that Mr Emons referred to presumably included a reference to Mr Watson's facsimile of 3 February 2000. The statements made in the fourth paragraph about this second company are consistent with the facts outlined earlier in this
3 1 8 Report o f the Oil-for-Food Inquiry
chapter and what Mr Watson told Arthur Andersen when he was interviewed by them later in 2000.
18.99 Mr Emons' email of 7 March 2000 to Mr Bali makes plain that AWB:
⢠recognised that the payments of the trucking fee were in breach of UN sanctions
⢠had agreed to Iraq's demands to pay the trucking fee to it
⢠recognised that the trucking fees paid to the 'Jordanian trucking company' were paid in the knowledge that they were being passed to Iraq and were paid for that purpose
⢠had sought to distance itself from the payments, to 'disguise' the payments by paying them through ship owners and avoid UN scrutiny of the true contractual terms between AWB and the IGB
⢠set up the arrangement with Ronly in order to disguise the fee and the fact that AWB was paying a trucking fee to Iraq
⢠Ronly's role was to be limited to being a conduit for the payment of the trucking fees through the Jordanian trucking company to Iraq.
18.100 This email was not produced to the Inquiry until the evening of
27 September 2006, two days before the hearings of the Inquiry were expected to close. Yet it had evidently been created on AWB's IT system on 7 March 2000. A copy of it, and three other documents had been faxed to AWB's Corporate counsel Ms Rosemary Peavey on 16 August 2002, and copied to Mr Long on the same date, by Mr Nori Bali in support of Ronly's claim for indemnity from AWB for any damages claim that might arise out of a collision between the Amarantos and the Wallaroo jetty. Ronly's position, as explained by Mr Bali, was, in substance, that its role had been limited to being a conduit for the payment of inland transport fees through its nominee, Tse Yu Hong Metals Limited to Alia at AWB's direction and that it ought to be indemnified by AWB in respect of the claim, should it arise.210 Ms Peavey read the email and wrote upon a paper copy of it which she kept in a legal file. She forwarded it to outside solicitors retained by AWB to deal with the Amarantos matter. Those solicitors had previously written to her recommending that:
Before you can resp o n d m eaningfully to Ronly, it is necessary that contact be m ad e w ith as m any of the persons from AWB referred to in p arag rap h 2 as
possible. T hat m ay require the provision of w ritten statem ents in order to
ascertain exactly w h a t has occurred.211
Report o f the Oil-for-Food Inquiry 3 1 9
The reference to 'the persons from AWB referred to in paragraph 2' was to Mr Flugge, Mr Watson, Mr Officer, Mr Emons and Mr Ingleby.
18.101 Ms Peavey did not follow the advice of AWB's external lawyers and make
contact with any of those nominated by Mr Bali. Why she did not do so, she could not say. There was nothing on the Phillips Fox file dealing with these matters or explaining why no contact had been made with those referred to. One would have expected this matter to have been followed up by Ms Peavey.
18.102 Mr Bali's letter of 22 July 2002 is confirmation of the description of the
relationship with Ronly in Mr Emons' email of 7 March 2000.
18.103 Mr Bali is unlikely to have made the claims which he had about the
knowledge and involvement of others in the arrangements made with Ronly if those claims were untrue for they could readily have been investigated.212 Mr Bali repeated these claims in a further facsimile to Ms Peavey on 16 August 2002, wherein he invited her to contact those that he had referred to as having knowledge of the true arrangements between AWB and Ronly.213 She did not do so.
Mr Flugge's knowledge of the arrangement with Ronly 18.104 On 30 April 2004 Mr Quennell had a conference via telephone with Mr Flugge
in the course of which Mr Quennell made the following notes:
T revor Flugge.
Peter M cEw en m ay have som e inform ation on m anagem ent discussions.
Peter w as w ith TF at W oolm ark Co.
97/98 — 1 w as in C anada
Saskatchew an W heat Pool had tried to p u t w heat into Iraq — got badly burned — I w as approached to talk about this issue.
I can recall talking to m anagem ent team (M ark Emons)
Som e discussion re transport thing.
Effectively w e paid m oney back to IGB then they did inland tran sp o rt —
w e p aid it back th rough Ronly — they paid Alia Transport.
I rem em ber discussions w ith Emons —in co n tract—yes w e can do this —
never detailed discussion —not issue for board — m anagem ent issue.
C anadians h ad trouble —ships tu rn ed aw ay from p o rt
3 2 0 Report o f the Oil-for-Food Inquiry
I recall this p aym ent w o u ld be m ad e th rough R only —
m y suspicions w ere it w as a set-up betw een E m ons & Ronly.
Once AL cam e on b o ard —clean o u t of staff—w e w ere p aying Alia d irect—life w ent on
I th o u g h t it w as ap p ro v ed by U N —alw ays u p fro n t—m oney w ent for inland transport
I have no idea w here m oney actually w ent —som e m oney w o u ld have been spent on inland transport —
Som e tran sp o rt from Jordan —
Significant costs for transportation
IGB h a d no m oney —n eed for infrastructure to be built —needed source of incom e to do that —
Extensive bunker build in g program m e IGB w ere involved in.
Even U m m Q asr itself p o rt im provem ents —
W ere all looking for 'h id d e n dollar' —
m ost of m oney legitim ately spent
This com es m ore from h indsight now as opposed to the time.
D id n 't [illegible] any recollection of w ritten m em os
1 5 /3 /0 0 A W B -IG B fax
There w as a discussion w ith A ustrade —
it w as [illegible] inform ation raised as a concern b u t not som ething to get w orked u p about.
A ustrade m ay have a m essage-record,
5 /4 /0 0
D oesn't rin g any bells w ith me.
If there w as a U N concern w e needed to discuss w ith it —
I never instructed them w hat to do.
7 /4 /0 0 .
Fair degree of openness about this
[illegible] [illegible] m eeting's [illegible] IGB to som e extent.
Report o f the Oil-for-Food Inquiry 3 2 1
U N w e re n 't saying d o n 't pay, b u t this is how to pay
D o n 't breach Rules!
M y real concern w as Ronly link — 214
18.105 Mr Quennell's evidence about these notes was somewhat at odds with their literal interpretation. He said:
M r A gius: Just to go back to w here w e were, can w e bring u p AWB.0468.0012, w hich is exhibit 1334, the typescript of your notes of interview w ith M r Flugge. You w ere speaking of the circum stances in w hich you cam e to record:
Effectively w e p aid m oney back to IGB then they d id inland tra n sp o rt—w e p aid it back th ro u g h Ronly —they p aid A lia T ransport.
N ow , none of the docum ents th at you had sent to M r Flugge that m orning
referred to R only paying m oney to A lia T ransport. W hat w as the conversation w ith M r Flugge that led to you m aking those notes, M r Q uennell?
A: M r Flugge w as referred to in those docum ents w hich I did send him either by nam e or —sorry, w hen I say 'those docum ents', in som e of those docum ents, w as referred to either by nam e or as o u r chairm an, an d I w anted him to ask about
those docum ents, and, in the context of asking him about those docum ents, I so u g h t his recollection generally in relation to the trucking fee issue.
Q: A nd in response to those questions he told you w h at w e read in those tw o lines th at I've read to you?
A: In b ro ad term s, yes.
Q: So, in b ro ad term s, he told you th at AWB paid m oney back to the IGB?
A: Well, th a t's w h at I wrote.
Q: T hat's w h y I'm asking you the question. In broad term s, th a t's w hat he told you?
A: Yes, th at's w h at he w ould have said.
Q: A nd that the IGB did the inland transport?
A: Yes.
Q: A nd that AWB had p aid that m oney back through Ronly, w ho in tu rn paid it to Alia Transport?
A: Yes.
Q: So the picture you w ere getting from M r Flugge w as that AWB p aid the m oney to Ronly, w ho p aid it to Alia, w ho p aid it to IGB, w ho did the inland transport?
A: N o, I d id n 't get that from him.
3 2 2 Report of the Oil-for-Food Inquiry
Q: W hat picture did y o u get from w h a t he w as telling you?
A: Well, w h a t I g athered him to be saying w as th at m oney w as being p a id to Alia for inland tran sp o rt w ith in Iraq, w hich w as in effect giving the m oney back by w ay of rebate to IGB.
Q: A nd that the IGB d id the inland transport?
A: Well, as opposed to AWB h aving actual responsibility for the inland
tran sp o rt.215
18.106 This version of the conversation does not fit comfortably with the notes. But even on this version, Mr Flugge has admitted that his knowledge of the contractual relationship between AWB and IGB was different to that disclosed in any of the written contracts approved by the United Nations.
However Mr Flugge denied that whilst he was Chairman he knew that AWB paid for inland transport through Ronly.2161 reject that evidence.
The t e r m s o f AW B's a g r e e m e n t w ith Ronly
18.107 The terms of the agreement that AWB concluded with Ronly were contained in a facsimile that Mr Watson sent to Ms Simone Jordon of Ronly the previous day, 6 March 2000:
I refer to our discussions an d th o u g h t for good o rd er sake, that I w ould drop you a line to re-affirm the points of agreem ent that w ere reached
- Ronly or a com pany to be nom inated to assist AWB in facilitating the
paym ent of Inland T rucking fees w ithin Iraq, to the nom inated trucking company
- T rucking Fee to be rem itted to the nom inated trucking account upon
receipt of trucking fee from AWB
- Total cargo approx. 1.5 m illion m etric tons
- Shipm ent period M arch - July 00
- W here required, R only or a com pany to be n o m inated w ill also arrange to
p ay freight to O w ners n om inated by AWB, in the execution of AWB
shipm ents to Iraq. Such freight to be rem itted to O w ners, upon receipt from such freight from AWB.
It is agreed Ronly or a com pany to be advised, w ill provide adm inistration
su p p o rt and w ill issue req u ired invoices to AWB u p o n sailing of each vessel for tru ck in g an d w here req u ired freight.
It is understood th at Ronly or a company to be nom inated w ill not be
responsible for the paym ent of either trucking fees or freight unless same received from AWB.
Report of the Oil-for-Food Inquiry 3 2 3
It is agreed that AWB w ill p ay a fee of USD 0.20 Per M etric Ton, to Ronly or a com pany to advised in the execution of the above contract.
I w o u ld ask th at you issue m e an invoice periodically for shipm ents effected to cover the above fee and th at such should be k ept separate to any trucking or
freight invoices.
I tru st th at the above in line w ith y o u r u n d erstan d in g of the agreem ent th at w e reached. If there are any questions o r anything th a t I have left out, please do not hesitate to let m e know.
If you are going to use the services of another com pany to perform the above, then please let m e know , together w ith th eir banking details.
I w ill advise you in du e course the banking details of the trucking com pany as they tend to change the b anking details from tim e to time.
I expect that I w ill place a couple of our existing contracts w ith Ow ners via you or the com pany that w ill be used. H ow ever I w ill revert on this point in the near future. As discussed, if this happens, then we w ill need back to back c/ps on terms, freight rates etc and in order to efficiently manage the contracts, AWB w ould need a side letter to act as 'm anagers'.
As advised, w e can discuss this later.
T hanks again for your assistance in this m atter.217 [em phasis added]
18.108 This facsimile was said by Mr Watson to have been sent further to 'our
discussions'. There would therefore seem to have been discussions in which Mr Watson participated. This is also consistent with what was said in both Mr Emons' email of 7 March 2000218 and Mr Bali's letter of 22 July 2002.219 These discussions would appear to have taken place during a visit by Mr Yahya and Ms Jordon to Melbourne in late February or early March 2000. Mr Bali also asserted in his letter that Messrs Flugge, Officer and Emons also participated in these meetings and discussions. Mr Watson's evidence was that he had learned of the agreement to pay Ronly a fee of US$0.20 per tonne from Mr Emons220 and that he had been informed by Mr Emons that he
(Mr Emons) had discussed the fee with Mr Flugge.221
There is no direct evidence of these meetings or what was said during them. But in the absence of any correspondence from Ronly disputing what Mr Watson had set out in his facsimile of 6 March 2000, it can be concluded that that facsimile accurately recorded the terms of the agreement that had been reached.
18.109 On 15 March 2000, Mr Simon Gabathuler at Fiscon Trust Reg. sent a facsimile
to Ronly advising that he had:
reserved the follow ing com pany for this business
3 2 4 Report o f the Oil-for-Food Inquiry
N AM E TSE YU H O N G METAL LIMITED PLACE VADUZ
FORM ATION 21.06.96
S hould you require a different nam e for th e com pany please tell m e tom orrow m o rning (i.e. if you like to om it 'm etal' or change it all together) I can do that
w ith in tw o d ay s.222
Tse Yu Hong Metal Limited subsequently became the company that (as nominee of Ronly) was used as a conduit for the payment of the inland transportation fees under AWB's agreement with Ronly.
18.110 On 16 March 2000, Mr Watson wrote to Tse Yu Hong Metal Limited in the following terms:
Ref: A ustralian W h eat—Ex A ustralia to Iraq
I refer to the agreem ent w ith R only for the rem ittance of trucking expenses for inland transportation w ithin Iraq.
For the sake of good order, rem ittances to be effected to:
Alia for Transportation and G eneral Trade
.......[ banking details deleted]
Rem ittance of the agreed trucking fees should be sent to the above a /c
im m ediately u p o n receipt of funds, unless otherw ise instructed.
It is expected that the tran sp o rtatio n com pany m ay req u ire from tim e to time to arrange rem ittances to other accounts an d you will therefore be instructed
accordingly.
T hank you for your assistance in this m atter.223
The u s e o f R on ly a n d T se Yu H o n g M etal L im ite d
The number of shipments in which Ronly and Tse Yu Hong Metal Limited were used 18.111 Of the 42 shipments to Iraq that AWB made between November 1999 and August 2000, Ronly and its nominee Tse Yu Hong Metal Limited were used as the conduit for the payment to Alia of the inland transportation fees in 16
shipments, commencing with the first four shipments in March 2000.224 The first payments of inland transportation fees via Tse Yu Hong Metal Limited were made by AWB Chartering on 31 March 2000 in respect of a number of shipments made in March 2000.
Report of the Oil-for-Food Inquiry 3 2 5
The three ways in which Ronly and Tse Yu Hong Metal Limited were used 18.112 There were three methods by which Ronly, and its nominee Tse Yu Hong Metal Limited, were used by AWB in the payment of inland transportation fees.
18.113 The first was foreshadowed by Mr Watson in his facsimile of 6 March 2000.225 Under this method, Tse Yu Hong Metal Limited was interposed as the nominee of Ronly into contracts of affreightment that AWB had already concluded with some of its other shipowners.226 This was done by the establishment of a series of back to back contracts of affreightment on substantially identical terms between (a) AWB and Tse Yu Hong Metal Limited and (b) Tse Yu Hong Metal Limited and the shipowner. Under the terms of the contract of affreightment to which AWB was a party227, AWB Chartering would pay to Tse Yu Hong Metal Limited in relation to each shipment both the ocean freight and the amount of the inland transportation fees applicable to that shipment. Tse Yu Hong Metal Limited would in turn pay the freight onto the shipowner under its contract of affreightment with the shipowner, and the inland transportation fee to Alia.
This first method is depicted in Figure 17.5 in Appendix 17. An example of the use of this first method was the interposition of Ronly and its nominee Tse Yu Hong Metal Limited into the contract of affreightment that AWB concluded with Atlantic and Orient Shipping on 3 February 2000.
18.114 The second method was a variation of the first except that under this second method, AWB Chartering would pay to Tse Yu Hong Metal Limited in relation to each shipment a single amount for the carriage of that shipment to Iraq.228 The amount paid was described as 'freight' and was the sum of the ocean freight payable by Tse Yu Hong Metal Limited to the shipowner for the carriage of the shipment to Iraq, and the inland transportation fees payable in respect of that shipment.
In this way, there was no separate disclosure or identification of the inland transportation fee or the amount of that fee or of its payment in AWB's records. Rather, the inland transportation fee was subsumed into the 'freight' that was otherwise paid in respect of that shipment.
From the amount that it received from AWB Chartering as 'freight' for each shipment, Tse Yu Hong Metal Limited would then remit to the shipowner an amount sufficient to pay the ocean freight, and pay the amount of the inland transportation fees for the shipment to Alia.
3 2 6 Report o f the Oil-for-Food Inquiry
This second method is depicted in Figure 17.6 in Appendix 17. The inland transportation fees payable in respect of a number of shipments under contract A4971 were paid in this way.229
18.115 The third method involved AWB Chartering entering into a contract of affreightment or charterparty with the shipowner for the carriage of wheat to Iraq and paying the ocean freight for each shipment to the shipowner, in the usual way. At the same time, AWB Chartering would also pay the inland transportation fees payable in respect of that shipment to Tse Yu Hong Metal Limited, who would in turn pay those fees on to Alia on AWB's behalf.230
This third method is depicted in Figure 17.7 in Appendix 17. This is the method that was initially employed by AWB for the payment of the inland transportation fees for those shipments made in March 2000 under AWB's
contract of affreightment with Atlantic and Orient Shipping Company dated 25 October 1999, as extended by Addendum No. 3.231
The agreements implementing AWB's arrangements with Ronly 18.116 On 3 April 2000, Mr Watson sent an email to Mr Yahya at Ronly, in which he set out the details of the manner in which he proposed to give effect to AWB's recently concluded agreement with Ronly:
5) C harter party details
w e cu rrently have several contracts in place w ith 3 ow ners for the Iraq contract,
- 590,000 m t - 200,000 m t - 80,000 m t -150,000 m t u n d er AWB t / c vessels (trucking only) all 5 pet m oloo
I am presently arranging as follows
a) A m m ending AWB present c / p w ith ow ners —to show as C harterers' 'C o to be N om inated by Ronley H oldings L im ited' (perform ance of w hich to be guaranteed by AWB)
b) AWB L im ited w ill provide the O w ners w ith side letter as follows
-confirm ation th at AWB L im ited responsible for the day to day operation
/ m anagem ent of the charter p arty
-AWB w ill issue any LOI th at m aybe required
all term s and conditions of this c / p to be exactly as current betw een
O w ners/A W B Lim ited
Report of the Oil-for-Food Inquiry 3 2 7
c) A C harter Party betw een 'C o.to be N om inated by R onley H oldings Lim ited' (perform ance of w hich to be g u aranteed by Ronley ) as O w ners and 'AWB
Lim ited as C harterers'
d) Ronley as O nw ers, w ill provide letter to AWB, appointing AWB Lim ited to act as m anagers for the perform ance of this contract and w here required sign and docum ent (including c /p ) and issue any LOI as necessary to execute this contract
This c / p to be sam e term s an d conditions as above, except w ill include trucking fee an d am en d ed freight rates w hen required.
e) O w ners w ill invoice R onley (Tse Yu H ong M etal Lim ited) for the freight
f) The Co (Tse Yu H ong M etal Lim ited) w ill issue AWB w ith an invoice for the freight rate + trucking.
g) AWB w ill rem it funds to Ronley to p ay O w ners invoice
h) It w ill be necessary to finalise a contract for the trucking fees, w here there is no freight involved, I will d raft ( [vessel nam es deleted] etc)
Please let m e k now if the above OK w ith you.232
18.117 Essentially, Mr Watson proposed that Ronly or its nominee be interposed into
one or more of three contracts of affreightment for the carriage of wheat to Iraq that AWB had in place at that time with other shipowners. These included, for example, the contract AWB had concluded with Atlantic and Orient Shipping Company on 3 February 2000.233 The manner in which Ronly or its nominee was to be interposed into these existing contracts was set out in paragraphs (a) to (g) of Mr Watson's email. Paragraph (h) of the email, which referred to those shipments where no 'freight' would be payable by AWB, such as a shipment under a vessel on time charter to AWB234, was relevant to the third method in which Ronly was used.
18.118 Although there is no evidence of any written response from Ronly to this
email of 3 April 2000, Ronly's agreement to Mr Watson's proposal can be inferred from its subsequent implementation. On 8 April 2000, Mr Watson sent two facsimiles to Ms Jordon at Ronly in which he proposed that Ronly be interposed into two of AWB's existing contracts of affreightment.
18.119 The first facsimile was in respect of the contract of affreightment AWB had concluded with Atlantic and Orient Shipping Company on 3 February 2000 and was in the following terms:
1) 590,000 m t A ustralia/ Iraq — Pacrim
Please find enclose c / p betw een A W B /R only w hich is back to back term s w ith c / p betw een P acrim /R only
3 2 8 Report o f the Oil-for-Food Inquin/
Freight rate U S D ...........
All basis foist 1 /1 basis
.... Pet addeom e to AWB
T rucking fee of USD 15 p / m t to be included in the freight rate (no addcom on trucking)
2) Perform ing vessels u n d er Pacrim at this tim e
AM ARANTOS — eta load p o rt o n / about 8 A pril — load about 49000 m t Freight rate USD .... p / m t less ... addcom + USD 15.00 trucking
[vessel nam e deleted] — eta load p o rt 20th A pril Freight rate USD .... p / m t less ... addcom + USD 15.00 p m t
+
T ravelling as of M onday, anything you need send m e an em ail on m y private e m a il........ © netscape.net
thanks
M ichael.235
18.120 Consistent with the proposals contained both in this facsimile and in Mr Watson's earlier email of 3 April 2000, two written contracts of affreightment were subsequently prepared in documenting this arrangement. The first was a contract of affreightment between Tse Yu Hong Metal Limited
(as disponent owner) and AWB (as charterer).236 The second was a contract of affreightment between Atlantic and Orient Shipping (as disponent owner) and Ronly Holdings Limited 'or their guaranteed nominee' (as charterer).237 Both contracts were in substantially the same terms.238 Both were dated 3 February 2000, which was the date on which AWB had concluded its
original contract of affreightment with Atlantic and Orient Shipping. Clearly, neither of these contracts was or could have been concluded on that date, given that AWB did not reach its agreement with Ronly until 6 March 2000 and Tse Yu Hong Metal Limited was not proposed as Ronly's nominee until 15 March 2000.
