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Commission of inquiry into certain Australian companies in relation to the UN Oil-for-Food Programme Report of Commissioner, the Hon TRH Cole, AO, RFD, QC Volume 3 Sales, allegations and inquiries (January 2001 to December 2005)


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REPORT OF THE INQUIRY INTO CERTAIN AUSTRALIAN COMPANIES

IN RELATION TO THE UN OIL-FOR-FOOD PROGRAMME

nuary 2001 - December 2005

COMMISSIONER THE HONOURABLE TERENCE RH COLE AO RFD OC

VOLUME 3

NOVEMBER 2006

Report of the Inquiry into certain Australian

companies in relation to the UN Oil-for-Food Programme

Volume 3

Sales, allegations and inquiries January 2001 - December 2005

Commissioner The Honourable Terence RH Cole AO RFD QC

November 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 http://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.oilforfoodinquiry.gov.au

Contents

23 January 2001 to June 2002: more sales to Iraq 1

February 2001: a further sale to the 1GB 1

DFAT's report on the Secretary-General's report into Oil-for-Food Programme 13

Port agent fees 14

May 2001: discussions in Iraq 30

June 2001: another trip to Iraq 36

June 2001: another sale 37

August 2001: a further trip to Iraq 41

September 2001: withholding inland transport fee payments 42

Port fees revisited 43

The shipping industry's knowledge of the 10 per cent after-sales- service fee 45

20 December 2001: another sale 47

February 2002: AWB discussions with the United Nations and the Australian mission 56

February to May 2002: AWB's donation of further equipment 57

June 2002: another sale concluded 57

24 June 2002 to March 2003: contracts A1670 and A1680 73 AWB concludes its final sale under the Oil-for-Food Programme 73

Two features to the background to the negotiation of these contracts75

United Nations approval 78

25 March to September 2003: renegotiation of AWB contracts 83 March 2003: the incursion in Iraq 83

The Pearl of Fujairah and Andromeda shipments 83

April 2003: renegotiation of contracts A1441 and A1680 92

AWB's participation in the Coalition Provisional Authority 95

September 2003: renegotiation of contracts A1670 and A1680 97

An inland transportation agreement with Alia 101

Report of the Oil-for-Food Inquiry Hi

Insurance of the shipments to Iraq

104

Further renegotiation of contract A1670 106

26 August 2000 to March 2003: inland transportation fees 111

The manner of payment of the fees 112

The decision to pay the fees direct to Alia 113

An increase in the fees payable 113

Payment in currencies other than US dollars 114

Payment in instalments 117

Responsibility within AWB for payment of the fees 118

Inland transportation fees paid by AWB during the Oil-for-Food Programme 119

The amount of the inland transportation fees paid by AWB 120 Alia's payments to the Iraqi State Company for Water Transport 125 Bank statements from Alia 129

Application of AWB funds within Iraq 131

27 BHPP, the Iron Filings Claim, and Tigris 143

The BHP and Tigris companies 143

Events leading up to the BHPP wheat shipment in 1996 145

The 1996 shipment 164

A further approach to DFAT 168

DFAT's rejection of credit sales again 177

BHPP's reaction 177

2000: BHPP 'debt' raised again by Mr Stott 185

BHPP assigned the 'debt' to Tigris 187

AWB engaged by Tigris to assist with recovery 191

Negotiations with Iraq recommenced 192

2001: approaches to 1GB continued 193

2002: the pursuit continued 196

Iron Filings Claim made 198

The August 2002 delegation: AWB agreement to pay compensation 201

The offset proposal 203

Debts denied by Iraq 205

Tigris and AWB agree on debt recovery commission 209

iv Report of the Oil-for-Food Inquiry

T

Loading up of contracts and requests for payment through Alia 213 ELG told compensation to be paid directly and debt repaid by 'loading up' contracts 215

Advice from DFAT on quality refunds to Iraq 222

Sale on 'loaded-up' contract confirmed 223

Executive advised of inflated sale 225

2003: The 'Iron filing rebate payment and Tigris Petroleum' memorandum 232

Approval for export given 241

The incursion commences 244

Payments to 'influential people' 245

A further draft of the Tigris agreement: 'debt' became 'compensation' 246

'Compensation' became 'commission' 248

2004: negotiations continued as 'debt' was collected 253

A renegotiation: Tigris surrendered 10 per cent of debt to AWB 256

Tigris agreement with BHPP renegotiated 260

Further negotiation of agreement between Tigris and AWB 260

Sign-off of the Tigris agreement 267

Authorisation, execution and payment 274

Notifying the Boards 283

Payment to Iraq of the agreed compensation and excess funds collected 287

28 May 2003 to December 2005: allegations and inquiries 305

Further rumours of kickbacks 305

AWB's internal investigation: 'Project Rose' 313

The US Wheat Associates allegations revisited 316

The Wheat Export Authority: issues for examination 323

The commencement of the IIC investigation 324

Notification to the Boards of AWB's internal investigation 328

Project Rose continues 329

PSI investigation 342

Further meetings and briefings 344

The TIC investigation continues 358

The TIC's final report and AWB's response 406

Report of the Oil-for-Food Inquiry v

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 2 Negotiations and sales July 1999 - December 2000

9 AWB Limited and the AWB group of companies

10 AWB's sales to Iraq before July 1999

11 AWB's participation in the Oil-for-Food Programme

12 The role of the Department of Foreign Affairs and Trade

13 July to December 1999: Iraq introduces an inland transportation fee

14 October 1999: further sales of wheat to Iraq

15 January 2000: a deletion to the AWB short-form contract

16 January to March 2000: the Canadian complaint

17 April to July 2000: delays and demurrage

18 April to July 2000: changes within International Sales and Marketing

19 October 2000: a visit to Iraq and subsequent events

20 October 2000: an 'eloquent solution'

21 November 2000: introduction of the 10 per cent after-sales-service fee

22 December 2000: the Arthur Andersen report

Vi Report of the Oil-for-Food Inquiry

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

VII Report of the Oil-for-Food Inquiry

23 January 2001 to June 2002:

more sales to Iraq

February 2001: a further sale to the 1GB

Phase IX of the Oil-for-Food Programme

23.1 On 27 January 2001, the Iraqi Ministry of Trade issued its wheat tender for phase IX of the Oil-for-Food Programme.' This Tender invited offers in euro or any other acceptable European currency for the supply of wheat at a price expressed in the following terms:

10—Price

CIF F.O.T to silo to all Governerates of Iraq

Cost of discharg at Umm Quser and land transport will be equivalent to USD (25) per metric ton to be paid for each shipment in any exchangeable currency to the water transport company before arrival of the vessel to Umm Qaser port. for more details contact Iraqi Maritmes in Basrah (Iraqi State Co. for Water Transport - Basrah)2

23.2 Clause 10 of the Tender also provided an option to deliver the cargo via ports other than Umm Qasr. Although no cost of discharge or inland transport was specified for those other options, the price for those other options was still expressed to be 'CIF Free on Truck all Governorates of Iraq via' those other ports and entry points, so as to include an inland transportation component.

23.3 The Tender did not mention any obligation to pay a 10 per cent fee (or a 10 per cent after-sales-service fee).

A visit to Iraq by Mr Hogan and Mr Borlase

23.4 Between 31 January and 2 February 2001, Mr Hogan and Mr Borlase travelled to Iraq where they met with the Director General of 1GB, Mr Abdul-Rahman.

During this visit, they negotiated the sale of one million tonnes of wheat to 1GB. This was concluded as a purchase under phase IX of the Oil-for-Food Programme.

Report of the Oil-for-Food Inquiry 1

Negotiation of a further sale

23.5 On 31. January 2001, Mr Hogan sent an email to Mr Alvares (AWB Treasury) in preparation for his negotiations with 1GB. 3 He advised Mr Alvares that AWB was offering to sell wheat to Iraq and that 1GB was looking to convert the price into Deutschmarks or euro. 4 Mr Hogan advised Mr Alvares that he would be putting the offer to 1GB on 1 February 2001, open until 8 February 2001, although he foreshadowed that the contract could be concluded on 1 February 2001.

In his email, Mr Hogan noted that:

Total contract price will be amd [deleted] USD PMT—which UN will pay 100% in EURO or DM—however, there will be 2 USD payments by AWB(I) upon Bill of Lading.

1. USD 25 transport fee

2. USD [deleted] or USD [deleted] Freight payable to AWB Chartering on BOL - rate changes on vsl size.

It will take 70-80 days from Bill of Lading to UN payment to AWB - so April 1st load—would not receive funds for 80 days. We will rcv full funds ($[deleted] - $[deleted]) from UN in EURO or DM.

I will offer in USD only, with option to convert upon confirmation of contract - in which case we will need to call you and get rate and then give buyer Opp to confirm.5

23.6 Mr Alvares replied to Mr Hogan by email that day indicating that AWB Treasury was ready to assist. 6 He reminded Mr Hogan that in relation to the preceding contracts 'we had to make a payment of freight in DM (deutsche marks)' 7 and sought clarification as to whether on this occasion payments would be in US dollars as Mr Hogan had suggested in his email.8

In fact, under the earlier contract 9, it was the inland transportation fees (and not ocean freight) that was paid in Deutschmarks.

Conclusion of contracts A0552 and A0553

23.7 On 2 February 2001, AWB concluded the sale which was split into two contracts. These became contracts A0552 and A0553, each for 500,000 tonnes on similar terms. The only differences were in the specification of wheat to be shipped, and the price. The price was negotiated in US dollars. Once agreement had been reached, that price was converted to Deutschmarks at the then prevailing exchange rate. An inland transportation fee was payable by

2 Report of the Oil-for-Food Inquiry

AWB in respect of shipments made under both contracts. There was a slight

difference in the amount of that fee: for shipments made under contract A0552 it was US$44.80 per tonne, and US$45.00 per tonne under contract A0553. Both amounts included the additional 10 per cent after-sales-service fee on the free in truck (FIT) value of the contract that had been introduced for the first

time with contract A0430 in November 2000.

23.8 The inland transportation fee payable was payable in two instalments similar to the arrangement in contract A0430. The first instalment was to be US$14 per tonne paid prior to the arrival of the shipment at Umm Qasr with the balance to be paid within a week of AWB's receipt of the proceeds of the sale from the UN escrow account.

23.9 By two facsimiles addressed to the Mr Abdul-Rahman dated 2 February 2001, Mr Hogan confirmed the terms of these two contracts. 10

The facsimile for contract A0552 was in the following terms:

AWB is pleased to confirm the sale of Australian Wheat to Iraq.

Please note the following specific terms as agreed;

1. AWB will pay USD 14.00 PMT in equivalent agreed currency for partial payment of transport fee prior to the vessel arriving in Umm Qaser. Balance of USD30.80 PMT will be paid as final payment of transport fee within 1 week of receipt of UN payment being received by Sellers. Total transport fee payable is USD 44.80 PMT in equivalent agreed currency.

2. Contract to be converted into agreed currency on the 5th of February 2001.

Once again, thank you for this business and we will send a short form contract to you from Australia, detailing the agreed currency and contract numbers."

Mr Hogan's facsimile for contract A0553 was in identical terms, save that the transport fee payable was US$45.00 per tonne and the balance of the fee payable as a second instalment was US$31.00 per tonne. 12

23.10 Each of these two facsimiles was accompanied by a document setting out the terms of the contract to which it related. 13 Apart from the description of the quality of the wheat and the price, each of these documents was in identical terms

Neither of these accompanying documents contained any reference to the obligation upon AWB to pay either the 'cost of discharge at Umm Quser and land transport' referred to in clause 10 of the wheat tender or inland transportation fees. Nor did these documents contain any reference to the

Report of the Oil-for-Food Inquiry 3

amount of those costs or fees. The only reference to the inland transportation

fees payable by AWB was in Mr Hogan's covering facsimiles.

There was no reference in the documents to the additional 10 per cent after-sales-service fee payable by AWB. There was no express reference to this 10 per cent fee in either of Mr Hogan's covering facsimiles, although the amount of the inland transportation fees referred to in each of his facsimiles did include that 10 per cent fee.

Advice of the sale circulated within AWB

23.11 On 4 February 2001, Mr Hogan sent an email to Mr Alvares (with a copy to Mr Lister) headed 'Iraq— Currency conversion' advising of the concluded sale to the 1GB. 14 Mr Hogan stated:

AWB(I) will need to pay approx - USD[deleted] to AWB Chartering on BOL (I assume we transfer this in BOL). Also AWB(I) will pay part of inland transport fee within 15 days of BOL - this is USD14.00 PMT, paid in equivalent currency (i.e) DM. Balance of inland transport fee will be paid when we receive the full 100% payment from United Nations—i.e. USD30.80 and USD31.00 respectively for each contract— this will be paid in currency (i.e. DM). 15

23.12 On 5 February 2001, Mr Borlase circulated an email within AWB headed 'Iraq Sale 2nd Feb 2001' and purportedly setting out the pricing and benchmarking information for the sale to IGB.16 Although the prices listed in his email were said to be the 'CIF FIT (Free in Truck)' prices, they were not the same as the sale prices recorded in the annexure to Mr Hogan's facsimile to 1GB of 2 February 2001. The prices quoted by Mr Borlase did not include allowance for the 10 per cent fee that had to be paid in addition to but as part of the

inland transportation fee. Further, Mr Borlase gave the 'Trucking Fee' component of the sale price US$25.00 per tonne. He did not include within that component the additional 10 per cent fee payable by AWB which was incorporated into the amount of the inland transportation fee referred to in Mr Hogan's facsimile to the 1GB of 2 February 2001.

23.13 The same approach was taken by Mr Lister when he drew up his notes in relation to the administration of contract A0552. He referred to a trucking figure of US$25.00 per tonne and then to a separate figure of US$19.80 per tonne representing 10 per cent of the contract price, which contract price

included the US$25.00 per tonne trucking fee.

23,14 Two observations can be made about the treatment of the 10 per cent disclosed by Messrs Borlase and Lister. Mr Borlase did not include within the trucking fee recorded in this email any reference to the 10 per cent. This is consistent with his later expressed view that the imposition of the 10 per cent

4 Report of the Oil-for-Food Inquiry

fee 'is a mechanism to extract more dollars from the escrow account'.

17 It is an

acknowledgement by AWB that the 10 per cent was not part of the trucking fee, albeit that it was being collected via the same mechanism of payment. Thus it was appreciated within AWB that the 10 per cent was an impost by the Iraqis and not a payment in any way related to trucking or the inland transportation of the wheat. The second observation is that the 10 per cent was calculated by reference to a contract price which included the US$25.00 per tonne trucking fee. Thus the 10 per cent was calculated on the total contract price and therefore included 10 per cent of the trucking fee, that is, US$2.50 per tonne. Whatever else may be said about the total 10 per cent calculation

that component of it which relates to 10 per cent of the trucking fee could in no way have been understood to itself be an additional trucking fee.

23.15 Mr Borlase's email concluded:

We haven't allowed for any margin made by AWB Treasure on the foreign exchange trading on the trucking fee, which has the ability to improve the benchmark. 18

23.16 Mr Stott sent an email to Mr Goodacre and Mr Lindberg later that same day

advising them of this sale. 19 Mr Stott's email also referred to a 'trucking fee' of US$25 per tonne, but made no mention of the additional 10 per cent fee that would be payable by AWB. Mr Stott's email referred to the same prices set out in Mr Borlase's email. 20

Mr Stott concluded his email:

Overall, this is a tremendous result. From an individual Account Manager benchmarking perspective, it is slightly below the C&F premium target, however this demonstrates that we are working to challenging stretch targets. Given our conservative demurrage costings incorporated in the contract there is upside

potential to add additional pool wealth subject to first class contract execution. 21

The exhibited copy of the email bears a manuscript note from Mr Lindberg to

Mr Hogan congratulating him on a job well done.

23.17 Mr Stott was aware of the imposition of the 10 per cent fee by the Iraqis. He had approved its inclusion in November 2000 and for this one million tonne sale. His exclusion of any reference to it in his email to Messrs Goodacre and Lindberg advising of the sale and the benchmarking is further evidence that he and AWB were aware that the 10 per cent fee was not related to trucking.

Report of the Oil-for-Food Inquiry 5

Mr Borlase's trip report

23.18 On the way back to Amman, Mr Hogan asked Mr Borlase to prepare a trip report. Mr Hogan discussed with Mr Borlase the matters that should be covered in the report. 99 Upon his return to the Cairo office, Mr Borlase prepared a draft report which he sent by email to Mr Hogan on 6 February 2001 for his comment. 23

Mr Borlase's email had a full trip report attached. 24 It reported that the FOB

price given for each contract was:

based on USD25.00 trucking fee. 25

It made no mention of the 10 per cent fee or its inclusion either as part of the inland transportation fee payable by AWB or the contract price.

23.19 On 7 February 2001, Mr Borlase circulated his trip report by email to various employees within AWB and to three email groups 'AWB-International-all', 'AWB-International-New York' and 'Intl Marketing. 26 The email commenced:

All,

Please find below a brief summary of Dominic Hogan and Darryl Borlase's Trip to Iraq from Jan 31st - Feb 2nd.

If you would like the detailed version then please read the attached file. Dominic is currently travelling and will be in a position to discuss all aspects upon his return to Australia next week.

This email retained the reference to the FOB price being based on a US$25 per tonne trucking fee and contained no reference to the additional 10 per cent fee.

23.20 Mr Borlase's trip report 27 , contained the following passage under the heading 'Contract negotiations':

Trucking Fee/Services Fee - The trucking fee is now USD25.00 pmt all governates of Iraq with a 10% service fee on the entire FIT value of the contract. We believe the increase in trucking fee and addition of the service charge is a mechanism of extracting more dollars from the escrow account. AWB have agreed to remit the trucking fee in a foreign currency other than US Dollars (most likely in DM) in 2 instalments. The first instalment (USD14.00) will be paid prior to the vessels arrival in Umm Qasr and the second one within one week of receiving payment from BNP in New York. We managed to avoid full payment upon BOL, which is what 1GB wanted therefore in essence we would be financing their trucking fee for 80 days. Please note this gives AWB Treasury an opportunity to make a margin on

the foreign exchange hedge consequently any margin will assist our business costs. 28 [emphasis added]

6 Report of the Oil-for-Food Inquiry

23.21

Mr Borlase gave evidence that he understood the 10 per cent component to be

a 'service fee'.29 However, he said it was not discussed in the negotiations in February 2001, and the purpose of the fee was not described to him.30 His suspicions regarding the legitimacy of trucking fees were raised at that time as a result of the steep increase in the trucking fees, and the request by 1GB that the fees be paid up front. 31

23.22 Mr Hogan's evidence, however, was that during this trip Mr Abdul-Rahman mentioned that the service fee would be used for other purposes, such as building infrastructure. 32 Mr Hogan said it was Mr Abdul-Rahman's statement which 'triggered' his concern that the 10 per cent fee was not a 'legitimate' transport cost, and that it was a way of 'siphoning' money to Iraq. 33

23.23 When he returned to Melbourne, Mr Hogan raised his concerns regarding the

inland transport fee with Mr Stott. He advised Mr Stott that he was concerned that the money for the inland transport fee was going directly to Iraq.M Mr Hogan's evidence was that Mr Stott dismissed his concerns immediately. Mr Stott said that Mr Hogan had no direct proof that this was occurring and that he was only making assumptions. Mr Stott told him to continue executing the business as per usual. 35

Mr Stott accepted that Mr Hogan came to him with these concerns upon his return from Iraq 36 , but denied that he had immediately dismissed those concerns without further explanation. 37 Mr Stott said he had rejected Mr Hogan's suggestion on the basis that AWB had 'thoroughly' investigated the propriety of the trucking fees in the last three months of 2000. 38 He was concerned by the fact that the issue had been raised again after he had satisfied himself that there was 'nothing inappropriate happening with the trucking fees.'39

23.24 I accept Mr Hogan's evidence about Mr Stott's response. The tests which Mr Stott said he performed 40 were irrelevant to a consideration of the appropriateness of the fees, particularly where the increase was in part attributable to a new 'service fee' which Mr Abdul-Rahman had said would be used for purposes unrelated to inland trucking. Mr Stott was questioned about this:

Q: How does any inquiry that you conducted in October, any information that you found out in October, in any way bear upon the legitimacy of the introduction of a 10 per cent service fee?

A: I made inquiries of the Iraqis. I made inquiries of DFAT.

Q: About a 10 per cent service fee?

Report of the Oil-for-Food Inquiry 7

11

i

A: No, about using trucking companies.

Q: How does that in any way bear upon the introduction of a 10 per cent service fee?

A: The calculation of the freight of the trucking component included a 10 per cent addition of full value of the contract to the trucking component, and that's what became the trucking fee.

Q: How does anything that you discovered in October bear upon the legitimacy of the introduction of a 10 per cent service fee?

A: The service fee —a service fee was not —I did not understand this to be a service fee. I understood this _41

23.25 Mr Stott's evidence is not supported by the terms of his draft statement,

prepared by Minter Ellison on 12 September 2004.42 In paragraph 10.2 the following appears:

I do not recall that there was any other internal discussion triggered by the comment in this report [of February 2001] concerning the inland transport fees being a way to extract a further 10% from the UN escrow account. I do not recall discussing this issue with Dom [Hogan] or Darryl [Borlase] or them coming to me to discuss it.

Mr Stott could not recall preparing the statement with solicitors from Minter Ellison43 or being the source of the information recorded in the statement." However, it is clear that Mr Stott supplied the instructions for the statement. The information recorded in it is too detailed to have been produced other than by solicitors interviewing Mr Stott, and at length. Further, the statement is consistent with what appears in Mr Quennell's notes of the interview he conducted with Mr Stott in approximately April 2004. 45

23.26 Mr Geary received Messrs Hogan and Borlase's February 2001 trip report by email; he forwarded it to Mr Owen 46 on 8 February 2001, with a request that Mr Owen look at the correspondence and advise him how much money was being lost 'due to slow payment from the UN.'47 Mr Geary's evidence was that he read the document but did not understand the passage regarding the service fee. 48 I do not accept that evidence. The phrase '[w]e believe the

increase in trucking fee and addition of the service charge is a mechanism of extracting more dollars from the escrow account' is not capable of misinterpretation.

23.27 The February 2001 trip report was widely circulated within AWB. 49 It can therefore be concluded that, from February 2001, it was widely known within AWB that:

8 Report of the Oil-for-Food Inquiry

•

the increase in the trucking fee and addition of the 10 per cent service fee was considered to be a mechanism for extracting money from the United Nations escrow account

• the trucking fee, which included the 10 per cent after-sales-service fee, was to be received by Iraq

• the trucking fee, which included the 10 per cent after-sales-service fee, was to be used by Iraq for purposes other than trucking.

A further increase in the inland transportation fee

23.28 The amount of the inland transportation fee payable under each of these contracts was subsequently increased by US$1 per tonne. There was a commensurate increase of US$1 per tonne in the price payable by 1GB under each contract.

23.29 Initially AWB resisted this increase when it was first proposed by 1GB. In a facsimile to the 1GB dated 6 February 2001, Mr Hogan wrote:

I make reference to the Grain Board of Iraq's request via Miss Moona on 5th Feb 2001 that we increase the service fee on the two contracts negotiated on 2nd Feb 2001 by USD1.00 per metric tonne.

Unfortunately we are not in a position to do this as we have lodged the contract with our treasure department on Saturday 3rd Feb upon our departure from Iraq. In addition to this the extra USD1.00 adds to our borrowing costs to fund this transaction. It is our preference to leave these two contracts as negotiated on 2nd Feb 2001, however upon our next visit to Iraq we can discuss it as an agenda item.

Whilst we appreciate your circumstances I trust you understand our position on this occasion. 50

23.30 On 7 February 2001, 1GB sent a facsimile to AWB clarifying certain aspects of

the recent sale51 including in relation to the proposed increase in the inland transportation fee:

5. One dollar has been added to the price per metric ton to cover extra inland charges to be $26 instead of $25.

6. Total amount of each order in USD to be converted to the Currency agreed upon including extra one dollar PMT as stated above

The facsimile then set out the increased price in US dollars at which the wheat

was to be sold under each contract including the additional US$1 per tonne.

Report of the Oil-for-Food Inquiry

23.31 Mr Borlase responded on 8 February 2001. He advised that AWB was not in a

position to agree to the US$1 per tonne increase and repeated the reasons given by Mr Hogan in his facsimile of 6 February 2001. 53

23.32 Despite its initial objection, AWB eventually agreed to this increase. On 12 February 2001, Mr Hogan sent an email to Mr Alvares (with a copy to Mr Borlase) headed 'Iraq Contract':

Doug,

To confirm our discussion this morning:

Iraq have requested transport fee to be altered to USD26.00 PMT. As this does not affect AWB costings, as contract price will be increased, I will agree to do this with IGB. 54

23.33 On 13 February 2001, 1GB sent a telex to AWB headed 'Australian wheat contracts, Phase 9' which read:

Re to yr ddt 8/2/2001, and confirm our email ddt 11/2/2000 as we inform you that according to the instruction issued on 3/2/2001 that one dollar has to be added to the price per metric ton to cover extra inland charges to be 26/dollar

instead of 25/dollar and this instruction included all companies which we will contractesd with on phase -9-

pis confirm. 55

23.34 On the evening of 13 February 2001, the exchange rate was fixed for the

conversion of the US dollar price into Deutschmarks.

On 14 February 2001, Mr Hogan sent a facsimile to Mr Abdul-Rahman confirming the exchange rate that had been achieved in relation to these two contracts and the resultant price in Deutschmarks for each of these contracts. 56 He also noted that otherwise:

All other terms and conditions as per our confirmation dated 2nd February 2001. 57

Mr Hogan concluded:

Mr Yousif you may note that the DEM rate closed at 2.1270 and AWB completed placing orders at a rate of DEM 2.1130 However even though the market firmed above the rate we indicated to 1GB, we were able to complete the total currency hedge at a rate better than quoted. This has saved the Grain Board of Iraq approximately USD110,000 over the total contract.

AWB is please to be able to provide this type of service and we hope it goes a long way into strengthening our relationship, and building the confidence between AWB and 1GB, which your Excellency believed had deteriorated over recent times. I hope this displays to your Excellency that we are committed to your market and

10 Report of the Oil-for-Food Inquiry

looking for ways to build on our long history and strive to meet your

requirements.SS

23.35 On 14 February 2001, Mr Alvares sent an email to Mr Hogan (copied to Mr Borlase) setting the details of the foreign currency exchanges that had been agreed to for the purposes of these contracts. 59

For your information when payment for Inland Transport Fee of DM 14.00 per tonne is required to be made (i.e. 15 days after BOL date). A request will have to be made to Treasury Division as and when required. Treasury Div will thereafter do a Currency Swap i.e. Buy DM in the Spot market (to pay the Inland Transport Co.) and Sell the DM forward to the date, when funds are expected from United

Nations i.e. 70/80 days later. The cost of funding or doing this swap will be also recorded in Quantum under the YAAA2 strategy (above FX deals also in same strategy). 60

Thus, inland transportation fees payable in Deutschmarks were to be funded from Deutschmarks purchased with US dollars under a currency exchange or swap.

23.36 On 23 May 2001, Mr Hogan sent an email to 1GB asking:

Could you please confirm for our records the inland transport fees payable for the contracts signed on the 2nd of February 2001.

Contract A0552 —DM29.48 1st Payment— Balance DM66.97

Contract A0553— DM29.48 1st Payment—Balance DM67.39

DM exchange rate is 2.1060.61

The contractual documents

23.37 A short-form contract was prepared within AWB for each of contracts A0552 62

and A0553. 63 Both short-form contracts were dated 2 February 2001 and signed on behalf of AWB by Mr Hogan. Both contracts were substantially in the same terms as AWB's last contract with the 1GB, namely contract A0430. 64 The price was described in each contract as a 'CIF Free in Truck' price and the shipment clause provided for the cargo to be discharged 'Free into Truck to all silos within all Governorates of Iraq'.

Neither of these short-form contracts referred to AWB's obligation to pay either the inland transportation fees, or additional 10 per cent after-sales-service fee, or to the amount of those fees. Neither short-form contract made plain that the amount of the inland transportation fee payable included the

additional 10 per cent after-sales-service fee.

Report of the Oil-for-Food Inquiry 11

2338

Export Sales Notes were also prepared within AWB in respect of both of these contracts.65 These also contained no reference to AWB's obligation to pay the inland transportation fees, or additional 10 per cent after-sales-service fee, or to the amount of those fees. Nor did they refer to the inclusion of these fees as components of the price at which the wheat was sold. Both Export Sales Notes recorded that these contracts were booked by Mr Hogan and authorised by

Mr Gibbons (an employee in AWB's marketing division). 66

23.39 There was however a record made by Mr Lister of the trucking charge, the additional 10 per cent fee payable by AWB, the US$1 per tonne increase in the trucking charge and their inclusion as a component of the price that AWB was to be paid under these contracts on Mr Lister's file cover for each of these two contracts. 67

23.40 Long form contracts were prepared by 1GB for each of contracts A0552 and

A0553.68 Both long-form contracts were in the same form as the long-form contracts that had been prepared by 1GB in respect of its earlier purchases from the AWB under the Oil-for-Food Programme. Neither long-form contract contained any reference to the inland transportation fees, to the 10 per cent additional fee, to its inclusion within the inland transportation fee, to AWB's obligation to pay either fee, to the amount of either of those fees or to the inclusion of these fees as components of the price at which the wheat was sold under these contracts.

United Nations approval

23.41 On 27 February 2001, Mr Hogan sent a facsimile to Ms Courtney at DFAT enclosing a copy of the short-form and long-form contracts for each of contracts A0552 and A0553, together with a duly completed application for United Nations approval of both contracts. 69

These documents were in turn faxed by Ms Watson (DFAT) to Ms Moules at the Australian mission to the United Nations for submission to the United Nations. 70

It appears that before submitting the applications to the United Nations, the

Australian mission prepared fresh applications forms for each of these contracts based on the information contained in the forms submitted by AWB to DFAT. 71

23.42 On 15 March 2001, United Nations approvals (dated 13 March 2001) were issued in respect of each of these contracts. 72 A copy of each of these approvals was sent by Ms Holiday from the Australian mission to Mr Snowball in AWB's US office under cover of a facsimile dated

12 Report of the Oil-for-Food Inquiry

I.

23 March 2001.73 A copy of these approvals was also sent by facsimile by Ms

Watson (DFAT) to Mr Lister on 27 March 2001. 74

DFAT's report on the Secretary-General's report into Oil-for-Food Programme

2343 On 2 March 2001, the Secretary-General of the United Nations published a report on the Oil-for-Food Programme. 75 This was said to be a comprehensive report to the Security Council on the progress of the Programme, since the last report submitted by the Secretary-General to the Council in November 2000.

23.44 On 9 March 2001, Ms Moules sent a cable to DFAT in Canberra in which she listed the key points of interest from the Secretary-General's report. 76 She also reported that the Security Council had discussed the Secretary-General's report in a closed session the previous day (8 March 2001) and set out the Australian mission's understanding of what had been discussed on that occasion. 77 A copy of the speaking note used by the Executive Director of the Iraq Programme for the purposes of those discussions was faxed by Ms Moules to DFAT in Canberra. 78 Ms Moules also reported on subsequent discussions that she had had with the Norwegian mission about the matters discussed with the Security Council.

23.45 One of the topics that had arisen in the course of these discussions was allegations that Iraq had been demanding kickbacks and illegal commissions on contracts for the provision of humanitarian supplies under the Oil-for-Food Programme. Ms Moules reported:

the UK and U.S. laid the blame for the shortcomings in the operation of the program on the Iraqi regime. The U.S. said it was obvious the Government of Iraq did not support the Oil-for-Food Program and wanted it to fail. The UK said Iraq needed to order more supplies, pump more oil, stop manipulating the program, and stop blackmailing companies by demanding surcharges.

Concerning the issue of surcharges, in addition to Iraq's attempt to add surcharges to oil prices (O.UN10270) Iraq has, according to UN officials, begun demanding kickbacks and illegal commission on contracts for humanitarian supplies, we asked the Norwegian mission (whose PR chairs the Sanctions Committee) if and how the committee intended to address this

issue. Norway said that although 'everybody knows about the kickbacks', given the lack of hard evidence (clearly surcharges are not reflected in any of the documentation processed by the UN) it was difficult to address the issue directly. However Norway was considering having a committee letter circulated containing a general reminder to all member states of the illegality of companies paying surcharges to Iraqi purchasers 79

Report of the Oil-for-Food Inquiry 13

23.46

Of the proposal to circulate a committee letter referred to in the cable, Ms Moules gave the following evidence:

Q: Ms Moules, can you confirm that although your cable refers to Norway considering having a committee letter circulated containing a general reminder, your letter states that that letter was in fact never circulated?

A: That's my understanding, that it was never circulated, and I remained in quite close touch in the Norwegian Mission and other Security Council members about these issues, so I am sure I would have known if the letter had ever been sent. 80

Port agent fees

Introduction of a US$0.50 per tonne port agent fee 23.47 On 23 March 2001, Mr Rowland, a Chartering Officer with AW1381 , sent an email to Mr Snowball (in AWB's US office) raising a query regarding the introduction of a levy of 50 cents per tonne to be paid in cash to Port Agents

prior to the discharge of a vessel:

Tim we have recvd the foil msg from Iraq State Port Agents whom hve introduced a levy of USD 0.50 cents p/mt to be paid in cash to them prior to a vessel being able to take berth and discharge. This charge has only just been introduced and the Iraqi's are making it retrospective to the 11/3/01.

All vessel's that call Iraq have been paying USD 1500.00 in cash to the Iraqi port state agents for normal port agency but this charge is a cargo based charge in addition to the USD 1500.00 per vessel.

Dom is of the opinion that this charge contravenes the UN sanctions on Iraq as nobody is meant to be able to transfer US Dollars into or out of Iraq without UN approval. [emphasis added]

Can you please confirm this is correct and that this charge is in effect illegal under the current sanctions.

Foll is excerpt of msg recvd from Iraqi Port Agents re this charge.

QTE

FM: ISCWT Basrah

RE: Agency fees at Umm Qasr port

In order to cover agencies expenses and services for vsls calling Umm Qasr port flwg amount to be paid as from 11/3/2001

1— USD of 50 (fifty cent) per m/t or cbm which is greater

2— USD 10 (ten) per container 20 or 40 and car

14 Report of the Oil-for-Food Inquiry

above amount to cover agencey expenses as well as tally clarks

3 —USD 1500 for each call to cover communication and transportation and all other services mentioned in para (1) and (2) above if vsl not paid a/in amount then will not be allowed to enter and berth Umrn Qasr.

Also the vsl's not paid a/rn charges they have to paid same irndtly and since 11/3/2001 p1s confirm.

Best rgds.

ISCWTBasrah82

AWB's discussions with DFAT regarding the Iraqi port fee

23.48 Following receipt of Mr Rowland's email, Mr Snowball spoke by telephone with Ms Moules at the Australian mission.83 This was late on the evening of 23 March 2000. 84

Manuscript notes appearing on a copy of a facsimile from Mr Snowball to Ms Moules dated 22 March 2001 (and inquiring whether contracts A0552 and A0553 had yet been approved by the United Nations) appear to be Ms Moules' notes of her conversation with Mr Snowball. 85

23.49 Following his conversation with Ms Moules, Mr Snowball responded to Mr Rowland's email in an email dated 26 March 2001:

As we discussed on Friday, Bronte Moules from the Australian Mission to the UN will be following this up directly with the UN on Monday. Bronte had heard of a similar USD/mt charge that Iraq has been trying to place on other bulk imports. Bronte seemed to think that the current USD1500 flat fee for normal port agency fees does not violate current sanctions procedures, but the USD0.50/mt would.

I will let you know as soon as possible. 86

23.50 On 26 March 2001, Ms Moules followed up the matters raised by Mr Snowball

with both the Chief Customs Officer from the Office of the Iraqi Programme (Ms Johnston) and Mr Stenseng from the Norwegian mission to the United Nations (in his capacity as Chairman of the Iraq Sanctions (661) Committee). 87

Following her conversation with Ms Johnston and Mr Stenseng, Ms Moules telephoned Mr Snowball on 26 March 2001 to convey to him the preliminary information that she had received from the OIP and Norwegian mission. She also included a report of that conversation with Mr Snowball in her cable of 26 March 2001 to DFAT (Canberra). 88

Ms Moules recalled advising Mr Snowball that she understood the United Nations' legal opinion about the issue of port fees to be that port fees were not

Report of the Oil-for-Food Inquiry 15

inconsistent with the sanctions regime, provided the fees were for a

'reasonable' amount and that they were paid in Iraqi dinars and not US dollars. She also recalled advising Mr Snowball, based on her discussions with the OIP and the Norwegian mission, that the 661 Committee was aware of the port fees issue and was looking into the matter further but that it would take some time for a response. 89

23.51 Mr Snowball made a note of the conversation that he had with Ms Moules on 26 March 2001. 0 A copy of this note is reproduced as Figure 21.1 in Appendix 21. According to Mr Snowball's note, he was informed by Ms Moules that:

Iraq can charge port fees (not a sanctions issue) but can only pay in Iraq (dinars) currency -* technically in breach of sanctions, but sanctions committee have been aware

Beneath that entry there was an arrow in Mr Snowball's note leading to an entry which read:

Was a recent case where it was tried to include it in contract and sanctions committee rejected it. 92

Mr Snowball's note also recorded:

- putting contracts on hold if large amounts of money being handed over.

Any USD to Iraq gov't is a definite No.

- But sympathy for the situation and sanctions committee will look at it—could take 1-2 weeks.

- Just got the new 1.0 Inmt approval - will DFAT Canberra know. 93 [emphasis added]

The last two lines referred to Ms Moules' advice that the mission had just received the United Nations approval of contracts A0552 and A0553 dated 2 February 2001.

23.52 Mr Snowball had no recollection of this conversation beyond what was in his note.94 He agreed that the substance of what he was told by Ms Moules was while port fees were not necessarily inconsistent with the sanctions regime that was on the proviso that they were in a reasonable amount. 95

He gave the following additional evidence:

Q: She also said to you in this conversation, did she not, Mr Snowball, that the sanctions committee were aware of the issue of port fees?

A: Yes. It appears that way, 'But sanctions committee have been aware'.

16 Report of the Oil-for-Food Inquiry

Q:

And that they were looking into that matter further?

A: Well, I think they were going to look into this matter that I raised here further. It says 'And the sanctions committee will look at it. Could take 1-2 weeks'.

Q: And did she also say, 'Don't expect a quick response'?

A: Yes - well, she said 'Could take 1-2 weeks' is what I have written here.

Q: And in early April 2001, on or about 9 or 10 April, you had a further conversation with Ms Moules about this topic of port fees, did you not?

A: I don't recall having a conversation.

Q: May I suggest to you that you told Ms Moules on that occasion that the vessels in question had been allowed to discharge their cargoes without payment of the US 50 cents per tonne fee?

A: I don't recall that, but if you have some evidence there, I am happy to have a look.

Q: And you also said, did you, that a further attempt may be made to impose that fee in the future - do you remember that?

A: 1 don't recall any of that, sir, I'm sorry.

Q: And that Ms Moules told you again that the port fees could only be paid in Iraqi currency?

A: Again, I don't recall, but that - Iraqi currency has been in my diary note here anyway, so that might well be the case.

23.53 On 26 March 2001, Ms Wensley, Australia's Ambassador and Permanent Representative to the United Nations, wrote to the Chairman of the United Nations Security Council Committee seeking advice regarding the imposition of the port fee. Her letter read:

Based on discussions between the Australian Mission and the Office of the Iraq Program, and between the Australian Mission and your Mission, our understanding is that while payment of port fees is not inconsistent with the sanctions regime, payment of such fees in U5 dollars would constitute a breach of sanctions. Our understanding is also that procurement of Iraqi dinars with which

to pay such fees presents significant practical problems.

In light of the above, I would be grateful for your guidance on how the Australian Mission should advise AWB Ltd to proceed.97

23.54 In a cable headed 'UN: Iraq—AWB exports' that Ms Moules sent to DFAT in Canberra on 26 March 2001, she reported on her conversation with Mr Snowball and the inquiries that the Australian mission had subsequently made in response to the matters Mr Snowball raised. Her cable stated:

Report of the Oil-for-Food Inquiry 17

AWB Ltd has been advised by the Iraq state port agents that it cannot discharge its

wheat shipments currently in Iraq until it pays a port fee of U.S. 50 cents per tonne direct to the port agents. AWB has sought the Australian mission's advice on how to proceed. The preliminary advice from the UN and from the Chairman of the IRAQ Sanctions Committee is that, while port fees are not necessarily inconsistent

with the sanctions regime, payments can only be made in Iraqi dinars. The Sanctions Committee is aware this presents significant practical difficulties, and is looking into the matter.

AWB (USA) Ltd (Snowball) contacted us on the evening of 23 March to seek our advice about the payment of port fees in Iraq. In relation to its latest shipments of wheat under the Oil-for-Food Program, AWB has been advised by the Iraq state port agents that it cannot discharge its vessels until a port fee of U.S. 50 cents per tonne is paid in cash to the port agents. The Iraq state port agents have told AWB that the port fees will be applied retrospectively back to 11 March 2001, and to all future shipments.

2. AWB Ltd asked us if we could clarify whether these port fees were permissible under the sanctions regime. They also noted their concern that, if applied, the port fees would amount to considerable sums given the quantities of wheat AWB exports to Iraq (as you know, the two most recent contracts for which AWB has received UN approval to export to Iraq cover, in total, one million tonnes of wheat).

3. We discussed this matter with the UN Office of the Iraq program (OIP) (Johnston, Chief Customs Expert) and the Norwegian mission, (Stenseng) in its capacity as Chairman of the Iraq Sanctions (661) Committee, on 26 March.

4. OIP said it could not give us a full answer. OIP had on occasion sought a legal opinion on the issue of fees paid in Iraq in association with discharge and transportation of humanitarian suppplies within Iraq. The UN'S legal opinion had been 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/not U.S. dollars. OIP accepted that this presented significant practical difficulties, given the difficulty of purchasing Iraqi dinars outside Iraq. Moreover, even if dinars were purchased within Iraq, this would need to be done through the Central Bank of Iraq and would most likely be paid for in U.S. dollars (i.e. either,

way U.S. dollars would end up being paid to an Iraqi agency).

5. OIP confirmed that the Iraq Sanctions Committee was giving increased attention to the issue of commissions and kickbacks. As noted in O.UN10630 there are indications that, in addition to its attempts to add surcharges to oil prices (O.UN10207) Iraq has in recent months begun demanding kickbacks and illegal commissions on contracts for humanitarian supplies. Norway, in its capacity as chair of the Sanctions Committee, together with the UK and U.S., is working on

possible means to address this issue, one such possibility being for the Committee to agree formally that no payments of any sort can be made to any Iraqi authority or agency (though the likelihood of any agreement on this in the short term appears slim—see below).

6. OIP volunteered that payments to the Iraqi port authorities had probably been going on since the start of the Oil-for-Food Program. In most cases port fees would be agreed at the outset between the supplier and purchaser - as opposed to

18 Report of the Oil-for-Food Inquiry

AWB'S current case, where the fees appear to have been introduced well after the

conclusion of the contract - and are mostly subsumed in the contract. That said, if a contract explicitly listed a port fee payment per metric tonne in U.S. dollars, either in the contract or in an annex to it, the 661 Committee would most likely put the contract application on hold. That is, if the port fee were to be paid separately in U.S. dollars, rather than being factored into the price of the goods, for which the payment is channelled through the escrow account, this would not be acceptable.

7. OIP recommended we write to the Chairman of the Sanctions Committee to seek formal advice on the matter, given that OIP itself could not give an authoriative response. We have today written to the Chairman of the Sanctions Committee, as well as discussing the matter with the Norwegian mission.

8. Information provided to us by the Norwegian mission was consistent with that of OIP. Norway confirmed that the only definitive advice which could be given to suppliers at this stage was that port fees can only be paid in Iraqi dinars. Norway was well aware this was 'not a practical solution' (though mentioned that it was possible, if impractical, to purchase Iraqi dinars in Jordan). Norway confirmed that it, together with the UK and U.S., was looking at ways to address

the issue, but confirmed that getting any agreement from the Sanctions Committee on this matter would take 'some time'. (As previously reported, the Iraq Sanctions Committee is by far the most politicised and difficult of all the Security Council Sanctions Committees). Norway noted that, from a national point of view, it well understood the problem, having received many inquiries and complaints about it from Norwegian companies.

9. We conveyed the preliminary information provided by OIP and the Norwegian mission to AWB (USA) Ltd (Snowball) today, emphasising that, for the moment, the only advice we could provide was that port fees could only be paid in Iraqi dinars. Snowball mentioned that the master of vessels carrying AWB shipments to Iraq had, until now, been paying USD 1,500 per shipment direct to the port agents as port fees, and asked if this too would be inconsistent with sanctions. We reiterated the advice that port fees should only by paid in dinars.

AWB said that, pending any further advice from the Sanctions Committee -which, AWB is aware, could take some time - they might take up the matter directly with their Iraqi contacts since, even if there were an easy means to make payments in dinars, AWB considered the U.S. 50 cents per tonne port fee too high. We noted that the negotiation of the amount of port fees was a matter for the supplier and purchaser.

Comment

10. We will report further once we receive a formal reply to our letter to the Sanctions Committee Chairman. It seems unlikely however that there will be any quick, simple solution to this problem. Iraq's attempts to impose, apparently without warning, new fees in association with AWB exports in a manner inconsistent with the sanctions regime could be part of a broader effort by IRAQ

to complicate the operation of the Oil-for-Food Program. Placing potential obstacles in the way of the delivery of basic humanitarian supplies such as wheat hits a significant pressure point in the program, since clearly no one - neither OIP nor the Sanctions Committee nor the supplier - wants to be seen to be holding up the delivery of such supplies. That said, until further advice is received from OIP,

Report of the Oil-for-Food Inquiry 19

the only advice we can provide to AWB is that payments of port fees can only be

made in dinars. 98 [emphasis added]

2355 Ms Moules did not have a copy of the legal opinion referred to in her cable. It was not available at the time she sent the cable. She believed that it dealt with fees associated to the discharge and transportation of humanitarian supplies within Iraq. 99

23.56 There is a manuscript endorsement appearing on the copy of Ms Moules' cable produced by DFAT to this Inquiry which reads:

LC

Thanks. Indicates that AWB Ltd has behaved appropriately through this period.

ZA'°°

The note was written by Ms Armstrong to Mr Crews. Ms Armstrong was employed by DFAT in Canberra at the time101 , as was Mr Crews, although it is more likely that this annotation was made during DFAT's examination of documents during 2003. The note reflects an acknowledgement by DFAT of AWB's apparent understanding of the sanctions regime and of its apparent appropriate behaviour. This is to be contrasted with AWB's treatment of the inland transportation fee which, although nearly 100 times the quantum of the proposed port charge, was never raised with the Australian Government or the United Nations.

23.57 Ms Moules was asked whether the allegations referred to in the cable especially at paragraphs 4 and 5 were ever taken by her to refer to AWB. Her evidence was as follows:

Q: ... did you at any time believe that the information in paragraphs 4 and 5 related to AWB?

A: No. The general information being provided by the OIP—no, I didn't believe -

Q: Did you relate that at all to the possibility that AWB was paying transport fees

to the Iraqis outside the Oil-for-Food Program?

A: No, I didn't.

Q: Did you initiate any inquiries through DFAT in Canberra as to whether or not AWB Limited was paying any such fees?

A: No, I didn't.

20 Report of the Oil-for-Food Inquiry

Q: Did you have an expectation at the time that you passed this on that DFAT in

Canberra would investigate the issue as to whether or not AWB Limited was paying kickbacks or illegal commissions on its contracts with the 1GB?

A: No, I don't believe I did. In the absence of any evidence to suggest that might be the case with regard to the AWB, I don't think I had that expectation.

Q: When you discussed the matter with the UN Office of the Iraq Program, as we see in paragraph 3, you discussed it with Felicity Johnston, the chief customs expert?

A: That's correct.

Q: And the Norwegian Mission?

A: That's correct.

Q: Now, this is the same Johnston that had spoken to you and had communicated with you a year earlier about the Canada complaint?102

A: That's correct.

Q: Did she, in the course of the discussions that you refer to in paragraphs 3, 4 or 5, ever indicate to you that AWB was associated with the payment of any kickbacks or illegal commissions?

A: No, she gave no indication to that effect.

Q: Did she give you any indication that she was relating the information that we see in paragraphs 4 and 5 to AWB Limited?

A: No, she didn't.

Q: Or to any Australian company?

A: No, not to any Australian company. If anything, she seemed to welcome the fact that we were making these inquiries on behalf of the AWB - that we were bringing the matter to their attention and pushing the matter with the sanctions committee. 103

2358 On 27 March 2001, Mr Snowball sent an email to Mr Rowland which outlined

the advice he had received from Ms Moules the preceding day:

Mark

Bronte Moules came back to me today with the following:

Iraq has the ability to charge port fees, but payment of these fees need to be in Iraq currency. Any payments in USD to Iraq are breaching sanctions. The USD1500 the vessel has been paying on past shipments is therefore technically in breach of sanctions. The sanctions committee has actually been aware that these types of

payments have been happening but have been turning a blind eye if the amounts are not excessive. If the USD amounts are quite large, there has been cases where

Report of the Oil-for-Food Inquiry 21

the sanctions committee has put contracts on hold, even if the amounts are

included in the actual contract. The only way around this is to pay in Iraq currency, not USD, but this is obviously quite difficult.

The sanctions committee are aware of the problem we have with the USD0.50/mt charge and they have promised to look into it. This would be expected to take 1-2 weeks 104 [emphasis added]

23.59 Ms Moules did not recall ever telling Mr Snowball any words to the effect that 'the sanctions committee has actually been aware that these types of payments have been happening but have been turning a blind eye if the amounts were not excessive'. 105 There is no reference to those words, or Mr Snowball having been informed in those terms, in Mr Snowball's note of his telephone conversation with Ms Moules.

Mr Snowball's explanation for this was:

If you want my interpretation of my diary note, I don't think turning a blind eye is out of line with what's written in this ifie note here in my diary note. It is basically saying that they are not worried about small amounts of money. If they are large amounts, then they have a concern. 106

23.60 Ms Moules was not told by the United Nations that it was turning a blind eye to payments. Rather she was told that the United Nations was aware of the problem. It is likely that Mr Snowball misunderstood what it was that Ms Moules had said. In any event, the significant matter was that Mr Snowball acknowledged that large amounts of money in US dollars would give the United Nations a concern and could lead to contracts being put on hold.

It is apparent that the fact that AWB had raised this matter with the Australian mission provided the OIP and DFAT with some comfort that AWB was not itself acting in breach of sanctions.

AWB's inability to pay port fees

23.61 On 27 March 2001, Mr Hogan sent an email to Miss Moona (1GB) requesting

the IGB's urgent assistance in removing the port fee:

As discussed we are very concerned with the USD0.50 fee recently imposed on vessels at the port of Umm Qaser.

Whilst we understand that this fee has been imposed by the port agents under the Ministry of Transport, we urgently request your assistance to remove this fee and continue to discharge AWB vessels.

As you are aware AWB cannot make such a payment as it contravenes the sanctions, which does not allow a direct payment to Iraq.

22 Report of the Oil-for-Food Inquiry

Also as per all our contracts, any dues or taxes imposed or to be imposed upon a

vessels or its cargo are for the buyers account. 107

In his email, Mr Hogan noted that AWB vessels were incurring substantial

demurrage as they were not allowed to discharge, that this was a serious situation as AWB had increased its shipping program from Australia due to Umm Qaser becoming more efficient over the last 3 months' 108, and that it was now disappointing that it had vessels waiting at the pilot station with no way of allowing them to discharge. Mr Hogan noted that this was a major set back in AWB's shipping program and unless a solution could be found very quickly AWB would have to slow down the loading from Australia.

Finally, Mr Hogan concluded his email:

Please urgently raise this issue with the Minister, as we are unable to pay this fee.

Please respond urgently and commence discharging our vessels so we can continue with the shipping program. 109

2362 That day Mr Wall, a Chartering Officer within AWB Chartering, sent a telex to ISCWT copied to Alia (as well as to Messrs. Rowland, Hogan and Jones within ABWL) advising:

With regards to the additional port expenses you are now demanding from vessels discharging Umm Qasr.

We have taken advice, and confirm that AWB is unable to place you in funds for the additional cost you demand, as they fall outside the United Nations terms and conditions for the shipment of wheat to Iraq. 110

23.63 On 28 March 2001, Mr Wall sent a further telex to Alia's representative in Basrah, Mr Krikor. 111 Although the purpose of the telex was to confirm AWB's agreement to the use of two mobile cranes in the discharge of an AWB vessel then at the berth, Mr Wall also inquired:

In the meantime, any commet from local authorities to our tlx of 27-Mar-01, regarding the additional USD.50 per mt/cm of cargo. Pls advise.112

23.64 Mr Hogan sent a further email to Miss Moona on 29 March 2001 requesting her urgent advice regarding the status of the removal of the port fee:

Can you please advise urgently what the status of the removal of the discharge fee at Umm Qasr.

As you are now fully aware, AWB Limited will not pay this fee and I hope this does not disrupt our discharge program.

Also can you please advise why our vessels that are waiting at the Pilot station are not moving onto the free berths ? 113

Report of the Oil-for-Food Inquiry 23

23.65

On 30 March 2001, Mr Lees, who had recently taken up a position under Mr Hogan's authority at the Marketing Desk 114 , sent an email to the 'Market Info' email group entitled 'Middle East Magic'. 115 The email provided an update on the status of the Middle East markets, including Iraq. In respect of Iraq, Mr Lees reported:

Vessels continue to discharge without paying USD0.50 port fee. 1GB state that it is not within their control. AWB refuse to pay as per UN and Contract terms

Continue to request 1GB to confirm no disruption to AWB vessels. 116 [emphasis added]

AWB's further discussions with DFAT

23.66 On 1 April 2001, Mr Borlase spoke by telephone to Mr Miles, then Second Secretary at the Australian Embassy in Amman, Jordan. During that conversation they discussed the Iraqi demand for the payment of port charges. 117

23.67 On 2 April 2001, Mr Miles sent an email to Mr Borlase, in which he wrote:

On the subject of the port charges (I understand 50 cents a tonne) that the Iraqis are asking for, as I said I will be heading to Iraq next week. As discussed, I am prepared to raise the issue with the Tvhn of Trade if you would like (depending, of course, on atmospherics). Tackling it from the sanctions perspective could be counter productive, so if I was to raise it then I would merely state that such financial considerations should have been included in the contract, not introduced at a latter date and that, in any case, the additional costs have implications for the commercial viability of the trade. I would leave it pretty much at that, other than to note our concerns and that the AWB may follow it up with them.

I would be grateful if you could give me some b/g and flesh out a couple of talking points for me. Let me know if I am on the right track and whether there are any other points you would like me to raise. 118

23.68 Mr Borlase responded to Mr Miles' email the same day:

You are correct in your analysis of the USD0.50 charge. If you have an opening to ask the question than you can sound them out. Understand the political nature of such a question so leave it to your discretion on how the discussions are going.

FYI we have contacted UN on the issue and they have indicated it is not within UN sanctions so effectively we can't pay the charge. Would be interested to know if other origins have been levied with the same charge. We assume it is another method of claiming more dollars from eskrew account. 119 [emphasis added]

23.69 In evidence, Mr Borlase said that the only 'other method of claiming more dollars from the escrow account"° that he was aware of at the time of this email was the method that had been referred to in the trip report provided by

24 Report of the Oil-for-Food Inquiry

Mr Hogan and himself on 20 February, 2001 in which he had said of the

trucking fee:

The trucking fee is now USD25.00 pmt all Governates of Iraq with a 10% service fee on the entire FIT value of the contract. We believe the increase in trucking fee and addition of the service charge is a mechanism of extracting more dollars from the escrow account. 121

In relation to his use of the word 'another' in his email to Mr Miles, Mr Borlase said he had no recollection of ever having had a discussion with Mr Miles about the 10 per cent service fee, or it being a mechanism for extracting more dollars from the escrow account. 122

23.70 For his part, Mr Miles explained what he took Mr Borlase's comment about 'another method' to be:

In regards to Mr Borlase's statement that he assumed 'it is another method of claiming more dollars from the escrow account', I assumed that Mr Borlase was referring to well publicised attempts by Iraq to seek access to the escrow account, As stated in my statutory declaration dated 19 March 2006 at paragraph 1.1,

Iraq did not consider the UN imposed sanctions regime was legal under international law and considered it had the right to access funds held in the escrow account. As the subsequent cable from the Australian Mission in New York makes clear, in particular paragraph 3 of cable UN: 10798 (DFT.0001.0193-

DFT.0001.0195), it was widely known that Iraq had sought to access escrow funds by demanding fees and commissions in association with the export of oil and the import of humanitarian supplies. I presumed that Mr Borlase was referring to those attempts by Iraq.124

Mr Miles forwarded his email and Mr Borlase's response to Mr Russell, the then Australian Ambassador to Jordan for his information. 125 Mr Miles did not meet with Ministry of Trade officials during his visit to Iraq in April 2001. 126

Further requests for payment of port fees

23,71 On 2 April 2001, the ISCWT sent a telex to AWB asking it to instruct the

masters of three named vessels to pay both US$1,500 and a fee of US$0.50 per tonne in order to avoid unnecessary delays in the berthing or discharge of the vessels. 127

23.72 On 3 April 2001, Mr Hogan sent an email to Mr Abdul-Rahman at 1GB on this topic:

Dear Mr Yousif,

I have received advice this evening that the MV [deleted] will not be allowed to sail from Umm Qaser unless the owners pay the USD0.50 pmt.

Report of the Oil-for-Food Inquiry 25

As we have clearly explained, AWB will not pay this cost.

AWB will not pay any taxes or dues on the vessel or cargo at the discharge port. This is a standard term on all AWB Contracts.

Regardless of the above, we have also received advice from the United Nations that direct payments to Iraq are not permitted under the sanctions.

Once again I strongly urge the Grain Board to do everything possible to remove this fee so that we can continue with the shipping program.

Please refer to our note last week. 128 [emphasis added]

Mr Hogan then set out in his email his previous message to Miss Moona of 27 March 2001.

23.73 The following day, 4 April 2001, Mr Hogan sent a facsimile to Mr Al Absi at Alia. It was headed 'Transport Fees', and asked for details of Alia's Deutschmark account. In his facsimile, Mr Hogan noted

Port fees of USD0.50 pmt will no be paid by AWB.129

Mr Al Absi responded that day requesting Mr Hogan to settle the port fees issue with 1GB:

Regarding (0.50USD/MT) port fees, kindly inform the 1GB (Iraqi Grain Board) that it will not be paid, because we are afraid that they might prohibit your vessels from entering the ports of Iraq; therefore we urge you to settle the this matter with them, & kindly inform us. 130

23.74 On 5 April 2001, Mr Hogan sent an email to 1GB re-sending his earlier email

of 3 April 2001 and asking:

Could you please respond to this urgent email. 131

Mr Abdul-Rahman replied later that day:

PIS be advised that our recend contracts specifications donot include any additional charges of discharge fees. So there is no need for payment a.m total amount. 132

23.75 On the same day the ISCWT sent a telex to AWB regarding an AWB vessel

that had arrived at Umm Qasr and which was waiting to discharge her cargo. The telex asked that in order to avoid unnecessary delays AWB instruct the Master to pay the ISCWT:

1. USD of 50 (fifty cent) per mt or cbm which is greater abov amount to cover agences expensec as well as tally clarks,

2 USD 1500 for each call to cover communcations/ transportation/ audit etc. 133

26 Report of the Oil-for-Food Inquiry

Later that day, the ISCWT sent a similar request in relation to another vessel

chartered by AWB, which had arrived at Umm Qasr ready to discharge wheat for IGB.1M

23.76 Mr Wall (AWB Chartering) responded to the second of these telexes from the ISCWT on 6 April 2001.135 His reply was copied to Alia. Mr Wall wrote:

As previously advised, with regards to the addtional port expenses you are now demanding from vessels discharging Umm Qasr.

We have taken advice, and confirm that AWB is unable to place you in funds for the additional cost you demand, as they fall outside the United Nations terms and conditions for the shipment of wheat to Iraq.

With regards to the USD 1500 per vessel, this is remitted via Messrs Alia Transport, please be guided accordingly. 136 [emphasis added]

Another report by the Australian mission

23.77 On 10 April 2001, Ms Moules sent a cable to DFAT in Canberra headed 'UN: Iraq - AWB Ltd Exports'. 137 The summary in Ms Moules' cable read:

AWB (USA) Ltd has informed us that their shipments to Iraq which were facing delays as a result of demands by Iraqi port agents for port fees have now been allowed to discharge their cargo without insistence on payment of the port fees. It is not clear whether future AWB Ltd shipments to Iraq win be subject to requests for port fees. The Sanctions Committee Chairman is keen to find a way to enable reasonable port fees to be paid in a manner consistent with relevant scrs. Pending agreement in the Sanctions Committee on a new procedure (which does not

appear likely in the short term) the current requirement that any port fees must be paid in Iraqi dinars applies. 138

In her cable Ms Moules reported advice that she had received from AWB that the two shipments that were not being allowed to berth until port fees were paid had been allowed to berth and discharge their cargo without the insistence of payment of the port fees. However Ms Moules was told that it was not clear to AWB whether the port fees would be applied to future shipments and that AWB therefore intended to discuss this issue with 1GB. Ms Moules reported that she reiterated the advice from the sanctions committee that port fees could only be paid in Iraqi dinars and not in US dollars.

23.78 Ms Moules set out in some detail a report of her further discussions with the Norwegian mission (in its capacity as chair of the sanctions committee). Ms Moules noted:

3. Norway told us, however, that it was not optimistic this issue would be resolved quickly or easily, notwithstanding the fact that Norway itself, and other Committee Members (in particular the UK) are keen to find way to enable reasonable port fees to be paid in a manner consistent with relevant scrs. The

Report of the Oil-for-Food Inquiry 27

difficulty is that the issue of port fees is linked to wider concerns about

circumvention of the sanctions regime, based inter alia on anecdotal and in some cases hard evidence of Iraqi purchasers and agents demanding fees and commissions in association with the export of oil and the import of humanitarian supplies, in contravention of the sanctions regime

4. Against this backdrop, the Norwegian mission told us that preliminary discussion of the issue of port fees saw Russia and France arguing that consideration should be given to allowing port fees to be paid directly to port agents in U.S. dollars, with the U.S. and UK arguing against this (they maintain that all funds should be controlled under the UN escrow account). The UK'S preliminary view is that all such fees should be included in contracts and processed through the escrow account, and has prepared a non-paper to this effect (though NB. the non-paper is confined at this stage to port fees in association with oil lifting). Copy of non-paper by fax to Canberra for information. 139

Ms Moules concluded her cable:

Comment

6. The current environment of increased scrutiny of the operation of the Oil-for-Food Program and heightened awareness of attempts by Iraq and by some suppliers to circumvent the sanctions regime underlines the importance of AWB adhering closely to the current regulations concerning the payment of port fees. It is not yet clear whether AWB will be placed under further pressure by Iraqi agents to pay port fees in a manner inconsistent with sanctions, and AWB New York has said it will stay in touch with us if needed regarding forthcoming shipments. Iraq's interest in keeping port fees outside the Oil-for-Food Program appears self evident from the Iraqi delegation's approach to us, though we would note that there was no suggestion in the casual nature of Iraq's approach that the issue of port fees is being linked to AWB'S securing of future wheat contracts. 140

Further demands for payment of port fees

23.79 On 17 April 2001, Mr Wall sent a further telex to the ISCWT in response to its telex of 16 April 2001 again requesting payment of port fees of US$0.50 per tonne, advising:

Dear Sir, as previously advised, AWB is unable to remit funds.

1. As you well know, it is impossible for AWB (or any other organisation) to remit US dollars to Iraq.

2. If, some how AWB did remit the US dollars you request, AWB would be in contravention of the UN sanctions against Iraq.

On this basis, you are requested to ensure that vessels are berthed, in turn of arrival and cleared to sail, without any hinderance from ISCWT. Pis confirm. 141 [emphasis added]

28 Report of the Oil-for-Food Inquiry

23.80 On 18 April 2001, Alia's agent in Basrah, Mr Krikor, sent an email to Mr Wall

advising that cargo in two holds of a recently arrived AWB vessel had been found to be infested by insects. The cargo was, as a result, undergoing fumigation which was affecting the discharge operation of the other holds. Mr Wall circulated this email within AWB commenting:

Dear All, following received from Alia. Just wondering if the Iraqis just trying to bring some pressure to bear over their push for the additional port costs ? The timing is perfect. 142

23.81 On 19 April 2001, the ISCWT sent a further telex to AWB. 143 Although the telex was headed 'ISCWT - US 20 cent per tonne' the contents referred to the issue of the ISCWT's requests for payment of the US$0.50 per tonne port fees. The telex stated:

You have to pay the amount through Alia Co. If not possible you can pay it in cash in Umm Qasr Bank in Iraqi-dinars. And this expences just like all expences taking in the other ports all over the world. 144 [emphasis added]

23.82 On 23 April 2001, Mr Wall emailed Messrs Hogan and Lees attaching a further telex received from the ISCWT. 145 The telex referred in its heading to five AWB vessels either then at Umm Qasr to discharge cargo or having recently sailed from the port. It again requested payment of the additional

port charges in respect of each of these vessels:

Ref our previous tlxs with you last one 2005 at 19/04/2001 regret you have still not paid fund despite our confirmation. Pls be informed that effected 11/3/2001 and according to our established regulation about paying our reuniration to cover agency expenses as well as tally clarks charges corresponding to trriffas circulated for you about fifty cent per mt inaddition to USD 1500 of communications,

transportation ... etc which considered nothing in comparing with other ports.

Kindly you're requested to pay the rqrd charges similarly all other vsls calling Umm Qasr otherwise, we're unresponsible for any delays in berthing/ discharge in future and this amount will be on yr debit basis.

B. regards ISCWT Basrah'44

In forwarding this email onto Messrs Hogan and Lees, Mr Wall asked that they take the issue up with the 1GB again for resolution 'as understood it had previously been settled' P147

23.83 On 27 April 2001, AWB Chartering received a copy of a telex that the Master

of a vessel under charter to AWB had received a telex from the ISCWT requesting:

Pls coordinate with AWB for payment addl charges of USD 0.50 pmt in order avoid unnecessary delays berthing. 148

Report of the Oil-for-Food Inquiry 29

23.84

Ms Gatto (AWB Chartering), forwarded a copy of that telex to Messrs. Hogan, Lees and Edmonds-Wilson. 149 Mr Lees responded in an email to Ms Gatto that day advising:

Dom has advised that this issue has been resolved with the Grains Board of Iraq and agreement reached that the 50 cents/mt will not be paid by the AWB. Our understanding is that our vessels have been berthing and discharging in the last month as per normal and expect this situation to continue for future vessels.

Please respond to [the ship's brokers] accordingly. 150

23.85 On 30 April 2001, Mr Abdul-Rahman sent an email to Mr Hogan repeating his earlier advice of 5 April 2001:

Pis be advised that our recend contracts specifications donot include any additional charges of discharge fees. So there is no need for payment a.m total amount.151

May 2001: discussions in Iraq

The issues to be discussed

23.86 In May 2001, Messrs Hogan, Jones and Rowland travelled to the Middle East, including Iraq.

Prior to their departure, Mr Hogan sent an email to Mr Abdul-Rahman entitled: 'Meeting in Baghdad—Monday 8th May' setting out their itinerary and a list of issues they wished to discuss:

We will be in Baghdad for 3 days and as mentioned we would also like to travel to Unim Qasr (possibly on the Tuesday).

I am sure that there are many issues that you wish to raise and I think that within the three days, we should be able to have fruitful and productive discussions.

As a lead up to our discussions, we would like to discuss the following issues:

1. Discharge at Umm Qasr

- testing procedures

- Berths available

- Balance of contracts to be shipped

2. Vessel Rejections - MV [deleted]

3. Technical Assistance and equipment

4. Crane Hire

30 Report of the Oil-for-Food Inquiry

IL

5.

Demurrage/ Despatch accounts

6. Tigris Petroleum

7. Possible to supply Australian Rice and Pulses.

8. Future Business 152

23.87 The reference to 'Tigris Petroleum' was a reference to AWB's agreement to assist in the recovery of the 'Tigris debt', that is the cost of the wheat that had been shipped to Iraq on board the Ikan Sepat in 1995 and which had been paid for by BHP Petroleum Limited. 153 This had previously been raised by Mr Hogan with 1GB during his visits to Iraq in October 2000 and February 2001. 154 Following his return to Australia after the February 2001 visit, Mr Hogan sent an email to Mr Abdul-Rahman advising that AWB intended to visit Baghdad again in May and that the Tigris debt could be discussed during that visit. However, he also suggested that Mr Lindberg and Mr Stott may be in Cairo earlier in March and that a meeting might be arranged then.155 Mr Abdul-Rahman responded by asking Mr Hogan to specify a 'convenient

time to visit Baghdad for discussing all issues in Baghdad with yr representative and representative of Tigris Petroleum Co.'lSó The first opportunity for that discussion was May 2001. That discussion and the steps subsequently taken to recover the Tigris debt are addressed in Chapter 27.

23.88 A note in Mr Hogan's June 2001 diary 157 contained an identical list of issues to that set out in his email of 8 May 2001, together with four additional items, namely

• 'UN payment mechanism' - according to Mr Hogan this related to the delays in getting payments from the United Nations 158

• 'Communications —Telexes/ msgs'—this was a reference to wanting to improve communications with 1GB 159

• 'USD0.50 fee at Umm Qasr' - this referred to the Iraqi's attempt to

introduce a fee of 50 cents per tonne as some form of port charge at Umm Qasr 16°

• 'Transport fee confirmed in writing (10%) from UN'—this was a note to

remind Mr Hogan to follow up with the 1GB confirmation that the 10 per cent fee was approved by the United Nations. 161

A further note made by Mr Hogan in his diary entitled '1GB/Minister: Issues to Raise' was in similar terms. 162

Report of the Oil-forFood Inquiry 31

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Meetings

23.89 On the day of their arrival in Jordan, Messrs Hogan, Jones and Rowland met with Mr Miles at the Australian Embassy in Amman. This was a courtesy meeting to advise Mr Miles of their trip to Baghdad. 163

That evening they met with Mr Al Absi, the Chairman of Alia, for dinner in Jordan. There were also one or two other senior executives from Alia or one of their associated companies at the dinner. 1" Mr Hogan could not recall the discussions had over dinner. 165 Mr Rowland could not recall any substantive business discussion at the dinner 166 , and Mr Jones' evidence was that there was only social conversation during dinner. 167

On 6 May 2001, Mr Hogan sent a short email to Mr Stott confirming that he had met with Alia. 168

23.90 From Jordan, Messrs Hogan, Jones and Rowland travelled to Baghdad where they met with Mr Abdul-Rahman, Miss Moona and Dr Obeidi from 1GB. They also met with the Minister of Trade, Mohammed Mehdi Saleh. 169

23.91 Following these meetings, they flew to Umm Qasr where they visited the port. They were accompanied by Alia's representative in Basrah, Mr Krikor. Whilst in Umm Qasr, they also met with Cotecna, the United Nations appointed inspection agents. 170

During the trip, Mr Hogan made a note about how the transport arrangements were made' 71 The relevant portion of the note is reproduced below. A full copy of the note is reproduced as Figure 21.2 in Appendix 21.

32 Report of the Oil-for-Food Inquiry

Mr Hogan's knowledge as at May 2001

2392 Mr Hogan's evidence about his understanding of the transport arrangements as set out in his note was:

75% of the trucks were from the Iraqi Ministry of Trade. My understanding was that the 1GB controlled those trucks. I do not know who controlled the other 25% of the trucks but was told that Alia had no influence on the trucks. I had made these enquiries as to how the transport arrangements worked because AWB was concerned about the excessive demurrage costs and delays at the port. I believe

that this was the first time that I became aware that Alia had no influence over the trucking arrangements. 172

Mr Hogan expanded upon this evidence:

A: ... AWB pay money to Alia Transport, they take a percentage or a Commission. I have written across over there 'No influence on trucks', which means Alia has no influence on the trucks. They confirm a receipt to the Iraqi State Company for Water Transport—

The Commissioner: That's receipt of the money?

A: Yes, to say—and there is later correspondence, or there is correspondence always back to the AWB saying 'The ISWT hasn't received funds'. So they confirmed that receipt. I think we have also seen that they had a certain time period they had to confirm or transfer that money. They then, the ISWT, write a

letter - or I would assume they would telex or notify the State Overland Company. And the State Overland company would say, 'Money is in place, start the distribution plan and start moving the grain'. Or they would - they would organise the transports. The ISWT would, from my understanding, give the permission for us to put the vessel on the berth. I have written next to it '75% trade

trucks', which - sorry, it is going back six years, but it - or five years. It seems to me to think that 75 per cent of the trucks were owned by or controlled by the Grain Board of Iraq. That's my understanding there. So that—from that point there, we've pretty much found out how the actual transport system - the coordination of the transports works and operates.