18.121 The agreement for the payment of inland transportation fees via Tse Yu Hong Metal Limited was contained in Addendum No. 2 to its contract of affreightment with AWB. This Addendum, also dated 3 February 2000, was in the following terms:
2) T rucking C harges
USD 15 p /m t covering cost of Inland T ransportation at the port of destination.
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3) U pon com pletion of loading of each vessel, O w ners to provide C harterers, w ith a freight invoice at the agreed rate, together w ith an additional fee of USD 15 p / m t for Inland T ransportation cost.
4) Inland T ransportation cost is n et of AW B's address com m ission.
5) O w ners agree to settle such In lan d T ransportation expenses w ith the
appropriate trucking com pany at least 10 days prior to vessel's arrival at the p o rt of discharge.239
18.122 Further, Addendum No. 3 to the contract of affreightment between AWB and Tse Yu Hong Metal Limited, also dated 3 February 2000, provided that AWB:
w ill be responsible for the day to d ay operational an d m anagem ent of the contract betw een Tsu Yu H ong M etal Ltd, an d A tlantic and O rient S hipping com pany.240
It also provided that AWB:
w ill issue and provide w here req u ired on behalf of Tsu Yu H ong M etal Ltd, Letter of Indem nity and o r/a n y other d o cu m en t that m ay be req u ired to ensure the
execution of this contract.241
18.123 These obligations upon AWB were repeated in an Addendum No. 1 to the contract of affreightment between Atlantic and Orient Shipping and Ronly Holdings Limited or its guaranteed nominee:
C harterers full perform ance u n d er this C harter Party to be guaranteed and
u n d erw ritten by AWB lim ited of M elbourne, and a ll/a n y L O I's any other such w arranties to be provided by, an d gu aran teed by AWB Lim ited, including b u t not lim ited to that relative to non-presentation of original Bills of L ading at discharge port, p aym ent of freight, paym ent of d em u rrag e.242
18.124 Although substantially similar, the two contracts of affreightment were not identical. For instance, the freight rate payable by AWB to Tse Yu Hong Metal Limited under the contract of affreightment between them243 was slightly higher than the freight rate payable by Tse Yu Hong Metal Limited to Atlantic
and Orient Shipping under the contract of affreightment between them.244 There was also a difference in the treatment of address commission under each contract. Whilst under the terms of its contract of affreightment with Tse Yu Hong Metal Limited, AWB was entitled to address commission from the freight payable to Tse Yu Hong Metal Limited245, Tse Yu Hong Metal Limited was not entitled to any address commission from the freight that it was liable to pay to Atlantic and Orient Shipping.246 Both contracts did however impose the same limit on the amount of demurrage payable.247
18.125 Further, under the terms of Addendum No. 1 to the contract of affreightment between Atlantic and Orient Shipping and Ronly Holdings Limited or its guaranteed nominee, AWB guaranteed Ronly's liability to pay freight and
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demurrage to Atlantic and Orient Shipping under that contract of affreightment. Accordingly, despite the interposition of Ronly and its guaranteed nominee into the arrangement that AWB had earlier concluded with Atlantic and Orient Shipping, AWB was still ultimately responsible for the payment of freight and demurrage in the event that the interposed company did not meet its obligations in that regard. This guarantee should also be read in conjunction with the following provision in the agreement contained in Mr Watson's facsimile of 6 March 2000:
It is u n d ersto o d that R only or a com pany to be n o m inated w ill not be responsible for the p aym ent of either trucking fees or freight unless sam e received from
AWE.*»
18.126 Both of the vessels nominated in Mr Watson's facsimile of 8 April 2000 were used by AWB for shipments under contract A4972. The inland transportation fees for both of these shipments were paid by AWB Chartering to Alia via Tse Yu Hong Metal Limited, in accordance with the terms of the above
documents. One of the vessels nominated, the Amarantos, was to later feature in an exchange between AWB and Ronly in 2002.
18.127 The terms of Mr Watson's second facsimile to Ronly dated 8 April 2000 were similar to his first. Mr Watson proposed that Ronly and its nominee be interposed into a contract that AWB had earlier concluded with Western Bulk Carriers K/S (WBC) on 15 March 2000. This was the third of the contracts listed in paragraph 5 of his earlier email of 3 April 2000.249 The original terms
of that fixture as between AWB and WBC were set out in a 'recap' telex that AWB received from Anchor Cross Shipbrokers Pty Limited (Anchor Cross) on 15 March 2000.250 Mr Watson's facsimile read:
1) 80,000 m t A u stra lia / Iraq — WBC
Please find enclose c / p betw een A W B /R only w hich is back to back term s w ith c / p betw een W B C/ R only
Freight rate U S D ...........
All basis foist 1 /1 basis
.... Pet addeom m e to AWB
T rucking fee of USD 15 p / m t to be included in the freight rate (no addcom on trucking)
2) Perform ing vessels u n d er WBC at this tim e
[vessel nam e deleted] load p o rt o n / about 9 A pril
[vessel nam e deleted] — eta load p o rt 20th A pril
+
Report of the Oil-for-Food Inquiry 3 3 1
T ravelling as of M onday, anything you need send m e a n em ail on m y private e m a il........ © netscape .net
thanks
M ichael.251
18.128 Formal contracts of affreightment were also prepared in relation to this
arrangement. Again this was in the form of two back to back contracts of affreightment. Of these, the first was between Tse Yu Hong Metal Limited (as disponent owner) and AWB as charterer.252 A copy of this contract has been produced to this Inquiry. Although this contract must have been prepared some time after 8 April 2000 and Mr Watson's facsimile of that same date, it was dated 15 March 2000, consistent with the date of AWB's original agreement with Western Bulk Carriers. The second contract of affreightment in this arrangement was between Western Bulk Carriers K/S (as disponent owners) and Tse Yu Hong Metal Limited (as charterers).253 Whilst a copy of this contract has not been produced to this Inquiry, the first paragraph of Mr Watson's facsimile clearly contemplated the existence of such a contract.
18.129 The agreement for the payment of inland transportation fees to be made via
Tse Yu Hong Metal Limited was contained in Addendum No. 2 to its contract of affreightment with AWB, which was in the following terms:
U pon com pletion of loading of each vessel, O w ners to provide C harterers, w ith a freight invoice at the agreed freight rate, together w ith an additional fee of USD 15 p / m t covering cost of Inland T ransportation at the p o rt of destination.
The Inland T ransportation cost is n et of AWB's address com m ission.
O w ners agree to settle such Inland T ransportation expenses w ith the appropriate trucking com pany at least 10 days p rio r to vessel's arrival at the p o rt of
discharge.254
18.130 Both of the vessels nominated in this second facsimile of Mr Watson dated
8 April 2000 were subsequently used by AWB Chartering for the carriage of shipments under contract A4972. The inland transportation fees for both of those shipments were paid by AWB Chartering to Alia via Tse Yu Hong Metal Limited, in accordance with the Addendum No. 2.
T h e a d m i n i s tr a t i o n s u p p o r t f e e
18.131 Consistent with the terms of the agreement set out in Mr Watson's facsimile of
6 March 2000255, AWB Chartering paid Tse Yu Hong Metal Limited an administration support fee of US$0.20 per tonne in respect of those shipments where Tse Yu Hong Metal Limited was used to pay the inland transportation fees to 'the transport company' (Alia).256 This fee was payable in addition to
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the inland transportation fees and invoiced by Tse Yu Hong Metal Limited separately from its invoices for the inland transportation fees.257
18.132 Despite there having been reference to this administration support fee in his facsimile of 6 March 2000, Mr Watson's evidence was that he did not negotiate the agreement to pay this fee, that he did not know who did and he did not know how it came into existence. He said that he was told about the fee by
Mr Officer or Mr Emons.258
18.133 This administration support fee was similar to the Overhead for Trucking Charge' that AWB Chartering had earlier paid to Hyundai Merchant Marine Co Limited in respect of the two shipments in December 1999 where Hyundai assisted in the payment of inland transportation fees on AWB's behalf.
AWB Chartering obtained reimbursement of this fee from the AWB Pool.
R e s u m p t i o n of p a y m e n t s by Hy un da i M e r c h a n t Marine Co. Limited
18.134 In April 2000, AWB resumed paying inland transportation fees to Alia via Hyundai Merchant Marine Co. Limited. It resumed with AWB's first two shipments under contract A4972 on 7 April and 12 April 2000. Inland transportation fees for a further seven shipments were thereafter paid through Hyundai. A complete list of these shipments can be found in Table 17.1 in Appendix 17.
18.135 Each of these payments was handled in the same way as the inland transportation fees that Hyundai paid on behalf of AWB in December 1999. For each shipment where Hyundai assisted, the amount of the inland transportation fee payable in respect of that shipment was included along with freight in an invoice that AWB Chartering received from Hyundai.259
However, unlike the arrangement that AWB had in place with Hyundai in relation to the December 1999 shipment, Hyundai did not charge AWB Chartering any Overhead for Trucking Charge' for any of the shipments made in 2000.
S u m m a r y o f m e t h o d s of p a y m e n t prio r t o A u g u s t 2 0 0 0
18.136 From November 1999, when inland transportation fees were first paid by AWB, until August 2000 and the implementation of Mr Stott's decision to stop using shipowners as a conduit for payment of inland transportation fees,
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AWB paid inland transportation fees to Alia indirectly via shipowners in respect of 30 of the 43 shipments of wheat that it made to Iraq during that period. Of these shipments, inland transportation fees were paid:
⢠in respect of three shipments in November and December 1999 through Atlantic and Orient Shipping Company. This was before that company withdrew from its arrangement with AWB some time in February 2000, as a consequence of inquiries that had been made by the Singaporean authorities in respect of those first three shipments
⢠in respect of 11 shipments through Hyundai Merchant Marine Co. Limited, two in December 1999 and a further nine shipments between April and September 2000260
⢠16 shipments through Ronly and its nominee Tse Yu Hong Metal Limited, between March and August 2000. The first of these payments was made on 31 March 2000.
18.137 The inland transportation fees for the remaining 13 shipments made prior to the implementation of Mr Stott's decision in August 2000 were paid by AWB Chartering to Alia directly. These included the first two shipments for which inland transportation fees were payable, which were paid directly because AWB had not had sufficient time to implement its October 1999 decision and because a number of shipowners that AWB had approached to pay inland
transportation fees on its behalf had refused to assist, including Sanko Shipping, the carrier of the first shipment. Nine of the remaining eleven shipments were made in February and early March 2000, after Atlantic and Orient Shipping Company had withdrawn from its agreement to pay these fees on AWB's behalf and before AWB had concluded its agreement with Ronly.
18.138 Once AWB had concluded its agreement with Ronly in March 2000 and once Hyundai Merchant Marine Co. Limited had recommenced making payments on AWB's behalf in April 2000, all inland transportation fees were paid by one or other of these two means and no inland transportation fees were paid by AWB to Alia directly, until the implementation of Mr Stott's decision in August 2000.
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An e n d t o t h e u s e of Ronly a n d o t h e r s h i p o w n e r s
18.139 Mr Stott's evidence was that, upon his return to AWB in July 2000, he was informed that:
⢠the company was paying for the cost of inland transport of wheat from Umm Qasr to all governorates261
⢠AWB was paying these inland transportation fees to Ronly ('a trading house based in London'262) or an associated company, which would then pay it on to Alia263
⢠Ronly was receiving a fee of 20 cents a tonne for it to perform that service264
⢠the inland transportation fees were US$14-15 per tonne.265
He learned of these matters through Mr Lister, Mr Watson and from inquiries that he made of Ronly.
Mr S t o t t 's m e e t i n g w ith Mr W a ts o n
18.140 Mr Watson first met Mr Stott following his return to AWB, when he was walking around the Chartering area and being introduced to members of the Chartering Division.266 At that time, they had a brief discussion, during which (according to Mr Watson) Mr Stott displayed 'a very strong interest in Iraq'.267 On 19 June 2000, Mr Watson sent an email to Mr Emons (at his personal email address) reporting on this first meeting:
C.S. [Charles S tott]—d id his ro u n d s today, 1st question of me, the Iraqi Problem. H e asked w hat the issues w ere etc etc an d w ho w as now in charge, told him
Yousef and show ed him , his nam e card, he said that he 'k n ew ' the R ahm an fam ily w ho 'v ery pow erful in Iraq' this after I told him th a t Yousef p a rt of the ruling
family.
H e asked if w e saw Z uhair an d w as he helpful, do you know if Z u h air liked him ??? —I said Z uhair w as very helpful.
I have a m eeting tom orrow w ith him to b rin g him u p to speed w ith Iraq —I told him the Iraq m arket w as n o t a black and w hite issue as he w ell knew ....
My im pression, he giving the im pression of being in control, in touch w ith
everything etc. — u n d erstan d he arranging him self in Tim H old desk, so he can be close to y o u ..... lucky y o u .268
18.141 Mr Watson met with Mr Stott again a few days later.269 The issue of demurrage and the payment of inland transportation fees were discussed at that meeting. Mr Lister, who headed up the core team within AWB looking at
Report of the Oil-for-Food Inquiry 3 3 5
demurrage, also attended the meeting.270 Mr Watson thought that Mr Beaumont may have been there as well.
During that meeting, Mr Watson gave Mr Stott:
a very brief overview in term s of w h at w e did and how w e did it, expressly
m aking concern —I expressly told h im about the m echanism s in place that AWB h ad com e u p w ith to m ake the trucking paym ents.271
Mr Watson mentioned AWB's use of Ronly and shipowners in the course of that discussion.272 According to Mr Watson, Mr Stott was interested in the use of Ronly and asked Mr Watson why Ronly was being used.273 Mr Watson replied by explaining that management had decided some time back to make payments of the trucking fees to Iraq through third parties. Initially it was shipowners who were used; but Ronly became involved sometime in early 2000 as a further mechanism to pay these fees and distance AWB from the actual payments.274
Mr Watson's evidence was that Mr Stott was adamant that the inland transportation fees could be made directly rather than going through third parties.275 He informed Mr Watson that it was not necessary to have third party involvement and that payments could be made to Jordan without any problems.276 According to Mr Watson, he did mention to Mr Stott that he thought that there was still an issue with sanctions and that was why AWB was still using third parties.277 He said to Mr Stott that the reason these mechanisms were put in place was because of the UN sanctions.278 Mr Watson was surprised that they were apparently no longer an issue.
18.142 Mr Stott's evidence was that when he spoke to Mr Watson he was not told about the imposition by the Iraqis of a trucking fee and that the 'Iraqi problem' that was discussed was the issue of demurrage at the discharge port.279
But Mr Stott also gave evidence that he was informed that AWB was paying inland transportation fees using Ronly280 and that when he was informed of this he 'thought it was very odd'.281 He did not recall specifically who informed him of this, but agreed that it could have been Mr Watson.282 Mr Stott also gave evidence that when he learned of AWB's use of Ronly, he made inquiries of Mr Watson.283 Whilst Mr Stott could not recall exactly what Mr Watson said when he spoke to him in this regard, he thought that he said that that was the way that AWB had decided to make the payments.284 According to Mr Stott, he was told by Mr Watson that the reason for using Ronly was because AWB wanted to distance itself from the payment mechanism285; it did not wish to be seen paying it directly to Alia.286
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Mr Watson also informed Mr Stott that the use of Ronly was approved within AWB and that this was the agreed mechanism.287
18.143 After having made inquiries within AWB, Mr Stott also approached Ronly directly and was informed by them:
The AWB w anted to distance itself from these paym ents, an d th at's w hy they set u p this structure to assist AWB in distancing itself from it.288
18.144 Mr Stott said in evidence that he did not get a satisfactory explanation from any one as to why AWB wanted to distance itself from these payments to Alia289 and denied that he formed the view that the reason AWB may wish to distance itself was because the payments might not be legal290 or because of a fear that the payments were made in breach of the UN sanctions.291 Although
Mr Stott said that he did not accept this explanation, even on his evidence he was given this reason, which is consistent with Mr Watson's evidence of his meeting with Mr Stott.
Mr S t o t t 's d e c is io n
18.145 In July 2000, Mr Stott decided to put an end to AWB's arrangement with Ronly. He said that he decided to do this because AWB 'was deriving no benefit from it'.292 Although he was told that Ronly was used as a means of distancing AWB from the trucking payments293, he did not accept this explanation.294 He thought that the true reason was to benefit Ronly295 and to allow the AWB employees responsible to steal money from the company.296
N e g o tia tio n s by AWB a t t h e tim e
18.146 At the time that Mr Stott made this decision, Mr Watson was negotiating a further contract of affreightment for the carriage of wheat in bulk from Australian ports to Iraq with a Greek based shipping company.
On 25 July 2000, Mr Watson sent a facsimile to that shipping company in which he set out the terms of the proposed contract of affreightment:
W ith respect of the Iraq program , you w ill recall that w e need to arrange
paym ents and therefore w ould ask that u p o n com pletion of loading each vessel that you invoice m e for freight as follows
- u sd 22 + 15 trucking (USD 37 p /m t) - com m issions only to be basis u sd 22 p / m t
Therefore net invoice to AWB, USD 22 p / m t less 4.25 pet addcom u sd 21.065 + USD 15 trucking = USD 36.065 p / m t
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U pon receipt of the above, please arrange to rem it the trucking fee of USD 15 p / m t to the following:
Tse Yu H ong M etal Limited .......[d e le te d ]....................
.......[d e le te d ]....................
.......[d e le te d ]....................
Reference MV [deleted]
T hanks an d all the best.297
Under the terms proposed by Mr Watson, AWB Chartering would pay to the shipping company in respect of each shipment an amount comprising both the ocean freight and the inland transportation fees applicable to that shipment. The shipping company would retain the freight but would pay the inland transportation fees on to Tse Yu Hong Metal Limited, who in turn would pay it to the nominated transport company in accordance with AWB's arrangement with Ronly of 6 March 2000.
18.147 The Greek shipping company responded to Mr Watson's proposal by
facsimile later that day, confirming that it would invoice AWB for an amount that represented the total of the ocean freight and inland transportation fees payable in respect of those shipments and that
... the trucking expenses w ill be reim bursed as requested.298
18.148 At that time, Mr Watson was also arranging with Anchor Cross Shipbrokers
Pty Limited (Anchor Cross) for Hyundai Merchant Marine Co Limited to pay onto Alia inland transportation fees payable in respect of shipments shipped on Hyundai Merchant Marine's vessels.299 In an email to Anchor Cross dated 25 July 2000, Mr Watson wrote:
C an you please request th at H M M rem it the USD 15 p / m t trucking fees directly to the follow ing receipt of trucking fees from AWB
A lia for T ransportation & G eneral T rade
Please confirm w hen rem ittance effected.300
This was in continuation of the arrangements that had resumed in April 2000.
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I m p l e m e n t a t i o n o f Mr S t o t t ' s d e c is io n
18.149 However, on the same day that Mr Watson was putting in place these arrangements with the Greek shipping company and Hyundai, Mr Stott circulated an email within AWB headed 'Payments for Freight Iraq' advising that inland transportation payments were to be no longer made through Ronly or its nominee.301 The email was addressed to Ms Kathleen Gibson and copied to Messrs Borlase, Hunter, Snowball, Morison, Watson, Goodacre, Owen, Ingleby and Beaumont. It read:
Folks
Please am en d the Iraq freight p ay m en t arrangem ents as follows:
For all fu tu re paym ents, instead of paying ocean and Iraq road tran sp o rt costs to Ronly, w ho then p ay ow ners an d the land tran sp o rt com pany, please p ay ow ners direct for the ocean freight a n d the land tra n sp o rt costs direct to the nom inated account in Jordan. U n d er this arrangem ent w e w ill continue to pay Ronly the USD
0.20 cents p er tonne for perform ing the p ay m en t alth o u g h they are no longer involved. The 0.20 cents to continue until the COA w ith R only is fulfilled.
The new arrangem ent has been discussed and agreed w ith N ori d u rin g his visit to A ustralia.
H ow ever, before m aking paym ents u n d er the new m echanism please clear the first set of paym ent instructions th ro u g h m e.302
18.150 The next day Mr Watson sent to the Greek shipping company the following facsimile:
T hank for yours of the 25th July
I am sorry to m ess y o u aro u n d b u t AWB has n o w decided to pay the trucking fee of USD 15 p /m t directly to the trucking com pany in Jordon.
T herefore only issue us w ith y o u r debit note for freight less addcom and AWB w ill arrange p aym ent of trucking directly.303
18.151 On 26 July 2000, Mr Watson sent to Alia a facsimile headed 'Iraq Trucking — Phase 7' that read:
I refer to trucking charges of USD 15 p / m t u n d e r this phase.
For sake of good order, I am w ritin g to confirm th at all fu tu re paym ents w ill be m ad e directly by AWB L im ited to y o u r nom inated account as follows:
100 pet p aym ent w ill be m ade u p o n com pletion of loading in accordance w ith B /ls w eight. You w ill be advised of rem ittance details of each shipm ents
T hanks very m uch y o u r cooperation an d ongoing su p p o rt.304
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18.152 On the same day, Mr Watson sent an email to Mr Stott (and copied to others within AWB):
W ith im m ediate effect, T rucking fee of USD 15 p / m t now to be m ade directly by AWB to the trucking com pany as follows:
Alia for T ransportation and G eneral T rade A m m an, Jordon
Please let m e know if AWB(I) w ill now arrange the paym ent of trucking paym ent for this shipm ent and all future shipm ents, otherw ise C hartering can continue to m ake such paym ents.
I am h ap p y either w ay, let m e k now .305
18.153 On 27 July 2000, Mr Stott responded to Mr Watson's email:
..... Suggest shipping continue to m ake the paym ents for ocean freight and land tran sp o rt costs. I w as u n d er the im pression that the trucking costs w ere $14 not $15 grateful if you w ould check and confirm . A ssum e that chartering will also pay to w hoever Ronly direct the 0.20 cents.306
The reference to 'shipping' in Mr Stott's email was a reference to AWB Chartering. Although Mr Stott was proposing that inland transportation fees would henceforth be paid by AWB directly to Alia, they were to continue to be paid by AWB Chartering in the first instance. This continued to be the position until May 2001.307
18.154 On 1 August 2000, Mr Stott advised Ronly of his decision. This was in an email to Mr Nori Bali, a director of Ronly:
A s p er o u r discussions in M elbourne, w e have am ended the Iraq freight paym ents arrangem ents as follows:
For all fu tu re paym ents, instead of p aying ocean and Iraq road transport costs to the Ronly nom inated C om pany, the AWB will pay ow ners direct for the ocean freight an d the land tran sp o rt costs. U nder this arrangem ent, AWB will continue to pay Ronly the USD0.20 cents per tonne for perform ing the paym ent although they are not. The 0.20 cents will continue until the COA w ith Ronly is fulfilled.308
18.155 On 7 August 2000, Mr Watson sent an email headed 'Iraq Trucking Fee' to Ms Gatto, Mr Cowan and Ms Allen (all of whom were in AWB Chartering) advising them of the decision to pay the inland transportation fees to Alia directly:
D ue to change in m anagem ent decision, trucking fees w ill be p aid directly by AWB
therefore u p o n com pletion of lading on each vessel, please arrange to rem it USD 15 p / m t as follows
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Alia for T ransportation & G eneral T rade
....... [bank account details deleted ]
This is to be effective as of Flecha.309
P a y m e n t o f t h e a d m i n i s t r a t i o n s u p p o r t f e e
18.156 On 2 August 2000, AWB Chartering paid to Tse Yu Hong Metal Limited
US$164,906.68 being the administration support fees310 payable for the 16 shipments of wheat to Iraq where the inland transportation fees were paid through Tse Yu Hong Metal Limited.311
18.157 On 21 August 2000, Mr Watson sent an email to Mr Bali asking that Tse Yu
Hong Metal pay to Alia an outstanding balance of inland transportation fees payable in respect of a shipment. In that email, Mr Watson also confirmed that on the previous Friday he had remitted the final amount covering the administration support fees.312 There is no evidence of that payment amongst the documents produced to the Inquiry.313
18.158 On 21 September 2000, Mr Ingleby emailed various executives, including
Messrs Goodacre, Stott, Geary and Watson, confirming that the new arrangements for AWB Chartering would be agreed and confirmed the next day.314 Mr Ingleby suggested that this was urgent because:
... w e seem to find new w ays for chartering to lose m oney each m onth — this
m o n th Y emen dem urrage (0.5m) an d Iraq trucking (0.5m) — are w e sure these are to chartering's account ??315
The email was also copied to Mr David Cowan, in AWB Chartering.
18.159 Mr Cowan replied to Mr Ingleby, advising:
2. M ichael W atson h as argued, at length, th a t the trucking fee w as not for our account.
M ark Eamons & N igel O. w anted to disguise AWB paym ents into Iraq for trucking fees.
This w as achieved by chartering taking a forw ard contract w ith Ronly to com bine the frieght and trucking paym ents. The n ew regim e has not su p p o rted this
agreem ent and C hartering have incurred the cost to buy out of the deal.316
[em phasis added]
18.160 Later that same day, Mr Stott replied to Mr Ingleby's query advising:
I am advised by D avid that the USD 300,000 (UADSOOk) paym ent to Ronly relates to the US 0.20 cents per tonne fee that w e agreed to p ay for Ronly m aking Iraq freight a n d land tran sp o rt paym ents on behalf of AWB. Evidently this had not
Report o f the Oil-for-Food Inquiry 3 4 1
been p aid and Ronly only recently sent in an invoice for 1.5 m illion tonnes. This is an AWBI expense. H ow ever it is unfortunate th a t this paym ent w as m ade only last w eek w hen AWB has an outstan d in g USD141,713.30 second port discharge dispute w ith Ronly. It w ould have clearly been preferable to offset the the cost before rem itting the balance.
M ichael, D avid
Please urgently confirm that o u r obligations to R only in respect to the Iraq COA are now com pleted a n d as such no further paym ents will be m ade to Ronly for Iraq business. Also please advise if there are any additional m onies due to Ronly in respect to charterings current or p ast business w ith this trad in g house.317
The reference to 'David' in this email is a reference to Mr Cowan. Mr Stott's email was sent to Messrs Ingleby, Goodacre, Geary, Watson, Cowan and Hogan, amongst others.
18.161 On 22 September 2000, Mr Cowan replied to Mr Stott (with a copy to Mr Watson):
1. T hanks for confirm ing the situation w ith the $0.20c p er tonne. I w ill process the transaction to AWBI for the 300K USD today.
We have not m ade any further paym ents to R only regarding IRAQ since the settlem ent of the The $300K usd, I'll have to ask M ichael W atson to confirm that all obligations u n d er the contract are com plete.318
18.162 That day, AWB Chartering rendered an invoice to the AWB Pool for US$300,000 for 'Iraq Trucking Fee Contract'.319 The amount paid was calculated on the basis of Mr Watson's facsimile to Ronly of 6 March 2000.320 That invoice was paid by the AWB Pool through an inter company transfer effected in the books of AWB Limited.321
Utility of AWB's a r r a n g e m e n t s w i t h Ronly a n d t h e o t h e r s h i p o w n e r s
T he r e a s o n fo r AWB's u s e of t h e s e a r r a n g e m e n t s
18.163 There were two reasons for AWB's decision to pay inland transportation fees through shipping companies such as Atlantic and Orient Shipping Company, Hyundai Merchant Marine Co. Limited and in due course Ronly Limited and its Liechtenstein nominee, Tse Yu Hong Metal Limited.
18.164 The first was to circumvent United Nations sanctions as many within AWB including Mr Watson322 and Mr Emons323 well knew. It was to disguise the
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true nature of the payment being made, it being known that the payment would be contrary to the UN sanctions.
18.165 The second reason was to distance AWB from the payment of these fees, as Mr Watson told Mr Stott (even on Mr Stott's version of their conversation). This was achieved in two ways. The first was the use of the shipowners and Tse Yu Hong Metal Limited to make the payments to Alia, rather than AWB
paying Alia directly. AWB was thereby one step removed from that payment. The second was by adding the inland transportation fee payable for a shipment to the ocean freight payable to the ship owner for the carriage of that shipment to Iraq and describing the total amount as 'freight', rather than disclosing the freight and inland transportation fee separately. Whilst this second method was not initially a feature of AWB's implementation of this arrangement324, it was an approach that came to be adopted later, in particular with the use of Tse Yu Hong Metal Limited. At least one reason for AWB requesting that it be provided with a composite invoice was to keep the 'Iraqi payments' confidential within AWB.
This desire on the part of AWB to distance itself from the payment of these inland transportation fees arose out of a concern within AWB that the payment of these fees to Alia was in contravention of United Nations sanctions.
18.166 Mr Watson was part of a 'core strategy group' who were responsible for implementing the arrangement whereby inland transportation fees were paid via shipowners and Ronly.325 This group included Messrs Officer, Emons and Hogan.326 According to Mr Watson, it also initially included Mr Owen and
Mr Ingleby.327
The implementation of the decision to pay inland transportation fees via shipowners and the payment of those fees in this way was with the knowledge and consent of senior management within AWB, including Mr Officer.328
18.167 As the head of AWB Chartering, Mr Watson was responsible for the day to day implementation of this arrangement. It was Mr Watson who initially approached the shipowners to enlist their assistance. It was Mr Watson who signed the contracts of affreightment and addenda containing the provisions that gave effect to AWB's decision to use shipowners in this way. It was Mr Watson who corresponded with Ronly and whose facsimiles recorded both AWB's agreement with Ronly and the methods by which its
Liechtenstein nominee, Tse Yu Hong Metal Limited, was to be interposed into AWB's existing contracts of affreightment with other shipowners in the implementation of that agreement.
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18.168 Mr Watson was aware that Alia had been nominated by IGB as the recipient of the payment of inland transportation fees and that AWB had no contractual relationship with Alia. He knew that although AWB's contracts indicated that the arrangement was free on truck to all governorates in Iraq, AWB was not actually responsible for providing the trucking329 and that AWB was 'simply responsible for making the payments of inland transportation fees to the Iraqis'.330 He knew that the inland transportation fee had been a requirement imposed by IGB, that the amount of the fee was set by IGB331 and was not the subject of negotiation.332 He knew, from correspondence that he received, that IGB had an interest in the payments being made to Alia and when payments were said not to have been made.333 He knew that the inland transportation fees paid to Alia were going to the IGB or the Iraqi government or an Iraqi organisation334 and that what was being proposed with the imposition of the inland transportation fee in the second half of 1999 was a payment to Iraq.335
18.169 Mr Watson was also aware of the United Nations sanctions and that they prevented payments to and from Iraqi entities without United Nations' approval.336 He therefore knew that AWB could not make payments directly to Iraq because of the sanctions.337 His understanding at the time was that the inland transportation fee could not be made directly or openly to Iraq because of the UN sanctions.338 Mr Watson knew that the proposal to use the shipowners (including Ronly) was so that the payments would not be obvious to the United Nations339, was so that it 'would not be apparent to the UN that it was being done'340, was 'to find ways to avoid attracting the attention of the UN'341, and was to avoid the UN sanctions.342 Mr Watson knew that the payment of the inland transportation fees had not been approved by the United Nations.343 Mr Watson knew that the effect of the arrangements for the payment of inland transportation fees involved a contravention of the UN sanctions.344 There was no other reason for AWB's use of shipowners345 and Ronly (and its nominee)346 in this way.
18.170 The reason AWB agreed to the payment of inland transportation fees in this way was in order to preserve its sales of wheat to Iraq —the pressure to do business.347 AWB knew that if it did not agree to the payment of inland transportation fees it would not secure sales to Iraq. Having agreed to sell wheat to Iraq on those terms, AWB also knew that if it did not pay the inland
transportation fees in respect of a shipment, the vessel would not be discharged, the vessel would be delayed and AWB would incur significant demurrage. AWB was aware of the UN sanctions and their effect. AWB knew that the fees could not be paid directly. A method of payment of the inland transportation fees that circumvented the sanctions and did not attract the attention of the United Nations had to be found. That method was the payment of these fees via shipowners and Ronly to Alia in Jordan.
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18.171 Much of his evidence that Mr Watson gave to the Inquiry on 27 February 2006 to the above effect was not disclosed in his earlier examination on 6 January 2006348, in his statutory declaration of that same date349, or in his supplementary statutory declaration dated 12 January 2006.350 Mr Watson's evidence during that examination and in his prior statutory declarations was less than full and frank.351 He attributed this to not having documents from AWB352, having ongoing concerns that he would be held responsible353 and not wanting to tell the full story on those occasions.354
Nevertheless, Mr Watson's evidence of 27 February 2006 was against his interest and ought be accepted and preferred over his earlier evidence where they contradict.355 There is documentary support for his account of the methods by which and the purpose for which AWB sought to circumvent sanctions and avoid detection of its payments to Iraq.
The r e a s o n f o r AW B's u s e o f Ronly a n d T se Yu H ong Metal Lim ited
18.172 AWB's use of Ronly and its Liechtenstein nominee, Tse Yu Hong Metal Limited, was characterised by the following features:
⢠Ronly and Tse Yu Hong Metal Limited were interposed into existing contracts of affreightment that AWB had already concluded with those shipowners;
⢠Neither Ronly nor Tse Yu Hong Metal Limited separately negotiated with shipowners any of the contracts of affreightment with those shipowners to which it was a party and by which (on the face of those documents) it was supplying to AWB vessels for the carriage of wheat to Iraq under its contracts of affreightment with AWB;
⢠The only function that Ronly and Tse Yu Hong Metal Limited performed under the contracts of affreightment to which they were a party was to receive freight and inland transportation fees from AWB Chartering (either paid separately or as a composite sum) and to pay these onto the shipowner and Alia respectively;
⢠Ronly and Tse Yu Hong Metal Limited were not responsible for the payment of either freight to the shipowners or inland transportation fees unless it had first received funds from AWB;
⢠The liability of Ronly and Tse Yu Hong Metal Limited to pay freight and demurrage to Atlantic and Orient Shipping under the contract of affreightment between them was guaranteed by AWB;
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⢠Despite the interposition of Ronly and Tse Yu Hong Metal Limited and their entering into a contract of affreightment with Atlantic and Orient Shipping, AWB remained responsible for the day to day operations and management of that contract of affreightment between Ronly and Atlantic and Orient Shipping;
⢠AWB was to issue and provide on behalf of Tse Yu Hong Metal Limited where required a letter of indemnity and or any other document that may be required to ensure the execution of the contract of affreightment with Atlantic and Orient Shipping Company;
⢠In relation to those shipments where AWB paid the freight directly to the shipowner or where the wheat was carried on a time chartered vessel, Tse Yu Hong Metal Limited's function was solely to receive the inland transportation fees from AWB Chartering and pay those fees onto Alia;
⢠The remuneration paid to Tse Yu Hong Metal Limited for its involvement in these arrangements was an administration support fee of US$0.20 per tonne.
18.173 There was no sound commercial reason or benefit to AWB for the use of either Ronly or its nominee Tse Yu Hong Metal Limited in the carriage of wheat to Iraq. Neither company provided any service beyond the receipt and subsequent remittance to Alia of the inland transportation fees.356 There was no sound commercial reason for the interposition of Ronly or its nominee Tse Yu Hong Metal Limited into AWB's then existing contracts of affreightment with shipowners for the carriage of wheat to Iraq.
The reasons for AWB entering into the arrangements with Ronly and its nominee Tse Yu Hong Metal Limited were the same as the reasons for entering its arrangement with the other shipowners, namely:
⢠in an endeavour to distance itself from the payment of the inland transportation fees, knowing that those fees were being paid to Iraq and in breach of United Nations sanctions
⢠to 'disguise'357 the payments that it was making to Alia (and through it to Iraq) and the nature of those payments.
18.174 This second reason was reflected in an email from Mr Watson to Ronly dated 9 May 2000358, complaining that AWB was receiving separate invoices for freight and inland transportation fees and that what was required from Tse Yu Hong Metal Limited was a composite invoice. The only reason for insisting
on a composite invoice in respect of these two expenses, in particular one where the composite amount was described as freight, was to disguise that
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portion of the amount being paid that was referable to the inland transportation fees.
18.175 The artificiality and sensitivity of the arrangement was also reflected in the following email (headed 'Iraq') from Mr Emons to Mr Yahya (at Ronly) dated 9 May 2000:
Erol,
I am sure I d o n 't need to rem in d you of th e sensitivity of sending the freight
invoices to AWB (by m istake no doubt) b u t w ith all the book balancing w e are doing p lu s the discretionary paym ents to o u r friends in the m iddle east w e do need to ru n a very tig h t adm in.
If you have any dou b ts as to the security of w h a t w e are doing I suggest you fax the invoices to M ichaels hom e f a x ..... or m i n e .......
Cheers
M ark. 359
P o s t s c r i p t : AWB's c o m m u n i c a t i o n s w i t h R only in S e p t e m b e r 2002
18.176 One of the vessels fixed under the arrangements that AWB concluded with Ronly in March 2000 was the Amarantos, which had been chartered under the contract of affreightment that AWB concluded with Atlantic and Orient Shipping Company on 3 February 2000 and into which Tse Yu Hong Metal Limited had been interposed. This was for the carriage of a shipment of wheat from Wallaroo (South Australia) to Iraq. On 10 April 2000, the Amarantos collided with the jetty in the harbour at Wallaroo, causing damage to the jetty
and associated facilities.360 As a result of the collision a number of claims were made against the owners of the vessel, Amarantos Shipping, including by AWB.361
18.177 The owners of the vessel in turn, claimed an indemnity from Atlantic and Orient Shipping Company, to whom they had chartered the vessel, in respect of any liability that they might be found to have for the collision. Lawyers acting for Atlantic and Orient Shipping Company in turn notified Ronly — with whom Atlantic and Orient Shipping Company had a contract of affreightment dated 3 February 2000 under the back to back arrangement described earlier in this chapter —that if the owners succeeded in their claim against Atlantic and Orient Shipping Company, they would be seeking to recover any liability from Ronly under the terms of their contract of affreightment.362
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18.178 On 10 June 2002, Mr Yahya sent an email to Mr Rowlands (by then a senior Ocean Freight Trader in AWB Chartering) seeking confirmation that AWB was aware of the claim by the owner of the Amarantos and would be dealing with it 'under the indemnity and insurance arrangements between us relating to the Iraq business'.363 This email was copied to Mr Long. In the course of recounting the history leading up to this claim, Mr Yahya wrote:
Since neither w e nor Tse Yu H ong M etal Ltd h a d no direct involvem ent in this charter or shipm ent w e / Tse Yu H ong M etal are giving you im m ediate notice of this developm ent. All aspects of this business w ere dealt by yourselves.364
18.179 The email was forwarded by to Messrs Poutney, Fahy and Diamante. Mr Fahy in turn forwarded a copy onto Messrs Diamante, Jones and Wall with a request:
C an you check this o u t—do you know if legal has a file on this an d w hat can w e send th ro u g h to ronly?365
Mr Diamante in turn forwarded the email to Ms Peavey on 11 June 2002.366 In the meantime, Mr Long also circulated a copy of the email to Mr Jones and Mr Cooper (amongst others) with a request that he 'be kept in the loop on response'.367 Mr Cooper in turn forwarded a copy on to Ms Peavey advising that 'we already have a file on this. Can you please look after it'.368
18.180 On 17 June 2002, Mr Rowland received a further telex from Ronly seeking a response to Mr Yahya's letter of 10 June 2002.369 On 19 June 2002, Mr Rowland relied to Ronly advising that Mr Yahya's letter had been passed onto AWB's legal department, who was preparing a response.370
18.181 On 5 July 2002, Ms Peavey, received an email from Ms Clare Calnan, a lawyer at Ronly, repeating details of the claim and again inviting AWB's response.371 In doing so, Ms Calnan wrote:
O n this business at your request we fronted the chartering operations and we had no involvem ent in the operation or m anagem ent of the vessel. The only m atter that we handled was the routing of the freight paym ent . . . Atlantic w ere fully aw are that w e w ere fronting for you as the affreightm ent contract w as
originally concluded betw een A tlantic and yourselves an d then it w as changed to us w hen the fronting arrangem ent w as p u t in place.372 [em phasis added]
18.182 On 19 July 2002, Ms Peavey responded to Mr Yahya's facsimile of 10 June 2002, stating that AWB did not accept that it had any liability to indemnify Ronly in respect of this claim and the reasons for this.373
In evidence, Ms Peavey expressed a belief that if she had 'expressed rejection of the indemnity to Ronly in such strong terms' she would have made inquiries about the matters raised in Ms Calnan's email of 5 July 2002.374 But
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she had no recollection of doing so.375 She did not recall having made any inquiries or having spoken to Mr Ingleby, Mr Flugge or Messrs Watson, Emons or Officer.376
18.183 In a facsimile dated 22 July 2002 Mr Bali, replied to Ms Peavey's letter, in the following terms:
I have been passed a copy of y o u r fax dated 19th July addressed to Erol Yahya. I am shocked and su rp rised at the contents of y o u r m essage w hich I consider does y o u r com pany no credit w hatsoever.
I w as present d u rin g the m eetings an d discussions w hich took place w ith Trevor Flugge, the then C hairm an of the AWB; M ichael W atson, the then head of
chartering and N igel Officer an d M ark Em ons w ho, at that tim e w ere responsible for AW B's business w ith Iraq. Paul Ingleby head of AWB's finance departm ent w as also fully aw are of an d authorised these transactions.
Prior to being approached by the AWB w e h ad no involvem ent either direct or indirect w ith the AW B's sales of w h eat to Iraq. In early 2000 the AWB became concerned at w hether paym ents w hich they w ere m aking for inland trucking in Iraq were in breach of UN sanctions against Iraq. The AWB approached us for assistance. A t the tim e w hen the relevant discussions took place the AWB h ad already concluded the contract of affreightm ent w ith A tlantic and O rient p u rsu an t to w hich the 'A m aran to s' w as chartered. A tlantic and O rient only agreed to the transfer of the contract to Ronly on the basis that the AWB w ould remain responsible for the m anagem ent and control of the vessels chartered and for all financial obligations. Equally w e w ere only prep ared to front the business for the AWB because at th at tim e w e w ere about to enter into a joint venture partnership w ith the AWB. W e required and w ere g iven the assurance that this business w o u ld be fronted by us and an offshore com pany on a full indem nity basis.377
[em phasis added]
18.184 Ms Peavey wrote again to Mr Bali on 13 August 2002, dismissing Ronly's request that AWB indemnify Ronly for any claims made by Atlantic and Orient Shipping Company if the claim of the owners of the Amarantos was successful.378 In her facsimile, Ms Peavey wrote:
As y o u m ay be aw are, the AWB staff you m en tio n ed in your em ail as having a significant role in the negotiation of the agreem ent betw een AWB Lim ited and Ronly, have now left AWB. W e are currently in the process of m aking discrete inquiries w ith som e of these people, and w e w ill let you know w hether this
clarifies the situation.379
After reiterating that she was not satisfied that there was any obligation on AWB to indemnify Ronly in respect of any liability that Atlantic and Orient Shipping may be able to successfully establish, Ms Peavey concluded her facsimile with the following invitation:
H ow ever if you are in possession of any docum ents that establish that such an indem nity exists, please forw ard a copy of these docum ents to u s.380
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18.185 Mr Bali replied on 16 August 2002.381 His facsimile to Ms Peavey began:
It is clear to m e read in g y o u r fax th a t you have no inform ation concerning the arrangem ent p u t in place in M arch 2000 betw een Ronly and the AWB for the p ay m en t of Inland trucking fees w ith in Iraq and th at you have not spoken to any of the relevant people even th o u g h those people concerned are available and can confirm the inform ation th at we hav e p ro v id ed .382
No doubt in response to Ms Peavey's invitation, Mr Bali's facsimile was accompanied by 'copies of documents which will hopefully explain the arrangement'.383 These included Mr Watson's facsimile of 6 March 2000, setting out the terms of AWB's agreement with Ronly384, and Mr Emons' email of 7 March 2000 to Mr Bali explaining the background and reason why AWB sought its agreement.385 Mr Bali also went on to remind Ms Peavey that he had previously informed her that 'Trevor Flugge, the then Chairman and CEO of AWB was also aware of the arrangement, as was the Head of Finance, Paul Ingleby'.386 He continued:
I note that you are proposing to m ake discrete inquiries w ith som e of the people involved. I have no idea w hy it is necessary for the enquiries to be discrete. All of the people concerned in this m atter are contactable and, as far as I am aw are are fully p rep ared to confirm w h at h a p p en ed and the n atu re of the arrangem ent. If necessary I can provide you w ith the current contact details of the people referred to above.387
The facsimile then addressed the basis of AWB's rejection of Ronly's claim for indemnity —in doing so stating, 'What I think you fail to appreciate is that we do not know anything about this claim and we do not have any information with which to defend it'.388 This was consistent with the assertion that Ronly was merely acting as a 'front company' in both Mr Bali's and Ms Calnan's earlier communications. He then concluded:
If your inability to confirm responsibility on behalf of AWB is because you have insufficient inform ation then I am p rep ared to give you som e tim e to com plete y o u r enquires since I am sure that on a proper investigation of this m atter you have no alternative b u t to confirm y o u r responsibility....