Q: This would then have confirmed to you your earlier suspicions that the money that was being paid, albeit the 10 per cent or the US$25 transport trucking fee, was finding its way to the Iraqis.

A: I never had a doubt - well, the money was always going into Iraq, whether it was $12, $14 or $15.

Q: But here we have a note with your evidence that Alia was simply taking a commission?

A: Correct—acting as the conduit for the mechanism to get the payments into Iraq because of frozen accounts, et cetera, as we raised right from the start. So that confirms that system. My issue was with the 10 per cent—the loading. I always was of the belief that there was a true transport cost in Iraq. You have to move

grain somehow, and this is the mechanism of how this was working.

Report of the Oil-for-Food Inquiry 33

Q:

But now what was confirmed to you was that all of the money was going to the ISCWT?

A: It was all going through, apart from taking the commission off the top there.

Q: Did you ever have confirmed to you as to what proportion, if any, of the money was being retained and applied only to transport, and what proportion of the money was available for the Iraqis to spend on anything else?

A: No, but it was my, I think, interpretation that the 10 per cent, after the - what they call this after sales service fee was introduced, it seemed to be my thinking well, that service fee is being used - what we called the siphoning of the escrow account, was what they were using for this—you know, to build the silos, to build Umm Qasr, to do up the Grain Board office and paint some things, and using the money for those type of things.

Q: What we have since learnt, and what was demonstrated in some documents from the Iraqis that were tendered during the course of Mr Long's evidence, is that by far the greater proportion of the money that was being received via the

trucking fee was finding its way to the Ministry of Finance. You never had any information to that effect?

A: No. No, none whatsoever.

Q: Can you recall whether you discussed this part of what you were told together, after the meeting?

A: No, I don't recall discussing any of these notes following that. I think - sorry, but I think it was knowledge that AWB to Alia to ISWT— the Iraqi state water— that was probably already known, that that system was in there. This was the first time I think I had ever heard of the State Overland Company.

Q: So what you are telling us is that really this information didn't come as news to you; it wasn't that newsworthy, given that it accorded with your own belief?

A: The system—probably the—we seemed, I think —I thought that Alia did have some influence on the trucks, or the ability—I think we did put some correspondence to them or met with them to get more trucks, and maybe we thought they had some ability to influence that, but, you know, it's - I always believed that Alia would use the infrastructure in place by the Grain Board of Iraq. They would use their trucks and their rail systems, et cetera. They wouldn't bring in their own major fleet of transports to - when one was existing within Iraq.

Q: For you, that was a matter of common sense, was it?

A: Yes. Why—the Grain Board of Iraq had—they had been moving food from 19—well, let's go from the oil-for-food deal, but they had been moving products since 1996 through until 1999, and the same amount-2.8 million to 3 million tonnes per year - around, under the distribution plan through all governorates, et cetera, of Iraq.

Q: Using their own trucks?

34 Report of the Oil-for-Food Inquiry

Al

A: Using their own infrastructure. They used rail and truck. Then they change it

and they put an inland transport fee, $12 per tonne, which I understood was to ease off inflation and problems internally with the company, and so that that cost would then be covered from the escrow account. Why would a company then subcontract that out to an Alia transport? They are not going to put a thousand Iraqi trucks in the shed and Alia bring in their own fleet and say, 'All right, we

will put the rail in' - you know —'the docks as well, we will put those up and use those'. Of course they were going to use the Grain Board of Iraq. It just doesn't make any other common sense to do that. They may have used some of their own trucks out of Aqaba and places like that, which weren't - they are in Jordan and

Tartous, which is in Syria, or Lebanon, or whatever. But in Umm Qasr that was all—the Grain Board had the trucks there. 173

23.93 Mr Hogan said that he could not remember exactly how he had obtained the information in his note but he believed that it was as a result of a discussion with Alia's agent in Umm Qasr. 174 As to dissemination of the material recorded in his notes Mr Hogan's evidence was:

Q: When you returned, did you tell anybody of the discussion that you had had in Iraq which was reflected in your diary note depicting the flow of money from the AWB to Alia, Alia taking a commission, not having a say in relation to the trucks and passing the money on to the ISCWT?

A: No, I don't recall having a discussion with anyone regarding that. 175

Mr Hogan had not told anyone about this because he believed it was not contentious.

Reports following the return to Australia

23.94 On 10 May 2001, Mr Hogan sent an email addressed to the 'Market Info' email group reporting on the outcomes of his recent discussions in Iraq. 176 The email was also copied to Mr Johnson (AWB Pool) and Mr Edmonds-Wilson.

The same day Mr Jones forwarded Mr Hogan's email to AWB employees in the Chartering division, noting that 'Dom's note sums up the situation' .177

In relation to the testing of cargoes, Mr Hogan reported in his email of

10 May 2001 developments expected to save AWB demurrage:

Testing: Vessel testing to take place at Berth #3 (saves 3 -4 days) —big win— estimated on current program of USD700,000-USD900,000

Lab to be built at Umm Qasr - saves 2 days. 178 [emphasis in original]

23.95 Mr Hogan noted the following matters as having been discussed with the Minister.

Msgs to Aus Gov - wants AWB to Lobby.

Report of the Oil-for-Food Inquiry 35

Wants more media in OZ promoting our trade and relationship

Looking for more support from AWB Was disappointed he had not seen our Chairman for some time Big issue is 'after sales service' Requested performance bond 10% for splitting inland t/ port fees.

Wants AWB to be fully involved ($) for Lab at lJmm Qasr Advised Australia is #7 out of 75 in trade list with Iraq Wants representation at Trade Fair (1st Nov) 179

23.96 Mr Hogan's evidence was that the Iraqis did not have enough equipment and wanted AWB to donate some. The reference to 'after sales service' in his report was to the supply of grain equipment such as bobcats, bunker equipment and grain testing equipment. His evidence was that he thought a sum of $0.50 per metric tonne was later introduced into the contracts to allow for the additional cost of equipment to be donated. 180

Each of Mr Jones and Mr Rowland agreed with Mr Hogan's recollection of matters concerning the 'after sales service'. Mr Jones said that the 'service' was accommodated by an extra US$0.50 per tonne added to the overall contract price. 181 Mr Rowland believed that the figure of US$0.50 per tonne

was decided upon by the International Sales and Marketing team after the meeting. He could not recall the figure being discussed with the Minister. 182

Mr Hogan's report also noted:

Crane Hire: Should not be paid by AWB - covered under in-land transport Costs 183

This is consistent with Mr Hogan's stated belief that the inland transportation fee was being paid to Iraq. At the suggestion of Alia's agent in Basrah, AWB had agreed to the use of mobile cranes to assist in speeding up the discharge of wheat from its ships and to pay for the costs of these cranes itself.

June 2001: another trip to Iraq

23.97 In late May 2001, one of AWB's shipments was rejected at Umm Qasr due to the alleged presence of urea residues around the vessel holds.

Attempts by AWB to reach a compromise with 1GB were unsuccessful. Arrangements were made for Mr Hogan and Mr Cracknell, a Senior Wheat Quality Consultant, to travel to Iraq in early June 2001 to resolve the dispute. 184

36 Report of the Oil-for-Food Inquiry

The rejected cargo

23.98 Upon their arrival in Baghdad, Messrs Hogan and Cracknell met with Dr Obeidy and some other 1GB administrative staff, including Miss Moona. 1GB produced samples of wheat that showed crystals of a substance in the wheat. They told Messrs Hogan and Cracknell they were concerned that the entire cargo might be contaminated. 18,5

Mr Cracknell suggested that the cargo could be discharged and inspected on a truck by truck basis and that if any particular truckload was contaminated then the grain could be dumped. The Minister thought this a good idea and suggested that Dr Obeidy go to Umm Qasr to supervise the discharge of the

wheat.186

The wheat was ultimately unloaded at Umm Qasr. About 2,000 tonnes was rejected.187

June 2001: another sale

23.99 Following their discussions regarding the alleged contamination, Mr Hogan negotiated with Mr Abdul-Rahman a contract for the sale to 1GB of a further one million tonnes of wheat. This was concluded as a sale under phase IX of the Oil-for-Food Programme.

The sale was completed in Baghdad on 6 June 2001. The sale was split into two contracts, namely contract A0784 and A0785. Each contract was for 500,000 tonnes. The sale was confirmed in a facsimile from Mr Hogan to 1GB dated 7 June 2001188 , which set out the relevant terms There were slight differences between these two contracts in relation to the quality of the wheat sold and price. Otherwise the terms of the two contracts were essentially the same. Although the price for which the wheat was sold was initially negotiated in US dollars, it was subsequently converted into and expressed in euros.

Inland transportation fees

23.100 An inland transportation fee was payable by AWB under each of the contracts

comprising this sale.

The amount of the inland transportation fee differed slightly between each contract. For shipments under contract A0784, a fee of US$46.70 or €55.17 per tonne was payable by AWB189 , and under contract A0785, the fee payable was US$46.90 or €55.40 per tonne. 190

Report of the Oil-for-Food Inquiry 37

The inland transportation fee payable under each contract included an

allowance of US$0.50 per tonne for port fees. 191

Under both contracts, the inland transportation fee was '100% payable before vessel discharge'. 192

23.101 This was a significant departure from the arrangement that AWB had negotiated with 1GB in relation to shipments under contracts A0430, A0552 and A0553, where the inland transportation fees were payable in two instalments, with the second and by far greater instalment not being payable until after the cargo had been discharged and AWB had received the proceeds of sale from the United Nations escrow account.

Under the revised arrangement where the inland transportation fee was payable in full in advance, the AWB Pool would pay for each shipment under these two contracts, approximately US$2.335 million of inland transportation fees some time after the vessels had loaded and prior to their discharge in

Umm Qasr. It would then have to wait up to approximately 50 days before receiving payment for that shipment under the letter of credit drawn upon the United Nations escrow account and thereby reimbursement of the inland transportation fee. 193

Reports of the sale and the June trip

23.102 On 7 June 2001, Mr Hogan circulated an email to the 'Market Info' email group advising of this sale. 194 This included reference to the inland transportation fees' 95 of US$46.90 per tonne and US$46.70 per tonne payable in respect of shipments under each contract, including within those fees 'US$0.50 per tonne port fees'.

23.103 On 8 June 2001, Mr Lees circulated an email to the 'Market Info' email group, Mr Alvares (AWB Treasury) and Mr Morriss confirming details of the sale, including the inland transport fees and the inclusion within that fee of the US$0.50 per tonne port fee.

23.104 On 12 June 2001, Mr Hogan sent a report regarding his recently completed trip to Iraq to the 'Market Info' email group, copied to Messrs Owen, Aucher, Cracknell, Werner and McMullen. 196

In relation to the inland transportation fees, Mr Hogan reported:

Performance Bond

Minister is under pressure over our split payments for Inland transport. Working on way, whereby we would pay one vessel in full and roll these funds. This will keep a security balance and no performance bond will be required.

38 Report of the Oil-for-Food Inquiry

New contract is 100% payment for inland transport before discharge.

The USD0.50 fee (which Umm Qasr Port tried to apply earlier this year) is now built into Inland transport fee.

Crane Hire

1GB have confirmed that the crane hire is included in inland transport fee and any request for cranes to be put through them.

Advised on way out of Iraq that despite requests for additional cranes to expedite discharge, none have been provided.

We need to continually pressure 1GB to provide additional cranes and monitor this through Alia. 197

23.105 Thus, the US$0.50 per tonne fee, which AWB had protested so frequently could not be paid to Iraq because of United Nations sanctions which prohibited payments of US dollars to Iraq, was included in the sum paid to Alia, as an 'inland transport fee'. In this way the sanctions were circumvented.

The contractual documents: contracts A0784 and A0785

23.106 A short-form contract was prepared within AWB for each of contracts

A0784198 and A0785. 199 Both short-form contracts were dated 6 June 2001 and signed on behalf of AWB by Mr Hogan.

Both contracts were substantially in the same terms as AWB's preceding two contracts with 1GB, namely contracts A0552 and A0553. The price was described in each contract as a 'CIF Free in Truck' price and the shipment clause provided for the cargo to be discharged 'Free into Truck to all silos

within all Governorates of Iraq'.

Neither of these short-form contracts referred to AWB's obligation to pay the inland transportation fees, or additional 10 per cent after-sales-service fee in respect of shipments made under that contract, or to the amount of those fees. That was notwithstanding that Mr Hogan's facsimile to the 1GB dated 7 June 2001 clearly stated the amount of the inland transportation fee payable under each contract. Neither of the short-form contracts for contracts A0784 or A0785 made plain that the amount of the inland transportation fee payable by AWB included the additional 10 per cent after-sales-service fee.

23.107 Export Sales Notes were also prepared within AWB in respect of both of these contracts.200 They also did not contain any reference to AWB's obligation to pay the inland transportation fees, or additional 10 per cent after-sales-service fee, or to the amount of those fees. Nor did they refer to the inclusion of these fees as components of the price at which the wheat was sold under either

Report of the Oil-for-Food Inquiry 39

contract. Both Export Sales Notes recorded that these contracts were booked

by Mr Hogan and authorised by Mr Lees.

23.108 The trucking fee and the amount of that fee (in particular as a component of the price for which the wheat was sold under each contract) were recorded on the cover of each of Mr Lister's files for these two contracts. 201

23.109 Long form contracts were prepared by 1GB for each of contracts A0784 202 and A0785.203 Both of these long-form contracts were in the same form as the long-form contracts that had been prepared by the 1GB in respect of its earlier purchases from the AWB under the Oil-for-Food Programme. The price was described as a 'CIF F.O.T. to silo to all governerates of Iraq via Umm Quser port'. Neither long-form contract contained any reference to the inland transportation fees, 10 per cent additional fee, AWB's obligation to pay either fee, the amount of those fees, or the inclusion of these fees as components of the price at which the wheat was sold under either contract.

United Nations approval

23.110 Applications were submitted on 27 June 2001 for United Nations approval of each of these two contracts. 204

23.111 Approval for contract A0784 dated 17 July 2001 was issued by the United Nations on 31 July 2001.205 Although the sale represented by both contracts A0784 and A0785 was initially concluded under phase IX of the Oil-for-Food Programme, due to a lack of available funds in the phase IX fund sector, the OIP in consultation with the Government of Iraq agreed to transfer contract A0784 from phase IX to phase X of the Oil-for-Food Progranime. 206 The Australian mission to the United Nations was advised of this in a facsimile from the OIP dated 23 July 2001.207

A copy of the United Nations approval was sent by facsimile by the Australian mission to Mr Snowball (in AWB's US office) on 8 August 2001.208 Mr Snowball in turn faxed a copy of the approval to Mr Lister later that day. 209

23.112 In the meantime, on 24 July 2001, the OIP sent a facsimile to the Australian

mission advising that contract A0785 had been deemed eligible for payment from the United Nations escrow account. 210 However this did not of itself constitute approval to ship the goods. That approval (dated 24 July 2001) was not forthcoming until 30 August 2001.211 A copy of that approval was sent by facsimile by the Australian mission to Mr Snowball on 5 September 2001212 Mr Snowball in turn sent a copy by facsimile to Mr Lister in Melbourne. 213 AWB Contract A0785 was also transferred from phase IX to phase X of the

40 Report of the Oil-for-Food Inquiry

Oil-for-Food Programme and the United Nations approval to that contract

was given under phase X.

August 2001: a further trip to Iraq

23.113 In August 2001, Messrs Hogan and Edmonds-Wilson travelled to Jordan and Iraq. The purpose of the trip was to resolve an issue that AWB had with 1GB with respect to particular contracts including demurrage, and to discuss the possibility of new business. 214 They were accompanied by Mr Tilott, who was employed by AWB on a contract basis and was looking at improving grain testing and laboratories in Iraq. Mr Tillott spent the majority of his time at a

grain silo and laboratory in Taji.215

23.114 Messrs Hogan and Edmonds-Wilson arrived in Amman, Jordan on 26 August 2001.216 They visited Alia's offices, and there met with Mr Al Absi and Mr Obeidy (his assistant).

Following their meeting, Mr Hogan sent an email to Messrs Stott, Lees, Borlase, Johnson, Gomersall, Rowland, Jones and Edmonds-Wilson reporting on this meeting with Alia. 217 Mr Hogan reported that he had been told that Mr Al Absi had met the President Saddam Hussein the preceding Thursday and had raised with the President:

the issue about the delayed discharge at Umm Qasr and the lengthy delays of the vessels.

President was not pleased, as he had been receiving reports that all was in order.

President ordered all outstanding vessels to be discharged and situation to be fixed. (this instruction was issued on Thursday for immediate action—yet the port status at Umm Qasr had not changed by 25th August). 1GB Port Director relocated from Baghdad to Umm Qasr (Othman said this was a demotion).

President commented that IRAQ would be viewed upon unfavourable by poor discharge at Umm Qasr.

Othman believed we would see a big change at Umm Qasr in next month.

Othman advised Jordanian Minister of Transport in Baghdad discussing utilising Aqaba (for more movements to Iraq).

Transport fees set at certain level due to using 50%/50% Iraqi and Jordanian trucks.

Alia offered to handle Aqaba movement for USD 0.50 pmt (I did not comment).

Report of the Oil-for-Food Inquiry 41

Alia would also check off transports in Iraq storage points.

Alia are going to suggest Aqaba as an option for the 1GB (I will discuss with 1GB the possibility).

Mr Hogan's evidence was that his reference to transport fees being set at a certain level due to use of Iraqi and Jordanian trucks was a reference to a proposal to use Aqaba, the Jordanian port, for the discharge of goods and their movement from there into Iraq. 218

Whilst in Jordan, Mr Hogan and Mr Edmonds-Wilson also made a courtesy visit to Mr Miles at the Australian Embassy. 219

23.115 On 27 August 2001, Mr Hogan and Mr Edmonds-Wilson drove to Iraq. The

following day they met with the Director General of the 1GB (Mr Abdul-Rahman), Ms Moona and Dr Obeidy. 220

During the trip, Mr Hogan and Mr Edmonds-Wilson also visited a grain storage facility and a grain testing laboratory in Taji, Northern Baghdad. At this site, they met with Dr Kalid who was the IGB's Quality Manager. 22 1

23116 Mr Hogan and Mr Edmonds-Wilson had a further meeting with Mr Abdul-Rahman and Miss Moona on 30 August 2001, before travelling back to Amman and eventually returning to Austr alia.m

September 2001: withholding inland transport fee payments

23.117 On 10 September 2001, Mr Hogan sent an emaiP 23 to Messrs Ingleby and Goodacre224 , which was copied to Messrs Long 5, Lister, Johnson and Aucher and Ms ScaIes. 6 It concerned the loading of a vessel without a Letter of Credit being in place, and stated in part:

AWB can hold back 2nd payment inland Transport payments (USD16 million at Sept 30)—hence if by this date L/C is not on our counter, we withhold these second payments from the 1GB. 227

The clear implication from this passage was that the inland transport payments were ultimately to be paid to 1GB. No one within AWB raised what Alia's response might be to not being paid.

23.118 On 13 September 2001, Mr Hogan copied to Ms Scales 8 and Mr Long 9 a second email on the subject. The third paragraph of that email stated:

AWB holding 2nd payments due to Iraq for Inland Transport= USD4.5 million. By 22nd September, this amount will be USD 8.864 million (which almost covers Anassa). Inland transport payments will be held until L/C is on our counters. 230

42 Report of the Oil-for-Food Inquiry

Ms Scales, who received both these emails, accepted that the clear implication

arising from her reading of them in the witness box was that the inland transport fee was to be paid to the 1GB. However she said the import of the emails did not register with her at the time. 23 1

23.119 On 25 September 2001, Mr Hogan sent an email to Mr Long, entitled 'Iraq Summary'. 232 That email forwarded a report Mr Hogan had received from Mr Johnstone (AWB's Chief Risk Officer). Under the heading 'Inland transport Fees', Mr Johnstone observed:

AWB is currently withholding 2nd Payment Inland transport fees for Iraq. This amount currently total USD6 million. By end of 26th September (after UN certificate for vessels completing 25th September), this will amount to USD8.864 million.

Mr Long's evidence was that, in September 2001, he did not understand these emails to mean that the payments were being received by 1GB. He did not recall seeing the first two emails. 233 In relation to the email of 25 September 2001, he 'perhaps' did not pick up the nuance about Iraq or Alia.234 I reject that evidence.

23.120 These emails make no sense at all if, in fact, the payments referred to were actually being passed to Alia for services rendered by it. Mr Long accepted that conclusion. 235

Port fees revisited

23.121 On 30 October 2001, AWB Chartering received an email from Austral Chartering seeking AWB's comments on certain requests which Austral had received from the owner of a ship under charter to AWB.

The first request was:

1. When Charterer is going to pay inland transportation charge & 10% commission to ISCWT (Iraqi State Company for Water Transport). This full amount should be paid in advance before ship's arrival at Umm Qasr pilot station (ETA 4th Nov) for ship's berthing turn.

2. Who is charterer's agent or partner in Iraq who will coordinate with all concerned parties in Iraq including payment of above amountP

This was another clear indication of the recipient of the inland transportation fees being Iraqi.

Report of the Oil-for-Food Inquiry 43

The final request was:

4. Agent insist that Tally fees to be paid to state agent as port regulation USD 0.5 PMT = TTL USD 24,472.50 BY US.

But governing C/P stipulated that no D/A at discharging port with exception of max disbursement paid by cash by master upto USD 2,000.237

Ms Gatto (AWB Chartering) forwarded a copy of Austral's email on to Mr Hogan with a request that he please advise. 238

23.122 On 12 November 2001, Ms Gatto received an email from Anchor Cross shipbrokers239 , passing on the following message that the owners of a ship under charter to AWB had received from their agent in Iraq:

Re: Inland transport/A.S.S/agency fee

Kindly note that our ofice in Basrah informed us today that m/s, ISCWT informed them that the inland transport charges as well as the A.S.S. charges and agency fees on cargo of USD. 0.50 per ton hv not been paid yet. Thus pis arrange with the concerned parties for same fm yr side at yr earliest convenience and advise. 240

It appears that the payment of 'inland transport, ASS [after-sales service] agency fees' was known amongst the shipping trade, as no explanation was offered for any of these charges and the 'after-sales-service' fee is abbreviated to 'A.S.S.'

Ms Gatto forwarded a copy of that email on to Messrs Edmonds-Wilson, Hogan, Lees and Long (with a copy to Mr Rowland and Mr Raftopoulos) that same day. 241

23.123 Mr Edmond-Wilson replied an hour later:

Sandra

Please inform agents, ISCWT fees (0.50 USD/mt) are incorporated into Inland Transport Payments made to Alia Transport prior to vessel discharge.

1,500USD state agency fee is looked after by chartering (Rowly). 242

23.124 This issue arose again on 3 January 2002, when Mr Edmonds-Wilson forwarded to Ms Gatto another copy of his email of 12 November 2001 advising:

Please see below email re ISCWT fees ... they are incorporated into Inland Transport Fees. For the MV [deleted] they were remitted to Alia on 15/11/01. 243

44 Report of the Oil-for-Food Inquiry

The shipping industry's knowledge of the 10 per cent after-

sales-service fee

23.125 From the second half of 2001, it was well known to shipping companies, freight forwarders and their customers that persons shipping goods to Iraq were required to provide evidence that they had paid a 10 per cent 'after-sales-service' tax to the relevant Iraqi Ministry or its agent. 244

23.126 According to the evidence of Mr Wallbanks, the General Manager of the Dubai office of P&O Nedlloyd Limited 245 (PONL), in the second half of 2001, Simatech Shipping LLC 246 (Simatech) wrote to PONL in Dubai advising that companies shipping goods to Iraq would in future be required to pay an 'after sales tax' or fee, amounting to 10 per cent of the value of the goods, and that shipments would not be permitted to be discharged in Umm Qasr if proof of

payment of this tax or fee was not available. 247 Simatech advised PONL that it would not permit its ships to load any of PONL's containers from Jebel Au (a port in Dubai) unless and until PONL furnished them with proof of payment of the 10 per cent tax. 244 According to Mr Wallbanks, this tax was able to be paid in a number of ways, including (in most cases that Mr Wailbank heard of) via a bank account in Jordan. 249

23.127 Following receipt of Simatech's advice, PONL included information about the

requirement for proof of payment of the 10 per cent after-sales-service tax in their Iraq Documentation Policy.° This was a document that PONL prepared at the time setting out all of the documentary and other requirements for shipping goods to Iraq. It circulated the documents to any customers, including freight forwarders, who inquired about shipping goods to Iraq. 1 According to Mr Wallbanks, copies or extracts from PONL's Iraq Documentation Policy including details of the requirement to prove payment of the 10 per cent after-sales-service tax, were being sent by PONL's Dubai office as a matter of course, and widely circulated to any PONL customer or freight forwarder who inquired of, or contracted with PONL for the shipment of goods to Iraq. 2

23 .128 Mr Wallbank's evidence was that, to his knowledge, other shipping lines who were involved in shipping goods to Iraq via transhipment in Dubai were also made aware of this requirement by Simatech, and similarly advised their customers of this requirement to prove payment of the 10 per cent after-sales-service tax. 25 3

This requirement was well known and widely communicated. According to Mr Wallbank's evidence, any one involved in shipping goods to Iraq from August or September 2001 would have known about it. 254

Report of the Oil-for-Food Inquiry 45

23.129 Mr Wailbank also gave evidence that about the same time that PONL received

this advice from Simatech, he consulted the British embassy in Dubai, the US Navy office (that liaised with the commercial shipping committee), and the Royal Navy about Simatech's advice. Mr Walibank recalled that they were all aware of the requirement to pay the after-sales-service tax, and advised that if PONL was merely advising exporters what it was told in relation to requirements for shipping goods to Iraq it was doing nothing wrong. 255

23.130 On 9 October 2001 an email was circulated within PONL that recorded the changes made to the Iraq Documentation Policy as a consequence of Simatech's advice. 256 It included notice of the following:

Please note changes to:

Point (dd) have added that we need a proof of payment of the 10% aftersales tax levid on all shipment to Iraq moved under phase 8 onwards. fyi, this is paid directly by the shipper to cnee. The carrier is not involved, but shipments which has not been paid for will not be allowed to discharge in Umm Qasr and will be returned to J/ Ali. .... 257

23.131 On 7 January 2002 a further email was circulated within PONL relaying

further advice from Simatech as to those documents that would be acceptable as proof of payment of the 10 per cent after-sales-service tax. 8 These included:

1) Arabic bank confirmations from Rafeedein bank Baghdad indicating receipt of money

OR

2) Letter from Alia transport who are authorised by consignee/SCWT to receive money on their behalf (if the money has been transferred through them)

OR

3) Letter from consignee confirming receipt of money

OR

4) letter from SCWT confirming receipt of money. 259

46 Report of the Oil-for-Food Inquiry

20 December 2001: another sale

The 1GB wheat tender

23.132 On 12 December 2001, 1GB sent AWB a Tender for the supply of 500,000

tonnes of Australian hard wheat. The Tender was addressed to AWB for the attention of the Chairman of the Board, but it was emailed to Mr Hogan. 260 The wheat was sought as part of phase XI of the Oil-for-Food Programme.

23.133 Clause 9 of the wheat tender provided:

9. Price

CIF free out Umm Qaser on truck to warehouses at all governorates of Iraq cost of discharge at Umm Qaser and land transport will be equivalent to USD (26.50) per metric ton to be paid in any exchangable currency to the water transport company

For more details contact Iraqi Maritimes in Basrah

Iraqi State Co. for water transport - Basrah.261

When Mr Lindberg was shown a copy of the wheat tender during his examination, he conceded that this clause made plain that the Iraqis intended that the costs of discharge and inland transport were to be paid to an Iraqi entity. 262

23.134 On 18 December 2001, Mr Hogan emailed 1GB with an offer to supply 500,000 tonnes of Australian wheat in response to this Tender. 263 Mr Hogan noted that due to the circumstances that then existed in the Middle East, war risk premiums had been imposed on all vessels entering the Arabian Gulf. As a result, AWB was encountering additional war risks premiums of up to US$500,000 for vessels discharging at Umm Qasr. Mr Hogan noted that war risk premiums were unavoidable, not a fixed cost (as they were not known until the vessel entered the nominated exclusion zone) and that AWB was not certain as to how long war risk premiums would remain in place. 264

In light of the foregoing, Mr Hogan proposed:

Consequently, AWB would like to revert to standard international trade terms, where the WAR RISK insurance premium is for the BUYERS (IRAQ) account.

Due to the limitations imposed by the sanctions, settlement of the additional War Risk insurance premium will need to be managed via the inland transport fee. I would like to suggest the following settlement method:

(a) The inland transport payment is split as per contracts A0552 and A0553.

Report of the Oil-for-Food Inquiry 47

(b)

1st inland transport payment (USD14.00 equivalent) is paid prior to vessel discharge.

(c) 2nd inland transport charge is made 7 days after receipt of payment from the UN less the WAR RISK PREMIUM.

(d) The WAR RISK INSURANCE PREMIUM certificates, (as per vessel underwriter) will be provided to the Grain Board of Iraq upon completion of discharge at Umm Qasr to verify the amount payable.

Whilst I can appreciate His Excellency's position with respect to splitting the inland transport payment, I would like to emphasise that the AWB are currently absorbing the additional risk exposure and execution costs due to the situation in the Middle East. I am sure that His Excellency is able to understand our position, and his recollection of AWB's support in previous times is testimony to our wiliness to work together, irrespective of the situation or restrictions imposed.

If the above is not acceptable to Iraq, then an additional amount will be added to our offer to cover any potential losses due to War Risk Premiums Based upon our current estimates, the WAR RISK PREMIUMS are around USD10.00 pmt.

In this case, AWB will absorb the risk of increased premiums, or benefit if premiums are reduced or abolished. However, this is not the desired outcome, as Iraq should be the holder of this risk/benefit. Hence I suggest the management via the inland transport payment is the most appropriate method. 265 [emphasis added]

23.135 What Mr Hogan was proposing was that the 1GB bear the additional cost of war risk premium being imposed on shipments to Iraq, that this cost be paid by AWB in the first instance, and that AWB would be reimbursed the additional war risk premium paid by it by deducting the amount of that premium from the inland transportation fee that it paid to Alia. This again reflected a clear recognition that the inland transportation fee payable by AWB to Alia was in truth a payment to Iraq. Deducting the premium from the 'inland transport fees' thus meant Iraq, not Alia, would bear the war risk premium. The proposal made no sense at all if the inland transportation fee paid to Alia was in truth a payment to a Jordanian trucking company carrying out trucking services.

23.136 The email thereafter set out in detail the terms of AWB's proposed offer to sell the wheat. Clause 6 of those terms provided:

6. Price: price quoted in euro.

Euro [deleted] pmt C I F free in truck to silo to all governerates of Iraq via Umm Qasr port.

Inland transport fee ofas per &wheat tender & terms and conditions included in price.

48 Report of the Oil-for-Food Inquiry

Inland transport fee of USD14.00 pmt (equivalent in euro) paid

prior to vessel

discharge.

Balance of inland transport paid within 7 days after AWB receipt of United Nations payment. 266

23.137 On 20 December 2001, Mr Hogan sent an email to Mr Abdul-Rahman entitled 'Inland Transport for Tender' 267 which read:

Dear Mr Yousif,

After a brief discussion with Miss Moona yesterday it was made clear that 100% of the inland transport fee would need to be paid prior to the vessel commencing discharge.

This causes our company some concern, as this money is not recovered until the United [Nations] make payment alter the vessel has completed discharge.

This effectively means that from the date the 100% payment is made until the United Nations certificate is issued, our company is carrying this risk.

For example if the vessel is rejected or partially rejected, or if the United Nations remove inspectors (as they have done in the past) or the port is blockaded, our company would be unable to recover the money from the transport company.

The splitting of the payment system as we have done in previous contracts has been a way that reduces financial exposure for our company.

As far as we can see the only risk that the Inland Transport Company (ISWTC) has is that our company does not make the second payment. Given the extreme lengths that our company went to in the early 90'S to supply wheat under alternate unsecured payment mechanisms, and our long standing relationship and commitment to the Iraqi market, Iraq should view our company as a first class

partner which would never break a commitment. I am sure that hisexcellency does not view our company as one that does not honour an agreed commitment.

I request that given our past history the Grain Board of Iraq reconsider the splitting of the inland transport payment.

May I also suggest that the second payment is made within 7 days alter the completion of discharge, and not 7 days alter the United Nations payment. This will substantially reduce the time between the 2 payments.

I await your positive response. 268 [emphasis added]

The emphasised passage is another clear example of AWB being aware that the ultimate recipient of the inland transportation fee was Iraqi (namely the ISCWT).

Report of the Oil-for-Food Inquiry 49

Conclusion of the sale

23.138 After further negotiations, Mr Hogan concluded a sale for one million tonnes

of Australian Hard Wheat. The sale was split into two contracts. These became contracts Allil and A1112. Each was for 500,000 tonnes. The terms of these contracts were essentially the same, except for the quality of the grain sold, the price and the amount of the inland transportation fee payable.

Inland transportation fees were payable in respect of shipments under both contracts. The amount of the fee differed slightly between the contracts. The fee for shipments under contract Allil was €55.17 per tonne and under contract A1112 was €55.40 per tonne. 1GB did not agree to Mr Hogan's request that this fee be split and paid in two instalments, but required it to be paid in full prior to discharge.

23.139 Mr Hogan confirmed the sale in an email to Mr Abdul-Rahman dated 20 December 2001.269 He expressly referred to the inland transportation fee payable in respect of both contracts:

Inland transport of euro 55.17 payable prior to discharge

Inland transport of euro 55.40 payable prior to discharge 270

23.140 On 20 December 2001, Mr Abdul-Rahman sent a facsimile to AWB headed 'Australian wheat tender phase ..11'.271 Mr Abdul-Rahman confirmed, further to AWB's offer of 18 December 2001 and their subsequent telephone negotiation, IGB's booking of two contracts for the supply of wheat, each for 500,000 tonnes and the price at which it was to be purchased. That price was expressed in respect of both contracts as 'CIF F.O.T to silo to all governerates of Iraq via Urn Quser port', and as including transportation charges of €55.17 per tonne for one sale and €55.48 per tonne for the other.272

23.141 On 21 December 2001, Mr Hogan sent an email to Mr Lindberg, copied to Messrs Goodacre, Ingleby, Morris, Johnson, Long, Jones and Stott and Ms Scales confirming the sale of one million tonnes. 273 In his email, Mr Hogan identified for each contract the 'Total Free in Truck (Euro)' price payable by the 1GB and its components including the 'Inland transport' fee of 'EU55.17' and 'EU55.40' to be paid under these contracts. 274

On a hard copy of the email, Mr Lindberg wrote a note to Mr Hogan congratulating him on a great result. 275

50 Report of the Oil-for-Food Inquiry

The IGB's

attempt to renegotiate the contract price 23.142 On 24 December 2001, Mr Abdul -Rahman sent an email to Mr Hogan stating

Pis be advised that after studied the matter by Ministry of Trade we found that there is misunderstanding as they confirm the acceptance of same prices in USD which are as follows: -

The email then set out a price for each of these two contracts expressed in US

dollars. The prices proposed were less than the US dollar equivalents of the euro prices that had been agreed and confirmed by both AWB and the 1GB on 20 December 2001. The new US dollar prices proposed included inland transportation charges of US$46.70 and US$46.90 per tonne respectively. Mr Rahhman concluded his email by requesting 'Pis reconfirm the position by accepting the above prices.. •'276

23 .143 Mr Hogan responded to Mr Abdul-Rahman's email on 26 December 2001. He

stated: 'unfortunately I cannot alter the agreed contracts as per your request'. 277 Mr Hogan explained the reason for this, namely, that AWB had already hedged these sales on the currency market at the price that had been agreed in euros and that it was not possible for AWB to unwind that hedge without incurring a substantial loss. Mr Hogan also noted that:

The confirmed price was substantially lower that the offer price by AWB and the expected return for high quality Australian wheat. However, due to our excellent long relationship, AWB was able to meet the very competitive price bid by his Excellency. 278

Accordingly, Mr Hogan asked that the existing sale as confirmed by both

AWB and the 1GB on 20 December 2001 be honoured and that the contracts be signed so that they could be submitted to the United Nations for its approval. 279

23.144 On 31 December 2001, Mr Abdul-Rahman wrote again to Mr Hogan,

responding to his email of 26 December 2001 and again seeking AWB's agreement to the recently proposed US dollar prices.°

23.145 Mr Hogan replied on 2 January 2002. 281 After reiterating reasons why AWB could not agree to IGB's request, Mr Hogan did offer a possible compromise, namely by indicating that AWB would agree to the contract price stipulated in IGB's email of 31 December 2001 if 1GB agreed to certain changes to the terms of the contract between them, not only in respect of these contracts but also for future contracts. 282

Report of the Oil-for-Food Inquiry 51

The changes Mr Hogan proposed were:

• a guaranteed rate of discharge with demurrage and despatch payable and to be settled at the completion of each shipment 'by an adjustment to the final inland transport payment'

• the 1GB accept the additional war risk premium to be for IGB's account (as buyer). Once again Mr Hogan proposed that this 'be settled by an adjustment to the final inland transport payment'

• splitting the inland transport payments in the same way that had been agreed in relation to contracts A0552 and A0553 (namely into two instalments, the first being US$14 and the balance payable within 7 days of receipt of funds from the United Nations)

• the 1GB agree to the conversion of the new US dollar prices at the same exchange rate that AWB had already hedged the sale concluded on 20 December 2001.

It is plain that AWB saw the 'inland transport payment' as a method of adjusting contracted payments or disputes between AWB and 1GB, whilst sanctions prevented the normal payment of monies by or to Iraq.

23.146 Mr Hogan concluded his email:

I am sure that the proposal offered to the Grain Board is very attractive considering that we already have a confirmed contract at substantially higher prices. Unfortunately this is the only solution I can offer to the Grain Board of Iraq.

If the Grain Board of Iraq is agreeable to these terms, we will confirm the contract as per above, otherwise the contract will remain as confirmed on the 20th December 2001.284

Mr Abdul-Rahman replied to Mr Hogan by email that day, advising that 1GB could not change any conditions and asking AWB to confirm both the same conditions as other contracts under phase X and also the price set out in the IGB's email of 31 December 2001. 285

23.147 Mr Hogan responded on 3 January 2002. 286 He repeated that AWB was only willing to confirm the lower prices offered by 1GB on the basis that 1GB accept AWB's proposed altered contract terms and noted Mr Abdul-Rahman's advice that this was not possible. In those circumstances, Mr Hogan asked that 1GB forward to AWB signed contracts in accordance with the agreement confirmed on 20 December 2001. Moreover, Mr Hogan warned that until

AWB received those contracts, it would not be able to seek United Nations

52 Report of the Oil-for-Food Inquiry

approval, and any delay in the obtaining of that approval would result in

delays and possibly cancellation of the shipping program. 28 7

23148 1GB responded later that day in a facsimile addressed to the 'Austrian wheat board' to the attention of 'Mr Michael for att Mr Domic Hogan'. 288

Re yr Emails of 2nd Jan 2002 and 3 Jan 2002 and after carefully studied yr reply which was again transmitted to his Excellency the Minister and according to his of instruction which will be the final taking into consideration our long and cooperative relationship we confirm our booking for our million tons by sharing the difference and ask you to confirm the booking as follow or we have to divert our booking to other origin.

1— [deleted] % at Euro [deleted] (inland charges Euro 54.10)

2— [deleted] % at Euro [deleted] (inland charges Euro 54.34)

same all other conditions as per our contracts of phase ten without any changes our contract will be faxed accordingly. 289

The reference to 'Mr Michael' was a reference to Mr Long. The prices in euros proposed by 1GB in this facsimile for each of the two contracts were still lower 290 than the prices that had been agreed on 20 December 2001. The inland transportation fees proposed in this facsimile were also slightly lower than the fees that had been agreed on 20 December 2001.291

23,149 Mr Long responded to IGB's facsimile in an email dated 4 January 2002 292 , again setting out the reasons why AWB could not agree to IGB's request to renegotiate the price of both sales. Mr Long urged 1GB to return the signed contracts as promised in their facsimile of 20 December 2001 in order to obtain United Nations approval and not delay the shipment under these contracts.

23.150 On 16 January 2002, following further correspondence in similar terms to that set out above, the Chairman of AWB, Mr Flugge, wrote to the Minister expressing his concern over Iraq's failure to send final confirmation for the one million tonne purchase. 293 Mr Flugge indicated in that letter that he could not accept the Minister's request to reduce the contract prices by approximately €5.00 per tonne, as he was not in a position to compromise the commitment he had previously made to the Australian grower.

23.151 The letter of 16 January 2002 had been drafted by Mr Hogan and sent to Mr Flugge by email with a note as follows:

Trevor,

Iraq are trying to reduce confirmed price for 1 million tonne contract concluded on the 20th of December. We have been corresponding with Grain Board of Iraq since the 25th-26th December, advising that this was not possible. They insist that

Report of the Oil-for-Food Inquiry 53

His excellency will not re-confirm the initial contract and request we accept his

price.

Note - contract concluded in EURO.

If they reject your request to confirm as agreed on 20th December, myself and possibly David Johnson will travel into Baghdad next week to sort out. (their re-offer is AUD10,000 less than already agreed).

Obviously, we are very keen to get final agreeance from Iraq.

Rgds

Dominic 294

23 .152 On 18 January 2002, Mr Long sent an email to Mr Flugge and copied to Messrs Lindberg, Geary, Hogan, Ingleby, Goodacre and Stott in which he advised that the preceding evening AWB had received advice that the Iraq Minister for Trade, Mohammed Medi Saleh, had accepted Mr Flugge's letter and subsequently confirmed the one million tonne contract with the 1GB at the 'originally' agreed price. 295

The contractual documents: contracts Allil and A1112

23 ,153 A short-form contract was prepared within AWB for each of contracts A1111296 and A1112. 297 Both short-form contracts were dated 20 December 2001 and signed on behalf of AWB by Mr Hogan.

Both contracts were substantially in the same terms as AWB's preceding two contracts with 1GB. In both contracts, the price was described as a 'CIF Free in Truck' price and the shipment clause provided for the cargo to be discharged 'Free into Truck to all silos within all Governorates of Iraq'.

Neither of these short-form contracts referred to AWB's obligation to pay inland transportation fees or the additional 10 per cent after-sales-service fee, included any reference to the amount of the inland transportation fee, or made plain that that fee included the additional 10 per cent after-sales-service fee. This is notwithstanding the express reference to both the inland

transportation fee, and the amount of that fee in IGB's wheat tender, AWB's offer and the exchanges that passed between AWB and 1GB on 20 December 2001 confirming the terms of the original sale.

23.154 Export Sales Notes were also prepared within AWB in respect of both contract A111128 and contract A1112. 299 Each of these Sales Notes recorded that the relevant contract was booked by Mr Hogan and authorised by Mr Edmonds-Wilson. Neither of these documents contained any reference to AWB's obligation to pay the inland transportation fees or additional 10 per cent after-

54 Report of the Oil-for-Food Inquiry

sales-service fee, or to the amount of those fees. Nor did they refer to the

inclusion of these fees as components of the price at which the wheat was sold under either contract.

23.155 The trucking fee and the amount of that fee (in particular as a component of the price for which the wheat was sold under each contract) were recorded on the cover of each of Mr Lister's files for these two contracts. 300

23.156 Long form contracts were prepared by the 1GB for each of contracts A111130 ' and A1112.302 Both of these long-form contracts were in the same form as the long-form contracts that had been prepared by 1GB in respect of its earlier purchases from AWB under the Oil-for-Food Programme. The price was described in each long-form contract as a 'CIF F.O.T. to silo to all governerates of Iraq via Umm Quser port'. Neither of these long-form contracts contained any reference to the inland transportation fees, 10 per cent additional fee, AWB's obligation to pay either fee, the amount of those fees, or the inclusion of these fees as components of the price at which the wheat was sold under either contract. Each of these long-form contracts was also signed by Mr Hogan on behalf of AWB.

United Nations approval

23.157 On 22 January 2002, Mr Hogan sent a facsimile to Mr Cuddihy (at DFAT) 303 enclosing a copy of each of the signed long-form and short-form contracts for contracts Alill and A1112 together with applications for United Nations approval of those contracts. The applications for approval were dated 24 December 2001.0

Fresh applications were prepared by DFAT or the Australian mission and submitted to the United Nations on 23 January 2002.0

23.158 On 4 February 2002, the OIP sent a facsimile to the Australian mission advising that both contracts had been deemed eligible for payment under the Oil-for-Food Programme.306 The facsimile noted however that this did not constitute approval to ship goods to Iraq nor did it guarantee payment. A copy of this facsimile was sent by Mr Cuddihy to Mr Hogan on 7 February 2002. 0

23.159 In the meantime, the United Nations issued its approval for each of contracts Allil and A1112 on 5 February 2002. 308 Both contracts were approved under phase XI of the Oil-for-Food Programme. Mr Hogan received notification of these approvals from Mr Cuddihy on 8 February 2002. He in turn notified 1GB of these approvals later that day.309

Report of the Oil-for-Food Inquiry 55

February 2002: AWB discussions with the United Nations and

the Australian mission

23.160 On 8 February 2002, a delegation from AWB headed by Mr Flugge attended meetings with the United Nations Treasury (Treasurer Bishopric and Senior Finance Officer Afeworki) and the Office of the Iraq Programme (Customs Expert Mathevet). Mr Flugge was accompanied by Mr Richardson and Mr Foran. The AWB delegation was accompanied in these meetings by Ms Holiday and Mr Stephens from the Australian mission to the United Nations.310 On 13 February 2002, Mr Stephens sent a cable to DFAT (Canberra) with copies to the Australian missions in Amman and Washington reporting on what was discussed at these meetings. 311

23.161 According to Mr Stephens' report, in all of the meetings Mr Flugge emphasised AWB's overall satisfaction with the conduct of its wheat trade with Iraq, its biggest export market. There was a discussion about the delays in the receipt of payment of the proceeds of the shipments sent to Iraq. AWB wished to speed up the payment time frame, in particular in relation to the delay between unloading and AWB's receipt of payment. 312

23.162 That such a delay was of concern to AWB (and more particularly the AWB

Pool) at this time is not surprising, given that the Pool was by this time having to pay the inland transportation payments in respect of its shipments to Iraq in full and then had to await the recovery of those payments from the escrow account. To the extent that the AWB Pool was required to finance the pre-payment of the inland transportation fees in this period, the agreement to the payment of the fee was not revenue neutral to the Pool. The greater the delays in the receipt of the proceeds of sale, the greater the financing cost or opportunity cost to AWBI.

23.163 There was also a discussion at these meetings as to the inconsistencies between the weight of the cargoes as described on the bill of lading and the measurements taken at Umm Qasr, on which AWB was paid. AWB reported an average discrepancy or loss of 106 tonnes per shipment, which had cost AWB over $100,000 since July 2000. This loss was attributed to faulty weighing equipment at Umm Qasr and spillage of cargo due to work practices and infrastructure and equipment problems at the port. Mr Flugge was reported as accepting that the discrepancies arose from a lack of infrastructure and care, rather than pilfering by the Iraqis and stated that AWB may donate more accurate measuring equipment to the Iraqis in an effort to improve the accuracy of measurements taken at Umm Qasr. 313

56 Report of the Oil-for-Food Inquiry

23.164

This meeting is indicative of the interest of Mr Flugge in the Iraq market, his

knowledge of it, and the mechanisms involved in sales under the Oil-for-Food Programme.

February to May 2002: AWB's donation of further equipment

23,165 In November 2001, the OIP approved an amendment to its earlier approval of a shipment of wheat to include a donation of grain receival equipment by AWB. That approval was set to expire in March 2002. 314 In February 2002, AWB approached DFAT seeking its assistance in obtaining an extension from the United Nations of the time within which AWB had to deliver that equipment. 315 That extension was sought on 19 February 2002. 316

23,166 On 3 May 2002, Mr Edmonds-Wilson sent a facsimile to Mr Cuddihy at DFAT advising that AWB was again looking at donating some equipment to the 1GB.317 This equipment included bobcat and skid steer loaders, spares tyres, probe-a-vac pneumatic grain samplers and other equipment used for the

sampling and testing of grain. 318 The application for approval was sent by the Australian mission to the OIP on 7 May 2002. 319 Approval was sought as an amendment to the United Nations' existing approval for contract A1112. An amended approval was subsequently issued in December 2002. A copy of that amended approval was sent by Mr Cuddihy to Mr Edmonds-Wilson under cover of a facsimile dated 17 January 2003. 320

June 2002: another sale concluded

June 2002: a further visit to Iraq

23.167 In June 2002, Mr Long and Mr Hogan visited Iraq and met with both representatives of 1GB and the Minister for Trade. 321

During this visit, Mr Long and Mr Hogan were informed by the Minister that Iraq intended to cut its imports from Australia by one half because of the aggressive stance of the Australian Government. 322 AWB had hoped to secure a contract for the sale of one million tonnes of wheat during this visit, as it had been able to in February, June and December 2001. However, because of Iraq's attitude to the Australian government, Messrs Long and Hogan were only able to obtain a contract for the sale of half that amount.

23.168 Following this visit, Mr Hogan prepared a trip report, reporting the discussions with the Minister of Trade. This report was circulated widely by email within AWB on 25 June 2002. 323 Mr Hogan noted in his report:

Report of the Oil-for-Food Inqu ry 57

Whilst we were successful in concluding business with Iraq, we only secured

500,000 tonnes of our planned 1 million tonnes that is usually reserved for AWB. This sale was at USD14.60 NET FOB premium, which is one of the highest premiums for Iraq and the highest premium for APW wheat in the Middle east.

The Minister advised AWB, that due to the aggressive policy and attitude that the Australian Prime Minister has towards Iraq and his public display of support for Bush and the USA—Government, Iraq can no longer justify the significant purchases of Australian wheat.

Subsequently, for wheat purchases against the current Phase (12) program under the Oil for Food program, Iraq have reduced their requirement from Australia by 50% to an allocation of 500,000 tonnes.

The message the Minister wanted to convey to the Australian government was quite clear, and more importantly for AWB and the Australian growers, the decision is designed to affect us financially. 324

Mr Hogan also reported:

The minister also recognises the outstanding debt owed to the Australian wheat farmers, and when they are in a positon (no embargo) to re-pay this debt they wil.3n

23.169 Mr Hogan concluded his report:

Actions:

1. Hogan to debrief (verbally) Australian Embassy in Amman—Jordan (Tuesday 25th June)

2. Copy of Howard speeches and statements obtained from DFAT (Matt Foran)

3. Tim G/ Darryl to debrief DFAT— Canberra

4. Offical Letter from CEO to PM detailing consequences, damage of recent comments - request explanation of Australian governments positon and further clarification.

- If a positive response is forthcoming— then this will suffice towards rebuilding the trade with Iraq.

The Minister has reserved a further 500,000 tonnes for AWB under this exiting Phase (12), if we provide a positive response.

- if negative (Australian Gov is not going to provide retraction), then we need to seriously consider the political angle we need to take to ensure we continue sales to Iraq.326 [emphasis in original]

23.170 On 24 June 2002, Mr Hogan spoke by telephone with Mr Miles of the Amman mission and advised him of what the Minister had said. Mr Miles in turn sent a cable to DFAT (Canberra) that day reporting on what he had been told by

58 Report of the Oil-for-Food Inquiry

Mr Hogan.

327 Mr Hogan and Mr Miles met the following day. Mr Miles sent a further cable to DFAT (Canberra) reporting on what he was told. 328

23.171 On 25 June 2002, the Chairman of AWB, Mr Stewart, spoke with Mr Spencer (from the Australian mission to the WTO), and advised him of what Mr Long and Mr Hogan had been told by the Iraqi Minister of Trade. In particular, Mr Stewart had asked that Mr Spencer let the Trade Minister Mr Vaile, the Prime Minister's Office and the Department know that the Iraqis had deferred the purchase of 500,000 tonnes and the reasons for this. Mr Spencer set out a report of his conversation with Mr Stewart in a DFAT Minute dated 25 June 2002.329

Mr Lindberg's correspondence following the June 2002 visit to Iraq

23.172 On 1 July 2002, Mr Lindberg wrote a letter to the Prime Minister, Mr Howard,

reporting on AWB's recent meeting with the Iraqi Minister of Trade. 330 A copy of the letter and the Prime Minister's reply of 27 July 2002 are Figures 22.1 and 22.2 in Appendix 22.

Mr Lindberg's letter indicated that AWB was trading with Iraq 'under the United Nations arrangements in accordance with UN resolutions'.

23.173 On 2 July 2002, Mr Lindberg wrote to the Iraqi Minister for Trade, Mohammed Mehdi Saleh, in particular in response to the matters that the Minister had raised in his recent discussions with Mr Long. 331 A copy of the letter is Figure 22.3 in Appendix 22. No reply was received.

Contract A1441

23.174 Whilst they were in Iraq, Mr Long and Mr Hogan concluded a sale of 500,000

tonnes of wheat to 1GB. 332 Mr Long led the contract negotiations. 333 This became contract A1441. The contract price was specified in euros.

23.175 An inland transportation fee of US$47.75 per tonne or its equivalent in euros (namely €48.53 per tonne) was payable by AWB in respect of shipments made under this contract.3" The fee for each shipment was payable 100 per cent in full before completion of the discharge of that shipment at Umm Qasr. 335

23.176 On 2 July 2002, Mr Hogan sent a facsimile to 1GB setting out details of the sale. 336 Apart from such matters as the tonnage, shipment dates, price, and amount of the inland transportation fees, the sale was expressed to be on the same terms and conditions as specified in contract Alill dated 20 December 2001. 337

Report of the Oil-for-Food Inquiry 59

Contractual documentation

23.177 A short-form contract dated 23 June 2002 was prepared within AWB for this sale.338 It was signed on behalf of AWB by Mr Hogan. The short-form contract was in substantially the same terms as AWB's preceding contracts with 1GB. As with its previous contracts, the price was described in each contract as a 'CIF Free in Truck' price and the shipment clause provided for the cargo to be

discharged 'Free into Truck to all silos within all Governorates of Iraq'.

As with AWB's previous short-form contracts, the contract did not refer to AWB's obligation to pay inland transportation fees or the additional 10 per cent after-sales-service fee. It did not include any reference to the amount of the inland transportation fee. It did not make plain that the inland transportation fee included the additional 10 per cent after-sales-service fee. This was notwithstanding the express reference to both the inland transportation fee, and the amount of that fee, in Mr Hogan's facsimile to 1GB of 2 July 2002 confirming the sale. 339

23.178 The trucking fee and the amount of that fee (in particular as a component of the price for which the wheat was sold under each contract) were however recorded on the cover of Mr Lister's file for this contract. 340

23.179 A copy of the short-form contract was sent by Mr Hogan to 1GB under cover of a letter dated 2 July 2002.341

23.180 A long-form contract was prepared by IGB. 12 It was dated 15 July 2002 and in the same form as the long-form contracts that had been prepared by 1GB in respect of its previous purchases from AWB under the Oil-for-Food Programme. The price was described in this long-form contract as a 'CIF F.O.T. to silo to all governerates of Iraq via Umm Quser port'. The long-form contract did not contain any reference to the inland transportation fees, the 10 per cent additional fee, AWB's obligation to pay either fee, the amount of

those fees, or the inclusion of these fees as components of the price for which the wheat was sold under this contract.

23.181 On 23 July 2002, 1GB sent by facsimile a signed copy of its long-form contract to AWB. 343 The following day, Mr Edmonds-Wilson replied to 1GB by facsimile enclosing a copy of the contract signed on AWB's behalf.3 44

United Nations approval

23.182 By facsimile dated 24 July 2002, Mr Edmonds-Wilson forwarded to Mr Cuddihy at the DFAT a copy of the signed contract together with an application for United Nations approval of this contract. 345

60 Report of the Oil-for-Food Inquiry

23.183 On 21 August 2002 Mr Edmonds-Wilson sent an email to 1GB advising that

the Australian mission to the United Nations had indicated to AWB that the approval for contract A1441 would take a further two to four weeks due to insufficient funds being available. He went on to say:

We urgently require any assistance you can provide in expediting the United Nations approval for this contract. 346

23.184 In an email dated 28 August 2002, Ms Holliday (from the Australian mission) advised Mr Edmonds-Wilson that the application with respect to contract A1441 was still subject to a funding notice, but that the OIP expected funds to be available the following week, at which time a shipment approval would be issued immediately. 347

23.185 By email dated 12 September 2002, Mr Edmonds-Wilson informed Mr Long that the OIP had advised that funding for contract A1441 would be available in no more than three weeks'. 348 The consequences to AWB of receiving the approval at that time (that is, on 10 October 2002) were listed by Mr Edmonds-Wilson, together with three alternative scenarios available to AWB. These related to whether AWB should defer chartering any vessels until the United Nations approval was received, or commence chartering in anticipation of receiving United Nations approval and a confirmed letter of credit.

23.186 The contract was approved by the United Nations under an Approval dated 13 August 2002, but which was not issued until 8 October 2002. 349 A copy of that approval (including the customs officer's report) 350 was sent by facsimile by Ms Holliday of the Australian mission to Mr Edmonds-Wilson on 10 October 2002. 351

Execution of contract A1441

23.187 At the time of the incursion into Iraq in March 2003, not all of the shipments

under contract A1441 had been completed. Two shipments352 were still on the water. A number of other shipments were still to leave Australia. The two shipments on the water were eventually allocated to other later contracts with Iraq. The Coalition Provisional Authority (CPA) renegotiated with AWB the terms of contract A1441, so far as the remaining shipments were concerned.

These events are examined in Chapter 25.

Report of the Oil-for-Food Inquiry 61

Other matters discussed: Tigris

23.188 During their meeting with the Minister of Trade in Iraq in June 2002, Messrs

Long and Hogan raised the Tigris debt with the Minister, although only in very general terms. According to Mr Long, the Minister acknowledged the debt.353 The further negotiation of the recovery of this debt is considered in Chapter 27.

62 Report of the Oil-for-Food Inquiry

Notes

1 Ex 1463, AWB.0141.0449_R. 2 E 1463, AWB.0141.0449_R at 0450_R. Ex 1463, AWB.0137.0114_R. 4 E 1463, AWB.0137.0114_R (as the 1GB had done with contract A0430, where the price was converted into

Deutschmarks). 5 Ex 1463, AWB.0137.0114_R (figures deleted in response to claim for commercial confidentiality by AWB). 6 E 1463, AWB.0137.0197_R. 7 E 1463, AWB.0137.0197_R. 8 Ex 1463, AWB.0137.0197_R. 9 See Ex 1462, AWB.0061.0261_R. 10 Ex 1463, AWB.0061.0192_R for contract A0552; Ex 1464, AWB.0090.0068_R for A0553. 11 Ex 1463, AWB.0061.0192_R. 12 Ex 1464, AWB.0090.0068_R. 13 Ex 1463, AWB.0090.0075 for contract A0552; Ex 1464, AWB.0090.0069 _R for contract A0553. 14 Ex 1464, AWB.0061.0100_R. 15 Ex 1464, AWB.0061.0100_R. 16 Ex 1463, AWB.0061.0189_R. 17 Ex 381, AWB.0084.0046_R at 0049.R. 18 Ex 1463, AWB.0061.0189_R at 0190_R.

19 Ex 995, AWB.0420.0251_R. 20 Ex 995, AWB.0420.0251_R. 21 Ex 995, AWB.0420.0251_R at 0252_R.

22 Ex 354, WST.0001.0061 at 0065, para. 40. 23 Ex 380, AWB.5046.0329_R at 0329_R. 24 Ex 380, AWB.5046.0329_R at 0329_R.

25 Ex 380, AWB.5046.0329_R at 0329_R. 26 Ex 1382, AWB.5004.0183_R at 0183_R. 27 Ex 381, AWB.0084.0046_R. 28 Lx 381, AWB.0084.0046_R. 29 T 3000.2. 30 T 3000.5-7. 31 T 2996.33-43. Mr Borlase gave the following evidence about his view of the trucking fees after the February 2001 trip report:

After sitting through those negotiations and seeing the fee going from $15 to $25, and then a 10 per cent service fee, I thought that the portion from the trucking fee to the total FIT value was being used for some other purpose. What that purpose is, I don't know, but I still never doubted that there was a trucking service somewhere being provided somewhere, because 50,000 tonnes of

wheat, which is 2,000 trucks, was leaving Umm Qasr. So somebody is being paid for a service, but the volume of the entire FIT value seemed to be in excess of the trucking component (T 3003.40-T 3004.02). 32 T 5666.21. 33 T 5666.12-39. 34 Ex 142, WST.0005.0001 at 0033-0034, para. 119. 35 Ex 142, WST.0005.0001 at 0033-0034, para. 119. 36 T 2270.5-7. 37 T 6281.25-33. 38 See, for example, T2267.28-30. 39 T 2267.45-46. 4°e Appendix 18, which sets out the six tests Mr Stott said he performed in late 2000. 41 T 2271.25-36. 42 Ex 1337, AWB.9001.0212 at 0218, para.10.2.

Report of the Oil-for-Food Inquiry 63

43 T 7499.18.

44 T 7499.27. 41 Ex 1329, AWB,9000.0195, AWB.0468.0005. 46 Mr Owen gave evidence that, for the purpose of providing information to Mr Geary, he would not have required most of the information in the trip report, and accordingly he would not have read it, but, rather,

would have scanned through the headings until he found the information he required (Ex 560, WST.0015.0002_R), at WST.0015.0021_R, para.76. This explanation is consistent with his reply email to Mr Borlase, sent 8 February 2001 (Ex 461, WST.0015.0104) which addresses concerns raised under one discreet heading ('UN authentication'); accordingly Mr Owen's evidence in this regard should be accepted. 47 Ex 58, AWB.0106.0126. 48 T 1221.36.

49 See above. 50 Ex 1377, AWB.0241.0068. °' Ex 170, AWB.0143.0354. 52 Ex 170, AWB.0143.0354 at 0354. 53 Ex 1377, AWB.0137.0284. ° Ex 1463, AWB.0061.0186_R. 55 Ex 1377, AWB.0137.0286. 56 Ex 1463, AWB.0061.0184_R. 57 Ex 1463, AWB.0061.0184_R at 0184. °° Ex 1463, AWB.0061.0184_R at 0184_R.-0185_R. 59 Ex 1463, AWB.0137.0108_R. 60 Ex 1463, AWB.0137.0108_R at 0109_R. 63 Ex 1463, AWB.5049.0318_R. 62 Ex 1463, AWB.0061.0198_R; see Ex 729, AWB.0111.0076_R, AWB.0111.0077_R. 63 Ex 1464, AWB.0009.0135_R; see Ex 729, AWB.0111.0084_R, AWB.0111.0085_R, AWB.0111.0085_R. 61 The short-form contracts for contracts A0552 and A0553 differed from the earlier contract as to the specification of the wheat sold, the price at which it was sold and proposed delivery dates. 65 Ex 1463, AWB.0061.0197_R for contract A0552; Ex 1464, AWB.0061.0106_R for contract A0553. 66 See Ex 1463, AWB.0061.0197_R. 67 Ex 1463, AWB.0061.0108_R for contract A0552; Ex 1464, AWB.0061.0002_R for contract A0553.

° For contract A0552 see Ex 1463, AWB.0061.0180_R; Ex 729, AWB.0111.0071_R, AWB.0111.0172_R; for contract A0553 see Ex 1464, AWB.0061.0088_R; Ex 729, AW13.0111.0079_R, AWB.0111.0080_R. 69 Ex 729, AWB.0111.0069_R, AWB.0111.0070_R, AWB.0111.0072_R, AWB.0111.0076_R, AWB.0111.0077R, AWB.0111.0078_R, AWB.0111.0079_R, AWB.0111.0080-R, AWB.0111.0084_R, AWB.0111.0085_R; Ex 171, AWB.0111.0071. 70 Ex 542, DFT.0004.0029. 71 The applications in the form in which they appeared when approved by the United Nations (Ex 1463, AWB.0061.0178_R for contract A0552; Ex 1464, AWB.0061.0087_R for contract A0553) were not the same documents that were submitted by AWB to DFAT on 27 February 2001 (Ex 171, AWB.0111.0070_R for contract A0552; Ex 171 AWB.0111.0078_R for contract A0553). For example box no. 3 of the form headed 'Mission Reference No.' is completed differently in the form submitted by AWB to the form approved by the United Nations. Although some of the other boxes in the form approved by the United Nations contain the same information as the corresponding boxes in the corresponding form submitted by AWB, that information is set out slightly differently. Hence it appears from a comparison of these documents that the forms were retyped before they were submitted to the United Nations. Moreover as the form which was approved by the United Nations contains reference to the Australian Mission's own reference number (i.e. 099 in the case of contract A0552 and 100 in the case of contract A0553) it would appear that it was the Mission that retyped these documents so as to include this information in the forms. 72 Ex 1463, AWB.0007.0143_R for contract A0552 (the customs report associated with that approval appears at Ex 1463, AWB.0007.0147_R); Ex 1464, AWB.0061.0085_R for contract A0553 (the customs report associated with that approval appears at Ex 729, AWB.0061.0086_R). 73 Ex 729, AWB.0110.0370_R. 74 Ex 729, AWB.0111.0109_R.

64 Report of the Oil-for-Food Inquiry

15 Report of the Secretary-General pursuant to paragraph 5 of resolution 1330 (2000) Office of the Iraq Programme

web site at: 76 Ex 913, DFT.0033.0116_R. 77 Ex 913, DFT.0033.0116_R at 0118_R. 78 Ex 913, DFT.0033.0116_R at 0118_R. 79 Ex 913, DFT.0033.0116_R at 0018_R-0019_R. 801 6783.22-31. ° Ex 686, WST.0036.0002_R at 0003_R, para.9. 82 Ex 384, SNO.0001.0068. 9° Ex 383, WST.0001.0054 at 0059-0060, para, 25. 9° Ex 552, DFT.0001.0161 at 0161. 85 Ex 542, DFT.0004.0043. These notes substantially reflect what was set out in the telex from the ISCWT that

Mr Rowland quoted in his email to Mr Snowball (see above). 86 Ex 391, AWB.5044.0331. 87 Ex 543, DFT.0013.0225 at 0225_01, para. 11. 9° Ex 552, DFT.0001.016lat 0161.

89 Ex 543, DFT.0013.0622 at 0625-0626, para. 10. 9° Ex 391, SNO.0001.0115. 9° Ex 391, SNO.0001.0115; see T 3078.25. 92 Ex 391, SNO.0001.0115; see T 3078.30. 9° Ex 391, SNO.0001.0115; see T 3078.34. 9°T 3102.6-9.

°T 3101.47-T 3102.1. 9°T 3102.11-47. 9° Ex 393, DFT.0001.0458 at 0458. 98 Ex 552, DFT.0001.0161 at 0161-0163. 9°T 4508.21-32. 100 Ex 552, DFT.0001.0161 at 0161.

°° T 4575.40-42. 102The Canadian complaint is dealt with in Chapter 16 and relates to a report by Canadians that 1GB had told them in early 2000 that AWE paid a fee of US$14 to the Iraqis. 10 T 4575.44-T 4577.6 104 Ex 391, AWB.5044.0331; see also Ex 384, WST.0010.0053 at 0061, para. 32. 105 Ex 543, DFT.0013.0622 at 0625-0626, para. 10. 1061 3104.14-19. 107 Ex 392, AWB.5049.0277. 108 E x 392, AWB.5049.0277. 109 Ex 392, AWB.5049.0277.

110 Ex 392, AWB.0005.0288_R. 111 Ex 1377, AWB.0090.0260_R. 112 Ex 1377, AWB.0090.0260_R. 113 Ex 392, AWB.5049.0278. 11412075.29.

'° Ex 392, AWB.5077.0205_R. 116 Ex 392, AWB.5077.0205_R. 117 Ex 872, DFT.0023.0226 at 0229-0230, para. 1.1. 118 Ex 872, DFT.0031.0064 at 0065-0066.

119 Ex 872, DFT.0031.0064 at 0064. 12016677 18 16678.3-7. 121 Ex 381, AWB.0084.0046 Rat 0049R. 122 T 6678.15-16. 123 Ex 872, DFT.0023.0026 at 0029, para. 1.1. 124 Ex 795, DFT.0033.0044 at 0045, para. 7.

Report of the Oil-for-Food Inquiry 65

125

Ex 872, DFT.0031,0064.

126 Ex 872, DFT.0023.0026 at 0029, par 1.1. 127 Ex 1377, AWB.0103.0014_R. 128 Ex 392, AWB.5049.0282_R. 129 Ex 176, AWB.0144.0514. 130 Ex 177, AWB.0071.0026. 131 Ex 1377, AWB.5049.0285_R.

132 Ex 392, AWB.5101.0081. 133 Ex 1469, MAE.0002.0170_R at 0171_R. 134 Ex 1469, MAE.0002.0170_R at 0170_R. 135 Ex 1461, AWB.0005.0287_R. 136 Ex 394, AWB.0005.0287_R. 137 Ex 394. DFT.0001.0193. 138 Ex 394, DFT.0001.0193 at 0193. 139 Ex 394, DFT.0001.0193 at 0193-0194. 140 Ex 394, DFT.0001.0193 at 0194. 141 Ex 392, AWB.0090.0326. 142 Ex 1377, AWB.0103.0031 at 0031. 143 Ex 392, AWB.0090.0347. 144 Ex 392, AWB.0090.0347. 145 Ex 392, AWB.0103.0034_R. 146 Ex 392, AWB.0103.0034_R. 147 Ex 392, AWB.0103.0034_R. 148 Ex 392, AWB.5064.0362_R. 149 Ex 392, AWB.5064.0362_R. 150 Ex 392, AWB.5064.0362_R. 151 Ex 1377, AWB.5101.0079. 152 Ex 1377, AWB.0129.0085_R. 153 See Chapter 27. 154See above. 155 Ex 226, AWB.0129.0082. 156 Ex 175, AWB.0129.0083.

' Ex 164, AWB.0185.0527. 158 T 2093.14. 15912093.37. 160 12093.47. 161 T 2094.24-25. 162 Ex 165, AWB.0185.0530; see 12094.43. 163 Ex 148, WST.0005.0001 at 0036 para. 124. 164 Ex 148 WST.0005.0001 at 0036 para. 125; Ex 686, WST.0036.0002_R at 0013_R, para. 56; Ex 401,

WST.0010.0010_R at 0021_R, para. 48. 165 Ex 148, WST.0005.0001 at 0036, para. 125. 166 Ex 686, WST.0036.0002_R at 0013_R, para. 56. 167 Ex 401, WST.0010.0010_R at 0021_R, para. 48. 168 Ex 1052, AWB.0129.0087..R. 169 Ex 148, WST.0005.0001 at 0036, para. 126 & 127.

° Ex 148, WST.0005.0001 at 0036, para. 127. 171 Ex 181, AWB.0185.0529_R. 172 Ex 148, WST.0005.0001 at 0036, para. 128. 1731 2108.44-1 2112.22.

174 Ex 148, WST.0005.0001 at 0036-0037, para. 128. 175T 2119.30-37. 176 Ex 183, AWB.0141.0420. 177 Ex 184, AWB.5068.0001_R.

66 Report of the Oil-for-Food Inquiry

178

Ex 183, AWB.0141.0420 at 0420.

179 Ex 183, AWB.0141.0420 at 0421. 180 Ex 148, WST.0005.0001 at 0037-0038, para. 133. 181 Ex 401, WST.0010.0010_R at 0021_R-0022_R. para. 52. 182 Ex 686, WST.0036.0002_R at 0013_R-0014_R, para. 57. 113 Ex 183, AWB.0141.0420 at 0421. 184 Ex 1202, WST.0001.0074 at 0080-0081, at para. 25.

185 Ex 1202, WST.0001.0074 at 0081-0082, paras 28-29. 108 Ex 1202, WST.0001.0074 at 0082-0083, para. 31; see Ex 384, SNO.0001.0073 R at 0073_R. 187 Ex 1202, WST.0001.0074 at 0083, para. 33. 188 Ex 189, AWB.0143.0317_R; see Ex 1465, AWB.0062.0558. 189 Ex 189, AWB.0143.0317_R; see Ex 1465, AWB.0062.0558. 198 Ex 189, AWB.0143.0317R at 0318_R; see Ex 1465, AWB.0062.0558 at 0559. 191 Ex 1246, AWB.5042.0238R at 0238_R; see Ex 384, SNO.0001.0073R at 0076_R.

192 Ex 189, AWB.0143.0317_R; see Ex 1465, AWB.0062.0558R. 19a Ex 1465, AWB.0062.0555_R. 194 Ex 1246, AWB.5042.0238_R. 195 Expressed in US dollars. 196 Ex 384, SNO.0001.0073_R. 197 Ex 384, SNO.0001.0073_R at 0076_R-0077..R.