I have no w ish to im pose deadlines on y o u r response if there is a genuine need for investigations to be carried out. A s y o u w ill appreciate obtaining a response from you is som ew hat akin to extracting blood from a stone so I w o u ld appreciate a response from you by our opening on 2nd Septem ber failing w hich w e shall proceed in accordance w ith the legal advice that w e have received.389
Mr Bali's facsimile and its attachments were also copied to Mr Long.
18.186 On 16 September 2002, Mr Long responded to Mr Bali's facsimile to Ms Peavey of 16 August 2002.390 In his letter, Mr Long stated that, from his review of the documentation attached to Mr Bali's facsimile, 'there is no evidence to suggest that AWB ever agreed to indemnify Ronly'391 and that
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given the lack of evidence AWB was not prepared to provide the indemnity that Ronly sought. In doing so, Mr Long wrote:
The arrangem ents betw een Ronly and AWB at that tim e w ere com m ercial
arrangem ents w hereby AWB p aid you US$0.20 per to n for assisting in organising freight an d trucking contracts in Iraq.392
The US$0.20 per tonne fee AWB paid to Tse Yu Hong Metal Limited was recompense for its provision of 'administration support'393 in the form of preparing invoices to AWB for freight and inland transportation fees payable
in respect of shipments, receiving payments from AWB Chartering of freight and inland transportation fees and paying them onto the shipowner and Alia. This was the extent of its assistance in 'organising freight and trucking contracts in Iraq'.
18.187 Mr Long's letter of 16 September 2002 had been drafted by Ms Peavey.394 She could not recall 'settling the letter'.395
Ms Peavey did not know whether Mr Flugge and Mr Ingleby were aware of AWB's agreement with Ronly, as Mr Bali had asserted in his facsimile of 22 July 2002396, or whether they sanctioned it.397She had not made any
inquiries as to whether Mr Ingleby or Mr Flugge were aware of AWB's deal with Ronly.398 The reason Ms Peavey gave for not doing so was first because her focus was on the Amarantos matter and identification of what Ronly were seeking399, namely an indemnity, and second because at the time she was receiving instructions from Mr Long and Mr Fahy400 and was informed by Mr Long that no indemnity was given.401 According to Ms Peavey:
It w as a significant claim. I expect th at —look, all I w o u ld be doing is speculating, but I expect th at I received instructions from the business, found those
instructions to be satisfactory an d not requiring m e to approach form er
em ployees.402
She did not recall whether, at the time of drafting the letter that Mr Long subsequently sent, she had any instructions as to whether Messrs Flugge, Watson, Officer, Emons and Ingleby knew about the arrangement with Ronly.
18.188 Prior to sending this letter to Mr Bali, Mr Long also sent a copy of the draft by email to Mr Geary403 inviting his comments.404 In his email, Mr Long set out the background including a summary of the collision and claim. He wrote:
Ronly were involved in paying inland trucking charges and chartering vessels for us because of alleged problem ns w ith the UN/IGB. AWB p aid ronly in advance ($12 per tonne) an d Ronly paid (via som e shelf com pany) the Jordanian trucking com pany.
M ark Em ons and M ike W atson set the deal up.
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Based o n the p aper w ork w e have from Ronly (our files are thin) there is not
enough evidence to prove that AWB has liability or agreed to indem nify R only for acting as charterer. AWB p aid ronly USD20 cents per tonne facilitation fee. Ronly argue the opposite b u t can 't substantiate it to o u r satisfaction.
N ori has m entioned th at Paul an d T revor are aw are of the deal and sanctioned it.
N ori called T Flugge Fri n ig h t com plaining about our position. TF called m e and w ants to distance him self.405 [em phasis added]
Mr Geary forwarded a copy of this email on to Mr Ingleby that same day, with the following message: 'Do you know anything about this? I have not looked at the file but based on this note I agree with Michael's position'.406 Mr Ingleby replied to Mr Geary later that evening: Î didn't know about these
deals until parties left AWB. (usually done by IS&M and nigel) It could get messy but we have no choice than to pursue correct and ethical path'.407
According to Mr Ingleby, his reference in this email to the 'correct and ethical path' was not a reference to what had happened concerning the payment of the inland transportation fees, but was said in the context of Ronly's claim for an indemnity.408
18.189 It is not necessary for the purposes of this Inquiry to determine if AWB was liable to indemnify Ronly as Ronly had claimed or whether AWB was entitled to reject that claim, as it did. What is significant, for present purposes, is that this correspondence from Ronly in July and September 2002 confirms what is also otherwise revealed by an analysis of AWB's agreement with Ronly and the implementation of that agreement, namely:
⢠that Ronly, and its nominee Tse Yu Hong Metal Limited, played no real role in the charter of the vessels where it was interposed
⢠that their only role was to receive and pay on to Alia on AWB's behalf the inland transportation fees payable in respect of AWB's shipments to Iraq
⢠that Ronly and its nominee Tse Yu Hong Metal Limited were, to this end front companies
⢠that it was AWB that approached Ronly in early 2000 for its assistance in this regard. This was in about February 2000 and at the same time Atlantic and Orient Shipping Company had withdrawn from its agreements with AWB to pay inland transportation fees to Alia on AWB's behalf
⢠that there was no genuine or sound commercial reason for AWB interposing Ronly into its then existing contracts of affreightment and arrangements with shipowners
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⢠that one of the purposes of paying inland transportation fees via Ronly and its nominee Tse Yu Hong Metal Limited, was to 'disguise the fee' as Mr Emons so candidly stated in his email of 7 March 2000
⢠that AWB's arrangement with Ronly was entered into out of a concern within AWB as to 'whether payments which they were making for inland trucking in Iraq were in breach of UN sanctions against Iraq' or as Mr Long described them in his 16 September 2002 email 'alleged problems with the UN/IGB.'
There were no 'problems' with the United Nations or IGB in late 1999 or early 2000 which would justify the use of Ronly and Tse Yu Hong Metal Limited in the way in which they were used by AWB, other than the UN sanctions, the consequences of their imposition and the inquiries that the Office of Iraq Programme and DFAT were making in relation to the payment of 'trucking fees' in breach of those sanctions.
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N otes
1 Ex 18, WST.0001.0032, para. 2. 2 Ex 18, WST.0001.0032 at 0034, para. 10. 3 Ex 18, WST.0001.0032 at 0035, para. 17; see also the objectives set out in Mr Lindberg's note 'AWB Limited Organisation Restructure' (Ex 1260, MAE.0004.0017). 4 Ex 18, WST.0001.0032 at 0034, para. 11. 5 Ex 230, WST.0007.0014_R at 0031_R para. 84. 6 T 1966.40- T 1967.3. 7 T 1967.6. 8 T 1967.10. 9 T 1967.24. 10 T 1967.19 and 24. 11 Ex 18, WST.0001.0032 at 0038, para. 22. 42 Ex 18, WST.0001.0032 at 0038, para. 22. 13 T 653.12. 14 T 655.33. is T 673.45. 16 Ex 18, WST.0001.0032 at 0034, para. 12. 17 Ex 1260, MAE.0004.0017 at 0018. is Ex 1260, MAE.0004.0017 at 0018. 19 Ex 420, WST.0012.0001_R at 0002_R, para. 2.3.
29 Ex 230, WST.0007.0014_R at 0032_R, para. 87. 21 Ex 230, WST.0007.0014_R at 0032_R - 0033_R, para. 91. 22 Ex 1376, WST.0007.0035_R at 0036_R. 23 Ex 230, WST.0007.0017_R at 0032_R, para. 88. 24 Ex 230, WST.0007.0014_R at 0032_R, para. 88. 23 T 939.16-29. 28 T 6459.8. 27 T 6459 - T 6460. 28 T 6459.18. 29 T 3555.39. 39 T 3333.35; see also Ex 420, WST.0012.0001_R at 0021J ? , para. 9.10. 31 T 3334.13. 32 T 3334.10. 33 T 942.36. 34 T 943.32. 33 T 942.44. 36 Ex 420, WST.0012.0001_R at 0002_R, para. 2.3. 37 Ex 18, WST.0001.0032 at 0039, para. 25. 38 Ex 420, WST.0012.0001_R at 0004_R, para. 4.2. 39 Ex 96, WST.0006.0001 at 0012, para. 72. 40 Ex 96, WST.0006.0001 at 0012, para. 72. 41 Ï 6048-6049; see also Ex 96 WST.0006.0001 at 0012, para. 73 and Ex 420, WST.0012.0001_R at 0019_R- 0020_R, para. 9.5. 42 T 6049.36-40; see also Ex 96, WST.0006.0001 at 0012, para. 73 and Ex 420, WST.0012.0001_R at 0020_R, para. 9.79.8. 43 Ex 1376, AWB.0278.0011. 44 T 1963.39-43. 43 Ex 1376, AWB.0278.0012. 46 Ex 20, WST.0002.0026-0027. 47 Ex 20, WST.0002.0026-0027 at 0026. 48 Ex 96, WST.0006.0001 at 0012, para. 75; T 1966. 49 T 1966.36.
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so T 1964.5-27. si Τ 6052.43-Τ 6053.32. 52 ÎÏ 420, WST.0012.0001 at 0019-0020, para. 9.2 and 9.6. 53 Ex 1377, AWB.0274.0261. The appointm ent was in the following terms:
It gives me great pleasure to announce the appointment of Charles Stott to the position of General Manager International Marketing. Charles joins the AWB from BHP Petroleum where he has w orked for the last 4 years. He has in excess of 20 years international trade and capital investment experience which has been acquired across a broad range of industries including grain, petroleum and minerals. Charles will officially commence on Monday 10th July 2000. 54 T 2529.5; T 2530.29; T 2534.1; T 2537.20. Although Mr Stott initially denied that he had attended AWB's offices prior to officially commencing employment, he later accepted that this evidence was incorrect. 55 Ex 673, AWB.0305.0115_R at 0122_R. 56 Ex 20, WST.0002.0144. 57 Ex 20, WST.0002.0166. 58 See Chapter 14. 59 These inland transportation fees appear to have been paid from this account because, prior to September 2000, all trading activities of the AWB G roup including AWB Chartering were conducted through AWB (Australia) Limited (see Chapter 9). 60 Including disponent owner. In this chapter, a reference to a 'ship owner' or 'ow ner' includes a disponent owner or operator of the vessel. 61 This arrangement is discussed in more detail below. 62 See below. 63 Such a fee was paid to H yundai Merchant Marine Co. Limited in relation to its initial payments (although not in relation to its later shipments) and to Tse Yu Hong Metal Limited. See also T 3427.23. 64 T 3427.33. 65 Namely the second shipment under contract A4653. 66 The paym ent by instalments resum ed w ith contract A0430 concluded in November 2000 (see Chapter 21) and the first shipments m ade under that contract in May 2001. However, AWB Chartering no longer played any role in the paym ent of inland transportation fees from the time of those shipments. From the first shipment under contract A0430, inland transportation fees were paid by the AWB Pool directly upon instructions from the International Sales and Marketing Division. 67 Based on the tonnage loaded and the rate applicable to the contract under which the shipment was made, generally US$12 per tonne. 68 Ex 112, MAE.0001.0052. 69 See Chapter 13. 79 Ex 118, MAE.0002.0069. 71 Also referred to in the documents as HMM. 72 The payments made via Atlantic and Orient Shipping Company were made via its agents Euro-Asia Chartering. 73 Ex 1377, AWB.0042.0269_R. 74 Ex 1498, AWB.0042.0263_R and AWB.0042.0336_R. 75 Ex 1377, MAE.0001.0076_R. 76 Ex 1447, AWB.0182.0158_R. 77 This was also know n as 'Iraq COA #14'. 78 Ex 1500, AWB.0203.0019_R. 79 Ex 112, MAE.0001.0052. 89 Ex 1377, AWB.0197.0036_R. 81 Ex 1377, AWB.0197.0036_R at 0037_R. 82 Ex 1500, AWB.0203.0019 at 0038. 83 Although each incorrectly states that it is an addendum to a charterparty between Atlantic & Orient Shipping Company and the Australian Wheat Board (sic) (and not AWB). 84 Although they are both incorrectly signed, purporting to be signed on behalf of AWB (Australia) Limited rather than AWB.
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85 See below. 86 Other than with the date of the CO A. 87 Ex 112, MAE.0001.0052. 88 Ex 1500, AWB.0203.0028_R. 88 Ex 1500, AWB.0203.0029_R. 98 Ex 1500, AWB.0203.0041_R. 91 Contained in a recap telex of that date (Ex 1377, AWB.0046.0138_R). This is dealt with further below. 92 Ex 1377, AWB.0203.0013_R, AWB.0203.0005_R and AWB.0203.0016_R. 93 The use of a separate invoice for the 'trucking fee' was consistent with what had been set out in the recap telex of 25 October 1999, as quoted above. 9“ Ex 1377, AWB.0203.0014_R, AWB.0203.0006JR and AWB.0203.0017_R. 95 The instructions to make these payments in respect of two of the shipments were made on 26 December 1999 (Ex 1318 AWB.0203.0007_R) and 7 January 2000 (Ex 1318, AWB.0203.0018J?) respectively. 96 This appears to be a reference to First Siam Shipping Lines Pte (Singapore). There is no evidence as to the relationship, if any, between FSSL and Atlantic and Orient Shipping Company (the disponent owners under the contract of affreightment), Euro-Asia Chartering Corporation (the agent to whom the freight and inland transportation fees were paid by AWB Chartering) or Pacific Rim Shipping Pty Limited. 97 That Cornflower Holdings Limited received these payments was confirmed in the letter that AWB received from Pacific Rim Shipping Pty Limited dated 15 March 2000, considered below. 98 This is again confirmed or is apparent from the letter that AWB received from Pacific Rim Shipping Pty Limited dated 15 March 2000. 99 Ex 335, WST.0009.0492. i” T 5407.4. 101T 5408.10. 102 x 5407.14, for instance because the ship owner was also wishing to find its own way to disguise the
payments to Iraq (T 5407.30). i°3 T 5407.14. i°4 T 5893.33, T 5896-5897. 105 fo r example, Mr Watson acknowledged that he could point to no document from Alia nominating Cornflower as the company that was to receive these payments (T 5897). Alia did on one occasion nominate a company other than itself to receive inland transportation fees. But that was in February 2000 when it wrote to AWB requesting that inland transportation fees be henceforth paid to the nominated bank account of H ardy's Agents Limited in Hong Kong (Ex 431, AWB.0087.0042_R). Despite that request, there is no evidence that any payments were made by AWB to that account (this was because of a problem AWB encountered in transferring the funds to the company's nominated account (Ex 1469, MAE.0002.0082_R; also at Ex 1470, AWB.0071.0008_R). There is also no evidence that Alia made a similar request in relation to Cornflower Holdings Limited. It would also seem unlikely that Cornflower Holdings had been nominated by the shipowner (Atlantic and Orient Shipping) to receive these fees, given the request contained in the letter from Pacific Rim Shipping Pty Limited to AWB dated 15 March 2000; that is unless that letter was not a genuine request and was prepared for the purposes of it and the response being put before the Singapore authorities in response to their inquiries. This letter, the circumstances in which it came to be sent and AWB's response are examined later in this chapter. 108 T 5407.37; T 5893.45. 107 In fact, the amount paid was US$13.3635 per tonne, los x 3 4 3 1 .2 3 , T 5408.10-39. 189 T 5410.18. 110 Ex 115, AWB.0136.0641. Mr Emons could also not recall the background to this facsimile (T 1907.35-T 1908.4). 1» T 5409.35. 112 Ex 1499, AWB.0203.0001_R.
113 Ex 1377, AWB.5058.0277. ⢠Ex 1318, AWB 0203.0018_R, facsimile from Pacific Rim Shipping Pty Limited to FSSL dated 7 January 2000 instructing it to remit US$648,317.32 to Cornflower Holdings Pty Limited in respect of the third shipment.
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115 Of US$521,110. 116 Of approximately US$650,000. 117 There is nothing in the material before this Inquiry to indicate who 'Grace' is or by whom she was employed or how it w as that Mr Emons was able to provide an instruction to Cornflower Holdings Limited to make the paym ent to Alia. There is also nothing in the material before this Inquiry to indicate what happened to the difference between the amount that Cornflower Holdings Limited was to receive and the amount paid to Alia. That difference not explained by the am ount is the second instalment of 10% that was still to be paid to Alia. us Ex 1448, MAE.0001.0077_R. i» Ex 1448, MAE.0001.0079_R. 120 There was a US$36 discrepancy between the total fees payable and the am ount received. It appears that notwithstanding Mr Watson's email to Mr Emons of 8 January 2000, the inland transportation fees for this shipment were paid in one instalment, not two. 121 Ex 1377, AWB.0203.0008_R. 122 SEWT is an acronym for the State Enterprise for Water Transport, see Tramp Oil and Marine Limited v State Enterprise for Water Transport and ors [2005] EWCA 772 at [2], 123 Ex 1377, AWB.0203.0009. 124 Ex 1377, MAE.0001.0076_R. 125 The facsimile also confirmed receipt by Alia of the first instalment of the inland transportation fees payable under the two shipments made under the contract of affreightment with Hyundai Merchant Marine Co Limited (see above). 126 Ex 1447, AWB.0087.0050_R. 127 Ex 1377, AWB.0087.0009JU 128 Ex 1541, AWB.0136.0538. 129 Ex 1503, AWB.0182.0158_R. 138 Ex 1503, AWB.0182.0158_R. 231 Ex 1377, A WB.0102.0096. 132 See Chapter 19. 133 These are identified in Table 17.1 in Appendix 17. 134 Ex 1377, AWB.0064.0011_R. The am ount paid was US$3,454,692.01. The second instalment of 10% of the inland transportation fees for the first 5 of these shipments was paid by AWB Chartering to Alia directly on 12 May 2000 (Ex 1377, AWB.0163.0068_R). Although there is no evidence as to the payment of the 10% balance of the remaining 2 shipments, there is also nothing to suggest that the second instalment of each of these 2 shipments was never paid. 135 Ex 1377, AWB.0087.0081_R. The am ount paid was US$2,079,614.52. Although there is no evidence as to the paym ent of the 10% balance of these four shipments, there is also nothing to suggest that the second instalments of these shipments was never paid. 136 The other two appear to have been shipped on vessels that AWB had on time charter. 137 Ex 1376, AWB.0203.0042JR. 138 Ex 1377, AWB.0203.0059JL 139 Ex 430, AWB.0203.0004. mo Ï 5411.10.
141 See below. 142 In the first paragraph of his facsimile, Mr Watson states that w hat follows thereafter, including the agreement recorded in the passage emphasised, is in the context of 'the contract of affreightment in place'. Similarly, in the emphasised passage itself, the agreement there set out is said to be 'under the terms of the contract of affreightment between' AWB and Pacific Rim Shipping Pty Limited (or more accurately its principal, Atlantic and Orient Shipping Company). Although Mr Watson is referring at both of these points in his facsimile of 3 February 2000 to a subsisting contract of affreightment between AWB and Atlantic and Orient Shipping Company, it is not clear whether this was a reference to the contract of affreightment dated 25 October 1999, which AWB was negotiating to extend at that time or the further contract of affreightment that AWB concluded with Atlantic and Orient Shipping Company that same day (namely 3 February 2000). 143 T 5413.42. 144 Ex 426, WST.0001.0176_R at 0181_R, para. 23.