198 Ex 1465, AWB.0011.0142_R. 199 Ex 1465, AWB.0062.0413..R. 200 Ex 1465, AWB.0062.0563...R for contract A0784; Ex 1466, AWB.0062.0397_R for contract A0785. 201 Ex 1465, AWB.0062.0413_R for contract A0784; Ex 1466, AWB.0062.0258_R for contract A0785. 202 Ex 1465, AWB.0062.0540_R, AWB.0062.0541_R. 203 Ex 1466, AWB.0062.0398_R, AWB.0062.0399...R. 204 Ex 1465, AWB.0062.0539R; Ex 1466 AWB.0062.0374_R.

205 Ex 1465, AWB.0062.0536..R - the United Nations customs report is at Ex 1465, AWB.0062.00538_R. 206 Ex 1465, AWB.0062.0547..R. 207 Ex 1465, AWB.0062.0547...R. 208 Ex 1465, AWB.0062.0535_R 209 Ex 1465, AWB.0062.0534_R. 210 Ex 1466, AWB.0062.0396_R. 215 Ex 1466, AWB.0062.0371_R; the customs report is at Ex 729, AWB.0062.0373_R. 232 Ex 1466, AWB.0062.0370_R. 213 Ex 1466, AWB.0062.0369..R. 214 Ex 721, WST.0001.0043 at 0049, para. 7.2. 215 Ex 721, WST.0001.0043 at 0049, para. 7.3. 216 Ex 721, WST.0001.0043 at 0049, para. 7.4; Ex 1229, AWB.0185.0627; T 2133.26-T 2134.42. -7 EX 192, AWB.5038.0160_R. 218T 2133.47-T 2134.10. 219 Ex 721, WST.0001.0043 at 0049, para. 7.7

° Ex 721, WST.0001.0043 at 0050, para. 7.16. 221 Ex 721, WST.0001.0043 at 0051, para. 7.18. Ex 721, WST.0001.0043 at 0051, para. 7.19. Ex 60, AWB.5050.0014.

4 M r Goodacre gave evidence about the emails dated 10 and 13 September 2001, (Ex 60, AWB.5050.0014; Ex 78, AWB.5050.0016) respectively, to the effect that he may not have read them, because his two assistants filtered his emails (Ex 420, WST.0012.0001_R at 0015_R, paras 8.1-8.4, and at 0017_R, at para.8.16). He

accepted that careful reading of the ema ils would have made it apparent that the 'trucking payments were going to Iraq', however he said that if he had read them he would have focussed on the issue of 'loading a vessel without a confirmed L/C against the background of a UN approved contract' (Ex 420, WST.0012.000IR at 0018_R, para. 8.17). Mr Goodacre said it was likely that Mr Ingleby briefed him

Report of the Oil-for-Food Inquiry 67

personally, or gave him a report, on this matter (Ex 420, WST.0012.0001_R at 0018_R, para. 8.17). There is no

evidence on the basis of which Mr Goodacre's evidence in this regard should not be accepted. "Mr Long gave evidence that he did not recall reading this email (F 1620.43). 226 M s Scales said that she would have taken an interest in the subject matter of this email, and interpreted the quoted passage to mean that AWB could withhold payment to Alia and therefore would have leverage against the 1GB as it would impact on the 1GB by delaying the distribution of wheat around Iraq (T 2942.09). She agreed, at the time she gave oral evidence, however, that this passage made it plain that the transport fee was to be paid to the 1GB (T 2941.44-T 2942.3). 227 Ex 60, AWB.5050.0014 at 0014. 228 Ms Scales gave evidence that it did not occur to her upon reading this email that the money was to be

paid to the 1GB (T 2942.44). 229 Mr Long gave evidence that he did not recall reading this email (T 1620.25). 230 Ex 78, AWB.5050.0016. 231 T 2942. 232 Ex 1397, AWB.5050.0026_R. 233 T 1620.43; T 1621.4. 234 T 1628.20. This evidence is unconvincing given the importance of the transaction, the amount involved and the obvious dangers of proceeding without a letter of credit being in place. The importance of the first two emails is underlined by the fact that Mr Hogan sent them not only to Mr Long but also to Mr Goodacre and Mr Ingleby, then respectively the Group General Manager and the Chief Financial Officer of AWB. In relation to the third email, its contents are clear. Mr Long accepted that the author of the emails made no secret that the payments were actually due to the Iraqis (F 1629.16-25). 235 T 1617.42-T 1618.10.

° Ex 405, AWB.5062.0175_R at 0175_R. 237 Ex 405, AWB.5062.0175_R at 0176_R. 238 Ex 405, AWB.5062.0175_R at 0175_R. 239 Ex 1377, AWB.5101.0151_R at 0152_R. 240 Ex 1377, AWB.5101.0151_R at 0151_R. 241 Ex 1377, AWB.5101.0151_R at 0151_R. 242 Ex 1377, AWB.5101.0151_R at 0151_R. 243 Ex 392, AWB.0094.0012_R. 244 Ex 421, WST.0010.0086 at 0088-0089, paras 8-9. 245P&O Nedlloyd Limited was at that time a shipping company that offered liner services around the world, including to the Gulf. Although P&O Nedlloyd Limited would enter into contracts for the carriage of goods (generally in containers) to ports within the Gulf including to Umm Qasr, it did not put its own ships into the Iraqi port. Rather, it would carry the cargo to the port of Jebel Ali in Dubai (UAE) and then use third party 'feeder' shipping companies that operated ships between Jebel Ali and Umm Qasr to carry the goods that final leg (Ex 421, WST.0010.0086 at 0086, para. 3). 246 Simatech Shipping LLC is a shipping company based in the United Arab Emirates that operated at this time a shipping service within the Gulf, including a feeder service between Jebel Ali and Umm Qasr (Ex 421, WST.0010.0086 at 0086, para. 3) 247 Ex 421, WST.0010.0086 at 0087, para. 6 248 Ex 421, WST.0010.0086 at 0087, para. 6 249 Ex 421, WST.0010.0086 at 0087, para. 6 m Ex 421, WST.0010.0086 at 0087, para. 7 251 Ex 421, WST.0010.0086 at 0087-0088, para. 7 252 Ex 421, WST.0010.0086 at 0088, para. 8. Examples of this document circulated by PONL in July to September 2002 (in the context of the shipment by Rhine Ruhr Pty Limited) including communications from Simatech Shipping LLC appear at Exhibit 421, RRP.0001.0223, RRP.0001.0230, RRP.0001.0321. The first of these documents (Ex 421, RRP.0001.0223) is an email from C Bahnson of the PONL office at Dubai dated 9 October 2001 which posted to an online Bulletin Board information about the change in point (dd) of the Iraq Documentation Policy, concerning the new requirement for shippers to provide proof of payment of the 10 per cent after-sales-service tax. The second of these documents (Ex 421, RRP.0001.0230) attaches a January 2002 email from T Khattak of PONL's Dubai office which posted to the online Bulletin Board more/new

68 Report of the Oil-for-Food Inquiry

information on what constituted a proper and acceptable proof of payment of the 10 per cent tax. The third

document (Ex 421, RRP.0001.0321) includes the email from Simatech that prompted Mr Khattak to send his email making the change to the PONL Iraq Documentation Policy setting out what constituted a proper and acceptable proof of payment. Both Mr Bahnson and Mr Khattak were administrative officers at the Dubai office of PONL involved in the dissemination of Iraq Documentation Policy and bulletins concerning it, at that time (Ex 421, WST.0010.0086 at 0087-0088, paras 7 and 8). 253 Ex 421, WST.0010.0086 at 0087-0089 paras 6 and 9. Mr Wallbanks gained this knowledge from his significant involvement in commercial shipping in Dubai and his liaison with and knowledge of other shipping companies. 254 Ex 421, WST.0010.0086 at 0089-0090, para. 9.

Ex 421, WST.0010.0086 at 0090, para. 10. 256 Ex 421, RRP.0001.0223. 257 Ex 421, RRP.0001.0223 at 0223. 2558 Ex 421, RRP.0001.0230. 259 Ex 421, RRP.0001.0230 at 0230.

260 Ex 1577, AWB.5045.0312; Ex 1467, AWB.0139.0273_R. 261 Ex 1467, AWB.0139.0273_R at 0275_R. 262 T 667.7-46. 263 Ex 1377, AWB.5055.0331_R. 264 Ex 1377, AWB.5055.0331R at 0331_R.

R

265 Ex 1377, AWB.5055.0331_R at 0331.R-0332_R. 266 Ex 1377, AWB.5055.0331_ at 0333 _R. 267 Ex 1377, AWB.5050.0115. 268 Ex 1377, AWB.5050.0115. 269 Ex 1468, AWB.0062.0111_R. 270 Ex 1468, AWB.0062.0111_R. 271 Ex 1467, AWB.0062.0255_R. 272 Ex 1467, AWB.0062.0255_R. 273 Ex 1241, AWB.0139.0246_R. 274 Ex 1241, AWB.0139.0246_R. 275 Ex 1241, AWB.0139.0246_R. 276 Ex 1377, AWB.5045.0326_R. 277 Ex 1377, AWB.0139.0241. 278 Ex 1377, AWB.0139.0241. 279 Ex 1377, AWB.0139.0241.

° Ex 1377, AWB.5045.0328. 281 Ex 1377, AWB.0093.0262_R. 282 Ex 1377, AWB.0093.0262_R at 0262_R. 283 Ex 1377, AWB.0093.0262_R at 0262_R. 284 Ex 1377, AWB.0093.0262_R at 0263_R. 285 Ex 1377, AWB.5045.0329. 286 Ex 1377, AWB.0139.0233_R. 287 Ex 1377, AWB.0139.0233_R.

288 Ex 1377, AWB.0094.0015R. 289 Ex 1377, AWB.0094.0015_R. 290 By €5 per tonne for each contract. 291 By approximately €1 per tonne for each contract. 292 Ex 1377, AWB.5045.0330_R. 293 Ex 455, AWB.0139.0223.

294 Ex 1377, AWB.5050.0138R 295 Ex 1377, AWB.0305.0064. 296 Ex 1467, AWB.0062.0257_R; see Ex 729, AWB.0111.0318_R. 297 Ex 1468, AWB.0017.0034_R; see Ex 729, AWB.0111.0320_R. 298 Ex 1467, AWB.0062.0254_R.

Report of the Oil-for-Food Inquiry 69

299 Ex 1468, AWB.0062.0112_R.

300 Ex 1467, AWB.0062.0114_R for contract Alill; Ex 1468, AWB.0062.0002_R for contract A1112. 301 Ex 1467, AWB.0062.0244_R. 302 Ex 1468, AWB.0062.0099_R. 303 Ex 729, AWB.0111.0316_R. 306 Ex 729, AWB.0111.0317_R, AWB. 0111.0319_R.

°° Ex 729, AWB.0062.0243_R, AWB.0062.0098_R. 306 Ex 729, AWB.0062.0251_R. 307 Ex 729, AWB.0062.0250_R. 308 Ex 729, AWB.0062.0241_R (with the associated customs report at Ex 729, AWB.0062.0242_R) for contract

Alill; Lx 729, AWB.0062.0096_R (with the associated customs report at Ex 729, AWB.0062.0097R) for contract A1112. 309 Ex 1377, AWB.5050.0189. 310 Ex 542, DFT.0005.0013, DFT.0005.0019. 311 Ex 542, DFT.0005.0019.

2 Lx 542, DFT.0005.0019 at 0020. 313 Ex 542, DFT.0005.0019 at 0021. 314 Ex 542, DFT.0005.0026. 315 Ex 542, DFT.0005.0026. 316 Ex 542, DFT.0005.0026 317 Ex 542, DFT.0005.0073. 318 Ex 542, DFT.0005.0073, DFT.0005.0074, DFT.0005.0075. 319 Ex 542, DFT.0005.0209.

0 Lx 729, AWB.0106.0312, AWB.0106.0313, AWB.0106.0314, AWB.0106.0318. 321 Ex 142, WST.0005.0001 at 0040, para. 143; Ex 75, WST.0001.0088 at 0093, para. 18. 322 Ex 75, WST.0001.0088 at 0094-0095, para. 21. 323 Ex 1242, WST.0004.0019. 324 Ex 1242, WST.0004.0019 at 0019. 325 Ex 1242, WST.0004.0019 at 0019.

° Lx 1242, WST.0004.0019 at 0020. 327 Ex 542, DFT.0005.0098. Lx 542, DFT.0005.0106. 329 Ex 542, DFT.0036.0010_R. 330 Ex 542, DFT.0005.0113. 331 Ex 542, DFr.0005.0117. 332 Lx 142, WST.0005.0001 at 0040 para. 143; Ex 75, WST.0001.0088 ar 0095, para. 22. 333 Ex 142, WST.0005.0001 at 0040, para. 143.

Lx 1444, AWB.0060.0474_R. 335 Lx 1444, AWB.0060.0474_R. 336 Ex 1444, AWB.0060.0474_R. 337 Lx 1444, AWB.0060.0474_R.

° Lx 1444, AWB.0018.0028_R. 339 Ex 1444, AWB.0060.0474_R. ° Ex 1467, AWB.0062.0114_R for contract Allil; Lx 1468, AWB.0062.0002_R for contract A1112. 341 Lx 1377, AWB.0139.0106.

'° Lx 1444, AWB.00060.0469_R. Ex 1444, AWB.0060.0468_R. Lx 1377, AWB.0139.0065 (being the cover page of the facsimile, and the first of 6 pages faxed, the other five being the 1GB long-form contract).

'° Ex 729, AWB.0069.0091_R (the application for UN approval is Ex 729, AWB.0069.0092_R). Lx 1377, AWB.5061.0312_R. 347 Lx 542, DFT.0005.0177. Ex 1444, AWB.0060.0465_R. 349 Ex 729, AWB.0060.0462_R.

70 Report of the Oil-for-Food Inquiry

350 Ex 729, AWB.0060.0464_R.

-151 Ex 729, AWB.0060.0461_R. 352 Namely those on the Pearl of Fujairah and Andromeda. 353 Ex 75, WST.0001.0088 at 0095 and 0099, paras 22, 23 and 41.

Report of the Oil-for-Food Inquiry

71

I'l

24 June 2002 to March 2003:

contracts A1670 and A1680

AWB concludes its final sale under the Oil-for-Food Programme

24.1 In December 2002, AWB concluded the sale of a further 1 million tonnes of wheat to Iraq. This was AWB's last sale to 1GB under the Oil-for-Food Programme.

This sale was concluded following a visit to Iraq by Messrs Long and Whitwell between 19 and 21 November 2002.' Whilst there were negotiations with 1GB for the sale of wheat during that visit, a concluded agreement was not reached at that time. 2

Mr Whitwell continued negotiations with 1GB following his return to Australia from Iraq3, and on 29 November 2002 sent an offer to 1GB to supply a further 1 million tonnes of Australian wheat for delivery in 2003. 4 Following further communications between AWB and 1GB regarding price, the sale was concluded in early December 2002.

24.2 On 4 December 2002, Mr Whitwell sent an email to Mr Abdul-Rahman confirming the terms of the sale that had been agreed to. 5 The agreement as at 4 December 2002 was to the 'CIF Free Out Umm Qasr' price per tonne in US dollars. The amount of that inland transportation fee remained to be agreed.

As Mr Whitwell stated in his email:

Inland transport not included in price and to be mutually agreed

Inland transport: USD to be agreed PMT

100% payable before vessel discharge. 6

On 5 December 2002, Mr Abdul-Rahman sent a facsimile to AWB confirming

the terms of the sale, so far as they had then been agreed.

Report of the Oil-for-Food Inquiry 73

Contracts A1670 and A1680

24.3 This sale was split into two contracts, A1670 and A1680. Each was for half a million tonnes.

24.4 Between 5 December and 11 December 2002, AWB and 1GB had reached agreement on both the final contract price and the amount of the inland transportation fee. On 11 December 2002, Mr Whitwell sent two facsimiles to Mr Abdul-Rahman setting out the final terms of each of these two contracts. 7 The inland transportation fee was agreed at US$51.15.

The contractual documentation

24.5 A short-form contract for each of contracts A1670 8 and A1680 9 was prepared within AWB. Both were dated 11 December 2002 and signed on behalf of AWB by Mr Hogan. Both were in similar terms to AWB's preceding short-form contracts. The price of the wheat was described in each of the short-form contracts as 'CIF Free in Truck' and the shipment clause provided for the cargo to be discharged 'Free into Truck to all silos within all Governorates of Iraq'.

24.6 As with AWB's previous short-form contracts, neither of the short-form contracts for A1670 and A1680 referred to AWB's obligation to pay inland transportation fees or the additional 10 per cent after-sales-service fee. Neither contract included any reference to the amount of the inland transportation fees or made plain that the inland transportation fee payable by AWB included the 10 per cent after-sales-service fee. This was notwithstanding reference to the inland transportation fees in Mr Whitwell's two facsimiles to 1GB of 4 December 2002 and 11 December 2002 confirming the terms of the

sale. Neither of these short-form contracts made plain that the price of the wheat sold included the amount of the inland transportation fees payable under the agreement AWB concluded with 1GB.

24.7 A copy of each of these short-form contracts was sent by Mr Hogan to 1GB under cover of a letter dated 12 December 2002. 10 A copy of each of the short-form contracts was subsequently returned to AWB, executed by IGB. 11

24.8 A long-form contract was prepared by 1GB for each of contracts A1670 12 and A1680.13 These were dated 14 December 2002 and were in the same form as the long-form contracts that had been previously prepared by 1GB in respect of its earlier purchases from AWB. The long-form contracts were signed on AWB's behalf by Mr Long. 14 The price of the wheat sold was described in each long-form contract as a 'CIF F.O.T. to silo to all governerates of Iraq via Umm Quser port'. The long-form contracts did not contain any reference to

74 Report of the Oil-for-Food Inquiry

the inland transportation fees or 10 per cent after-sales-service fees payable by

AWB or to the inclusion of these fees as components of the price.

Two features to the background to the negotiation of these contracts

24.9 The sale comprised in contracts A1670 and A1680 was negotiated against a background in which two significant issues featured.

The first was the negotiations for the repayment of the Tigris debt and the utilisation of an AWB sale to Iraq for that purpose. The second was the iron filings compensation that AWB had agreed to pay 1GB.

Recovery of the Tigris debt

24.10 The 'Tigris debt' refers to the cost of 20,833 tonnes of wheat that AWB shipped to Iraq on board the Ikan Sepat in January 1996, which was funded by BHP Petroleum Limited (BHPP). In September 2000, BHPP assigned the IGB's purported liability to repay BHPP for the cost of this shipment to The Tigris Petroleum Corporation Limited (Tigris). Following this assignment, the principal of Tigris, Mr Davidson Kelly, enlisted AWB's assistance to recover this debt from Iraq. Negotiations with Iraq commenced in October 2000 and continued through 2001 and 2002. Representatives of AWB assisted and participated in those negotiations. A detailed examination of the Tigris debt is set out in Chapter 27.

24.11 The significance of the Tigris debt, for immediate purposes, is that its recovery was linked to the conclusion and subsequent performance of contracts A1670 and A1680. When contracts A1670 and A1680 were concluded, the price payable by 1GB was inflated by US$8.375 per tonne on account of the Tigris debt.

As a result, the final contract price (in US dollars) under contracts A1670 and A1680 was the sum of:

. the CIF free out price for the wheat that AWB and 1GB had agreed

• the inland transportation fees, which it had been agreed would be US$51.15 per tonne

• an additional amount of US$8.375 per tonne for the recovery of the Tigris debt. 15

Report of the Oil-for-Food Inquiry 75

That price in US dollars was then converted into euros, at an exchange rate

that AWB and 1GB had agreed upon.

24.12 Despite its inclusion in the calculation of the contract price, there was no reference in either the short-form contracts or long-form contracts to the recovery of this allegedly pre-existing debt payable to Tigris through the inflation of the price of the wheat sold under these contracts 16 in order to recover this debt. Nor at any time did AWB otherwise disclose this to either the United Nations or DFAT.

The Iron Filings Claim

24.13 In July 2002, 1GB sent an email to AWB asserting that wheat that had been discharged was contaminated by traces of 'iron powder'. 17 AWB was initially sceptical about the claim and responded to 1GB in those terms. 18 However, by August 2002, 1GB had advised that two further shipments had also been found to be contaminated and that as a result the discharge of wheat from

AWB vessels had been stopped. He suggested that AWB send representatives to confirm the contamination. 19

24.14 A delegation from AWB travelled to Iraq in August 2002 to investigate and discuss with 1GB the alleged contamination. The delegation consisted of Messrs Flugge, Lindberg, Long and Cracknell. 20 Following discussions with 1GB and the Minister of Trade, AWB agreed to settle the IGB's claim by

agreeing to pay to 1GB US$6 per tonne for so much of the wheat that was allegedly contaminated. In the end, over 335,000 tonnes of wheat from approximately 6 shipments was said to have been contaminated, resulting in AWB agreeing to pay 1GB approximately US$2 million in compensation.

24.15 Whilst the amount of the settlement had been agreed to, there was no agreement at that time as to the way in which this settlement would be paid by AWB. Between August 2002 and December 2002, further exchanges and discussions ensued, both between AWB and 1GB and within AWB itself, in relation to the manner of payment of this compensation.

24.16 One proposal that AWB put to 1GB was for AWB to offset the amount it had agreed to pay 1GB against IGB's liability for the Tigris debt. In this way, the amount of that settlement would be paid by AWB directly to Tigris in reduction of the monies that Tigris claimed 1GB owed it. That proposal was, however, rejected by the Iraqis, whose preference was for the agreed settlement to be paid by AWB 'through the inland transport mechanism'. 21

These proposals and the discussions that took place in relation to them are examined in Chapter 27.

76 Report of the Oil-for-Food Inquiry

By the time AWB concluded its sale with 1GB on 4 December 2002, agreement

as to the means of the payment of the compensation for the Iron Filings Claim had still not been reached.

24.17 The issue was raised again by Mr Whitwell in his email of 9 December 2002 to Mr Abdul-Rahman:

Following our email dtd 28/11/02 ref 'Quality Issues' where we asked his Excellency, the Minister for Trade, to consider again the issue of offsetting the quality issue payments against the Tigris issue we would respectfully ask whether the Minister has reached a final decision in this regard.

In the event that the Minister is agreeable to an offset situation then we would ask for your confirmation of the pricing option A.

Otherwise please confirm your acceptance to option B.22

24.18 Mr Whitwell then set out in his email two options for the calculation of the

final contract price.

The first - option A - gave a price for the sale of the wheat that was equal to the sum of the CIF free out price, the inland transportation fee payable by AWB and the additional US$8.375 for the recovery of the Tigris debt, less US$2.01389 per tonne on account of the quality issue rebate.23 Under this option, AWB would pay the agreed settlement of the Iron Filings Claim in part reduction of IGB's liability to Tigris for the Tigris debt, with the balance of that debt to be recovered by AWB from the proceeds of sale of the wheat by loading up the contract price for the wheat sold.

The second option - option B - gave a price for the wheat that was simply the sum of the CIF free out price, the inland transportation fee and the additional US$8.375 for the recovery of the Tigris debt. Under this option, there was no deduction or allowance for the settlement of the Iron Filings Claim. Rather, under option B, the 'quality issue rebate to be settled as previously discussed'24 , namely through the inland transport mechanism.

The Iraqis responded to Mr Whitwell's email by reiterating their preference for the second option, and in the end, it was that option B which formed the basis of the final contract price for contracts A1670 and A1680.

24.19 On 17 December 2002, Mr Abdul-Rahman sent an email to Mr Hogan in which he confirmed the final contract price for the sale comprised in contracts A1670 and A1680 (namely, as per option B above); the inland transportation fees payable by AWB in respect of those contracts (namely US$51.15); that the agreed settlement of the Iron Filings Claim was to be repaid by the addition of US$2.017 per tonne to the inland transportation fees otherwise payable under

Report of the Oil-for-Food Inquiry 77

those contracts; and that the amount per tonne to be paid by AWB as inland

transportation fees under these contracts would therefore be US$53.157 or €53.33 per torme. 25

United Nations approval

24.20 On 23 December 2002, Mr Edmonds-Wilson faxed to Mr Cuddihy at DFAT a copy of the AWB short-form and 1GB long-form contracts, together with a duly completed 'Notification to ship goods to Iraq', for each of contracts A1670 and A1680, for United Nations approval. 26

24.21 Both applications were received by the Office of Iraq Programme on 10 January 2003. Contract A1670 was initially allocated to phase XII. 27 Contract A1680 was allocated to phase XIII. 28

24.22 There was no disclosure in Mr Edmonds-Wilson's facsimile or otherwise by AWB to DFAT or the United Nations of the inflation of the price under both of these contracts on account of the recovery of the Tigris debt.

24.23 On 22 January 2003, Mr Cuddihy sent an email to Mr Whitwell, passing on an extract of an advice that the Australian mission in New York had received from the OIP in the following terms:

These are both huge contracts. They're both approx. $[figure deleted] million each. Comm 1210376 we know for a fact won't be funded as there is no money in Phase 12 Food. Comm 1300016 might be funded and we're really stretching that 'might'. Most of the money in Phase 13 is already committed to the priorities that the GOI sent in. So for that one we'll know in about 2 weeks and 1201376 could be transferred but then again we don't know if it will get funded. 29

Mr Cuddihy advised that the Australian mission would follow up with OIP again in a week or so. He also advised:

but it looks like one contract (Comm No 1201376) will not be funded under Phase 12. Moving this contract to Phase 13 is an option, but as that Phase is also short of money, its unlikely that both it and Comm 1300016 can be both funded. Even funding Comm 1300016 will be a stretch.

You may wish to consider asking the Iraqi Grains Board to ask the Government of Iraq (GOT) to revisit its priorities, but I expect that would be difficult.

Please give me a call if you wish to discuss

That day Mr Whitwell wrote to 1GB advising it of the position and requesting that it urgently re-prioritise funds to allow AWB to begin executing these contracts as soon as possible.31

78 Report of the Oil-for-Food Inquiry

Contract A1680

24.24 The approval 32 was issued on 12 February 2003. 33 Later that day, Mr Cuddthy received an email from Ms Thorpe from the Australian mission advising:

Great news

I called Felicity Johnstone in OIP, who told me she signed funding approval for Comm No 130016 [contract A1680] about two minutes ago !! Well done to AWB for getting Baghdad to recognize their contract as a priority for phase 13. Alas, phase 12 is not likely to come through according to Johnstone.

She said it will be a few days before we will have a formal approval on Comm. No 130016, but she will fax us when it is ready.34

Mr Cuddthy passed a copy of this message onto Mr Whitwell the following day. 35

24.25 On 3 March 2003, Mr Cuddihy faxed to Mr Whitwell a copy of the United Nation letter of approval and accompanying OIP report.

24.26 A letter of credit was established by BNP in favour of AWB for the proceeds of sale of the wheat under contract A1680. 36 On 12 March 2003, Mr Werner from AWB sent a facsimile to Mr Abdul-Rahman requesting certain amendments to that letter of credit. 37 However, before those amendments could be agreed, the incursion into Iraq commenced on 20 March 2003.

24.27 AWB was eventually able to fulfil contract A1680 fully. This was after AWB had agreed to amendments to the price and terms of delivery of the wheat under contract A1680 in April and September 2003. These amendments were sought from AWB by the World Food Programme (WFP), a UN body that had been empowered by the OIP to take over the conduct of contracts to Iraq following the incursion. 38 At no time during its renegotiations with the WFP

in either April or September 2003 did AWB disclose to the WFP that the original contract price included an allowance of US$8.375 in repayment of the Tigris debt. A more detailed examination of the terms of these amendments and circumstances in which they were negotiated appears in Chapter 25.

24.28 Following the renegotiation of the terms of this contract in both April and September 2003, an amended letter of credit was established by BNP Paribas. BNP Paribas was reimbursed from the United Nations Iraq account for the payments that it made under this letter of credit.

24.29 In all, AWB shipped 12 shipments of wheat to Iraq under contract A1680. AWB was paid for each of these 12 shipments made from funds drawn from the United Nations Iraq account. Upon the receipt of those funds, that amount that represented that portion of the contract price that was being used to

Report of the Oil-for-Food Inquiry 79

repay the Tigris debt

39 was set aside by AWB for payment to Tigris. The circumstances in which this occurred are set out in Chapter 27.

Contract A1670

24.30 Approval was eventually issued on 2 September 2003. 0 The following day, the Australian mission in New York received a copy of that approval from the OIP, which it sent by facsimile to Ms Armstrong at DFAT's Iraq Task Force. Ms Armstrong in turn faxed a copy of the approval to Mr Hockey at AWB. 41 The initial approval was valid until 1 September 2004. Later that month, the OIP issued an extension of this approval, valid up until 15 November 2004. A copy of that extension was sent by the Australian mission to Ms Armstrong on 30 September 2003.42

24.31 In September 2003, the WFP renegotiated the contract price for contract A1670. The reason for the amendments sought by the WFP was to remove the 10 per cent after-sales-service fee that had been included in the calculation of the original contract price. At the time of this renegotiation, AWB did not disclose to the WFP that the original contract price for this contract had also

included an allowance of US$8.375 per tonne in repayment of the Tigris debt. AWB and the CPA negotiated a further amendment to contract A1670, in particular an increase in the contract price to support the accelerated delivery of approximately 220,000 tonnes under the contract. 43 The terms of these amendments and circumstances in which they were negotiated are set out in Chapter 25.

24.32 After agreement had been reached on the renegotiated terms in September 2003, a letter of credit was established by BNP Paribas. AWB proposed some amendments and corrections to the terms of the letter of credit in November 20034, and eventually an amended letter of credit was agreed and issued. In April 2004, there was a further amendment to the letter of credit to reflect the amendment to the terms of contract A1670 agreed to in December 2003.45

24.33 AWB fulfilled contract A1670, by 12 shipments between January and April 2004. AWB was paid for each of these shipments under the letter of credit established in its favour by BNP, from funds ultimately drawn from the United Nations Iraq Account. Upon the receipt of the proceeds of sale of each shipment, a portion46 was set aside for repayment to Tigris. The circumstances

in which this occurred are set out in Chapter 27.

80 Report of the Oil-for-Food Inquiry

Notes

'Ex 76, WST.0004.0063 at 0088, paras 83-84, Ex 300, WST.0001.0066 at 0068-0069, para.15. 2 Ex 76, WST.0004.0063 at 0088-0089, para. 84. Ex 76, WST.0004.0063 at 0088-0089, para. 84. ' Ex 300, WST.0001.0066 at 0069, para. 16.

Ex 1424, AWB.0356.0119_R. Ex 1424, AWB.0356.0119_R. Ex 1223, AWB.0439.0151 for contract A1670; Ex 1224, AWB.0440.0173 (AWB.0060.0183) for contract A1680. 8 Ex 729, AWB.0111.0459_R. 9 E 729, AWB.0111.0453_R. 10 Ex 1223, AWB.0439.0176 for contract A1670; Ex 1224, AWB.AWB.0147.0088 for contract A1680.

' Ex 729, AW0.0111.0459_1Z for contract A1670; AWB.0111.0453_R for contract A1680. 12 Ex 729, AWB.0111.0460_R. 13 Ex 729, AWB.0111.0454_R, AWB.0111.0455_R. 3° Ex 1223, AWB.0439.0176.

15 The inclusion of this additional amount was made plain, for instance, in Mr Whitwell's email to Mr Abdul-Rahman sent on 9 December 2002, Ex 1223, AWB.0147.0119. It was to be included under both options A and B in that facsimile, the difference between the two being the treatment of the Iron Filings Claim (as to which see further below). 16 And thereby of the price which AWB and 1GB had otherwise agreed that the wheat would be sold at. 17 Ex 1133, AWB.5046.0055_R. 18 Ex 1055, AWB.0140.0390_R. 19 Ex 1134, AWB.5046.0058_R. 20 Mr Cracknell was a senior wheat quality consultant with AWB at the time. 21 Ex 194, AWB.0129.0167. n Ex 1223, AWB.0439.0178. 3° The amount deducted per tonne represented the total amount of the agreed settlement spread over the 1 million tonnes comprised in this sale (that eventually became contracts A1670 and A1680). 24 Ex 1223, AWB.0439.0178 at 0179. 3° Ex 1377, AWB.0129.0215. 26 Ex 729, AWB.0111.0452_R. 27 Ex 1211.UNO.1216.0009. Contract A1670 was allocated UN Comm No. 1201376. 28 Ex 1211, UNO.1217.0010. Contract A1680 was allocated UN Comm No. 1300016. 29 Ex 729, AWB.5021.0107_R. 30 Ex 729, AWB.5021.0107_R. 31 Ex 1223, AWB.0439.0170, AWB.0439.0171. 32 Which also advised that AWB was eligible for payment for that contract from the escrow account. 33 Ex 1211, UNO.1217.0007. 3° Ex 729, AWB.0106.0325_R. 35 Ex 729, AWB.0106.0325R. 36 Ex 1224, AWB.0440.0163.

87 Ex 1224, AWB.0440.0160. 38 There is reference to the role of the WFP and to AWB's discussions in April 2003 with them in Ex 1223, AWB.0439.0217. 39 And after deduction of the commission payable to AWB (see Chapter 27). 3° Ex 1211, UNO.0003.1453 41 Ex 1233, AWB.0439.0180, AWB.0439.0181, AWB.0439.0182, AWB.0439.0183; Ex 729, AWB.0152.0048_R,

AWB.0152.0049_R, AWB.0152.0050_R, AWB.0152.0051_R. 42 Ex 1233, AWB.0439.0166, AWB.0439.0167, AWB.0439.0168; Ex 729, AWB.0111.0530_R, AWB.0111.0531R, AWB.0111.0532_R. Ex 1223, AWB.0439.0080. 44 For example in Ex 1211, UNO.1216.0310. 4-9 Ex 1376, HDD.0003.0042. 3° Along with a portion of the proceeds of sale of each of the shipments under contract A1680.

Report of the Oil-for -Food Inquiry 81

25 March to September 2003:

renegotiation of AWB contracts

March 2003: the incursion in Iraq 25.1 On 20 March 2003, the incursion into Iraq commenced. The same day, AWB issued a media release stating that it had suspended discharge of wheat. Mr Lindberg was quoted as saying:

AWB currently has two wheat shipments, carrying 100,000 tonnes of wheat, destined for Iraq and has contingency plans in place to deal with these shipments.'

The two shipments were on the ships Pearl of Fujairah and Andromeda. Both were shipments under contract A1441, which had been concluded in June 2002.2

During March and April 2003, AWB prepared 'Iraq Situation Reports' on a daily basis. Many of these are referred to below.

The Pearl of Fujairah and Andromeda shipments

25.2 On 28 January 2003, AWB applied for permission to export approximately 56,000 tonnes of wheat to Iraq on the Andromeda. The application stated that the shipment was to be under contract A1441. 3 Permission to export was granted by DFAT that day. 4

25.3 On 10 February 2003, AWB applied for permission to export approximately 57,000 tonnes of wheat to Iraq on the Pearl of Fujairah. This application also stated that the shipment was to be under contract A1441. 5 DFAT granted permission to export that day. 6

25.4 On 21 February 2003, the Pearl of Fujairah completed loading and a bill of lading was issued. 7 It named 1GB as the consignee and Umm Qasr as the port of discharge.

25.5 On 2 March 2003, two bills of lading were issued in respect of the cargo loaded onto the Andromeda. One bill of lading was for the shipment of grain to

Report of the Oil-for-Food Inquiry 83

Iraq. It named 1GB as the consignee and Umm Qasr as the port of discharge. 8

The other bill of lading was in respect of a small parcel of wheat that was to be delivered to another purchaser in Oman. 9 Although the Andromeda was scheduled to leave Australia and arrive at Umm Qasr before the Pearl of Fujairah, it was delayed at the load port due to a dispute about the quality of the cargo. 10

Inland transportation fees paid for the Pear! of Fujairah

25.6 AWB and 1GB agreed that the inland transportation fees under contract A1441, calculated at a rate of €48.53 per metric tonne, would be '100% payable prior to vessel discharge.' 11 On 14 March 2003, in expectation of the imminent arrival of the Pearl of Fujairah at Umm Qasr, AWB paid €2,471,522.25 to Alia. This represented payment in full of the inland transportation fees for the Pearl of Fujairah shipment. 12 By 20 March 2003, AWB had not paid the inland transportation fees payable in respect of the shipment on the Andromeda.

Diversion of the Pearl of Fujairah

25.7 On 16 March 2003, the Pearl of Fujairah arrived at the inspection point off the port of Umm Qasr. 13

On 17 March 2003, Mr Wall (AWB Chartering) received a facsimile from the owners of that vessel which stated:

As charterers will be aware, a grave situation presently exists in the area of Umm Qaser which situation is materially different from that contemplated at the time of the fixture being entered into. Presently, a US led attack on Iraq, appears imminent. In the current circumstances owners are of the view that the berths of Umm Qaser are unsafe for the vessel to proceed to and discharge her cargo at.

In the light of the above and pursuant to clause 42 of the charter party, Charterers are requested to provide urgent instructions for discharge of the cargo at an alternative safe port and berth.

We look forward to hearing from you urgently. 14

25.8 On 17 March 2003, Mr Whitwell emailed Mr Abdul-Rahman at 1GB:

Following our telephone conversation please note that despite the difficulties in chartering vessels for Umm Qasr we are determined to continue supplying our contractual commitments to you. 15

25.9 On 18 March 2003, Mr Abdul-Rahman emailed Mr Whitwell and requested that AWB 'enter the vessel Pearl of Fujairah to Umm Qasr'. 16 That day, Ms Lyons (of AWB Legal) prepared a summary of AWB's options with respect to the Pearl of Fujairah and the Andromeda. 17

84 Report of the Oil-for-Food Inquiry

25.10

On 19 March 2003, Mr Whitwell emailed Mr Abdul-Rahman informing him that AWB was unable to order the vessel owners to enter Umm Qasr.'t The same day the vessel owners advised AWB that unless AWB provided them with instructions, the Pearl of Fujairah would be moved 10 nautical miles from the military inspection point. AWB did not provide any instructions and the Pearl of Fujairah was moved to a holding point off the coast of Oman. 19

25.11 On 19 March 2003, the points noted in Ms Lyons' summary were reproduced in the 'Iraq Situation Report'. The report also stated that United Nations inspectors had been removed from Iraq and that the Office of Iraq Programme (OIP) would be suspended. Under the heading 'Food Aid Possibilities', the report stated:

Continuing to work with Australian Govt, Ausaid and WFP on possible humanitarian assistance post war. Nothing concrete as yet although we have been given certain undertakings with regards to pre-positioning cargoes for humanitarian assistance. 20

25.12 On 20 March 2003, Mr Hockey emailed Mr Whitwell with information received from the OIP:

The UN has advised officially the Oil-For Food program has been terminated.

However the Office for Iraq (OIP) Program office continues to operate.

Only 3 or 4 suppliers of differing commodities are reported to not have completed current contracts, including AWB Ltd.

AWB Ltd has been requested to provide a summary of its position at the time of termination of the Oil-for-Food program to allow decisions and actions to be taken to ensure our interests are fully protected by the OIP. 21

25.13 An AWB 'Iraq Situation Report' dated 20 March 2003 recorded that an email had been sent to 1GB:

outlining current situation re Pearl of Fujairah. 1GB reacted with understanding, thanks for our efforts and a request to do anything we can to solve the problem. ' 17

The report also noted some 'Action Points for the Day', including the following:

• Andromeda to be instructed to complete discharge Sallalah and wait at Oman for further instructions at appropriate time

• Explore situation with regard to inland transport paid to Alia on P of Fujairah - recovern

Report of the Oil-for-Food Inquiry 85

25.14

The same day, Mr Long sent an email to Messrs Lindberg, Stott, Ingleby, Johnstone, Cooper and to Ms Scales and Ms Lyons, which read:

Please refer to the final point under Action Points for the Day:

'Explore situation with regard to inland transport paid to Alia Transport Jordan re Pearl of Fujairah - recover'

This issue should have been discussed.

Under the terms of the contract we prepay Alia Transport Jordan for discharge and inland transport to the Governates of Iraq.

We paid value date 14 March to Alia EURO 2.468 million for Pearl of Fujairah.

We are requesting these monies be returned and will include Alia's response in next update.

If in the worst case, they do not repay these monies, AWBI are holding a provision in the Pool Model for USD 5m for quality issues as part of the USD 25 million total provision. Actual payments due (NOT PAID) as part of this provision are USD 2.016m for the iron filing claim and USD 100k for sand compensation on Peter 5, totalling USD 2.116m.

We would also include this amount as part of our total claim on UN/Govt's. 24

Mr Long's proposal assumed that withholding monies due to 1GB could legitimately exert pressure on Alia to repay the inland transportation fees paid on the Pearl of Fujairah. That assumption made sense only if Alia was a conduit for the funds to 1GB.

25.15 On 20 March 2003, Mr Lindberg restructured the 'Iraqi Emergency Response' team as an ELG sub-committee comprising Messrs Lindberg, Stott, Johnstone, Long and Hockey and Ms Scales. 25

25.16 On 21 March 2003, Mr Whitwell reported to 1GB in relation to the Pearl of Fujairah:

As per your request and my last phone conversation with Miss Moona we have found a solution to discharge this vessel and will be arranging for the vessel to return to discharge the cargo for the Iraqi People. We are working through the details but will revert to you shortly with an arrival date

Australian Government agreement to buy afloat cargo

25.17 On 21 March 2003, the Australian Government issued a press release which stated:

The Government has today decided to provide 100,000 tonnes of Australian wheat to Iraq in the form of humanitarian food assistance. 27

86 Report of the Oil-for-Food Inquiry

The 100,000 tonnes referred to was the two AWB shipments on board the

Pearl

of Fujairah and the Andromeda.

AWB's demand for repayment of inland transportation fees paid on the Pearl of Fujairah

25.18 On 21 March 2003, Mr Whitwell sent a facsimile to Alia:

As you are aware, AWB made a payment to Alia for Transportation & General Trade of EUR 2,468,235.80 on 14 March 2003.

As per agreement with the 1GB, this payment was made prior to vessel discharge for inland transportation services from the port of Umm Qasr.

These services were to be rendered in respect to the grain loaded aboard the MV Pearl of Fujairah, under contract A1441 with the Iraq Grain Board.

Unfortunately due to the outbreak of hostiles in Iraq AWB was unable to discharge due to the withdrawal of UN inspection agents from Umm Qasr. I understand from our telephone conversation of the 20th March 2003 that these monies are no longer in an account controlled by Alia for Transportation & General Trade and as such AWB has no option but to reserve our rights in this

regard.

We would kindly ask you to investigate this very serious matter and organise to repay the amount to the following AWB account without delay. 28

2519 The 'Iraq Situation report' dated 22 March 2003 stated:

• Australian Govt agreed to buy both afloat vessels (set aside approx AUS 40m) - strictly confidential.

• Email sent to 1GB advising them of situation re vessels. No response or phone contact.

• Letter sent to Alia reserving rights re Pearl of Fujairah re inland transport payment. 29

25.20 On 24 March 2003, Mr Whitwell received an email from Alia in relation to proposed transportation of the Pearl of Fujairah cargo from Tartous to Baghdad. It stated:

Regarding our telephone call concerning the inland transportation of the vessel Pearl of Fujaira from Tartous to Baghdad....

The prices will be relatively high as a result of high risk. It would reach 34$/mt including the transportion and forwarding expenses and the CMR...

Report of the Oil-for -Food Inquiry 87

As for the way of payment; we would like to ensure you that it will be

discussed later. 30

25.21 The 'Iraq Situation Report' dated 25 March 2003 noted the following

developments:

Spoke with 1GB ... Asked us again to bring vessel around to Tartous...

• Alia have confirmed unloading distribution costs from Tartous to Baghdad and willingness to proceed according to certain conditions. In addition they have sent a letter to concerned parties re inland transport payment and are awaiting response.

• Offer sent to Ausaid—no resolution as yet. 31

25.22 Both the facsimile sent by AWB to Alia on 21 March 2003 acknowledging that the inland transport fees paid were 'no longer in an account controlled by Alia', and the 25 March 2003 'Iraq Situation Report' report alluding to Alia having sent a letter to 'concerned parties' in relation to the inland transport payment, indicate that AWB was aware that money paid to Alia was being passed on to a third party. The identity of the party to which the monies had been transferred by Alia was not mentioned. The monies would not have been transferred by Alia if the fee was for transportation of AWB's grain by Alia.

25.23 In May 2003, Messrs Whitwell and Edmonds-Wilson travelled to Jordan and Iran to discuss further business in those countries. Whilst in Jordan, they took the opportunity to meet representatives from Alia.32

Following their trip Mr Edmonds-Wilson prepared a trip report which included a report of their meeting with Alia. The report included:

Importantly, the matter of the EUR2.5m inland transport paid for the MV Pearl of Fujairah was brought up with both Othman and the Chairman. Both Othman and the Chairman said the matter had previously been tabled between Alia and Mr Yousif. Alia said that as soon as someone with authority to sign the appropriate documentation from the Iraqi side, the money would be returned to Alia and then to the company in question (this affected about 10 companies other than AWB).

Alia had the appropriate documentation showing the money had been remitted so we will now have to wait until the hierarchy in Iraq is up and running to chase. The Chairman had much faith and trust that the $$ owing would be returned in due course and said he would do everything possible to access the funds from the frozen account asap. Alia had recently sent a letter to Iraq (around 20/03) re funds that had been paid but services not provided and therefore needed to be returned. 33

88 Report of the Oil-for-Food Inquiry

The report was approved by Mr Whitwell and forwarded to Messrs Lindberg,

Geary, Ingleby, Stott, Fuller and Ms Scales. 34

Ms Scales gave evidence that she did not recall reading the report or whether it was presented at an ELG meeting. 35

25,24 Mr Geary acknowledged that, as a member of the ELG it was likely that he read this document36 , however he gave evidence that he could not recall reading these two paragraphs. 37 It is likely that Mr Geary did read these two paragraphs. Mr Geary was non-responsive when the proposition was put to him that any admission that he read the document would fix him with knowledge of what was happening with the money paid to Alia. This evasiveness adversely affects the credibility of Mr Geary's evidence.

25,25 Mr Lindberg could not recall reading the report. 38 He also denied that he necessarily would have read intelligence concerning Iraq in May 2003. Mr Lindberg said that it was likely that the report was sent to his secretary for the purpose of an ELG meeting.40 Iraq represented an extremely important market that was then in jeopardy as a result of the outbreak of hostilities and the board of AWB was extremely concerned about it.41 Indeed one of options considered under the heading 'Action' for this part of the report was 'possibly AL to meet in Jordan.' 42

Mr Lindberg accepted that the report clearly recorded an admission by Alia that the money it was receiving on account of inland trucking fees was being paid to the IGB:

The Commissioner: What it makes clear is that Messrs Whitwell and Edmonds-Wilson knew, in May 2003, that the payment of trucking fees, in whatever amount, to Alia was simply a front and a method of conduit for that money to Iraq, because when the service of the trucking was not delivered, the money was to be returned by Iraq, not by Alia, and if, in truth, the moneys paid for trucking to Alia had been for trucking by Alia, and the service hadn't been provided, they

would simply have had to ask Alia for the money back, not ask Iraq for the money back. That's what it says in black and white, Mr Lindberg, doesn't it?

A: It appears so. 44

25.26 Mr Lindberg accepted that the ELG comprised the nine most senior managers

in AWB 45 , namely, himself, Dr Fuller, Mr Ingleby, Ms Gillingham, Mr Kennedy, Mr Geary, Ms Scales, Mr Stott and Ms Sharpe:

Q: That meant that if any one of those nine people, in truth, read this document, they would have known, in May 2003, that the payments of trucking fees to Alia were a conduit for payment of moneys to Iraq. If any one of the nine senior persons had read the document which was sent to them, it would have been impossible for AWB to maintain the position it has since maintained in relation to trucking fees - impossible to maintain it to the Australian Government; impossible

Report of the Oil-for-Food Inquiry 89

to maintain it to the United Nations; and impossible to maintain it to this

Commission.

A: Mmm. Well, I say my state of knowledge about this was that I didn't have that understanding.

Q: If any one—

A: - at that time.

Q: —of the nine senior members of this organisation had read it, they would have had to have said, when the position was taken by AWB that it had no knowledge that these trucking fees were a device to allow payments to the Iraqi authorities, that that position was a false position on the part of AWB?

A: Well, I don't know what they understood by that.

Q: It is there in black and white. It is not capable of misinterpretation, is it?

A: Well, I don't know what they understood by that.

Q: This document makes plain, as I am presently advised, that the position adopted by AWB publicly for the last two and a half years is simply not tenable.

A: Well, that's not what I understood and not what I believe to be the case.

Q: But if you had read that document it must be so, mustn't it?

A: Well, I don't—well, it depends what people understood by that.

Q: You have told me what you understood by it - twice now?

A: Well, with your assistance.

Q: But I just read the paragraph, Mr Lindberg.

A: I don't know what the—I don't know what that line 'and then to the company in question (this affected about 10 companies other than AWB'—what does that mean?

Q: What it plainly means is that AWB was not the only company paying moneys through to the Iraq regime through Alia; there were at least 10 others.

A: Well, that's what it says.46

25.27 Mr Whitwell agreed that it was plain from these discussions that monies paid to Alia on account of inland transport were transferred by Alia to the Iraqis.47 Moreover, as discussed later in this chapter, AWB eventually entered into an agreement with Alia to provide trucking services which also provided for recovery of the inland transport fees paid in respect of the Pearl of Fujairah. That agreement provided that AWB would gradually deduct the fees from monies paid to Alia for trucking services, unless it recouped them from 'the

90 Report of the Oil-for-Food Inquiry

appropriate Iraqi authority'. Again, this clearly demonstrates that AWB knew

that the inland transport fees paid to Alia prior to March 2003 were passed onto the Iraqis.

2528 A reader of the trip report would have appreciated that the inland transport fees had been 'remitted' to 1GB. There is no evidence that the ELG collectively or any of its members responded to this aspect of the report, notwithstanding that it undoubtedly suggested a breach of sanctions and that Alia was, in substance, a front company for 1GB.

Cargo sold to AusAid

25.29 On 24 March 2003, AWB sent an offer to AusAid for the cargo on board the Pearl of Fujairah and the Andromeda.

Between 24 and 26 March 2003, the price and terms of the contract were further negotiated between AusAid and AWB.

25.30 On 27 March 2003, AWB concluded contract A1827 with AusAid for the sale to AusAid of 100,860 metric tonnes of wheat (being the wheat on the Pearl of Fujairah and the Andromeda). 48

AusAid cargo reverted to the World Food Program

25.31 On 5 April 2003, Mr March (from AusAid) sent an email to Mr Long advising that the government had agreed to a request from the United Nations to assign the shipments of wheat to the World Food Programme (WFP) who were at that time administering the Oil-for-Food Programme. 49 Mr March asked that AWB return the A$35 million paid under the contract as soon as possible.

25.32 On 6 April 2003, Mr Mitra of AusAid sent an email to Mr Whitwell asking that AWB:

contact OIP and WFP urgently to make necessary arrangements to reactivate your contract with OIP under the OFF program and finalise any adjustments to that contract as appropriate.

Insofar as our current contract with AWB applies, we can confirm that the Pearl of Fujairah should discharge its cargo in Kuwait to the World Food Program . • 50

25.33 On 7 April 2003, Mr March emailed Mr Long attaching confirmation from the

OIP that arrangements were in hand for the two shipments to be managed under the Oil-for-Food Programme. 51

Report of the Oil-for-Food Inquiry 91

April 2003: renegotiation of contracts A1441 and A1680

25.34 On 20 March 2003, shipments under contract A1441 had not been completed. This was apart from the two cargoes on the Pearl of Fujairah and Andromeda.

25.35 On 8 April 2003, AWB's 'Iraq Situation Report' summarised the efforts to renegotiate the three contracts with the OIP. It noted:

Extensive and positive discussions with WFP who have been empowered by OIP to discuss contractual arrangements with us and provide recommendations to the OW for Approval. All issues were covered with them and agreement obtained to consider the 5 afloat/loading vessels under this resolution... and make amendments to A1441 letter of credit accordingly. All other issues of concern were addressed and we agreed AWB would provide an amended price for contract A1441 for verbal discussion. 52

In relation to contract A1680, the report noted:

Further discussions relating to our amending our other contracts (A1670 & A1680) going forward were positive but agreement was reached to look at this after amendments to A1441 had received sign off by the OIP. 53

25.36 By 9 April 2003, the Pearl of Fujairah had commenced unloading at Kuwait. 54

On 9 April 2003, Ms Lacy of the WFP emailed Mr Whitwell enclosing two Amendments, one relating to contract A1441 and, the other relating to contract A1680. 55

The price per tonne for contract A1441 was reduced by €41.42 per tonne and the terms changed to CIF free out to Red Sea or Persian Gulf port(s). 56 For A1680, the price was reduced by €33.33 per tonne CIF free out to Red Sea or Persian Gulf port(s).57

These amendments were signed by AWB and faxed back to the WFP on the same day. - 58

On 10 April 2003, the OIP faxed the WFP, confirming receipt and processing of the amendments in connection with the two contracts and advising that the amendments had been forwarded to the United Nations Treasury. 59

25.37 The amendments to contract A1441 and A1680 were significant for a number of reasons:

• The terms of the contract no longer required delivery at Umm Qasr. They now provided for discharge at Persian Gulf ports or Red Sea ports.

92 Report of the Oil-for-Food Inquiry

• The price was now expressed to be CIF free out rather than CIF free in

truck, with the result that there was no longer an inland transportation fee component in the price.

• There was also no longer any obligation on AWB to pay such a fee and no obligation to arrange for the inland transportation of the wheat.

• There was a reduction in the price by reviewing or revising the cost of discharge and transportation at those ports. The reduction was slightly less than the whole of the trucking fee which had been incorporated into the original contract price.

25.38 On 10 April 2003, Mr March (AusAid) emailed Mr Whitwell and advised that it had received from the WFP the concluded contractual arrangements with AWB.60 In view of this fact, Mr March again requested the return of the monies paid under the contract.

Mr Whitwell replied by email that day, saying that AWB was still awaiting advice from the relevant UN office with regards to amendments. 61 He also indicated that until AWB was in receipt of the official notification and was happy that all issues pertaining to AWB were covered to their satisfaction, it

would not be in a position to confirm anything further or to progress other issues.

2539 On 11 April 2003, Mr Whitwell sent a facsimile to Mr Afeworki at the OIP setting out the changes required by AWB to contracts A1441 and A1680 and associated letters of credit. The amendments requested in relation to contract A1441:

Ports:

Umm Qasr or Persian Gulf Port(s) or Red Sea Port(s)

UN Approval forms (to be amended) to include Persian Gulf/Red Sea

Eligible for payment— Resolution 661 Committee Letter

Request to ship goods letter (price) (value)

DFAT permission to export (ex Australia) AWB will ask DFAT to amend wording

Umm Qasr or Persian Gulf Port(s) or Red Sea Port(s)

Letter of credit #P736679:

Whenever it appears CIF Umm Qasr include option of OF Persian Gulf Port(s) or CIF Red Sea Port(s).

Report of the Oil-for-Food Inquiry 93

Standardize confirmation

of arrival of the exported goods in Iraq (wording

to be amended to cover point of entry outside of Iraq)

Pricing: Euro Umm Qasr amend to include Euro Persian Gulf port(s) or Red Sea port(s) 62 [original emphasis]

This was a reduction of €41.42 per tonne.

25.40 On 11 April 2003, Mr Whitwell sent an email to Mr March in the following terms:

Following my telephone conversation of this morning wish to confirm that we are now in receipt of the necessary UN OW approval. In view of this AWB has pleasure in confirming that in line with the Commonwealths request AWB Limited now considers the above mentioned contract cancelled in all respects and will return your payment of AUSD 35 million as soon as AWB treasury procedures allow,63

25.41 The balance of the cargo purchased under contract A1441 was shipped in four further shipments. These were shipments to the WFP. In each instance the cargo was discharged at a port other than Umm Qasr. In each instance, the wheat was sold CIF free out at the alternate port. For each shipment, no inland transportation feeM was paid by AWB.

25.42 Following the cancellation of AWB's contract with AusAid, the cargo that had been shipped on board the Pearl of Fujairah and the Andromeda (and originally allocated to contract A1441) was transferred by AWB to contract A1680.

25.43 On 14 April 2003, AWB returned $35 million to AusAid. 65

25.44 On 17 April 2003, AWB issued an invoice to 1GB for the Pearl of Fujairah shipment.66 The price was the same price 'CIF free out Persian Gulf ports' as the renegotiated price for contract A1680. 67 A similar invoice was issued on 22 April 2003 in respect of the shipment of the Andromeda. 68 The price was the same as for the Pearl of Fujairah.

At the same time, new bills of lading were issued for the Pearl of Fujairah and Andromeda shipments, backdated to 21 February 2003 and 2 March 2003 respectively, being the original bills of lading dates. The bills named WFP as the consignee and Kuwait and Aqaba as the ports of discharge. 69

25.45 AWB claimed to have incurred expenses relating to the Pearl of Fujairah

including deviation, demurrage, port charges, and agency charges associated with the discharge of the cargo. 70

94 Report of the Oil-for-Food Inquiry

On

20 May 2003, Mr Hockey sent an email to Messrs Whitwell and Fahy.71 He reported the following:

An issue which came up today with WFP and OIP is the compo claim for pearl and Andromeda.

The matter needs to be negotiated directly with Irene [Ms Lacy of WFP], and the contractual amendments made, then BNP will pay against the LC. Un Treasury have no problems - so the one issue for us is the negotiations with WFP.

The WFP guy I spoke to in NY... started asking some questions about the claim and I immediately played dumb. He said it looked like there was some double dipping as a number of the costs should have been covered with the original renegotiated contracts.

So it looks like they are well and truly on the case. 72

25.46 The WFP ultimately found these claims to be 'justified' and 'reasonable' and agreed to reimburse AWB these expenses by increasing the price per tonne that would be paid for these two shipments. This amendment to contract A1680 was concluded 9 July 2003.73

25.47 The effect of this amendment was that for the Pearl of Fujairah AWB would be paid a revised price of €12.13 per tonne and for the Andromeda a revised price of €19.18 per tonne greater than the otherwise revised price of 9 April 2003. This price continued to apply to the balance of the shipments to be made under that contract A1680.

25.48 On 28 May 2003, Mr Whitwell sent an email to Mr Long and others, updating them on his most recent Middle East visit. Mr Whitwell indicated that AWB should try to complete contract A1680 before the Oil-for-Food Programme finished:

with respect to the transfer from OFF back to the interim administration obviously we just want to the remaining contracts to revert back to 1GB control and be executed in the normal way with the existing LCs (for the remainder of 1680) and get them to fund LC for 1670. We would have to analyse whether we go

back to CIF all governorates Iraq for the remainder of the contract or whether it is more advisable to keep CIF and renegotiate other accordingly - I guess we would have to have discussion with Alia at appropriate time. 74

AWB's participation in the Coalition Provisional Authority

25.49 In May 2003, Mr Long was appointed by the Australian Government to assist with the rebuilding of Iraq. He spent approximately five months assisting within the Coalition Provisional Authority (CPA) Ministry of Trade. 75 His codename whilst in Iraq became known throughout AWB as 'Proton'. 76

Report of the Oil-for-Food Inquiry 95

2550 Mr Long was sent to Iraq with the following objectives:

• Identify aid assistance required • Meet large scale food needs - OFF program • Develop Grain's Industry model

- Policy

Structure Control Leadership

• Initiate reconstruction of local supply facilities - Develop and tender contracts • Build Iraq ownership in industry • Establish and maintain creditability and integrity 77

25.51 Mr Long's immediate superior in the Ministry of Trade was an ex-US Ambassador who was aware of Mr Long's former position at AWB. 78

Mr Long's initial work in Iraq was focussed on prioritising non-food contracts in conjunction with WFP and Iraq officials; however, a short time after his arrival he was requested to consider food contracts. 79

25.52 On 29 May 2003, Mr Hockey, sent an email to DFAT stating the following:

(ii) the need for AWB to influence the WFP forward prioritisation program to protect the remainder of the funded 300,000 twine contract

WFP are making the recommendations for forward prioritisation of contracts, and it is essential AWB contracts are placed ahead of previously abandoned Russian and Indian contracts from many years ago. (Once again, AWB put stocks aside while the others walked away from contracts and delivered elsewhere when the market shifted). WFP decisions are being made in Iraq. WFP in Larnaca and Rome have advised AWB to deal directly with Torbert Due in Baghdad. 80 [emphasis in original]

25.53 In his evidence, Mr Long stated:

The Iraqi people openly acknowledged that they preferred Australian wheat. 81

It was on this basis and in conjunction with the Iraqi Ministry of Trade

Officials, and with support from his US counterparts, that Mr Long prioritised AWB contracts A1670 and A1680, and they were subsequently handed to the WFP for renegotiation with AWB. 82

96 Report of the Oil-for-Food Inquiry

September 2003: renegotiation of contracts A1670 and

A1680

25.54 On 2 September 2003, United Nations approval for contract A1670 was issued, valid to 1 September 2004. 83

25.55 On 3 September 2003, Mr Stephens (from the Australian mission to the United Nations) forwarded to Ms Armstrong (of the Iraqi Task Force) a copy of the approval letter, together with OIP Expert Report Concerning Request to Ship Goods to Iraq in accordance with Security Council Resolutions 986 (1995) & 1409 (2002).84 A copy of that facsimile was also sent to Mr Hockey.

25.56 On 11 September 2003, WFP sent a facsimile to Mr Whitwell which read:

Under the U.N. Security Council Resolution 1483, the CPA (Coalition Provisional Authority in Iraq) has prioritized the above mentioned contract for re-negotiation with the U.N. World Food Programme.

In this regards, the CPA has provided the following renegotiation terms for your consideration:

• The Point of Entry in the original contract will apply

• Cargo will be delivered at supplier cost, insurance and freight (CIF), free on trucks all governorates' warehouses/Iraq. As the Water Supply Company is no longer functional, it will be the supplier's responsibility to arrange private transportation from the contract stipulated Point of Entry to the final delivery point, as advised by the Ministry of Trade.

• The value of tonnage renegotiated will be reduced 10 percent (10%)

• Shipment period will be revised in accordance with supplier indication of cargo readiness** (see attached)

• Penalty Clause, as per original L/C terms, will apply from the revised latest shipment date.

A representative from the U.N. World Food Programme will be contacting you shortly in this regard. 85

25.57 The reduction in 10 per cent was a blanket policy decision from Washington

applying to all of the Oil-for-Food Programme contracts. This decision was the result of an investigation that produced the 'Report on the Pricing Evaluation of Contracts Awarded Under the Iraq Oil for Food Program'. 86 This report was the response to the US Wheat Associate's complaints about AWB's Oil-for-Food Programme contracts. It was the CPA's belief that the 10 per cent inflation was in breach of United Nations Sanctions and that the

removal of the 10 per cent was to conform with sanctions. 87

Report of the Oil-for-Food Inquiry 97

25.58

On 16 September 2003, Mr Whitwell sent a fax to the WFP in response to their offer stating (in part):

3. Reduction by 10 percent of contract value.

Whilst we would stress that this is extremely abnormal to consider such an arbitrary reduction in contract price we assume that this has been made as a request by the Iraqi Grain Board in consultation with the CPA and that this reduction is associated in some way with a re-evaluation of inland transport and After Sales costs. As such we agree to the reduction as long as our associated extra costs resulting from the delay in executing this contract are taken into account. Please see section 6 AWB associated costs. 88

It is apparent from the passage quoted that Mr Whitwell was aware of the 'After sales costs'. He knew by then that contract A1680 had been inflated by 10 per cent by such a factor.

25.59 Before preparing this fax, Mr Whitwell consulted with Mr Johnson, the Pool Manager and Mr Long who was in Baghdad at the time. His evidence was:

I had had a conversation with Michael [Long] prior to sending this email, where he had said, 'Look, the CPA are taking a firm line. They have instructed WFP that 10 per cent should come off every contract.' He said, 'You have got to make a commercial judgment with David Johnson as to whether we want to do that— whether it makes sense from a pool participant's point of view to do so.'

I had had a subsequent conversation with WFP—I can't remember whether it was Henrik or Didier, where they just basically said, 'Look, this is just what we have got to do. We have got absolutely no room to negotiate on this. If you want your contracts - the balance of your contracts, 1670 and 1680, executed, you will agree to this.' And I think they sent me a letter laying out those conditions that were necessary for us to progress the contracts.

So I sat down with David and said, 'Look, this is what they are saying', and we ran through the commercial numbers in a commercial way. I still hadn't sorted out what my inland transport costs were, but I had, over the previous couple of months, taken some quotes from people. I still didn't know what my port costs were. I didn't know whether I could get stuff insured, but we felt that the price, even with a 10 per cent reduction, was one that was still comparable with the best price that we could get on the international market at that point in time, because the market in December had been at a very bight point, due to a number of reasons, particularly around supply and demand. There was a shortage of wheat in the world. I think 15 million tonnes had disappeared off the balance sheet in December 2002 when we made the contract.

By September 2003, the US had rebounded with a bigger crop. Canada had rebounded, and we were starting to come into a better - you know, the 2003/2004 harvest for Australia was looking better than the drought year, the previous. So the world market price was moving down, and if we had sold that 800,000 tonnes that we were carrying in our stock on or around this time on the international market, we would not have recouped if we had taken the 10 per cent off here and taken all of our costs off. So it was just a commercial decision that said, 'Okay,

98 Report of the Oil-for-Food Inquiry

we've got the option to execute this contract, and it is better for us to take the 10

per cent and get on with it than it is to say, 'No, we're not going to take the 10 per cent and we will discuss it with the new Iraqi government". 89

25.60 Mr Long stated that it was his belief that the additional 10 per cent in the contracts was a genuine fee for transport. 90 I do not accept that evidence.

Mr Long stated that he did not have any involvement in the renegotiation on the contracts A1670 and A1680:

.except to advise AWB that there was a unilateral imposition of 10% reduction on all contracts. I left it up to AWB to decide as to whether they wanted to accept or not. AWB decided that due to the market situation, it was still in the growers interests to execute these contracts. 91

25.61 On 17 September 2003, the WFP responded to Mr Whitweil's facsimile attaching the terms of the contract amendment as agreed between AWB and wFP. 92 The facsimile advised that the WFP had been requested by the CPA to 'deduct the after sales service fee of 10 percent on this contract'. The WFP also

reiterated its revised price. It wrote:

The terms for the renegotiation have been provided by the CPA and operational issues concerning the actual deliveries will be [handled] by MoT. You might want to discuss some of the issues raised with these parties. 93

25.62 On 18 September 2003, Ms Lyons provided an advice to Mr Whitwell (apparently in response to his inquiry) about whether the WFP was entitled, under the provisions of the relevant UN resolutions, to arbitrarily and unilaterally reduce the price by 10 per cent. She noted:

Under UN Resolution 1472 (2003) (extended by para 16 of Resolution 1483 (2003)), the WFP is authorised to review all funded and non-funded contracts for the purposes of determining priority between them. In this case, the WFP states that it has undertaken such a review and is therefore approving the fulfilment of the remaining tonnage under the AWBI contract.

The WFP is also entitled (under para 4(d) of Resolution 1472 (2003)) to negotiate and agree on necessary adjustments to the terms of the reviewed contracts. These words do not entitle the WFP to arbitrarily or unilaterally adjust the contract price. 94 [emphasis in original]

Ms Lyons also noted that while there may be sound arguments against reduction on a strictly legal basis, from a practical point of view, the likelihood of negotiating a better price on the contract was remote.

Report of the Oil-for-Food Inquiry 99

25.63 Mr Whitwell drafted a memorandum dated 22 September 2003, entitled: 'Iraq

Update.' 95 Under the heading 'Operational Update', he noted:

Discussions have begun with WFP on the balance of both contracts 840,000 mt. We have received a request to reduce contract value by 10 pct to - Euro CIF All governorates Iraq. Working through Operational issues with them and discussing adjusted price. 96

25.64 On 24 September 2003, following a telephone conversation the previous day, Ivfr Whitwell sent a facsimile to the WFP offering a revised price per tonne CIF Free on Trucks to silo all governorates Iraq shipped to the port of Umm Qasr or Aqaba sellers option, in respect of the balance of contract A1680.'

AWB also asked if it was possible to build in an option for sellers to deliver on a CIF free out Aqaba or Umm Qasr basis and if so, what would be the revised unit price and relevant authentication procedure. 98

25.65 On 25 September 2003, the WFP sent a fax to AWB which commenced:

Please find attached a copy of the Contract Amendment, as agreed between your company and the United Nations World Food Programme. 99

WFP advised that the contract validity for contract A1680 was pending approval from the OIP, and that issues relating to the letter of credit should be directed to BNP.

The same day, a facsimile was sent by Mr Whitwell to the WFP, enclosing 'signed format for amendment for onward presentation to OIP'.lOO The amendment to the contract provided for a revised price CIF free on trucks to silo all governorates Iraq shipped to the Port of lJmm Qasr. 101 The effect of this amendment was to make contract A1680 again a CIF free in truck contract. The revised price departed from the earlier amendment which was a CIF free out price.

25.66 This revised price was a decrease of €25.49 per tonne on the price under the original contract. It represented a reduction in the 10 per cent after-sales-service component of the price. AWB was still, in effect, receiving as part of the proceeds of sale €25.84 per tonne of the original inland transportation fee that had also been included as part of the price under the original contract, although AWB now had to make arrangements for and pay for the discharge inland carriage of these cargoes. 102

25.67 On 26 September 2003, Mr Lister sent a fax to the United Nations Treasury, advising of amendments required to the letter of credit. With respect to pricing, Mr Lister said:

100 Report of the Oil-for-Food Inquiry

I understand that the price will also need to be amended to EURO 254.88 per

metric ton (basis Umm Qasr discharge) and EURO 265.88 per metric ton (basis Aqaba discharge) which kindly arrange accordingly.101

25.68 On 30 September 2003, Mr Whitwell sent an email to Mr Long and others advising that United Nations administration had cleared both contracts A1670 and A1680 at the amended contract price. 104 He also said that a letter of credit would be opened for A1670 and that amendments would be sought to the existing letter of credit for A1680.

25.69 An AWB spreadsheet, dated 1 October 2003, set out the likely outcomes for contracts A1670 and A1680 under the renegotiated terms. 105 It recorded the following:

• the revised price of - per tonne is equivalent to US$ - per tonne for contract A1670 (at an exchange rate of €0.995) and US$ - per tonne for contract A1680 (at an exchange rate of €1.12)

• indications received for the cost of inland transport were US$26.50 best case and US$30.00 worst case

• AWB also liable to pay Umm Qasr port disbursements exceeding US$10 per tonne (namely handling US$2.25; stevedoring US$7.50 and other US$1.00 per tonne).

An inland transportation agreement with Alia

25.70 Under the renegotiated contracts A1670 and A1680 AWB was responsible for the discharge and transportation of its grain from the discharge port to all governorates in Iraq. It commenced making inquiries with various companies about stevedoring and trucking services.

On 21 August 2003, Alia emailed Mr Whitwell, enclosing a sample contract for trucking services which Alia had entered into with a company in Vietnam.106 The following day, Mr Whitwell forwarded the contract to Mr Fahy and Mr Edmonds-Wilson. 107

25.71 On 8 September 2003, Mr Whitwell emailed Mr Maaytah of Austrade advising that he would be in Jordan in later September. He asked:

In the meantime need a favour. Need to track down and contact somebody at Kawasmi Trucking Co in Jordan re looking at 2 suppliers of inland transport for Iraq contracts (alia being the other) Could you perhaps help me track down name and numbers of somebody to speak to there.

Rgds

Report of the Oil-for-Food Inquiry 101

Chris

PS if you have any other recommendations re trucking co used by WFP in last round would be good. Plse keep this private and confidential ie pise do not discuss with wfp 108

25.72 On 26 September 2003, Mr Maaytah replied to Mr Whitwell's email saying he would arrange a meeting for Mr Whitwell with Mr Kawasmi during Mr Whitwell's visit to Amman. He also gave a brief summary of the Kawasmi trucking company including details about its fleet of trucks, capacity and transport prices. 109

The following day, Mr Whitwell emailed Mr Kawasmi asking him to make an offer for trucking services. He said:

We have just had our remaining contracts prioritised and we are required to manage the inland transport of these contracts to all governorates. We understand you have handled these contracts in the past for WFP and I would like to discuss urgently with you providing a similar service to AWB. 110

25.73 On 9 October 2003, Mr Whitwell emailed Mr Al Absi of Alia attaching a draft 'Inland Transport Agreement'. He said: '... looking forward to meeting you in Amman soon'. 111 Mr Whitwell then sent an email to Mr Wall saying:

I have sent re-amended agreement to Alia and Kawasmik could you send the same to Barwil with the relevant ccs. 112

On 9 October 2003, Mr Wall emailed Mr Fadlu-Deen and others of Barwil Shipping Agencies attaching the draft agreement and inviting an offer as soon as possible. 113

25.74 On 15 October 2003, Mr Al Absi of Alia, emailed Mr Whitwell attaching a draft contract with AWB. 114 The following day, Mr Whitwell forwarded the draft to Mr Fahy, copied to Messrs Long, Johnson, Johnstone and others. He noted:

how does this stack up price wise against the others ? otherwise he has accepted all the major points I need to discuss payment with him but want to be able to go back on figures as well. Am not too concerned about giving discharge rates. Might try and incentivise out performance there?115

Later that day, Mr Fahy replied:

Alia are the most competitive on the transport (around 60% of the price of barwil)

I note that Kawasmi only offered for Aqaba only - doesn't matter he was too expensive anyway.

Barwil have not listed all costs for UQ because don't have it in hand

102 Report of the Oil-for-Food Inquiry

Only issue I have with othman's proposal is his stevedoring charges, believe he

has made a mistake by showing charge of $US14/mt. Unless I hear from you tonight I will send him an email asking for clarification on this point. Once received I can make a full recommendation on price alone (you know the quality of performance of alia - I can't speak on behalf of barwil or kawasmi). 116

25.75 On 20 October 2003, Mr Whitwell emailed Mr Long attaching the latest version of the inland services agreement with Alia. He asked Mr Long to provide his views on the agreement or alternatively approve it.117

25.76 On 21 October 2003, an 'Agency and Transport Services Agreement' was signed by Mr Whitwell, on behalf of AWB Services Limited, and Mr Al Absi, on behalf of Alia For Transportation & General Trade C0.118 The agreement imposed obligations on Alia to provide services with care, skill and diligence

and required Alia to provide a warranty that it had the necessary skills and training to perform the services the subject of the contract. The agreement required Alia to provide an assurance that its vehicles would be in good working order and suitable for the transport of grain. In fact, the agreement included terms usually found in a standard agreement that a company would normally enter into when asking another company to provide it with a product or service.119

25.77 The agreement also included one unusual arrangement whereby AWB would gradually deduct monies owed to it (namely, the inland transportation fees paid by AWB in respect of the Pearl of Fujairah shipment) until the full amount was recouped. The agreement provided, in Clause 1 of Schedule 2, that:

The balance of due transport charges less USD 1 pmt deduction as outlined in schedule 2 (clause 4) will be paid on receipt of the Contractor's invoice.. 120

AWB qualified this by agreeing to remit those deducted monies if they

managed to recoup the fees from Iraq. It agreed, in Clause 4:

In respect of transport charges AWBS to deduct USD 1 per metric tonne representing a part repayment of a previous inland transport payment which was not executed. In the event that AWBS do receive acceptable repayment from the appropriate Iraqi authority then AWBS will the remit the total value repaid by the contractor under this repayment scheme to the contractor. 121

Report of the Oil-for-Food Inquiry 103

Insurance of the shipments to Iraq

The position changes in October 2003

25.78 Following the incursion into Iraq in March 2003, AWB was held by the Coalition Provisional Authority (CPA) and World Food Programme to its obligation to arrange for the discharge and delivery of wheat within Iraq, in accordance with the terms of its then unfulfilled contracts with 1GB.

It thus became necessary for AWB to consider the insurance of its wheat during the transportation within Iraq. As Mr Whitwell wrote in an email dated 6 October 2003 in preparation for a meeting within AWB in relation to the continuation of AWB's shipments under contracts A1670 and A1680:

5. Insurance

We are covered for the Ocean freight portion but we need to look at the inland transport sector and minimising the risks through our contracts with inland transport suppliers (we are assuming insurance will be difficult to get although Alia have offered to self insure). 122

On 7 October 2003, Ms Girando circulated an email headed 'Iraq Issues - Minutes & Action Items' which recorded in relation to insurance:

Marine cargo - fully covered Inland freight—Annette needs infoin

As an alternative to it taking out insurance in relation to the inland transportation leg, AWB also investigated the possibility of Alia providing such insurance or arranging for the issue of certificates of insurance declaring that the wheat was:

insured whilst in transit in Iraqi governates.' 24

25.79 Under the terms of the Agency and Transport Services Agreement that AWB eventually concluded with Alia in October 2003, Alia agreed to arrange for insurance of the shipments during their transportation in Iraq, including on behalf of AWB. Clause 11 of that agreement provided:

11. Insurance

11.1 The Contractor [Alia] must effect and maintain for the entire Term the Insurance Policies in the joint names of the Contractor and AWBS and for their respective rights and interests.

11.2 The Insurance Policies must be effected with an insurer approved by AWBS and must be on terms satisfactory to AWBS. Without limitation, the Insurance Policies must include the Required Insurance Conditions.

104 Report of the Oil-for-Food Inquiry

11.3

In the event that the Contractor sub-contracts any of its obligation under this agreement, it must ensure that each of its sub-contractors effects insurance policies of the same type as the Insurance Polices containing the

Required Insurance Conditions and in the joint names of the sub-contractor and AWBS for their respective rights and interests and that such insurance policies are maintained for the entire Term.

11.4 The Contractor must from time to time upon request by AWBS provide such documentary evidence as AWBS requires (including certificates of currency) to evidence the Contractor's compliance with the requirements of this clause.123

25.80 Clause 16 of this agreement recorded the acknowledgement by Alia that under the terms of this agreement, it may be liable to AWB and AWBI in relation to loss or damage that they sustain as a consequence of loss or damage to the wheat. 126

Similar provisions were also included in AWB's subsequent Agency and

Transport Services Agreement dated 8 July 2004.127

25.81 In the meantime, AWB had obtained confirmation of cover for the inland transit of the wheat from its marine insurers in November 2003.128 This insurance was to be placed on a vessel by vessel basis, rather than as a blanket policy (as with AWB's marine cover). An additional premium was payable. The terms differed from those of AWB's marine open cover.

25.82 In December 2003, in relation to a shipment that was being discharged in Aqaba, Jordan, Alia proposed that the wheat be discharged into silos and then into trucks as well as directly into trucks. This was in an attempt to speed up the discharge of wheat from AWB's vessels and thereby mitigate potential demurrage. 129 But before a decision could be made inquiries had to be made including of AWB's insurers to ascertain whether the cover provided for cargo after it had passed the ship's rail covered the wheat when stored in the silo. 130

This in turn required further details to be obtained about the proposed storage of the wheat. 131

25.83 Included amongst the documents produced by AWB to the Inquiry was a certificate of insurance issued by the General Arabia Insurance Company Limited in favour of Alia dated 15 July 2004 in relation to an AWB shipment, providing cover for the inland transit to all Iraqi governorates and on terms

that included 'All Risks 'Land Transit' Clause'. 132 This was provided to Mr Whitwell on 19 October 2004.133

25.84 The following observations may be made in relation to the foregoing:

• Prior to October 2003, AWB had not taken out any insurance in respect of the wheat shipped to Iraq in respect of any loss and damage occurring

Report of the Oil-for-Food Inquiry 105

beyond the ship's rail and in particular during the inland transportation

of the wheat within Iraq

• This was notwithstanding that the terms of its written contracts with 1GB appeared to impose an obligation upon AWB, as seller, to procure insurance for that leg of the transit

• The reason why AWB did not arrange for any such insurance was because in truth the terms of its agreement with 1GB did not require it to undertake the discharge and inland transportation of the wheat or arrange for its discharge and delivery

• That is to be contrasted with the situation after October 2003 when AWB was held to its obligation as expressed in its written contracts, to discharge and deliver the cargo to all silos within Iraq

• From that time AWB obtained quotes for further cover for this inland leg, beyond the ocean transit

• This was offered for an extra premium and upon terms that differed from AWB's existing marine open cover

• AWB included in its agreement with Alia an obligation that it take out insurance in respect of that part of the transit, not only covering Alia's interest but also that of AWBS, AWB and AWBI

• Before AWB could agree to proposals for variations in the method of discharge and storage of the wheat at the port of discharge, it was necessary to consider the effect that this would have on its insurance.

Further renegotiation of contract A1670

25.85 On 30 December 2003, AWB and the CPA reached agreement to a further amendment to contract A1670.134 Pursuant to this amendment, the contract value was increased. The increase 135 was 'to support the accelerated delivery of approximately 220,000 Metric tons (hereinafter 'MT') (1- 5%) of

wheat .'' The increase was said to cover:

the costs and charges for deviation, diversion, detention, demurrage, stranding and other costs associated with delivery of the goods... 137

25.86 On 18 April 2004, the Letter of Credit that had been earlier issued in respect of contract A1670 was amended by the agreement of AWB and CPA to reflect the changes made to contract A1670 in December 2003.138

106 Report of the Oil-for-Food Inquiry

Notes

1 Ex 1376, AWB.0331.0270. 2 See Chapter 23. 3 E 1414 at AWB.0019.0119.R. 4 E 1444 at AWB.0060.0371.R. 5 E 542, DFT.0006.0098. 6 E 542, DFT.0006.0116. 7 E 1444, AWB.0021.0273_R. 8 E 1444, AWB.0019.0052_R. 9 E 1444, AWB.0019.0109_R. 10 Ex 1376, AWB.5097.0200_R-0201_R. 11 Ex 1377, AWB.0060.0474_R. 12 Ex 1444, AWB.0079.0094_R; This is confirmed by the Ferrier Hodgson spreadsheet (provided by AWB) at

Ex 368C, AWB.0130.0029. 13 Ex 1376, AWB.0142.0015_R. 'Ex 1376, CES.0001.0081_R. 15 Ex 1376, AWB.0142.0016_R. 16 Ex 1376, AWB.0236.0127_R. 17 Ex 1376, AWB.5022.0175_R; Ex 1574, AWB.5022.0176-0184. 18 Ex 1376, AWB.0142.0005_R. 19 Ex 1377, AWB.0253.0075._R.

20 Ex 1376, AWB.5017.0246_R at 0248_R. 21 Ex 1223, AWB.0439.0211. 22 Ex 1377, AWB.0253.0085_R. 23 Ex 1377, AWB.0253.0085_R. 24 Ex 79, WST.0004.0036. 25 Ex 1376, ELG.0002.0208.

26 Ex 1377, AWB.0236.0122_R. 27 Ex 1376, AWB.5022.0230. 28 Ex 1444, AWB.0296.0018_R. 29 Ex 1376, ELG.0002.0213_R. 20 Ex 1377, AWB.0296.0020_001_R-0021_R. 31 Ex 1376, ELG.0002.0220_R. 32 Ex 300, WST.0001.0066 at 0071, para. 25. 33 Ex 1387, EXH.0001.0070_R at 0073_R; Ex 1512, AWB.0202.0052_R at 0055_R. 34 Ex 1377, AWB.6047.0017.

35 T 2947.36-42. 36 T 1510.38-40. 37 T 1511.35.

38 T 985.22; T 986.14. 39 T 987.16. 40 T 986.2. 41 T 986.41-T 987.6.

42 Ex 1387, EXH.0001.0070_R at 0074_R. 4 T 984.44. 44 T 985.5-16. 45 T 988.8-9. 46 T988.15-T 989.19.

47 T 2744.32-33. 48 Ex 1376, AWB.5059.0053_R; Ex 1376, AWB.0021.0314_R. 49 Ex 1376, AWB.5023.0065_R. ° Ex 1376, AWB.5023.0070_R.

51 Ex 1376, AWB.0245.0366_R.

Report of the Oil-for-Food Inquiry 107

52

Ex 1223, AWB.0439.0217. 53 Ex 1223, AWB.0439.0217. 54 Ex 1376, AWB.5018.0053_R. 55 Ex 1376, AWB.0153.0258. 9° Ex 1376, AWB.0152.0155_R at 0156_R. 57 Ex 1376, AWB.0248.0208_R at 0209_R. 9° Ex 1376, AWB.0153.0229. 9° Ex 1376, AWB.0152.0154. 60 Ex 1376, AWB.5023.0203_R. 61 Ex 1377, AWB.0401.0403_R. 62 Ex 1444, AWB.0060.0428_R. 9° Ex 1223, AWB.0439.0165. 64 Or 10 per cent after-sales-service fee. 65 Ex 1376, AWB.0183.0040. 9° Ex 1376, AWB.0021.0287_R. 67 Ex 1377, AWB.0248.0069_R. 68 Ex 1376, AWB.0021.0002_R. 69 Ex 1392, AWB.0021.0249_R; Ex 1444, AWB.00199.0070_R. 70 Ex 1376, AWB.0021.0226_R, AWB.0021.0235_R, AWB.0021.0237_R, AWB.0021.0243_R, AWB.0021.0244_R,

AWB.0021.0227_R and AWB.0021.0228_R. 71 Ex 1376, AWB.5014.0093_R. 72 Ex 1376, AWB.5014.0093_R. 73 Ex 1376, AWB.0248.0329_R. 74 Ex 1376, AWB.5012.0029. 75 Ex 76, WST.0004.0063 at 0092, para. 97. 76 T 1848.17-21.

Ex 1376, AWB.0252.0068. 28 Ex 76, WST.0004.0063 at 0092, para. 97. 79 Ex 76, WST.0004.0063 at 0092, para. 97. 80 Ex 887, DFT.0013.0532. 81 Ex 76, WST.0004.0063 at 0092, para. 97. 82 Ex 76, WST.0004.0063 at 0092, para. 97. 9° Ex 729, AWB.0152.0049. 9° Ex 729, AWB.0152.0048-0051. 9° Ex 332, AWB.0060.0320. 86 Ex 730, AWB.0314.0002-0202. °T 5873.12-33. 88 Ex 321, AWB.0060.0317_R at 0318_R. 89T 2779.36-T 2780.36. 9°T 1798.22-32.

' Ex 76, WST.0004.0063 at 0092, para. 97. 92 Ex 1376, AWB.0060.0098_R-0099_R. 93 Ex 1376, AWB.0060.0098_R. 9° Ex 324, AWB.0154.0144. 95 Ex 1376, AWB.0202.0113_R.

9° Ex 1376, AWB.0202.0113_R. 9° Ex 1376, AWB.0060.0092_R at 0093_R. 98 Ex 1376, AWB.0060.0092_R at 0093_R. 99 Ex 1376, AWB.0060.0088_R. 19° Ex 1376, AWB.0060.0079_R. 9°' Ex 1377, AWB.0060.0080 at 0081. 102 Unlike the position under the Oil-for-Food Programme contracts prior 15 March 2003. 153 Ex 1376, AWB.0060.0085. 104 Ex 1223, AWB.0439.0034.

108 Report of the Oil-for-Food Inquiry

105

Ex 1223, AWB.0439.0023.

106Ex 1376, AWB.6009.0208-0213. 17 Ex 1376, AWB.6005.0284-0287. 108 Ex 1376, AWB.6006.0004. 109 Ex 1376, AWB.6010.0093-0094. 110 Ex 1377, AWB.6023.0120_R. 111 Ex 1376, AWB.6018.0332; Agreement at Ex 1376, AWB.6023.0206-0220. 112 Ex 1376, AWB.6018.0370. 113 EX 954, AWB.6023.0205; Ex 1376, AWB.6023.0206-0220. 114 Ex 954, AWB.6014.0186; Ex 1575, AWB.6014.0188-0202. 115 Ex 954, AWB.6061.0385. 116 Ex 954, AWB.6014.0169. 117 Ex 954, AWB.6019.0065; Agreement at Ex 1575, AWB.6014.0188-0202. 118 Ex 954, AWB.0211.0001-0013. 119 Ex 954, AWB.0211.0001-0013. 120Ex 954, AWB.0211.0001 at 0009. 021 Ex 954, AWB.0211.0001 at 0010. 122 Ex 1377, AWB.0258.0031_R at 0032_R. 123 Ex 1377, AWB.6000.0131_R. 124 Ex 1377, AWB.6014.0218_R at 0219R. 125 Ex 954, AWB.0211.0001 at 0005. 126 Ex 954, AWB.0211.0001 at 0006. 127 Ex 954, AWB.0258.0368 at 0372, 0374. 12 8 Ex 1377, AWB.0245.0297_R. 129 Ex 1377, AWB.6010.0388_R. 130 Ex 1377, AWB.6010.0388_R. 131 Ex 1377, AWB.0245.0295_R (Request), AWB.0245.0293.R (Response). 132 Ex 82, AWB.0213.0058. 133 Ex 82, AWB.0213.0049. 134 Ex 1223, AWB.0439.0080. 135 Which was approximately €3.9 million over the balance of the contract. 136 Ex 1223, AWB.0439.0080. 137 Ex 1223, AWB.0439.0080. 138 Ex 1376, HDD.0003.0042.

Report of the Oil-for-Food Inquiry 109

26 August 2000 to March 2003:

inland transportation fees

26,1 This chapter examines:

• The manner in which AWB paid inland transportation fees in respect of its shipments of wheat to Iraq under the Oil-for-Food programme between November 1999 and March 2003

• the mechanism by which the inland transportation fees' paid by AWB were recovered from the escrow account

• the amount of the inland transportation fees paid by AWB from the time they were first introduced by 1GB into AWB's contracts for the sale of wheat in July 1999 (commencing with phase VI of the Oil-for-Food Programme) until the incursion into Iraq by coalition forces in March 2003

• the remittances by Alia to ISCWT of the inland transportation fees that Alia received from shippers of goods to Iraq including AWB

• the TIC's findings on the application within Iraq of the funds remitted by Alia, including funds representing inland transportation fees paid by AWB to Alia.

26.2 On this basis of the material referred to in this chapter, I find:

• that between November 1999 until March 2003, AWB paid in excess of US$224 million2 in inland transportation fees and after-sales-service fees under phases VI to XIII

• this was in respect of 161 shipments made under 28 contracts

• of the above sum, approximately US$146 million was paid in respect of the transportation fees nominated by 1GB

• the remaining US$78 million was attributable to the 10 per cent after-sales-service fee

• that substantially all of the funds that Alia received were remitted by Alia to Iraq, to the ISCWT, pursuant to Alia's agreement with the ISCWT dated 13 November 1999

Report of the Oil-for -Food Inquiry 111

• that bank statements of Alia which have been provided to the Inquiry

confirm that amongst the monies Alia remitted to ISCWT were funds that it had received from AWB

• that of the monies that Alia remitted to Iraq, approximately two thirds was paid to the Iraqi Ministry of Finance; between 17 per cent to 19 per cent was paid on account and land transport; and the balance was split between other Iraqi agencies including those responsible for ports (between 2 per cent to 4 per cent) and the 1GB (approximately 3 per cent).

The manner of payment of the fees

26.3 I have already examined in Chapter 18 the manner in which inland transportation fees were paid by AWB in the period from November 1999 until July 2000.

26.4 Between August 2000 and the incursion in March 2003, inland transportation fees were paid by AWB in respect of all of its shipments to Iraq. This included shipments made under contracts AWB concluded with 1GB directly and AWB's contracts with the grain traders, Savas Grain & Commodities Limited3 and Commodity Specialists Company.4

26.5 The payment of inland transportation fees was marked by five features:

• Mr Stott's decision in July 2000 to terminate arrangements to use Ronly and other shipowners as conduits for the payment of inland transportation fees, and to pay the fees direct to Alia5

• the significant rise in the amount of the inland transportation fees payable by AWB during this period

• changes in the currency in which inland transportation fees were to be paid, from US dollars to Deutschmarks and subsequently to euros. This coincided with changes in the currency of the contracts between AWB and 1GB

• changes in the manner of the payment of the inland transportation fees, initially as a payment in two instalments and subsequently to a payment of 100 per cent up front

• the change in the company within the AWB Group that was responsible for the payment of the fees.

112 Report of the Oil-for-Food Inquiry

26.6 Figure 23.1 in Appendix 23 contains a time line recording the dates of the key

changes to the method of payment of inland transportation fees by AWB from the time they were first introduced in July 1999 until the incursion into Iraq in March 2003.

26.7 Table 23.1 in Appendix 23 contains a list of the inland transportation fees paid by AWB from its first payment in November 1999 until March 2003.

The decision to pay the fees direct to Alia

26,8 From November 1999 until July 2000, AWB paid these fees in two ways. They were either paid to Alia directly or paid indirectly through a number of shipowners (in particular Ronly and its nominee Tse Yu Hong Metal Limited). These different methods were identified and examined in Chapter 18. The reasons for AWB's use of shipowners as intermediaries for these payments

were discussed in Chapter 13.

26.9 In July 2000, Mr Stott put an end to the use of Ronly and other shipowners as a conduit for the payment of fees to Alia and directed that the fees be henceforth paid to Alia directly. 6 This direction commenced with effect from 7 August 2000.

26.10 At the time this change was implemented, Mr Stott instructed that inland transportation fees continue to be paid by AWB Chartering.7 AWB Chartering in turn recovered the cost of the inland transportation fee paid from the AWB Pool. This arrangement continued until early May 2001, when responsibility for payment was transferred to International Sales and Marketing.8

An increase in the fees payable

26.11 From November 2000 there was a significant increase in the inland transportation fees payable by AWB.9

26,12 Prior to November 2000, the fees were between US$12 and US$15 per tonne under phases VI, VII and VIII.10 In November 2000 the total amount of inland transportation fees payable rose to US$44.50 per tonne. This represented a 217 per cent increase in the inland transportation fees from US$14 per tonne. This increased inland transportation fee was the equivalent to approximately 26 per cent of the equivalent OF free out price.11 This is to be contrasted with the inland transportation fees under AWB's earlier contracts which ranged between 8 and 10 per cent of the CIF free out price. 12

Report of the Oil-for-Food Inquiry 113

26.13

The fees payable under the contracts concluded for phases IX to XIII inclusive were of the same order ranging from US$45.80 per tonne to US$51.15 per tonne.13

26.14 Table 13.1 in Appendix 13 lists the inland transportation fees paid by AWB in respect of each of its contracts during phases VI and following.

26.15 There were two reasons for this significant increase in the amount of the fees.

• The first was an increase in the inland transportation component. This was from US$14 per tonne to US$25 per tonne. 14 Contracts concluded after contract A0430 included an increased inland transport component of between US$26.00 and US$26.50 per tonne by June 200215 , and US$29.15 per tonne in December 2002.16

• The second was the imposition of the 10 per cent after-sales-service fee.

Payment in currencies other than US dollars

26.16 From November 1999 until early May 2001, all inland transportation fees paid by AWB were paid in US dollars. During that period, most of those fees were paid by AWB Chartering from a US dollar bank account maintained in New York with the Bank of New York in the name of AWB (Australia) Limited. 17

26.17 In 2001, there was a change in the currencies in which fees were paid. This was initially to Deutschmarks in May 2001. These were paid into Alia's Deutschmark account with Jordan National Bank in Amman. 18 From November 2001 until March 2003, inland transportation fees were paid by AWB in euros. These were paid into Alia's euro account with the Jordan National Bank in Amman. Both payments were made through its correspondent bank in Frankfurt, Germany. 19

26.18 These changes in the currency coincided with the change in both the currency of the price for which wheat was sold and the currency in which AWB received the proceeds of those sales from the United Nations escrow account.20

26.19 From May 2001 and the time inland transportation fees were paid in these other currencies, the US Embargo was no longer a bar to payment.

114 Report of the Oil-for-Food Inquiry

Payments in Deutschmarks

2620 Payments in Deutschmarks commenced with the first shipment under

contract A0430 in early May 2001. Fees thereafter continued to be paid in Deutschmarks until November 2001. During that time, fees were paid in Deutschmarks in respect of:

• each of the shipments made under contract A0430 between 2 May 2001 21 and 14 August 2001

• all but three of the shipments made under contract A0552 between 5 June and 13 November 2001

• all but four of the shipments made under contract A0553 between 30 May 2001 and 5 November 2001.

26,21 Between May and November 2001 AWB paid a total of DM108,216,527.84 in fees or the equivalent of approximately US$50.24 million.

26.22 The payments of fees in Deutschmarks were made in two ways.

First, the fees payable in respect of particular shipments were paid from Deutschmarks that AWB obtained through a foreign currency swap, under which US dollars were exchanged for Deutschmarks, which AWB arranged with the Commonwealth Bank of Australia through its offices in Australia.23

26.23 There were two stages to this method. The first was the exchange of US dollars for Deutschmarks. The second stage was a forward exchange of Deutschmarks back into US dollars at a predetermined future point of time. The Deutschmarks intended to be exchanged at this second stage were from the proceeds of the sale of the shipment that AWB expected to receive from the United Nations escrow account. This second stage was entered into by AWB as a hedge against any fluctuation in the US dollar/Deutschmark exchange rate during the period between when the inland transportation fees

were paid and when AWB recovered the cost of those fees as part of the proceeds of sale, in Deutschmarks from the United Nations escrow account.

26.24 The elements of this foreign currency swap were:

• AWB would exchange (that is, sell to the Commonwealth Bank) an amount of US dollars into Deutschmarks, sufficient to meet the inland transportation fees payable expressed in Deutschmarks

• the Deutschmarks produced by that exchange were then deposited into AWB's Deutschmark account with the Commonwealth Bank in Australia

Report of the Oil-for-Food Inquiry 115

• the Commonwealth Bank was then directed by AWB to pay those

Deutschmarks to Alia's nominated bank account in payment of the inland transportation fees in respect of the particular shipments

• AWB agreed that at a pre-determined date in the future, it would 'sell' to the Commonwealth Bank for US dollars the same amount of Deutschmarks that it had received in the first stage of the transaction

• this was to be at an exchange rate that the parties agreed to at the time of the first stage of the transaction

• AWB would in return receive US dollars in an amount that was similar to but slightly less than the amount that it had paid for Deutschmarks in the first place

• the date at which the second stage of the transaction took place was at or after the time when AWB expected to receive Deutschmarks in the form of the proceeds of the sale of wheat from the United Nations escrow account

• in this way, AWB was able to pay the trucking fee with US dollars (converted to Deutschmarks) and hedge against any fluctuations in the exchange rate between US dollars and Deutschmarks between the time the inland transportation fees were paid and when it was reimbursed those fees from the proceeds of sale of the particular shipment of wheat.

2625 Under this method not all of the Deutschmarks that AWB expected to receive from the proceeds of each shipment would necessarily be converted back into US dollars. Some of the Deutschmarks may be retained, in order for AWB to pay the inland transportation fees for later shipments.

26.26 Under the second method, the amount of the inland transportation fees was paid from a Deutschmark account in the name of AWB Limited maintained by AWB with the Commonwealth Bank of Australia in Sydney. 24 Those payments would be met from either an existing credit balance in the Deutschmark account or from Deutschmarks deposited into that account.

Payments in euros

26.27 Inland transportation fees were paid by AWB in euros from mid November 2001 until March 2003. This was in respect of:

• three of the shipments made under contract A0552 between 13 November 2001 and 28 December 2001

116 Report of the Oil-for-Food Inquiry

• four of the shipments made under contract A0553 between 7 December

2001 and 2 January 2002

• all of the shipments under contracts A0784, A0785, Allil and A1112 between 31 October 2001 and 11 November 2002

• those shipments made under contract A1441 prior to hosilities in March 2003.

26.28 Between November 2001 and March 2003 AWB paid a total of €145,064,239 or approximately US$126.24 million in transportation fees. 25

26.29 Payment of inland transportation fees in euros were made from a euro currency account in the name of AWB Limited maintained by AWB with the Commonwealth Bank of Australia, in Sydney.26

26.30 Payments from this account were made from funds deposited into the account either following the conversion of US dollars into eur0s 27 or from an existing credit balance in AWB's euro account.

Payment in instalments

Payment via two instalments

26.31 In November 2000 AWB negotiated an agreement with 1GB for payment of fees in two instalments.28

26.32 Notably, this agreement was concluded by AWB with 1GB and not Alia, to whom the inland transportation fees were payable. This was consistent with an understanding within AWB that these inland transportation fees were, in truth, payments to the Iraqis.

26.33 Under this agreement, a first instalment of US$14 per t0nne 29 was to be paid prior to the arrival of the shipment at Umm Qasr. The balance of the fees payable was to be transferred to Alia's account within one week of AWB receiving the proceeds of the sale from the United Nations escrow account. 30

26.34 This manner of payment of fees was employed for each shipment under contracts A04303, A055232 and A0553.33

Report of the Oil-for-Food Inquiry 117

1GB insist on payment of the inland transportation fees in full and prior to

discharge

26.35 From June 2001, the whole of the inland transportation fees were payable in advance of discharge of the cargo.34

This was the manner of payment for each of contracts A0784, A0785, Alill, A1112 and those shipments made under contract A1441 prior to the commencement of hostilities in March 2003.

26.36 This change in the manner of payment coincided with the change in the currency of the contract from Deutschmarks to euros.

26.37 The effect of this change was that AWB paid to Alia fees of between US$2.5 million and US$2.75 million per shipment in advance. 35

Responsibility within AWB for payment of the fees

26.38 On 23 February 2001, Mr Jones, General Manager of AWB Chartering, sent an email to Mr Hogan regarding the Iraq trucking fee. 36 He wrote:

With regard to the Iraq trucking fee we would like to change the internal payment arrangements.

It is my understanding that Chartering has facilitated the payment in the past.

However there is no real reason to do it this way, so we would like to explore other options.

Can we discuss early next week.37

26.39 On 23 February 2001, Mr Jones sent an email within AWB Chartering setting out those items that needed to be attended to following a meeting held earlier that week. 38 Included amongst the items was:

Iraq: Chartering are currently managing the trucking fee payments in Iraq. This is impacting on ROFE and margin outcomes and is not a chartering component.

Action item: Peter Jones to approach Dom H to get this fee paid directly from the pool rather that Chartering39

26.40 Mir Hogan subsequently met with Mr Jones to discuss the inland transport payments. At that meeting, it was agreed that International Sales and Marketing would manage the payments. A system was established whereby Mr Edmonds-Wilson would draw up a payment request, which Mr Hogan would check and initial. Mr Hogan would then have the General Manager of International Sales and Marketing sign. The payment request was then

118 Report of the Oil-for-Food Inquiry

handed to the AWB Pool for signing, and then taken to Treasury for payment.

This was done for each vessel just prior to berthing at Umm Qasr."°

26.41 Thus from May 2001 until the incursion into Iraq in March 2003, inland transportation fees were paid by the AWB Pool directly. 41 Responsibility for the authorisation of the payment of these fees was with the International Sales and Marketing Division and no longer with AWB Chartering.

Inland transportation fees paid by AWB during the Oil-for-Food Programme

How inland transportation fees were recovered from the escrow account

26.42 AWB and the 1GB negotiated a price for the sale of the wheat which included the cost of the 1GB designated transportation fee. The fee was added to the CIF free out42 price to give a OF Free in Truck (FIT) price. 43

26.43 From November 2000 an additional 10 per cent after-sales-service fee was payable.

26.44 This was added to the transportation fee designated by the 1GB to give the total inland transportation fee payable. From the time the additional 10 per cent after-sales-service fee was first imposed until March 2003, neither AWB nor the AWB Pool differentiated between the fees paid that represented the 1GB designated transportation fee and the additional 10 per cent after-sales-

service fee for the purposes of recording the amount paid in its books and records.44 Accordingly, the AWB Pool was reimbursed the total cost of the inland transportation fees paid by it from proceeds of sale from the escrow account.

Inland transportation fees paid under other contracts concluded by AWB

26,45 Between November 1999 and March 2003 1GB fees were also paid by AWB, under contracts with the grain traders Savas Grain and Commodities Limited and Commodity Specialists Company. Under its contracts with these grain traders, AWB expressly contracted to assume responsibility for the payment of the inland transportation fee.

26.46 The cost of the transportation fees was included in the contract price payable by the grain traders to AWB. That cost was also included in the price that the 1GB paid to the grain traders and was thereby recovered by those traders as part of the proceeds of the sale from funds drawn out of the United Nations

Report of the Oil-for-Food Inquiry 119

escrow account. Thus the cost of the transportation fees paid was met from

the funds in the United Nations escrow account.

The amount of the inland transportation fees paid by AWB

The IIC proposed findings as to the amount paid

26.47 On 26 September 2005, the Independent Inquiry Committee wrote to AWB advising of its proposed finding that:

Between October 1999 and March 2003, AWB paid to Alia approximately $212 million in fees, and these payments were in turn transferred by Alia to the Iraqi State Company for Water Transportation ('ISCWT'), a state-owned agency within the Iraqi Ministry of Transport and Communications. 45

26.48 Accompanying the TIC's letter was a schedule listing 19 of AWB's contracts and the amount of the fees which the TIC contended had been paid by AWB. 46 This schedule listed separately for each contract the 'two fee components' of the amounts described in the TIC's letter as:

what the former government of Iraq determined to be a portion for 10% 'alter sales service fees' ('ASSF) and a portion for inland transportation fees. 47

According to this schedule, AWB had paid US$82.6 million in after-sales-service fees and US$129.6 million in inland transportation fees in respect of the 19 listed contracts, making a total of US$212.2 million paid. 48

Report of Ferrier Hodgson Forensics dated 26 October 2005

26.49 As part of AWB's Project Rose and its response to the TIC investigation, AWB employed Ferrier Hodgson Forensics ('Ferrier Hodgson') to:

review AWB's transactional records relating to the shipment of wheat under the Oil-for-Food Program ... in order to analyse inland transportation fees paid by AWB. 9

Ferrier Hodgson were instructed to review and verify the accuracy of the information contained within the schedule prepared by the TIC. 50

26.50 On 26 October 2005 Ferrier Hodgson provided AWB with a report on their findings. 51 These included findings that:

• of the monies that Alia received, Ferrier Hodgson had not seen any reference to the term 'after sale service fees' in any of the documents they reviewed, other than the TIC schedule 52

120 Report of the Oil-for-Food Inquiry

11

• Ferrier Hodgson had sighted 'no evidence of inland transport payments

being made by AWB to any Iraqi entity or person or to any unidentified accounts'53

• all payments made in respect of inland transportation fees were consistent with invoices or other documents issued to AWB by Alia or in the initial phase by the shipping companies that were used as a conduit for the earlier payments

• all payments were recorded in AWB's books and records and were accounted for appropriately.

26.51 In relation to the amount of the fees paid, Ferrier Hodgson found:

(f) The IIC schedule shows total payments made for all the contracts, excluding contracts number A1441/1200083 and A1680/1300016, of $205,169,753. Our analysis reveals a variance in total payments for those contracts of approximately 1%. (Note: we excluded contracts numbered A1441/1200083 and A1680/1300016 from this comparison because the TIC schedule showed

incomplete information).

(g) Whilst the total variance is approximately 1%, our analysis on a contract by contract basis shows larger offsetting variances which are explained by the following reasons:

(i) The IIC used different quantities in their calculations to those which AWB utilised when calculating amounts to be paid in respect of inland transport fees.

(ii) The IIC used incorrect rates per metric tonne in estimating the payments made by AWB in respect of inland transport fees.

(iii) A number of payments were not identified in the IIC analysis. 54

The IIC's findings as to the amount paid as set out in its final report

26.52 In its final report, the TIC found:

In total, AWB paid a total of over $221.7 million in side payments for what it termed inland transportation fees. This corresponds to more than fourteen percent of the illicit funds collected by the Iraqi regime under its kickback schemes. 55

This represented an increase in the amount of the fees that the TIC had earlier foreshadowed56 its inquiries revealed had been paid by AWB.

26.53 Details of the AWB contracts in respect of which the TIC found these payments totalling US$221.7 million were set out in the schedule appearing at page 53 of Table 8 in Appendix A to its final report. A copy of that schedule has been reproduced as Figure 12.1 in Appendix 12. This schedule is in substantially

Report of the Oil-for-Food Inquiry 121

similar terms to the schedule that had accompanied the TIC's letter of

26 September 2005. 57 The only differences are that some of the amounts for some of the contracts listed have changed.58 It is these changes to some of the figures in the schedule that account for the increase to US$221.7 million from the amount foreshadowed in its letter of 26 September 2005, namely US$212

million.

26.54 According to the IiC's schedule, AWB had paid US$82.482 million in after-sales-service fees and US$139.274 million in inland transportation fees in respect of the 19 contracts listed in Table 8, making a total of US$221756 million.59

The final version of the Ferrier Hodgson spreadsheets

26.55 In addition to their report dated 26 October 2005, Ferrier Hodgson also prepared a series of spreadsheets which recorded the inland transportation fees (including 10 per cent after-sales-service fee) paid by AWB and the AWB Pool on a contract by contract and shipment by shipment basis. 60

26.56 A summary of the total amount of the inland transportation fees (including 10 per cent after-sales-service fee) paid under each of the contracts for which Ferrier Hodgson had prepared a spreadsheet was prepared by Counsel assisting this Inquiry and tendered as Exhibit 950 in this Inquiry. A copy of that summary is reproduced in Figure 13.4 in Appendix 13.

26.57 There are some differences between the TIC's schedule in its final report and the results revealed by the final version of the Ferrier Hodgson spreadsheets as summarised in Exhibit 950. The principal difference was that the Ferrier Hodgson spreadsheets list 26 contracts in respect of which inland transportation fees were paid. 61 These include the six contracts concluded with the grain traders Savas Grain and CSC and contract A1670, which were not listed in the IiC's schedule.62

Contracts A1670 and A1680 have not been included in the summary in Exhibit 950. This is because the inland transportation fees paid by AWB in respect of these two contracts were fees paid after the incursion in March 2003 and after AWB had entered into the Agency and Transport Services Agreement with Alia dated 21 October 2003.63 They were paid at a time when AWB was being required by the Coalition Provisional Authority/World Food Programme to deliver the wheat it was shipping to Iraq to silos in all of the governorates within Iraq, consistent with the terms of AWB's then subsisting written contracts with 1GB and which had been adopted by the CPA! WFP.M

122 Report of the Oil-for-Food Inquiry

The inland transportation fees paid by AWB under contracts A1670 and

A1680 after March 2003 were therefore genuinely payments to Alia for transport services that Alia provided to AWB. They were not payments to Alia by way of 'kickbacks' to Iraq in the sense used by the TIC final report. For these reasons the amounts paid under these two contracts have been omitted from the summary in Exhibit 950.

26.58 The final versions of the spreadsheets prepared by Ferrier Hodgson record that AWB paid approximately US$223.5 million in inland transportation fees in respect of the 26 contracts identified in Exhibit 950. 65 This figure was made up of:

• approximately US$47 million of inland transportation fees paid in US dollars between November 1999 and May 2001

• approximately DM108.2 (being the equivalent of US$50.24 million) paid between May 2001 and November 2001

• approximately €145 million (being the equivalent to US$126.245 million) paid between November 2001 and March 2003.

26.59 In addition, AWB Chartering paid a further US$565,541.76 on 3 April 2000 in relation to a shipment of wheat to the 1GB under AWB contracts A4821 and A4334.66 This was notwithstanding that no inland transportation fees were payable under either of those contracts. 67 This payment was not included in the final version of the Ferrier Hodgson spreadsheets. 68 When added to the amounts disclosed in the final version of the spreadsheets prepared by Ferrier Hodgson, the total amount of inland transportation fees paid was approximately US$224.13 million.

Conclusions as to the total amount of inland transportation fees paid in respect of AWB shipments

26.60 Between November 1999 and March 2003, a total of US$224,128,189.98 was paid by AWB in inland transportation fees and after-sales-service fees to Iraq under phases VI to XIII of the Oil-for-Food Programme. 69

These fees were paid in respect of 161 shipments under 28 contracts. 70

26.61 Of these 28 contracts:

• 21 contracts were concluded by AWB with the 1GB between July 1999 and March 2003. All but one of these contracts were under phases VI to )UII and were contracts in respect of which inland transportation fees were payable. The remaining contract, although concluded during phase VI of

Report of the Oil-for-Food Inquiry 123

the Programme, was treated as a contract under phase TV.71 Although no

fees were payable under that contract, fees were in fact paid

• six contracts were concluded with the grain traders Savas Grain and CSC. Of these, five contracts were under phases VI and VII and were contracts in which AWB expressly contracted with the grain traders to pay inland transportation fees. The sixth contract was for a shipment under phase V. Whilst no inland transportation fees were payable under that contract AWB in fact paid fees in relation to the shipment made under that contract

• the remaining contract was contract A4334. This was a contract concluded on 24 December 1998 under phase V of the Oil-for-Food Programme. Although no inland transportation fees were payable under that contract, AWB in fact paid fees in respect of one shipment 72 made under that contract.

26.62 Almost all of the inland transportation and after-sales-service fees paid in respect of these contracts (approximately US$223.318 million) was funded by a commensurate increase in the price of the wheat and thus recovered from the United Nations escrow account. 73

26.63 The fees paid that were not so recovered were borne by the AWB Pool.

Apportionment as between transportation fee and 10 per cent after-sales-service fee

26.64 AWB did not differentiate in its records between the transportation fee and the 10 per cent after-sales-service fee. Both fees were treated within the books of the AWB Group as 'inland transportation fees'. It is therefore not possible to discern a breakdown between the two components from AWB's own records.

26.65 The evidence before the Inquiry reveals that of the total amount of inland transportation fees paid between November 1999 and March 2003:

• US$146,101,906.59 was paid in respect of transportation fees over the whole of that period

• US$78,026,283.39 was attributable to the additional 10 per cent after-sales-service fee imposed in respect of those contracts concluded after November 2000.

124 Report of the Oil-for-Food Inquiry

Alia's payments to the Iraqi State Company for Water

Transport

2666 All of the inland transportation fees, including the additional 10 per cent, paid by AWB were paid directly or indirectly to Alia as described in Chapter 18.

The IiC's findings as to the application of funds received by Alia

26.67 In its final report, the TIC found that Alia was one of two Jordanian 'front companies' that:

posed as legitimate providers of transportation services from the port of Umm Qasr, but in practice provided only limited services at port and otherwise functioned as little more than conduits for the payment of transportation fees to ISCWT. In exchange, the companies received a small percentage of the fees they channelled to the regime. 74

26.68 The TIC also concluded:

All money paid by front companies or suppliers into ISCWT's account at the Amman branch of Rafidain Bank was transferred promptly into the company's account at the Baghdad branch of the same bank. Upon receipt of these funds, Rafidain Bank Baghdad would notify ISCWT. In addition, the front companies themselves would inform ISCWT that a supplier had fulfilled its obligations. 75

Alia's agreement with the ISCWT

26.69 On 13 November 1999, Alia entered into an agreement with the Iraqi State Company for Water Transport ('ISCWT') to collect inland transportation fees on ISCWT's behalf. 76

26.70 This agreement was recorded in a document dated 13 November 1999 entitled 'Meeting Minutes', the Arabic version of which was signed by Mr Al Absi as General Manager of Alia and by Mr Ibrahim Ismaeel as General Manager of the ISCWT.' The Minutes, as translated into English78 , recorded:

The undersigned persons were met to set up the business mechanism as follows:

1. In case the Marine Carrier logins Alia For Transportation & General Trade Co directly, in this case Alia shall provide Iraq State Company for Water Transport (Basra Branch) with the following data before the vessel's arrival into Umm Qaser, meanwhile ISCWT shall provide Alia with any new further data upon receiving them such as:

a. Vessel's Name. b. Vessel's Nationality. C. Supplier's Name. d. Beneficiary.

Report of the Oil-for-Food Inquiry 125

e.

Carrier's Name. f. Tonnage's quantity & kind. g. Total Transportation Fees.

2. ISCWT shall provide Alia with the following data upon the vessel's arrival at Iraqi Ports:

a. Arrival Date & Berth Date. b. Completion of Discharging date St Departure Date. c. Kind of Tonnage. d. Discharging Port. e. Discharged Quantity.

3. After informing Marine Agencies of receipt the remittance from Alia, ISCWT obliges the rest commitments with the concerned parties.

4. Alia For Transportation & General Trade Co shall deposit the full amount into ISCWT's account in Alrafideen Bank—Amman during five days, otherwise a percentage of (1%) demurrage will be counted monthly according to days.

5. Alia For Transportation & General Trade takes (1%) of total incoming remittances as commission against the services it provides to ISCWT (which is restricted to receiving amounts and depositing them into ISCWT's account).

6. As per the coordination between ISCWT and Alia according to official letters, bank's name and account's No & Beneficiary's Name will be specified.

7. This Business Minutes will be valid after the signature of the Transportation Minister.

8. The Mechanism performance shall be reconsidered after three months and according to the circumstances. 79

It makes plain in paragraph 5 that the function of Alia was restricted to the receipt and passing of money, not provision of transportation.

26.71 In October 2005, Mr Long travelled to Jordan to speak with Alia about the proposed findings of the TIC and in the course of his discussions with Mr Al Absi obtained a copy of this agreement. 80

ISCWT confirmation of its agreement with Alia

26.72 After the conclusion of the Oil-for-Food Programme, ISCWT confirmed that Alia had acted as a conduit for the receipt of funds to be paid to the ISCWT. In a letter dated 17 October 2004 addressed to Al-Own Public Transport Co. Ltd, Alia stated:

126 Report of the Oil-for-Food Inquiry

Subject: Goods transportation in accordance with the memorandum of

understanding signed between the United Nation and Iraq (for the Australian Wheat Council).

This is to confirm that Alia Company for Trading and Transportation was one of the companies receiving internal transport charges and transferred to the account of this company, and in its turn pay the public and private carrier in addition to insurance and ports for internal land transportation of goods in accordance with the memorandum of understating signed between the United Nations and Iraq and not for any of the previous regime personnel. 81 [emphasis in original]

26.73 The General Manager of Alia, Mr Al Absi, said that he received a copy of this letter in October 2004.82 According to Mr Al Absi, Al-Own Public Transport Co. is an Iraqi company owned by a relative of the Chairman of Alia.83

Collection of funds by Alia

26.74 According to evidence given to this Inquiry by Mr Al Absi, from late 1999 until the commencement of hostilities in Iraq and the end of the Oil-for-Food Programme in mid to late 2003 Alia collected inland transportation fees pursuant to its agreement with the ISCWT dated 13 November 1999. 84

26.75 Mr Al Absi's evidence was that all payments of inland transportation fees and after-sales-service fees by AWB to Alia were remitted, less a commission retained by Alia, to ISCWT in accordance with this agreement. 85 Effective 16 December 2000, the commission payable to Alia for this service was reduced from 1 per cent (as recorded in paragraph 5 of the agreement of 13 November 1999) to 0.25 per cent. 86

He also said that during the period Alia was collecting fees on ISCWT's behalf, it did not provide transportation services from the port of Umm Qasr to inland destinations in Iraq for AWB. Nor did it arrange for the provision of any such services.87

26.76 Mir Al Absi was aware from information that he received from the Iraqi Ministry of Transport, including from the Ministry of Transport representatives on the board of Alia, and from Alia's employees or agents in Iraq, that AWB wheat that arrived in Umm Qasr was transported from the

port by trucks organised by the Iraqi Grain Board (1GB) and the Ministry of Transport or companies that it owned or controlled. The companies owned or controlled by the Ministry of Transport were The General Company for Overland Transport and Al-Thalal. Those companies and the 1GB catered for

about 40 per cent of all trucking. The balance of the trucking was supplied by private companies that were contracted by the Ministry of Transport

Report of the Oil-for-Food Inquiry 127

companies or the 1GB. The private companies included Dolemi, Affan and Al-

Aoun. Alia did not use Al-Aoun as a sub-contractor for transport services in respect of AWB's shipments of wheat to Umm Qasr in the period 1999 to 2003.88

26.77 The position changed in 2003 when Alia started providing transport services from Umm Qasr for AWB after Alia had entered into an agreement with AWB Services in late 2003 for this purpose.89

26,78 Mr Al Absi explained the method by which the transportation fees were collected by Alia and passed on to the ISCWT pursuant to the agreement of 13 November 1999:

6. Alia's collection of the fees on behalf of ISCWT operated in the following way. Alia and ISCWT exchanged information about a particular supplier and vessel that was to arrive at an Iraqi port, including the total transportation fee to be collected. ISCWT would then issue to Alia an official Authorisation Letter that requested Alia to collect the transportation fees in relation to a particular shipment of goods and a particular supplier. ... A copy of the Authorisation Letter was also sent to the supplier either direct by ISCWT or sometimes through Alia because of communication problems. The supplier would then pay the transportation fees

into Alia's bank account at the Arab Land Bank or the Jordan National Bank in Jordan.

7. After the fees had been received into Alia's bank account, Alia would notify ISCWT of the receipt of the funds and would then deduct its commission from the payment and remit the balance to the ISCWT's bank account at the Raffadin Bank in Jordan. Alia's commission was originally 1% and then reduced to 0.25% because ISCWT considered the amount of 1% too high. Alia was required to remit the funds to ISCWT within a short period of time or it would be penalised. The penalty was a monetary penalty calculated as a percentage of the fee. 90

26.79 After the Iraqi government imposed the additional 10 per cent service fee, Alia commenced to collect this fee on ISCWT's behalf in addition to the trucking fees. It remitted such fees to ISCWT in exactly the same manner as it remitted trucking fees. 91

26.80 According to Mr Al Absi, during the period between 1999 and 2003:

Alia received many large payments from AWB Limited representing inland transportation fees and after sales service fees. The funds received from AWB, less Alia's commission, were all remitted to ISCWT in accordance with the agreement and procedures discussed above. Fees were also collected from other suppliers under the Oil-for-Food Programme, including Vinafood, Vinamilk, Vietnam National Tea Corporation, Thai Rice Co and Russian grain companies such as Savas Grain. 92

26.81 Documents produced to this Inquiry by the United Nations confirm Mr Al Absi's evidence.

128 Report of the Oil-for-Food Inquiry

Bank statements from Alia

Payments made to Alia in respect of the AWB shipments

2682 Between November 1999 and March 2003, inland transportation fees, including the additional 10 per cent after-sales-service fee were paid to Alia via a number of different bank accounts, which Alia were maintained with two banks in Jordan, the Arab Land Bank and the Jordan National Bank.

26.83 Initially, the fees were paid in US dollars into a US dollar account in the name of Alia with the Arab Land Bank in Jordan 93 (also known as the Egyptian Arab Land Bank). Most fees paid in US dollars thereafter were paid into that account. But for six payments made between 7 August 2000 and 2 October 2000, all US dollar payments continued to be made into Alia's US

dollar account with the Arab Land Bank, up until early May 2001 when AWB commenced to make payments of fees in Deutschmark. Between 7 August and 2 October 2000, six payments totalling US$4,431,698.70 were paid in US dollars into a US dollar account in the name of Alia with the Jordan National

Bank.94

26.84 From May 2001 until November 2001 inland transportation fees, including the additional 10 per cent, were paid in Deutschmarks. 95 These payments were made into a Deutschmark account in the name of Alia with the National Bank of Jordan. 96

2685 From November 2001 until March 2003, inland transportation fees, including the additional 10 per cent, were paid in euros. 97 These payments were made into a euro account in the name of Alia with the National Bank of Jordan. 98

Bank statements produced by Alia to the United Nations

26.86 In the course of the IIC's investigations, Alia produced to the TIC bank

statements for a number of different accounts (in a number of different currencies) maintained in the name of Alia. These bank statements were amongst the documents produced to this Inquiry by the United Nations. These documents did not include any bank statements for the US dollar account with the Arab Land Bank. However, they did include a number of bank statements produced for accounts with the Jordan National Bank in a number of different currencies, including US dollars, Deutschmarks and euro.

A sample of these bank statements was translated and copies of the original bank statements from that sample together with their translations were tendered as Exhibit 948.

Report of the Oil-for-Food Inquiry 129

Conclusions drawn from the bank statements produced

2687 The translations of Alia's bank statements included in Exhibit 948 record both:

• the receipt and payment into bank accounts in the name of Alia of inland transportation fees paid by AWB

the payment from those bank accounts to:

the account of the General Maritime Transportation Company with the Rafidain Bank. Some of these entries are expressed to be in relation to specific nominated vessels, including vessels chartered by AWB; and

- the account of the Iraqi Public Ports Company, also with the Rafidain Bank.

26.88 Appendix 24 contains an analysis of the entries appearing on page 7417 of a Deutschmark account with the National Bank of Jordan in the name of Alia 99 , covering the period from 9 May to 21 June 2001.

26.89 This analysis reveals:

• the receipt by Alia and deposit into its Deutschmark account of four payments, each of which can be traced to a payment of inland transportation fees 100 by AWB in respect of shipments of wheat made by AWB under contracts A0430, A0552 and A0553

• the transfer from this account of monies to the credit of the account of the General Maritime Transportation Company with the Rafidain Bank. The entry recorded on this page for each of these transfers states that the transfer is related to a vessel which is named

• each of the vessels named is a vessel that AWB chartered

• each of the vessels named was a vessel in respect of which inland transportation fees were paid by AWB, these payments corresponding to the four deposits recorded

• for each transfer from this Deutschmark account of Alia to the account of the General Maritime Transportation Company, the amount that was transferred was 99.75 per cent of the amount that Alia received from AWB in relation to the vessel named in the entry for that transfer

• that proportion of the total amount that Alia retained in relation to each of these vessels after the transfer to the account of the General Maritime

130 Report of the Oil-for-Food Inquiry

Transportation Company was one quarter of one per cent (or 0.25 per

cent) of the amount received, consistent with Mr Al Absi's evidence that Alia retained a commission of 0.25 per cent of the amounts that it received on behalf of the ISCWr.°'

26.90 Appendix 24 identifies five further pages taken from Exhibit 948 where the bank statements produced for Alia's euro account with the National Bank of Jordan record:

• Alia's receipt of inland transportation fees, including the additional 10 per cent after-sales-service fee, paid by AWB in euros in respect of AWB shipments of wheat

• the subsequent payment from that account of significant amounts to the account of the General Maritime Transportation Company with Rafidain Bank.

26.91 Although the bank statements referred to in Appendix 24 also include entries recording the transfer of monies from this euro account to the credit of account of the General Maritime Transportation Company with the Rafidain Bank and although many of these entries state that this transfer is in relation to a particular vessel or vessels, the vessels are not named in these entries or otherwise identified in the bank statements. It is therefore not possible to link directly the deposit of inland transportation fees into this account in relation to particular shipments with the payment(s) out associated with that shipment. What these bank statements do record, however, is that Alia was transferring from the account into which at that time Alia was banking inland transportation fees paid to it in euros (including by AWB) the bulk of those

deposits from that account to the credit of account of the General Maritime Transportation Company with the Rafidain Bank.

Application of AWB funds within Iraq

The IiC's findings

26.92 In its final report, the TIC reported that Iraqi officials had explained that the transportation fees were unusually high and included a generous margin of profit that was transferred to accounts held by the Iraqi Ministry of Finance or Central Bank of Iraq (CBI). 102 It was also reported by the IIC that the Minister of Oil Rashid had noted that the inland transportation fees were introduced to

generate supplemental cash and did not relate to internal costs. 103 Further, a senior official of Alia was reported as having stated that the actual inland

Report of the Oil-for-Food Inquiry 131

transportation costs were minimal and that the fee essentially 'was a payment

to the Government of 104

26.93 The TIC also found in its final report that internal Iraq documents note that

with each successive phase of the Oil-for-Food Programme, the Iraqi regime successfully diverted additional funds accrued for inland transportation charges to Iraqi ministries and government organs unconnected to transportation services. 105

26.94 Also included in the TIC final report was a table headed 'MOU Transport

Tariff 106 identifying the inland transport fees paid for wheat during phases VI to VIII and how the proceeds of those fees were to be distributed within the various Iraqi government entities 107 :

Figure 26.1 Extract: Volcker report, p. 274 UNO.0005.0281

INDEPEND ENT INQUIRY COMMIZTEE INTO THE UNITED NATIONS OIL-I'OR -PCSD PROGRAMME

REPORT ON PROGRAMME MANIPULATION

CI-IAFTER THREE HuNIANITARJAY GOODS TRANSACTIONS AND ILLICIT PAYMENTS

MOU Transport Tariff

Figure: "MOU Transport Tariff" (2010) (translated from Arabic).

Source: Ex 13, UNO.0005.0001 at 0281; Volcker report, p.274.

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132 Report of the Oil-for-Food Inquiry

2695 The TIC found that although fees increased slightly between phases VI and VII

and substantially between phases VII and VIII, the funds earmarked to entities involved in port and transportation services remained constant. For example, the amount allocated to land transport remained at US$9 per tonne through out and the amount allocated to ports varied between US$1 and US$3 a tonne. The schedule also provided for other ministries and departments such as the 1GB, Ministry of Trade and National Insurance Company to receive only small percentages of the total fees. 108

26.96 The TIC's final report noted that the only entity's share of the inland

transportation fees which increased significantly between phases was that of the Ministry of Finance. 109 This Ministry did not receive any portion of fees collected on bulk goods such as wheat in phases VI and VII. However it was afforded as much as US$10 per tonne (higher than any other beneficiary) in

phase VTII. 110 Moreover the IIC found that these remittances to the Ministry of Finance did not reflect any assistance by the ministry in the handling or transport of goods and may have included a portion of the after-sales-service fees.11 ' Rather they denoted a cash surplus that would be retained at the Central Bank of Iraq to be spent at the Iraqi's regime's discretion. 112

26.97 Following its discussion of the introduction of the 10 per cent after-sales-service fee" and the expansion of the scheme 114 , the TIC in its final report gave an example from June 2002 of the dissemination of inland transportation fees collected by Alia in connection with a contract between AWB and the 1GB"5:

2698 The fees referred to as having been collected and distributed in this document were received by Alia from AWB in relation to wheat shipped by AWB on the vessel Bei Hai under AWB contract A1112. This was a shipment in respect of which AWB was paid €11.09 million from the United Nations escrow account 116 or approximately US$10.76 million. 117 Documents produced by AWB to this Inquiry confirm that AWB paid inland transportation fees of €2,326,800 in respect of this shipment. 118 These fees amounted to almost 21 per cent of the contract price. 119

Report of the Oil-for-Food Inquiry 133

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j

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0 -4

Figure 26.2 Extract: Volcker report, p. 283

UNO.0005.0290

INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS Om-FOR-F000 PROORAI40EE

REPORT ON PROGRAMME MANIPULATION

CHAPTER THREE HUMANITARIAN Goons TRANSACTIONS AND ILLICIT PAYMENTS

40OD716Si.I257jfl.gj5, 14764

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0.14:1/02202

ff4014 .9,a,2,1l :45,4 155, 141 241.

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Figure: Form for transferring MOU goods, COMM no. 1100013 (June 1, 2002) (translated from

Arabic).

Source: Ex 13, UNO.0005.0001 at 0290; Volcker Report, p. 283.

26.99 In relation to this shipment and the fees collected by Alia, the TIC concluded in

its final report:

The record indicates that AWB paid approximately $2.3 million in nominal transportation fees for the trucking of 41,579 metric tons of bulk wheat shipped on the vessel Bei Hai— a rate of approximately $54 pmt. Of these funds, ISCWT earmarked $0.98 million for the Ministry of Finance as an after-sales-service fee. This sum equates to a markup of approximately ten percent of the value of the wheat (inclusive of transportation charges) discharged from the Bei Hai. The remaining $1.3 million in transportation fee revenues were disseminated as follows: (1) $0.53 million, or $12.61 pmt for the Ministry of Finance (termed as 'additional'); (2) $0.41 million, or $9.75 pmt, for Land Transport; (3) $0.09 million, or $2.17 pmt for ports; and (4) between $0.01 and $0.07 million or roughly $0.13 pmt to $1.71 pmt, for other service providers such as ISCWT and National Insurance Company. 120

26.100 This document and shipment are considered in more detail in Appendix 25.

134 Report of the Oil-for-Food Inquiry

740.224020 S s.d 45. 7 4 ft7o, AD C.. 02.F101220 22 1450525017767o14 45.Co

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INDEPENDENT INQUIRY COMMITTEE INTO THE UNITE)) NATIONS OIL-PoE-FOOD PROGRAMME

REPORT ON PROGRAMME MANIPULATION

CHAPTER THREE HuIT1tmAN Goons TRANSACTIONS AND ILLICIT PAYMENTS

Chart E — Sample Distribution of AWB Inland Transportation" Fees 458

6.409% 61,110(1,790101, 71330102")

AWB __

çw.

flannel *201803,64 (80 5710) P041 $90 1465.16 ($21108910) 10161 $20,100.01 190,6308160) $18 011089,492.42 ($0.13 P89101)

16, 796.1461 824,001.60(80 flp& 897,)

LIII 1407.040.23 (61 199.7 00)

7,8,01469 647.80063 (sitS 901901)

6613196$ C1lfl,.73,d#1P.6 $07,647 01 )$(,)90e19)

S 23.31%

$10

ISCwr

4-41,

Source: Ex 13, UN0.0005.0001 at 0291; Volcker report, p.284.

26.101 In its final report, the TIC represented the distribution of inland transportation

fees in the document depicted in Figure 26.3. 121

Figure 26.3 Extract: Volcker report, p. 284

The TIC found that the ISCWT applied this distribution framework to all of the funds that it received from contractors after phase VIII of the Oil-for-Food Programme. 122

Documents produced to this Inquiry

26.102 This Inquiry also obtained from the United Nations:

• a number of documents recording decisions by the Iraqi government to impose inland transportation fees, and later after-sales-service fees, upon its suppliers under the Oil-for-Food Programme'

• documents recording the receipt by the Iraqi government of funds from Alia which were originally paid to Alia as inland transportation fees and the application of those funds once in Iraqi hands. 124

26.103 Those documents reveal that monies paid to Alia by way of inland transportation fees and the 10 per cent after-sales-service fees were paid by Alia to the ISCWT and then distributed to various departments of the Iraqi

Report of the Oil-for-Food Inquiry 135

government. This distribution was presumably in accordance with the

directives issued by the Iraqi Vice President and Deputy Prime Minister.

26.104 A minimal proportion of the funds received from Alia and distributed was allocated on account of the transportation and discharge of goods. The majority—in the documented cases approximately two thirds—of the funds collected were allocated to the Iraqi Ministry of Finance. 125 There is no material before this Inquiry to show how or for what purposes the Ministry of Finance applied those funds.

26.105 Included amongst the documents produced by the United Nations were five documents, each entitled 'MOU goods transport form'. The documents were in Arabic. Translations were also provided by the United Nations. The translations were tendered as part of the evidence of this Inquiry. They became Exhibits 80 and 81. 126 Exhibit 80 was the translation of one of these documents. 127 It was the same document that was the subject of the comments of the TIC in its final report at pages 283-284 and is reproduced in Figure 26.2. Exhibit 81 comprised the translations of the other four documents. 128

26.106 Exhibits 80 and 81 record, on five separate occasions between June and December 2002:

• the receipt by the Iraqi government (in particular the ISCWT) from Alia of monies paid to Alia by AWB being inland transportation fees

• the allocation by the Iraqi authorities of the funds received from Alia amongst various Iraqi Ministries and agencies.

Exhibit 80 26.107 For example, Exhibit 80 refers to the receipt from Alia of US$2,247,211.26 in respect of a shipment of Australian wheat discharged at Umm Qasr from the vessel Bei Hai in May 2002.129 This shipment was under AWB's contract A1112

with the 1GB.

Documents produced by AWB to the Inquiry confirm that AWB paid inland transportation fees of €2,326,800 to Alia in respect of this shipment. Of these funds, Alia remitted €2,320,976 to the ISCWT. 130 This was after deduction of Alia's 0.25 per cent commission. The amount remitted was converted to US$2,251,346 from which service fees of US$4,138.39 were deducted.

The balance amounting to approximately US$2,247,211.26 was then distributed between various Iraqi authorities and departments in the amounts set out in Exhibit 80. This information is repeated in Table 26.1.

136 Report of the Oil-for-Food Inquiry

Table 26.1

Distribution of amount received from Alia in relation to the shipment on the Bei Ha! (Exhibit 80)

Amount Proportion of fees paid (in US $) for this shipment (%) Recipient

Amount paid to ports 90,455.16 04.03

Amount paid to water 26,250.01 01.17

Amount paid to water: 25% marine agencies 5,492.42 00.24

24,001.60 01.06

Amount paid to land 40,7048.22 18.11

Amount paid to railroad Nil

Illegible 47,607.97 02.12

Amount paid to grains Co. 71,411.97 03.18

Services and Correspondence 47,607.98 02.12

Shortage amount/Packaged Nil

Amount paid to the Ministry of Finance—additional 526,715.01 23.44

Amount paid to the Ministry of Finance—service 976,816.93 43.47

Amount paid to al-wataniya insurance 23,803.66 01.06

Total US$2,247,210.93 100.00

It is apparent from Exhibit 80 that just over US$1.5 million or approximately two thirds of the monies that the Iraqi government received from Alia 131 in respect of the inland transportation fees including the 10 per cent after-sales-service fee paid by AWB for its shipment on the Bei Hai was allocated to the

Iraqi Ministry of Finance. The purposes to which the Ministry of Finance applied these funds is not known.

26108 A mere 18 per cent of the total amount received from Alia was distributed to 'land', presumably in respect of land transport. Just over 4 per cent of that total amount was allocated to the ports company and approximately 2.3 per cent to 'water'. Finally, a little over 3 per cent of the total amount distributed

was paid to the 'grains Co.' - that is, the 1GB.

A more detailed discussion of Exhibit 80 and the information it contains is in Appendix 25.

Exhibit 81

26.109 Similar conclusions can be drawn from each of the four similar documents comprising Exhibit 81. Appendix 25 contains a detailed discussion of each of those documents and the information that they contain.

Report of the Oil-for-Food Inquiry 137

26.110 Appendix 25 reveals in respect of each of these documents and the shipments

to which they relate that in the period between June and December 2002:

• approximately two thirds (66 per cent) of the total amount being distributed was paid to the Ministry of Finance. This is equivalent to approximately US$35 per tonne

• between 17 per cent and 19 per cent of the total amount being distributed was paid to 'land' or on account of land transport. This amounts to approximately US$9 per tonne

• between 2 per cent and 4 per cent of the total amount being distributed was paid to 'ports'

• a further 1.5 per cent to 2 per cent of the total amount being distributed was paid to 'water'

• approximately 3 per cent was paid to the State Company for Grains (Ministry of Trade) namely the 1GB.

138 Report of the Oil-for-Food Inquiry

Notes

1 In this chapter, a reference to inland transportation fees paid by AWB or the AWB Pool after April 2001 includes the additional 10 per cent (after-sales-service) fee that was first imposed in relation to shipments of wheat under contract A0430 and that applied to all shipments under contracts between AWB and the 1GB thereafter. To avoid confusion that component of the inland transportation fees paid in respect of contracts A0430 and following specified as the transportation charge or cost of transportation of the wheat may also be described as a trucking fee. 2 This is the total of the payments made in US dollars and the US dollar equivalent of the payments made by AWB in Deutschmarks and euros. 3 Namely AWB contract A4993 and contract A0062, in respect of which shipments were made in August and September 2000.

4 Namel y contract A0101 in respect of which shipments were made in September and October 2000. This is examined in some detail in Chapter 18. 6 This is discussed in some detail in Chapter 18. 7 See the exchange between Mr Stott and Mr Watson at Ex 288, AWB.0138.0378_R; Ex 335, WST.0009.0356. 8 See below in relation to May 2001. 9 This increase and its imposition is examined more closely in Chapter 21. 10 See Table 13.1 in Appendix 13. 11 That is, the contract price less the inland transportation fee payable by AWB and recouped as part of the

contract price. 12 Being the Contract price less the inland transportation fee payable by AWB and recouped as part of the contract price. 3 Over this period this range of inland transportation fees represented approximately 26 per cent to 22 per cent of the CIF free out price that would have otherwise been payable. Although the fee charged increased

during this period, the percentage of the CIF free out price that that fee represented fell slightly as the price of the wheat rose by a proportionately greater amount. 14 Ex 1376, AWB.5004.0175; See also Chapter 21, 11 Namely for AWB contracts A0552, A0553, A0784, A0785, Allil, A1112 and A1441. 16 Namel y for AWB contracts A1670 and A1680.

17 The inland transportation fees were paid from this bank account as prior to September 2000 all trading activities of the AWB Group including AWB Chartering were conducted through AWB (Australia) Limited; See Chapter 9. 18 Ex 1462, AWB.0090.0294_R. 11 Also Deutsche Bank (Frankfurt); Ex 1463, AWB.0079.0008. 21 For contracts A0784 and A0785 concluded 2 June 2001, contracts Allil and A1112 concluded 20 December 2001, contract A1441 concluded 23 June 2002 and contracts A1670 and A1680 concluded 11 December 2002. 21 The request for payment of the inland transportation fees was initially made on 26 April 2001, however

the payment was in fact not made until 2 May 2001. 22 Ex 950, INQ.0017.0062. 23 An example of this first method is to be found in the payment of DM9,265,955.10 made on 19 June 2001 (Ex 1463, AWB.0079.0106, AWB.0079.0107). That payment represented the first instalment of the inland

transportation fees payable in respect of two shipments under AWB contract A0552 and the second payment of the instalment due for two other shipments under AWB contract A0430 (Ex 1463, AWB.0079.0107). The payment was requested by the International Marketing Division - Middle East Desk, in particular Mr Hogan. It was authorised by Mr Ingleby and Ms Scales. The Commonwealth Bank of Australia is incorrectly referred to as the Commercial Bank of Australia in endnotes 110, 131, 142,157 and 177 to

Appendix 24. 24 It was for example from this account that the payment of 2 May 2001 (being the first instalment of the inland transportation charges applicable to each of the shipments under contract A0430) was made. 25 Ex 950, INQ.0017.0062.

26 The Commonwealth Bank of Australia is incorrectly referred to as the Commercial Bank of Australia in endnotes 110, 131, 142,157 and 177 to Appendix 24.

Report of the Oil-for-Food Inquiry 139

27

For example inland transportation fees of €4,480,596.52 were paid by AWB on 16 November 2001. This

payment was made pursuant to a request dated 13 November 2001 and represented payment of a portion of the inland transportation fees for two shipments, one under contract A0784 and the other under contract A0552 (Ex 1463, AWB.0079.0007). The funds were paid out of AWB's euro account with the Commonwealth Bank on 16 November 2001 (Ex 1463, AWB.0162.0106). The payment was met from the deposit of an identical amount the previous day (Ex 1463, AWB.0162.0106). That deposit was described as a 'FX payment'

or foreign exchange payment and was presumably the result of a foreign currency exchange, in particular an exchange of US dollars into euros. 28 Ex 160, AWB.0144.0220. See also Chapter 21. 29 Being the total inland transportation fee that had been payable under the immediately preceding Phase

VIII contracts. 30 Ex 160, AWB.0144.0220. 31 Ex 160, AWB.0144.0220. 32 Ex 1463, AWB.0061.0192, AWB.5049.0318. 33 Ex 1464, AWB.0090.0068_R, AWB.5049.0318.

°' Ex 1465, AWB.0062.0558_R. 35 This is to be contrasted with the ocean freight for the voyage from Australia to Iraq that AWB was also required to pay in full in respect of these shipments prior to its receipt of the proceeds of sale, which was between US$750,000 and US$1 million per shipment. 4° Ex 1376, AWB.5067.0371_R. 37 Ex 1376, AWB.5067.0371_R. 38 Ex 403, AWB.5094.0313. 39 Ex 403, AWB.5094.0313.

° Ex 142, WST.0005.0001 at 0034-0035, para. 122. 4' Ex 335, WST.0009.0001 at 0034, para. 148(c)(iii). 4° That is the CIF price, with no allowance for the cost of any carriage (other than the ocean carriage) or the cost of the discharge of the cargo. '° Or Free on Truck (FOT) price. 4° That is except for some of Mr Lister's file covers which did record the transportation fee component and the additional 10 per cent fee separately. 45 Ex 502, AWB.0338.0129_R.

4° Ex 502, AWB.0338.0132. 47 Ex 502, AWB.0338.0129_R at 0130_R. 48 Ex 502, AWB.0338.0132. 9 Ex 951, DFT.0001.0487_R; See also T 625.43-44, T 631.33-37. 50 Ex 951, DFT.0001.0487R. A copy of the schedule is Ex 502, AWB.0338.0132. This was the schedule that accompanied the IIC's letter dated 26 September 2005. 51 Ex 951, DFT.0001.0487_R-0488_R. 52 Ex 951, DFT.0001.0487_R. 53 Ex 951, DFT.0001.0487_R at 0488_R. 54 Ex 951, DFT.0001.0487_R at 0488_R. 55 Ex 13, UNO.0005.0001 at 0321 (Volcker report, p. 314) and 0332 (Volcker report p. 325). 56 In its letter of 26 September 2005; Ex 502, AWB.0338.0129_R-0131_R.

' Ex 502, AW13.0338.0132. 58 There were some slight differences in some of the amounts listed in Table 8 as after-sales-service fees from the corresponding figures in the earlier schedule. The schedule in Table 8 also included inland transportation fees of US$9,668,626 in respect of contract 1200083 which had not been included in the earlier schedule. 59 The breakdown between inland transportation fees and after-sales-service fee found on the evidence before this Inquiry is set out later in this chapter. 68 A separate spreadsheet was prepared for each contract during these phases. Each of these spreadsheets identified each of the shipments made under that contract and listed for each of those shipments the amount of the inland transportation fees paid. The final version of these spreadsheets were tendered as a confidential exhibit before this Inquiry (Ex 368C; see also Ex 1377, AWB.0130.0001_R-0046_R).

140 Report of the Oil-for-Food Inquiry

61

The IiC's schedule lists 19 contracts.