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145 'Trucking fees'. I-» Ex 430, AWB.0203.0004. 147 The principals of Pacific Rim Shipping Pty Limited, the addressee of the letter 148 If the reference to 'the contract of affreightment' in this facsimile was to the 25 October 1999 contract, then Mr Watson's facsimile was merely confirmatory of the arrangements that were already in place under that earlier contract of affreightment and which both AWB and Atlantic and Orient Shipping had already acted upon in relation to the paym ent of the inland transportation fees for the three shipments made under that contract of affreightment in December 1999. The day after Mr Watson sent his facsimile, AWB concluded an agreement for further shipments to be made under that contract of affreightment in February and March 2000. It was pursuant to this agreement to extent that earlier contract that nine of AWB's first eleven shipments of w heat to Iraq in 2000 were made. If the reference to the 'contract of affreightment' in Mr Watson's facsimile is a reference to AWB's contract of affreightment dated 25 October 1999, then the agreement contained within the facsimile would apply to the further shipments to be made under that contract of affreightment and the extension of it. However, if on the other hand, Mr Watson was referring in his facsimile of 3 February 2000 to the contract of affreightment that AWB had concluded with Atlantic and Orient Shipping Company (through Pacific Rim Shipping Pty Limited) that same day, then his facsimile was in effect a side agreement to that new contract of affreightment, in terms consistent w ith the arrangement that already existed in relation to the 25 October 1999 contract of affreightment and which had AWB and Atlantic and Orient Shipping Company had put into effect in respect of the three shipments made in December 1999 under that earlier contract. For present purposes, it is not necessary to determine to which contract of affreightment Mr Watson was referring in his facsimile of 3 February 2000 and of which contract
of affreightment the agreement in the emphasised passage forms part. Either way, as at the date of this facsimile and thereby shortly before AWB resumed its shipments of w heat to Iraq in 2000, AWB and Atlantic and Orient Shipping Company (via its agents Pacific Rim Shipping Pty Limited) had agreed that inland transportation fees payable in respect of shipments carried under their contract of affreightment—including shipments in the future — w ould be paid through Atlantic and Orient Shipping, in the same way that the inland transportation fees for the three shipments made in December 1999 had been. 149 As Mr Emons made plain in his email of 4 November 1999 (Ex 245, AWB.5056.0395). iso Ï 3421.13. 151 See Chapter 14. 152 See Chapter 14. 153 Or indeed any agreement with Alia at that time; the protective agency agreement that AWB entered into w ith Alia was not negotiated until April 2000. 434 T 3420.31. is3 T 3400.27, T 3405.20, T 3417.3, T 3420.46, T 3439.27 (in the context of Ex 136). Although Mr Watson at first denied that the monies paid to Alia were going to Iraq, he conceded that those earlier answers were incorrect (T 3467.38). 156 See for example his exchange with Alia on 7 December 1999, in Chapter 13; see also Ex 120,
MAE.0001.0063 and Ex 429, AWB.0089.0309. 157 See Chapter 25. is® Ex 1377, AWB.0046.0138_R. 159 A ddendum no. 3, Ex 1377, AWB.0203.0053. «Î¿ Ex 1377, AWB.0046.0138 at 0139. i6i One such company was Sanko Shipping, which was the shipping company used by AWB to carry the first shipment made under contract A4653 and the first shipment in respect of which inland transportation fees were payable (Ex 1447, AWB.0042.0018_R, AWB.0042.0015_R). The inland transportation fees payable in respect of this shipment were paid by AWB Chartering to Alia directly, as Mr Emons said at the time 'as a one off'. ίο2 Ex 1565, AWB.0182.0106_R. 163 Ex 1499, AWB.0203.0001.
164 This is apparent from communications that AWB received in 2003, in follow up to Mr Kudelka's inquiry and AWB's response (Ex 1539, AWB.0295.0163.001). This correspondence is examined elsewhere in this chapter. 165 Ï 5414.34.
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166 Ï 5414.43. I" Ex 432, AWB.0087.0091. 168 Ex 335, WST.0009.0001 at 0049, para. 212. 169 Ex 335, WST.0009.0001 at 0049, para. 213; T 2829.36. 170 Ex 335, WST.0009.0001 at 0049, para. 213. I7' Ex 335, WST.0009.0001 at 0049, para. 213. 172 T 2829.39. 173 Ex 335, WST.0009.0001 at 0049, para. 214. 174 Ï 2829.46-T 2830.10. 175 T 3428.30. 176 T 3428.32. it? T 3428.41. 178 x 3429.3. 179 T 6035.13. is" T 3405.15. 181 x 3434.27. 182 Ex 1539, A WB.0295.0163.001. 183 Ex 1539, AWB.0295.0163.001-0164. 18» Ex 1539, AWB.0295.0163.001 at AWB.0295.0164. is" Ex 1539, AWB.0295.0163.001. I88 Ex 1539, AWB.0295.0163.001. I»7 Ex 1542, A WB.0295.0165-0167. 188 Ex 1315, AWB.0295.0168. 189 Ex 1316, AWB.9000.0142_R. Legal professional privilege was originally claimed by AWB in respect of this document. This document was only produced to the Inquiry after the Federal Court of Australia had found that that privilege had been waived (AWB Limited v Honourable Terence Rhoderic Hudson Cole (No. 5) [2006] FCA1234). ⢠Ex 1316, AWB.9000.0142_R at 0143_R-0144JR. 191 Ex 1316, AWB.9000.0142_R at 0144_R. 192 Ex 1316, AWB.9000.0142_R at 0143_R. 193 Ex 1316, AWB.9000.0142_R at 0143_R. 194 Ex 1316, AWB.9000.0142_R at 0143_R.
195 Albeit in terms explaining why the confirmation sought in that paragraph w ould not be given by AWB. 196 Ex 1316, AWB.9000.0142_R at 0142_R. Legal professional privilege was originally claimed by AWB in respect of this document. This document was only produced to the-Inquiry after the Federal Court of Australia had found that that privilege had been waived (AWB Limited v Honourable Terence Rhoderic Hudson Cole (No. 5) [2006] FCA 1234). 197 Ex 1316, AWB.9000.0142_R.
198 Ex 1317, AWB.9000.0148. Legal professional privilege was originally claimed by AWB in respect of this document. This document was only produced to the Inquiry after the Federal Court of Australia had found that that privilege had been waived (AWB Limited v Honourable Terence Rhoderic Hudson Cole (No. 5) [2006] FCA 1234). 1" Ex 1317, AWB.9000. 0148. Ms Peavey said in evidence that the last line read 'to say AWB can't do anything further' (T 7348.16). 200 xhjs Was the first of the three methods in which Ronly and its nominee Tse Yu Hong Metal Limited came
to be used by AWB (see below). 201 Ex 96, WST.0006.0001 at 0004, para. 22. This is dealt with more fully in Chapter 13. 202 Ex 1259, AWB.0462.0022. This letter was not produced to this Inquiry by AWB until 6 September 2006, after each of the persons from AWB referred to in it had given evidence. As a result, its contents were not put to any of those persons. 203 Ex 1347, AWB.0469.0106. A copy of this email was only produced by AWB to the Inquiry on 28 September 2006. 204 Ex 1347, AWB.0469.0106. 205 See Chapter 15.
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206 See Chapter 15. 207 Rather than the US$15 per tonne claimed by Mr Emons —see Ex 802, MAE.0001.0066_R at 0067_R; see also Chapter 15. 208 Contracts A4653, A4654, A4655 (examined in Chapter 13) and contract A4822 (examined in Chapter 14). 209 See Chapter 15. 210 The background is set out in a letter from Phillips Fox, AWB's retained solicitors to Ms Peavey of 27 June 2002. See Ex 1360, AWB.0470.0044. 211 Ex 1361, AWB.0470.0054 at 0055. 212 See the evidence of Mr Flugge who, although he denied knowledge of the arrangement as described by Mr Bali, he acknowledged the logic of the argum ent that there was no commercial reason reason w hy Mr Bali would have knowingly made such a false assertion concerning the knowledge of those at AWB. Τ 7610.38-T 7611.23.
Ex 1347, AWB.0469.0101. 224 Ex 1334, AWB.0468.0012. as Ï 7424.25-T 7425.32. 216 T 7593.30-32. 217 Ex 11, AWB.0087.0076-0077. 21 8 Which refers to discussions between Mr Watson and Mr Yahya.
219 Which refers to meetings and discussions that included Mr Watson. 220 Ex 427, MFW.0002.0002 at 0009 (1941); at T 3426.24 Mr Watson said that he did not negotiate this fee, that he did not know who did, that he did not know how it came into existence and that either Mr Emons or Mr Watson told him about it. 222 Ex 427, MFW.0002.0002 at 0009 (1941). 222 Ex 1376, AWB.0046.0036. 222 Ex 1488, AWB.0087.0092_R. 224 A complete list of the shipments in which Ronly and Tse Yu Flong Metal Limited were used in this way can be found in Appendix 17. 229 Ex 11, AWB.0087.0076. 226 Such as the charter he had concluded through agents Pacific Rim Shipping Pty Limited with Atlantic and Orient Shipping Company on 3 February 2000 (Ex 1377, AWB.0208.0042). 227 See for example Ex 1376, AWB.0051.0135_R at 0144_R (Addendum No. 2 to contract of affreightment between Tsu Yu Hong Metal Limited (as disponent owner) and AWBA (as charterer) dated 3 February 2000). 228 See for example Ex 1454, AWB.0051.0087_R, AWB.0051.0130_R and AWB.0051.0214_R. 229 Ex 1454, AWB.0051.0087_R, AWB.0051.0130_R, AWB.0051.0214_R and AWB.0051.0249_R. 230 The inland transportation fees (over US$1.4m) payable in respect of the shipment on board the Prima II were paid in this way (see Ex 1451, AWB.0046.0035_R, AWB.0163.0160_R). On 3 April 2000 Mr Emons sent an email to Ronly advising that the inland transportation fees of US$12 per tonne had been paid and asked that the first instalment of US$10 per tonne be paid to the transport company (Ex 1451, AWB.0087.0100_R). 232 See for example Ex 1449, AWB.0163.0122_R; Ex 1455, AWB.0046.0079_R (payment of inland transportation fees) cf Ex 1377, AWB.0046.0081_R (invoice for freight); Ex 1451, AWB.0163.0125_R (payment of inland transportation fees) cf Ex 1451, AWB.0046.0143_R and AWB.0046.0144_R (payment of freight). 232 Ex 995, A WB.0420.0136_R. 233 Which is the first of the contracts listed in paragraph 5 of his email, namely that for '590,000 mt'. 234 Such as 'the 150,000 mt under AWB t/c [time chartered] vessels (trucking only)' referred to in paragraph 5 of the email. 233 Ex 1455, AWB.0048.0009_R. 236 Ex 1455, AWB.0048.0010_R (including Addenda). 237 Ex 1376, AWB.0203.0042_R (including confidential side letter and addenda). The terms of this contract were also set out in a 'recap' telex that Pacific Rim Shipping Pty Limited sent to Mr Watson on 6 April 2000
(Ex 1377, AWB.0203.0059_R). 238 Although there were some differences, for example as to the rate of freight (see below). 239 Ex 1455, AWB.0048.0010_R at 0019_R. 240 Ex 1455, AWB.0048.0010_R at 0020_R (Tse Yu Hong Metal Limited is incorrectly spelt in the original).
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241 Ex 1455, AWB.0048.0010_R at 0020 R (Tse Yu Hong Metal Limited is incorrectly spelt in the original). 242 Ex 1377, AWB.0203.0051. 243 Ex 1455, AWB.0048.0010_R at 0019_R. 244 Ex 1377, AWB.0203.0050. 245 Ex 1455, AWB.0048.0010âR at 0014_R (clause 32). 246 Ex 1376, AWB.0203.0042_R at 0045_R (clause 32 has been deleted). 242 Ex 1455, AWB.0048.0010_R at 0018_R (clause 49) and Ex 1377, AWB.0203.0042_R at 0047_R (clause 45). 248 Ex 11, AWB.0087.0076. 249 Ex 995, AWB.0420.0136_R. This is the contract for '80,000 mt'. 250 Ex 1455, AWB.0052.0231_R. 251 Ex 1377, AWB.0052.0218_R. 232 Ex 1377, AWB.0052.0219_R. 253 A copy of this contract of affreightment was not produced to the Inquiry. 254 Ex 1377, AWB.0052.0219_R at 0228_R. 233 Ex 11, AWB.0087.0076. 256 For example see Ex 1451, AWB.0039.0087_R. 257 For example see Ex 1454, AWB.0051.0207_R. This was as Mr Watson had sought in his facsimile of 6 March 2000 (Ex 11, AWB.0087.0076). 238 T 3426.24. 239 See for example Ex 1455, AWB.00052.0020_R, AWB.0052.0118_R, AWB.0052.0185_R and AWB.0052.0308_R. 260 phe last shipment where Hyundai was used having been shortly after Mr Stott's decision to cease using
shipowners as conduits was implemented. 263 Ex 198, WST.0001.0137 at 0144, para. 26. 262 Ex 198, WST.0001.0137 at 0144, para. 26; T 2261.45. 263 Ex 198, WST.0001.0137 at 0144, para. 26; T 2513.20. 264 T 2517.11; T 2524.13. 263 Ex 198, WST.0001.0137 at 0144, para. 27. ae Ï 3449.16. ay Ï 3449.21. 268 Ex 286, AWB.5058.0251_R. Although Mr Stott said in evidence that he could not recall discussing the 'Iraqi problem' w ith Mr Watson, as this email suggests (T 2530.23) and that Mr Watson was not part of his 'initial discovery process' (T 2530.39), it is nevertheless clear that he did have discussions with Mr Watson at about this time in relation to the paym ent of the inland transportation fees and in particular the use of Ronly. Mr Stott's evidence about those discussions is set out later in this chapter. Moreover, later in his examination Mr Stott admitted that he may have met Mr Watson when he was walking around the AWB offices (T 2538). 269 Although Mr Watson was cross examined on whether his evidence of his conversation with Mr Stott at T 3450 and following occurred when he first met Mr Stott (as he suggested when he first gave that evidence) or some two days later (as he conceded had been the correct position) — see Τ 5916-T 5919 —no criticism or adverse finding should be made against Mr Watson for that error, given that the two conversations were so dose together and both versions coincided with Mr Stott being informed of the matters identified by Mr Watson shortly after Mr Stott's return to AWB. 270 T 3451.1. 271T 3449.33. 272 T 3449.43. 273 T 3450.1. 274 T 3450.10. 273 T 3451.25. 273 T 3451.29. 277 T 3452.2. 278 T 3452.11. 279 T 2539.12.
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280 According to Mr Stott he was initially informed that these payments were being made through Ronly; he w as not informed that other shipowners were also being used (T 2513.20). He did not learn of this until later, in December 2000 w hen he went through the A rthur Andersen report (T 2523.1). 28! T 2514.6. 282 T 2513.45. 283 Ï 2514.20. 284 Ï 2514.25. ass Ï 2514.46-T 2515.2, T 2516.38. 286 T 2515.12, T 2516.28. 287 T 2515.36. 288 T 2521.2. 289 T 2521.8 and 38. 290 T 2522.ll. 291X2522.32. 292 Ex 98, WST.0001.0137 at 0144, para. 26. 293 Ï 2264.23. 294 Ï 2264.47; T 2522.7. According to Mr Stott this was also not his reason for stopping the use of Ronly
(T 2523.25). 298 T 2265.4; T 2522.17; T 2522.38; T 2523.45. 298 T 2534.23; T 2536.26-35. 297 Ex 439, AWB.0088.0143_R. 298 Ex 440, AWB.0158.0440_R. 299 Ex 442, AWB.5079.0239_R. 889 Ex 442, AWB.5079.0239_R. ” 1 Ex 384, SN0.0001.0057. 882 Ex 384, SN0.0001.0057. 888 Ex 441, AWB.0088.0147. 899 Ex 995, AWB.0420.0177_R. 888 Ex 399, AWB.0138.0378_R. 898 Ex 335, WST.0009.0356. 387 See Chapter 26. 388 Ex 676, AWB.0141.0539. 399 Ex 957, AWB.0050.0098. 310 Calculated at US$0.20 per tonne in accordance with Mr Watson's facsimile of 6 March 2000 (Ex 11, AWB.0087.0076). 388 Ex 1451, AWB.0052.0244_R. 382 Ex 1377, AWB.0158.0048JT 318 It is not clear if Ex 1540, AWB.0196.0065_R, which records an amount said to have been owed by Ronly was reduced via an offset relating to the balance of this debt. 314 Ex 677, AWB.5076.0354. 315 Ex 677, AWB.5076.0354. 318 Ex 677, AWB.5076.0354. 317 Ex 335, WST.0009.0364. 318 Ex 61, AWB.5040.0244. 389 Ex 349, AWB.0088.0351_R. 329 Ex 11, AWB.0087.0076; namely that the 'total cargo to be shipped' would be 1.5 million tonnes and the
agreement to pay 'USD 0.20 Per Metric Ton, to Ronly or a company advised in the execution of the contract.' 328 Ex 349, AWB.0088.0351_R. 322 T 3423.32; T 3427.44. 323 T 1896.40-45. 324 Other than as between AWB Chartering and the AWB Pool. 325 Ex 428, WST.0014.0001 at 0001, para. 4. 328 T 3401.4. 327 T 3401.4.
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328 Ex 428, WST.0014.0001 at 0002, para. 8. 32» Ex 427, MFW.0002.0002 at 0006 (1907). 33i> Ex 427, MFW.0002.0002 at 0006 (1907). 331 Ex 427, MFW.0002.0002 at 0003 (1871). 332 T 3425.il.
333 T 3421.33. 334 Ex 428, WST.0014.0001 at 0002, paras 5-6; Ex 427, MFW.0002.0002 at 0003 (1871) and 0004 (1886); T 3400.27, T 3405.20, T 3417.3, T 3420.46, T 3439.27. Mr Watson conceded that his original denials to this Inquiry that the monies paid to Alia were going to Iraq were incorrect (T 3467.38). 335 T 3405.20. 336 T 3402.20. 337 T 3419.28. 338 Ex 428, WST.0014.0001 at 0002, para. 7.
339 Ex 427, MFW.0002.0002 at 0002 (1864); see also T 3400.29. 340 Ex 427, MFW.0002.0002 at 0004 (1895). 341 Ex 1565, AWB.0182.0106_R. 342 T 3423.32; T 3427.44. 343 T 5411.22. 344 T 3466.28. 345 T 3402.30, T 3427.44. 346 T 3426.16. 347 Ex 427, MFW.0002.0002 at 0007 (1915). 348 Ex 424, INQ.0014.0001. 349 Ex 425, WST.0003.0015_R. 350 Ex 426, WST.0001.0176_R. 351 Ï 3464-T 3466. 352 T 3465.42. 353 T 3465.42 and T 3461.32 which had carried over from w hen he was at AWB. 354 T 3465.36. 355 T 3465.17. 356 And the paym ent of freight to the shipowner, where there were back to back contracts of affreightment. 357 As Mr Emons stated in his email of 7 March 2000 (Ex 1347, AWB.0469.0106). 358 Ex 139, AWB.0182.0163JR. 359 Ex 139, AWB.0182.0163_R. 360 Amarantos Shipping v State of South Australia [2004] SASC 57, [1] (Debelle J). 361 Amarantos Shipping v State of South Australia [2004] SASC 57, [8] (Debelle J). 362 Ex 1377, AWB.0462.0005. 363 Ex 1312, AWB.0378.0171 at 0172. 364 Ex 1312, AWB.0378.0171 at 0172. 365 Ex 1312, AWB.0378.0171. 366 Ex 1312, AWB.0378.0171. 367 Ex 1313, AWB.0462.0008J1 at 0009_R. 368 Ex 1313, AWB.0462.0008_R at 0009_R. 369 Ex 1313, AWB.0462.0008_R. 37" Ex 1313, AWB.0462.0008_R. 371 Ex 1314, AWB.0462.0015_R at 0015_R-0016_R. 372 Ex 1314, AWB.0462.0015_R at 0016_R. 373 Ex 1314, AWB.0462.0015_R at 0018_R. A copy of that facsimile was also sent to Ms Calnan (at 0015_R). 374 T 7332.10. 375 T 7332.10. 376 Τ 7528.34-T 7529.43. 377 Ex 1259, AWB.0462.0022_R. 378 Ex 1347, AWB.0469.0108. 379 Ex 1347, AWB.0469.0108.
Report o f the Oil-for-Food Inquiry 3 6 3
380 Ex 1347, AWB.0469.0108. 381 Ex 1347, AWB.0469.0101. A copy of this facsimile was only produced by AWB to the Inquiry on 27 September 2006. 382 Ex 1347, AWB.0469.0101. 383 Ex 1347, AWB.0469.0101. 384 Ex 11, AWB.0087.0076. 385 Ex 1347, AWB.0469.0109_R; see above. 386 Ex 1347, AWB.0469.0101. 387 Ex 1347, AWB.0469.0101. 388 Ex 1347, AWB.0469.0101. 388 Ex 1347, AWB.0469.0101 at 0102. 330 Ex 87, AWB.5066.0346. 331 Ex 87, AWB.5066.0346. 332 Ex 87, AWB.5066.0346. 333 Ex 11, AWB.0087.0076. 394 Ex 62, EXH.0001.0081 at 0082. 395 x 7323.22.
396 Ex 1259 AWB.0462.0022_R. 397 x 7325.32.
398 x 7324.22; Ms Peavey had no recollection of having m ade any such inquiries (T 7326.4) and gave no evidence of having made such inquiries. When pressed, Ms Peavey (at T 7328.31) suggested that she may have discussed this issue with Mr Ingleby. She also suggested that Mr Flugge had left AWB by then, as a reason for not having spoken with him. Ms Peavey also agreed that if she had spoken with them she would
have made a file note (T 7326.6). No such file note has been produced by AWB. 333 T 7325.38. '
wo x 7326.25 and T 7326.45. 401 T 7328.26. 402 X 7336.16-20. 403 With a copy to Mr Fahy and Ms Peavey. 404 Ex 62, EXH.0001.0081. 405 Ex 62, EXH.0001.0081. 406 Ex 62, EXH.0001.0081. 407 Ex 335, WST.0009.0351. 408 x 2828.27-T 2829.3.
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19 O ctober 2000: a visit to Ira q and subsequent events
19.1 In October 2000 Mr Stott and Mr Hogan travelled to the Middle East to meet with a number of AWB's major customers. As part of the trip they visited Baghdad, meeting with the Minister of Trade and representatives of the Iraqi Grain Board on 14 October.