62 The six contracts with the grain traders were presumably not listed against AWB by the TIC in its final report because it was not AWB who contracted directly with the 1GB and it was therefore not the Australian Mission to the United Nations who obtained United Nations approval for these contracts under the Oil-for-Food Programme. ° Ex 954, AWB.0211.0001 -0012; See Chapter 25. 64 In particular consistent with the manner in which the price of the wheat had been expressed. 65 This is excluding any payments made under contracts A1670 and A1680, which payments were made after

the commencement of hostilities in Iraq in March 2003 and were paid to Alia under an agreement between AWB and Alia under which Alia was to arrange for the carriage of wheat to all silos in all governorates on behalf of AWB and where the inland transportation fees paid were not transmitted or to be transmitted to Iraq- 66

This was in respect of two shipments of wheat shipped by AWB under these contracts on the Pretty Lady. The inland transportation fees paid in respect of these two shipments are part of the US$1,140,953.76 of inland transportation fees paid to Tse Yu Hong Metal Limited for payment on to Alia referred to in Ex 1450, AWB.0045.0013R, AWB.0163.0170. 67 Both of those contracts were concluded on 'CIF free out' terms (rather than OF Free in Truck to silo to all Governates of Iraq) under which no inland transportation fees were payable. Because of the terms on which these shipments were sold, the AWB Pool was not directly reimbursed the cost of the inland transportation fees paid in respect of these two shipments by a commensurate increase in the price paid for the wheat shipped (as was the case with those shipments made under contracts where inland transportation fees were

payable). Accordingly the cost of the inland transportation fees paid by AWB (and through it the AWB Pool) in respect of this shipment under these two contracts was borne by the AWB Pool from the profit it otherwise derived from the sale of this wheat. 68 Or for that reason Ex 950, INQ.0017.0062 (as to contract A4821 see note 1 in Ex 950, INQ.0017.0062). 69 Ex 950, INQ.0017.0062, together with the further US$565,541.76 paid in respect of contracts A4821 and

A4334 not listed in that exhibit. OIncl udi ng the three contracts (A4821, A4334 and A4907) in respect of which no inland transportation fees were in fact payable under the terms of the contract but inland transportation fees were in fact paid in respect of wheat shipped under those contracts. 71 In addition, inland transportation fees were also paid in respect of a shipment under contract A4334,

which was a contract under Phase V of the Oil-for-Food Programme concluded prior to July 1999 (on 24 December 1998). 72 Th e last shipment. 3A total of US$811,625.76 of inland transportation fees was paid by AWB in relation to shipments made under the three contracts in respect of which no inland transportation fees were payable (namely contracts

A4821, A4334 and A4907) and which were not thereby funded by an increase in price and thereby funds drawn upon the United escrow account. 14 Ex 13, UNO.0005.0001 at 0277-0278; Volcker Report, pp. 270-271. 11 Ex 13, UNO.0005.0001 at 0278; Volcker report, p. 271 and footnotes 435 and 437. 11 Ex 141, WST.0007.0001, para. 4. 77 Ex 141, WST.0007.0006-0007. 78 Ex 141, WST.0007.0008-0009; Ex 82, AWB.0213.0013. 79 Ex 141, WST.0007.0008-0009.

0 Ex 82, AWB.0213.0033-0034. 81 Ex 141, WST.0007.0011(Arabic original), WST.0007.0012 (translation); See also Ex 949, UNO.0006.0024 (translation), UNO.0006.0025 (Arabic original). 82 Ex 141, WST.0007.0001 at 0003, para. 10. 83 Ex 141, WST.0007.0001 at 0003-0004, para. 12; See also Ex 82, AWB.0213.0046 at 0047. 84 Ex 141, WST.0007.0001 at 0002, para. 5.

85 Ex 141, WST.0007.0001 at 0003, para. 9. 86 Ex 949, UNO.0001.0066, para. 2, UNO.0001.0068 (Arabic original); See also Ex 141, WST.0007.0001 at 0002, para. 7. 87 Ex 141, WST.0007.0001 at 0003, para. 11.

Report of the Oil-for-Food Inquiry 141

88

Ex 141, WST.0007.0001 at 0003, para. 12.

89 Ex 141, WST.0007.0001 at 0004, para. 13; See also Chapter 25. 90 Ex 141, WST.0007.0001 at 0002, paras 6-7. 91 Ex 141, WST.0007.0001 at 0002, para. 8. 92 Ex 141, WST.0007.0001 at 0003, para. 9. 93 Ex 118, MAE.0002.0069; Ex 1447, AWB.0071.0225_R, AWB.0042.0009_R, AWB.0163.0003_R,

AWB.0042.0007_R, AWB.0063.0029_R. 94 See for example Ex 1456, AWB.0053.0046_R, AWB.0064.0035_R, AW13.0053.0094R, AWB.0164.0046_R. 91 See above. 96 See for example Ex 1462, AWB.0164.0212_R, AWB.0079.0106_R. 97 See above. 98 See for example Ex 1463, AWB.0079.0006_R, AWB.0079.0040_R. 99 Ex 948, UNO.0020.0025 at 0040 (Arabic original), LTNO.0020.0084-0086 (Translation). 100 Including the additional 10 per cent (after-sales-service) fee first imposed in relation to contract A0430. 101 Ex 141, WST.0007.0001 at 0002, para.7. 102 Ex 13, IJNO.0005.0001 at 0280; Volcker Report, p. 273. 103 Ex 13, UNO.0005.0001 at 0280; Volcker Report, p. 273. 104 Ex 13, UNO.0005.0001 at 0280; Volcker Report, p. 273. 105 Ex 13, UNO.0005.0001 at 0280; Volcker Report, p. 273. 106 Ex 13, UNO.0005.0001 at 0281; Volcker Report, p. 274. °7A copy of this document also appears in Ex 997, UNO.0001.0070. 108 Ex 13, UNO.0005.0001 at 0281; Volcker Report, p. 274. 109 Ex 13, UNO.0005.0001 at 0282; Volcker Report, p. 275. 110 Ex 13, UNO.0005.0001 at 0282; Volcker Report, p. 275. 111 Ex 13, UNO.0005.0001 at 0282; Volcker Report, p. 275. 112 Ex 13, UNO.0005.0001 at 0282; Volcker Report, p. 275. 113 Ex 13, UNO.0005.0001 at 0283; Volcker Report, p. 276. 114 Ex 13, UNO.0005.0001 at 0287; Volcker Report, p. 280. 115 Ex 13, UNO.0005.0001 at 0289-0290; Volcker Report, pp 282-283. 116 Ex 13, UNO.0005.0001 at 0290; Volcker Report, p. 283, footnote 457; See also Ex 1211, UNO.1214.0467. 117 Ex 13, UNO.0005.0001 at 0290; Volcker Report, p. 283, footnote 457—the US$ figure was calculated applying the exchange rate used by the ISCWT in its calculations in relation to the amounts received. 118 Ex 1468, AWB.0079.0022_R. See also Appendix 25. 119 The inland transportation fee paid per tonne represented approximately 26 per cent of the CIF free out price for the wheat sold under this contract A1112. 120 Ex 13, UNO.0005.0001 at 0290; Volcker Report, p. 283. 121 Ex 13, UNO.0005.0001 at 0291. 122 Ex 13, UNO.0005.0001 at 0291; Volcker Report, p. 284. 123 Ex 997, AWB.0086.0172_R-0173_R, AWB.0086.0174-0175, AWB.0086.0178-0180, UNO.0001.0008-0009, UNO.0001.0016-0017, UNO.0001.0022-0023, UNO.0001.0026-0028, UNO.0001.0070, UNO.0001.0081, UNO.0001.0089-0090. 124 Ex 1377, AW13.0295.0239. 125 Consistent with the findings of the IIC in its final report. 126 Ex 80, UNO.0003.4875; Ex 81, UNO.0001.0083, UNO.0003.4856, UNO.0003.4892, UNO.0003.4949. 127 Ex 80, UNO.0003.4875. 128 Ex 81, UNO.0001.0083, UNO.0003.4856, UNO.0003.4892, tJNO.0003.4949. 129 Although the vessel's name was covered over in the copy of the document that comprises Exhibit 80 for confidentiality reasons, it is clearly apparent on the copy of the document reproduced at Ex 13, UNO.0005.0001 at 0290; Volcker Report, p.283. 130 Ex 80, UNO.0003.4875. 131 Following deduction of its 0.25 per cent commission and the 'Service fees' referred to in Ex 80, UNO.0003.4875. 142 Report of the Oil-for-Food Inquiry

27 BHPP, the Iron Filings

Claim, and Tigris

The BHP and Tigris companies 27.1 BHP Limited was incorporated in 1885 to mine zinc, lead and silver deposits in Broken Hill. It subsequently diversified into iron ore, steel making, petroleum, coal, copper and gas. The BHP Billiton group was formed on

29 June 2001 by the dual listed companies' merger of BHP Billiton Limited (Australian listed company, previously know as BHP Limited) and BHP Billiton plc (United Kingdom listed company previously known as Billiton plc). Those two companies and their respective subsidiaries continue to exist separately but operate together as a single economic entity.'

27.2 Today, the BHP Billiton group employs 37,000 employees in over 100 operations in more than 20 countries. It is the world's second largest copper producer, second largest exporter of energy coal and a major producer of nickel, uranium, aluminium, oil and gas, and has significant investments in many other mining and industrial ventures.

27.3 BHP Petroleum Pty Ltd, now BHP Billiton Petroleum Pty Ltd (BHPP), is BHP Billiton's petroleum business and has at all times been a wholly owned subsidiary of BHP Limited or BHP Billiton Limited. It explores, develops and produces oil and gas throughout the world, including Algeria, Australia, the United Kingdom, the United States of America, Trinidad and Tobago and Pakistan. Its capital expenditure in 2005 was $962 million.

27.4 Mr Prescott AC was the Managing Director and Chief Executive Officer of BHP Limited (BHP) from May 1991 to March 1998.

27.5 Mr O'Connor was the Chief Executive Officer of BHPP from 1994 until July 1997. 2 Mr O'Connor was succeeded by Mr Aiken, who remained in that position at the date he gave evidence. Mr Aiken first joined BHP in May 1997 as Executive General Manager of Corporate Development, responsible for

corporate services other than finance within the BHP group.

27.6 Mr Davidson Kelly was BHPP's General Manager Business Development reporting initially to Mr O'Connor and then to Mr Aiken. He joined BHPP in February 1995.3 He was responsible for business development in the Middle East and Caspian regions. Mr Davidson Kelly was a member of the executive

Report of the Oil-for-Food Inquiry 143

committee of BHPP and was engaged by BHPP through his company,

Davidson Kelly and Co Limited (registered in England). Mr Davidson Kelly's contract terminated on 31 March 2001 and thereafter he was engaged by BHPP on a part-time basis (15 days per quarter). In late 2001 Mr Davidson Kelly's contract with BHPP came to an end.

27.7 Mr Harley moved in 1994 from a position in BI-IP's Corporate Treasury to the role of Group Manager Financial Structuring in BHPP. Mr Harley's responsibilities as Group Manager Financial Structuring included facilitating project financing in relation to various projects and supporting current and proposed mergers, acquisitions and divestment projects. After Mr Davidson Kelly's appointment in February 1995, Mr Harley, though nominally reporting to Mr Veins, the Group General Manager Planning at BHPP, was in practice directed by Mr O'Connor to report to Mr Davidson Kelly. Mr Harley remains with the BHP Billiton Group. He became President of Corporate Development within BHP Billiton in 2004.

27.8 Mr Lyons was head of the Corporate Legal Department within BHP Limited until March 1995 after which he commenced providing legal support to the BHPP business. From 1995 until 2001 he held the position of Group Manager Legal for BHPP and was responsible for its legal services on a global basis. He reported to Mr Barnes, the General Manager of Finance and Administration

who in turn reported to Mr O'Connor. In about December 1999, Mr Fast was appointed General Counsel of BHP Billiton; and Mr Fast reorganised the legal teams that worked with the various businesses of BHP Billiton. As a result of this reorganisation, Mr Lyons became Regional Counsel for Australia and Asia with legal responsibility for all BHP Billiton businesses within that region. Mr Lyons worked part time in that role until his retirement in December 2004.

27.9 Mr Worthington was appointed to the position of Manager, Russia and Middle East Business Development for BHPP in August 1995. He reported to Mr Killion, Vice President of Marketing and Development. In the first quarter of 1996 Mr Worthington was appointed to the position of team leader Iraq and Iran, reporting to Mr Paver, President of BHPP's Europe, Russia, Middle East and Africa regional division. Mr Worthington's team become known as the Business Development Team. 6

27.10 In March 1996 Mr Stott left the Australian Wheat Board and commenced employment with BHPP as International Business Development Manager 7. He reported to Mr Davidson Kelly. Prior to joining BHPP, Mr Stott had been employed at the Wheat Board since 1983. Between 1988 and 1996 Mr Stott managed the Middle East, Europe and Africa desk and was responsible for marketing wheat to all non-Asian markets. In July 2000 Mr Stott returned to

144 Report of the Oil-for-Food Inquiry

AWB as General Manager of International Sales and Marketing, reporting to

Mr Goodacre.

27.11 The Tigris Petroleum Corporation Limited (Tigris) is a company registered in Gibraltar. Mr Davidson Kelly is its President. The directors of Tigris are lawyers in Gibraltar and the sole shareholder is a foundation, in the nature of a trust, the beneficiaries of which are relatives of Mr Davidson Kelly's wife. 8 The Tigris Petroleum Corporation Pty Limited ACN 094592793 (Tigris Australia) is a company limited by shares incorporated in Australia, and has Mr Davidson Kelly as its sole director and secretary. All shares in Tigris Australia are owned by Maritimo Investments Limited. Maritimo Investments Limited is another Gibraltar registered company and is ultimately owned by Mr Davidson Kelly. Atlantic Oil and Gas Management Limited is another company associated with Mr Davidson Kelly. It is registered in the British Virgin Islands and chaired by Mr Davidson Kelly. The Managing Director is Mr Taylor.

27.12 It is necessary to set out in significant detail the history of the dealings between BHP, AWB, DFAT, 1GB and the UN regarding what has become known as the 'Tigris transaction'.

Events leading up to the BHPP wheat shipment in 1996

27.13 Following the commencement of UN sanctions against Iraq and the freezing of Iraq's bank accounts in 1991, until 1995 AWB sold wheat to Iraq on cash against documents basis as Iraq's funds permitted. References to AWB in this chapter are to the Australian Wheat Board until 1989 and thereafter to AWB

Limited unless otherwise stated.

1995: AWB Sales to Iraq

27.14 On 26 April 1995 Mr Storey, AWB's General Manager of Marketing wrote to

Mr Lawrenson, AWB's Managing Director, concerning a proposed visit to Australia by Minister of Trade, Dr Saleh and 1GB Director General, Mr Daoud. The memorandum was copied to the Chairman, Mr Flugge, the Middle East desk and the Manager Policy and Marketing Analysis. The memorandum noted that:

This week we will be applying to the UN via DFAT for an approval to ship up to 250,000 tonnes between now and end 1995. This is something of a 'phantom' contract but necessary for the Iraqis to continue their agenda with the UN in their efforts to buy food. (The 1GB clearly understand we have no supplies) 9

The visit was delayed and ultimately did not proceed.

Report of the Oil-for-Food Inquiry 145

27.15

On 26 April 1995 AWB wrote to DFAT forwarding a Revised Notification and

Authorisation Request Form to export goods to Iraq in respect of 250,000 metric tonnes of wheat. The method of payment stated was 'cash against documents'.10

27.16 On 1 May 1995 Mr Gomersall of AWB sent a telex to Mr Daoud concerning arrangements for the proposed visit. Mr Gomersall stated:

On other matters, we understand that the MV Probo Bangor has arrived in Umm Qasr and has commenced discharging. Please keep us informed of her progress and we look forward to receiving payment through our friends in Jordan as

agreed. 11

27.17 On 3 May 1995 the Australian mission to the United Nations in New York wrote to DFAT Canberra enclosing a letter from the United Nations dated 27 April 1995 approving the sale of 250,000 tonnes of wheat by AWB to Iraq, noting that in consequence of the notification to the United Nations and Resolution 687:

• . .prohibitions against the sale or supply of these shipments and financial transactions related thereto contained in resolution 661 (1990) are no longer applicable.

As regards financing, I wish to draw your attention to paragraph 11 of Security Council Resolutions 778 (1992) which stipulates that 'no further Iraqi assets shall be released for purposes set forth in paragraph 20 of resolution 687 (1991) except to the sub-account of the escrow account established pursuant to paragraph 8 of resolution 712 (1991)'. Under that paragraph, payments to exporters through the direct release of Iraqi frozen assets are prohibited. All other relevant Security Council Resolutions relating to financial transactions regarding Iraq must also be complied with in full. 12

27.18 On 6 May 1995, the 1GB sent a telex to AWB advising it had instructed the Iraqi Commercial Office in Amman to arrange payment of US$589,000 as per their telex dated 2 May 1995 in respect of the Probo Bangor shipment. 13

27.19 On 8 May 1995, Mr Gomersall sent a telex to Mr Daoud noting that AWB had now 'received copies of the tested telex's from Rafidain Bank London, as well as those telexed by 1GB. We are therefore hopeful that we will be able to proceed to payment in the next few days. Again thank you for your help.' 14

27.20 On 12 May 1995, Mr Gomersall sent Mr Daoud a telex advising of UN approval for the export of the 250,000 metric tonnes of wheat. 15

Alternative funding arrangements pursued by Iraq

27.21 On 10 June 1995, 1GB sent a telex to AWB on behalf of the Iraqi Ministry of Trade seeking to work with AWB to establish a joint venture company to

146 Report of the Oil-for-Food Inquiry

provide finance for Iraqi food requirements. The telex suggested that

payments for wheat, with interest, would be made in crude oil after the embargo was lifted or by cash when available and would be guaranteed by the State Oil Marketing Organisation (SOMO), or Iraqi frozen assets, or the Central Bank of Iraq. 16

2722 On 13 June 1995, Mr Stott of AWB sent a telex to Mr Daoud responding to his telex of 10 June 1995. Mr Stott expressed interest in considering any Iraqi proposal and suggested discussion of it during the proposed visit of Minister Saleh and Mr Daoud to Australia. 17

27.23 Mr Stott gave evidence that the Ministry of Oil in Iraq initiated a proposal for BHP to fund a shipment of wheat to Iraq. 18 He was telephoned by Mr Daoud in 1995 and asked whether he had heard of a company called BHP. He replied that he had. Mr Daoud telephoned him later in the year and told him that BHP was interested in financing a shipment of wheat to Iraq:

The proposal was at that point that they would finance those cargos and there would be a payment mechanism to be agreed with them to enable the shipment of goods to Iraq9

BHPP interest in Iraqi proposals

27.24 On 18 June 1995, Mr Davidson Kelly sent a memorandum to Mr O'Connor, copied to Mr Harley.20 Mr Davidson Kelly was at that time investigating oil projects for BHPP in Iraq. The memorandum concerned meetings between the 5th and 8th June 1995 held by Mr Davidson Kelly with the Iraqi Oil Minister

and his officials. Mr Davidson Kelly noted that:

Although hoping for a quick removal of sanctions, the Iraqis are digging in for the long haul and are seeking ways to provide funds for basic foodstuffs, medicine etc

Foreign participation in the redevelopment of the oil industry..., would play a part in this strategy. It was made clear that payments or loans in advance of the lifting of sanctions 'for humanitarian reasons' would be much appreciated, and might be part and parcel of any deal. 21

On page four of the memorandum Mr Davidson Kelly wrote:

They are keen to see further contact established with the Wheat Board. They have a requirement for an immediate consignment of 100,000 tons of wheat, to be delivered against future payment, probably from oil sales. 22

and on page five:

Work should also proceed on the political issues. To obtain the clear support of the Australian government; to investigate the possibility of constructing an

Report of the Oil-for-Food Inquiry 147

imaginative Humanitarian Aid package, and to resolve the issue of the UK's

stance in relation to Iraqi activity falling short of actual trading relationships. 23

2725 On 19 June 1995, Mr Davidson Kelly sent a memorandum to Mr O'Connor concerning the project in Iraq and noted that Mr Harley would be coordinating the political aspects. 24 Mr Harley recalled that around this time he was asked by Mr Davidson Kelly to 'explore' with the Government and

AWB whether it would be possible to progress the wheat shipment concept. 25

27.26 On 20 June 1995, Mr Davidson Kelly, in an internal note to Messrs Killion and Taylor advised that 'provision of wheat is critical' to BHPP's ambitions in Iraq. 26

27.27 On about 20 June 1995, Mr Davidson Kelly initialled a document entitled

'Iraq—A hypothetical case'. He noted 'at least three relatively independent sources "confirming" that in order to progress to a privileged position, some form of early humanitarian aid is suggested.' He outlined a proposal for providing aid on credit in order to afford BHP a privileged position in its dealings with Iraq. 27

BHPP contact with AWB

27.28 On 23 June 1995, Mr Harley had a meeting with Mr Storey, then General

Manager of Marketing at AWB and Mr Geary, then Middle East Manager of AWB, during which a proposal to provide wheat to Iraq funded by BHPP through AWB was discussed. 28 Mr Harley's note of the meeting mentioned a joint venture proposal to receive payment in oil, a prospect which had been

the subject of correspondence between Mr Stott and Mr Daoud earlier that month. At this meeting. Mr Harley was given Mr Stott's name as a future contact.29 Mr Harley thought he may also have spoken with Mr Pinhorn of DFAT that day. He could not recall any details but believed he may have spoken about what was permitted under UN sanctions. 30

27.29 On 2 August 1995, Mr Stott sent Mr Daoud an offer for 250,000 tonnes of wheat. 31

27.30 On 3 August 1995, Mr Stott made a handwritten note on a photocopy of the

business cards of Mr Harley and Mr McCallum the International Business Affairs Corporate Manager of BHP:

Came to see RJS [Storey] PAG [Geary] as been to Iraq and close to the Iraq's talked about possibility of funding a wheat sale. Contact when Iraqi's due to vis it. 32

27.31 On 4 August 1995, AWB sent a 'Revised Notification and Authorisation

Request Form to Export Goods to Iraq' to Mr Feakes of DFAT for submission

148 Report of the Oil-for-Food Inquiry

to the United Nations. It provided that the method of payment would be cash

against documents.

27.32 On 6 August 1995, 1GB sent a telex to Mr Stott as follows:

Refering to telephone conversation with Mr R. Salman would like to know the exact quantity requested as donation your prompt reply is highly appreciated. 33

A handwritten note on the telex reads:

Verbal, Currently under offer 34

There is a further handwritten note on a second copy of the same telex as follows:

Confidential we are currently under offer to a very reputable third party for a total 100,000

The handwriting is Mr Stott's.

27.33 On 8 August 1995, Mr Stott telexed Mr Daoud advising:

Further to yesterdays discussions with Mrs Ahlam we have been advised by the other party that they now only want an offer for 10,000 tonnes rather than 100,000. In addition they have lowered the quality specifications in order to allow wheat from some very unusual places to compete. 36

27.34 Also on 8 August 1995, Mr Davidson Kelly wrote to Mr Saadalla Al-Fathi of the Ministry of Oil Baghdad. He advised that BHPP were continuing to make progress on the question of possible delivery of wheat to Iraq and that he was meeting with Mr Stott of AWB later that week. 37

27.35 On 14 August 1995, Mr Davidson Kelly sent a note to Mr Taylor marked

'Strictly Private and Confidential' which was copied to Mr Harley. The note concerned the timetable and progress of commercial negotiations of the proposed oil project but also dealt with the wheat shipment:

We are about to commence detailed discussions with the Wheat Board to start the process going, and it is likely that we will be in a position to start deliveries within the next week or so. We will start with a contribution of 20,000 tons or so, which is quite unconnected with the matter in hand! However, to the extent that we are not

in detailed commercial discussions makes me feel quite uncomfortable, especially if we are required to step up our aid. 38

Mr Harley's recollection was that the proposal was not sufficiently advanced

to start deliveries that soon. 39

Report of the Oil-for-Food Inquiry 149

27.36

On 17 August 1995, Mr Stott sent a fax to Mr Daoud advising of the receipt of United Nations approval for the shipment of:

a further 250,000 metric tons of Australian wheat into Iraq. This authorisation is in addition to the UN approval of 27 April 1995, and brings total tonnage approved to 500,000 metric tons.

In regard to the 10,000 metric tons discussed earlier this week, the donor involved has contacted us today and has deferred the tender until September. I will continue to keep you informed of this situation. 40

27.37 Between 1 September 1995 and 5 September 1995, Mr Harley recorded in his notebook a discussion with Mr Stott concerning the possible shipment of 25,000 tonnes of wheat. 41

27.38 A further note made by Mr Harley in the same period recorded:

Iraqi grain board

Grain sales Contract AWB Iraqis

100,000 tonnes FOB $24,000,000

tranches

$5M worth

Oil repayment contract

Draft of a central bank guarantee

L of C

Industry Minister

Grain Board Representative 42

Mr Harley's evidence was that he could not recall the conversation or meeting recorded in the note but concluded from the text that it recorded a discussion with Mr Davidson Kelly concerning a conversation Mr Davidson Kelly had had with Mr Stott. 43

Mr O'Connor informed of the proposed grain transaction

27.39 On 19 September 1995, Mr Davidson Kelly and Mr Harley sent a memorandum to Mr O'Connor, which only Mr Davidson Kelly signed. The memorandum recommended purchasing a letter of credit to be issued or backed by the Central Bank of Iraq in favour of the Australian Wheat Board for US$5 million. The letter of credit was to be redeemable in either oil or cash no later than 2000, bearing an interest rate of 10% per annum. It noted the transaction would equate to approximately 20,000 tonnes of wheat:

150 Report of the Oil-for-Food Inquiry

The purpose of the transaction is to establish favour with the Government of Iraq

in anticipation that sometime prior to 2000, the LOC may be exchanged with the Government of Iraq for a down payment for entry into the HCF concession. However, no certainty exists in this respect.

The transaction complies with the terms of the United Nations embargo on Iraq because the Australian Wheat Board has an exemption for this wheat sale and our arrangement is a back to back financial agreement. The LOC will only be settled in oil if the embargo has been lifted. The most significant risk taken with this

proposal is that a new regime takes control in Iraq that will not honour obligations.

The value of the LOC will have to be assessed annually and any diminution will be written off against profits. The worst case is that the US$5 million will have to be written off completely in which case it will be deductible against income. 44

The 'HCF concession' is a reference to an interest BHPP wished to acquire in the Iraqi Half ayah oil field.

27.40 A note was prepared for the board of AWB marked 'Supplementary Managing Directors Report for verbal presentation'. 45 The note is undated; however, Mr Stott gave evidence that he prepared it in 1995 for Mr Storey, who passed it on to his manager, Mr Lawrenson.46 The supplementary report contained the following:

BHP is keen to keep the following transaction confidential.

Background

BHP have decided to make a USD 5 million humanitarian food donation to Iraq. However, they are concerned that the American Government may apply pressure via their North American interests if they were to become aware of the transaction. Therefore, BHP don't want to be recorded as principal in the contract.

Structure of Transaction

The AWB will negotiate and sell to the 1GB wheat to the value of USD 5 million. The 1GB will open an L/C in favour of the AWB which provides for payment no later than 5 years from the date of sale. The 1GB will either pay cash or deliver oil to the value of the L/C in substitution for cash if UN restrictions on Iraqi oil exports are terminated within the 5 year period. The AWB will assign its payment

and oil receipt rights under the L/C to BHP. In return for this assignment BHP will pay the AWB USD 5 million cash on bill of lading date. The AWB will use reasonable endeavours to assist BHP in obtaining recovery but apart from this undertaking the AWB is not exposed to any ongoing risk.

The AWB has approval from the UN to sell wheat to Iraq.47

The document noted the author's belief that BHP was making the 'donation' in hope of gaining preferential treatment to obtain oil exploration licences

Report of the Oil-for-Food Inquiry 151

once UN sanctions were lifted. Enclosed were a contract between AWB and

BHP, a contract between 1GB and AWB, a draft Letter of Credit for the Central Bank of Iraq and an oil supply agreement between 1GB, SOMO and AWB.

2741 On 20 September 1995, BHP Legal Group sent AWB a draft CIF contract between AWB and 1GB48 , an oil supply agreement between 1GB, SOMO and AWB49 , and a draft Letter of Credit to be issued by Central Bank of Iraq. 50 It also sent a letter to Mr Stott setting out the proposed arrangement between the parties. 51 The letter set out the commercial arrangement according to previous documentation but proposed BHP Development Finance Ltd as the purchaser of the letter of credit.

27.42 Mr Harley produced a document entitled 'Corporate Development Projects Status Report as at 25 September 1995.' It recorded that the next meeting to review the Halfayah project would be in London on 5 October 1995 followed by a meeting in Baghdad on 20 October 1995. It estimated the net present value of that project at more than $400 million and noted that Mr Davidson Kelly and Mr Killion had conduct of the matter. It noted: 'Documentation with Charles Stott sent to Baghdad for approval.'52

27.43 On 26 September 1995, Mr Stott telexed Mr Daoud advising:

further to our recent discussions i am pleased to advise that your friends have allocated a total of usd 5 million enabling us to conclude the first shipment subject to somo, igb and cbi agreeing to the contract terms that were faxed to you.

we are also talking to another party about a 10,000 tonne parcel. if these 2 quantities can be combined in the one shipment then we should be able to reduce the freight cost by about usd4 per tonne.

have you had any luck in confirming if the other party is proceeding with the 10,000? at this stage under this payment arrangement we only have usd 5 million available.

i would be pleased to provide a 100,000 tonne offer for your consideration however would you please confirm what payment mechanism will apply for the extra tonnage. 53

Before sending this telex, Mr Stott cleared it with Mr Davidson Kelly in the following terms:

Norman, all the doc's went through to Baghdad last night and today received a telex from the IBG requesting we submit a 100 kmt offer. we intend, subject your green light that everything is ready to go, to provide the following offer. I also need to discuss with you the BHP/AWB contract and in particular who signs on BHP's behalf. My No 1 wants it signed by No l's on both sides. let's discuss. 54

152 Report of the Oil-for-Food Inqu ry

27.44 On 27 September 1995, a file note from Mr Storey to Mr Stott advised that the

BHP contract was acceptable to the AWB Board and that Mr Lawrenson would like to sign off on the contract. It noted Mr Lawrenson was advised it may be some time before the agreement was completed.55

27.45 On 27 September 1995, a draft letter was prepared for signature by Mr O'Connor. The reference on the document, 'ndk:cr ndk 412' indicates Mr Davidson Kelly was the author. It read:

LE iihR OF CREDIT

This transaction requires approval by BHP Development Finance Ltd.

It is recommended that US $5 million be spent to purchase a Letter of Credit (LOC) to be issued or backed by the Central Bank of Iraq in favour of the Australian Wheat Board. The LOC is redeemable into either oil or cash no later than 2000 and bears an interest rate of 10% per annum.

This transaction will cause the Australian Wheat Board to ship about 20000 tonnes of wheat to Iraq.

The purpose of the transaction is to establish favour with the Government of Iraq in anticipation that sometime prior to 2000, the LOC may be exchanged with the Government of Iraq for a down payment for entry into the HCF concession. However, no certainty exists in this respect.

The transaction complies with the terms of the United Nations embargo on Iraq because the Australian Wheat Board has an exemption for this wheat sale and our arrangement is a back to back financial agreement. The LOC will only be settled in oil if the embargo has been lifted. The most significant risk taken with this proposal is that a new regime takes control in Iraq that will not honour obligations.

The value of the LOC will have to be assessed annually and any diminution will be written off against profit. The worst case is that the US $5 million will have to be written off completely in which case it will be deductible against income. 56

27.46 On 28 September 1995, 1GB telexed AWB accepting either 20,000 tonnes at a certain price per tonne or 30,000 tonnes at a lower price per tonne, on CIF free out terms. The contract was assigned number A2630. 57 Transactional documents bearing that contract number and date and providing for payment by a letter of credit payable in 5 years by cash or oil and attracting 10% interest were prepared by AWB.58

27.47 On 29 September 1995, Mr Stott sent an offer to the central tenders committee of Iraq's State Purchasers Department offering to supply 1.5 million tonnes of wheat. The offer contains the special condition (at paragraph 8):

Report of the Oil-for-Food Inquiry 153

if the tonnage is for destination Iraq, the execution of the contract is 'subject to UN

approval'. Please note we already have UN approval in place to ship 1,000,000 tonnes to Iraq. 59

The same day Mr Stott also wrote to Ivh Daoud to finalise details of the type of oil Iraq was to supply under the proposed Oil Supply Agreement. 60 He noted on his copy of the letter that he was to clear the response with 'BHP' when received.

Mr Prescott advised of the proposed grain transaction

27.48 On 29 September 1995, Mr O'Connor wrote to BHP's Managing Director, Mr Prescott in the following terms:

IRAQ

We have been considering for some time the provision of Humanitarian Aid to Iraq, in an attempt to alleviate the conditions of extreme hardship which have been caused by the application of International Sanctions.

Discussions have taken place with the Australian Wheat Board, which has continued to trade with Iraq under procedures which are in accordance with UN Sanctions, and also with the National Australia Bank It has been determined that BHP could lawfully finance a cargo of wheat to be delivered to Iraq, by effectively making a loan to the Iraqi Grain Board. The loan, of US$5 million, would finance a cargo of 20,000 tons of wheat which would be delivered in the normal course of business by the Australian Wheat Board. The loan, carrying an interest rate of 10% per annum, and guaranteed by the Iraq Central Bank, which would be repaid in cash after 5 years, or in oil within 3 months of UN Sanctions being lifted. The

Australian Wheat Board would enter into the agreement with the Iraqis, and assign its obligations to BHP Development Finance.

The cost would be provided from BHPP's exploration budget for 1995/6, and decisions on the carrying value of the loan would be taken at each year end. BHPP is currently in serious negotiations with the Iraq Oil Ministry for a substantial oilfield development project, and it is believed that this contribution of humanitarian aid would advance our interests in this regard.

However, it must be recognised that there is no guarantee that any concession will be awarded to BHPP, nor is there full confidence that the loan, despite the Government Guarantee, will be repaid in full. Hence the cost of the loan will be treated as high risk exploration expenditure, which may or may not prove fruitful.61

27.49 On 4 October 1995, Mr Stott telexed Mr Daoud seeking a response to the fax of 29 September 1995 enquired about a further 10,000 tonnes to be funded by 'Your friends'. 62 On 5 October 1995, Mr Daoud replied providing details of oil type requested. He further advised 'with regard to 10,000 mtns we have not

got the respond yet will inform you soon' and 'Have you more information

154 Report of the Oil-for-Food Inquiry

about the offer of 1.5 million ton from our friends.' 63 Mr Stott faxed the telex

to Mr Harley and noted:

They [IGB] are keen for everything to proceed. Are there any developments your end. 64

This was sent on 9 October 1995.

2750 On 6 October 1995, 1GB telexed AWB advising it had the full authority from the Iraqi Government, SOMO and the Central Bank of Iraq to sign the contract and noted:

we are ready at your convience to receive your delegation to sign the full agreeement for the whole operation that covers the value of 100,000 mt of a wheat.

As for the first cargo and inspit we could not receive a reaction from the friends about the 10,000 mt.

Lpppls proceed with the shipma of the quantity that covers only the value of U.S 5m. 65

27.51 In an undated telex to Mr Stott, Mr Daoud referred to the telex of 6 October 1995 and advised receipt of 'approval of 10.000 mt wheat from our friends' please 'act accordingly to increase the agreed wheat cargo'. 66 Handwritten on the bottom was 'Norman Davidson Kelly to Baghdad?' 67

27.52 On 9 October 1995 Mr Harley wrote to Mr O'Connor:

Graham Evans + I are jointly testing an Australian Govt. angle to the Iraq project.

I tested my idea on Graham who is researching some aspects for me. John Prescott had separately consulted Graham on the project last Friday.

I have fully briefed Graham who may raise aspects of it with you in Canberra on Tuesday.

When his tests are [d]one we may make an informal approach to the Government on Wednesday via a contact of mine. This will depend on our research.

T5H68

Mr Evans was BHP's Director of Government and External Affairs. Mr Harley could not recall the content of the briefing, the proposal or how or on whom it was tested. He did not recall any discussion with Mr Presc ott. 69

27.53 In an undated note from Mr Harley to Mr O'Connor he discussed what he discerned to be Mr Prescott's objection to the proposal, namely that the 'goodwill' payment was akin to a bribe, or that BHP was aiding an international pariah. 70 He noted that 'If his objection is that it is a bribe then I

Report of the Oil-for-Food Inquiry 155

think there are some good arguments that can be mounted that it is an

ethically justifiable payment albeit unusual.' 71 Mr Harley noted there was no point in either officially or unofficially approaching the Australian Government before BHP was clear on what it would countenance. The note was followed by a draft press release and a series of discussion points in the event that the proposal became public. 72 Mr Harley took the date of the note to be 9 October 1995.

27.54 On 12 October 1995, Mr Davidson Kelly sent a memorandum marked 'Private and Confidential' and 'URGENT' to Mr O'Connor, copied to Mr Harley. 73 The memorandum was entitled 'Project Italy' which was the BHPP code name for Iraq. 74 Mr Davidson Kelly noted that delays in providing the wheat may prejudice negotiations to secure access to a major oil field. He advised:

The form of the documentation, the purchase of an Italian Letter of Credit in support of a 5 year loan to the AWB, was made to ensure the distancing of BHP from the transaction, with the benefit of managing any potential write off over time and at our discretion. In the event of the award of a project this obligation from the Italians could have been regarded as the prepayment of part of a normal signature bonus. Hence we would have our cake and, hopefully, eat it too.

In the event that further 'distance' from the aid package is required, and/or further comfort from the Government is required, this will result in an increase in the cost to us of the package (the possibility of recovery will be more remote). Also, more time will be required to complete the necessary discussions. 75

Mr Davidson Kelly advised that the Iraqi oil project negotiator was seeking some assurance that the wheat deal would proceed. He wrote:

Although it has been clearly understood by all parties that there can be no connection between the Aid Package and our deal, the absence of performance on the former is unquestionably going to impact unfavourably on our ability to negotiate the latter. 76

He later wrote: 'Cancellation of the Aid Package would, I believe, prove to be

a major and possibly fatal setback.' 77 He sought confirmation that BHP intended to proceed with the wheat transaction. 78 It is clear that the statements asserting the wheat transaction and the oil arrangement are not related, were cosmetic. It was known and accepted that the two transactions

were inter-related.

27.55 On 16 October 1995, Mr Davidson Kelly sent a memorandum to Mr O'Connor marked 'Private and Confidential', copied to Mr Harley. 79 Mr Davidson Kelly argued the benefits of the proposed transaction and noted:

The proposed mechanism for making the contribution has been to work directly with the AWB, who have negotiated the shipment directly with the Italians in the

156 Report of the Oil-for-Food Inquiry

normal course of their business, and under normal procedures, save that credit

terms acceptable to ourselves, and the NAB, have been agreed.

Quite apart from the financial advantages of this route, which provides a sporting chance that our contribution will be repaid within the next five years in cash or, more likely, oil, there is one other major advantage. No other party is aware of the transaction. Knowledge is limited to the AWB, the Italians and ourselves.

Although other mechanisms might be found to distance ourselves from the transaction they will involve us in introducing third parties to the deal, with an increase in the potential for unwelcome leaks in what is clearly a sensitive commercial transaction, 80 [emphasis in original].

The memorandum attached a note from Mr Harley of seven pages on public

relations issues arising from the proposed dealing with Iraq. 81

2756 Mr Harley produced a further project status report concerning the Halfayah project as at 18 October 1995. It recorded: 'Documentation with Charles Stott approved. Awaiting instructions' and that Messrs Harley and O'Connor were the staff responsible for that aspect. 82 Mr Harley thought the pending

instructions were likely to be those of BHPP. 83

27.57 On 23 October 1995, the Tokyo office of AWB faxed Messrs Officer, Stott and

Storey concerning a proposal that Mitsubishi acquire wheat for Iraq. It noted that 1GB was to be the principal to the contract and that Mitsubishi would not be lifting oil or gas in return but that its incentive was 'longer term friendship'. 84

27.58 On 24 October 1995, Mr Prescott endorsed on the 16 October 1995 memo from

Mr Davidson Kelly to Mr O'Connor, 'Mr O'Connor I would agree provided we proceed via Dept of Foreign Affairs and gain UN Sanctions Cttee approval'.85

DFAT consideration of the proposed credit sale

27.59 On about 25 October 1995, Mr Harley made a record of his conversation with Mr Feakes of DFAT. He noted Mr Feakes had told him it was lawful to sell wheat but that Iraq must pay in cash and was not allowed to pay by way of frozen assets. He believed he informed Mr Stott of the negative response of DFAT.86

27.60 On 26 October 1995, Mr Stott wrote to Mr Feakes advising the following overview of the proposed transaction:

The AWB will negotiate and sell to the 1GB wheat to the value of USD 5million. The 1GB will open an L/C in favour of the AWB which provides for payment no later than 5 years from date of sale. The 1GB will either pay cash or deliver oil to

Report of the Oil-for-Food Inquiry 157

the value of the L/C in substitution for cash if UN restrictions on Iraqi oil exports

are terminated within the 5 year period. The AWB will assign its payment and oil receipt rights under the L/C to Ex Co.

In return for this assignment Ex Co will pay the AWB US 5 million cash on bill of lading date. The AWB will use reasonable endeavours to assist Ex Co in obtaining recovery but apart from this undertaking the AWB is not exposed to any ongoing risk.

The AWB has approval from the UN to sell wheat to Iraq. 87

2761 On 27 October 1995, Mr Feakes prepared a minute for Mr Laurie, acting

Deputy Secretary of DFAT, through Mr Bowker, acting Assistant Secretary Middle East and Africa Branch of DFAT. 88 The minute concerned the proposed wheat sale and associated financial transactions. Mr Feakes recorded that he had been present during a conversation between the Secretary and BHP and that the proposal outlined by BHP was that it would

pay AWB to supply an amount of wheat to Iraq as a gift. He noted his subsequent contact with Mr Stott and receipt of the proposal referred to above. He noted Mr Stott proposed to use a previous approval of the United Nations on the basis that the BHP arrangement could be described as a 'cash against documents transaction', 89 the only difference being that the cash was coming from a source other than the purchaser. Mr Feakes and DFAT Legal Office took the view that the proposal could not come within the previous UN approval and that a new authorisation request setting out the actual method of payment would be required. Mr Feakes noted there was little prospect the Sanctions Committee would approve such a proposal.

27.62 On 27 October 1995, Mr Harley recorded speaking with Mr Stott who advised the transaction involving payment via a third party was 'not on'. He then spoke with Mr Bowker who he believed confirmed that a third party payment was 'not on'. It was noted that humanitarian gifts and cash donations were consistent with sanctions. 90 Mr Harley recalled it was 'likely' he told

Mr Davidson Kelly of DFAT's view. He had a specific recollection of telling Mr O'Connor at about that time that DFAT would not approve a credit based wheat shipment but would approve a gift based shipment, and of Mr O'Connor approving proceeding with the shipment as a gift. 91

27.63 On 27 October 1995, Mr Feakes again wrote to Mr Laurie noting the Secretary

had spoken with him about other means of BHP funding a wheat purchase. 92 It was noted a gift could be made through Care Australia and that this would not require the involvement of the Australian Government. Mr Feakes raised the concern that assisting BHP, whose motives were commercial rather than humanitarian, might adversely affect the Commonwealth. 93

27.64 On 30 October 1995, 1GB wrote to AWB urging it to progress the transaction. 94

158 Report of the Oil-for-Food Inquiry

27.65 An undated file note of Mr Stott's recorded a discussion with Mr Feakes and

Mr Bowker noting:

• As currently proposed, legal advice says L/C is inconsistent with approval for cash against documents;

• Resubmit proposal and run the risk of lose anonymity;

• We suggest sell your wheat elsewhere and 'can it';

• We are trying to be helpful as we can and actively working to assist BHP achieve their goals;

• Resubmit proposal but DFAT not support;

• Working on new method not involving AWB i.e. donation through humanitarian relief. 95

27.66 On 30 October 1995, Mr Bowker wrote to the DFAT Secretary, Mr Costello, copied to Mr Laurie and Mr Skelly. 96 He advised that BHP could make a gift for humanitarian purposes and that DFAT was not obliged to scrutinise the 'activity or motives of the company'. He noted that customs and the Reserve

Bank would both need to satisfy themselves as to the purpose of the shipment, and that the United Nations would have to be advised, and approve, a proposed gift and that if disclosure of BHP's involvement was a risk, but an unacceptable one, then the donation could be made through Care

Australia or the Iraqi Red Crescent. The Secretary noted on the minute: 'noted - please advise Senator Evans. Tell BHP I am available to discuss it this week'. 97

27.67 Later on 30 October 1995, Mr Bowker sent a further minute to the Secretary advising that the proposal for a wheat shipment on credit terms had been extensively discussed with Mr Stott, Mr Harley and Mr Engel of AusAid.98 He advised his belief that there was no prospect of UN approval of the arrangement as it would 'make a nonsense of sanctions'. Mr Bowker advised that Mr Stott had claimed to DFAT, and led BHP to believe, that DFAT had

previously allowed such proposals to go forward where AWB deals with Iraq had been financed by third parties including Libya, Japan and Korea. He noted Mr Stott had claimed that such third party arrangements had been approved by the United Nations but that DFAT could find no evidence to support that contention either on file or from the recollection of officers concerned. He stated: 'Frankly, we do not believe him'. Mr Bowker stated that the United Nations had approved sales to Iraq on the basis of cash against

documents and that DFAT was unaware that AWB was being paid using the funds of third parties in earlier transactions. He noted this had not been made known to the UN Sanctions Committee. He noted Mr Harley had been

Report of the Oil-for-Food Inquiry 159

attracted to providing wheat because the amount loaned might be

recoverable, but that BHP was prepared to make a donation if it had sufficient commercial reason. 99

27.68 On 31 October 1995, a cable was sent to the Foreign Minister, Senator Evans, to update him on the matter. 100 It advised that it was proposed to advise BHP that a gift of wheat to Iraq for humanitarian purposes, arranged through a reputable charitable institution, would be consistent with sanctions. It noted AWB had argued that the proposal was not an extension of credit, even though a Letter of Credit redeemable in 5 years or after the lifting of sanctions was involved. It noted BHP and AWB had been advised that the method of payment proposed would contravene sanctions. It reiterated the advice in the above minute to the SecretaryJ01

27.69 On 1 November 1995, AWB faxed to Mr Skelly, following a discussion with Mr Stott that day, a copy of the telex of 30 October 1995 from the 1GB. 102

The proposal rejected by DFAT

27.70 On 6 November 1995, Mr Skelly, acting Assistant Secretary Middle East and Africa Branch of DFAT, wrote to Mr Stott and advised that there were three ways Iraq could pay for humanitarian goods. 103 These were by payment in cash, by Iraq agreeing to transfer its frozen assets into the escrow account, or by Iraq agreeing to accept UN Council Resolutions 706, 712 and 986 which are the oil-for-food resolutions. He stated:

Proposals whereby Iraq agrees to repay debts against the promise of future oil sales are not acceptable to the Sanctions Committee nor are transactions involving the payment for humanitarian goods by third parties. Neither of these payment methods would be compatible with the underlying policy of the sanctions regime, namely, to pressure Iraq into using the oil-for-food resolutions and thereby to use its wealth to approved ends. 104

He noted that permission to export could be denied if the Minister or his delegate was of the view that the method of payment, including the sourcing of the funds to be received in payment, would involve a breach of sanctions. 105

27.71 On 9 November 1995, Mr Stott endorsed on the letter of 6 November 1995 a

note to Mr Lawrenson and Mr Storey stating:

Prescott BHP raised the BHP/AWB transaction with Gareth Evans. Whilst he was supportive he suggested BHP discuss the transaction with his department. The AWB outlined the structure of the transaction to DFAT. DFAT have subsequently said that the transaction as proposed is in their interpretation a breach of UN sanctions. This decision has far reaching ramifications for our Iraqi business. All our payments for Iraq shipments are received via third parties and DFAT was

160 Report of the Oil-for-Food Inquiry

aware of this (although DFAT officials claim now they were not aware of this).

The bottom line is that we will not be able to do any more business to Iraq. BHP are concerned that they may have destroyed our Iraqi business and have therefore offered to provide the AWB every assistance, including international legal help, to turn the decision around. We have kept the Iraqis fully informed and have asked the 1GB for approval to ask the UN via our government, the following question: 'Can the AWB sell wheat to Iraq for humanitarian purposes and receive cash

payment for the goods via a third party?' If the answer to the above is positive then our problems are solved. However, if negative then we will need to rethink our strategy. In the meantime the AWB/BHP are trying to rework the transaction using AusAid/ WFP as the clearing mechanism'. 106

27.72 On 9 November 1995, Mr Stott telexed Mr Daoud seeking his permission to ask the UN the question raised in his file note above. 107 The telex was resent on 10 November 1995. 108

27,73 On 16 November 1995, DFAT sent a cable to its New York mission, copied to the embassy in Amman, reiterating advice given to AWB and asking the mission to raise with the Sanctions Committee their views as to:

(1) whether food stuffs for humanitarian purposes can be purchased by a third party and provided as a gift to Iraq?

(2) whether food stuffs for humanitarian purposes can be purchased by Iraq entering into a credit arrangement with the supplier or third party with Iraq agreeing to pay for the food stuffs some time in the future?

(3) could such a credit arrangement be legitimised if it is made conditional upon the debt being realisable only after sanctions have been lifted. 109

27.74 On 16 November 1995, Mr Stott faxed Mr Skelly a notification form for the export of 100,000 metric tonnes of wheat to Iraq for submission to the UN. The attached form stated the method of payment to be 'cash payment to be received through third parties'. 110 DFAT requested Mr Stott wait until their cable had been answered before submitting the notification.

27.75 On 20 November 1995, Mr Stott telexed Mr Daoud advising: 'I understand that our usd 5 million friends may have discussed with their Baghdad contact, the mechanism that we explored last week.' 111 Mr Stott advised that he was awaiting a response to DFAT's request of the United Nations in relation to the arrangements they had been discussing.

United Nations approval

27.76 On 22 November 1995, Mr Stott advised Mr Daoud that following further discussions with DFAT it had now been decided to proceed with a 100,000 tonne application on the basis of 'cash payment to be received through third 112

Report of the Oil-for-Food Inquiry 161

27.77 On i December 1995, Mr Feakes faxed Mr Stott advising that the United

Nations had approved the 100,000 tonne application and enclosing a copy of that approval dated 28 November 1995.113 It approved the notification to the United Nations which stated: 'cash payment to be received through third parties.'114 Mr Stott forwarded the fax to Mr Harley on 4 December 1995 and noted: 'Looks like all systems go.' 115

Mr Harley recorded in his notebook sometime in the period 23 November to 5 December 1995 a conversation with Mr Feakes. 1'6 He noted that DFAT were reluctant to write but that BHP was 'free to do it. Mr Harley's evidence was that this was a reference to the donation proposal. 117

27.78 On 5 December 1995, Mr Stott telexed Mr Daoud advising 'we expect to receive the green light from our 5 mill friends soon.'118 Mr Stott proposed a new price for the cargo.

Transaction approved by BHP as a gift

27.79 On 5 December 1995, Mr O'Connor wrote to Mr Prescott a memorandum

advising that DFAT had stated BHP was free to pay the AWB for the supply of wheat to Iraq and proposing that BHP proceed as soon as possible on a 'straight forward grant basis'. 119 Mr Harley believed he may have drafted the memorandum, at least in part. 120 Mr Prescott noted 'okay to proceed' on the memorandum on 9 December 1995.121 Mr Prescott gave evidence the shipment was intended to be a gift. 122 He said:

I did not believe or understand that the grant approved by me was a loan to Iraq. There was no obligation on Iraq to repay any amount to BHP. I did not approve any loan by BHPP to Iraq. My understanding at the time was that BHP had agreed to make the payment to build relationships with Iraq in order to seek to position itself favourably for possible access to oil projects, upon the lifting of the UN sanctions. I did not understand that the payment created any obligation on the Iraqis. in

27.80 On 5 December 1995, Mr Stott advised Messrs Lawrenson and Storey that UN

approval on the basis of 'cash payment to be received through third parties' had been received. 124 He advised:

the BHP transaction structured slightly differently, is now able to proceed...

Under the old mechanism the 1GB was to open a 5 year deferred payment L/C in favour of the AWB. The 1GB was to pay cash or deliver oil in substitution for cash if UN restriction on oil exports were terminated. The AWB was to assign its payment and oil receipt rights to BHP and in return the AWB would receive cash from BHP on bill of lading date.

162 Report of the Oil-for-Food Inquiry

The new mechanism, which is still to be negotiated with BHP, should simply be

COD. BHP will then be left to make its own arrangements with the Iraq's. 125

The sale concluded

27.81 Mr Stott proceeded to negotiate delivery and terms with Mr Daoud, who on 14 December 1995 forwarded a contract, number A2741, to AWB for execution. 126 The contract did not note or specify the involvement of BHP, and recorded a direct sale from AWB to the 1GB. That contract was executed by 1GB. Mr Stott completed an export sales note on 15 December 1995 again

showing the buyer to be 1GB.127

27.82 On 20 December 1995, Mr Stott wrote to Mr Harley advising that AWB had fixed the Ran Sepat to carry the wheat. He proposed that BHP confirm payment to be by cash against their invoice which was to be presented after the bill of lading date. 128

27.83 On 21 December 1995, Mr Stott wrote to DFAT seeking the appropriate customs permission for export of the wheat. 129 That permission was forwarded to AWB, executed by Mr Feakes as delegate of the Minister, on 21 December 1995.10

27.84 Thus, as at December 1995:

• AWB had concluded a sale to 1GB of approximately 20,000 tonnes of wheat

• BI-IPP was to pay AWB for the cost of wheat shipped

• BHPP was to pay against an invoice from AWB

• BHP, through Mr Prescott, had intended to enter into the transaction on the basis that it was a gift, and approved the transaction only on that basis

• AWB had both DFAT and UN approval on the basis of 'cash payment to be received through third party.' That implied a gift by the third party, especially as proposed credit or deferred payment arrangements had been earlier expressly rejected by DFAT

• From AWB's viewpoint, Mr Stott noted that: 'BHP will then be left to make its own arrangements with the Iraq's.' 131

Report of the Oil-for-Food Inquiry 163

The 1996 shipment

27.85 On 3 January 1996, Mr Davidson Kelly prepared a note of meetings that he and Mr Saadalla Al-Fathi had participated in with officials of the Oil Ministry and the Trade Ministry. 132 Mr Al-Fathi was an Oil Ministry official, but also sometimes assisted BHPP. He noted that the meetings had been called at the Iraqis request to discuss progress on the completion of the oil field discussions and to consider the implications of the recent commitment to a grain shipment by BHP. He noted:

The Aid programme, although being discussed separately from the [oil field] contract negotiations is regarded by the Government as crucial to BHPP's success, and hence there is a high degree of eventual linkage between the two. The Iraqis expressed deep thanks for the first cargo (due to be discharged on 14 February) but of course are looking for further progress towards the target of 100,000 tons (about US$25 million)."

The meeting with the Trade Ministry officials included Dr Saleh, Minister of Trade, Mr Daoud and Mr Farouk Al Obaidi, Director General External Relations. Mr Davidson Kelly recorded that the Iraqis had expressed gratitude for the cargo and were enthusiastic for further shipments. He said:

The Minister restated their position that the supply of Aid in the form of Wheat and the [oil field] contract discussions were closely interlinked in the mind of the Iraqi Government. 134

It was further noted:

The position which has been reached is not what had been originally proposed as being the optimal position from the point of view of the Iraqi Government and BHP.

• The original proposal was that BHP would effectively lend Iraq sufficient funds to acquire Australian Wheat. In exchange BHP would receive a 5 year loan note, repayable in oil or cash after Sanctions were lifted, backed by a Letter of Credit issued by the Iraq Central Bank. The legality of the loan arrangements was questioned by the Australian Government;

• A number of options were discussed with the Australian Government, the AWB, Iraq interests and BHP.

• In the event, the UN Sanctions Committee has agreed to the Australian Government backed proposal that a third party gift of cash to purchase Australian Wheat for Iraq should be permitted, and this is the basis upon which the first shipment is being made. The shipment is being arranged directly between the AWB and the 1GB without the intervention of any intermediary, such as the

World Food Programme.

164 Report of the Oil-for-Food Inquiry

Therefore the first shipment was effectively a gift from BHP

to the people of Iraq,

permitted by the UN Sanctions Committee. After it had been landed we would resume our discussions with the Australian authorities to try to persuade them that their interpretation was too severe. The 1GB offered to provide any information on other precedents which would assist us. This is important as it is clearly understood by the Iraqis that BHPP's permitted budget for donations of this nature is more limited than its ability to finance trade on sound commercial terms. Also the Iraqis are keen to purchase grain, but on deferred payment terms, rather than accept gifts.135

There is accordingly no doubt Mr Davidson Kelly knew the transaction was a gift.

2786 On 15 January 1996, Mr Davidson Kelly wrote to Dr Saleh advising that he was looking forward to the successful landing of the first cargo and that he would be taking up with Australian authorities 'their interpretation of the Sanctions legislation." 36 He advised he would keep the Minister and the 1GB fully informed.

27.87 On 25 January 1996, Mr Skelly wrote to Mr Stott. 137 He advised that the UN Sanctions Committee was prepared to accept export to Iraq of foodstuffs for humanitarian purposes under credit arrangements in light of the worsening humanitarian situation. This was on the condition the debt be realised only after sanctions were lifted and that it did not involve unfreezing Iraq's frozen assets. He advised gifts or donations were considered to be consistent with the sanctions regime and approved on that basis. Mr Skelly advised that the issue concerning payment by third parties required consideration of whether the activities of the third party complied with the relevant Security Council resolutions and whether the government lodging the notification was sponsoring the activities of the third parties.

27.88 Mr Skelly noted that the Sanctions Committee stressed it was 'the responsibility of the state submitting the notification request form to satisfy itself that the proposed transaction would not involve the use of frozen Iraqi assets or the realisation of a debt before sanctions are Iffted." 38 Mr Skelly advised that DFAT considered that the existence of third party payments should be explicitly advised to the United Nations. 139 He made clear that the

Minister or his delegate would not grant a permission to export until satisfied in respect of applications by a commercial entity to export humanitarian goods to Iraq that such transactions did not involve the unfreezing of Iraqi assets, or the repayment of debt before the lifting of sanctions.

27.89 On 26 January 1996, 20,833 tonnes of wheat was loaded on the Ran Sepat and a bill of lading completed.°

Report of the Oil-for-Food Inquiry 165

27.90 Within the AWB documents produced to the Inquiry is a letter to the 1GB

dated 29 January 1996 enclosing three original copies of the bill of lading, three copies of the bill of lading, the original and six copies of the export invoice, the original and four copies of the AWB certificate of origin, the original and four copies of the Government phytosanitary certificate, the original and four copies of the certificate of weight quality and condition, and a copy of the certificate concerning the vessels age. 141 As the documents said to be enclosed were retained by AWB and later sent to BHPP 12, it is clear this letter was not sent.

27.91 On 30 January 1996, Mr Owen (AWB) sent a fax to Mr Moore (BHP) in Melbourne.143 In the fax, he referred to settlement of invoice number 01865 and instructed:

Due to the present sensitivity involved with this Country we ask that no mention be made in this regard, in your request to payment to your Bankers. 144

27.92 Invoice 01865 related to the 20,833 shipment to be paid for by BHPP. The invoice was for an amount of $4,999,920. 145 BHPP replied on 31 January 1996 acknowledging receipt of the invoice and supporting documentation. It advised payment would be made on February 2, 1996.146 BHPP's payment was credited to AWB's account on 5 February 1996.147

27.93 On 13 February 1996, AWB issued a Letter of Indemnity to the owners, managers, master and agents of Ran Sepat requesting them to deliver the wheat to the 1GB without production of bills of lading and indemnifying them against doing s0. 148 This makes it clear the bills were not sent to 1GB by the letter of 29 January 1996.

27.94 On about 14 February 1996 the Ran Sepat commenced unloading at Um Qasr.

27.95 It will be observed that the shipment was approved by BHPP, DFAT and the United Nations as a gift or grant and was delivered as such. It follows that neither BHPP nor AWB have misled either the United Nations or DFAT in respect of this transaction.

Further shipment proposed

27.96 On i February 1996, 1GB telexed AWB accepting an offer for a further 30,000

tonnes to be shipped in February 1996. 149

27.97 On 2 February 1996, Mr Stott faxed Mr Bowker replying to Mr Skelly's letter of 25 January 1996. 150 Mr Stott enquired whether the proposal for supply on 5 year credit previously raised but rejected by DFAT would be permissible in light of the United Nations advice. 151

166 Report of the Oil-for-Food Inquiry

27.98 On 2 February 1996, Mr Harvey (AWB) telexed Mr Daoud confirming the

order for 30,000 tonnes and advised:

We would intend to implement a payment mechanism as per the old system, and would be most appreciative for your advice on whether this payment mechanism is ready to proceed. 152

27.99 On 4 February 1996, Mr Daoud replied:

We confirm payment per the previous manner (i.e. payment effected after vessel arrival to Urn Quser) and we need to know your bank name and account number in Australia in order to act accordingly. 153

Mr Harvey provided these details on 5 February 1996. 154

27.100 On 8 February 1996, AWB advised it had chartered the Tiger Island to carry the 30,000 tonnes and that the contract was A2803. 155

27.101 On 11 February 1996, Mr Worthington of BHPP sent a memorandum to Mr Davidson Kelly and Mr Paver advising that he had had an 'off the record meeting' with Mr Al-Fathi the previous evening. 156 He said Mr Al-Fathi had advised that the Chinese National Oil Company and a Korean consortium lead by Samsung were both seeking the same project as BHPP and that the Korean consortium had offered an immediate loan facility to Iraq, on an

undefined basis, of US$150-200 million. The loan was available for the purchase of food and other needs. Mr Al-Fathi advised that BHP must, if it was to meet this competition, 'urgently progress the US$25 million wheat transaction which was the subject of discussion with Norman at the last meeting(s) (?) '157, and arrange a proposal providing for the legal sale on commercial terms of 1 million tonnes of Australian wheat to Iraq regardless of the position on UN sanctions. Mr Worthington also reported that Mr Al-Fathi had told him that the Korean and Chinese offers had the 'overt or covert' support of their respective governments.

27.102 On 12 February 1996, Mr Stott wrote to Mr Bowker advising of the Tiger Island sale stating:

In line with the UN approval dated the 28 November 1995, we wish to advise that we have chartered a vessel to perform this shipment. 158

Ms Jorgenson (DFAT) replied on 13 February 1996 that the proposal was

under consideration by the DFAT legal area and the UN New York. 159

27.103 On 14 February 1996, Mr Bowker issued permission to export in respect of the Tiger Island shipment 160 ; however, on 19 February 1996, Ms Jorgenson (DFAT) wrote to Mr Stott at AWB advising she had an interim response from the DFAT legal area, was awaiting advice from New York, and hoped to reply to

Report of the Oil-for-Food Inquiry 167

the request that week. Mr Stott faxed a copy of the DFAT advice to Mr Harley

and endorsed thereon:

Tom, I spoke to Sue and we appear to again be stuck in the bureaucracy. We need to rethink our strategy i.e. do we wait or do we scale up. Appreciate your thoughts/ comments. Charles 161

Mr Harley said that he did not know what the second sentence meant. 162

27.104 On 28 February 1996, AWB sent Mr Daoud an offer for 20,000 tonnes of wheat

for delivery in March/April 1996.163

27.105 On 29 February 1996, Mr Hunter (AWB), who had replaced Mr Stott who had left AWB for BHPP, telexed Mr Daoud in response to a counter offer and wrote:

The Qatar option as previously discussed with Charles Stott may have resurfaced and we would appreciate your advice if this is a possibility. If this is the case this may assist in reducing the overall freight value i.e. the total tonnage 30,000 tonnes, rather than 20,000 tonnes.

We look forward to your advice. 164

A further approach to DFAT

27.106 On 29 February 1996, Ms Carayanides of DFAT's New York mission, sent a cable to Canberra concerning methods of payment under sanctions.165 She advised that, having consulted with the US mission that the United States would not support terms involving a Letter of Credit repayable in five years as this would involve extending credit to Iraq beyond normal commercial practice. She noted however, that the United States also advised that if the application merely said payment by 'Letter of Credit' it may be that the application would not be blocked by the Sanctions Committee because it did not scrutinise applications as it lacked the resources to do so. The US position was that 'the onus is on the country submitting a notification to be satisfied that the export does not breach UN sanctions', but that if a five year payment term were specified the United States 'would need to ask more questions.'

Ms Carayanides also advised that the position of the United Kingdom mission was similar in that it would be likely to oppose a five year Letter of Credit, but if the time for payment were not disclosed it may well not be questioned. This was stated to be an unofficial position. Like the United States, the UK position was that if the delayed payment terms were stated then it was likely one of the committee members would query it. Ms Carayanides advised other countries took less stringent approaches, but it was clear that the United

168 Report of the Oil-for-Food Inquiry

States and the United Kingdom would not support the 5 year delayed

payment if disclosed. She noted a sustained US objection would be sufficient to block the application. She noted: 'the practice, whereby countries stipulate 'letter of credit' (without elaboration) is also convenient for committee members as it avoids them having to carefully consider the legitimacy of the transaction and provides them with cover for not blocking humanitarian exports' 166

27 ,107 On 8 March 1996, Mr Worthington emailed Mr Davidson Kelly (copied to Mr

Taylor of BHP) seeking to discuss his recent meetings in Iraq. 167 He noted that BHP must table an offer on its next trip to compete with the Korean consortium. He noted Iraq required a 'loan' of about US$100 million outside of any production sharing agreement and that:

a solution must be found. It obviously will require provision of humanitarian aid and I think we should discuss with the AWB. Perhaps the solution is to let the Koreans (or substitute) attend to this aspect and keep clear of it.168

27108 Mr Stott commenced employment with BHPP on 13 March 1996, reporting to

Mr Davidson Kelly. 169

27.109 On 21 March 1996, Messrs Harley and Lyons attended a day long BHPP

Strategy Review of the Middle East, chaired by Mr Davidson Kelly and Mr Samson. 170 At this review Messrs Skelly and Pierce gave a briefing regarding DFAT's view on Iran and Iraq.17 '

The minutes of the Strategy Review records:

• In DFAT's view the Iraqi regime will not be changing in the near future and U.S. sanctions will continue. 172

Mr Lyons recorded DFAT advising that Mr Saddam was likely to 'be there for the foreseeable future, despite sanctions', because 'the Iraqis were getting around the sanctions in many ways' 173 He recorded their view that the sanctions were likely to remain unchanged 'due to US views', 4 and advised that 'pushing the envelope' on sanctions was very difficult. 175 He recorded their view that 'Australia has to guarantee to the UN that any transactions we

have are within the UN sanctions'. 176 He noted that there was 'not a positive reaction from New York' to BHPP's 'type of 177

27.110 On 26 March 1996, Mr O'Connor wrote to the Iraq Minister for Oil, Mr Amir Mohammed Rasheed, noting that the 'first cargo of grain had arrived safely last month' and trusting 'that this shipment will prove to be the cornerstone of the relationship between BHP Petroleum and the Government of Iraq'. 178 Mr O'Connor also noted BHPP was continuing discussions with DFAT and the sanctions committee to arrange procedures under which additional

Report of the Oil-for-Food Inquiry 169

shipments of humanitarian aid could be undertaken. This letter was drafted

by Mr Davidson Kelly. On 28 March 1996, Mr Davidson Kelly faxed the letter to Mr Al-Fathi, noting the original was in the post. 179

27 .111 On 2 April 1996, Mr Stott emailed Mr Harley, Mr Davidson Kelly and

Mr Lyons advising that, following a review of the sanctions regime and Australian domestic legislation with Mr Lyons, they spoke to DFAT legal advisers on 1 April 1996 and again put forward the position that sanctions allowed sale of wheat on a letter of credit providing for payment five years from the date of sale or payment of cash or oil earlier if UN sanctions are lifted. Mr Stott also advised that the Iraqis had been unable to pay for the 30,000 tonne shipment recently discharged at Umm Qasr (the Tiger Island shipment). He noted this was a significant event as since the end of the Gulf

war all AWB trade with Iraq had been conducted on the basis that if Iraq said they had the funds then the cargo would be discharged without a formal payment arrangement being in place. Mr Stott noted that this 'gentlemen's agreement' had worked well for the past five years. 180

27.112 On 11 April 1996, Mr Pierce wrote to Mr Officer, then General Manager (International) of AWB, advising that DFAT would in future require written notification from AWB that 'shipments authorised had been dispatched, delivered and paid for according to the terms specified in our notification to the UN Sanctions Committee' and that it would be a condition of the permission to export that 'the terms of payment for the wheat (be) as previously agreed and as previously notified to the UN Sanctions Comniittee.' 181

Mr Pierce continued:

The second issue concerns your colleagues' discussions this week in Amman. For the shipment in question, our notification to the UN sanctions committee specified 'cash payment to be received through third parties' and 'cash against documents'. It is hypothetically possible that the Iraqi authorities might seek to vary those

terms (perhaps by suggesting partial payment, payment in kind, a letter of credit, or delivery of part of the shipment as a gift against guarantees of further sales). If there were to be any variation proposed we would need your earliest advice in order to consider the implications for our adherence to the sanctions regime generally and our notification of the 'Tiger Island' shipment particularly. 182

27.113 There is a note of a meeting between Mr Daoud and Messrs Harvey, Long and

Owen of AWB on 14 April 1996.183 The note recorded payment discussion including a proposal that Iraq's bankers make payment to Union Bank of

Switzerland (UBS) who would then make the transfer to the AWB account in Melbourne. It mentioned AWB's acceptance of 'the other option' involving

ANZ. AWB also agreed to examine options of putting in place a US dollar account in Europe, and noted that AWB would accompany 1GB to a meeting

170 Report of the Oil-for-Food Inquiry

with its bankers on 15 April. It was further noted that AWB would arrange for

a further shipment of wheat arriving between 10 and 15 May at Umm Qasr and that the parties would meet again to discuss on 15 April.

27.114 On 17 April 1996, Mr Harvey faxed Mr Officer and Mr Hunter to advise the outcomes of the meetings. He noted that options for future payments, 'because of security problems' would each be given a number so that they could freely be discussed in telexes and telephone discussions. 184

27.115 On 22 April 1996 and 23 April 1996, Mr Harvey produced detailed notes of the meetings in Amman with Mr Daoud and himself, Mr Long and Mr Owen. The payment options were:

Option 1: AWB has USD account in UBS Switzerland;

Option 2: AWB has two accounts in UBS Switzerland,

(a) AUD currency

(b) USD currency

Option 3: AWB Bank has USD account in UBS Switzerland

Option 4: Union Bank Jordan have correspondent bank in Australia with USD account;

Option 5: per 'Tiger Island' payment. 185

27.116 In the report of 23 April 1996, Mr Harvey noted that the Tiger Island problem,

namely, how 1GB was to pay AWB for the shipment, arose from a refusal of IGB's Jordanian bankers to accept US dollars in cash for payment of the shipment. 186 This was suspected to be because of the deteriorating political relationship between Iraq and Jordan. It appeared 1GB had physically transferred the cash to Jordan and offered to give the cash to AWB representatives. Ultimately, the money was deposited with a new bank in Jordan (the Union Bank) which transferred the money to a correspondent

bank in Europe, which converted the money into Australian dollars, and transferred it to AW13's Commonwealth Bank account in Melbourne. The Iraqis agreed to consider an interest claim for delayed payment. The note also recorded that when Iraq adopted UN resolution 986, Iraq would return as a wheat buyer with a demand of approximately 160,000 tonnes per month. 187

27.117 On 22 April 1996, the Iraqi Deputy Minister of Oil wrote to Mr O'Connor thanking him for his letter of 26 March 1996. 188 The Deputy Minister expressed his hope that additional shipments of grain could be made in the near future. He wrote that he expected more progress on the oil field development could be expected to be made on BHP's next visit. 189

Report of the Oil-for-Food Inquiry 171

27.118 An undated confidential file note of BHPP, recorded a visit from 18 to 25

April 1996 of BHPP representatives to Iraq during which they met with officials of the Ministry of Oil, the Ministry of Trade and the Ministry of Industry. 190 The note recorded the Minister of Trade advising BHPP that 'Australia's excellent reputation was currently being tarnished by our

government's non preparedness to support! submit the proposed payment mechanism which according to their [Iraq's] interpretation is totally in accordance with UN sanctions' and other countries were shipping grain to Iraq on credit terms. The Minister was not prepared to advise details. The BHPP team advised the Minister that before BHPP could contemplate any further shipments, some progress had to be made with their oil field

discussions. The note also recorded a private discussion between Mr Stott and Mr Daoud in which Mr Daoud said that, whilst Iraq was actively pursuing the same deferred payment mechanism with other persons interested in the oil development, the only one which had fulfilled a grain delivery commitment was BHPP. It noted Mr Daoud was keen to have a formal payment mechanism in place 'along the lines previously discussed.'