D isc u ssio n s d u rin g t h e v isit
19.2 Mr Hogan and Mr Stott each prepared a report of their visit to Iraq. On 21 October 2000 Mr Hogan sent an email to Mr Stott, attaching his draft report.1 His email said, 'You will need to add the bits I missed when I was out of the room'.2 Mr Stott's draft report, headed 'Mission report', is incomplete. It identifies one of the purposes of the visit as to 'Explore mechanisms with the IGB in order improve contract execution'.3
A complete version of Mr Stott's report was not produced to the Inquiry. Internal correspondence indicates that Mr Stott edited and distributed a version of Mr Hogan's trip report rather than his own.
19.3 Mr Hogan's draft report identified four objectives behind the visit to Iraq. The first was to:
Exam ine the existing constraints an d contract inefficiencies of supplying w heat to Iraq u n d e r the Oil for Food system , w ith an aim of introducing m ore comm ercial term s, such as:
(i) D ischarge rates (ii) P aym ent procedures (iii) Final w eight and quality.4
The other objectives were to negotiate a new contract for the supply of wheat early the following year, to reinforce AWB's position in relation to the Russian trade, and to discuss training and technical requirements for 2001.5
Report of the Oil-for-Food Inquiry 3 6 5
D e la y s in t h e d i s c h a r g e o f w h e a t a t U m m Q a s r
19.4 Amongst the topics discussed with the IGB and the Minister for Trade during this visit was the rate of discharge of wheat from the vessels at Umm Qasr and AWB's concerns in that regard.6 Mr Hogan wrote:
D iscussions and O utcomes:
(i) D ischarge rates:
AWB L im ited expressed concerns regarding the below average discharge rates at U m m Q aser. Mr. Yousif gave AWB an undertak in g in July that Iraq w ould
increase the discharge rate to a m in im u m of 20,000 tonnes p er day.
AWB figures show that the rates have been aro u n d 11,000-12,000 tonnes for A u g u st/S ep tem b er and as at the 10th of October, the rate h ad dro p p ed to 7,000 tpd.
The discharge rate for Friday the 13th O ctober w as 17,000 tonnes, utilizing only 2 berths an d silo berth. W hilst this is an excellent result in com parison to previous rates, w e w ill need to see a m ore consistent discharge perform ance before w e are satisfied that things are on the im prove at U m m Qaser.
Mr. Yousif advised th at the slow discharge w as a concern for all parties and that Iraq w ere currently doing everything possible to rectify this situation. Mr. Yousif m et w ith the M inister for tran sp o rt 10 days ago (4th O ctober) to discuss the
problem , as w heat discharge berths h ad been taken from IGB an d m ade available for other com m odities (i.e. S u g ar/S teel construction m aterial). It w as m entioned that there h ad been a lack of sugar in Iraq, hence the priority.
IGB and M inistry of T ransport are now m eeting every 15 days to constantly review the situation in U m m Qaser.
IGB has signed an agreem ent w ith M inistry of T ransport th at berths (1,2 an d 4) w ill achieve a m inim um discharge rate of 3,500 tonnes per day.
(M inister of T rade advised that he h ad m et w ith M inister of tran sp o rt an d he had been assured that all problem s w ith discharge at U m m Q aser w ill be rectified in 10 days tim e —24th October).
Bobcats:
Bobcats have not yet been used and are w aiting u p o n custom clearance. These m achines arrived in early Septem ber, an d IGB advised that they should be cleared w ithin a few days.
Vegans:
4 x 150 tphr. Vegan m achines are currently at the p o rt of A qabba (Jordan) and should be received at U m m Q aser w ith in 10 days. These m achines will increase the efficiency at the port.
3 6 6 Report of the Oil-for-Food Inquiry
IGB have also ord ered a fu rth er 26 m achines u n d er the MOU. 8 of these w ill be placed on the silo b erth and the rem aining w ill be utilized on berths 1, 2, 4.7
19.5 Mr Hogan's report recorded the outcome of discussions about testing cargo for Escherichia coli and fumigating vessels where the test results show that fumigation was required. The time taken for this testing and fumigation had been identified as the cause of delays in the discharge of AWB's vessels. During their discussions with the IGB, Mr Stott and Mr Hogan were told that testing of the wheat cargoes would continue to be carried out at the berth in Iraq —not in Australia or at the pilot station at Umm Qasr, as AWB preferred.
19.6 It appears from Mr Hogan's report that the delays that were being experienced in the discharge of wheat from AWB's vessels at Umm Qasr and that were the subject of the discussions Mr Stott and Mr Hogan were involved in during their visit were the result of:
⢠the Iraqis' introduction earlier that year of the testing of wheat shipments on their arrival at Umm Qasr, after the vessel had berthed and before the shipment was allowed to be discharged from the vessel8
⢠the time taken to complete the testing, to obtain the results of the tests and to fumigate the cargo when necessary. During this time the vessel would remain at the berth, unable to discharge its cargo and thus also preventing other vessels from berthing and discharging their cargoes9
⢠the inability of the equipment at the berths in Umm Qasr to discharge cargo at the agreed or desired rate. It was hoped this would be remedied by using the bobcats recently supplied by AWB and the 'Vegan' vacuvators.10
19.7 Mr Hogan also referred in his draft report to a claim by AWB's protective agent that a lack of trucks had reduced the rates of discharge and to the rejection of that claim by the Iraqis when it was put to them. Mr Hogan wrote:
Trucking:
AW B's agent rep o rted that discharge h ad been reduced d ue to a lack of transports to rem ove the w heat. IGB advised th at to their know ledge there w as no
transportation issue.
Action:
Require agent at U m m Q aser to pro v id e m ore detailed inform ation on the discharge operations.
Report o f the Oil-for-Food Inquiry 3 6 7
G uaranteed D ischarge Rate:
AWB is w orking w ith the M inister to im prove the discharge rate at the p o rt of U m m Qaser, w ith a view to fixing the discharge rate to ...11
19.8 There is no reference in Mr Stott's draft 'Mission report' to the delays AWB had experienced in the discharge of its vessels, the reduced rates of discharge, or the cause of those reduced rates of discharge and consequent delays. There was also no reference to the claim by AWB's protective agent that the reduced rates of discharge were due to a lack of trucks; nor was there mention of the Iraqis' rejection of that claim.
19.9 There is nothing to indicate that either Mr Stott or Mr Hogan travelled to the port of Umm Qasr during their visit and observed or otherwise were able to conclude for themselves12 that the low rates of discharge experienced by the AWB vessels were caused by a lack of trucks or transport to remove the cargo from the wharf. There is also no reference in Mr Hogan's report to either Mr Hogan or Mr Stott making that observation or reaching that conclusion independently of the claim by AWB's local protective agent. Mr Stott's draft 'Mission report' is silent on the subject. The only foundation for such a claim was the report by AWB's protective agent, which the Iraqis rejected.
19.10 AWB's response to the Iraqis' rejection of this claim that the delays were the result of a lack of transport was to require its protective agent at Umm Qasr to provide more detailed information to AWB about the discharge operations. The agent provide some information about slow discharge as a result of a lack of trucks during the first two weeks of November 2000.13
There is, however, no material indicating that any such information was provided to AWB prior to Mr Stott's 30 October 2000 letter to the Department of Foreign Affairs and Trade.14 Although Mr Stott gave evidence that the matter was subsequently resolved and more trucks started to appear15, he said this was not until after DFAT's letter of 2 November 200016 and before AWB visited Iraq again.
19.11 Mr Stott gave evidence about the content of his report:
The issue th at had occurred follow ing our O ctober m eeting w as that —the m ain reason that w as recorded, I believe, in the trip report, D orn's an d m y trip report, the issue that w as identified in th at w as the slow discharge w as caused by a lack of trucks at discharge port. So I w an ted to get m ore trucks d o w n at discharge port to increase o u r level of discharge and therefore reduce the dem urrage bills at discharge p o rt.17
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That evidence is not supported by a reading of Mr Hogan's report. There is no mention in Mr Stott's draft 'Mission report' of a lack of trucks causing delays in the discharge of the vessels.
D e sp a tc h a n d d e m u r r a g e
19.12 During the visit there was also discussion about the possible implementation of a despatch and demurrage arrangement between AWB and the IGB. This followed on from the proposal Mr Hogan had put before Mr Bowker of DFAT in early August 2000 and in relation to which DFAT had shortly thereafter provided an informal advice.18
The proposal involved the reintroduction of liability for despatch and demurrage as between AWB and the IGB, with AWB to hold an account for the benefit of Iraq. As Mr Hogan put it in his facsimile to Mr Bowker:
AWB Lim ited w o u ld like to reintroduce despatch and dem urrage into the Iraq contract. A ny d espatch earn ed by Iraq could be held in an account controlled by AWB Lim ited, an d these funds could be utilised annually to supply grain
han d lin g equipm ent an d technical training.19
This proposal arose in the context of the delays in discharge that were being experienced at that time and the liability for demurrage that AWB was incurring as a result. This was a significant concern at the time20, and the proposal was advanced as a means of resolving the difficulty.
19.13 Both Mr Stott and Mr Hogan gave evidence of the discussions that occurred on this topic during their visit. Their recollections differed.
19.14 Mr Hogan's evidence was that he attended a meeting with Mr Stott and the Iraqi Minister of Trade on 14 October 2000, and at that meeting the Minister agreed to AWB maintaining a despatch and demurrage account in Australia.21 The following were part of Mr Hogan's notes of his meeting22:
M in — Perform ance Bond, D espatch/D em : N O T APPROVED BY U N 23
and
M in —Yes on d e sp a tc h / D em urrage A / C in A ustralia24
Mr Hogan and Mr Stott attended a second meeting later that day. According to Mr Hogan, they were advised at that meeting that the Iraqis wanted demurrage and despatch paid through the inland transportation fee.25 In this regard, Mr Hogan's note records:
(D espatch / D em urrage)
Report of the Oil-for-Food Inquiry 3 6 9
- w an ts despatch paid to shipping com pany in Jordan ...
- 2 Shipping com panies in Jordan can receive funds:
* (ALIA S hipping C om pany) (1)
W ater T /P o rt C om pany (2)26
The last three lines of this note are also reflected in the draft report of the visit.27
Mr Hogan's evidence was that he and Mr Stott discussed with the Minister a proposal to make the trucking fee flexible, so that when demurrage was incurred it could be recovered by paying a reduced trucking fee and when despatch was earned the trucking fee could be increased.28 Mr Hogan acknowledged that it was implicit in this proposal that the trucking companies would be used as conduits for the payment of despatch and demurrage to Iraq.29
19.15 Mr Stott, in contrast, could not recall whether any discussion about AWB
maintaining an account in Australia took place at the first meeting.30 Although he and Mr Hogan had discussed a despatch and demurrage arrangement with the IGB31, he could not remember the substance of the discussion32 other than that he had proposed that the system that had been used in the early 1990s be reintroduced. In this regard, he agreed that the early 1990s system was that 'if despatch was earned by the Iraqis or if the Iraqis had to pay demurrage, then that could be quantified and reflected in UN-approved technical assistance by AWB'.33
Mr Stott's evidence was that no agreement was reached with the Minister to reinstitute that system because the Minister told him it was impossible under the Oil-for-Food Programme.34 He said he could not recall any other agreement on the matter being reached.35
In relation to the second meeting, Mr Stott denied being told that the trucking companies — mentioned in the trip report and in Mr Hogan's note —could receive funds on account of despatch.36 His evidence was to the following effect:
⢠No such conversation took place in his presence.37
⢠At no time did Mr Hogan inform him of any such conversation, although he would have expected Mr Hogan to relay information of that kind to him.38
⢠He recalled the subject of trucking companies being raised during lunch.39
3 7 0 Report o f the Oil-for-Food Inquiry
He could not recall how that subject came up.40
19.16 Mr Hogan's notes were contemporaneous. He had no reason to prepare anything other than an accurate record. The notes corroborate his evidence and not Mr Stott's. To the extent that Mr Stott's evidence conflicts with that of Mr Hogan, Mr Hogan's evidence is preferred.
19.17 These discussions are important for several reasons. First, they reveal AWB's preparedness to entertain arrangements it knew, from the advice it had earlier received from DFAT, would probably contravene the UN sanctions. Notwithstanding that advice, received less than two months earlier, Mr Stott and Mr Hogan entertained a scheme that provided for an account that might pass funds to the Iraqi Government if despatch were earned.
19.18 Second, consideration of a proposal to adjust the inland transportation fee as a means of paying despatch and demurrage between AWB and the IGB betrays a recognition on the part of Mr Stott and Mr Hogan that the inland transportation fee was not a genuine fee for transportation services —in particular, provided by the recipient of the fee, Alia —and was in truth a fee payable to Iraq.
The proposal also carried with it recognition that the inland transportation fee could be used as a mechanism for settling other liabilities and claims as between AWB and the IGB arising out of the contracts between them. For example, Mr Hogan was to later suggest the possibility of the IGB paying the additional war risk premiums AWB was facing through a reduction in the amount of the inland transportation fee payable by AWB.41 In January 2002, in the face of an attempt by the IGB to renegotiate the price of a recently concluded contract, Mr Hogan again proposed agreement to a guaranteed rate of discharge, with despatch and demurrage payable and to be settled at
the completion of the shipment 'by an adjustment to the final inland transport payment'.42
19.19 Third, the proposal was again to feature in the thinking of at least Mr Hogan, if not also Mr Stott, shortly after their return to Australia from this visit to Iraq, in the context of Mr Stott's 30 October 2000 letter to DFAT.
O th e r to p ic s d is c u s s e d
Outstanding trucking fees 19.20 According to Mr Hogan's draft trip report, among other topics discussed during this visit were the inland transportation fees and claims by the IGB that there were fees outstanding from earlier shipments. Mr Hogan recorded:
Report o f the Oil-for-Food Inquiry 3 7 1
Trucking fee
IGB presented AWB w ith a list of vessels that have only h ad 90% of trucking fee paid. The total tonnage th at IGB claim has only been 90% is 998,423 = USD 11.98 m illion (@ USD 12) = USD 1.198 outstanding. This figure is based on trucking fee of USD 12.00 per tonne (w hich needs to verified against all contracts).
Action:
AWB to investigate paym ents against contracts since the inclusion of the trucking fee.43
Mr Hogan's evidence was that this information was given to him by the IGB: '... the Grain Board of Iraq handed us a list —it may have been like an Excel spreadsheet form; a list'.44
19.21 Immediately on his return to Melbourne, Mr Stott initiated inquiries within AWB to ascertain whether there were any inland transportation fees still owing, as the IGB claimed.45 Mr Stott removed the reference to outstanding trucking fees from the trip report before he sent the report to Messrs Lindberg, Geary, Goodacre and Beaumont.46
Possible new business 19.22 Mr Hogan also included in his draft report the outcome of discussions that had taken place in relation to possible new business.47 He reported that AWB had put an offer to the IGB and that it had been rejected. The offer was at a
price that had been expressed as 'Free in Truck'. Mr Hogan identified in some detail the break-up of this proposed 'Free in Truck' price, including an allowance of US$14 per tonne for 'trucking'.48
19.23 Negotiations continued after the AWB visit in October 2000, and by 2 November 2000 AWB had concluded a contract for the sale of several hundred thousand tonnes of wheat to the IGB. This became contract A043049, which was negotiated and concluded as part of phase VIII of the Oil-for-Food Programme. By the time the contract had been concluded, the inland transportation fee payable by AWB had increased markedly beyond both what had been paid to date50 and what had been contemplated by the offer just referred to.51
19.24 As to the Russian trade, Mr Hogan reported:
The M inister advised that the R ussian Trade, w hich concluded A ustralian w heat origin contracts at USD [deleted] free in truck, h ad placed the Iraqi governm ent in a precarious position. Iraq h ad allocated 1.3 m illion tonnes against A ustralia for Phase 8, how ever, the R ussian trad e advised IGB th at they had AWB coverage, w h en in fact no business w ith the R ussian trade a n d AWB h ad com e close to being concluded.
3 7 2 Report o f the Oil-for-Food Inquiry
M inister requested that AWB consider covering these contracts at USD [deleted] (USD 1.00 m argin to Russians), an d then they w ill not use Russian trade for any fu rth er A ustralian business.
M inister also advised that if AWB w ere unable to cover this business, then they w o u ld be forced to source alternate origins, w hich m ay change the diet of the Iraqi people, an d consequently in subsequent Phases, AWB m ay only be allocated 800,000 tonnes. This w as a polite w ay of advising th at if we w ished to continue a m ajor supply to Iraq, w e should help cover this business.
Issue is that the m arket price in July (at USD [deleted]) is around USD [deleted] u n d e r cu rren t m arket, and for AWB to cover this business m eans w e w ould
discount the m arket significantly.
AWB have resp o n d ed to the M inister w ith a letter, offering 2 options. O ne w ould be to reduce the trucking fee (currently USD 14.00 per tonne), so GIF price w ould be USD [deleted] or the grade is replaced w ith ASW [A ustralian S tandard White],
IGB show ed AWB several telexes w ritten by the R ussian Traders, condem ning the actions an d experience of the new AWB M anagem ent.52
A proposed increase in the inland transportation fee 19.25 In the context of the discussions about future business, Mr Hogan reported on
a proposed increase in the inland transportation fee53:
N ew Business:
Phase 9:
Iraq will be increasing the trucking fee to USD 35.00 for shipm ents to U m m Q aser and 5% of contract price for o th er ports.
Phase 9 negotiations w ill take place in late D ecem ber or early January.54
Mr Hogan gave evidence about discussions relating to an increase in the trucking fee:
Q: ... This w as som ething th at y o u w ere told by the IGB representative d u rin g the course of your m eeting?
A: C orrect.55
There is also a reference to this proposed increase in Mr Hogan's notes of his meeting in October 2000.56
19.26 There was no mention of any reason or justification for the proposed increase
of 150 per cent. It is evident that it was not related to the actual cost of transport, because it was not referable to where the cargo was going and, in the case of goods from places other than Umm Qasr, the amount payable
Report o f the Oil-for-Food Inquiry 3 7 3
related to the price or value of the goods and not the cost of handling or transporting them.
19.27 As it turned out, the increase in the inland transportation fee took effect sooner than foreshadowed by this note —namely, with contract A0430, a phase VIII contract concluded on 2 November 2000.57 Moreover, by phase IX the inland transportation fee payable had increased to an amount greater than US$35.00 per tonne. There was no mention in Mr Hogan's draft report or the evidence before the Inquiry that Mr Stott protested at the proposed increase in the trucking fee to US$35.00. That could only be because he was aware that the sum for the trucking fee was included in an inflated price of wheat and would be recovered by AWB from the UN escrow account.
General 19.28 Mr Hogan's trip report concluded, under the heading 'General', by noting:
Mr. Z u h air died tragically in a car accident on re tu rn from Syria.
2 shipping C om panies in Jordan w ho handle free in truck discharge —Alia S hipping C om pany an d W ater T ransport C om pany.58
The two companies Mr Hogan was referring to were Alia and the 'Water T/ port company'. This is apparent from Mr Hogan's note of his meeting in October 2000.59 The 'Water T/ port company' is a reference to the Iraqi State Company for Water Transport. Alia and the ISCWT were the two companies that, to Mr Hogan's knowledge on the basis of his meetings in Iraq in October 2000, AWB could 'put the funds through for the inland transport payments'.60
19.29 Mr Stott also gave evidence that in the October 2000 meetings 'the water transport company's name was mentioned as a possible alternate provider'.61 According to Mr Stott, he asked Mr Hogan at about that time if he knew anything about the water transport company and Mr Hogan said he did not.62 Mr Stott knew of Alia by that time, having learned prior to his visit to Iraq in October 2000 with Mr Hogan that the inland transportation fees were being paid to Alia.
According to Mr Stott, when he was passing through Amman en route to Iraq with Mr Hogan in October 2000, he noticed that Alia was in the building previously occupied by the Iraqi Jordanian Land Transport Company, which Mr Stott had visited with Mr Daoud some time before. On that basis, Mr Stott said he 'presumed that Alia was the successor of the IJLTC'.63
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Discussions about recovering the Tigris debt 19.30 During his discussions in Iraq in October 2000 Mr Stott also raised with the Minister the matter of the Tigris debt and its repayment. This was following a request by Mr Davidson Kelly in September 2000 for AWB's assistance64, that
request having in part been prompted by an earlier email from Mr Stott in May 2000.65 Mr Stott delivered a letter from Mr Davidson Kelly to the Minister at the meeting.
O th e r m e e t i n g s
19.31 In October 2000 Mr Stott and Mr Hogan had travelled to Iraq via Jordan. Whilst in Jordan —both prior to entering Iraq and again after they had left Iraq following their meetings with the IGB and the Minister —Mr Stott and Mr Hogan met with Mr Twisk, Second Secretary (Policy) at the Australian Embassy, Jordan. The discussions that took place with Mr Twisk before Mr Stott and Mr Hogan entered Iraq in October 2000 concerned the current state of affairs in Iraq.66
19.32 Mr Hogan met with the Trade Minister, Mr Vaile, in Egypt shortly after this visit to Iraq.67
19.33 On neither occasion was there any discussion of the inland transportation fee or its method of payment.68 The conversations Mr Stott and Mr Hogan had with Mr Twisk and Mr Vaile did not go to the detail of the contractual relationships between AWB and the IGB or whether they entailed an obligation to pay a trucking fee or inland transportation fee.69
E v en ts follow ing Mr S t o t t 's a n d Mr H o g a n 's trip to Ir a q
Mr S t o t t 's c o n c e r n
19.34 According to Mr Stott, during their October visit to Iraq he had asked Mr Hogan what he knew about the trucking arrangements. Mr Hogan replied that he did not know anything, that these arrangements had been put in place by Mr Emons and Mr Watson, that he (Mr Hogan) understood they had the full support of the AWB Board, and that they had been approved by the United Nations.70
Despite Mr Hogan's response, Mr Stott's evidence was that following his trip to Iraq with Mr Hogan he had developed a concern that the Iraqis might be benefiting from the trucking fees71 and had expressed his concern to Mr Goodacre and Mr Hogan.72 According to Mr Stott, in light of this concern
Report o f the Oil-for-Food Inquiry 3 7 5
he performed a number of tests to ascertain whether the Iraqis were benefiting from the trucking fee and whether Alia was a trucking company.73 On the strength of the tests, Mr Stott said he satisfied himself that the Iraqis were not benefiting from the trucking fees.