27.119 It also recorded that BHPP commissioned Mr Al-Fathi, a senior Iraqi official, to inform Mr Richardson (DFAT) of the Iraqi Minister's concerns about deferred payment. The note recorded that the BHPP delegation successfully tied the possibility of future grain shipments to a commitment on the oil project. It noted Mr Al-Fathi lobbied for a commitment on the loan for wheat purchases and that, in his opinion, this would be the catalyst for 'project capture'. The note recorded follow up actions to include Mr Stott raising with

DFAT the oil field competitor's ability to gain governmental support for credit terms and to unblock 'the current payment arrangement'. He was also to contact AWB to reaffirm its support of the proposed payment mechanism. 191

27.120 On 30 April 1996, Mr Harvey replied to the fax of 11 April 1996 from

Mr Pierce to Mr Officer. 192 AWB confirmed that the Tiger Island shipment had been dispatched, delivered and paid for according to terms specified in the notification to the United Nations. The letter also noted AWB was awaiting a formal response to its proposal to accept payment by way of five year Letter

of Credit.

27.121 On 1 May 1996, Mr Harvey wrote to Mr Daoud and advised that the interest claim for the Tiger Island was US$45,430.23 and that, if accepted it would be written off against despatch owed to IGB. 93 The telex also noted that option 4, as discussed on 22 and 23 April 1996 in Amman, was AWB's preference.

27.122 On 2 May 1996, Ms Jorgensen (DFAT) prepared a minute to Messrs Pierce and Skelly in respect of a proposed meeting with Messrs Stott and Lyons later that day. 194 Her notes of the points for the meeting included:

172 Report of the Oil-for-Food Inquiry

3. Methods of Payment

The Australian Government, through the Reserve Bank of Australia, facilitated the sale in 1992 of 900,000 tonnes of wheat to Iraq with payment in gold. Sales since that time have been made with payment in cash i.e. cash against documents. The submission by Mr Stott of the proposal to involve third parties and a five-year letter of credit led us to seek advice from UN

New York about acceptable methods of payment. We were advised that the Sanctions Committee routinely accepts credit arrangements for the provision of humanitarian goods to Iraq provided that frozen Iraqi assets are not used, and provided that the debt is realised only after the sanctions regime has been lifted. Committee members also apparently 'understand' that a letter of credit can include cases where Iraq undertakes to repay debts against the promise of future oil sales once sanctions are lifted. Member states must be satisfied that third party arrangements do not contravene the sanctions regime and do not involve illegal methods of payment. A government which submits a third party notification would be seen to be sponsoring the activities of the third party. (NB the Sanctions Committee operates on an evolving practice basis without detailed operational guidelines and relies to a

great extent on the good faith of member states).

Determined to seek UN approval for a third party arrangement, Mr Stott through DFAT, submitted an application to the Sanctions Committee with payment details of 'cash payment to be received through third parties/cash against documents' which was subsequently approved. Two shipments of wheat have proceeded under this approval, apparently without third party involvement. A further 46,000 metric tonnes of wheat can be exported to Iraq using this approval.

However, when we put the actual AWB/BHP proposal to the UN New York for comment from their Sanctions Committee contacts, the response was that the US and UK had 'difficulties' with it. The US was most negative and saw the promise of present or future oil sales as breaching UNSCR 661, and that

letters of credit should assume 'normal commercial practice' (but admitting that the Committee did not have the resources to look behind every 'letter of credit' application). The UK was also likely to look negatively upon such a proposal. NAM contacts were more flexible. A sustained US objection to the

proposal would be enough to block it. Questions would then be raised with the Australian Government and details would need to be revealed.

The legal opinion of the IOL to the proposal is that the credit arrangement should have a condition that the letter of credit is only realisable after the sanctions regime has been lifted. This would avoid any breach of para 11 of UNSCR 778. In addition, the application form sent to the Sanctions Committee should clearly state that it is a credit arrangement with a third party purchasing the letter of credit from AWB. 195

27.123 Ms Grant-Thomson, a lawyer with DFAT, gave evidence that, from about April 1996, she dealt with Messrs Stott and Harley concerning various proposals they advanced for Iraq to pay for wheat shipments. 196 She recalled dealing principally with Mr Stott, mostly by telephone, but recalled

Report of the Oil-for-Food Inquiry 173

Mr Harley attending her meetings with Mr Stott for relatively short periods.

Her evidence was that:

The main contact that I had was with Mr Charles Stott from BHP Petroleum who was attempting to alter an arrangement that had previously been approved by the UN Sanctions Committee. Under that arrangement, BHP Petroleum had gifted 20,833 tonnes of wheat to Iraq. Approval was granted by the UN Sanctions Committee on 16 November 1995 for this shipment of wheat. Mr Stott, ostensibly acting on behalf of BHP Petroleum, was attempting to change this gift arrangement into a credit arrangement so that the Iraq Government would pay for this payment of wheat under a credit arrangement. I remember advising on this proposal by BHP Petroleum in the course of our meetings in Melbourne and in numerous telephone conversations with Mr Stott. Mr Stott was constantly and intensely proposing alternative ways of overcoming the fact that BHP had made a gift of wheat to Iraq and was attempting to change this to a credit arrangement whilst maintaining UN Sanctions approval. My advice was that it was unacceptable to change a gift arrangement that had been approved by the UN Sanctions Committee into a credit arrangement.

My recollection is that Mr Stott did not like being told that it was not possible to change the gift arrangement into a credit arrangement. He put pressure on the Department to revise this advice. By 'pressure', I mean that in conversation and meetings in which I was involved, Mr Stott would be forceful in promoting his view and constantly challenged the validity of the legal advice that I was providing on behalf of the Department. 197

27.124 Mr Stott was not asked about this meeting and did not give evidence about it. Mr Lyons, who took notes of the meeting, said even after looking at his notes, he could not be certain what was said by whom at the meeting. 198 Mr Lyons said in his statement that discussion flowed freely at the meeting about ways in which BHPP might achieve their objective to secure long term letters of credit. One such idea discussed was 'careful and limited wording' of the application to the UN. 199 Mr Lyons could not recall who that suggestion emanated from but said it was discussed openly between BHPP and DFAT. 200

27.125 On 3 May 1996, Mr Storey emailed Messrs Lawrenson, Officer, Hunter, Harvey and Geary concerning his meeting with Mr Rowe, Deputy Permanent Representative and Ms Carayanides, First Secretary, of the Australian mission to the United Nations in New York, on that day. 201 At item 5 of that note, he recorded:

RE: AWB Approaches to Sanctions Committee

In regard to the apparent increase of bureaucratic involvement from Canberra with our applications, there is no pressure from the UN quarter except that the U.S. and UK hold very strong on their position regarding the Sanction rules. For example, an application stipulating payment by a 'Letter of Credit with up to five-year terms' (a la BHP) would be flatly blocked by the U.S. and UK. An application, however, which stated payment to be by 'Letter of Credit' with no details as to the terms, would probably be approved.

174 Report of the Oil-for-Food Inquiry

We were advised that other nations clearly provide limited information in their

applications to avoid the potential embarrassment of an application being rejected. There is political risk, of course, that should one go down the minimal information route and being subsequently found out, of being branded as a Sanction buster.

The Australian Government will obviously not sanction such an approach. 202

Mr Storey further noted, at paragraph 9, that the advice of Mr Rowe and Ms Carayanides was pragmatic and that they recognised 'that other nations do deals (e.g., the L/C example above)'. He noted they also mentioned:

Iran have been pretty accommodating in helping Iraq bust sanctions-strange alliance which the Iraqis don't like but beggars can't be choosers! Cash is flowing for 'black' oil through Jordan, Turkey, etc. 203

27.126 On 6 May 1996, Mr Pierce wrote to Mr Harvey noting his confirmation concerning the Tiger Island. 204 Mr Pierce advised that DFAT had that day put a submission to Ministers on the issue of AWB's proposed alternative payment mechanism.

27.127 On 6 May 1996, Mr Harvey provided a position paper on Iraq to Mr Officer which was copied to Mr Hunter .205 He noted that Ms Martin, Mr Goodacre and himself were meeting with DFAT in Canberra on 10 May 1996 to discuss the issues. Mr Harvey noted in the overview that AWB had aimed to position itself as preferred supplier of wheat to Iraq by understanding and accommodating the Iraqis difficulties as much as possible. He noted that the Iraqis were purchasing wheat from elsewhere and that they had alternative payment options offered to them by other countries.

Mr Harvey recited the five year letter of credit proposal for AWB to sell wheat on a five year letter of credit which would then be assigned. He stated in relation to the Ikan Sepat shipment that:

While all parties agreed to the proposal, DFAT then raised concerns about the role of third parties in transactions with Iraq. Given the time restrictions on making a shipment to Iraq, it was decided that the deal would progress with BHP making cash payment to the AWB as agreed without an I/C from the 1GB. The risk carried by BHP was an issue between them and the 1GB. From the AWB's view, the transaction was cash against documents through a third party. 206 [emphasis in original]

Mr Harvey recommended AWB implement the proposal, lobby DFAT to accept the proposal and work jointly with BHPP and 1GB to achieve this.

27.128 On 7 May 1996, AWB received a telex from 1GB advising that they were unable to pay interest on the Tiger Island. 207

Report of the Oil-for-Food Inquiry 175

27.129 On 13 May 1996, Mr Stott emailed Messrs Harley, Lyons, Davidson Kelly,

Taylor and Worthington that DFAT was working on the basis that Iraq would accept resolution 986, and that agreement with Iraq on it was imminent. 208 He noted DFAT was still considering its position on the 'payment/ legal issue'.

27.130 On 21 May 1996, Mr O'Connor wrote to the Iraqi Minister of Oil noting that agreement had been reached by Iraq with the UN on resolution 986.209 On 22 May 1996, Ms Grant-Thompson of the International Legal Division of DFAT and Mr Pierce, met with Ms Martin and Messrs Goodacre and Harvey of AWB, and Messrs Stott and Lyons of BHP, concerning the plans to sell wheat to Iraq against a five year letter of credit after the implementation of resolution 986. Mr Pierce noted that:

5. BHP was also prepared (with qualifications) to walk away from the deal, provided they could say to the Iraqis that we have been prepared to entertain the possibility (before 986 intervened) and that we were doing everything possible to develop the trade. BHP would also try to derive some advantage from the fact that, since 986 had been agreed, none of its competitors had done anything comparable to the 20,000 tonnes 'gift'. (Mr Downer's response to the submission stated clearly that we were not prepared to entertain the possibility.) We stated emphatically that no retrospective approvals for the shipments already sent could be permitted.

6. Stott did, however, suggest that he could obtain from the Iraqis some form of side-letter to cover the 20,000 tonnes already shipped. That is, the Iraqis would promise some form of payment in kind (oil, good will) at some unspecified date. Stott asked if we would be prepared formally to be made aware of that proposal, on the basis that BHP might, at some later stage, need some future Ambassador in Baghdad to argue that it should be redeemed, or, if the side-letter were publicised, BI-IP would need us to fend off a hostile American reaction.

7. In my judgement (and Ms Grant-Thompson's), there is nothing at all for us in giving any form of tacit approval to any such deal. If the deal were publicised, we would be accused of aiding and abetting sanctions busting. The absence of a paper trail, and the lack of any arrangements for payment in kind for the shipment, are not our problem. They are BHP's. The 20,000 tonnes deal is now a closed one, as far as we are concerned, and should remain closed. 210

27.131 Thus, within two months of commencing with BHPP, Mr Stott was seeking DFAT's approval to convert the Ran Sepat shipment, approved as a gift, to a commercial loan.

27.132 On 23 May 1996, Mr Pierce wrote to Ms Martin advising that, following their discussions of 22 May 1996, the Ministers for Trade and Foreign Affairs had decided that DFAT could not proceed to put to the sanctions committee the proposal for shipment of wheat against the five year letter of credit.211

176 Report of the Oil-for-Food Inquiry

DFAT's rejection of credit sales again

27.133 On 27 May 1996, Mr Pierce wrote to Mr Harley concerning the meeting of 22 May 1996 with Messrs Stott and Lyons. 212 He advised the Ministers had decided not to endorse the proposal that some wheat be shipped against payment by a five year letter of credit and that no submission containing any such proposal should be put to the Sanctions Committee. On 16 May 1996, Mr

Downer had indicated to his department that there was 'not a chance' of him agreeing to the letter of credit proposal. 213 He told his department that it was Australia's policy: 'to support sanctions against Iraq, and that we were going to do just that. The Iraqi regime was demonstrably a bad one, sanctions were - in this instance - having a tangible effect on the regime, and our job was to implement those sanctions thoroughly', and that 'it was no part of his responsibility to help Australian businesses to circumvent either tax obligations or UNSC resolutions'. 214

Mr Pierce raised the question of the export on the Ran Sepat and noted that DFAT 'now understood' BHP was the third party referred to in the notification which indicated payment would be 'cash payment to be received through third parties'. Mr Pierce wrote:

I understand from your colleagues that there is some thought being given to ways in which BHP's gift of wheat to Iraq might be re-formulated as a credit arrangement (whether on a five year term or different terms), or in a way which otherwise (possibly by payment in kind or in political goodwill) give BHP 'value' for the gift. 215

Mr Pierce went on to advise that to change the arrangements from a gift

arrangement to a credit arrangement would change the nature of the transaction so that it no longer came within the category notified to the Sanctions Committee. He further advised that if the gift arrangement were reformulated into a credit arrangement, the requirement of notification and

disclosure to the Sanctions Committee would not have been met. He said:

As far as the department is concerned, the sale in January is a closed matter and must remain closed, with the shipment having been sent and received in the terms notified to the UNSC.216

BHPP's reaction

27.134 Mr Pierce's letter was apparently copied to Mr Stott who discussed it with Mr Lyons that day. 217 Later that day, Mr Stott wrote to Mr Owen requesting that he forward all the original shipping documents for the Ran Sepat marked for his attention.218 Clearly, Mr Stott knew AWB still held these documents.

Report of the Oil-for-Food Inquiry 177

27.135 In the accounts of BHPP for the year ending 31 May 1996, the wheat purchase

was noted within item 96 as: 'donations - non-deductible —$6,680,005' 219 The payment was again listed under an annexure as a non-deductible Donation for Grain Purchase.

27.136 In a Director's Questionnaire to Management for the year ending 31 May 1996, in answer to the question:

Are there any material matters other than those discussed in this questionnaire on which management should advise the Board?°

The Board was advised:

Yes. A donation of $6.7 million sanctioned by the Australian Government and the United Nations, was made to the Australian Wheat Board to fund a shipment of wheat to Iraq for humanitarian purposes. 221 (Declaration made 12 July 1996)

27.137 On 4 June 1996, Mr Hunter replied to Mr Stott advising that AWB would release the original documents for the Ran Sepat to BHPP provided BHPP would provide it with an indemnity in similar terms to that provided by AWB to the vessel owners. 2 On 5 June 1996, Mrs Sachak of AWB's legal section sent a further draft indemnity to Mr Stott.nl

27.138 On 5 June 1996, Mr Stott sent a note to Mr Davidson Kelly and Mr Worthington concerning their proposed meeting with the Oil Minister of Iraq. Mr Stott noted:

BHP has also assisted Iraq throughout this difficult period. For example, in January 1996 we provided a USD 5 million pre-sanction financing arrangement which enabled 20,833 tonnes of humanitarian goods (wheat) to be delivered in February 1996.224

Mr Stott listed, under 'Other Important Leverage Points', 'Oil/Wheat/Debt trading opportunities. BHP's resources can be made available to assist Iraq in selling oil or buying humanitarian goods under 986'. 225

27.139 On 6 June 1996, Mr Worthington prepared a note to Mr Davidson Kelly and others which was copied to Messrs Harley, Stott and Taylor concerning the approach proposed to be adopted at an imminent meeting of Messrs Paver and Davidson Kelly of BHPP with the Minister for Oil in Vienna. 22 6 One of the messages Mr Worthington wished to be conveyed to Iraq was that:

3. Australia has a long stable and flexible trade relationship with Iraq, one which had continued through the most difficult circumstances of the past decade 227

178 Report of the Oil-for-Food Inquiry

One of the examples cited by Mr Worthington was:

BHP's recent A $5million wheat loan at a time of need, a gesture perhaps unmatched by any other co mpany/co untry.-

Mr Worthington's evidence was that Mr Stott told him about the 1996 shipment 229 and was probably the only source of his information. 230 He was told that BHPP's Chief Financial Officer had 'written off' the 'wheat debt'. 231 He believed Mr Stott told him this.232 He was never told the shipment was a

gift or donation 233 or of the terms on which the shipment was made. 234

27.140 On 7 June 1996, Mr Stott signed a Letter of Indemnity in favour of AWB in

respect of the 11am Sepcit shipment confirming that BHPP had requested AWB to deliver or arrange delivery of the wheat to the 1GB without production of the bills of lading. 235 There is no other evidence that BFIPP made such a request. On 11 June 1996, Mr Stott copied the Letter of Indemnity to Mrs Sachak and requested receipt of the original documents. 236

27141 On 11 June 1996, under cover of a letter dated 7 June 1996, Mr Hunter sent Mr Stott the original documents for the 11am Sepat.237 Mr Lyons noted on 11 June 1996 on the coversheet that the original documents were to be kept in safe custody indefinitely. BHP has produced to the Inquiry the complete set of shipping documents, including export invoices for the account of the 1GB.

Mr Lyons' evidence was that he directed that they be held in safe custody because they were the originals. 238

27.142 On 21 June 1996, Mr Stott drafted a letter addressed to Mr Daoud:

For several months we have been discussing how we should proceed in terms of establishing a suitable payment mechanism for USD5mil1ion (20,833 metric tonnes) of grain we financed in January 1996 on the MV Ikan Sepat.

You no doubt recall that originally it was proposed that the 1GB open an L/C in favour of the AWB which provided for payment no later than 5 years from the date of sale. Under the terms of the L/C the 1GB was to pay cash or deliver oil to the value of the L/C in substitution for cash if U.N. restrictions on Iraqi oil exports

were terminated within the 5 year period. The AWB would assign its payment and oil receipt rights under the L/C to BHP. In return for this assignment BHP would pay the AWB USD5 million cash on bill of lading date.

Rather than delay the shipment of urgently needed foodstuffs, in good faith, BHP decided to proceed on a basis that was acceptable to the U.N. i.e. 'cash payment to be received through third parties'.

BHP's intention was to ship the goods and then work with the U.N. and the Australian government post shipment to establish a payment procedure that was mutually acceptable. In this regard we have been lobbying our officials and

Report of the Oil-for-Food Inquiry 179

frankly we were optimistic that a breakthrough was imminent. However, now

that 986 has been finalised (and once again congratulations) the environment has again changed.

In the circumstances, I suggest we proceed on the following basis;

1. Accept, in light of 986, that there is now no value in pursuing a mechanism with the U.N.

2. BHP continue to hold the original shipping documents for the MV Ikan Sepat.

3. At a later stage in accordance with the original understanding, BHP to receive value by presenting the original documents to the 1GB! CBI.

Zuhair, I look forward to receiving your reaction comments/ suggestions and to exploring this or some other proposal with you in more detail. 239

BHPP's copy of the letter bears a handwritten notation by Mr Stott 240 'cleared with Jim Lyons'. 241 A copy of the letter was faxed by Mr Davidson Kelly to AWB and was produced by jt. 242

27.143 By this letter, Mr Stott thus raised, on behalf of BHP and BHPP, a categorisation of the transaction as a loan. That was contrary to the basis upon which Mr Prescott had approved the transaction, and contrary to the basis upon which both DFAT and the United Nations had approved the contract for the shipment to Iraq and DFAT had granted export permission. What Mr Stott wrote was plainly untrue. Mr Prescott approved the transaction as a gift and it was noted in BHPP accounts as a non-deductible donation. It had never been 'BHP's intention to ship the goods and then work with the UN and the

Australian Government post shipment to establish a payment procedure that was mutually acceptable.' 243 Neither Mr Lyons nor Mr Stott could recall whether the letter was actually sent .244 It seems unlikely that it was as Messrs Davidson Kelly and Stott were part of a delegation that met with Minister Saleh in Iraq on 22 June 1996. It seems improbable a letter would be sent to Mr

Daoud the preceding day. Further, the evidence suggests that on receiving the draft Mr Davidson Kelly told Mr Stott he didn't 'need to worry about it' and that it was 'all under control'. 245

27.144 On 22 June 1996, a meeting was held between the Minister for Trade, Mr Saleh, the Director General of Foreign Economic Relations, Ministry of Trade, Mr Al Obaidi and Messrs Davidson Kelly, Worthington, Stott of BHPP and Mr Richardson of DFAT. Mr Richardson made both a file note of the meeting 246 and sent a cable to Canberra concerning it.247 Mr Richardson recorded there were two matters Mr Davidson Kelly wished to raise; ongoing

180 Report of the Oil-for-Food Inquiry

oil field negotiations and the arrangements for the further delivery of wheat.

Mr Davidson Kelly said:

BHP's wish to arrange further shipments under a deferred payment method was facing difficulty in being accepted by the UN in New York and that now resolution 986 had been accepted, the situation had changed again. 248

Minister Saleh said, in relation to the problem of payment terms for future shipments of Australian wheat by BHP that:

He believed a major part of the problem was in presentation and that BHP should not approach the UN with a request for deferred payment, rather they should notify of the shipment and not specify a payment mechanism. This he believed was 'an internal matter' for the Australian authorities, the AWB and BHP, which

would be covered by BHP's agreement to accept payment at a later date against future oil sales. This was allowable under the terms of the UN resolutions, according to the Iraqis' interpretation. 249

Minister Saleh further noted that the wheat supply had been appreciated

'even if only the original partial shipment had been supplied'. 250

27.145 At the end of the meeting Minister Saleh returned to the issue of payment terms for future wheat shipments and said:

it was up to BHP to find a way. He commented that it was an internal matter for the Australian authorities/ parties. He expressed confidence that Mr Stott would be able to find a mechanism to address the problem of finding an acceptable way of implementing a deferred payment system for further wheat shipments.25 '

Mr Richardson noted that Minister Saleh expressed a 'definite connection (ie implied threat)' 252 between BHP fulfilling its wheat 'contract' 253 and 'finding a way around deferred payments and a positive outcome in oil dealings.' 254 Mr Richardson recorded that Mr Davidson Kelly knew the issue of deferred payment was a 'dead issue.'

27.146 A BHPP note apparently prepared for the meeting recorded:

A special feature of our long term trading relationship with Iraq has been our ability to maintain business by working together openly during very difficult circumstances. Throughout sanctions Australia has supplied the majority of Iraq's wheat requirements. BHP helped in this process by facilitating a shipment of approximately 21,000 tonnes of Australian grain. 255

In an undated BHPP document titled 'HFD Mission Notes 19-29 June 1996', it was recorded that the Iraq Minister of Trade had advised that:

- BHP's recent assistance has been discussed at the highest political level. He emphasised that those companies/countries that provide support now will be looked after favourably post sanctions; - He is keen for additional assistance and

Report of the Oil-for-Food Inqu ry 181

suggested that the UN pre sanction loan issue was a subject that could easily be

innovatively resolved internally within Australia; 256

27.147 These records give a strong indication that the Iraqi Minister understood the

wheat previously supplied to have been supplied on deferred payment terms. The Minister is not recorded as making reference to a gift. For the future, he contemplated not specifying payment terms to the United Nations, and by that means, obtaining approval of transactions which were in fact on deferred payment terms.

27.148 On 27 June 1996, the audit committee of BHP noted that the auditors had raised the matter of the payment to the Australian Wheat Board for a shipment of wheat to Iraq in December 1995. It noted that:

This matter had been raised with Management as the payment appeared to be in the nature of a donation and was not otherwise authorised.

The Chairman confirmed that this matter had been considered by the Board. 257

27.149 On 6 February 1997, Messrs Worthington and Taylor sent a memorandum to the Business Development Team, which included Mr Stott and Mr Davidson Kelly.us The memorandum referred to the 1996 wheat shipment as a 'gift', and also noted Iraq's request that BHP 'commit to provision of 'humanitarian aid' of the order of US$100M via a loan facility mechanism outside of the production sharing agreement.' A proposal for the loan facility was described as follows:

The AWB is already owed some US$500 plus for wheat delivered over the past decade. The Ministry for Industry is creditor and is guaranteed by the Iraqi Central Bank. The debt is presumably saleable in the international market for a percentage of face value.

BHP could lend the AWB US$100 million in return for (a)US$100mi11i0n face value of the Iraqi debt, which could then be either discounted into the international market for cash to reduce the debt or retained on its balance sheet in readiness for transfer back to the AWB upon repayment of the BHP loan; and (b) supply to Iraq of US$100 million of wheat supplied on the AWB's usual credit terms. The AWB has reduced its net debt; BHP has obtained either security for or some reduction in its debt exposure; and Iraq has received the US$100 million 'loan' outside the ambit of UN resolution 986.

In due course, the Iraqis will repay their debt to the AWB, which in turn would repay BI-JF either the full US$100 million plus interest (and BHP would transfer back the Iraqi sovereign debt) or if BHP had discounted the Iraqi debt into the market, the US$100 million plus interest less the amount raised by BHP on the sale of the debt.

UN Sanctions Committee approval for the AWB wheat sale transaction outside Resolution 986 would be required. The Australian Government would need to

182 Report of the Oil-for-Food Inquiry

present the request for approval; it would also need to support BHP's overall

business strategy in Iraq. 259

BHP produced a similar memorandum dated 11 February 1997 containing essentially the same terms. 260

27.150 On 25 February 1997, Mr Worthington emailed Messrs Stott, Harley, Davidson Kelly and Taylor concerning the proposal to loan Iraq US$100 million. 261 The proposal noted that:

Whilst our earlier 'loan' will stand us in good stead, we cannot be assured it will underwrite a project capture.262

27,151 Tvtr Stott in a reply to all recipients the next day noted: 'Basically we are going to run up against the same problems that we experienced last time.' 263 He wrote:

Turning specifically to the proposal, the problem that we ran up against last time, with the loan, is that, under 661 governments must prevent their nationals and any person from providing funds or any other financial or economic resources to Iraq. Our governments interpretation of this, is that the fundamental requirement of sanctions is absolutely no credit. Jim and I spent some time in Canberra, last year, trying to convince/encourage/persuade the Govt to test this interpretation

by submitting an application to the U.N. based on a credit payment arrangement for humanitarian goods. However, at that time bureaucrats responded, that Ministers would not endorse our proposal and therefore the Govt was not prepared to make a submission to the UN. Submissions to the U.N. can only be

made through a government. The Govt sought advice from their U.N. colleagues and were adamant that their interpretation was correct. They also claim that they have a responsibility to the U.N. to police applications and not clog up the system with applications that they know would not be acceptable. They were therefore not prepared to jeopardise their credibility.

From discussions with DFAT today nothing appears to have changed. We pushed them pretty hard last time round and it got us nowhere. Tom even worked on a few Minister's. We can certainly try again, but unless we can get Minister's to direct officials, despite their advice to the contrary, to submit an application, then

again I don't think we will get anywhere. This approach will consume a lot of BHP brownie points in Canberra and is certainly still not guaranteed to succeed. Frankly, I think officials, even in the unlikely event we got past first base, would ensure that it was scuttled in the U.N. 264

27.152 In a further email of 27 February 1997, Mr Stott advised Messrs Harley, Lyons,

Davidson Kelly, Taylor and Worthington that:

Given we are running up against a brick wall in Australia is there any value in trying to test the UK Govt on their attitude towards extending credit to Iraq? This could be approached on the basis of supplying humanitarian goods from Europe. Peter, we need a new angle if we are going to have any chance of being able to sway DFAT. Lets discuss. 265

Report of the Oil-for-Food Inquiry 183

27.153 BHPP has provided multiple copies of a memorandum to Mr Aiken from

Mr Davidson Kelly dated 6 October 1997 for proposed presentation to the board, and seeking its approval to proceed. The subject matter was 'Iraq Negotiations' and addressed oil field development. Included was a request by Iraq for a loan as a condition of agreeing to the oil development project. The proposed loan facility was between US $50 million and US $100 million. The paper noted no commitments would be entered into without the express approval of the Australian Government and compliance with the UN Sanctions Regime. This was noted on other occasions throughout the document. It was also noted that drawdown of the loan would only occur after Iraq's compliance with UNSCOM, or the lifting of sanctions.

27.154 BHPP also produced a number of emails which commented on the draft proposal. On 7 October 1997, Mr Knott, Chief Financial Officer, noted that the proposal should also 'incorporate the fact that we have already loaned US$5M to Iraq and explain how this is accommodated in the proposal.' 266 This email was copied to Messrs Harley, Stott, Taylor, Davidson Kelly and Worthington. Mr Stott sent a reply copied to Messrs Davidson Kelly, Harley, Taylor and Worthington on 7 October 1997 suggesting that Mr Davidson Kelly 'canvas the possibility of providing the loan facility through a third party, ie. the

AWB, thus further enhancing the prospect of repayment if it is piggy backed onto a strategic commodity import ie wheat.' 267 Mr Stott also incorporated drafting comments from Mr Harley.

27,155 On 10 October 1997, Mr Knott emailed Messrs Davidson Kelly and Aiken noting that:

You will appreciate that our CEO and the Managing Director will need to be convinced that the loan would be repaid, if required, and that a guarantee from an Iraqi institution is unlikely to provide that level of comfort. 268

Mr Davidson Kelly copied this comment together with his reply, to Messrs Worthington, Harley, Stott, Taylor and Aiken. 269 He suggested possible methods of security were to obtain an Australian Government guarantee, or the support of the Wheat Board, or other Australian agencies. Mr Davidson Kelly noted that Messrs Harley and Stott were working with the Australian Government on the proposal.

27.156 On 20 October 1997, Mr Davidson Kelly sent a note to Mr Knott, copied to Mr Stott and Mr Harley, in which he suggested changes to his note to Mr Aiken. 270 He suggested including:

The loan is supported by the Australian Government and approved by the United Nations Sanctions Committee.

184 Report of the Oil-for-Food Inqu ry

The loan will finance the supply of Australian sourced humanitarian goods

(wheat, rice etc.). 271

There was no advice to BHPP senior management that suggested proceeding

without Australian government and UN knowledge and approval of the proposed arrangement. There is no evidence of whether the proposal went to the BHPP board. The proposed loan to Iraq of US$100 million in return for rights in the Halfayah field ultimately did not proceed.

27.157 In a note of 13 May 1998 to Mr Davidson Kelly, Mr Worthington noted, in connection with the status of BHP's competition for the oil project that he had been informed by Mr Al-Fathi that the 'wheat gift was the 'only such transaction' by a foreign E & P company and will not be forgotten'. 272

2000: BHPP 'debt' raised again by Mr Stott

27.158 On 2 May 2000, Mr Stott, who was about to leave BHPP and rejoin AWB, emailed Mr Davidson Kelly:

Norman,

In January 2001, it is 5 years since BHP supplied the grain and payment of US Dollars 8,052,550 becomes due. We need to start thinking about what we want to do as the system will need to be appropriately warmed up, starting at least 6 months in advance if we want to recover the debt.

Happy to discuss. 273

27.159 Mr Davidson Kelly replied that day and copied Mr Stott's email and his reply to Mr Harley. He asked that the matter be discussed. On 6 May 2000, Mr Harley replied to Mr Davidson Kelly and proposed meeting at 'the canteen' Thursday [11 May 20001 to discuss the matter.274 Mr Stott was in Melbourne, Mr Davidson Kelly in London, and Mr Harley in Houston. 275 Mr Harley did not have lunch as planned as he was detained in Houston.

27.160 On 9 May 2000, Mr Davidson Kelly emailed Mr Aiken, and copied the email to Mr Harley. He wrote:

I don't know how familiar you are with the details, but there is a strong possibility that the Iraqi's will owe BHPP a total of around US$8 million under a debt which crystalises in 6 months time.

I would prefer to fill you in in person, or Tom can easily do that. I think it would be a good idea for Tom and me to work through the issues with Jim Lyons and Charles Stott, who were involved in the original transaction. It is quite complex as there are DFAT and UN issues to address. We could then discuss with you a recommendation either to proceed to attempt recovery, with draft plan of action,

Report of the Oil-for-Food Inquiry 185

or a recommendation that we drop the whole thing. I would be reluctant to

recommend the latter course of action without at least an internal review, as there is a lot of potential cash at stake. No hurry, and Jim is on leave until early June in any event. 276

27.161 Mr Aiken replied that day: 'I never cease to be amazed. Will be fascinated to

hear this one.' 277 Mr Harley received this email. He said he told Mr Aiken at about this time that there was no debt 275 although Mr Aiken did not recall this. Some few days later, Mr Aiken initiated inquiries to determine whether the 'debt' had been written off in BHPP's books. 279 Mr Aiken gave evidence he had never been told the shipment was a gift. 280

27.162 On 19 May 2000, Mr Davidson Kelly emailed Mr Aiken and put a proposal to him concerning transfer of BHPP's rights and interests in Iraq to a new company of his, Atlantic Oil and Gas Management, in return for offering BHPP a 'back-in' right to take a 25 to 30 per cent stake in any project captured by him in Iraq, and the same proportion of any return from the 1996 shipment of grain:

I would like to have a chat to you about your favourite country, because I think I have a proposition which should be attractive to you. If it is of interest I will submit it formally to you in the next day or so, so please let me have your reaction to the following:

As you know I believe BHPP should try to keep its foot in Iraq, not only for future oil opportunities but also for the possibility (as yet unquantified but probably remote) of getting some money back re the cargo of grain we financed or gave them in 1996. But I quite appreciate that you would prefer to be shot of the whole issue, and have clean break with the country to focus on other more promising areas.

I am associated with a new company (Atlantic Oil and Gas Management) which has recently been set up to do business in that part of the world and would be prepared to take the whole of BHPP's position in the country such as it is, (ie data, the potential receivable and relationships), subject to local Government approval. Atlantic would continue to work in the country at its sole risk and expense.

If you thought it attractive, Atlantic would grant BHPP a back-in right to a pre-agreed percentage of specific projects (like HFD) if captured within a specified period of time. Say 25-30%. Alternatively some form of potential Royalty interest could be created in BHPP's favour (as we did for prirazlomnoye). In the event that any cash was recovered from the 'receivable' the pre-agreed percentage would be paid to BHPP as received; or if traded into a project, BHPP could back into that opportunity. ie Atlantic would act as debt collector for you.

Atlantic has good connections in the region and is approved by the United Nations to do business in the country. Hence I think they have a good chance of salvaging something for you from our previous investment, although it will not be easy. Or it will provide you with an elegant exit.

I really think this might work for you. I will give you a call. 281

186 Report of the Oil-for-Food Inquiry

BHPP assigned the 'debt' to Tigris

27.163 On 2 June 2000, Mr Davidson Kelly emailed Mr Aiken a draft of the proposed agreement noting the principal terms were:

Effective 1 July 00, Atlantic steps into BHPP's shoes and for a period of three years will grant BHPP a back in right to take up to 25% of any project 'captured'. Atlantic would also pursue the repayment of the Iraqi 'loan' on a similar basis. From 1 July all costs, other than those specifically agreed, would be for Atlantic's account. 28 2

27.164 Mr Aiken forwarded that email to Mr Lyons and others on 6 June 2000, and

wrote:

As you are aware Norman now works for us on a part time basis and is involved in Atlantic, guaranteeing to advise me of any potential conflict of interest. I have canned all work on Iraq and Norman wants to take over and run through Atlantic. Jim Lyons knows of the history-would appreciate your views.

27.165 Mr Lyons noted on a copy of the email:

I spoke NDK 14/6- I will markup + give to NDK tomorrow + discuss with him. 284

A copy of the proposed agreement was hand annotated by Mr Lyons on 14

June 2000. A typed version with the changes marked up as drafted by Mr Lyons is dated 16 June 2000.285

27.166 The 16 June draft contained the following clause 3 dealing with the 'Grain Board receivable':

Atlantic will pursue the recovery in cash or in kind of amounts possibly owing to BHPP by the Government of Iraq for earlier assistance with the purchase of wheat. BHPP will provide all reasonable information and reasonable assistance to Atlantic in the pursuit of the claim. BHP makes no representations and gives no warranties as to the validity of this claim.

Atlantic will pay to BHPP 25% of all cash or cash equivalent recovered, net of expenses incurred after the Effective Date, on an as received basis.

Atlantic may compromise, exchange for assets or otherwise settle the debt at its sole discretion, subject only to permitting BHPP to participate in any non-cash asset acquired in the terms mutatis mutandis as set forth in clause 2 hereof.

BHPP shall enter into the Grain Board Receivable Assignment Letter Agreement, annexed hereto as SchedulcSccdulc D hereof.

Atlantic will not do or allow anything to be done which could lead to publicity regarding the Grain Board Receivable. 286

27.167 Changes to the agreement were negotiated between Mr Lyons and Mr Davidson Kelly. Mr Davidson Kelly and Mr Lyons both had discussions with

Report of the Oil-for-Food Inquiry 187

Mr Aiken concerning the redrafting. During negotiations, Mr Davidson Kelly

substituted Maritimo Investments Limited, a Gibraltar registered company, for Atlantic Oil and Gas Management Limited which was Isle of Man registered. By September 2000, Mr Davidson Kelly had substituted The Tigris Petroleum Corporation Limited (Tigris), a Gibraltar registered company, as the proposed party.

27.168 In June 2000, Mr Stott left BHPP and returned to AWB as General Manager, International Sales and Marketing. 287

27.169 On 13 September 2000, Mr Aiken and Mr Davidson Kelly executed an agreement between BHPP and Tigris. 8 The agreement was to operate from 1 September 2000. The recitals provided that:

lA/hereas

BHPP has been active in Iraq for a number of years and wishes to restructure its commercial relationships relating to its activites in the country; and

Tigris wishes to assume BHPP's position on the terms and conditions set forth below 289

Clause 1 transferred to Tigris:

all, if any, rights it may have to recover consideration due from the Iraqi Government relating to a cargo of grain delivered to the Iraqi Grain Board in January 1996 ('The Grain Board Receivable'). 290

Clause 3 provided:

3.1 Tigris will pursue the recovery, in cash or in kind, of amounts owing to BHPP by the Government of Iraq in relation to BHPP's earlier assistance with the purchase of wheat. BHPP will provide all reasonable information and reasonable assistance to Tigris in pursuit of the claim. BHPP makes no representations and gives no warranties as to the validity of this claim.

3.2 Tigris will pay BHPP 25% (twenty-five per cent) of all cash or cash equivalent recovered, net of expenses incurred after the Effective Date, on an as-received basis.

3.3 Tigris may compromise, exchange for assets or otherwise settle the debt at its sole discretion, subject only to permitting BHPP to participate in any non-cash asset acquired in the terms mutatis mutandis as set forth in Clause 2 hereof.

3.4 BHPP shall provide the Grain Board Receivable Assignment Letter, annexed hereto as Schedule C.

3.5 Tigris will not do or allow anything to be done that could lead to publicity regarding the Grain Board Receivable. 291

188 Report of the Oil-for-Food Inquiry

Thus, the 'debt' referred to by Mr Davidson Kelly on 9 May 2000, which his

email of 19 May 2000 described as being for a 'cargo of grain we financed or gave them in 1996', had by 13 September 2000 become 'consideration due from the Iraqi Grain Board relating to a cargo of grain delivered to the Iraqi Grain Board in January 1996.'

27.170 Pursuant to that agreement, on 13 September 2000 Mr Aiken signed a letter to the Iraqi Minister of Oil, Mr Al-Rashid.292 The letter advised that Tigris would in future handle responsibility for continuing discussions in relation to oil and gas development projects in Iraq. It also stated:

As you will recall, BHPP also made a major contribution to the alleviation of suffering of the Iraqi people with the cargo of grain delivered on the MV Ikan Sepat in January 1996 prior to the institution of the United Nations 'Oil for Food' programme. 293

27.171 Mr Aiken signed the letter annexed to the contract as Schedule C. The letter was on BHPP letter head:

To Whom It May Concern

BHP Petroleum has agreed to restructure its commercial interest in Iraq by transferring to The Tigris Petroleum Corporation Limited, ('Tigris') 57/63 Line Wall Road, Gibraltar (Registered in Gibraltar number 76644) with effect from 1 September 2000 all its right title and interest relating to all Iraqi Assets and

Liabilities.

In particular BHP Petroleum has assigned to Tigris all its rights to receive value from the Grain Board of Iraq, or its assignee, in relation to the cargo of grain delivered by the Australian Wheat Board to the Iraq Grain Board in January 1996 on the MV Ikan Sepat, which cargo was financed by BHP Petroleum at a cost of US5 million (US Dollars five million), which rights are hereinafter referred to as 'Grain Board Receivable'.

Tigris is hereby authorised to discuss the Grain Board Receivable with the appropriate parties and to negotiate details and terms of payment as Tigris in its sole discretion shall deem appropriate, without further BHP Petroleum involvement. Payments made in relation to the Grain Board Receivable should be made as directed by Tigris. 294

27.172 Mr Aiken recollected that he 'glanced' at this document before signing it and 'assumed' it was in accordance with the contract, which he had read. He did not recall discussing it with any BHPP staff. 295 He understood the receivable to be a debt which had been written off in the books of BHPP and for which there was very little chance of recovery. 296 Mr Aiken said he had never considered that the shipment was a gift, because he had never been told that it

was. 297

Report of the Oil-for-Food Inquiry 189

27.173 It will be observed that BHPP had assigned to Tigris a 75% interest in a non-

existent debt and authorised Tigris to recover it on Tigris' and BHPP's behalf. Although BHPP in its contract with Tigris provided that 'BHPP makes no representations and gives no warranties as to the validity of the claim', 298 no such qualification or reservation appeared in schedule C to the contract, the

letter addressed 'To whom it may concern'.

This is the 'debt' which, as will be seen, Tigris and AWB later manage to recover.

27.174 Mr Aiken did not join BHPP until after 1996 shipment. 299 His evidence was that he believed the 'receivable' to be an unrecoverable debt which had been written off in the books of BHPP and that he treated it accordingly. 300 His evidence was that at no stage was he aware that the 1996 shipment was a

gift. 301 1 accept that evidence.

27.175 Mr Lyons knew Mr Davidson Kelly was trying to persuade Iraq to pay for the shipment of wheat which had been a gift. He drafted the agreement between BHPP and Tigris whereby BHPP retained 25 per cent of whatever Mr Davidson Kelly was able to recover. Mr Aiken signed the agreement under a misunderstanding as to the real facts of the 1996 shipment. Mr Aiken would not have signed the letter 'To whom it may concern' annexed to the September 2000 agreement recording BHPP's assignment of its 'rights to receive value from the Grain Board of Iraq' and authorising Tigris 'to negotiate details and terms of payment' had he been told there were no such rights, and in particular no right to seek payment. He was not so told by Mr Lyons or Mr Harley.

27.176 Mr Harley's evidence was that he told Mr Aiken that the shipment to Iraq was a gift on about 9 May 2000, well prior to him executing the contract with Tigris. I do not accept that evidence. Had he done so I am satisfied Mr Aitken would not have signed the letter annexed to the agreement with Tigris.

27.177 By entering into the agreement of 13 September 2000 with Tigris, and more particularly by signing the letter in Schedule C, BHPP assisted Tigris in pursuing repayment of a gift made by BHPP in 1996 by allowing Tigris to represent to Iraq that BHPP regarded the cost of the wheat shipment as being a 'receivable' to be repaid by Iraq. Whether any such representation would have any consequence depended upon the view of the transaction held by Iraq. BHPP so acted by mistake because Mr Aiken, who had no personal knowledge of the 1996 shipment, was not told at any time that the shipment had been approved by the Managing Directors of both BHP and BHPP only on the basis that the transaction was a gift, and further they had required both

190 Report of the Oil-for-Food Inquiry

DFAT and United Nations approval which also was given only on the basis

that the transaction was a gift.

27.178 What use Tigris and Mr Davidson Kelly made of Annexure C was entirely a matter for them.302 As I have found, and as the documentary evidence makes plain, Mr Davidson Kelly was fully aware that the grain shipment had been made by BHPP as a gift.

AWB engaged by Tigris to assist with recovery

27.179 On 15 September 2000, Mr Davidson Kelly emailed Mr Stott, who by then had returned to AWB.303 He enclosed a draft letter to AWB concerning the BHPP receivable. He sought Mr Stott's comments. He also stated:

fyi Tigris is an Aussie registered company and enjoys the support of our friends at DFAT who, as I told you, are interested in the outcome of the discussions to recover the Obligation.

it was good to see you, Mark Vaile and Bob Bowker in Melbourne yesterday. 304

27.180 The evidence of Mr Bowker and Mr Vaile was that they did not meet Mr Davidson Kelly in Melbourne as suggested, and that the matter was never raised with DFAT. The evidence of Mr Stott was that he did not remember meeting Mr Vaile and Mr Bowker on that day. 305 There is no evidence that Tigris 'enjoys the support of our friends at DFAT', or that DFAT was ever concerned about, or had any interest in, 'the outcome of the discussions to recover the Obligation.'

27.181 The letter ultimately forwarded to AWB on 28 September 2000 is on the letter head of The Tigris Petroleum Corporation Pty Limited which is an Australian incorporated company (Tigris Australia) with a Melbourne address. 306 Although controlled by Mr Davidson Kelly, it is a different company from Tigris which is Gibraltar registered and which was the assignee of BHPP's rights. The use of Tigris Australia is unexplained. The letter also contains changes from the draft forwarded to Mr Stott on 15 September 2000 indicating that Mr Stott had discussions with Mr Davidson Kelly as to its final form. The

letter provided:

The Australian Wheat Board was helpful in assisting BHP Petroleum procure and deliver a cargo of 20,833 metric tonnes of Australian Wheat to Iraq in January 1996, prior to the adoption of the United Nations' Oil for Food Programme. The cost of the shipment was US$5 million.

The cargo was delivered on the basis that BHP Petroleum would be reimbursed in due course for the cargo, not later than 5 years from the date of shipment, with interest running at 10% per annum compound. The debt falls due on

Report of the Oil-for-Food Inquiry 191

26 January 2001, and the amount due to BI-IP Petroleum at that date, including

interest, will stand at US$8,052,550.

BI-IP has appointed The Tigris Petroleum Corporation Limited as its agent to achieve the recovery of the outstanding obligation, and I should be very grateful if AWB Limited could assist us in achieving that result. A copy of the original Bill of Lading and the Export Invoice is attached for your information, together with a copy of the Assignment of the Obligation from BHP Petroleum to the Tigris Petroleum Corporation. 307

27.182 The letter was not accurate. Mr Davidson Kelly stated Tigris had been appointed as agent to recover the debt when in fact it was the assignee of the 'Grain Board receivable'. It did not make it clear that it was Tigris and not Tigris Australia that was the beneficiary of the assignment. 308 The statement that 'The cargo was delivered on the basis that BHP Petroleum would be reimbursed in due course for the cargo, not later than 5 years from the date of shipment, with interest running at 10% per annum compound' was false. It

was known to be false by each of Mr Davidson Kelly and Mr Stott.

27.183 On 4 October 2000, BHPP faxed to Mr Stott the 28 September letter noting:

Norman asked me to forward the attached to you. I am investigating the missing original that Carol Wood sent in the pouch last week. w9

Also enclosed was a copy of BHPP's letter of indemnity in respect of the Ran Sepat of 7 June 1996, and the original bill of lading and invoice. 310 Mr Stott referred the documents to Mr Lister and Mr Hogan with the note: 'Can we please discuss 6 October 2000', and requested Mr Hogan to file the documents.311

Negotiations with Iraq recommenced

27.184 In early October 2000 an itinerary was prepared for a visit to Baghdad by Mr Stott and Mr Hogan. 312 The itinerary included a meeting on Saturday, 14 October 2000 with Mr Al-Fathi of the Iraqi Ministry of Oil. 313

27.185 Mr Hogan's evidence was that Mr Stott had instructed him to raise the recovery of the debt in Iraq on that trip. Mr Stott was aware that the 1996 shipment had been a gift. Mr Hogan's recollection was that at that time he was told by Mr Stott it was a debt due to BHP, and he was only told of the

involvement of Tigris prior to raising the issue on his February 2001 trip.314 He said that Mr Stott had insisted that the matter be raised on his trips,

including the October 2000 trip.315 He did not accord the debt a high priority given other pressing issues for AWB, and the fact that Iraq owed money to the Australian farmers and the Government:

192 Report of the Oil-for-Food Inquiry

I treated the Tigris Petroleum one with probably a lower priority than

dispatch/ demurrage or other issues that I thought were more important to AWB. I saw that Tigris Petroleum tried to collect their debt when the Australian Government was owed 480 million and the Australian farmers were owed 98 million, we were trying to collect a $8m debt for another company, but it was

insisted that I raise this issue every time.316

27.186 Mr Hogan also gave evidence that Mr Stott proposed 'hitting them for a fee' in relation to the debt recovery. His evidence was that Mr Stott was seeking a fee from Tigris rather than BHP, so the proposal to collect a fee probably arose prior to the February 2001 trip but alter the October 2000 trip. 317

During the October visit Mr Stott delivered a letter from Mr Davidson Kelly to

Mr Al-Fathi. He said he could not recall the contents, and the letter has not been produced.318 However on 16 October 2000, Mr Stott on route from Iraq, emailed Mr Davidson Kelly advising that he had delivered a copy of the Tigris letter to the new 1GB Director General, Mr Abdul-Rahman.319 He had raised the debt recovery with the Minister and noted:

The issue has been put on the table at the highest level and will be examined. A key part of this process will be Sadallah's view given that he is remembered by the minister as the person who help organise it. Your challenge/risk is Sadalla. My reading of the Baghdad discussions is that if Sadallah was to confirm our interpretation this would assist the process. However, if Sadallah runs around saying it was a gift then it is going to be tough. 320

Despite the email to Mr Davidson Kelly, Mr Stott claimed he did not provide Mr Al-Fathi with any interpretation of what the arrangement between BHP and Iraq had been: he simply delivered the letter. 321 He said the use of the words 'our interpretation' were not intended to convey that he shared Mr Davidson Kelly's understanding of that arrangement. 322 Mr Stott did agree it was probable the letter provided to Mr Al-Fathi would have been consistent with Mr Davidson Kelly's letter to AWB of 28 September 2000, which spoke of a debt recoverable with 10 per cent per annum compound interest.323 I do not doubt Mr Stott knew of the contents of the letter he delivered.

2001: approaches to 1GB continued

27.187 On 12 January 2001, Mr Stott received a letter (incorrectly dated 12 January 2000) from Mr Davidson Kelly, on Tigris Australia letterhead. 324 The letter was to be shown to Iraqi officials on the next AWB visit to Iraq .325 Changes were made to the text by Mr Stott,326 and faxed back to Mr Davidson Kelly on 16 January 2001 with Mr Stott's handwritten note:

Report of the Oil-for-Food Inquiry 193

Norman, I suggest a couple of changes. If you are happy then please amend and

we will pass original to 1GB during the next visit. We are due to be in Iraq on 29 January 2001.

Charles 16/1327

The penultimate sentence of the letter, unamended by Mr Stott read:

I am due to report to BHP and the Australian Government shortly and I would be grateful for an up-date of the current situation. 3 28

27.188 There is no evidence to support that Mr Davidson Kelly was ever reporting to

the Australian government. Mr Davidson Kelly and Mr Stott both knew the Australian Government was not being informed of the attempts to receive payment for BHPP's donation. Mr Stott gave evidence that he carefully checked the letter to ensure it would not give offence to AWB's customer, Iraq. 329

27.189 On i February 2001, Mr Davidson Kelly's company, Maritimo Investments

Limited, through which he was engaged by BHPP, wrote to BHPP terminating his employment contract with BHPP, to take effect from 31 March 2001. 33°

27.190 On 20 February 2001, Mr Hogan emailed Ms Moona (1GB):

You may recall that during my recent visit to Baghdad, I inquired about the status of the MV Ikan Sepat on behalf of Tigris Petroleum.

You advised that this issue was currently being discussed by the Central Bank of Iraq and the Ministry of Petroleum.

Can you advise on any developments? 331

This inquiry is not mentioned in Mr Hogan's trip report of the visit, 332 but it is recorded in his notes. 3 Mr Hogan believed that it may have been about this time that the notion of requiring a fee to be paid for AWB's assistance was raised with Tigris. 334

27.191 On 20 February 2001, Mr Stott wrote to Mr Davidson Kelly confirming that

Mr Hogan's recent delegation had raised 'the status of payment for the Ikan Sepat' with the 1GB, who would raise it with the Central Bank of Iraq and the Ministry of Petroleum. 335

27.192 On 6 March 2001, Mr Hogan wrote to Mr Abdul-Rahman and advised:

We intend to visit Baghdad again in May. We can discuss the MV Ikan Sepat during this visit.

194 Report of the Oil-for-Food Inquiry

However, if you wish to meet with Tigris Petroleum, I can instruct their

representative to travel to Baghdad to meet with you? 336

27.193 On 7 March 2001 Mr Davidson Kelly, as President of Tigris, sent a facsimile to the Iraqi Oil Minister, Mr Al-Rashid, which included:

There is one issue about which I would welcome your advice and guidance. You will remember that in early 1996, before the Oil for Food Programme was established, BHP Petroleum financed a cargo of grain delivered on the MV Ikan Sepat in January 1996. The cost of nearly US$5 million was to be repaid with

interest on 26th January 2001, Tigris has been asked by BHP Petroleum to recover the receivable on their behalf, and discussions with the Iraq Grain Board to achieve this were commenced by the Australian Wheat Board in September 2000.

I understand that the 1GB have referred the matter to the Ministry of Oil and the Central Bank of Iraq for authorisation to proceed to effect repayment. I enclose copies of my letters to the Australian Wheat Board 28th September 2000 and 16th January 2001, and their reply dated 20th February 2001. Authorisation to effect repayment is still awaited by the 1GB from the relevant authority.

Excellency, I should be most grateful for any assistance you or your officials might give to conclude this transaction. I should be most happy to meet with you or your colleagues as you may direct to progress matters. 337

27.194 There is no evidence that BHPP asked Tigris 'to recover the receivable on their behalf'. It had in fact assigned all its rights to Tigris, subject to a right to receive 25 per cent of any recovery by Tigris.

27.195 On 28 March 2001, Mr Abdul-Rahman emailed Mr Hogan:

You are kindly requested to specify a convenient time to visit Baghdad for discussing all issues in Baghdad with yr representative and representative of Tigris Petroleum Co. as we asked you before: 338

27.196 On 5 April 2001, Mr Davidson Kelly wrote to the Minister of Oil with a proposal for preparation of a master development plan for the maintenance and enhancement of production from the Kirkuk field. 339 He wrote:

it is Tigris' intention that we should commence work immediately an agreement is reached between us, rather than wait for any UN approvals. This will, however, depend upon us reaching agreement on the outstanding receivable owed by the Ministry of Trade to BHP Petroleum, which Tigris is mandated to collect on BHP Petroleum's behalf. I should be most grateful for your advice and

assistance in resolving this issue.340

27.197 On 10 April 2001, Mr Davidson Kelly entered into a new contract with BHPP to spend 15 days per quarter on BHPP matters. 34 1

Report of the Oil-for-Food Inquiry 195

27.198 On 4 May 2001, Mr Hogan wrote to Mr Abdul-Rahman concerning his

intended visit to Baghdad proposing as one of a number of issues for discussion, Tigris Petroleum. 342

27.199 On 6 May 2001, Mr Hogan emailed Mr Stott concerning Mr Hogan's Baghdad

visit, and sought advice whether there was any word from Tigris. 343 An email reporting on the trip written by Mr Hogan did not mention the Tigris transaction.344

27.200 On 10 May 2001, Mr Davidson Kelly, on Tigris Australia letterhead, wrote to Mr Stott concerning Mr Stott's advice on discussions which had taken place that week in Baghdad. 5 Mr Davidson Kelly noted Iraq had acknowledged its obligation to Tigris, and had requested Tigris make a proposal for settlement to be transmitted through AWB. Mr Davidson Kelly proposed that Tigris would accept simple rather than compound interest and thus the net amount due as at 26 January 2001, would be US$7.5M. He proposed 10 per cent simple interest on unpaid balances, and that the debt would be paid on two rests at 1 June 2001 and 1 December 2001. 6 There was no discussion of the mechanism for payment.

27.201 On 16 May 2001, Mr Stott wrote to Mr Abdul-Rahmari noting recent discussions concerning repayment for the grain, and forwarded Mr Davidson Kelly's letter. Mr Stott asked it be passed to appropriate authorities for their consideration. 347

2002: the pursuit continued

27.202 On 30 January 2002, Mr Davidson Kelly sent a letter to Mr Abdul-Rahman. Mr Davidson Kelly noted it was then the sixth anniversary of the shipment, and he was anxious to resume discussions concerning settlement. He offered two mechanisms for payment:

The first mechanism would involve the co-operation of the AWB. In relation to the continuing sales of grain from Australia to Iraq, we would agree a surcharge calculated on a per tonne basis. This surcharge would be deducted from the outstanding Obligation until fully repaid.

The second mechanism would involve the allocation to Tigris of agreed quantities of Oil under the various phases of the MOU. The agreed profit element would be deducted from the Obligation on a per barrel basis until fully repaid. 349

It is evident from this letter that Mr Davidson Kelly knew Iraq lacked the means to satisfy the 'Obligation' directly and that it could not simply draw down, or request funds from, the escrow account to satisfy the claim.

196 Report of the Oil-for-Food Inquiry

27 .

203 On 26 April 2002, Mr Davidson Kelly wrote a letter to the Iraqi Vice President, Mr Ramadan. The letter stated that BHP had appointed Tigris Petroleum as its agent for the recovery of the 'obligation' and enclosed the following 'key documents' in relation to attempts to recover the debt:

• his letter of 28 September 2000 to Mr Stott

• his letter of March 2001 to Mr Al-Rashid, the Minister of Oil

• correspondence between Tigris and AWB

• a letter of March 2001 to the Minister of Trade, Dr Saleh

• his letter of 10 May 2001 outlining a settlement proposal

• his letter of 30 January 2002 to Mr Abdul-Rahman outlining a settlement proposal. He noted in relation to that letter:

Specifically it was suggested that repayment could be linked to future deliveries of grain by AWB to Iraq. It is our understanding that the proposal is being considered favourably, but that a higher level of authority is required to determine the matter. 350

Mr Davidson Kelly also stated in the second last paragraph:

On the successful recovery of the loan, Tigris will be in a position to reinvest in order to start work immediately on the key project, rather than awaiting approval from the United Nations Committees. 351

27.204 On 21 May 2002, Mr Davidson Kelly emailed Mr Aiken concerning the 'possible repayment of the Iraqi loan'.352 The same day he wrote a letter to Mr Aiken, incorrectly dated 21 May 2001 .353 In the letter, Mr Davidson Kelly advised Mr Aiken of progress towards repayment of the debt, noting he had engaged AWB's assistance, and the Iraqi's had acknowledged the legitimacy of the claim. He noted that he, AWB and the Iraqis had been exploring mechanisms for repayment, and that the actual repayment process might be linked to shipments of Australian wheat and therefore made over a period of time.354

27.205 On 21 May 2002, Mr Davidson Kelly emailed Mr Stott advising that he had not given up on the loan yet, and that the Vice President was referring the repayment to the Supreme Economic Council that weekend.355 He enclosed a copy of his 26 April 2002 letter to Mr Ramadan and his 21 May 2002 letter to

Mr Aiken.

Report of the Oil-for-Food Inquiry 197

27.206

On 6 June 2002, Mr Aiken replied by email:

As you can imagine I am not holding my breath that this debt will roll in the door but do appreciate your efforts to recover. 356

Iron Filings Claim made

27.207 On 25 July 2002, Mr Abdul-Rabman sent an email to Mr Hogan stating that the wheat aboard the vessel Mani P contained traces of 'iron powder'.357

27.208 On 26 July 2002, Mr Long sent a facsimile to Mr Abdul-Rahman expressing concern about the contamination of the vessel, and stating that AWB did not believe it was responsible for any contamination of the wheat. 358

27.209 On 1 August 2002, Mr Abdul-Rahman sent another email to the chairman of

AWB confirming the presence of iron powder in the Mani P and two further vessels, the Tuo Hai and the North Duchess. He advised that discharge of the vessels had been stopped. He suggested AWB send representatives to confirm the contamination. 359

27.210 On 2 August 2002, Mr Johnson sent an email entitled 'National Pool Iraq

Update' to the AWB executive, including Messrs Lindberg, Ingleby, Stott, Geary, Johnstone, Long, Whitwell and Ms Scales, informing them of the Iron Filings Claim:

We have just received an email stating that the two vessels currently on berth have ceased discharging. The email states that Iron Powder has been found in the hatches and they have been rejected. The other origin vessel has been rejected due to a dead rat. This is another sign of the fact they are not in need of grain at the moment, and they are using it as a reason to signal to Australia the change in status.

This morning we will pursue all avenues to divert vessels already on the water.

The pool figures will be updated today, when data is available. Needless to say the figures in the sheet do not reflect any diversion, non performance of existing contracts. This is clearly going to happen, and outperformance is going to be impacted.360

27.211 On 5 August 2002, the International Sales and Marketing group held a meeting in relation to the situation with the Iron Filings Claim. Mr Whitwell sent an email to the group following the meeting, recapping the details and outlining specific instructions. Members of the group were instructed to look

into the evidence of the existence of the iron powder, put the owners on notice and to keep the charterer's liability insurers informed. The vessel owners were put on notice of a possible claim against them.

198 Report of the Oil-for-Food Inquiry

27.212 On 5 August 2002, a National Pool Iraq Status report was circulated.

361 The

report outlined the financial implications of the difficulties in performing the contract to which the Iron Filings Claim related.

27.213 On 6 August 2002, 1GB sent a telex to AWB requesting confirmation of settlement of the Iron Filings Claim at a cost of US$7 per tonne to perform screening and cleaning of the suspected contaminated grain. 362 This telex was circulated to Messrs Long, Whitwell, Edmonds-Wilson and Johnson.

27.214 On 7 August 2002, Mr Johnson sent an email to Messrs Lindberg, Ingleby, Stott Geary, Morrison, Goodacre, Johnstone, Long and Whitwell as well as Ms Scales, reporting that the Tai An Hai had berthed in Umm Qasr the previous day and it too was claimed to be contaminated. 363 He referred to the 1GB telex stating that it would discharge the three contaminated vessels if the grain was sieved at a cost of US$7 per tonne. Mr Johnson noted 'coincidently' that US$7

per tonne was approximately the amount of an error 1GB had made when converting the contract price from US dollars to euro when the contract was initially booked.

Mr Johnson informed the executive that two further vessels on route for Umm Qasr had been diverted and of contingency plans for further shipments.

27.215 Mr Lindberg told Mr Stewart in July 2002 that he regarded the iron filings dispute to be serious enough for him personally to travel to Iraq to resolve it. Mr Stewart demurred because of the risks but Mr Lindberg convinced him that it was important that he go. 364

27.216 On 7 August 2002, a further National Pool Iraq Status Report was circulated. It noted the serious impact on the pool of rejection of the cargoes. Also, on 7 August 2002, Mr Edmonds-Wilson sent an email to Mr McBride detailing the Iron Filings Claim and the issues surrounding it. 65 He indicated that the real problem was that 1GB had diverted trucks from carrying wheat from Umm Qasr to deal with the local harvest, leading to slow discharge and 'logjam'.

This demonstrates that AWB knew 1GB was responsible for trucking arrangements at Umm Qasr.

27.217 On 7 August 2002, Mr Davidson Kelly wrote to Mr Stott concerning a proposed AWB visit to Baghdad and their discussions that day. 366 Mr Davidson Kelly knew AWB had a number of vessels unable to discharge because of Iraqi claims of contamination, and that Iraq was also threatening to reduce purchases of Australian wheat because of its perception that the

Australian government was hostile towards it. He also knew that AWB was sending a delegation to Iraq to resolve these issues. He wrote:

Report of the Oil-for-Food Inquiry 199

3. On the issue of the role Tigris could play, I confirm that The Tigris Petroleum

Corporation Limited was registered in Gibraltar in September 2000. We would be most willing to work with you to resolve any issues you may have in relation to your dealings in country.

As I mentioned, I am considering reducing Tigris's Australian connection, and to establish a more politically acceptable presence in the Gulf. I can accelerate these plans if deemed to be advantageous. I expect to work closely with an eminent Qatari, who met the boss recently as part of an official delegation to the country.

4. Would your delegation be willing to deliver a letter from me to the Trade Minister, asking him to stimulate action re the loan repayment? Obviously they would only deliver it if things were going well!

Talk to you tomorrow. 367

Mr Stott replied:

Our team is arriving Tuesday 13 evening by car from Amman and currently scheduled to depart on 14 Thursday night or 15 Friday morning. They are staying at the Al Rasheed. The delegation will comprise of Andrew Lindberg, Trevor Flugge, Bob Cracknell and Michael Long.

Happy for the team to be armed with a letter from you to table if things are going well but on the other-hand if the environment is not conducive to it being tabled then best to keep it in their pockets for a better occasion. 368

Mr Stott's email was copied to Mr Long.

27.218 On 10 August 2002, Mr Davidson Kelly emailed Mr Long and Mr Stott enclosing a letter from him to be delivered to Dr Saleh if Mr Long judged it to be a suitable time to do so. Mr Long's secretary, Ms Robertson, copied the email and enclosure to Mr Edmonds-Wilson for inclusion in the brief for the trip delegates. 369 The letter referred to Mr Davidson Kelly's letter to Mr Abdul-Rahman of 30 January 2002 suggesting repayment by a 'surcharge' on future wheat contracts. It authorised AWB to discuss the 'detailed mechanism for the repayment of the loan.' It stated, untruthfully, that Mr Davidson Kelly

was 'now under some considerable pressure to explain the situation to the Board of Directors of BHP Billiton.' 370

27.219 On 12 August 2002, Mr Long emailed Mr Davidson Kelly with a copy to Mr Stott:

Dear Norman

Many thanks for your message and the the friendly contacts.

I will do my best with the Minister if the timing is appropriate and will let you know of the outcome. 371

200 Report of the Oil-for-Food Inquiry

Mr Long at this time was General Manager of International Sales and

Marketing of AWB. 372

27.220 According to the Corporate Risk Board Report of 12 August 2002, 373 as at that date only one vessel alleged to have a contaminated cargo, the Mani P. had completed discharge. Four others were awaiting the outcome of the delegation's visit before discharging.

27.221 Before the delegation departed for Iraq an executive brief was prepared. The brief outlined the contamination claim and noted that the 1GB had requested financial compensation of US $7 per metric tonne to remove the iron powder. 374 I accept that Mr Davidson Kelly's letter of 10 August was provided

to delegates with the brief by Mr Edmonds-Wilson. Under the heading 'Iraq at a Glance' the brief listed a number of dot points, the last of which was:

• AWB also pays a fee, covered under sales contract, to the Ministry of Transport covering inland transport fees and discharge costs. 35

The August 2002 delegation: AWB agreement to pay

compensation

27.222 On 16 August 2002, the AWB delegation, Messrs Flugge, Lindberg, Long and Cracknell, arrived in Iraq. Mr Whitwell sent an email the same day giving an update on the delegation's visit. 376 He wrote that the delegation had one day of discussions in Baghdad, including discussions with the Minister for Trade. In a media release dated 18 August 2002, AWB reported the success of the delegation in securing discharge of the vessels, and securing contracts for 500,000 tonnes of wheat. 377 On 19 August 2002, Mr Whitwell confirmed that the delegation had agreed with the Iraqis 'to unload the iron filing vessels and pay USD 6 pmt.' 378 According to the evidence of Messrs Flugge, Lindberg, Long and Cracknell, the Tigris debt was not discussed. A trip report was not prepared following the August trip to Iraq. There is doubt regarding whether during the discussions with the Minister for Trade the method by which the agreed iron filings compensation was to be paid was discussed. The Minister was apparently of the view that it had been agreed with Mr Lindberg that it would be repaid using the inland transport mechanism. Mr Lindberg denied any such agreement was made. So also did Mr Long although he later signed a memorandum dated 7 February 2003 which stated that he had been present when such an agreement was made. The evidence is not sufficient for me to find that such an agreement was made in August between the Minister and

Mr Lindberg.

Report of the Oil-for-Food Inquiry 201

27.223 Mr Davidson Kelly wrote on 21 August 2002 to his agent in Iraq, Mr Jumah,

concerning the AWB mission to Iraq:

The visit was led by AWB's managing Director, Andrew Lindberg, and was successful to the extent that Australian Wheat shipments to Iraq have been resumed. The AWB also expects to start detailed negotiations over the next series of shipments in a month or so. Michael Long informed me that no opportunity had arisen during the meeting with Minister of Trade His Excellency Dr Mohammed Mehdi Saleh to discuss or table the Tigris letter concerning the Loan repayment mechanism. However, The Director General, Iraq Grain Board, Mr

Youssif Abdul-Rachman, informed Michel Long that the letter has been placed before the Minister and was receiving attention.

Michael Long undertook to keep me informed on the next visit by AWB to negotiate the pricing and delivery mechanisms for the next series of grain contracts. I suggest that, subject to obtaining the required visa, I should plan to be present in Baghdad at the same time as the Australian delegation, to finalise the details of the Tigris loan repayment. Please let me know if you are in agreement with this proposal. 379

It is clear from this letter that Tigris played no role in the resumption of Australian shipments to Iraq, and that the Tigris debt was not directly raised with the Minister for Trade on this trip.

27.224 Mr Davidson Kelly indicated in the letter that he had had some role in what he reported to be a distancing of the Australian Government position from that of the United States in relation to Iraq. There is no evidence whatsoever that he had contact with, or influence on, the Australian Government or that he played any such role. I am satisfied that he did not.

27.225 On 22 August 2002, 1GB emailed Mr Hogan requesting that he 'confirm settlement of the contaminated quantities with iron powder that will be cleaned and screened in our silos by USD 6 (six) per mt for total cargo to each vessel.' 380 Mr Hogan forwarded this email to Mr Whitwell. 381 Mr Hogan noted:

We need to think how we 'legally' pay Iraq. 382

Mr Hogan obviously knew that payments to Iraq were prohibited.

27.226 On 22 August 2002, Messrs Lindberg, Hockey and Stewart had a meeting with Mr Downer and his staff informing them of the quality claims on the four vessels and the settlement agreement between AWB and Iraq. 383 AWB noted their concerns about the genuineness of the quality complaints. Mr Downer advised that, on his information, the concerns had been genuine. The Prime Minister also attended the meeting briefly. No one from AWB advised the Minister about the Tigris debt, or the mechanism by which the payment for the iron filing settlement was to be made. Mr Lindberg told Mr Downer and

202 Report of the Oil-for-Food Inquiry

the Prime Minister that AWB had 'accepted a price reduction for the

shipments'.

27.227 The long-form contract for each of contracts Alill and A1112, the contracts under which the contaminated wheat was shipped, provided:

Amounts related to the settlement of claims relevant to shortages, damages and any other discrepancies for each shipment (according to the confirmation of the Secretary General's designee which should be sent to the Secretary General within 24 hours) must be remitted to Iraqi account. 3 84

Thus the contracts provided, in terms, that any settlement of claims had to be paid into the escrow account. These were contracts the United Nations had approved.

The offset proposal

27.228 On 26 August 2002, Mr Whitwell emailed Mr Abdul-Rahman confirming an agreement to pay US$6 per metric tonne as compensation on the Iron Filings Claim, as agreed by the AWB delegation between 15 and 18 August 2002. 385 Mr Whitwell wrote:

We would like to confirm again our agreement to the settlement of contaminated quantities as agreed by our delegation from the 15-18/8/2002. To that end we would ask for your proposal with regard to a settlement process that would abide by relevant United Nations guidelines with respect to the Oil for Food program.

An option might be to offset this amount against monies outstanding to Tigris Petroleum and we would appreciate your view on this. 386

Mr Whitwell copied his email to Mr Long, Mr Hogan and Mr Edmonds-Wilson. 387 When he drafted this email, he was aware that an agreement had been reached to pay the Iraqis $6 per metric tonne in settlement of the Iron Filings Claims. Mr Long had told him about the Tigris debt and the proposal

to offset the iron filings settlement against the Tigris debt. Mr Whitwell had sent a draft of his 26 August 2002 email to Mr Long before sending it to Mr Abdul-Rahman, and Mr Long suggested that the Tigris offset option be included for the Iraqis' consideration. 388

AWBL's Board minutes of 31 August 2002 recorded that it had been informed

that agreement had been reached on the Iron Filings Claim: 'agreement on reduction of $6 per tonne'. 389 The method of payment of the compensation was not discussed.

Report of the Oil-for-Food Inquiry 203

27.229 On 6 September 2002, Mr Abdul-Rahman emailed Mr Hogan:

You are kindly requested to send representative from yr side and representative from (Tigris Petroleum cooperation Pty Limited) in order to discuss settlement of outstanding matter. 390

27.230 On 11 September 2002, Mr Long emailed Mr Davidson Kelly, with copies to Mr Geary, Mr Stott and Mr Hogan:

We may have an angle to assist you with debt recovery, ie the 1GB has suggested we may send representatives from AWB and Tigris to Baghdad to discuss the matter.