One of the tests Mr Stott said he performed and that, according to him, provided some support for a belief that the Iraqis were not benefiting from the trucking fees was his exchange of correspondence with the Iraqi Minister of Trade shortly after his return from Iraq, this correspondence being about the Russian trade.74
Each of Mr Stott's various tests is examined in Appendix 18. For the reasons set out there, I reject Mr Stott's evidence that he performed these tests and that on the basis of their results he concluded in late 2000 that the Iraqis were not benefiting from the trucking fee — including the increases introduced with contract A0430 — and that the trucking fee was a genuine fee for the cost of inland transportation of wheat within Iraq.
A l e t t e r t o t h e I r a q i M in iste r o f T ra d e
19.35 On 18 October 2000 Mr Stott sent to Mr Hogan in Cairo an email with the draft of a letter he wished to send to the Iraqi Minister of Trade.75 The draft letter referred to AWB's inability to conclude a sale of wheat at the price the IGB had sought at their recent meetings in Iraq but suggested:
Your Excellency, w e m ight be able to find a solution, if the IGB w ere prep ared forgo som e, or, all of the trucking costs, the traders involved low er substantially their com m ission expectations (given they have caused the problem on this occasion they should do it for nothing) and, or, w e adjust the contract quality i.e. supply ASW [A ustralian S tandard W hite] rather than H a rd .76
Mr Hogan responded on 19 October 2000, making some changes to the draft. In Mr Hogan's amended draft, the paragraph read, 'Your Excellency, we might be able to find a solution, if the IGB were prepared remove the trucking fee, or, we adjust the contract quality (i.e.) supply ASW rather than Hard'.77
On 20 October 2000 Mr Stott sent the letter to the Minister by facsimile.78 The letter was in essentially the same terms as the draft, as changed by Mr Hogan.
19.36 AWB's request that the 'trucking fee' be removed reflected a recognition that imposition of that fee and determination of its amount were a matter within the control of the IGB and thus the Iraqis, and not, for example, Alia, to whom the fee was payable by AWB. It was implicit that the amount paid by way of that 'trucking fee' would ultimately find its way to Iraq. It is apparent that
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Mr Stott was aware the 'trucking fee' was not related to any true cost of transport, for otherwise it could not have been removed.
19.37 As noted, Mr Stott's evidence was that he sent this facsimile to the Minister in order to test his concern that the trucking fee paid by AWB might have been going to the Iraqis. According to Mr Stott, if the Minister had responded by saying he was prepared to forgo the trucking fees, Mr Stott would have been
satisfied that the Minister was actually controlling the trucking fees and they may not be trucking fees.79 If, however, the Minister replied that the IGB could not do that, he would be satisfied that they were trucking fees and needed to be paid.80
Mr Stott said the IGB replied, advising that it could not forgo the trucking fee.81 Mr Stott said he then rang Mr Abdul-Rahman to ask why the IGB could not agree to a reduction in the fee and Mr Abdul-Rahman replied, 'Well, how else are we going to be able to move the grain around if we don't have the foreign exchange to pay for the trucking fees?'82 Mr Stott said these replies represented another indication against his concern that the trucking fees were being paid to Iraq.
19.38 I reject Mr Stott's evidence. Mr Stott's request reflected a recognition that the trucking fees were for the benefit of the Iraqis. He did not write the letter as a 'test' of any alleged concern in this regard: it was a genuine commercial proposal, put as a means of allowing AWB to sell wheat to the Russian traders
at a price that would still allow those traders to meet their contracts with the IGB and make a profit. This proposal was made at the same time as AWB was suggesting another genuine commercial alternative — that is, substituting a different quality of wheat. It was open to the IGB to accept one or other of the alternatives proposed without commenting on the trucking fees. I also reject Mr Stott's evidence that he relied on the IGB's rejection of AWB's proposed alternative as an indication that the Iraqis were not receiving or benefiting from a trucking fee and that he sent the facsimile for that purpose.
19.39 On 25 October 2000 the IGB sent an email to Mr Stott, thanking him for his letter to the Minister and asking that he inform the IGB of the lowest price at which AWB could supply 300,000 tonnes of wheat directly to the IGB.83 The email called for two offers, each for a different specification of wheat. It concluded:
Prices for above tw o offers should includ in lan d tran sp o rt charges equil to US$(25) per m etric ton a n d p ay m en t w ill be effected either in euro or any ecceptable
european currency.
Pis confirm by m o nday 3 0 /1 0 /2 0 0 0 .84
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19.40 On 30 October 2000 Mr Hogan sent a facsimile to the IGB, setting out the terms of an offer from AWB in response to the invitation in the IGB's email.85 This eventually resulted in contract A0430.
A l e t t e r fro m Mr F lu g g e to t h e A u s tra lia n M inister fo r T ra d e
19.41 During the visit of Mr Stott and Mr Hogan to Iraq in October 2000 the Iraqi Minister of Trade had asked that AWB pass on a message from the Government of Iraq to the Australian Government, highlighting Iraq's concern at the absence of official dialogue between the two countries, especially given the amount of trade Iraq concluded with Australia. It was reported during this visit that Australia was Iraq's fifth-largest source of
imports.86
19.42 On 20 October 2000 Mr Flugge sent a letter to the Australian Minister for Trade, Mr Vaile.87 In the letter Mr Flugge passed on to Mr Vaile Iraq's concern. He also noted the importance of Iraq to Australia's wheat exports, expressed AWB's concern that the Iraqi perception 'was likely to seriously affect our wheat trade to this very important market', and asked that the Australian Government 'give consideration to taking steps to engage with the Iraqi Government'.88
A r e p o r t to t h e B o ard : 'I r a q u p d a t e O c to b e r 2 0 0 0 '
19.43 As noted, on 21 October 2000 Mr Hogan sent an email to Mr Stott, attaching his draft report of their trip89 and inviting Mr Stott to add to the report. Between 21 and 22 October Mr Stott edited Mr Hogan's draft report. He shortened it from nine pages to two, deleting much of the detail included by Mr Hogan.
19.44 On 22 October 2000 Mr Stott emailed the report to Mr Goodacre and copied it to Mr Hogan. His email read, 'If you are happy with the attached report 1 will forward it to Andrew [Lindberg]'.90
He called the report 'Iraq update October 2000'.91 A copy is reproduced as Figure 19.1 in Appendix 19. This was the first of two versions of this update that were produced to this Inquiry by AWB.
The first version of the 'Iraq update October 2000' report 19.45 The first version of 'Iraq update October 2000' recorded that the backlog of vessels waiting to discharge at Umm Qasr had been cleared and that, as a result of careful management of the shipping program, demurrage bills had
been substantially reduced. Nevertheless, it also recorded that there remained
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'ongoing issues', particularly in relation to the rate of discharge of cargo from AWB's vessels, which was said to be 'still below expectations'. The last item under the heading 'Ongoing issues' was 'Even with careful management of the shipping program vessels continue to incur demurrage caused by 3-4 day quality testing and 5-day fumigation time if insects are found'.92
Under the heading 'Solutions' the recent visit to Baghdad and the objectives behind that visit were identified in the following terms:
V isited B aghdad Oct. 2000 an d h eld discussions w ith the G rain B oard of Iraq and Iraqi M inister of Supply. The p u rp o se of the m ission w as to explore m echanism s for im proving contractual perform ance including:
1. D ischarge perform ance ...93
19.46 After reporting on the outcome of the discussions in Iraq in relation to quality 'testing' and 'fumigation' of the cargo, the questions of 'trucking' and the pursuit of a guaranteed rate of discharge were described in this first version of the October 2000 update in the following terms, consistent with what had also been written by Mr Hogan in his trip report94:
Trucking
AW B's shipping agents rep o rted that discharge h ad been reduced d u e to a lack of trucks. The m inister an d IGB refute that [there] is a shortage of trucks.
G uaranteed Discharge Rate
AWB is w orking w ith the M inister to im prove the discharge rate at the p o rt of U m m Qaser, w ith a view to obtaining a gu aran teed discharge rate of 3000 tp d .95
The proposed increase in the trucking fee in phase IX was also noted in this first version of the October 2000 update, again in essentially the same terms as recorded in Mr Hogan's trip report:
Phase 9
Iraq w ill be increasing the trucking fee to USD 35.00 for shipm ents to U m m Q asr an d 5% of contract price for other ports.
Phase 9 negotiations will take place in late D ecem ber or early January.96
19.47 The following morning (23 October 2000) Mr Stott sent a further email to Mr Goodacre, inquiring, 'Will this do the boss on Iraq?'97 Accompanying that email was a further copy of the document entitled 'Iraq update October 2000' in the same terms as the draft that accompanied Mr Stott's email to
Mr Goodacre the preceding day.98
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The second version of the 'Iraq update October 2000' report 19.48 Later on 23 October 2000 Mr Stott sent to Messrs Goodacre, Geary, Lindberg and Beaumont an email headed 'Iraq update for board meeting'.99 That email was accompanied by a single-page document entitled 'Iraq update October
2000'.100 This document was in terms materially different from the document of the same name that Mr Stott had sent to Mr Goodacre and Mr Hogan the previous day.101 A copy of this second version of the 'Iraq update October 2000' is reproduced as Figure 19.2 in Appendix 19.
19.49 The first two sections of this second version of the October 2000 update (dealing with 'Progress to date' and 'Ongoing issues') remained unchanged from the first version of the update distributed the previous day. Within those sections, the document continued to report that the backlog of vessels waiting to discharge at Umm Qasr had been cleared, that the shipping program was being carefully managed and that, as a result, demurrage bills had been reduced substantially. This second version of the October 2000 update also reported as an 'ongoing issue' that the rate of discharge was 'still below expectations' and in this regard that 'Even with careful management of the shipping program vessels continue to incur demurrage caused by 3-4 day quality testing and 5-day fumigation time if insects are found'.102
However, the remainder of this second version of the October 2000 update — being that part of the document dealing with the recent visit to Iraq and its outcome —had been condensed from the earlier first version and was in different terms.
There was no longer any specific report on the outcome of discussions about testing and fumigation. The report from AWB's agent that the rate of discharge had been reduced by a lack of trucks had also been deleted, as had the report that the Iraqis had refuted such a claim when it was put to them by AWB during their discussions in October. Importantly, there was no longer any mention of the Iraqis' proposed increase in the trucking fees from phase IX or any reference to the inland transportation fees or their imposition at all.
19.50 Instead, this part of the second version of the October 2000 update read as follows:
Actions
Visited B aghdad Oct. 2000 and held discussions w ith G rain Board of Iraq and Iraqi M inister of Supply. The p u rp o se of the m ission w as to explore m echanism s for im proving contractual perform ance including:
Discharge performance, AWB is w orking w ith the M inister to im prove the discharge rate w ith a view to obtaining a guaranteed discharge rate of 3000 tpd.
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The solution identified w ill need to be discussed w ith DFAT to ensure that it is acceptable to the U N. Subject to it being acceptable it is expected that Iraq will th en look to im plem ent m easures to reduce the am o u n t of tim e vessels spend at discharge p o r t .. ,103
The document does not reveal what the 'solution' proposed to be discussed with the Department of Foreign Affairs and Trade was.
19.51 On 23 October 2000 Mr Stott forwarded to Mr Ingleby a copy of his email to Messrs Goodacre, Geary, Lindberg and Beaumont, together with the second version of the October 2000 update.104
19.52 On 25 October 2000 a meeting of the Board of Directors of AWB was held. The minutes of that meeting contain no record of any report or update on Iraq having been discussed.105 The minutes contain no record of any report having been presented to the Board in the terms of either version of the October 2000
update.
AWB's in q u irie s a b o u t t h e a m o u n t o f t h e in la n d t r a n s p o r t a t i o n f e e s o w in g
19.53 As noted, amongst the topics Mr Stott and Mr Hogan had discussed with the IGB during their trip to Iraq in October 2000 had been claims by the IGB that there were payments of inland transportation fees outstanding in relation to a number of completed shipments.106 During these discussions the IGB had provided to Mr Stott and Mr Hogan a list of vessels in respect of which it was claimed that only 90 per cent of the inland transportation fees payable for the shipments carried on those vessels had been paid to Alia.107
19.54 It is significant that both the complaint that payments of the inland transportation fees were still outstanding and the list of those outstanding payments were being raised at that time by the IGB and not by Alia, to whom the payments were being made. This was another indication of the receipt in Iraq of the inland transportation fees paid by AWB to Alia and Iraq's interest in those payments. Mr Stott and Mr Hogan must have known that the payments made did not represent true trucking fees.
19.55 On his return to Melbourne, Mr Stott investigated whether there were any payments outstanding.
On 23 October 2000 he sent an email to Mr Watson108 (copied to Messrs Hogan, Goodacre and Beaumont and Ms Scales) in which he wrote:
D uring o u r recent visit to B aghdad (full re p o rt to follow later this week) the IGB presented AWB w ith a list of vessels that have only h ad 90% of trucking fee paid. The total tonnage that 1GB claim has only been paid 90% is 998,423 = USD11.98 m illion (@ USD12) = USD1.198 outstanding. This figure is based on trucking fee of
Report o f the Oil-for-Food Inquiry 3 8 1
USD12.00 per tonne (w hich n eeds to be verified against all contracts). I
u n d erstan d that this procedure w as p u t in place to han d le shortage claim s at discharge port. W ould be grateful if you w ould confirm th at is consistent w ith you u n d erstan d in g and also w ould appreciate a full item ised list of the nam es of
vessels and the q u an tu m th at rem ains to be paid. Please also advise w ho in your group m anages the p aym ent of trucking costs to ensure th at the appropriate am ounts are rem itted?
The IGB w an ts this settled quickly, therefore, w o u ld be grateful if inform ation can be p ro v id ed latest by W ednesday 23 O ct.109
19.56 Mr Watson replied on 24 October 2000:
A ccording to our records, all trucking fee w ith exception of USD 324,790 (paid yesterday) has been p aid in full.
For y o u r guidance trucking fees ran g ed from USD 12-15 p / m t d ependent u p o n contracts.
if you can provide a list of the vessels that IGB advise they have not bee paid, this can be checked, guidance, all trucking fees p aid to IGB n om inated trucking agent in Jordon an d therefore w o u ld suggest that w e sim ply advise IGB of the above and have them check w ith their trucking com pany110
Mr Stott responded to Mr Watson later that day:
This ap p ears to be inconsistent w ith our discussion yesterday w hen you
confirm ed th at you knew that trucking fees w ere only p aid to 90%. W hen Dom [Hogan] returns tom orrow w e w ill provide you w ith a full list of the vessels that the IGB claim have only been p aid to 90%. We w ill be th en be able to cross check this w ith y o u r records and hopefully establish w h a t has h ap p en ed to the m issing 10%.111
Mr Watson in turn responded to Mr Stott the same day:
There is no inconsistancy, lOpct balances have been p aid once AWB received paym ents, w hich is done on a ru n n in g basis, as stated this am, our records show no o u tstan d in g d ue as all paym ents m ade w ith the exception of a balance
p aym ent m ade yesterday
I w ill be interested to see the list from the IGB as to w h at vessels they believe
outstanding, as w ould suggest this is m ore of a m atter betw een IGB and their nom inated trucking com pany to w here the paym ents of trucking fees have been m ade an d n o t from an AWB v iew 112
19.57 On 25 October 2000 Mr Hogan sent an email to Mr Watson, further to Mr Watson's exchanges with Mr Stott, in which Mr Hogan wrote:
F urther to C.S [Charles Stott] note —can you please provide an u p d ate on the 90% an d 10% p aym ent of trucking fee.
A ttached is a list of vessels w hich IGB claim have only been paid 90%.
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19.58
C an you confirm am ounts p aid by AWB against each vessel and w ho w e p aid — i.e. trucking Co. directly or via Ronly accounts.
Also how are w e able to check th at final balance 10% is paid?
Do AWB pay 100% u p front (or 90%) and 10% balance?113
Mr Hogan forwarded a copy of his email to Ms Scales and Messrs Goodacre, Beaumont and Stott.114
Mr Stott in turn passed a copy of Mr Hogan's email on to Mr Tuohy115, a manager in the Business Fraud and Investigation Services Division of Arthur Andersen. Arthur Andersen had been retained at that time by AWB —in particular, by Mr Stott and Mr Goodacre — to conduct a high-level review of the International Sales and Marketing Division with a view to ascertaining whether staff had behaved inappropriately. Mr Stott also forwarded to Mr Tuohy a copy of Mr Stott's first email to Mr Watson of 23 October 2000116 and Mr Watson's reply to Mr Stott.117
On 26 October 2000 Mr Watson replied to Mr Hogan's email of 25 October 2000:
thanks for the list of vessels, th at IGB claim ing not received the balance of lOpct trucking fees
H aving checked o u r records, can advise th a t 100 pet of trucking fees for all vessels have been paid to IGB's n om inated trucking com pany
Trucking com pany has also confirm ed they have received 100 pet trucking fees and have paid IGB
From the list of vessels presented (22)
AWB involved in the p aym ent of 10 vessels Ronly 4 V arious shipow ners 8
All paym ents m ad e directly to T rucking Co.
It appears that IGB internal structure is in strife follow ing the death of Z uhair as clearly their accounting system seem s to have broken dow n. Interestingly this m atter only raised, since m ajority of vessels concerned com pleted 1st half of the year, w h en Z uhair still alive and this m atter not raised by IGB d u rin g the various
delegations to IGB over the p a st 12 m onths.
A ny event suggest th at reply be sent to IGB advising them to contact their
trucking com pany. I have asked trucking com pany send us fax to confirm no outstandings and once received, suggest also pass fax to IGB accordingly.118 [em phasis added]
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The emphasised words again make plain that AWB knew the inland transportation fees paid by AWB to Alia were in turn being remitted by Alia to the IGB and thus Iraq. It was widely known within AWB that these fees were paid to the IGB.
Mr Stott also forwarded a copy of this email to Mr Tuohy.
19.59 On 27 October 2000 Mr Hogan sent to Mr Watson an email headed 'Iraq outstanding'. It read:
Tks for the note and this is fine,
H ave asked D avid to com plete sp readsheet so I can get som e h ard num bers back to b u y e r.119
The reference to 'buyer' is a reference to the IGB, which raised the matter in the first place.
19.60 On 30 October 2000 Mr Watson emailed Mr Hogan in relation to the alleged outstanding trucking fees:
Thanks, have also asked trucking com pany to let us know , if any outstandings according to their records.
They have initially com e back w ith a list w hich indicates USD 523,864
outstanding, this before recent p ay m en t by AWB of USD 324,790 w hich effected last w eek, of w hich USD 161,728 directly relates to USD 523,864 — therefore according to T rucking list supposed outstanding at this tim e being USD 362,136
From this am ount of USD 362,136 AWB records show settled in full
We currently w orking th rough the balance of ships to verify w hen the the final paym ents m ade to advise trucking com pany re-check their accounts.
Clearly IGB figure of som e USD 1.198 m o utstanding is incorrect as this does not com pare w ith their ow n trucking figures and perhaps indicates that the system betw een trucking company/IGB is not accurate.
C onfident w ill dem onstrate that 100 p et due am ounts have been settled.
I w ould suggest that you should advise IGB to check w ith their nom inate trucking co m pany.120 [em phasis added]
Again, this email is consistent only with knowledge within AWB that funds paid to Alia were in truth a payment to the IGB and thus Iraq.
19.61 Mr Watson forwarded a copy of that email to Mr Beaumont, the then Group General Manager of AWB and the person to whom Mr Watson and AWB Chartering reported. Mr Beaumont was on the tier of management immediately below Mr Lindberg.121
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19.62 The payment of US$324,790.68 was made on 24 October 2000.122 It represented payment of the 10 per cent balance of the US$12 per tonne inland transportation fees payable on six shipments made by AWB between February and March 2000.
19.63 On 9 November 2000 Mr Cowan sent Mr Hogan (and copied to Mr Watson) an email headed 'Iraq outstanding':
H ere is your file for the trucking fees ...
It show s w ho w as paid, an d the p aym ent dates, an d CONFIRMS THAT ALL PAYMENTS HAVE BEEN M ADE IN FULL BY AWB CHARTERING
C an I suggest a couple of reasons for any suggested shortfall
a) C hartering p aid the final 10% on several ships on the 23rd O ctober value
$324,790 W here w e w ere w aitin g for confirm ation th at the grain paym ent had been settled.
b) Alia had not recognised o u r settlem ent of 10% balances value $265,084 sent to them on 12th M ay
c) Perhaps there is som e confusion, on w h en the rates changed from $12 per
tonne to $15 p er tonne. The change w as im plem ented for shipm ents leaving A ustralia early A pril. I confirm that for each p ay m en t that chartering m ade has been 'back to back' w ith the values invoice to the pool.
d) The obvious one ... w e c a n 't c o n firm ..... . is w h eth er the interm ediate parties
paid in full to Alia, or w hether Alia has paid in fu ll to IGB.123 [em phasis added]
The emphasised passage is consistent only with knowledge that inland transportation fees paid by AWB to Alia were on-paid by Alia to Iraq.