Before we progress, would you please send to me all relevant documentation from BHP authorising AWB to negotiate/ settle with Tigris/yourself on their behalf in part/ full payment for the Iraqi debt to BHP.

The documentation will be scrutinised by our legal department and the authority for me to negotiate with you/IGB will need to be signed off by the Executive of the AWB.391

27.231 On 12 September 2002, a meeting of the CRRC was held. The Chair, Mr Lindberg, and the CFO, Mr Ingleby were voting members but did not attend. Mr Johnstone, the Chief Risk Officer for AWB attended, as did Messrs Long, Johnson and Snowball. 392 It was reported in the section on International Sales and Marketing:

Iraq

Iron powder vessels - all four original vessels have completed unloading and sailed, however Iraq Grains Board (1GB) have claimed contamination on two more vessels (currently at berth). These vessels will be discharged, however USD6 pmt will be payable.

New 500kmt contract—A1441. AWB received advice from 1GB that the Central Bank of Iraq has advised BNP to establish an L/C. OIP (through the Australian Mission to the UN in New York) have advised the application is still subject to a funding notice, but expect funds to be available this week (by 13/09). 393

It is plain from the report that members of the CRRC had a level of familiarity with the Iraq market and the processes of payment through the United Nations.

27.232 The report was distributed to Ms Scales and Messrs Lindberg, Long, Johnson, Ingleby, Geary and Snowball amongst others. 394 Mr Johnstone, AWB's Chief Risk Officer, recalled that Mr Long gave a presentation to the committee on Tigris' request that AWB assist it to recover a debt outstanding after a 1996 wheat shipment by BHP. 395 Mr Long proposed that the compensation payment be offset against the Tigris debt. He advised Mr Long to put a

204 Report of the Oil-for-Food Inquiry

written memorandum to the CRRC. He could not recall discussion in detail of

how it was proposed that AWB would recover the money for Tigris, however he did advise that the issue of recovery and payment to Tigris would need to be referred to the ELG rather than the CRRC for approval and that the matter should be referred to the AWB legal department for review. The minutes record that:

The Tigris Petroleum wheat payment issue was highlighted with legal to revieW3 96

Debts denied by Iraq

27.233 On 13 September 2002, the Iraqi Embassy in Australia published a note from the Iraqi Trade Minister as follows:

As regards to the statements given by the Australian Foreign Minister claiming that Australia owes Iraq USD500Million, this is not true as the amount pending is only around USD (8,800,000) in favour of Australia/Tigris Petroleum Corporation Pty Limited representing value of a quantity of wheat shipped in 1996 plus interest until 30th Jan 2002 .397

27.234 On 16 September 2002, Mr Long sent to the CRRC members (which included Mr Lindberg and Mr Ingleby), as well as to Mr Cooper of AWB legal, and Mr Johnson the manager of the AWBI national pool, a memorandum which he also copied to Mr Geary, Mr Hogan and Mr Whitwell. 398 He wrote:

During 1995/1996 BLIP agreed to provide USD 5m worth of Australian wheat to the 1GB as a gesture of good faith in view of BHP's desire to enter the Iraqi oil market.

AWB shipped the wheat on board MV Ikan Sempat in Jan. 1996 and were paid by BHP Petroleum.

1GB have acknowledged the outstanding debt owed to BHP who subsequently assigned their rights to Tigris Petroleum. The current debt including interest stands at some USD 8.8m.

AWB has always acknowledged that it would assist in this debt recovery process. This issue has been raised by AWB personnel with the Minister of Trade, HE Mohamed Medhi Saleh on a few occasions since the debt became due on 26 January 2001. The Minister has always acknowledged this debt.

AWB has agreed to pay 1GB USD 6 per tome on approximately 300 000mt under Contract Number A1111/A1112 as settlement for the 'iron filings' quality issues amounting to some USD1.8m. AWB raised the possibility of settlement of this quality claim by AWB paying Tigris as settlement of the Iraqi debt to Tigris. UN

Regulations prohibit direct payment of funds to Iraq whilst Iraq is under UN sanctions. [emphasis added]

Report of the Oil-for-Food Inquiry 205

The 1GB has recently invited representatives from AWB and Tigris to visit

Baghdad to discuss this issue.

Furthermore, AWB today received a communication from the Iraq Charges de Affaires (attached) quoting the Iraqi Foreign Minister stating 'as regards to the statements by Australian Foreign Minister claiming that Australia owes Iraq USD 500m, this is not true as the amount pending is only around USD8.8m in favour of Australirigris Petroleum Corporation Pty Ltd representing value of a quantity of wheat shipped in 1996 plus interest until 30th Jan 2002.' [emphasis in original]

ISM view this statement as extremely important in the context of the recent political noise over Australia's potential involvement in military aggression towards Iraq. It should also be noted that The Hon. Alexander Downer has just addressed the UN over Australia's position with respect to Iraq and has just met with the Iraqi Foreign Minister, HE Naji Sabri.

This statement could well be a phase in Iraq's plan to put more political pressure on the Howard Government. It could bring the AUD 500 m debt owed to the Australian Government into question. It should be noted that up until now, the Iraqi Trade Minister has always acknowledged this debt to the Australian Government. Should the Charges de Affaires leak this information to the press, it would have a serious negative impact on the Australian Government, particularly with farm incomes under considerable pressure.

Actions, Approvals

1. ISM request AWB Legal to review the file attached and to advise CRRC if ISM is authorised to negotiate with 1GB! Tigris the settlement of the Iraqi debt to Tigris. Specifically it would involve AWB I paying monies to Tigris Petroleum subject to all the correct paperwork being received from both 1GB and Tigris. Advice to go to CRRC for meeting Thursday 19 Sept 2002.

2. ME Desk/Government Relations to devise the most appropriate strategy for liaising with the Australian Government in relation to the latest advice from Charge de Affaires. This will need to be done quickly if we are to gain political mileage from it.

3. ME Desk to prepare a letter to HE Medhi Saleh from Andrew Lindberg alerting him to our concern over the recent correspondence and seeking his reconfirmation of the Australian debt. 399

Attached to the memorandum were the draft contract between BHP and AWB for the original shipment and the assignment of the debt to Tigris. 400

It was thus made clear to all AWB senior management, if it was not clear beforehand, that 'UN Regulations prohibit direct payment of funds to Iraq whilst Iraq is under UN sanctions.' 40 ' Mr Cooper could find no record of any

206 Report of the Oil-for-Food Inquiry

member of the AWB legal division giving the advice to the CRRC

contemplated by the 16 September 2002 memorandum. 402

27,235 On 17 September 2002, Mr Foran, AWB Government Affairs Advisor, wrote to Mr Long advising of a proposed public position for AWB on the Iraqi press release. 403 The email was copied to Mr Hogan and Mr Whitwell. Mr Long forwarded it to Mr Geary who forwarded it to Mr Ingleby, the Chief Financial Officer, stating:

I have asked Michael to prepare a briefing note for the ELG. Will not be this week as we will wait for you to get back.

CES knows most about the background as he negotiated the deal from AWB side, then left to join BHP at around the time that it was being executed.

No need to get this to the September board, so ELG can decide on course of action in the next week or So. 404

27.236 On 19 September 2002 there was a Corporate Risk Review Committee meeting. The minutes of the meeting were not produced. On 22 March 2006, AWB produced some handwritten notes prepared by Mr Johnstone. 4)5 On 13 June 2006, AWB produced some papers presented to the Committee which

indicate that Mr Johnstone was present. 406 Mr Johnstone's notes demonstrate that the discussion went beyond the matters listed in the papers and that at least the subject matter of Mr Long's memorandum was discussed. Mr Johnstone's notes in relation to sales to Iraq included:

* # 7 for Iron Filings ** Seeking conlo. on debt outstanding. 407

Mr Johnstone gave evidence that the first note recorded that a seventh vessel had now been subject to a contamination claim and that the last probably related to the debt due by Iraq to the Australian Government rather than that due to Tigris. 408

27.237 Mr Ingleby is listed as a Committee member but gave evidence that he was overseas at the time of the meeting and did not attend. He did, however, read Mr Long's memorandum on his return. 409 Ms Scales, who was on leave until 20 September 2002, agreed she must have read the memorandum later (but did not recall doing so) as she had a copy of it with her handwriting on

Accordingly, they both knew that AWB had agreed to make a compensation payment to 1GB, that UN sanctions prohibited a payment to Iraq and of the proposal to assist Tigris to recover a debt from Iraq and set part of that debt off against the compensation payment due. Mr Cooper accepted that a copy of the memorandum was addressed to him and that a copy he was shown, with

Report of the Oil-for-Food Inquiry 207

a fluorescent marking over his name, demonstrated it was intended to be

delivered to him. 411 He said however, that he did not recall receiving it41 2 prior to finding a copy on a file compiled in August 2004 when he was asked to review the Tigris matter. 413 Mr Whitwell accepted that the memorandum was addressed to him but did not remember receiving it at the time. 414 He accepted however, that he knew at that time of the proposal to pay the iron filings compensation to Tigris rather than 1GB, that there was a debt owed to

Tigris by 1GB and that UN sanctions prevented direct payment to Iraq. 415 Mr Johnstone remembered attending but did not recall the 'methodology' for the proposed collection of the debt by AWB being discussed or receiving the legal advice. 416 I am satisfied each CRRC member received the memorandum.

27.238 On 20 September 2002 Mr Lindberg, in accordance with the third action point of Mr Long's memorandum, wrote to Minister Saleh seeking his confirmation of the debt due to Australia and wheat farmers from deliveries prior to 1991. In relation to the Tigris matter he wrote:

AWB Limited is in agreement with your comments that monies owing to BHP/Tigris Petroleum Corporation Pty Ltd only total approximately US$8.8 million and represent the value, plus interest, of wheat shipped to Iraq in 1996 by AWB Limited on behalf of BHP/Tigris Petroleum.417

27.239 On 30 September 2002, Mr Whitwell prepared a brief for the ELG at Mr Long's direction and sent him a copy to review. 418 The brief contained the following:

Iraq Debt

USD 480 million approx still owed to Australian Govt/Farmers for Wheat Sales made before last Gulf War. Although 80 pct was paid out thru EFIC to the farmers 98 m is still owed. These funds remain frozen in foreign banks. However, on 16/09/02 Iraq Trade Minister claimed that the Iraqi people had no debt with

Australia. In addition, 1GB owe BHP Biliton USD 8 million for Cargo of Wheat sent to Iraq in 1996.

• Letter has been sent to Trade minister asking him to reassert debt. If not received we do have evidence of acknowledgment of the debt from Iraq.

• Push Australian Govt and UN for compensation to Farmer in event of regime change or removal of sanctions and fund freeze. 419

It did not deal with how AWB might obtain payment from Iraq of the debt owed to Australia or to Tigris.

208 Report of the Oil-for-Food Inquiry

Tigris and AWB agree on debt recovery commission

27.240 On 15 October 2002, Mr Davidson Kelly emailed Mr Long:

In relation to the recovery of the loan, I suggest that we settle on a fee payable in line with repayment of the loan. I expect this to be based upon deliveries of grain by you.

We reckon a fee to you of US$500,000 would be a fair reward for your assistance in concluding this matter, payable on the basis I have described. Expressed in percentages, this is over 6% of what we expect to recover. 420

Mr Long replied on 16 October 2002 that AWB expected the first instalment to be repaid by Iraq to be about US$1.8 million. 42 ' AWB proposed that its US$500,000 fee be taken out of that first instalment.

27.241 On 17 October 2002, a draft reply to WEA's request of 17 September 2002 was provided by Ms Cattanach to Mr Whitwell for comment. 422 Ms Cattanach's email to Mr Whitwell read (in part):

As mentioned previously there are gaps which I'm hoping you can fill if just very briefly. Steve will be reviewing it also & you'll notice I've got a couple of questions on the doc from him too. eg should certain info go to WEA or not?423

27.242 On 23 October 2002, AWBI produced a market brief in response to the WEA's request.424 The brief principally addressed Iraq's announcement in July 2002 that it would halve its proposed purchase of 1 million tonnes of wheat as a consequence of the Australian government's position on Iraq, the quality claims and the contingencies for war. Neither inland transport fees nor their

prepayment were mentioned nor was the ten perc ent after-sales-service fee incorporated into, and paid through, the inland transport fee.

It appears from a draft of the report which was prepared by Ms Cattanach, AWB's Research Market AnalySt425 that originally there was included mention of the Tigris proposal. 426 The draft noted that 1GB owed Tigris Petroleum USD 8 million for Cargo of Wheat sent to Iraq in 1996 and that:

We have proposed the current rebates for 'Iron powder' should be offset against Tigris Petroleum. We have received a positive response from 1GB. ISM requires ELG direction in regard to this matter. 427

Next to the paragraph regarding Tigris quoted above, Ms Cattanach noted: 'Steve, does WEA need to know this info??'4 28

The entry regarding Tigris and the iron filings settlement was removed at the suggestion of Mr Whitwell.429 He wrote on the draft:

Report of the Oil-for-Food Inquiry 209

I think we have to separate the issues and do not feel that this issue is in our

hands - it is bound up with un sanctions and regime change. I would suggest it should not be in this brief. I would therefore suggest today that the only issues to be resolved with the Iraqis are political to do with govt position and future business. ??°

When questioned as to why he had formed the view that the information regarding Tigris ought not be passed on to the WEA, Mr Whitwell said:

Because in my mind, at October 20, sir, I believed that there were—really the three issues, or the issues that were unresolved, were the political issue between Iraq and Australia; our execution issues—ie, the ships on the water and getting them unloaded smoothly and out, and I think at that point in time we were also chasing a letter of credit; and how we were going to manage the war risk, or the increasing risk of war going forward, and how we were going to manage the exposure of our contracts. I didn't believe the Tigris debt issue to be an issue that was one that was unresolved or a priority for us.431

Mr Whitwell disputed the suggestion that this was a deliberate deletion on his part with a view to keeping from the WEA any knowledge as to how it was proposed that the AWB might settle the Iron Filings Claim. 2 Mr Whitwell also disputed the suggestion that there had been a deliberate decision not to tell the WEA about the Tigris debt. 433

27.243 On 27 October 2002, Mr Davidson Kelly wrote to his Iraqi representative Mr Jumah, concerning his discussions with AWB and proposals. 434 His letter is reproduced on the following page.

27.244 It is clear Mr Davidson Kelly had been told by AWB that it did not regard direct payment of the Iron Filings Claim to Iraq as an available option no doubt because it was a plain breach of sanctions. Thus two alternatives were advanced, namely, payment to the escrow account which was the legal solution, or off setting the payment as part of the disguised Tigris transaction.

27.245 Mr Davidson Kelly had apparently suggested to AWB the debt be 'attached' to the next contract and that amounts due to him be called 'Commission'. This commission was said to be in respect of his alleged efforts to modify the position of the Australian Government with the presumed consequence of further purchases of Australian wheat. It is also to be noted that he had

agreed that Iraq should be repaid any overpayment that resulted from adding a 'payment per ton' to the contract. It would appear from previous records that Mr Davidson Kelly's dealings were with Mr Long.

210 Report of the Oil-for-Food Inquiry

The Tigris Petroleum Corporation Pty Limited

Registered in Australia ACN 094 592 793 Maritime, 6/1 Marne Street, Melbourne, \/ietats 3141, Australia

IIIi 111 TIG.0001.003 I

TIGRIS PETROLEUM

27 October 2002

Sabah Jumah Baghdad

Dear Sabah,

Discussions in Amman with AWB

The following was the outcome of the discussions with AWB.

1 Amounts outstanding

I advised them that as at 26 October 2002 Tigris is owed approximately US$9,519,000. If we revert to simple interest, that amount would reduce to approximately US$8,375,000.

I advised them that the offer to revert to simple interest, made in June 2001, had been withdrawn, and that I expected that the discussions would revolve around the compound interest figure.

I also advised them that, after certain adjustments were made, of which you are aware, Tigris would expect to retain the simple interest amount.

2 AWB Position

AWB have a contractual dispute concerning cargo quality, under which they owe the IBG US$ 1.6 million approximately. After detailed review they are of the opinion that they can only do one of two things. They can either return this amount to the escrow account, or make the payment to Tigris in an agreed front-end payment in relation to our transaction.

They have communicated this to the 1GB. But 'in code', not directly.

The balance could be attached to 'new business', i.e. a new contract of say 500,000 tons with an agreed payment as Commission. I suggested that this Commission would relate to the hard work we have done in turning round the Australian Government's hard line position, which led to the suspension of business with Australia.

Report of the Oil-for-Food Inquiry

211

Ti(.0001 0032

TIGRIS PETROLEUM

3 Mechanics

We would agree a payment per ton. Any underpayment would be dealt with in a subsequent contract, and any overpayment would be accounted for in full by Tigris to the authorities,

It was recommended that we agree the amounts outstanding as part of the commercial negotiations We would then translate Tigris' US Dollar amount into Euros.

This transaction could be dealt with as a single package. Part would be paid immediately, to the benefit of all concerned, and part in the future, probably early next year.

4 Authority

AWB have my authority to deal with all these issues. They will communicate the result to you, and seek your assistance if they require. You know how to contact me if required.

Dominic Hogan, Regional Manager Middle East, heads the delegation. Chris Whitwell, Account Manager, accompanies him. They are staying at the Al Mansur hotel, and are currently planning to leave on Royal Jordanian on Tuesday evening.

5 Acknowledgement of debt to Tigris

I was handed a copy of the protocol dated 13' September 2002, from the Embassy of the Republic of trsq, Canberra, to HE Alexander Downer, Foreign Minister, attaching the statement of the Trade Ministry in Iraq regarding the amounts owing by Iraq to Australia.

The Statement reads ' .... the amount pending is only around USD (8,800,000) in favour of Australia/Tigris Petroleum Corporation Pty Limited representing value of a quantity of wheat shipped in 1996 plus interest until 30' January 2002'

Best wishes to all my friends, and good luck in the discussions. I hope to as you all soon.

Yours sincerely,

(Original signed by Norman Davidson Kelly)

Norman Davidson Kelly President

The Tigris Petroleum Corporation Pty Limited Registered in Australia ACN 094 592 793 Maritimo, 6/1 Mame Street, Melbourne, Victoria 3141, Australia

212 Report of the Oil-for-Food Inquiry

27.246 On 27 October 2002, Messrs Hogan and Whitwell arrived in Iraq for the

purpose of further negotiations in relation to Tigris and the Iron Filings Claim. A note prepared for the trip stated:

Due to the inability to make payments direct to 1GB because of the longstanding UN sanctions, we will propose that these amounts will be paid to BHP to offset the Tigris debt owed by 1GB to BHP dating back to January 1996. 435 [emphasis added]

The note also named a total of seven ships' cargoes being subject to compensation. The total compensation payable was US$2, 016, 133.86. 436

Loading up of contracts and requests for payment through Alia

27.247 On 6 November 2002, Mr Whitwell emailed Mr Davidson Kelly copied to Mr Hogan and Mr Long 437 :

It was good to meet you on our last trip and we briefed Sabah as to the results of our discussions, briefly they are as follows:

Had a first meeting with Dr Yousif where we put you approximate figures forward - however we emphasised that any agreement on the final actual figures had to be reached between Tigris representatives and appropriate persons in the govt - we were only facilitating possible repayment.

we took the following approx figures you gave us.

Date Compound Int: Simple Interest

26th Jan 2001 USD8,050,000 USD7,500,000 26th Jan 2002 USD8,855,000 USD8,000,000 26th Oct 2002 USD9,519,000 USD8,375,000

We suggested the following proposal

1. offsetting vessel claims (iron filings) against Tigris (BHP) debt -

2. Balance of debt to be recovered against new business (load up contract). -

approx USD7.5 million (if using compound)

3. No further vessel claims would be used as offset - but would need to be redirected through UN account.

Yousif referred the issue to the Minister who we met that evening.

The minister wants to keep the two issues (vessel claims and Tigris debt) separate. He stated that the simple interest amount on the Tigris debt had received approval for repayment and that he felt through loading up the next Phase provided this opportunity.

Report of the Oil-for-Food Inquiry 213

Given that the next phase is due for discussion in Dec it was agreed that it was

important that Tigris have arranged figures and agreed them prior to then. Sabah told us of your plans to be there his month.

We discussed with Sabah the possible difficulties in incorporating the entire debt into one 500 K contract. Suggested some alternate pressure could be bought to bear on the Govt by yourselves to increase the tonnage of next phase to make things easier, he said he would discuss this with you.

This email again made it plain that the means by which the debt was to be recovered was by inflating the price of new contracts.

27.248 Mr Long forwarded this email to 'the Executive'. Mr Lindberg did not recall ever seeing it.438 No copy of the email bearing his initials was produced. It was his practice to initial hard copies of emails which were read.

27.249 Mr Ingleby accepted that he received this email but did not give it 'any great attention'.439 Ms Scales did not recall reading this email in any detail.MO She acknowledged, however, that as the General Manager of AWBI she was concerned with the Iron Filings Claim, which was going to be funded by the pool.441 She said she would not necessarily have been interested in the mechanism of offsetting the lion Filings Claim against the Tigris debt by loading up the next contract. In this regard she gave the following evidence:

A: . . .The important thing for the people in the pool, whether its the pricing manager or the pool manager or our export position management team or our pool accounting group, and indeed the general manager, is to understand the nature of the exposure to make sure it's reflected accurately in the pool model such that we're not distributing funds out to farmers or reflecting pool equities on a fortnightly or weekly basis incorrectly to farmers. The actual if you like details around a mechanism wasn't something that I necessarily took interest in. We had

Q: Go on, sorry.

A: Oh, I was just going to say we had subject matter experts in international sales and marketing that dealt directly with third-party counterparties.

Q: You wouldn't have taken interest in a matter which spoke of loading up contracts for future business?

A: Not at this stage, no, sir.

Q: You wouldn't have been concerned about the exposure of AWBI if contracts for future business were loaded up?

A: I'd be concerned on two fronts: one, that whatever we did was approved by the United Nations, as we were dealing in Iraq; and, secondly, that AWBI was informed that this was going to happen, so that dollars could be isolated in the accounts.

214 Report of the Oil-for-Food Inquiry

ELG told compensation to be paid directly and debt repaid by

'loading up' contracts

27.250 On 7 November 2002, Mr Whitwell sent an email to Messrs Lindberg, Ingleby, Stott, Geary, Long, Hogan, Edmonds-Wilson, Johnson, Goodacre, Fuller and Ms Scales, amongst others, concerning the recent trip to Iraq on 28 and 29 October. 443 The email contained a summary of 'key outcomes'. They were:

• Discussed the next phase (13), the minister confirmed they would look to buy 500K from AWB for shipment 1st half 2003 funds permitting, invited us back in Dec to discuss.

• Positive ministerial comments about AWB's efforts to change Govt position however until they saw a real change in govts "Aggressive" position they would not be re-instating 1 million tonne contracts for each phase. However, Minister highlighted that everybody in Cabinet including the president now understood that AWB is separate entity from Australian Government.

• Iron power rebate (USD 6 pmt) is separate from other debt issues. The minister has asked for repayment through inland transport mechanism.

• Minister reaffirmed the 480 million debt and will instruct Canberra Embassy accordingly.

• Minister/IGB delegation will only accept a governmental invitation to come to Australia. Tigris debt has cabinet approval for repayment - final amount to be agreed during the next month by Tigris/Iraqis and then mechanism for repayment to be agreed during next visit.

• Iraqi agreement for continued joint inspect by independent supervision Co at Umm Qasr.444

27.251 Mr Lindberg said he could not recall reading this email, but accepted that he

had when a copy bearing his initials was located. His evidence was that regarding payment of the iron filings compensation, he was aware that people were looking at options and taking advice/ 5 he was not involved in the detailed consideration of the matter but assumed it would be resolved through appropriate processes of negotiation, and assumed that whatever

was resolved at the operational level would be done with UN approval. 446

27.252 Attached to the summary email was a trip report. Mr Lindberg's evidence was that he read the summary email but not the attached trip report which the summary email said was 'a fuller trip report should you need further information or background.' 44 7 I accept Mr Lindberg's evidence that he did not read the attached trip report.

Report of the Oil-for-Food Inquiry 215

27.253 The attached report makes clear that at the conclusion of the meetings with

the Minister in October:

• The amount of the Tigris debt had not been agreed between Iraq and Tigris;

• The manner of its recovery had not been agreed. There were competing proposals to offset the iron filings compensation against part of the debt and recover the balance by 'loading up' the AWB contracts, or recovering the whole sum by loading up the contracts;

• AWB had not accepted that the iron filings compensation would be paid to Iraq through the 'transport payment system' although the Minister was insisting on this.

The trip report recorded:

Vessel rejection claims as per original agreement to e paid through inland transport payment system against next contract - Phase 13

AWB to advise re payment mechanism of rebate...

This makes clear the method of payment of the claim was still a matter of debate.

27.254 The attached trip report of the meeting with the 1GB on 28 October 2002 concerning the Tigris debt recovery, recorded discussion of the following proposals:

1. Offsetting vessel claims (iron filings) against Tigris (BHP) debt—approx USD2 million.

2. Balance of debt to be recovered against new business (load up contract). - approx USD7.5 million (if using compound)

3. No further vessel claims would be used as offset—but would need to be redirected through UN account.

1GB—confused abt amount and offer made by Tigris—Jan 2001, where Tigris would accept simple interest amount.

AWB advised we were not involved in the actual amount, but only the mechanism. Actual amount would be agreed between Tigris and relevant authority.

1GB - referred any decisions to the Minister.

AWB to get copy of letter sent by Tigris in Jan this year. 448

216 Report of the Oil-for-Food Inquiry

27.255 The proposals referred to in the report, but not in the summary, were put to

Mr Abdul-Rahman and Ms Moona by Mr Hogan and Mr WhitweII. 9 The concept of loading up the contracts came from discussions Mr Hogan had in Melbourne with Mr Long prior to the trip. 450 Mr Whitwell could not recall where the idea to load up the contracts came from but said:

'I'd heard Mr Long say that as far as he was concerned, he had no objections and wanted us to discuss helping to recoup the Tigris debt.' 1

Q: By loading up future business?

A: Well, that's - yes, by - again, I'd better take this slowly, but that was certainly one of the mechanisms that might have been used, yes, sir.452

The third proposal makes clear that Messrs Hogan and Whitwell knew that sanctions required any payment to Iraq of iron filings compensation to be paid to the UN escrow account.

27.256 I am satisfied that the proposal to 'load up' contracts to recover the Tigris debt came from Mr Davidson Kelly and was agreed to by Mr Long who then authorised Messrs Hogan and Whitwell to put the proposition to the Iraqis.

27.257 The report also recorded a meeting on 28 October 2002 with Minister Saleh on the Tigris issue. Messrs Hogan and Whitwell reported:

Simple Interest amount to be recovered by Tigris through loading up the next Phase 13 wheat business. This has received Cabinet approval.

Vessel rejection claims as per original agreement to be paid through inland transport system against next contract—. phase 13.

AWB to advise re payment mechanism of rebate and to brief Tigris re Iraqi position on their debt. Tigris to have arranged figures and agreed prior to AWB visit to Iraq in December. 453

It further recorded, concerning the Australian debt:

Minister was embarrassed by statement released by Iraqi Embassy in Canberra. He advised a corrected position would be forthcoming from Iraqi Embassy, regarding this matter. They fully acknowledge the debt and that it is owed to Australia 454

27.258 The emphasised paragraph makes clear that Minister Saleh and Messrs Hogan and Whitwell understood that the 'transport system' was a mechanism for passing monies to Iraq. That must also have been apparent to each of the senior AWB executives who read the report. However it also makes clear that

AWB had not, at that time, accepted that payment mechanism.

Report of the Oil-for-Food Inquiry 217

27.259 The report recorded a meeting with Mr Jumah, on 29 October 2002 after their

meeting with 1GB and the Minister:

Sabah was DG of Iraqi Oil Board? Has connections with the Ministry of Oil and is a consultant with Tigris petroleum. Is well connected with Iraqi elite. AWB briefed him as to the Iraqi position vis a vis the Tigris debt and again clarified that our role was as facilitator only and that Tigris had to agree amount with Iraqis prior to our next meeting in Iraq. He advised Tigris rep would be in Iraq shortly to finalise.

We discussed possible difficulties in raising the price that significantly to incorporate the entire debt into one 500 K contract. Suggested some alternate pressure could be brought to bear on the Iraqi Govt to increase the tonnage of next contract to make things easier to pass through UN. He said he would look into it. 455

27.260 The last quoted paragraph shows a recognition by Messrs Hogan and

Whitwell, which was being explained to all the AWB senior executives to whom the report was sent, that the recovery of the Tigris debt by loading up the price of wheat contracts, was to be hidden from the United Nations: there was an apprehension the debt recovery would become apparent if the price increase was too great. Mr Hogan's evidence confirmed this:

Q: Then, under 'Meeting with Minister - 28th October 2002':

Simple Interest amount to be recovered through loading up the next Phase 13 wheat business.

Is that the expression of an agreement that you'd reached with the minister?

A: Yes, that's what the minister would have advised, or we would have suggested to offset that, and he's agreed to do that. I would assume on that that we've suggested it to him.

Q: That would mean that at that stage it was expected by AWB that it would be a supplier of wheat to Iraq during Phase 13?

A: Correct, correct.

Q: And to load up the contracts would require the inflation of the contract price reflected in the contract so as to include an amount to cover the Tigris debt?

A: Correct. You would do a contract and agree on a final price of $220 a tonne and then, all right, the debt is X amount of dollars, add on $7, or whatever it equated to, per tonne.

Q: Well, the debt at simple interest, as referred to in this email, was US$8.375m?

A: Okay, so that would be over a million, and I think the issue was over 500,000 tonnes was going to load it up too much and make it possibly maybe too apparent that the contract price would have to be loaded up by maybe $16 to $17 a tonne, plus your inland, plus your 10 per cent. So I think your suggestion it had to go

218 Report of the Oil-for-Food Inquiry

over a million tonnes so that the loading would only be —what did you say, it was

8.7 million.

Q: 8.375?

A: So you're only doing it by $8 a tonne, which is not as apparent. 456

27.261 Ms Scales did not recall reading the email but accepted she may have 'skimmed it.' She said that had she done so it would not have rung any 'warning bells' as she assumed that all contracts would be UN approved.' 457

27.262 On 7 November 2002, Mr Whitwell emailed Mr Johnson, Ms Scales, Mr Long and Mr Hogan advising that after the recent trip to Iraq there were a number of issues that needed discussion between the pool, international sales and marketing and public affairs. 458 He proposed a meeting on the following

Monday. Mr Whitwell noted the possible decrease in tonnage ordered and asked:

What more can be done to change Aus Gov/Iraq position?—Tigris? 459

The foregoing suggests that Tigris may have been able to play some role in future wheat negotiations. Mr Whitwell advised that Iraqi Ministers had confirmed the Iraq debt from the Gulf War and that the Minister had advised his expected method of payment (inland transport payments) to pay the iron filing rebate. Mr Whitwell asked:

.do we have the sign off to do this - do we need anything from the UN?60

27.263 Mr Whitwell was asked about the Iraqi Ministers' expectation that vessel rejection claims (iron filings) would be paid through the inland transport payment system:

Q: Well, I'm just wondering how we could read it in any other way:

Vessel rejection claims as per original agreement to be paid through inland transport payment system against next contract

That would seem to imply, if not state directly, that the Iraqis were saying, 'You can pay the iron filings claim to us by using the same mechanism that you use to pay the inland transport fee'-

A: Yes, sir.

Q: —is that the way we should read that?

A: Yes, this is Minister Mehdi Saleh—this is him telling us that that is his understanding of how he wants it to happen, yes, sir.

Report of the Oil-for-Food Inquiry 219

Q:

That carries with it, doesn't it, the obvious implication that money being paid on account of the inland transport fee was finding its way to the Iraqis, if he was recommending the same mechanism for the payment of the iron filings claim?

A: I mean, he was suggesting that, yes - I mean, he was suggesting paying Alia. This raised concerns for us, because we didn't think this was - we drew a differentiation between the inland transport fees which we thought were UN approved and this 2 million or whatever iron filings fee, which was for a quality claim. So it wasn't for a service that was provided. So, you know, in our minds it was something that couldn't be paid through the inland transportation system, because the inland transportation fees were approved, whereas this wasn't approved to pay quality claims back through in that way. So we drew - I mean, I had a clear distinction in my mind between the two things. 461

27.264 In a statement signed by Messrs Long and Whitwell in December 2004, intended for AWB's internal use as a record of facts relevant to the Tigris transaction, they note that in late October or early November 2002 they discussed the Tigris issue generally with Ms Scales and Mr Johnson and in particular the US$500,000 success fee. Messrs Long and Whitwell noted that all concerned 'were comfortable with the proposed deal' and that there was discussion about which AWB entity should receive the success fee. 462 There was no evidence of such discussions led before me.

27265 On 17 November 2002, Mr Davidson Kelly sent a letter to Mr Whitwell saying he had written to both the Minister for Trade, Dr Saleh and to Mr Abdul-Rahman, setting out the details of the deal which Tigris would be happy to implement. 463 He enclosed a copy of the letter to Mr Abdul-Rahman and confirmed that AWB was authorised to negotiate the mechanism on behalf of

Tigris Petroleum. 464

27.266 In the letter to Mr Abdul-Rahman, dated 17 November 2002, Mr Davidson Kelly referred to discussion between Mr Abdul-Rahman and himself in January 2002 relating to the 'repayment of the Loan, which was made in January 1996', and that he was writing 'on the occasion of the visit of the AWB delegation to Baghdad in November 2002.'465 Mr Davidson Kelly advised that Tigris had made a proposal to the Minister for Trade, Dr Saleh. The letter to the Minister was produced by Tigris and was in substantially identical terms to the letter to Mr Abdul Rahman. 466 The proposal in both letters included the following:

• Tigris would waive its right to compound interest on the debt owed, provided that repayment of the debt be tied to the next contract for the shipment of Australian grain and a calculation based on simple interest would leave the amount owing at US$8,375,000

• interest would run at US$41,666 per month until settlement

220 Report of the Oil-for-Food Inqu ry

•

Tigris would be willing to convert the US dollar amounts outstanding to euros at the exchange rate ruling on the date of the agreement of the contract with AWB

• the mechanism for repayment would involve a surcharge per tonne, to be agreed with AWB in relation to the forthcoming contracts for the supply of Australian grains

• any overpayment due to variations in quantities delivered under the contract would be accounted for by Tigris immediately to Iraq

• the AWB delegation is authorised by Tigris Petroleum to discuss this proposal in detail and to agree the necessary mechanism for repayment of the loan.

In a further letter of 17 November 2002 to Mr Jumah, Mr Davidson Kelly also authorised him to act on Tigris' behalf to agree on repayment terms. 467

27.267 Between 19 and 21 November 2002, Mr Long and Mr Whitwell travelled to Baghdad and visited 1GB, having been invited by 1GB to make a further offer of Australian wheat. 468 According to the trip report, Mr Long asked the 1GB on 20 November 2002 (Ms Moona and Mr Talal) whether, 'for corporate

governance reasons', the repayment of the iron filings rebate could be passed through Tigris or through further equipment to be provided by AWB rather than through Alia. 469 1GB agreed to pass these suggestions onto the Minister. At a meeting with the Minister of Trade on 21 November 2002, Mr Long asked the Minister to reconsider the mechanism for repaying the rebate claim, and

was advised the Minister would discuss the matter with the Ministry of Finance.470 Mr Whitwell later recorded 47 ' that it was during this visit that he and Mr Long agreed with 1GB and Tigris that the Tigris debt would be recovered by an 'uplift' to the contract for 1 million tonnes then being

discussed.

While negotiations for the sale of wheat took place during this visit no concluded agreement was reached. 472 Mr Whitwell continued negotiations with 1GB upon their return. 473

Report of the Oil-for-Food Inquiry 221

Advice from DFAT on quality refunds to Iraq

27.268 On 25 November 2002, Mr Cuddihy (DFAT) emailed Mr Stephens at the Australian mission to the UN in New York. The email read as follows:

During the dispute over alleged contamination of some AWB Ltd wheat which arrived in Iraq earlier this year, AWB Ltd accepted that some of the cargoes were tainted with iron fillings. It agreed to accept a lower price for the 'tainted' wheat.

In this contect, AWB Ltd has asked me whether there's a mechanism for refunding the money paid by Iraq for the faulty wheat. The only warranty arrangements I am aware of require AWB Ltd to supply replacement wheat, rather than refund monies paid.

Grateful if you could ask OIP what AWB Ltd's options are in this case. 474

This enquiry was raised by DFAT as a result of Mr Hockey raising with Mr Cuddihy the issue of how the agreed iron filings rebate could be paid to Iraq. '' 75

27.269 On 26 November 2002, Mr Stephens replied to Mr Cuddthy's email. 476 He

stated that he had spoken to OIP and Treasury who said AWB had one of two options. He described the options as follows:

1. if there are additional shipments of wheat to go to Iraq under the contract in question, AWB can give a discount to Iraq when it receives its next invoice for those additional shipments.

2. if there are no further shipments under the contract, AWB can transfer funds to the Iraq escrow account operated by BNP Paribas. Any such transfer would have to clearly acknowledge the LC number (and any other relevant details) that would tie the refund explicitly to the AWB contract and would enable Treasury and BNP to ensure that the money is assigned back to the relevant phase and sector.

I hope this is clear. If not, please let me know. 477

Mr Cuddihy forwarded the email to Mr Hockey.

27.270 On 27 November 2002, Mr Hockey sent an email to Messrs Whitwell, Hogan and Long. Mr Hockey stated:

In a conversation with DFAT the other day I raised that we were going to have to find out a way of settling the iron filings payment issue, and asked for suggestions.

They have advised 478 :

222 Report of the Oil-for-Food Inquiry

ii

Mr Hockey set out verbatim points 1 and 2 of Mr Stephens' email to Mr

Cuddihy of 26 November 2002 .479 It must have been clear to AWB that, Mr Stephens having raised the matter with both OIP and the UN Treasury, the UN and DFAT's position was considered, formal and clear.

27.271 On 28 November 2002, Mr Whitwell emailed Mr Abdul-Rahman:

Following our meeting with the Minister last week we raised the issue of payment of the recent quality issue.

In particular we asked the Minister to reconsider his position to repay it directly to Alia Transport and instead asked whether it would be possible to offset it against Tigris for reasons already advised.

The Minister said he would discuss the matter again with his Excellency the Minister of finance and revert.

We would respectfully ask whether his Excellency has reached a decision in this regard

Thank you for you kind attention to this matter. 480

27.272 On 29 November 2000 Mr Whitwell sent an offer to 1GB to supply a further 1 million tonnes of Australian wheat for delivery in the period 1 January 2003 to 30 June 2003. 1 There were further communications regarding price and final agreement was reached in early December 2002.2

Sale on 'loaded-up' contract confirmed

27.273 On 4 December 2002, Mr Whitwell emailed Mr Abdul-Rahman confirming sale of 1 million tonnes of wheat to Iraq. 483 It was noted that the price did not include an inland transport fee and that the inland transport fee was to be mutually agreed. It was further noted that the inland transport fee was to be payable in full before vessel discharge.

27.274 On 5 December 2002, Mr Abdul-Rahman confirmed the booking but advised the agreed price would be converted to euro. 485

27.275 On 5 December 2002, Mr Davidson Kelly emailed Mr Whit -well a letter he had prepared to Mr Abdul-Rahman. 486 The letter, dated 4 December 2002 advised that Tigris would accept US$8,375,000 in satisfaction of its debt and would not require payment of any further interest. 487 Tigris waived its right to interest on

the basis that repayment was tied to the next contract for shipment of Australian grain. Mr Davidson Kelly noted the contract was likely to be in euro and agreed on the exchange rate for the principal contract applying to

Report of the Oil-for-Food Inquiry 223

the payment to him. Mr Whitwell copied Mr Davidson Kelly's email to Messrs

Long, Edmonds-Wilson and Hogan on 5 December 2002.8

27.276 On 9 December 2002, Mr Whitwell emailed Mr Abdul-Rahman proposing two options for calculating the amount to be paid in excess of the already agreed price to deliver the tonnage CIF Umm Qasr.489 The email refers to an email of 28 November 2002 in which AWB again requested that the iron filings rebate be offset against the Tigris debt. Option A was to add to the inland transport fee of US$51.15 per tonne a sum of US$8.375 per tonne (which over the million tonnes would provide the $8,375,000 due to Tigris), but then deduct from that US$2.01389 per tonne in respect of the iron filings compensation. This option meant that the monies due to Iraq would be deducted from the amount payable to Tigris. Option B was simply to add to the price and the inland transport fee, US$8.375 per metric tonne in respect of the Tigris debt, and to pay the iron filings compensation separately through the inland transport fee as previously discussed. 490 It is to be observed that neither option involved extracting the funds to be paid to Iraq as compensation from the escrow account.

27.277 On 11 December 2002, Mr Whitwell drafted a memorandum addressed to 'Senior Management' entitled 'Iron filing rebate payment and Tigris Petroleum'.491 This was at the direction of Mr Long. The document was prepared because Mr Long felt that it was important to raise the iron filing rebate and Tigris Petroleum recovery with Senior Management. 492 However this memorandum was not sent. 493 It was discussed with Mr Long and probably Mr Geary.

27.278 Notwithstanding Mr Whitwell's evidence that the memorandum was not circulated, Mr Geary recalled seeing this memorandum about 11 December 2002.494 He noted from it that the new contract with Iraq would be used as 'a conduit for repayment of the USD 8,375,000 owed to Tigris by 1GB', that AWB

was attempting, in relation to the compensation due to Iraq, 'to avoid a direct payment to a company with links to the Iraqi regime which might be construed to be in contravention of the UN Sanctions' and that the Iraqi Trade Minister had 'continually insisted on repayment directly as an addition to inland transport.' He noted that DFAT had advised that the rebate should either be repaid to the UN escrow account or be the subject of a corresponding

price reduction in the next shipment. He also noted the suggestion by Mr Whitwell that: 'Repayment could be made under the guise of a service agreement between Alia/AWB.'495

27.279 Mr Geary accepted that the memorandum raised concerns for him. He said he discussed the issue between himself, Mr Long, Mr Whitwell and Mr Hockey496 but that beyond this group they were 'socialising the issue' through

224 Report of the Oil-for-Food Inquiry

AWB.497

By this he meant keeping other people informed of the group's thought processes, while the group focussed on potential strategies and tactics.498 These 'other people' included Ms Scales and Mr Cooper. 499 Mr Geary said he specifically recalled discussing the issues with Ms Scales. 500 He

accepted that, notwithstanding his concerns, he authorised entering into contracts inflated for the Tigris debt and under which iron filings compensation would be paid to Iraq through Alia, and forwarding these contracts to the UN for approval. 501 His evidence was that, although the contracts were executed by the parties and approved by the UN, 502 he did not consider them 'binding'. 503 He affected to understand a 'binding' contract to

be one that had been carried into final effect.504 Having given this evidence in January 2006, in October 2006 having read counsel assisting's submissions, Mr Geary filed a statutory declaration that his discussions with Mr Hockey and Ms Scales took place after receipt of the memorandum of 7 February 2003, not 11 December 2002. I am not able to accept that evidence. Mr Hockey was not

at AWB in Melbourne in February 2003, and nor was Ms Scales between 3 and 14 February 2003.

27.280 Mr Geary accepted the UN was not told of the inflation of the contract prices when the contracts were forwarded for approval 505 , but that he regarded that approval as 'preliminary': this was because Iraq was invaded before the letter of credit issued. 506 He conceded DFAT was never told of the inflation of the contracts.507 Mr Geary conceded that payment to Iraq of the compensation

through the inland transport fees would breach sanctions. 508 He accepted that contracts A1670 and A1680 were entered into by AWB, in the form in which thye were signed, on his authority. 509

27.281 On 12 December 2002, AWB and the 1GB entered into contract number A1670 for the sale of 500,000 tonnes of wheat.510 A contract in identical terms for the sale of a further 500,000 metric tonnes, A1680, was also made on that date.

27.282 The short-form contracts were signed by Mr Hogan. 511 The long-form contracts were signed by Mr Long. 512 These contracts also had clause 9F in them requiring any settlement payment for compensation to be paid to the escrow account. The contracts were approved by Mr Geary513 who was aware

they had been inflated by the Tigris repayment. 514

Executive advised of inflated sale

27.283 On 12 December 2002, Mr Edmonds-Wilson emailed Messrs Werner and Lister to advise the final details of the sale. 515 Mr Edmonds-Wilson noted that the previous sales note advising of a 1 million metric tonne sale had now been split into two 500,000 metric tonne sales. He noted the price included inland

Report of the Oil-for-Food Inquiry 225

transport fees of €51.30pmt and an amount of €8.40pmt to recover the Tigris

debt. In relation to the Tigris debt Mr Edmonds-Wilson advised:

As part of the contract agreement, AWB will recover the Tigris debt (outstanding since 1996) on behalf of Tigris Petroleum (USD8,375,000/imillion mt). For this service, AWB are deducting USD500,000 (ie: AWB will pay Tigris Petroleum USD7,875,000 on a pro rata basis as vessels are being shipped). 516

27.284 On 12 December 2002, Mr Edmonds-Wilson sent an email containing the same

information disclosing, in terms, that the price had been inflated to recover the Tigris debt, and that AWB was receiving a US$500,000 fee for its involvement, to Ms Scales, Messrs Johnson, Long, Geary, Hogan, and Whitwell.517 Mr Johnstone stated he was also informed of this sale but he is not shown as copied in on this email. 518 The email, reproduced on the following page, noted that distribution has been restricted because of the Tigris issue.

27.285 Mr Edmonds-Wilson's evidence was that Mr Whitwell asked him to prepare this email. He said that Mr Whitwell instructed him to add the 'Private and Confidential' heading and Mr Whitwell would have determined the distribution list. 519 Mr Whitwell did not dispute that he may have provided such a direction to Mr Edmonds-Wilson. 520

27.286 Ms Scales had no recollection of reading an email bearing the 'reduced list' notation which made her think she had not read the email. She acknowledged it likely she had read an email about the 1 million tonnes sale. If she had, her interest would have been in the 'net FOB' value as that was the critical figure for the P001.521 Whether she read it or not, the email gave no indication that the details of the transaction would not be disclosed to the United Nations as Ms Scales believed all contracts were.

27.287 AWB has not produced minutes of the ELG, or any other management group, formally approving or authorising use of the new contracts as a conduit for the Tigris debt recovery. Mr Long's evidence was that the inflation of contracts to recoup the Tigris debt was 'common knowledge' among the ELG members. 522 This accords with him sending them Mr Whitwell's 6 November 2002 email. Mr Stott, a member of the ELG at that time, claimed to have no recollection of when or how he learned of the proposal to load up the contracts, other than that he was not himself an architect of the proposal. 523 He could not recall whether he discussed it with Mr Davidson Kelly. 524 He could not recall Mr Davidson Kelly's letter of 17 November 2002 or whether he had seen it but believed he had not and was not involved. 525 However this was a project he had been driving for years: it was he who revived the transaction in 2000.

226 Report of the Oil-for-Food Inquiry

iiiiiiiiii

AWB.0147.0092 -

- Edmonds-Wilson

NigIi 12/152002 0449

All,

To: Sarah ScaiesaiOlAWb, David JohnsOM1OIAWB, Nick Gor,re,sdl/HOIAWB, Michael Long/HO/AWB Peter Gea0lHO/AWB, OOmkoc HogardHOIAWB. Chris WhitweWHO/AWB, Peter Jones/HO/AWE cc. cc. Subject: 1MILL/ON MT SALE TO IRAQ - FINAL DETAILS

Urnm Qaor

CONTRACT No. - A1670 C

CONTRACTDATE- December 11, 2002.

CUSTOMER - Grain Board of Iraq

QUALITY - (to be shipped as Australian wheat)

QUANTITY- 500000m1 5% MOLSO

DESTINATION

I or2Australia LOAD STATE(S) -

A 1680 CONTRACT No. -

NB: This has been Cent to a reduced list due to the nature of the Tigris Petroleum issue. Please

treat as Private & Confidential and not for further distribution.

Overrriphl or the 1110 December the 1 000,000ml sale to Iraq was fixed in EURO (I JSD to 0.9970EUR0)

Please see real details below (NB the previous sales note advising of the 1,000.000mI has now been split into 2s 500000niI contracts, A1970 000 A1880.)

Contract details and specifications are identical, however they have been split by mutual agreement between buyer and seller (predominantly for 1/C purposes).

Both contracts will be shipped under Phase 13 of the UN Oil for Food' program.

DELIVERY/SHIPMENT PERIOD - January 2003- June 2002 Sellers have requested eatenelarr to August 2003 to be

mutually agreed by buyers

BENCHMARKING :es. below

A1670 500,000mt APWI0.5%

Toed Free In Truck Blend transport 51,30EUR (USD01 15) CIF TIGRIS DEBT 0 8 40EUR (USD8.375)* Exchange Rate

San Freight GROSS FOB (USO) COSTS NETT FOB TO AWB(l)

Report of the Oil-for-Food Inquiry 227

A1680

- 500,000mt APWI0.5%

Total Free in Truck

51.30EUR (USD5115) Inland transport CIF 8.40EUR (USD8375) TIGRIS DEBT Exchange Rate

Sea Freight GROSS FOB (IiSD) COSTS NETT FOB TO AWB(I)

IIIJ4lItII AWB.0147.0093_Q

CONTRACT DATE - December 11, 2002.

CUSTOMER Grain Board of Iraq

QUALITY- (to be shipped as Australian wheat)

QUANTITY- 300,000m1 5% MOLSO

DESTINATION 11mm Gear

DELIVERY/SHIPMENT PERIOD - January 2003- Jun. 2002 Sellers has. ,.quested extension to August 2003 to b

mutually agreed by buyers

LOAD STATE(S)- I or 2 Australia

BENCHMARKING:

Pricing methodology agreed with AWBi PRICING

TIGRIS DEBT

As part of the Contract agreement, AWB will recover the Tigris debt (outstanding Since 1996) on behalf of Tigris Petroleum (USD8,375,000/1 Million ml). For this service, AWB are deducting USD500,000 lie: AWB will pay Tigris Petroleum US07,875,000 on a pro rats basis as vessels are being shipped).

Costs:

AWB factor in the following costs, associated with the execution of Iraqi contracts ,

Demurrage USC

Finance; USE

Shrink: USE

Rejection; USE

Equipment: USE

EURO Protection Option USE WAR RISK: USE

insurance (cargo) USE

Total: USE

CONTRACT CPU EASKE CONTRACT CONTRACT AGREED BASRET TARGET PREMIUM COO GRADE GRAD T TONNAGE PTACE PRICE PRICE PRICE ACMEVE CARRY P GRADE (USO FOB) (USO (USO) (USD1 DOVER P05) INCL INCL TARGET CARRY CARRY (USO) 1,050.000

228 Report of the Oil-for-Food Inquiry

uimii AWB0147.0094 j

NB: There is also an additional return to the pool of points on foreign exchange which accounts to 110,600EUR (US0110,300). Thanks to Douglas Alvares and the FX learn.

Regards

Report of the Oil-for-Food Inquiry 229

27.288

Mr Lindberg, a member of the ELG, said he was aware from attending

management meetings that consideration was being given in 2002 to options for recovering the Tigris debt and paying the contamination claims but that, as far as he knew, no conclusion had been reached. 526 He said he had no role in selecting the mechanism for repayment of Iron Filings Claims and made no

inquiries regarding such mechanism. 527 I accept that evidence.

27.289 On 17 December 2002 Mr Whitwell sent an email to Mr Abdul-Rahman. 528 His email read (in part):

In addition, would you please clarify your understanding of how you would like the quality issue rebate (approx USD 2 pmt) paid and its affect on the contract pricing. 529

27.290 On 17 December 2002, Mr Abdul-Rahman emailed Mr Hogan and advised that the sum of $2.017 was to be added to the inland transport payment to account for the quality issue rebate. 530 He confirmed the inclusion in the price of the full amount of the Tigris debt. Mr Hogan received the email on 18 December 2002.

Mr Hogan's had no involvement in the negotiation of contracts A1670 and A1680, and after the August trip to Iraq he handed that market over to Mr Whitwell.531

27.291 On the morning of 23 December 2002, Mr Whitwell received a copy of an email from Mr Abdul-Rahman to Mr Davidson Kelly entitled 'Loan to supply grain/wheat—January 1996'. Mr Abdul-Rahman wrote:

[We] are pleased to inform you that we have reach an agreement with AWB on the final above subject.

PIs coordinate with them accodingly. 532

Mr Whitwell copied the email the same day to Messrs Long, Edmonds-Wilson, Hogan, Geary, Stott and Johnson and to Ms Scales.

27.292 On 23 December 2002, Mr Hogan copied Mr Abdul-Rahman's email to Messrs Whitwell and Edmonds-Wilson. 533 Mr Edmonds-Wilson that day faxed the contracts to Mr Cuddihy and DFAT with a UN 'Notification to ship goods to Iraq' in respect of each contract. He requested the material be forwarded to the United Nations for approval. 534 Neither document made any mention of the inflation of the contracts to recover the Tigris debt, or the manner of payment proposed for the iron filings compensation.

230 Report of the Oil-for-Food Inquiry

27.293 The evidence establishes that by 23 December 2002:

• the loading up of contracts A1670 and A1680 to recover the Tigris debt of USD 8.375 million from the UN escrow account by inflating the price of wheat by USD 8.375 per tonne was known to, at least, Messrs Geary, Long, Whitwell, and Edmonds-Wilson

• each of at least Messrs Geary, Long, Whitwell, and Edmonds-Wilson knew the loading up of the price of wheat was not disclosed to the United Nations, or DFAT

• each of at least Messrs Geary, Long, Whitwell, and Edmonds-Wilson knew contracts A1670 and A1680 did not disclose that the price included a sum for recovery of the Tigris debt'

• each knew that United Nations sanctions prohibited direct payments to Iraq

• each knew Alia and the inland transport mechanism was a means or conduit by which payments could be made to Iraq without detection by the United Nations or DFAT, in circumvention of UN sanctions

• each knew this was the means by which Iraq required compensation payable to it under the iron filings settlement be paid, notwithstanding the terms of AWB contracts with Iraq as disclosed to the United Nations

• each of at least Messrs Geary, Long, Whitwell, and Edmonds-Wilson knew that by an exchange of correspondence, AWB and 1GB had entered into an agreement, collateral to contracts A1670 and A1680 for the supply by AWB to Iraq of 1 million tonnes of wheat, to pay to Iraq the sum of US$2.01389 per tonne shipped under these contracts. This agreement was not referred to in contract A1670 or A1680, or in any other document referred to the UN or DFAT for approval

• Mr Edmonds-Wilson performed only administrative functions in relation to these contracts.

27.294 Mr Davidson Kelly, and through him Tigris, knew that Iraq and AWB had inflated the price of wheat by US$8.375 per tonne under their contract, in order to pay US$8.375m at his direction, that the funds were to come from the UN escrow account and that the United Nations were not to be told of the inclusion of the 'loan' repayment in the purported price of the wheat. He had agreed to pay AWB US$500,000 to assist him to recoup the monies from the escrow account.

Report of the Oil-for-Food Inquiry 231

27.295

There is no evidence to indicate that BHPP was informed that the Tigris 'debt'

was being collected or the means adopted by Iraq, Tigris and AWB for its collection, other than Mr Davidson Kelly's letter of 21 May 2002 to Mr Aiken. This advised that AWB was assisting recovery and that payments might be linked to shipments of wheat. There was no suggestion of inflating contracts

without the United Nations knowledge.

2003: The 'Iron filing rebate payment and Tigris Petroleum' memorandum

27.296 In January and February 2003, Mr Whitwell continued to edit his 11 December 2002 draft memorandum. The Inquiry received seven iterations of the draft dated 11 December 2002, 10 January 2003 and 7 February 2003 .535

27.297 On 14 January 2003, Mr Whitwell emailed Mr Long concerning discussions they had as to the content of the memorandum. 536 Mr Whitwell wrote:

I have redrafted the memo to include your suggestions and to highlight the issues etc and to now have one action point. I do think it is important on an issue such as this that IS&M are shown to have explored all the avenues before making this recommendation and highlight the exposure that this may bring the company. I agree that we have to keep a lid on this but feel strongly that we cannot afford to

go down the line of repayment and when a problem possibly occurs be told by the ELG 'we were not aware of the possible implications of this method of repayment'. We have also provided a couple of solutions re: timing for the Service Agreement which may work to lessen the exposure level.

What were your reasons for just a file note?537

Mr Long could not recall whether he had suggested to Mr Whitwell to 'keep a lid on this'. 538 He rejected the suggestion that by saying so he meant 'let's not tell the ELG'. 539 Mr Long did not ever give Mr Whitwell his reasons for

presenting just a file note. 540

27.298 On 21 January 2003, Mr Whitwell faxed Mr Abdul Rahman:

Following your telex dated 15/1/2003 requesting a signed confirmation regarding the agreement to the pricing of the above contracts please find attached your contracts signed by us and a signed copy of your email dated 17/12/2003 with regards to pricing.541

Mr Rahman's fax signed by AWB confirmed the quality rebate of US$2.017 per tonne for 1 million tonnes was to be paid through the inland transport fee and not deducted from the Tigris payment.

232 Report of the Oil-for-Food Inquiry

27.299

On 22 January 2003 Mr Whitwell met with Ms Lyons concerning the Iron Filings Claim. -142 Ms Lyons said Mr Whitwell sought her advice as to whether, under the UN sanctions, the $6 per tonne to be paid to the 1GB could be paid to 'an inland transport company' at IGB's direction, rather than through the

inland transport company to the 1GB. 543 That is not borne out by her notes which read:

$6 per tonne rebate— IRAQ —when shipments held up late last year - iron filings - payment within course existing shipments - BUT Iraq Gov said NO-need to pay through Inland Transport - payment to a Jordan based company - links - you have looked and don't think any prohibition re: 'rebates'.

DFAT—off the cuff discussion 5"

On 22 January 2003 Mr Whitwell provided Ms Lyons with a draft of his memorandum545 which bears Ms Lyons' handwritten notes. 546 It is clear from the draft that it was a payment to 1GB that was contemplated.

27.300 On 22 January 2003, Ms Lyons sought advice on the matters raised by Mr Whitwell from Ms Brasington of Blake Dawson Waldron. Ms Brasington provided her advice by email on 23 January 2003:

The real answer to the question you raised is that to make a cash rebate would be to provide funds contrary to the embargo resolution, resolution 661 (1990).

Resolution 661 (1990) provides at clause 4:-

'...all States shall not make available to the Government of Iraq or to any commercial, industrial or public utility undertaking in Iraq any funds or any other financial or economic resources and shall prevent their nationals and any persons within their territories from removing from their territories or otherwise making available to that Government or to any such undertaking any such funds or resources and from remitting any other funds to persons or bodies within Iraq.. .except payments exclusively for strictly medical or

humanitarian purposes and, in humanitarian circumstances, foodstuffs.'

To make a cash rebate would directly contravene clause 4 above. If so, the Government of the Commonwealth of Australia would be obliged to prevent AWB Limited from making the remittance of funds. 548

The advice makes it clear that Ms Lyons did not seek advice about payments

to a third party (such as Alia) outside Iraq. 549 It was also made clear that payment to the 1GB would violate sanctions. Ms Lyons did not disagree with Ms Brasington's advice.550

27.301 AWB did not produce Ms Brasington's advice until after Mr Whitwell had given his evidence. Ms Lyons prepared and sent an email to Mr Whitwell and Mr Cooper on 24 January 2003,' containing the advice that appears in the final draft of Mr Whitwell's memorandum of 7 February 2003 in the box

Report of the Oil-for-Food Inquiry 233

marked 'LPP'.552 She described it as suggested text for his memorandum and

recommended the memorandum be marked 'Private and Confidential'. She said that there was at the time 'an overwhelming commercial imperative to make' payment of the iron filings rebate. 553

The same day, Mr Whitwell forwarded Ms Lyons' email to Mr Johnson for his consideration and requested that he email his opinion.554

27.302 On 23 January 2003, IVIr Hockey sent an email to Mr Whitwell outlining his opinion regarding method of payment of the iron filings compensation. 555 Mr Hockey noted:

My feeling on the issue is that (1) I don't think we should breach a UN sanction, so Jess's opinion carries all the weight (iii) if its legal, we should get an independent written opinion to that effect and just do it (iv) otherwise I think we are just going to have to advise Iraqis that we have tried everything and the only way we are able to recompense is through Escrow as a repayment and see what their response is.

My concern is there is a significant risk that the OIP will be unhappy if we don't go through their processes (high chance they will discover what has happened-our only possible defence is a written legal opinion to say its OK), and given we are always dependent upon their goodwill in shuffling phase funds, prioritising etc, we should do everything possible to keep them happy.

From a public relations perspective, the only red lights are breach of sanctions/ legalities. 3rd parties with Iraq connections are no worries (as long as its legal). 556

'Jess' is Ms Lyons from AWB Legal. Mr Whitwell forwarded Mr Hockey's comments to Mr Johnson on 31 January 2003. 557

27.303 On 7 February 2003, Mr Whitwell prepared a further, final draft of his memorandum which was signed by Mr Long. 558 The final draft was addressed to both Mr Geary and Mr Long and copied to Ms Scales, Ms Lyons of the AWB legal department, and Messrs Johnson, Hogan, Johnstone, Cooper and Hockey. It was in substantially the same form as the earlier drafts, and is reproduced on the following page.

234 Report of the Oil-for-Food Inquiry

Report of the Oil-for-Food Inquiry

LPL.10 5.11

AWB Limited Memorandum

To: P Geary, M Long AWL8001.0016 -

CC: S Scales, D Johnson, D Hogan, 0 Johnstone, J Cooper, J Lyons, D Hockey, M Thomas

From: C Whitwell

Date: 7 February 2003

Subject: Iron filing rebate payment and Tigris Petroleum fee

PRIVATE AND CONFIDENTIAL

This memo is in respect to refunding the Grain Board of Iraq the quality rebate of approx USC 2,016,133 through the inland transport payments for the new contract as requested by the Minister of Trade, Iraq. In addition, for the record IS & M has negotiated (through an uplift in price the recovery of a LSD 8.375 million outstanding debt to Tigris by 1GB through this contract. AWB will repay this debt

back to Tigris less an agreed recovery fee of USC 500 K on a pro rats basis as tonnage is shipped. Overview

Delegation led by Andrew Lindberg (August 2002) to Baghdad agreed to settle the Contamination of the 'Iron Filings' vessels by paying them USC 6 pmt for each vessel total = USD 2016,133

After being approached by Tigris Petroleum AWB and 1GB have agreed to allow the new contract to be the conduit for a repayment of USC 8,375,000 owed to Tigris by 1GB for a cargo of wheat shipped in 1996. 1GB have agreed to raising the contract price by the debt amount and when payments are made under the Letter of Credit AWB will pay Tigris its debt less AWBa recovery fee.

We have suggested the following during our last two Visits.

• Offsetting the debt against the Outstanding debt to Tigris petroleum' (approx USC 8.35 million)

• Reducing the any new contract price by the amount of the rebate on a pmt basis

• Repaying the debt through the provision of aid in some form —Wheat, Health supplies etc.

However, in discussion with the Minister of Trade he has continually insisted on repayment directly as an addition to the inland transport and said that this was his understanding of the agreement with Andrew Lindberg - Michael Long was present and confirms that this was discussed. Now that the new contract has been concluded ISM need a sign off to organise this payment when shipments start.

Issues

• Possible implications for AWB on a corporate governance basis is/ direct payment to a company with links to the Iraqi regime may be construed to be in contravention of the UN Sanctions.

The relevant UN Security Council Resolution is 661 (1990). This resolution provides at clause 4: -

...All States shall not make available to the Government of Iraq or to any commercial, industrial or public utility undertaking in Iraq any funds or any other financial or economic resources and shall prevent their nationals and any persons within their territories from removing from their territories or otherwise making available to that Government or to any such undertaking any such funds or resources and from remitting any other funds to persons

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or bodies within Iraq.... except payments exclusively for strictly medical or humanitarian purposes and in humanitarian circumstances, foodstuffs.

In summary, this means that the Government of the Commonwealth of Australia would be obliged to prevent AWB Limited from making any remittance of funds to the 1GB.

AWB Legal opinion in this regard is set out below.

/

This does not mean, however, that a payment might not be able to be made which will comply with the terms of the UN Resolutions. As a minimum, if AWB management determines to make the payment, then it should be made in the following circumstances: 1. The payment is made in installments over time and coincides with payments for future shipments of wheat (Ia not a lump sum payment); 2. The payments preferably be made to a company other than the 1GB and in a jurisdiction other than Iraq; and

236

3. The payments be recorded as being made as a part of a settlement reached between AWB and 1GB, the terms of which contemplated that IGB would agree not to take any action against AWB for the alleged contamination of the 8 vessels in 2002 with iron filings AND would agree to enter into contracts for the purchase of Australian bulk wheat in the future in exchanqe for a renegotiation of the price on the 8 vessels.

If we ensure that the above requirements are met, then Legal consider it will be at least arguable that we are not 'making funds or financial resources available to the Iraqi Government. Instead, we are repaying part of the contract price for the 8 vessels following a re-negotiation of the sale price due to a downgrading of the grain (which potentially contained iron filings).

In addition to the above the UN Security Council resolutions also require (resolution 986 (1995) clause 8) that the cost of food exports to Iraq must be met by draw down from the UN escrow account. Furthermore draw down from the escrow account is only allowable under strict conditions. Those conditions include, at clause 8(a)(iii) that the goods to which payment is referable shall have arrived in Iraq. In this case, the goods have already arrived in Iraq and HAVE been paid for in full. However, the Resolutions are SILENT on the procedure for any repayment of part of the price in circumstances where there has been a quality complaint (and a subsequent renegotiation of price).

This may therefore give us more scope to make the repayment to 1GB.

Even if we make payment as outlined above, there is still a risk that the Australian Government and/or the United Nations will take S Contrary view on the interpretation of the above mentioned resolutions and declare that AWB has breached the terms of those resolutions by making the payment. This is a commercial and political issue, which AWB's management will need to consider.

• According to an informal discussion with DFAT any repayment of a quality rebate should be either re-payed through UN ESCROW account or as a contract price reduction however they have not had a full legal argument put in front of them or been told officially. In Public affairs opinion as long as the repayment is legal and could not be seen to be breaking UN Sanctions then we should proceed (With the proviso that we have an independent legal opinion to that effect - see above legal opinion).

Public Affairs also expressed concern that this would not be well received by the UN OIP office and that there was a reasonable chance of them finding out. IS & M on the other hand do not went them involved and feel confident that this issue could be handled without the need for the OIP to be consulted. It has been articulated to us and we have circumstantial

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!1l i'i':

AWB-8001 0018

evidence that other participants in the OlP program (Russian and Pakistani companies) have had to sort out quality problems in a similar way and it is unlikely either their national governments or the OIP were consulted

IS & M feel strongly that a failure to repay the IGB as discussed will lead to serious Consequences for AWBs relationship with the 1GB. IS & M also believe that failure to refund this agreed debt in this way would have serious implications for the execution of the new contracts. AWBI are aware of an the issues laid out above and in light of the commercial imperative of this situation agree with the recommendation as laid out below. They do however insist that the Managing Director is appraised of the situation.

Actions

Whilst IS & M have received a number of different opinions from different areas of AWB and an informal opinion from DFAT we still feel this issue is a grey area with no prescriptive answers. Based on the opinions we do have and the commercial circumstances surrounding this issue IS & M recommend and seek approval for the following:

• IS & M is to repay debt as per method outlined in AWBs legal opinion (and requested by the Minister of Trade) directly to Alia Transport in Jordan in instalments. IS & M will also look to obtain written agreement from 1GB to the payment in the format agreed by legal however it is not guaranteed.

• Managing Director only to convey our intentions to the Australian Government at the appropriate time prior to Shipment. The timing of such a disclosure is important and we would recommend that nothing be done until at least Letters of Credit are in place for these contracts. Given that this is unlikely to happen until after a war with Iraq it may allow use further chance of renegotiation with a new regime.

• IS & M to finalise as soon as possible a written agreement with Tigris with regard to the settlement of their debt.

I

Recommended M Long

General Manager International Sales and Marketing.

Approved

P Geary

Group General Manager - Trading

Report of the Oil-for-Food Inquiry 237

27.304

The comment on page three:

They [AWBIJ do however insist that the Managing Director is appraised of the situation.

appeared for the first time in the final draft. There is no mention in the memorandum of the contract provisions governing the payment of the agreed compensation or whether the request by Iraq to pay it directly was contrary to the contract provisions. Clause 9F of the long-form contracts required any payment for damages to be made to the escrow account.

27.305 Ms Lyons' advice in the box marked LPP addressed methods by which the proposed iron filings rebate might be concealed. It paid no attention to the one mechanism which Ms Brasington thought would comply with sanctions, namely factoring in price reductions in current or future sales, equal to the amount of the rebate. 559 Ms Lyons' evidence that she was considering how a payment could be made to a Jordan based c0mpany 560 cannot be reconciled with her references in the advice to:

. There being a 'repayment' to '1GB'

• The operation of the UN resolutions—which would be irrelevant if the payment was indeed a payment to a company in Jordan

• Her preference that the payments be made 'to a company other than the 1GB and in a jurisdiction other than Iraq'. 561

27.306 Mr Cooper provided a copy of the memorandum in the same form to the Inquiry. 562 On the last page of this copy, Mr Cooper wrote:

Diane, original was signed by ML and PAG. PAG advised it was with Andrew. 563

'ML' is Mr Long, 'PAG' is Mr Geary and 'Andrew' is Mr Lindberg. Mr Cooper believed he saw the memorandum shortly after it was written and discussed it with Ms Lyons. He said this was his first knowledge of the Tigris transaction. 564

27.307 Mr Hockey gave evidence that he had never seen Mr Whitwell's memorandum about the iron filings rebate, and that he had no knowledge of Tigris other than that it related to a debt. He said he was overseas when the final draft of the memorandum was produced (7 February 2003) and would never have agreed with the contents of the final draft, in particular, the idea that AWB put all the arrangements in place for making the repayment and only advising the Government afterwards. 565 His position is consistent with his email of 23 January 2003.

238 Report of the Oil-for-Food Inquiry

27.308 Mr Whitwell's evidence was that the comment regarding AWBI's view had

come from Mr Johnson. He said that he was unable to find an email reply from him but believed that he would have had a verbal discussion with him as he would not have put the comment in the memorandum otherwise. 566

27.309 Mr Johnson's evidence was that to the best of his recollection, he did not insist that the managing director be apprised of the situation. 567 He said that he was aware at a high level of the issues outlined in the memorandum but he did not have a strong view as to the recommendations and accordingly he was 'always willing to act on legal advice provided in the recommendation'. 568 The content of that 'legal advice' had not been disclosed by AWB at the time of Mr

Johnson's evidence.

27.310 Mr Johnstone's evidence was that he received the memorandum, but not earlier drafts, and this was the first he learned of the plan to inflate the contract price and pay the funds collected, less the success fee, to Tigris.569 He was aware it was 'certainly a non-standard business transaction'. 570

Notwithstanding he was the Chief Risk Officer for AWB, he said he took no action whatsoever on the basis that the decision to collect the money for Tigris, and the means by which it was done, were 'commercial decisions for the ELG to determine'. 571 He knew, from being copied in on the sale email and from the memorandum itself that the inflated contract had already been entered into.

27.311 Ms Scales received this memorandum at some time after her return from leave on 14 February 2003. She was not consulted about the memorandum before it was issued and the statements in it attributing views and an approach from AWBI did not come from her. 572

She assumed that the contracts including the US$8.375 million in the price would be information of which 'the UN would be informed and we would have got approval from the United Nations', 573 although she did not turn her mind to the mechanics of how that would appear in the contracts, she never having seen contracts which were submitted to the United Nations. On the copy of the memorandum she received she made a note:

How can we be assured 1GB will recognise our payment of this debt.

This referred to the other matter addressed in the memorandum, namely, payment of the US$2 million iron filings compensation to Alia. This notation is consistent with Ms Scales' evidence that she did not know or believe that a payment to Alia was a payment to the 1GB. Her note questions whether a payment to Alia would be recognised by 1GB as a payment to it.

Report of the Oil-for-Food Inquiry 239

Ms Scales' later actions demonstrate that her belief was that the loading up of

the contracts would have been disclosed in contracts submitted to the United Nations. When she was told in July 2004 of such loading up, and that it was not apparent on the face of the contract, she immediately questioned whether AWB had been acting in breach of sanctions and outside the Oil-for-Food programme. She required that AWB get senior legal advice to determine whether AWB could pay to Tigris the monies it had collected on account of the debt.