19.64 The payment of US$265,084 made on 12 May 2000 and referred to in Mr Cowan's email was payment of the 10 per cent balance of the inland transportation fees payable in respect of five shipments made in February 2000 by AWB under its contracts A4654 and A4655 with the IGB.124
N e g o tia tio n o f a f u r t h e r c o n t r a c t f o r t h e s a l e of w h e a t
19.65 On 25 October 2000 Mr Stott received an email from the IGB, inviting AWB to provide the lowest price at which it could supply directly to the IGB a specified number of tonnes as per IGB specification. The price to be quoted was to include an inland transportation fee of US$25 per tonne, with payment to be effected in euros or some other acceptable European currency.125 The inclusion of a fee in that amount represented a significant increase from both the amount of the inland transportation fees (of US$12 and US$15 per tonne) that had been payable under AWB's earlier contracts with the IGB and the
Report o f the Oil-for-Food Inquiry 3 8 5
US$14 per tonne fee that had been referred to during the discussions with the IGB and the Minister in Iraq earlier in October 2000. No reason for this increase was advanced by the IGB. Mr Stott forwarded a copy of this email to Ms Scales126 and Mr Geary.
19.66 On 2 November 2000 negotiations between AWB and the IGB culminated in the conclusion of a further contract for the sale of this quantity of wheat to the IGB. What became contract A0430 was the first contract in which the 10 per cent after-sales-service fee was imposed by the Iraqis and incorporated in the inland transportation fee payable in respect of wheat shipped under the contract. With the conclusion of contract A0430, not only had the inland transportation component of that fee risen from US$14 per tonne127 to US$25 per tonne: an additional US$19.50 per tonne had also been added to that fee as the 10 per cent after-sales-service fee. These two amounts128 were combined to produce a total inland transportation fee of US$44.50 per tonne payable by AWB and included in the price quoted by AWB. Although the 10 per cent after-sales-service fee was plainly unrelated to any transportation fee, it was treated by AWB as part of the inland transportation fee, payable under that contract and paid to Alia. This was done in the knowledge that payments to Alia were in truth payments to Iraq. The treatment of the 10 per cent surcharge or after-sales-service fee as a 'trucking fee' was a device to disguise that surcharge and its true nature.
19.67 Negotiation of contract A0430 and the circumstances in which the additional 10 per cent after-sales-service fee came to be imposed by the Iraqis as an element of that contract (and subsequent ones) are discussed in Chapter 21.
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Notes
1 Ex 995, AWB.0420.0187; Ex 173, AWB.0084.0037_R. 2 Ex 995, AWB.0420.0187. 3 Ex 1008, AWB.5121,0024_R. * Ex 173, AWB.0084.0037_R.
5 Ex 173, AWB.0084.0037_R. 6 Ex 173, AWB.0084.0037_R. 2 Ex 173, AWB.0084.0037_R. 8 Ex 173, AWB.0084.0037_R at 0039_R. 9 Ex 173, AWB.0084.0037_R at 0039_R. i” Ex 173, AWB.0084.0037_R at 0038_R and 0040_R. " Ex 173, AWB.0084.0037_R at 0039_R. u Independently of any report by AWB's protective agent. i3 Ex 1528, AWB.0089.0184_R; Ex 1527, AWB.0089.0172_R. M Ex 581, AWB.0106.0111. (This letter and the circumstances in which it came to be sent are discussed in Chapter 20.) is T 2636.37-43. i‘ Ex 658, AWB.0390.0010. 17 T 2612.23-31. 18 See Chapter 17. 19 Ex 149, AWB.0106.0092 at 0093.
28 T 7160.28; T 7019.17-T 7020.17, T 7045.02-22. 2 1T 7023.17-T 7024.37.
22 Ex 1034, AWB.0185.0306; Ex 156, AWB.0185.0308.
28 Ex 1034, AWB.0185.0306. 24 Ex 1034, AWB.0185.0306.
25 T 7019.41; T 7027.25-40.
26 Ex 156, AWB.0185.0308.
27 Ex 173, AWB.0084.0037_R at 0045_R; T 7157.18. 28 T 7019.41; T 7027.25-40. 29 T 7019.41-T 7020.12. 3f> T 7153.34-47. 31 T 7150.15-21. 32 T 7151.17-31; T 7160.19. 33 T 7152.18-21. 34 T 7154.32. 35 T 7154.35-37; T 7160.17. 36 T 7157.29-31. 37 T7158.44-T 7159.27. 38 T 7159.25-31. 39 T7159.41-T 7160.04. 40 T 7160.6-7.
41 See Chapter 23. 42 See Chapter 23. 43 Ex 173, AWB.0084.0037_R at 0040_R. 44 T 2043.34-35.
45 See above. 46 Ex 995, AWB.0420.0201. 47 Ex 173, AWB.0084.0037_R at 0043_R.
48 Ex 173, AWB.0084.0037_R at 0044_R. 49 Ex 215, AWB.0069.0073_R at 0075_R. 50 Namely US$12 to US$15 per tonne. 51 Namely US$14 per tonne.
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52 Ex 173, AWB.0084.0037_R at 0044_R.
53 Ex 173, AWB.0084.0037_R at 0045_R. 54 Ex 173, AWB.0084.0037JR at 0044_R. 55 T 2043.43.
56 Ex 156, AWB.0185.0308. 57 See above and also Chapter 21. ss Ex 173, AWB.0084.0037_R at 0045_R. 59 Ex 156, AWB.0185.0308; See also T 2045.31-T 2046.32. 60 T 2046.29-32.
61 T 2633.39-45. 62 T 2634.1-6. 63 Ex 198, WST.0001.0137 at 0145, para. 29. 64 Ex 220, AWB.0102.0185_R; Ex 211, AWB.0106.0104, AWB.0129.0070. 65 Ex 274, BHP.0004.0082. 66 T 2040.08-9; T 2040.34-38. 67 T 2040.42-43. 68 T 2040.24-29. ο» T 2041.07-13. 70 T 2289.37-42. 71 T 2288.36; T 2289.1-6. 72 T 2289.9; T 2290.21. 73 T 2290.23-25. See Appendix 18 for an analysis of these tests. 74 x 2292.20-29.
75 Ex 1009, AWB.5009.0370. 76 Ex 1009, AWB.5009.0370. 77 Ex 157, AWB.5042.0232_R. 78 Ex 158, AWB.0146.0206. 79 T 2292.34-8. «Î¿ T 2292.38-40. si T 2292.44-5. 82 T 2292.47 - T 2293.2. 83 Ex 1376, AWB.5004.0175. 84 Ex 1376, AWB.5004.0175. ss Ex 1462, AWB.0137.0327_R; see also Chapter 21. 86 Ex 173, AWB.0084.0037_R at 0045_R; see also Mr Stott's draft 'Mission report' — Ex 1008, AWB.5121.0024_R. 87 Ex 542, DFT.0003.0191-0192. 88 Ex 542, DFT.0003.0191-0192. 89 Ex 995, AWB.0420.0187; Ex 173, AWB.0084.0037_R-0045_R. 90 Ex 1000, AWB.5009.0373. 91 Ex 1001, AWB.5009.0374-0375. 92 Ex 1001, AWB.5009.0374 at 0374. 93 Ex 1001, AWB.5009.0374 at 0374. 94 Ex 173, AWB.0084.0037_R at 0039_R. 95 Ex 1001, AWB.5009.0374 at 0375. 96 Ex 1001, AWB.5009.0374 at 0375. 97 Ex 1002, AWB.5009.0376. 98 Ex 1002, AWB.5009.0377-0378. 99 Ex 1003, AWB.5001.0101. if” Ex 1004, AWB.5001.0102. ιοί Ex 1001, AWB.5009.0374-0375. 102 Ex 1004, AWB.5001.0102. 103 Ex 1004, AWB.5001.0102. 104 Ex 1005, AWB.5009.0379-0380.
3 8 8 Report o f the Oil-for-Food Inquiry
ms Ex 1006, AWB.0285.0228-0234.
M S Ex 142, WST.0005.0001 at 0024, para. 86(2). M 7 Ex 142, WST.0005.0001 at 0024, para. 86(2). ms Ex 444, AWB.5009.0381.
ms Ex 444, AWB.5009.0381. no Ex 445, AWB.5009.0382. «1 Ex 445, AWB.5009.0382. 112 Ex 446, AWB.5004.0174. 1M Ex 732, AWB.0158.0126. ill Ex 732, AWB.0158.0126. us Ex 732, AWB.0158.0126. ns Ex 298, AWB.5009.0394. 117 Ex 733, AWB.5009.0391.
ns Ex 299, AWB.5010.0009. us Ex 447, AWB.5044.0265. m o Ex 450, AWB.5079.0348.
mi Ex 450, AWB.5079.0348.
122 Ex 1376, MFW.0001.0006_R; Ex 1288, AWB.0089.0244_R. 123 Ex 447, AWB.5044.0265. 124 Ex 1448, AWB.0163.0068_R. 125 Ex 351, AWB.5009.0387.
126 Ms Scales gave evidence that she did not query this price increase (T 2940.25). Nor did she inquire into the increase in the trucking fee to US$44.50, of which she was informed by Mr Hogan's email dated 2 November 2000 (Ex 384, SN0.0001.0067_R). 127 Which had been referred to during the October visit. 128 The US$25 inland transport fee and US$19.50 after-sales-service fee.
Report o f the Oil-for-Food Inquiry 3 8 9
20 October 2000: an 'eloquent solution7
20.1 In March 2004 AWB, through Mr Long and Mr Whitwell, first informed the Department of Foreign Affairs and Trade that AWB's contracts included inland transport, that AWB used a Jordanian trucking company, and that AWB made payments to Jordanian accounts in the name of Alia or Alia Transport.1 On 18 March 2004 Mr Whitwell told Ms Armstrong of DFAT:
AWB entered into a nu m b er of contracts w ith the Iraqi G rains Board. Because of the w ay in w hich th e U N OFF program w as set up, the Iraqis req u ired the
contracts to include inland tran sp o rt and AWB w as instructed to use a Jordanian trucking com pany. The prices w ere loaded u p in the freight costs an d insurance and risk prem ium s. The U N paid the contract.
The cost of freight and associated insurance charges an d risk prem ium s w ere high and this is w hy the extra costs w ere high. M onopolies w ere charging w h at they liked — it w as not exactly an open bidding system .
AWB p aid the Jordanian trucking com pany. The Jordanian trucking com pany m ight have m ade paym ents to the Iraqis of their ow n volition.
AWB advised DFAT of the arrangem ent w ith the Jordanian trucking company in 2000.2 [em phasis added]
20.2 The emphasised sentence is a reference to a letter from Mr Stott to DFAT of 30 October 2000 and a reply dated 3 November 2000. As will become apparent, Mr Whitwell's statement was wrong. AWB did not advise DFAT of the arrangement with the Jordanian trucking company in 2000.
20.3 Further, after Mr Hockey, Manager International Market Development, first learnt in late 2004 of the additional 10 per cent surcharge paid by AWB, he was informed by Mr Long that such arrangements 'were ok, and there was a letter in existence from DFAT which gave approval for AWB's arrangements under OFF'.3 This was also a reference to Mr Stott's letter to DFAT of 30 October 2000 and DFAT's reply. It thus appears that within AWB this correspondence with DFAT was relied on as constituting Commonwealth approval of AWB's conduct in paying monies to Alia. As will appear, there is no basis for any such assertion.
20.4 Apart from AWB's reliance on this correspondence as informing the Commonwealth and as approving its conduct in paying inland transport fees or surcharges, the correspondence and the conversations said to precede and follow it are of no importance. However, in the light of AWB's reliance on
Report o f the Oil-for-Food Inquiry 3 9 1
them, it is necessary to analyse the letters and evidence of supposed conversations in some detail.
Mr S t o t t 's l e t t e r to DFAT
Mr H o g a n 's f ir s t d r a f t
20.5 Following their trip to Iraq in October 2000, Mr Stott instructed Mr Hogan to draft a letter to DFAT seeking advice as to a proposal to introduce a performance incentive scheme with the transport provider in Jordan.4 Mr Stott agreed that essentially that was the instruction he gave to Mr Hogan, except that 'the purpose of the letter was to get the approval to agree mechanisms with transport providers, plural, to increase trucking arrangements down at Umm Qasr'.5
20.6 As instructed, Mr Hogan prepared a draft letter for Mr Stott's approval.6 It was in the form of a facsimile from Mr Hogan and was addressed to Ms Courtney at DFAT (whom Mr Hogan incorrectly referred to as Ms 'Coutney' in his draft).7 It was dated 27 October 2000 and was not signed. It was in the following terms:
D ear Jill,
AWB has been experiencing substantial delays in the discharge of w heat vessels at the p o rt of U m m Q aser, Iraq.
C onsequently an AWB delegation recently visited Iraq to determ ine the cause of this problem . It w as discovered th a t the discharge rate w as affected by the
availability of road transports, and to increase the discharge rate, m ore transports w ould be required.
C urrently all Iraq contracts are concluded as 'Free in T ruck' all governates Iraq, w ith a predeterm ined and U N ap p ro v ed tran sp o rt fee. The inclusion of the
tran sp o rt fee in the contract reduced AWB's ability to negotiate rates directly w ith the tran sp o rt com pany, an d subsequently there is no perform ance incentive for the tran sp o rt com pany to m axim ise the discharge rates at U m m Qaser.
AWB are extrem ely keen to rectify the discharge problem s at U m m Q aser. AWB w ill com m ence discussions directly w ith the tran sp o rt com pany in Jordan w ith an aim of introducing a perform ance incentive schem e. This eloquent solution will rew ard the tran sp o rt com pany b ased up the final discharge perform ance of each vessel.
Prior to com m encing o u r discussions w ith the Jordanian trucking com pany, w o u ld appreciate any feedback from DFAT regarding the above-m entioned proposal.
Best regards
3 9 2 Report of the Oil-for-Food Inquiry
D om inic H ogan R egional M anager M iddle East
The file path that appeared at the foot of the second page of this facsimile was:
L :\M E D E SK \ M ARKETS\ M _EA ST\ IR A Q \D FA T \T ransport_D ischarge.doc
suggesting that this draft had been saved on a shared Middle East Desk folder within AWB's computer system.8 Mr Hogan sent a copy of his first draft of this facsimile to Mr Stott as an attachment to an email dated 27 October 2000.9 A copy of this first draft is reproduced as Figure 20.1 in Appendix 20.
Mr H o g a n 's e v id e n c e a b o u t t h e p u r p o s e o f t h e l e t t e r
20.7 Mr Hogan's evidence on 23 August 2006 was that the 'whole purpose of writing the [27 October 2000] letter'10 was to request advice on whether an arrangement could be put into place for the trucking fee to be reduced where demurrage was incurred11 and increased if despatch was earned.12 The draft letter did not spell out that purpose clearly, although it did state, 'This eloquent solution will reward the transport company based upon the final
discharge performance of each vessel'.13
Mr Stott and Mr Hogan knew —although a recipient at DFAT would not know —that the 'transport company', Alia, was merely a conduit for payments to Iraq.
Mr Hogan explained the intended system in the following words:
I w an ted to charge the tran sp o rt —that's w hy I w rote it in there, because I thought if it w as fixed at $12 and w e start paying them 10 or 14, th at w a sn 't ap p ro v ed or agreed. The w hole incentive p rogram w as that if dem urrage w as incurred w e w o u ld pay them $10. If dispatch w as earned, w e w ould pay them $14. A nd it goes further. W hilst w e said the Jordanian com panies, because that w as Alia w ho w as the p aym ent or nom inated p ay m en t agency, the only w ay w e could have such a system to pay th at is w ith the cooperation of the Iraqis. D isp atch /d em u rrag e could not d epend purely on the num ber of trucks. It had to d epend on the
discharge of the vessel, the testing tim e it took the Iraqis, w hich w as fo u r days, the bringing them into berth. So o u r incentive system w a sn 't so m uch w ith Alia, it w as w ith the Iraqis.
Q: So once you could m ake the trucking fee flexible —
A: C hange it.
Q: —change it so it's flexible, you could then use the inland transport
m echanism to in tru th ru n a dem urrage despatch?
A: T hat's the w hole incentive program .
Report o f the Oil-for-Food Inquiry 3 9 3
Q: W hich you knew the U nited N ations an d A ustralian governm ent did not approve of?
A: T hat's w hy w e asked in the letter —
Q: Y ou'd asked once before?
A: T hat's w hy I asked 'A s you are aw are', w h at w e w an ted to do w as being able to flex that. T hat's the first draft u n d e r m y nam e that w as going to go out. T hat's the w hole basis of that letter, an d then it w as changed an d ch an g ed .14
20.8 On the face of matters, the purpose of the letter was to obtain from DFAT apparent consent to permit AWB to negotiate a fluctuating inland transport fee with one or more transport companies. In fact, Mr Hogan and Mr Stott were about to set up an arrangement whereby demurrage and despatch could be calculated and then paid via the inland transport arrangements without DFAT or the United Nations knowing anything about the scheme.
20.9 Implementation of a demurrage and despatch arrangement had been the subject of discussions between Mr Hogan and Mr Stott and the Iraqis on 14 October 2000, as discussed in Chapter 19. Mr Hogan's notes taken during those discussions make this certain.15 Implementation of such an arrangement had also been the subject of correspondence between AWB and DFAT.16 In the course of that correspondence DFAT forwarded to AWB an internal memo17 that recorded the following advice:
The AW B's proposal to establish a tru st account for Iraq as an incentive to unload shipm ents m ore quickly breaches current U N sanctions against Iraq. It m ay he possible to discuss w ith the U N T reasury other m ethods of encouraging Iraq to u nload w h eat shipm ents m ore quickly w ith o u t breaching the sanctions regim e, for
exam ple, an incentive paym ents schem e operating w ith in the escrow account.18
20.10 The suggestion in this advice was not taken up by AWB. Rather, AWB pursued its plan to operate a demurrage and dispatch account that was to be payable through the mechanism for the inland transport fee; namely, if the Iraqis earned despatch the trucking fee would rise and if AWB incurred demurrage the trucking fee would be reduced. Mr Stott and Mr Hogan discussed a demurrage and despatch scheme in October, two weeks before the 30 October letter to DFAT.
20.11 This scheme would work only if the trucking fee was going to the Iraqis and not to an independent transport company. Mr Hogan's draft letter to DFAT was written to give the reader an impression that the trucking fee was being paid to a transport company, whereas Mr Hogan knew this was not the case. He knew the trucking fee agreed with the Iraqis was in fact being paid to Iraq, albeit via Alia. In this regard it was deceptive.
3 9 4 Report of the Oil-for-Food Inquiry
20.12 The draft letter was also deceptive in that it referred to:
⢠the contracts being 'Free in Truck to all governates Iraq'
⢠a UN-approved transport fee
⢠AWB's reduced ability to negotiate rates directly with the transport company.
20.13 Mr Hogan was aware that AWB was not in reality contractually bound to deliver wheat to all 'governates' of Iraq. The arrangement he had struck with the Iraqis was that Iraq would continue to be responsible for delivery of wheat to all governorates and that AWB would pay the IGB a fee. Mr Hogan described the arrangement in evidence19:
Q: Free in truck, yes, w as approved. If the contracts had, in truth, reflected the arrangem ent as you und ersto o d it after y o u r m eetings in June 1999, is it not
correct to say th at they o u g h t to have said, O F , U m m Q asr, w ith AWB to pay to IGB or Iraq $14 for arranging discharge an d tran sp o rt'?
A: Com m issioner, I think in hindsight, firstly, it w o u ld have been even before that contract w as w ritten, that som eone actually approached the U nited N ations and asked them about the inland tran sp o rt fee. I d id n 't w rite the original contracts or
the term s of it—
Q: I'm not suggesting you did, an d w e know that this all em erged from a tender w hich w as p u t to you by the Iraqis. But w h a t I am suggesting to you is that it w as know n that that tender, and it w as know n th a t the contract in fact signed d id not in fact represent the true arrangem ent w hich you a n d M r Em ons knew h ad been m ade by June 1999, because, in truth, as you u n d ersto o d it, AWB h ad an
obligation to deliver to U m m Qasr; in truth, it w as IGB w ho w as thereafter to look after transportation and distribution; and, in truth, AW B's only obligation w as to p ay a su m of m oney to Iraq, w ho w ould use th at m oney for w hatever purposes they thought.
A: Correct. But I —sorry, I think in the contract, it says, 'Payable to Iraqi m aritim e agents'.
Q: Yes, w hich w as k n o w n to be an Iraqi instrum entality?
A: Yes, b u t m y interpretation of that w as that, yes, w e w ere taking the funds an d then pay in g it th ro u g h to Iraq.
Q: Yes, you have told u s m any tim es that y o u knew m oney w as going to Iraq?
A: B ut I know th a t—looking back now in hindsight, the w hole contracts w ould have been w ritten com pletely differently the w hole w ay through.
Report o f the Oil-for-Food Inquiry 3 9 5
20.14 Mr Hogan's draft letter should be viewed as a disingenuous attempt to:
⢠demonstrate to DFAT a belief that the trucking fee had been properly approved by the United Nations, whereas the United Nations had not been informed of the true contractual relationship between AWB and the IGB concerning the responsibility for the delivery of wheat to all governorates
⢠lay the groundwork for implementation of a system that gave the appearance that it involved a fluctuating trucking fee based upon negotiations with Jordanian transport companies, whereas it was proposed to continue negotiations commenced with the Iraqis on 14 October 2000 in Iraq to implement a demurrage and dispatch account as between AWB and the IGB payable through the inland trucking mechanism.
A s e c o n d d r a f t
20.15 A second version of this proposed facsimile to DFAT was also produced to the Inquiry by AWB.20 This second version was dated 30 October 2000. Like the first, it was addressed to 'Jill Coutney'.21 However, unlike the earlier draft, this second version was expressed as being from Mr Stott, not Mr Hogan. There were also substantial differences between the contents of this facsimile and Mr Hogan