27.312 Apart from Mr Johnstone and Ms Lyons, the evidence of the other witnesses as to the 7 February 2003 memorandum and its earlier iterations was taken whilst AWB claimed privilege for the legal advice in the memorandum. This claim was withdrawn at the commencement of the Federal Court proceedings on 8 August 2006 and the documents provided to the Inquiry on 14 August 2006. It is to be observed that:

• The advice appears only to relate to payment of the Iron Filings compensation and not to the lawfulness of loading up contracts A1670 and A1680 without informing DFAT or the United Nations;

• Ms Lyons' advice did not advert to Ms Brasington's clear advice that the proposed payment was a breach of sanctions;

• Points 1 and 2 of the advice are not legal advice at all but recommended stratagems to avoid detection of the proposed transaction;

• Point 3 of the advice is not legal advice but a recommended stratagem to 'record' the agreement to pay compensation as having features and terms it did not by making a new agreement in those terms;

• The advice does not suggest the proposed methodology is lawful and proper but suggests that it would be 'at least arguable' that the transaction did not breach sanctions if the proposal to secure Iraq's co-operation and enter into the agreement proposed in the third point was implemented;

27.313 Ms Lyons claimed that her advice was not inconsistent with Ms Brasington's, that she intended her proposed transaction be scrutinised by the United Nations574 and that the transaction she was recommending was a payment to Alia and that the payment be recorded as part of the make up of the pricing for a service provider in future contracts. 575 Ms Lyons conceded her drafting 'might be unclear'. 576 I do not accept that evidence. Ms Lyons intended what she wrote, namely to recommend a way that AWB might carry out a transaction which she thought to be prohibited by sanctions in a manner which might minimise the risks of detection of so doing.

240 Report of the Oil-for-Food Inquiry

27.3 14 Informing the Government at a time immediately prior to shipment, meant

the true situation was to be kept from the Australian Government until the last moment. The Australian Government was never informed of the inflation of the contract price to recover the Tigris debt, or the intention to pay the iron filings compensation by additional payments to Iraq through the inland transport system of payments to Alia.

27.315 On 10 February 2003, Mr Geary sent a file note concerning the iron filings rebate, marked 'Private and Confidential' to Mr Lindberg. 577 He enclosed the 7 February 2003 memorandum signed by him and Mr Long.578 It read:

Andrew,

This is a sensitive issue as you can understand.

The first vessel under the new contract is due to be loaded in early April and a lot of things may change in Iraq between then and now. As we get closer to the loading of the first vessel, we will need to advise you so you can okay the payment mechanism with DFAT, ie Minister Downer.

My guess is that DFAT and the UN will have major problems with this and if they say 'no', then we will have to address another way to get the monies to Iraq— either reducing prices on future contracts or supplying additional wheat— whichever the Pool prefers.

Will discuss in more detail over the phone or when I next see you. 579

Mr Lindberg said he did not receive Mr Geary's memorandum or the attached memorandum signed by Mr Geary and Mr Long. Mr Lindberg never informed Minister Downer. AWB never made the iron filings compensation payments through the inland transport mechanism or otherwise. The monies remain due to Iraq.

Approval for export given

27.316 On 12 February 2003, UN approval for contract A1680, given on 17 January 2003, was issued.580

27.317 Ms Lyons, at her instigation, had separate meetings with Messrs Long and Whitwell and with Mr Geary, on 20 February 2003 concerning her iron filings advice. Privilege was claimed over both her advice and her note of their meeting. Once the claim was rejected by the Federal Court it revealed:

- just wanted to clarify there is certainly a risk involved in making any payment.

Report of the Oil-for-Food Inquiry 241

-

AWB, in making any payment is taking a view' about the interpretation of the

UN Security Counsel resolutions and we MUST notify the Australian Government. 581

27.318 By this time, having discussed the matter with Mr Cooper, 582 Ms Lyons was concerned that a payment to Alia (which she maintained was what was recommended in her advice) -183 should no longer be made without disclosure to the Government. Mr Cooper was concerned by Ms Lyons' sentiment .584

27.319 At her meeting with Mr Geary, she inquired whether Mr Lindberg had cleared the proposal for payment. She was told that he had. She was told a memorandum had been provided to him by Mr Geary advising 'how sensitive/ political this is and we will be informing Downer'. 5 This is a reference to Mr Geary's 10 February 2003 file note. On 20 February 2003, Mr

Long emailed Mr Geary and said:

Peter,

Understand you signed the memo that Chris brought down (and it has gone upstairs).

Could we please have a copy for the file so we can proceed. 586

Mr Geary replied the next day and copied his reply to Ms Lyons:

Michael,

I did sign with a covering note to Andrew. We need to sit down face to face with Andrew and tell him all the implications before we move forward. Jess also needs to be involved. I will try to find some time for him next week. When will the first vessel under the contract load?? 587

The email to Ms Lyons enclosed the 7 February memorandum.

27.320 Mr Lindberg said he had no recollection of reading the 7 February 2003 memorandum, Mr Geary's file note of 10 February 2003 or of the proposed meeting. 8 He did not recall discussion of the proposals in the memorandum. 589 No memorandum signed by Messrs Geary and Long has been produced. Mr Geary said he had no discussion with Mr Lindberg because the incursion into Iraq occurred. There is no evidence from Mr Long or Ms Lyons of any discussion with Mr Lindberg. Whilst it would seem improbable that the memorandum did not go to Mr Lindberg's office, there is no evidence that he did see it or discuss its contents with anyone. I accept his evidence that he did not.

27.321 Mr Wbitwell prepared a draft of the Tigris agreement from a document provided to him by Ms Lyons. He made some changes to the document and sent it back to Ms Lyons requesting her to work it into a proper agreement. 590

242 Report of the Oil-for-Food Inquiry

27.322

The agreement drafted by Mr Whitwell was produced after Mr Whitwell had concluded his evidence once the privilege claim over it was ultimately not pressed by AWB. The recitals in the draft are as follows:

A. Following various correspondence between AWB representatives and the President of Tigris petroleum it was agreed that in return for an agreed facilitation fee AWB Limited would help Tigris Petroleum in their attempts to recover a debt due to them by the Grain Board of Iraq for a cargo of Australian Wheat shipped to

them by Tigris Petroleum in 1996.

B. It was also agreed between AWB and Tigris that the facilitation fee of USD 500,000 would be deducted from the total debt amount and that AWB would refund USD 7,875,000 to Tigris. It was also agreed that this facilitation fee would also be deducted by AWB Limited would be on an upfront basis and that repayments to Tigris would not begin until AWB had received this fee.

C. On or about the 20-21st November 2002 during a visit to Iraq Grain Board in Baghdad it was agreed by AWB limited in conjunction with the Grain Board of Iraq and Tigris Petroleum that a contract being discussed at that time for one million tonnes would include an uplift in the contract price by US 8, 375,000 Dollars.

D. The basic contract was finally agreed on the 4th December 2002, with AWB Limited effected a sale of 1,000,000 tonnes to the Grain Board of Iraq, Baghdad. Subsequnt amendments were then effected and the final contract was signed, including the agreed Tigris uplift on the 12th December 2002.'

The recitals accord with the details of the transaction to recover the Tigris debt as revealed by the records to this time and accord with Mr Whitwell's evidence concerning it. It included BHP Billiton as a party to the transaction.

His draft provided that AWB's commission for recovering the debt would come from the proceeds of the first shipments and that BHP or its nominee would be paid US$8.375 per tonne, upon payment from the United Nations, on each tonne delivered under contracts A1670 and A1680 up to a total of US$7,875,000. It directed that AWB's commission be paid to its account at the

Bank of New York.

27.323 Mr Whitwell emailed his draft back to Ms Lyons on 12 March 2003 592 requesting her to settle his draft, noting that he required it for discussions with the counterparties 'next week'. Ms Lyons believed she did not read his draft of the agreement.

27.324 On 17 March 2003, Mr Davidson Kelly emailed Messrs Whitwell and Stott concerning Tigris. 593 He had been corresponding with Mr Whitwell since 3

Report of the Oil-for-Food Inquiry 243

February 2003 to arrange a meeting to finalise details of an agreement for

repayment of the Tigris debt. On 17 March 2003, Mr Whitwell replied to Mr Davidson Kelly:

Still need final sign off from Managing Director on various issues surrounding this deal before I can organise something with you. Am pushing it and will have to leave till Wed am your time before I can give final confirmation on our meeting and signing an agreement. 594

Mr Whitwell copied the exchange to Mr Long.

The incursion commences

27.325 The incursion into Iraq commenced on 20 March 2003. Shortly before this an Iraq Emergency Response Team was formed by Mr Lindberg as a sub-committee of the ELG. Mr Lindberg chaired the team and the members were Mr Ingleby, Ms Scales and Mr Stott. Mr Johnstone was the executive officer and overall response co-ordinator. Mr Long was to co-ordinate market issues and Mr Hockey government and media issues. 595 The team met almost daily until 16 April 2003 when it was disbanded shortly after the United Nations had restarted the Oil-for-Food programme and contracts A1670 and A1680, the contracts inflated to recover the Tigris debt, had received priority from the Office of the Iraq Programme. 596

On 20 March 2003 Mr Long emailed, among others, Messrs Lindberg, Stott, Johnstone, Ingleby, Cooper and Whitwell and Ms Scales and Ms Lyons noting that the inland transport payment to Alia of €2.468 million for the Pearl of Fujairah had been paid on 14 March 2003. 597 A request for repayment had been made of Alia and its response was to be reported to the next meeting.

Mr Long advised that if the monies were not returned, they could be set off against amounts due to Iraq for the iron filings settlement and a separate sand contamination claim.

27.326 On 21 March 2003, Mr Davidson Kelly wrote to Mr Aiken (BHPP):

As for the recovery of the Grain Receivable, the war could not have come ata worse time. My trip to Aus to finalise details has been postponed. At best there will be a delay of a month or two. At worst we will have to start again with the new regime. Ce la vie!598

27.327 On 28 March 2003, BHPP prepared a 'Position Paper' on Iraq for submission to its Executive Committee in which it noted that it had assigned the Grain Board Receivable to Tigris but retained an interest if it was recovered. 199

244 Report of the Oil-for-Food Inquiry

Payments to 'influential people'

27.328 On 6 May 2003 Mr Whitwell wrote a report for the Executive Leadership Group. 600 Under the heading 'Tigris Commission', the document recorded:

Tigris Petroleum (BHP) has asked for an update of status of their agreement in light [of] current contract execution and when they will begin receiving payments. They intimated a number of influential people will need to start receiving funds and that further delays may cause difficulties going forward. 601

This appears to be the first documented AWB reference to the Tigris debt being referred to as a 'commission'. The report also dealt with lobbying efforts to have other contracts funded and executed (including contract A1680). It is clear Mr Davidson Kelly knew by then that amounts in part payment of the

Tigris debt were to be received by AWB through the wheat contracts.

27.329 Mr Whitwell's evidence was that the reference to 'they intimated' was a reference to a telephone call that Mr Whitwell had with Mr Davidson Kelly. 602 When questioned about his conversation, Mr Whitwell's evidence was:

Q: You say, 'They intimated a number of influential people'. What did Mr Davison Kelly say?

A: Sir, I can't recall specifically, but I got a sense from him what I have said there, which was that they intimated a number of influential people may need to start receiving funds.

The Commissioner: That's code for what?

A: It is code for the fact that he wants to pay people for funds. In my mind it set off an amber light that this was a bribe.

27.330 On 6 May 2003, an ELG meeting was held involving Messrs Lindberg, Ingleby, Geary, Stott and Ms Scales. The agenda noted that Mr Whitwell was to attend to discuss 'Iraq'. 603 The action list compiled in respect of that meeting does not specify the actions to be taken in respect of Iraq but noted that the responsible ELG members were Messrs Lindberg, Ingleby, Stott and Ms Scales. 604

Ms Scales gave evidence that she would have received this ELG report but she could not recall reading it. 605 Mr Stott could not recall reading the ELG report or discussing the Tigris commission with anyone at AWB or Mr Davidson Kelly. 606 Mr Lindberg said he could not remember being at the meeting or agreeing anything. 607 He agreed he was present when shown the minutes.

Report of the Oil-for-Food Inquiry 245

A further draft of the Tigris agreement: 'debt' became

'compensation'

27.331 On 7 May 2003, Mr Whitwell received an email from Mr Davidson Kelly containing a draft agreement. 608 The email stated:

1. We have written it in the name of Tigris, but we could just as well use one of its affiliated companies 'Maritimo Investments', also incorporated in Gibraltar (but with a different number) if you would prefer.

2. The numbers are quite simple. We are due USD8,375,000. Less your $500,000 leaves USD7,875,000. Or $7.875 per ton.

3. We have prorated the payments on a tonnage basis, as this is fairest for all parties, given the significant slippage in the program me and our requirement to keep all parties incentivised. 609

Mr Whitwell copied Mr Davidson Kelly's email and enclosure to Mr Long and Mr Stott later that day. 610 Mr Whitwell replied to Mr Davidson Kelly on 8 May 2003: 'will study and revert'. 6 11

27.332 The draft 'Service Agreement', expressed to be between AWB Limited and Tigris, recited that 'Tigris has been of material assistance in procuring for AWB a contract for the supply of Australian wheat to Iraq.' 612 It provided that, subject to the terms of the agreement, AWB would pay to Tigris an amount equal to US$7,875,000 in consideration of the services provided by Tigris. This payment was called 'compensation'. The services were said to be 'services provided by Tigris in relation to the negotiations in execution of the contract'. The contract was defined to be a contract or contracts entered into between AWB and the Government of Iraq for the supply of 1 million tonnes of Australian wheat. It provided that the sum due to Tigris would be paid at the rate of US$7.875 per tonne of grain delivered. The contract did not mention the payment of any sum to AWB. The fee due to AWB had been accounted for

in this version of the contract by reducing the amount to be paid to Tigris.

The agreement forwarded under cover of the email from Mr Davidson Kelly of 7 May was plainly inconsistent with paragraph two of the accompanying email.

27.333 On 28 May 2003, Mr Whitwell sent an email enclosing the draft Tigris agreement to Ms Lyons and Mr Cooper, both of whom were recipients of his 7 February 2003 memorandum, with copies to Messrs Geary, Stott and Hockey 613 :

Following on from last Iraq brief to ELG where it was agreed we would pay Tigris commission I received following from Tigris which I have reviewed. Some comments:

246 Report of the Oil-for-Food Inquiry

1.

too complicated—we need a much simpler document

2. In previous discussion AWB was to receive payment up front but in light of changed circumstances it is probably better to waive this and proceed on pro rata basis as proposed by Tigris - keeps them incentivised.

3. not happy about passing contracts to Tigris;

4. clauses of immediate concern are 2, 4.2, 5, 6, 9;

5. will we have tax implications?

6. Payment should be within 7 days not 48 hours.

Would you please have a look at this and provide comments/redraft so I may pass back to Tigris614

It is clear that despite denials of some participants in the 6 May 2003 ELG meeting, the ELG did agree to pay Tigris 'commission' at that meeting. The email was sent to Messrs Geary and Stott who were present at the meeting and senior to Mr Whitwell. They knew that there was no 'commission' due by

AWB to Tigris, and that in truth AWB was collecting on behalf of Tigris a supposed 'debt' owed by Iraq. It was AWB which was to receive a 'commission' of US$500,000 for so doing, not the reverse arrangement.

27.334 Mr Whitwell's was asked about this version of the agreement:

Q: What is plain is that, if we look at the substance of the draft that Mr Davidson Kelly sent you, the arrangement as between AWB and Tigris is therein depicted as a service agreement, that Tigris is being paid by AWB for some services rendered, which was quite different to what you had asked the legal department to prepare for you, and quite different from what you understood to be the arrangement

between AWB and Tigris. Do you agree with that?

A: Look, by that stage, in May, I have to be - you know, again, I am trying to recall to the best of my memory, but, look, I thought by that stage that there were elements of, you know, a service agreement in it. For example - in my mind I am just going through this at this moment in time. Clearly, I know that the original

deal was put on because of the debt recovery, but I also, in my mind, know that we were facing a situation where we were at 500,000 tonnes with the minister, and we went up to a million tomes, and I'm sure— I don't know for sure, but, you know, one assumes that the Tigris guys were influential in getting us up to a million tonnes.

But look, clearly in my mind, in May, I still thought this was debt recovery, but I am just saying that, you know, Norman putting this agreement over to me in this form, whilst I had serious reservations about the style of it, as I say, I'm open

Report of the Oil-for-Food Inquiry 247

minded and I was just saying, at that point in time, I could see elements of how

they had maybe helped us provide a service. 615

Q: ... you don't say anything about the fact that this agreement doesn't reflect the true situation. You comment on the contract almost clause by clause, without actually drawing legal's attention to the fact that there never was any commission or compensation arrangement between AWB and Tigris. Why didn't you just say to legal, 'I don't know what Norman is up to, but this doesn't reflect what happened'?

A: Sorry, I tried to give some context around it. I am looking at an agreement. I am seeing this agreement and I don't think that it is at a final stage of really looking into it. I am - I have got a lot of other things that are a higher priority. You know, it is just - I would treat it differently, I suppose, if somebody was saying, 'This is the final draft. Are you happy with it?' As far as I am concerned this is still at a very early stage of its existence, and it is still in very much a draft form. 616

Later drafts could not reflect the true arrangement if the drafter was not

informed of factual errors. Mr Whitwell denied that he was interested in disguising the nature of the payments that were going to be made by AWB to Tigris. 617 He maintained that he had no interest in trying to describe it as anything other than recovery of a debt. 618

'Compensation' became 'commission'

27.335 On 2 June 2003 Ms Lyons replied to Mr Whitwell's email of 28 May 2003 and copied her email to Ms Trotter (AWB Group Tax Manager). 619 She noted that she had marked up an agreement for Tigris and that Ms Trotter had discussed with her the tax clause and appeared to be generally comfortable with it.620 This draft 621 added that the services were provided to AWBI rather than

AWB, contained an acknowledgment that Tigris was uncertain whether the Government of Iraq would honour the terms of the contract, and provided that AWB would only be responsible for payment pro rata of actual tonnage shipped and paid for. Ms Lyons' draft did not refer to 'commission'. However, it did not reflect the true arrangement, namely, that AWB was collecting a debt through inflating its contract prices, and that the true consideration was a payment of US$500,000.

27.336 Ms Lyons gave evidence to the effect that by the time she received Mr Davidson Kelly's draft, she had either no knowledge or no recollection of the true facts of the transaction. She said because Mr Whitwell said in his covering email it would probably be better to waive 'the payment AWB was to receive upfront' that she did not need to concern herself with what that payment was. 622 She did not ask Mr Whitwell to explain this and said she

248 Report of the Oil-for-Food Inquiry

acted solely on the basis that Mr Whitwell said the ELG had approved

payment to Tigris. 6 23

27.337 On 4 June 2003, Ms Trotter advised Mr Whitwell and Ms Lyons regarding the tax aspects of the draft. 624 She advised withholding tax would not apply, and that 'GST should not apply to the transaction, as Tigris is providing a service in carrying on its business outside of Australia, and AWBL is acquiring the service in carrying on its business'. There is no evidence whether Ms Trotter

knew that Tigris was in fact being paid the amount of a 'debt' collected by AWB on its behalf; indeed such tax advice as she gave could only be based upon the false circumstances of which she was advised. There is no evidence before the Inquiry that the tax aspects of the true agreement were ever considered.

27.338 On 6 June 2003, Mr Whitwell emailed Mr Davidson Kelly forwarding him the draft prepared by Ms Lyons. 625 It was in June 2003 that AWB advised Mr Davidson Kelly that it had begun receiving the Tigris monies. 626

27.339 On 7 June 2003, Mr Davidson Kelly replied to Mr Whitwell advising that the lawyer's comments were acceptable, and he wished to sign the agreement. He sought advice as to the expected payment dates. 627 On 10 June 2003, Mr Whitwell replied to Mr Davidson Kelly advising he would look through the

contract and may need to meet Mr Davidson Kelly in Melbourne to discuss it. 628

27.340 On 11 June 2003, Mr Whitwell emailed Mr Davidson Kelly requesting that they speak that day noting there had been a 'few developments from our side which I probably need to chat with you in person about?' 629

27.341 On 16 June 2003, Mr Whitwell emailed to the Management Group an Iraq brief and trip report. 630 The Iraq brief was an ELG report dated 15 June 2003.631 The ELG report noted, in respect of the 'Tigris Commission', that the issue had been put on hold in light of the need for possible further

renegotiation of current contracts, and that Mr Whitwell would meet Tigris officials in London on 22 June 2003. This renegotiation related to the World Food Programme requirement that all contract prices be reduced by 10 per cent to eliminate the after-sales-service fee.

27.342 A confidential trip report in respect of visits to London, Amman and Iraq between 23 and 30 June 2003 recorded a meeting between Messrs Long, Whitwell and Davidson Kelly in London. 2 It noted that AWB would keep in contact over progress of contracts and look at possible 'ring-fencing' of commissions received. Mr Davidson Kelly said he had recently met with 1GB in Baghdad and it wished to 'honour the contracts'. The report noted that

Report of the Oil-for-Food Inquiry 249

former 1GB officials, now with the Iraqi Ministry of Trade, were very loyal

towards AWB and would be urging prioritisation of its contracts. The 'loading up' of those contracts to recoup the Tigris debt is not discussed in the report. An 'action' to be taken, with respect to the World Food Programme contracting team in Rome, was to maintain close liaison with them with a

view to processing any further shipments against A1670 and A1680, being the two contracts containing the inflated price to recover the Tigris debt. Mr Johnstone, as Chief Risk Officer, read the report and assumed the ELG had approved the Tigris proposal. 633 ELG approval would not of course have made the uplifting of the contract price either lawful or prudent.

27.343 On 26 August 2003, Mr Whitwell drafted a memorandum to Mr Owen and Mr Tan of AWB Trade Finance concerning 'Tigris Petroleum Commission'. 634 The draft memorandum was copied to Messrs Aucher, Johnstone, Johnson and Long. Mr Whitwell wrote:

Following Telephone conversation of yesterday and your request for a memo on the subject. I confirm that with the agreement of the Pool and the (Iraq Emergency response committee) it has been agreed to provide for a payment of a commission to Tigris Petroleum that was agreed at time of concluding contract. In agreement with Tigris the quantum value of this commission is USD7,875,000 and is to be accumulated on a USD7.875 pmt basis against tonnage shipped and paid for under AWB contracts A1670/1680 to Iraq. Due the possibility that these contracts may not be executed in full it was agreed by ML/CW with the delegated

representative of Tigris that AWB will hold these funds and ensure that interest is earned on these commissions from the moment payment is received under this contract by AWB. Interest will then be added on to the initial commission that will be repayed to Tigris in due course if the contract is fully executed or is deemed appropriate by AWB. In the event that the contracts are not fully executed or other conditions change further discussions will be held with the representatives of

Tigris to agree the way forward. Would you therefore kindly advise the relevant interest rate for these commissions (to be reported to Tigris) and set up the relevant reporting and accounting mechanisms. 635

The memorandum was false. There had been no agreement between Tigris and AWBI, at the time contracts A1670 and A1680 were concluded, to pay Tigris a commission. Mr Johnstone read this email but said that he did not notice that what he knew to be a debt (due from 1GB) was now being described to the Trade Finance area as a commission (due from AWB). He did not notice that AWB was paying interest on the 'commission' •636 Mr Johnstone

was a recipient of the 7 February memorandum precisely because of the risks inherent in what was planned. He had earlier directed Mr Long to prepare a paper on this issue for ELG approval. It is extraordinary that as Chief Risk Officer, he failed to notice a fundamental change in the nature of the transactions.

250 Report of the Oil-for-Food Inquiry

27.344 On 27 August 2003, Mr Whitwell sent the memorandum to Mr Owen and Mr

Tan and copied it to the other addressees. 7 An exchange of emails followed involving Messrs Whitwell, Owen, Tan, Aucher, Long, Johnson and Johnstone making arrangements for the holding of the Tigris debt. 638 Mr Owen on 1 September 2003 inquired as to Tigris's domicile for tax purposes 9 and on

2 September 2003, Mr Whitwell contacted Mr Davidson Kelly to confirm that Gibraltar was the domicile.E 40 Mr Davidson Kelly confirmed this on 2 September 2003.641

27.345 It will be recalled that on 11 September 2003 the World Food Programme sent a facsimile to Mr Whitwell regarding the renegotiation of contract A1670. 642 The facsimile listed renegotiation terms that had been provided by the Coalition Provisional Authority for consideration. One of the terms listed for consideration was:

The value of the tonnage renegotiated will be reduced 10 percent (10%). 643

27.346 Before responding Mr Whitwell consulted with the pool manager Mr Johnson, and Mr Long who was in Baghdad at the time. Mr Long advised that if AWB wished to maintain the contracts it would be obliged to agree to the 10% reduction. On 16 September 2003 Mr Whitwell responded to the World Food Programme's facsin -dle.644 Under the heading 'Reduction by 10 percent of contract value' the fax read:

Whilst we would stress that this is extremely abnormal to consider such an arbitrary reduction in contract price we assume that this has been made as a request by the Iraqi Grain Board in consultation with the CPA and that this reduction is associated in some way with a re-evaluation of inland transport and

After Sales costs. As such we agree to the reduction as long as our associated extra costs resulting from the delay in executing this contract are taken into account. 645

Mr Whitwell knew of the inclusion of inflated costs for transportation and after-sales service in the contracts. He also knew of the inclusion of the Tigris debt element in these contracts.

27.347 On 17 September 2003, Mr Whitwell received a fax from the World Food Programme concerning renegotiation of contract 1680 which advised, under the heading 'Price Correction', that:

WFP have been requested by CPA to deduct the after sales service fee of 10 percent on this contract. 646

This advice was repeated in point 6 of the fax which stated:

WFP have been requested by CPA to deduct the after sales service fee of 10 percent on this contract. The revised price per MT will be [a specified 647

Report of the Oil-for-Food Inquiry 251

This fax makes it clear that the 10 per cent reduction in price was due to

elimination of the 'after-sales-service fee'. Mr Whitwell did not respond to the World Food Programme suggesting such a fee was not included in the contract price.

27.348 On 18 September 2003, Ms Lyons emailed Mr Whitwell, copied to Mr Cooper, stating:

I confirm that you have asked me whether the World Food Programme (WFP) is entitled, under the provisions of the relevant UN Security Council Resolutions, to arbitrarily, unilaterally alter the price down by 10%.

The WFP is also entitled... to negotiate and agree on necessary adjustments to the terms of the reviewed contracts. These words do not entitle the WFP to arbitrarily or unilaterally adjust the contract price. 648

Later that day, Mr Whitwell received from Mr Edmonds-Wilson a copy of the

email of 9 December 2002 discussing the two pricing options for contracts A1670 and A1680 which disclosed the inclusion in the price of both the Tigris debt (at US$8.375 per metric tonne) and an inland transport fee (of US$51.15 per metric tonne). 49 There is no record of him informing Ms Lyons of this.

27.349 On 22 September 2003, Mr Whitwell sent Ms Scales a memorandum which related to Tigris. 650 He wrote:

Commission has been ring-fenced in AWB accounts pending final execution of contract. 651

This memorandum was copied to Messrs Stott, Ingleby, Hockey, Johnson, Geary, Lindberg and Johnstone. 65 2

27.350 On 25 September 2003, Mr Whitwell sent a signed contract to the World Food Programme with the price reduced by 10%. 653 He did not inform the World Food Programme that the previous contract price had included the inflation for the Tigris debt.

27.351 On 8 November 2003, Mr Davidson Kelly emailed Mr Long pursuing execution of the contract with Tigris and proffered a modified payment proposal. Mr Long forwarded the email to Mr Whitwell. 64

27 .352 On 10 November 2003, Mr Long in an email to Mr Davidson Kelly, copied to Mr Whitwell, advised that AWB preferred to leave 'everything until the end, including the written proposal'. 655 Mr Davidson Kelly replied that he currently had no contract, no performance from AWB under their agreement,

252 Report of the Oil-for-Food Inquiry

and no certainty that AWB would eventually perform.

656 Mr Long replied on

10 November 2003 that:

You have AWB as certainty. Please leave it alone until I indicated. 657

Mr Davidson Kelly replied on 12 November 2003:

Glad to hear it. To what extent is Aus Gov aware.? I have private dinner tomorrow (my time) with Minister Defence on his way across Atlantic. He usually enquires re status .658

27.353 The evidence of Mr Hill, who was Defence Minister at the time, was that he did dine with Mr Davidson Kelly that evening and that he had known Mr Davidson Kelly on a social basis for about 10 years. His evidence was that he had never discussed AWB's dealings with Mr Davidson Kelly and that he neither knew of, nor enquired about, AWB's attempts to recover amounts said to be due to any company associated with Mr Davidson Kelly. 659

Mr Long replied on 12 November 2003:

Matters between Tigris/BHP and AWB are just that. 660

27.354 Neither AWB or Tigris ever informed the Australian Government that

contracts A1670 and A1680 had been inflated to recover the Tigris debt from the escrow account.

2004: negotiations continued as 'debt' was collected

27.355 On 6 February 2004, Mr Davidson Kelly met with Mr Aiken in London. Mr Aiken did not recall the meeting but believed the prospect of entering into a new agreement with Mr Davidson Kelly was discussed. 661 He had a general recollection of being told that 'we're not going to see any money' in relation to the 'Grain Board Receivable'. 662 He subsequently received a letter dated 12 February 2004 setting out Mr Davidson Kelly's proposal for a new

agreement with BHPP. 663 It did not mention the 'Receivable'. It was addressed to Mr Worthington, and Mr Aiken referred it to him. Mr Worthington commenced work on a draft term sheet for the relationship with Tigris but did not recall any reference to the 'Receivable' until he saw reference to it in a draft term sheet in July 2004.

27.356 By February 2004, Mr Davidson Kelly knew that the Tigris debt had commenced being recovered by AWB from mid 2003, and as it was progressively recovered, was being held by AWB and earning interest. He did not tell BHPP of that fact. Rather, he negotiated a new arrangement whereby

BHPP surrendered any claim it had to that sum.

Report of the Oil-for-Food Inquiry 253

27.357 On 17 March 2004, following a conversation with Mr Long, Mr Davidson

Kelly emailed Mr Long a further draft agreement based on the version received from AWB's lawyers in May 2003.

On 19 March 2004, Mr Long forwarded the email and draft to Mr Whitwell. 664 The same day, he also forwarded it to Ms Peavey. 665 He told Ms Peavey that Ms Lyons had previously been involved and recommended she speak with her.

27.358 On 31 March 2004, Mr Long emailed Messrs Johnston, Whitwell and others advising that, by its renegotiation of contracts A1670 and A1680, AWB had improved its projected FOB price on the contracts by over US$30 per tonne.

27.359 On 14 April 2004 Mr Long wrote a note to Mr Whitwell on the cover page of a draft Tigris agreement dated 1 April 2003. 666 He wrote:

Please revisit this to ensure that it is accurate and relevant. Need to ensure that the service performed is clearly articulated, ie assisted with the brokering of contracts 1670/1680 during a particularly sensitive time in 2002 when our wheat sales were in jeopardy because of the political tension existing at the time.

Please get legal and pool sign off. We will then take it to ELG for final approval. 667

27.360 On 20 April 2004, Mr Whitwell emailed Mr Long a further draft with minor alterations. 668 Mr Whitwell removed some of the references to Iraq. Mr Whitwell noted that:

we have made much of our close relationship with 1GB and if we up play Tigris role in this contract etc, and this ever gets in the wrong hands there could undermine perceptions of AWB position in Iraq etc—could be embarrassing. 669

Mr Whitwell noted in his email that if Mr Long was satisfied he had set the right tone, he would forward the draft agreement to 'legal' to sign off before getting Pool approval.

27361 On 23 April 2004, Mr Johnson requested of Mr Whitwell and Mr Edmonds-Wilson a 'rundown' on the status of the payment of the 'Tigris commission', and how it was to be accounted for. 670 He noted:

Most importantly is it a pricing condition in the system, or has the price been grossed up, but we are just paying the rebate from sales revenue. This is important when we are netting sales back to a net fob value for pool equities and our performance. 671

Mr Edmonds-Wilson referred the request to Mr Owen who noted in his reply

of 23 April 2004 that a monthly spreadsheet was provided to International Sales and Marketing. 672 Mr Owen advised: 'Once it gets to a million tonnes, Int'l Marketing will have to arrange payment/ S.'673

254 Report of the Oil-for-Food Inquiry

Annexed to Mr Owen's email was a spreadsheet showing the 'commissions'

held on behalf of Tigris and the funds deposited between 21 May 2003 and 30 March 2004. The spreadsheet showed that US$4,481,197.21 of the principal debt had been collected to that time.674

27.362 On 23 April 2004, Mr Edmonds-Wilson sent the spreadsheet to Mr Johnson and advised:

Trade Finance have been allocating Tigris commission into a separate deposit for payment at a later stage (i.e: once we hit 1 million mt we will decide how to pay). Please see attached spreadsheet for current funds allocated. 675

27.363 On 23 April 2004, Mr Johnson emailed Mr Edmonds-Wilson requesting a copy of the agreement with BHP. 676 Mr Edmonds-Wilson replied to Mr Johnson that day, copied to Mr Whitwell, advising:

BHP restructured its commercial interests in Iraq by transferred this issue to Tigris Petroleum, hence our agreement is with Tigris. I am just trying to track down a signed copy.' 677

Later that day, Mr Edmonds-Wilson forwarded Mr Johnson an email attaching the most recent draft from Mr Davidson Kelly and advised Mr Johnson:

I believe nothing signed as yet, however a copy of the current document is attached. 678

Mr Whitwell then emailed Messrs Johnson, Edmonds-Wilson and Owen to advise:

nothing has been paid. I have given ML a final draft of the agreement which after his sign off will come to you and legal for approval before we send up to CRRC/ELG for final approval and sign off ready to be paid post contract.

I believe it is provided for in the system and was in the original net fob cost calcs. 675

27.364 On 23 April 2004, Mr Tan emailed Mr Edmonds-Wilson, copied to Messrs Johnson, Whitwell and Au of AWB's Trade Finance Area, and enquired:

.whether the pricing for Iraq contracts takes into account this conimsion i.e. is it factored into the base price or can we see it as a separate pricing item e.g. land freight, war risk etc. 680

Mr Au replied, copying it to the same individuals:

Originally we intended to put it into the pricing condition as an accrual. But as SD could not accrue for a third party and also the tonnage used is paid mt not loaded mt. and with interest accrued as well, we decided to accrue it outside the pricing mechanism. 68 '

Report of the Oil-for-Food Inquiry 255

A renegotiation: Tigris surrendered 10 per cent of debt to

AWB

27.365 On 24 April 2004, Mr Long replied to Mr Whitwell concerning his comments on the Tigris draft Agreement. 682 Mr Long wrote:

2. We need to rethink about deducting 10% as per our deduction, otherwise, the wheat farmer is subsidising tigris. I will raise this with Norman.

Once i give you the feedback on 10%, let's get legal sign off. After which, we will give it to PAG as an ELG paper. Happy for you to start drafting that paper and pass it to me for comments if you like.

Recd email form NDK wanting to come down and sign. I told him to wait and we would let him know when is an appropriate time. 683

27.366 On 26 April 2004, Mr Whitwell replied:

I am confused on the deduction point - the total was 8.375 null and we took of 500K and gave the balance back in this - I cannot see subsidisation happening there.

re legal—I have to discuss this with Rosemary and Chris Qunnell today. 684

Mr Quennell was the lawyer heading Project Rose.

Mr Long replied that day:

is the 500k deducted in the agreement? should it be... need to think about that one???

don't worry about the subsidisation argument... we got 10% deducted so should he, you were the one that raised this point??. 685

Mr Whitwell replied on 27 April 2004:

Ok I'm with you now - you were talking about our renegotiation with wfp - I was off on a different tangent.

yep agree—he has to take the pain as well. 686

Mr Long responded the following day:

ok, please adjust agreement accordingly. 687

27.367 On 30 April 2004, Mr Whitwell prepared a further draft agreement with Tigris in which he altered the amount of 'compensation' to be paid to Tigris to US$7,037,500 and consequently reduced the rate per tonne Tigris was to be paid to US$7.0375. 688 Mr Whitwell sent the draft to Ms Peavey and copied it to Mr Long. He asked that she check it and then send it to Mr Johnson. He noted

256 Report of the Oil-for-Food Inquiry

'main differences

are the quantum-we have taken off 10% and arbitration in Victoria not blighty'. 689 The contract still recorded that compensation to Tigris was due 7 days after the final payment on the sale contracts. Amendments to the arbitration provision were as noted. 690 The payment figures were reduced by 10 per cent from the previous draft as directed by Mr Long. The payment to AWB of US$500,000 was not mentioned.

27.368 On 3 May 2004, Ms Gibson of AWB Trade Finance sent Mr Edmonds-Wilson a memorandum updating the funds received on account of the Tigris 'commission'.691 Ms Gibson noted on the memorandum:

If shipped over irnill tonnes or more—Pool needs to send $ back to Iraqis 692

27.369 On 1 June 2004, AWB sought advice from Mr Quennell concerning 'Project Water'.693 This was the code name given to the Tigris dealing. It will be recalled that Mr Quennell had been assisting with the Project Rose investigation commenced in June 2003 and that the United Nations' TIC investigation had been announced in April 2004.

On 1 June 2004 Mr Whitwell emailed Ms Peavey requesting her advice on a draft agreement he had previously sent.694 Ms Peavey replied that day that she would be meeting later that day with Mr Quennell of Blake Dawson Waldron to discuss the Tigris matter. She noted:

I know this has been sitting on the backburner a little given everything else going on with Iraq—but we need to be squeaky clean on this one. 695

The email was copied to Mr Johnson and Mr Long.

27.370 On 9 June 2004, Mr Quennell emailed a draft agreement to Ms Peavey. 696 He described the enclosed draft697 as a clean copy of a marked up version. The marked up version appears to have been prepared by Ms Brasington of Blake Dawson Waldron.698

This version refers to BHP Billiton Petroleum as a party to the arrangement, from which it may be inferred that Mr Quennell and Ms Brasington were provided with some supporting documentation and were aware that BHPP retained a 25% interest in the sum recovered. It also referred to BHPP advancing sums to AWBI to pay for wheat supplied by AWBI to the 1GB

under contracts Allil and A1112 in December 2001.

There is no evidence of BHPP funding those contracts or of their knowledge of, or involvement in, this draft agreement or the recovery process. These recitals would appear to be an error.

Report of the Oil-for-Food Inquiry 257

Mr Quennell's draft referred to the payment to Tigris as 'compensation', made

no reference to AWB's success fee and gave the total due as US$7,037,5000, that is, the original debt less the success fee and the further 10% reduction negotiated by Mr Long. A question is included in the draft enquiring as to how the debt of the 1GB increased from US$5 million to US$8 million and what the original contracts said about interest. 699

27.371 Ms Peavey copied Mr Quennell's email and draft to Messrs Long and

Whitwell on 9 June 2004, noting when you are in tomorrow we need to also finalise this 700

27.372 A version of Mir Quennell's draft, produced after Mr Whitwell had given his

evidence and once privilege claims were no longer pressed, bears handwritten annotations701 made by Ms Peavey. 702

In this version, references to BHPP funding wheat purchases in 2001 are lined through as is a handwritten note correcting the date to 1996 and 'compensation' is changed to 'commission'. The reference to the difficulties said to be faced in the recital is amended to include 'AWBI's ability to secure future sales of Australian wheat'.

Ms Peavey's evidence was that the amendments were made at a meeting attended by her, Mr Whitwell and a lawyer from Blake Dawson Waldron- 703 This lawyer was probably Ms Brasington. 704 On this occasion, Ms Peavey was told that Tigris was due a commission by reason of services it had performed in restoring AWB's trade to Iraq. 705 She said she was confused because she had also been told that the money represented the proceeds of a debt. 706 Mr Whitwell espoused both views. 707 Ms Peavey agreed that the two accounts were contradictory. 708 She thought that she discussed her concerns with Mr Cooper and Mr Quennell subsequently. 709

27.373 After this meeting, Mr Quennell received instructions that the agreement

should reflect that the sum payable to Tigris was on account of a commission.710 He had earlier been told that the payment to Tigris represented the proceeds of IGB's debt for wheat that had earlier been delivered. 711

27.374 On 10 June 2004, Ms Peavey sent Mr Whitwell an amended draft incorporating the changes indicated by the handwritten notesY12 In this draft, all references to BHPP were omitted and all references to 'compensation' were now 'conmuission'.713 The contracts involved, A1670 and A1680, were now correctly referred to. Tigris was said to have been of material assistance in procuring those contracts. The cover page still stated the agreement was between AWBL and Tigris but the contract itself amended the counterparty to

258 Report of the Oil-for-Food Inquiry

'AWB (International) Limited'. It contained a formula for the calculation of

interest due to Tigris.

27.375 On 21 June 2004, Mr Whitwell wrote to Ms Peavey advising that the draft was acceptable except that, in recital A, it referred to assistance being given in 2001 rather than 2002. 714 He asked this be corrected so that he could give it to Mr Long for signing. It would appear that this correction was not in fact made.

The draft agreement went through further iterations until the version of August 2004 which omitted money terms and provided simply that the 'commission' was to be the total amount of principal plus interest that would be due to Tigris on the date on which the agreement was to be executed, and

that AWB agreed to pay that 'commission'. 715 This draft did not disclose that interest had accrued on behalf of Tigris, or give any indication as to the basis upon which it was being paid. Reference to the relevant contracts was omitted. This copy has the handwritten annotation, 'email to J Cooper'. Mr Cooper's evidence was that he did not receive this until Ms Peavey sent it to him for a review of the Tigris transaction in August 2004. 716 A draft of this contract 717 was prepared by Blake Dawson Waldron. Mr Quennell sent that

draft to Ms Peavey on 6 August 2004 and noted that 'I gather Sarah Scales needs this urgently.'ns This covering email was not provided until after Ms Scales gave evidence.

27,376 On 2 July 2004 a paper was prepared to calculate how well AWB had fared in achievement of its targets for contracts A1680 and A1670. 719 The paper showed that, notwithstanding the 10% reduction introduced by the WFP in September 2003 for wheat remaining to be shipped under the contracts, the

retention of the inland transport and after-sales-service fees, the re-negotiation of the contracts for matters and claims such as diversion, speeding up the contracts, demurrage, deviation and detention and the fact that the costs on both contracts were within original budgets, meant that the net FOB price achieved for the contracts was more than US$39 million ahead of their original target.

The paper recorded that the initial price included amounts for the Tigris debt recovery, that International Sales and Marketing had recovered €7,944,525 but only had to pay Tigris US$7,035,000. It noted the return from involvement in the Tigris transaction, including the service fee and foreign exchange gains, was US$2,657,000.

Report of the Oil-for-Food Inquiry 259

I

Tigris agreement with BHPP renegotiated

27.377 On 2 July 2004, Mr Worthington met with Mr Aiken to discuss BHPP's new arrangement with Tigris. He was instructed to release BHPP's interest in the debt if it had been written off in the accounts. 720

The final iteration of a memorandum to Mr Aiken from Mr Worthington 72 '

dated 21 July 2004 providedtm:

7.3 receivable rights: Transfer to Tigris of the balance 25% of the Australian Grain Board Receivable (US$5 million total), which was retained by BHP Billiton but written off some years ago. 723

The proposal to relinquish BHPP's interest in the Receivable, as part of a larger arrangement with Tigris, was approved by Mr Aiken on 22 July 2004 724 .

Further negotiation of agreement between Tigris and AWB

27.378 On 15 July 2004, Ms Peavey emailed Mr Whitwell and Mr Long with a draft advice she proposed to send to Mr Johnson, the Pool Manager, regarding his concerns over Tigris. 725 AWB claimed privilege until August 2006 over a relevant portion of this email and accordingly it was not put to Mr Whitwell or Mr Long. That portion is noted below. 726

27.379 At 9.15am on 16 July 2004, Mr Long replied to Mr Whitwell and Ms Peavey noting that the 1 million tonne contract was entered into with the past Iraqi regime. 7 He also advised:

the payment is due when all monies received from UN... we expect this any time now and need the agreement in place prior to the final payment. 728

Ms Peavey incorporated the information provided by Mr Whitwell and Mr Long into her advice to Mr Johnson and emailed Mr Johnson, copied to Mr Whitwell and Mr Long, on 16 July 2004, at 11.37 am. That email is reproduced on the following page.

27.380 On 26 July 2004, Mr Ingleby, AWB's Chief Financial Officer, emailed Ms Scales and Mr Long:

I notice in the June fin rept there is mention as to how to treat the $.5m commission re Tigris—why isn't this revenue for L as it was L's employees who engineered the result? 729

260 Report of the Oil-for-Food Inquiry

1Ii!MIU

AWB.0001 0149

LPL.111.102

Rosemary Peavey

16/07/2004 11:37

To: David JshnsonfrtOlAWB@AWB cc: Michael LorigIHO/AWBAWB, Chris Whitwell/HO/AWb/AWll, Clayton McCermacliil -lOIAWBthAWB Subject: Tigna

David Following on from our meeting yesterday afternoon, you requested that I email you background information regarding the arrangements between AWS and Tigris:

• In January 1998, AWB assisted BHP Petroleum to procure and deliver over 20,833 metric tonnes of wheat to Iraq at a cost of US $5 million. Aound this time BHP were keen to investigate business opportunities within Iraq. This delivery occured prior to the UN Oil for Food Program. The amount of money now owing is about US$10 million. • The arrangement was that BHP would be paid at a later time with 10% interest accruing. • As time went on, BHP appointed Tigris Petroleum as its agent to recover the debt. The debt was

assigned to Tigris in September 2000. I have a copy of a letter on file from Mr Aiken, President of BHP Petroleum assigning the debt to Tigris. It appears that BHP were not interested in pursuing its interests in Iraq. • lOB has always acknowledged that it owed Australia/Tigris for the wheat delivered in January

1998.

• AWB agreed to assist Tigris in recovering its debt In exchange for Tigris assisting AWB in future wheat sales into Iraq. With Tigris' help, AWB was able to secure the sale of approximately one million tonnes of wheat to Iraq. These sales were all executed in the period after the April 2003 war. The price of the grain in these deliveries included a commission which was to be paid to Tigris by AWB and AWB placed this commission into an interest bearing account as execution of

this contract continued. The money in this account is due to be paid to Tigris on the receival by AWB of the final payment from Iraq. This payment is expected shortly thus the need fnr this _P.m-tr - nh1Wr AW1 41 nit T° )n C aljv ha sinne4

L

• The lJ'J eso1Uon 66 f99O stafea af no payments or economic resources arto be ae To the Government of Iraq or any person connected to the Iraqi Government unless they specifically relate to medical or humanitrarian purposes including foodstuffs. I do not see this as relevant to the current arrangement between AWB, 1GB and Tigris, as AWB is Simply giving Tigris a payment which is in the form of a commission to facilitate grain sales of Australian wheat to Iraq. There Is no payment being made by AWB to an Iraqi Government. Tigris is a registered company in Gibraltar and as far as we are aware Tigris does not have any connections with the Iraqi Government.

LI

I hope this clarifies the issues for you. If you have any further questions please do not hesitate to contact me. Regards'

Rosemary Peavey Corporate Counsel AWB Limited 380 Latrobe Street Melbourne 3000 Ph 03 9209 2341 Mobile 0400 092 029

According to Mr Long and Mr Whitwell 730 during a general discussion between them, Ms Scales and Mr Johnson in about late October or early November 2002 concerning the Tigris recovery, the question of the distribution of the success fee had arisen but not been resolved.

27.381 On 12 August 2004 Mr Cooper instructed Mr Quennell to undertake a review of the Tigris transaction. Mr Quennell undertook a factual review. 731 He was not briefed with a statement of facts, but was left to find for himself the facts on which his advice was to be based. 732

Report of the Oil-for-Food Inquiry 261

27.382

On 13 August 2004, Ms Peavey telephoned Ms Lyons to elicit her knowledge

of the Tigris transaction. Her file note recorded:

PC to J Lyons re: Tigris

- she approached initially by C Allcott to do agreement re Tigris arrangement

- she did memo to ELG re payments

- thought it dodgy

- work of OFF + payments

- no service actually provided by Tigris

- concerned about Tigris + 1GB connection (will money from OFF go back to 1GB) 733

Ms Lyons remembered having a conversation with Ms Peavey, but thought

the first three points might have been about the Iron Filings Clairn. 734 She thought the last three points might be information that Ms Peavey was providing hem5 but said she did not have an independent recollection and was reconstructing the conversation from the file note. 736 Her explanation is improbable. Ms Lyons had prepared for inclusion in the memorandum of

7 February 2003 proposals by which payments might be able to be made for iron filings compensation although she recognised the prohibitions in resolution 661 of making payments to Iraq. She was later concerned about the integrity of her advice recognising it posed risks for AWB and so informed Mr Geary and Mr Long. She knew Tigris had not provided any service to AWB and that AWB had recovered a debt on Tigris' behalf by inflating wheat prices because that is what the 7 February memorandum said, and she was concerned whether there was a connection between Tigris and 1GB. I am satisfied that the note records information provided by Ms Lyons to Ms Peavey.

27.383 Late on 23 August 2004 Mr Quennell provided a draft chronology of events relating to the Tigris transaction to Mr Cooper. The draft was updated by Mr Quennell's team between that time and 8 September 2004. 737

27.384 On 7 September 2004, Mr Owen emailed Mr Whitwell, copied to Mr Long and Ms Peavey, and informed them:

Following part payment for MV [vessel name masked for confidentiality], paid for 24,322.10 tonnes, we have now passed mean quantity for contracts A1670 & A1680. As such we have collected in excess of amount required in terms of your memo of 26 August 03.

262 Report of the Oil-for-Food Inquiry

In view of the above, and as we are expecting further payments for this vessel

(approx. 13,107.90 tomes still unpaid).

Please advise how we are to account for overpayment to date and whether these funds are to be refunded to buyers. 738

27385 On 8 September 2004 Mr Quennell briefed Mr Cooper on his findings to that time. He provided to Mr Cooper an updated chronology of what he and his team had found through their inquiries, and a summary containing preliminary views on the documents. 739

27.386 On 9 September 2004 at 9.38am, Ms Scales emailed Mr Cooper asking:

Jim,

What is the status re Tigris agreement.?

What is the timeline on a decision? 740

Mr Cooper responded 'seeing Andrew today', to which Ms Scales replied,

'Why ?1741

27.387 At 6.43pm that day, Mr Cooper wrote again to Ms Scales, copied to Mr Long and Mr Geary:

Sarah—have finished factual review. Briefing Andrew Lindberg on that tomorrow. Conclusion is that on the facts we have been provided there is no breach of Australian law. Facts are however quite patchy. There appears to be a breach of UN resolution 661 because the increase in contract payments to repay the Tigris debt and the processing of this higher amount through the OFF program was never disclosed and was not a payment for a humanitarian purpose.

I am proposing having relevant IS&M staff involved in the matter sign off on the written summary of facts we have prepared (Charles [Stott], Michael [Long] and Chris [Whitwell]) and when this is done I recommend that payment to Tigris be made. 742

27.388 Mr Cooper said that his recommendation to pay Tigris, notwithstanding the

breach of sanctions, was conditional upon considerable further legal work being done, rather than simply having those who provided the summary of facts that had been gathered already 'signing off' on them. 743 He expressed no such condition. Further, he made the same recommendation in his email

dated 16 September 2004, addressed to Messrs Lindberg, Stott, Long, Whitwell, Geary and Ms Scales. 7

27.389 On 10 September 2004 Mr Cooper briefed Mr Lindberg on the state of the Project Water investigation. 745 He advised him that a factual review had been undertaken and advice received from Mr Quennell. Mr Cooper gave Mr

Report of the Oil-for-Food Inquiry 263

Lindberg an outline of the matter as it had been compiled in Mr Quennell's

factual chronology. 746

He advised Mr Lindberg that AWB had recouped the Tigris debt by inflating, or loading up, the contract price for wheat. 747 Mr Lindberg asked Mr Cooper to seek legal advice on whether the method employed by AWB to collect the debt owed to Tigris was in breach of sanctions. 74 8

27.390 On 13 September, Mr Whitwell replied to Mr Owen's email of 7 September 2003 copied to Mr Long and Ms Peavey, and requested Mr Owen to:

• . .put them on hold until the whole issue of Tigris is settled - Rosemary, is there any progress on this? 749

Mr Owen replied:

No problems, but another payment expected by 14 Sep 04, and I think Paul may need it resolved before end of financial year 30 Sep 04. 750

'Paul' is a reference to Mr Ingleby. The amount collected in excess of the amount agreed to be paid to Tigris was never repaid to Iraq. Had it been a commission on sales arranged by Tigris it would have been paid to Tigris, but it was not.

27.391 Mr Cooper spoke with Mr Davidson Kelly at 5.05pm, Thursday 16 September 2004.751 He recorded that Mr Davidson Kelly said BHPP had a right to collect a grain receivable, that Tigris would act as agent for BHPP, and that Tigris would pay BHPP a share once the receivable was collected. He told Mr Cooper that Tigris was a Gibraltar company and that Tigris Australia was a subsidiary of the Gibraltar company.

Mr Davidson Kelly advised he was the President (but not a director) of the Gibraltar company, that the directors of that company were lawyers in a Gibraltar law firm and that Tigris was a 'foundation' which was 'essentially a trust'; and that the beneficiaries of the trust were four members of his wife's family. Mr Cooper asked why Tigris had so much political influence in Iraq in

2002 when AWB was in danger of losing its market there and was advised of Mr Davidson Kelly's Iraq representative who had influence within the oil ministry.

27.392 Later the same day Mr Cooper sent an email to Messrs Lindberg, Stott, Long, Whitwell and Geary and to Ms Scales:

Dear All

Just confirmation of the process.

264 Report of the Oil-for-Food Inquiry

I have completed factual review and discussed with Andrew.

I have talked today to Norman Davidson-Kelly, President of Tigris, who is based in London. I have taken notes and I am satisfied with his explanation of issues.

Next step is to have Charles sign-off the factual statement as a true and correct record. As Charles is on leave next week we will provide the statement to him in the week of his return. After Charles has signed we will have Michael Long and Chris Whitwell sign-off.

Following sign-off by Charles, Michael and Chris 1 then recommend payment of the amount owing from AWBI to Tigris.

I have discussed this timetable with Norman Davidson-Kelly and although he is frustrated with the overall delay, he accepts that we need to go through this process. He stated that he views AWB as a friend and has offered assistance in

Iraq to AWB in the future if this is required. 752

27.393 On 17 September 2004 Mr Cooper asked Mr Quennell to draft a summary of facts in a form to be signed off by Messrs Stott, Long and Whitwell. 753

27.394 On 30 September 2004 a further draft agreement was prepared by Ms Peavey who emailed it to Mr Cooper. 754 Only the date appeared to be changed from Mr Quennell's August draft. 755 The agreement was shown to be between AWBI and Tigris. It made no reference to the monies being a debt collected on Tigris' behalf, nor the method of their collection. The payment was described as commission, and was stated to be based on Tigris providing material assistance in procuring contracts for AWBI in 2001. No mention is made of the US$500,000 payable by Tigris, nor that the sum to be paid to Tigris included interest.756 Mr Cooper could not explain, even accepting that Tigris had rendered services, how any mention of the debt had been omitted. The notion that the sum payable to Tigris represented the proceeds of the recovery of a debt is inconsistent with the notion that the same amount is payable by AWB to Tigris as a commission for service allegedly rendered by Tigris to AWB. Mr Cooper was unable to explain how the debt could change into a commission.757 On 30 September 2004, Mr Cooper forwarded the agreement to

Mr Davidson Kelly with an email which read:

Attached is the draft agreement.

As discussed, I will arrange sign off from Charles Stott and Michael Long internally before we're able to finish the transaction. Michael Long is currently on leave this week. I will progress this as fast as possible. 758

27.395 On 30 September 2004, Mr Davidson Kelly replied:

Many thanks for the draft. I return it with minor changes to the banking details. Otherwise it is fine.

Report of the Oil-for-Food Inquiry 265

The only real issue outstanding from our point of view is to agree the amount,

including interest. I imagine that how we will do this will depend on how you were holding the funds. If they were deposited as received in a separate account, it should be relatively straightforward. (I understand that you were going to do that). But it would be more complicated if they were co-mingled.

Either way, should we fix a target date for signature so I can line up our directors? Also, the Bank could give us an estimate of the amount owing, including interest, at that date to enable us to finalise the agreement a day or two in advance. 759

27.396 On 13 October 2004, AWB received a 'draft' advice from Dr Donaghue of Counsel. 760 Dr Donaghue was briefed on 5 October 2004 to advise whether the recovery of funds for Tigris breached either resolution 661 or constituted an offence under Australian law. The draft opinion was that resolution 661 had not been breached but that offences against section 70.2 of the Criminal Code Act 1995 (Commonwealth) and sections 81 or 82 of the Crimes Act 1958 (Victoria) may have been committed, and that payment of funds to Tigris might constitute a further offence against section 88 of the Crimes Act 1958. He advised the money should not be paid.

27.397 On 14 October 2006, Mr Quennell at Mr Cooper's direction, briefed Mr Tracey QC761 and Mr Richter QC 762 to advise regarding the Tigris transaction. The observations to Mr Richter included the following:

In essence, the transaction in relation to which Counsel is requested to advise involves the inflation of the price of wheat sold to the Grain Board of Iraq (1GB) by AWB pursuant to contract numbers 1670 and 1680 (copies attached) as part of the Oil for Food Programme as a means of recovering a debt owed by 1GB to BHP Petroleum Pty Limited (BHPP) arising out of the provision by BHPP to 1GB of a cargo of wheat in 1996. The debt was subsequently assigned by BHPP to Tigris Petroleum (Tigris). AWB was able to recover on behalf of BHPP/Tigris the sum of approximately US$8m in return for which AWB received a fee from Tigris of US$500,000. AWB has not yet remitted the recovered funds to Tigris. 763

and later:

Against the above background, the price of wheat of sold to 1GB by AWB under contracts 1670 and 1680 (both dated 11 December 2002) were inflated by US$8.375 per metric tonne so as to enable the repayment by 1GB of the debt owed by 1GB to BHPP/ Tigris. 764

No suggestion was made in the instructions to either Mr Tracey or Mr Richter

that the amount recovered was due to Tigris as commission or for services rendered.

27.398 Mr Tracey gave advice in conference on 22 and 26 October 2004. He advised that on a statement of facts later verified by Messrs Stott, Long and Whitwell the payment of the Tigris debt from the UN escrow account did not breach

266 Report of the Oil-for-Food Inquiry

resolution 661 because resolution 661 prohibited payments to Iraq, not

payments from Iraq.7 65

27.399 Mr Richter was briefed with Dr Donaghue's advice. Mr Richter also provided urgent oral advice in conference on 15 October 2004 apparently to the effect that he did not consider that any of the crimes he was asked to advise on had been conmiitted. 766 Presumably the crimes referred to were those noted in Dr Donaghue's advice. On 22 December 2004, Mr Richter and Mr Donaghue gave advice in writing, which is referred to below.

Sign-off of the Tigris agreement

27.400 On 10 November 2004, Mr Cooper emailed to Mr Lindberg and Ms Scales, and copied to Mr Quenriell, a further draft Tigris agreement. 767 The handwriting on the email is Ms Scales. 768 The portions for which privilege was claimed are indicated on the email reproduced on the following page.

27.40 1 Paragraph 8 makes clear that the USD500,000 to be paid to AWB by Tigris was for recovering the Tigris debt. It was to be deducted from funds recovered. That being so the balance of funds held by AWB and for which approval was being sought to pay out of pool funds to Tigris, was recovered debt funds. Yet paragraph 7, which addressed the question which must be affirmatively answered before such funds could be paid out of the pool, treated the monies

differently. As Mr Cooper pointed out, those deciding to pay the funds out of the pool had to be satisfied that the payment 'maximises the next pool return to growers... by securing ... markets for wheat'. Mr Cooper went on to express the opinion that: 'my view is that this transaction did assist AWBI in securing the Iraqi grain market'. Mr Cooper did not state in his email what 'this transaction' was. It could not be the recovery of the debt for Tigris

referred to in paragraph 8 because that had nothing to do with 'securing' the Iraqi wheat market. Mr Cooper did not have any basis for asserting that Tigris had assisted AWB in 'securing' the Iraq market in 2002. The draft unsigned statement of facts on which he seeks to rely to support that view, did not do s0. 769 Regarding the statement in that draft:

Tigris offered assistance to AWB in 2002 in procuring contracts between AWBI and 1GB. Informal understanding reached with Tigris to this effect (no written agreement) 770

there is the comment:

What did Davidson Kelly do? Was the restoration of the 1 MT sale a result of his efforts? We don't know. It was possibly a combination of AWB's and Tigris' efforts.m

Report of the Oil-for-Food Inquiry 267

7.

You need to be swore that the 1G13 in fact paid more than required to AWBI and so it will be necessary for AWBI to refund this amount to the 168 (approximately U5D250,000).

F

In each of you reaching your decision to approve the completion of this transaction, you need to satisfy yourselves that this transaction "maximises the net pool retort to growers who sell into spool run by AWBI by securing, developing and maintaining markets for wheat and minimising costs as for as possible (Artciie 13.2 AWBI constitution). To assist you in making '.

Son Caeper/140/AWB

10/11/2004 1145

/\

LPL.111.165 AWB.9001.0375

To Andrew Lindberg, Sarah 5cales/140/AW8GAWB

cc chrrsquennell@bdw.com

bcc

Subject Approval required for Tigris Petroleum transaction

This document has been mad by: Message:

Sue Pndhoi'oky

Dear Andrew and Sarah

I have now completed my review of the above transaction and I now seek approval from each of you to complete the transaction. The details are as follows:

1. We have completed a chronological review of the facts, documented this and then had the relevant AWB business managers (Charles Stott, Michael Long and Chris Whitwell) sign-off on the document.

2. We hove received advice from senior counsel an the 2 areas of law which concerned us, and each of the counsel, Robert Richter QC and Richard Tracey QC confirmed that there was no breach of low involved in the transaction. (Richter advised on criminal law and Tracey advised on the UN Sanctions).

3. In my opinion, this transaction does not require approval by the Board of AWB (International) Limited (AWBI) under its Reserved Powers. I do however consider that it is required to be reported to the AWBI Board by the GM AWBI. The GM AWBI is required to report to the AWBI Board 'an all material matters affecting the Company and significant decisions made in exercise of the GM AWBI's authority, including all material compliance issues (see GM AWBI Reporting Obligations in the AWBI Reserved Powers, paragraph 4.2).

This report to the Board can happen after the transaction is complete so it should not hold up completion.

LIPP

4. The money paid by the Iraqi Grains Board to AWBI in relation to this transaction totals just

under USb 8 million. It is held in AWBI's Melbourne account and in being monitored by Graham Owen in AWO Trade Finance Division,

5. In order to effect the payment we have drawn up on agreement between AWBI and Tigris Petroleum which I attach for your information. Andrew and Richard Fuller will have to sign this agreement in due coarse (however it needs final payment details to be added before it is ready). It will also be necessary for one of Andrew or Sarah to sign an AWS USD payment form which I will provide to you.

268 Report of the Oil-for-Food Inquiry

IIIII:

l I AWI.aool.oale LP this decision, I refer you to the factual chronology which records that the assistance from Tigris Petroleum in 2002 substantially contributed to AWBI saving its wheat market with the 198 after it was threatened to be cut in half, because of Australia's political support of the 1)5 against Iraq. In return for this assistance from Tigris Petroleum, AWBI agreed to assist in recovering the debt owed by 198 to Tigris Petroleum. My view is that this transaction did assist AWBI in securing the Iraqi groin market. I 8. Tigris Petroleum agreed to pay AWB an amount of 1)50500,000 in return for AWB's services in collecting the 198 debt. This amount will be deducted from the payment to be made by AWBI to Tigris Petroleum. A decision for each of you is how this amount is to be dealt with in AWBs accounts ie. is the entire USD500,000 for AWBI's account or is it to be shored with AWB Limited? 9. When each of you has confirmed you agree to proceed I will then begin arrangements to make the payment to Tigris Petroleum. You should be aware that the principal of Tigris Petroleum, Norman Davidson-Kelly, calls me weekly from London chasing our progress and he called most recently lost night. Regards Jim Sign, Amonniestdoc Jim Cooper General Counsel AWB Limited 380 LaTrobe Street Melbourne Vic 3000 Tel: 03 9209 2340 Fax: 03 9606 0252 Mobile: 0417 321 145 Email: jim.cooper@owb.com.au 269

Report of the Oil-for-Food Inquiry

27.402 I do not doubt that Mr Cooper knew the sum held was a debt recovered. He

said so in paragraph 8. He thought that there was no basis upon which collected debt monies could be paid out from the pool unless they could be characterised as 'maximising the net pool return to growers... by securing, developing, or maintaining markets.' Accordingly, if the monies could be said to be a 'commission' or 'service fee' for assisting to 'secure' the Iraqi market, the monies could justifiably be paid out to Tigris. That was why the agreement was drawn up in the form that it was.

27.403 By the time this email was sent, Mr Cooper and Mr Quennell had received advice from two senior Counsel, Messrs Tracey QC and Richter QC concerning the Tigris transaction. 772 Mr Quennell's evidence was that that advice concerned the legality of making payment of the funds collected to Tigrism but that Counsel were not asked about the legality of recording a recovered debt being paid out as a commission.

27.404 On 11 November 2003, Mr Quennell sent Mr Cooper an amended chronology of the Tigris transaction following discussions with Mr Whitwell. 774

27.405 On 16 November 2004 Mr Cooper sent a further email to Dr Fuller, enclosing the above email entitled 'Approval required for Tigris transaction', asking Dr Fuller to look at it as soon as he was able. 775

27.406 On 19 November 2004, Dr Fuller emailed Mr Cooper, copied to Mr Lindberg:

Discussion with Andrew Lindberg today. Approval, on an in-principle basis, of the Tigris payment. Formal approval to occur next week. Success fee 100% to AWB (International) Limited's account. 776

The copy of this email produced to the commission bears Mr Lindberg's

handwritten notation:

OK, but need to see documents. 7 77

Mr Lindberg initialled this and dated it 21 November 2004.778

The 'success fee' was the US$500,000 fee payable for successfully recovering the Tigris 'debt'.

27.407 On 21 November 2004, Mr Cooper wrote to Mr Quennell, and AWB's internal tax adviser, Mr Whipp, forwarding them the September draft of the Tigris agreement. 79 He enclosed a spreadsheet of 'commissions' collected between May 2003 and October 2004 showing that nearly US$50,000 in excess of the amount AWB had agreed with Iraq to collect from the escrow account had been received. 780 This did not include, and the spreadsheet did not show, the 10% reduction negotiated by Mr Long.

270 Report of the Oil-for-Food Inquiry

Mr Cooper informed them of the success fee, now to be paid to AWBI, and

sought any final amendments from Mr Quennell and advice on any tax aspects from Mr Whipp. There has been no evidence to show that Mr Whipp was informed of the true circumstances.

27.408 On 23 November 2004 Mr Quennell sent Mr Cooper an email enclosing draft amendments! 81 In his email, Mr Quennell quoted Mr Davidson Kelly's letter of 4 December 2002 to Mr Yousif which made plain the transaction was recovery of a debt of US$8.375 million. It also made clear Mr Quennell knew of the inflation of contracts A1670 and A1680, and was aware of the agreement to deduct from the debt recovered the success fee of US$500,000.

Mr Cooper copied the email and enclosure to Mr Long asking 'is this how the payment to Tigris works?' 782 The only material difference from the previous draft was that the 'commission' payable to Tigris was a net sum 'after deduction of the agreed success fee of US$500,000.'

27.409 On 25 November 2004, BHPP entered into a participation agreement with Tigris, executed by Mr Worthington and Mr Davidson Kelly. 783 By clause 8.4 it was agreed that, with effect from 25 November 2004, Tigris was no longer obliged to pay BHP any amount pursuant to clause 3.2 of the agreement made between them on 13 September 2000.784 At the date of this agreement neither Tigris nor any of Mr Davidson Kelly's companies had received any payment from AWB in respect of 'the Grain Board Receivable'. Mr Davidson Kelly

knew however, that the monies had been collected and payment was imminent. He did not tell BHPP.

27.410 On 26 November 2004, Mr Quennell provided Mr Cooper a further draft agreement. 785 This version replaced the expression 'commission' with 'service fee' and provided that fee to be US$7,087,202.24. There was no indication that it included interest although, as is clear from the previous draft and Mr Quennell's email, it did. The draft provided that the service fee was nett of the success fee and withholding tax.

The difference in amounts payable between this and Mr Quennell's previous draft is that Mr Quennell had previously not deducted any amount for withholding tax. It would appear this draft incorporates Mr Whipp's tax advice and that either Mr Cooper or Mr Long spoke to him about correct calculation of the payment. It is not known why the commission became a service fee, other than Mr Cooper said it was on Mr Whipp's advice. 786 The

agreement does not state what the 'service fee' was for, although the recital does refer to assistance in execution of contracts and AWB's securing of future contracts.

Report of the Oil-for-Food Inquiry 271

27.411 On 26 November 2004, Mr Cooper emailed Mr Davidson Kelly stating:

Attached is the final draft of the Agreement. I have updated your bank

account details but please check them a second time.

The amount to be paid is US$7,087,202.24 as you agreed finally with Michael Long yesterday.

The amount was calculated as US$8.375 million, less 10%, less AWBI's success fee of US$0.5 million, plus interest of US$55,224.72, less withholding tax (on the interest) of US$5,522.48 US$7,087,202.24.

Let me know that you are happy with the Agreement and I will have it signed ASAP in Melbourne, scanned and sent to you as a PDF document. Your directors in Gibraltar should print and sign 2 copies of the PDF'd document and then return them to me by PDF or fax and I will then commence processing payment on receipt of your signed version. 787

27.412 On 29 November 2004, Mr Davidson Kelly wrote to Mr Cooper concerning

further draft versions of the Tigris agreement. He wrote:

In case we are still suffering from enemy action, I attach as agreed a copy of the relevant clause of the Agreement. 788

Mr Davidson Kelly offered to provide AWB with an invoice notwithstanding

Tigris had rendered no services to AWB or AWBI. 789

27.413 On 30 November 2004, Ms Gibson wrote to Mr Edmonds-Wilson and Mr Cooper enclosing a spreadsheet entitled: 'Commissions held on behalf of Tigris Petroleum Corp. Ltd.'° The schedule recorded that as at 29 November 2004, US$7,924,702.24 had been collected, notwithstanding that the debt then due was US$7,037,500, or US$7,537,500 including AWB's fee for recovering the monies.

27.414 On 1 December 2004, Mr Davidson Kelly faxed an invoice from Tigris to AWBI in respect of a 'Service Fee' of US$7,537,500 less a 'Success Fee' due AWBI of US$500,000.791 Also invoiced was interest to 29 November 2004 of US$55,224.72 less Australian withholding tax of $5,522.46, making a total payable to Tigris of US$7,087,202.24. 792 The invoice was stated to be for:

The provision of services under the Agreement between AWB (International) Ltd and Tigris effective 12 December 2002. 793

On 1 December 2004, there was no agreement signed between Tigris and AWB (International) Ltd. The date 12 December 2002 was the date of Mr Edmonds-Wilson's email to senior management specifying the final details of the 1 million tonne sale to Iraq under contracts A1670 and A1680, within

272 Report of the Oil-for-Food Inquiry

which there was included as part of the inflated price 'Tigris debt-USD8.375'

per tonne.

The invoice was a sham designed to support the concept that AWBI owed Tigris a commission or service fee. Mr Cooper verified the invoice by signing it on 2 December 2004 .794

27.415 The Tigris invoice showed a reduction in the amount of the debt reduced by 10 per cent negotiated by Mr Long, plus a specified amount for interest. The interest must have been advised by AWB as Mr Davidson Kelly would have no basis for calculating it. The reason for the reduction in the amount of the

debt appeared in an email from Mr Cooper to Mr Lindberg and Dr Fuller, copied to Mr Long and Ms Scales, on 2 December 2004 .795 In that email, Mr Cooper attached a final agreement for execution by either Dr Fuller or Mr Lindberg. He reported:

I have checked everything as follows:

1. the amount payable has been verified by the papers and by Michael Long. You need to know that last week Michael Long saved AWBI a further US$837,000 on this deal by convincing Tigris that they should also accept the 10% reduction imposed by the World Food Program on AWBI. They

reluctantly agreed and reduced the amount payable by that amount. This means that AWBI has made US$1 .375m on this transaction. I confirm our decision that 100% of this money is being retained by AWBI.

2. I have had AWB's Tax Manager sign off the agreement (Stuart Whipp);

3. Norman Davidson Kelly of Tigris has signed off on the agreement;

4. Richard - we want to leave the arbitration clause in the document. If there is any future disagreement (although we can't think what it would be given the only task is payment), then it will be resolved privately by an arbitrator, not publicly in the courts. If we do not include the arbitration clause, then any dispute would have to be resolved publicly in the courts and this is not desirable.

Andrew - I know you asked to see the final version of the agreement. If you are happy with it, I need it signed by you or Richard - only one of you needs to sign.

I have sent signing copies up to your office.

I would like to get the document signed ASAP.

In terms of the AWB internal paperwork 796 implementing actual payment in USD by AWBI, Sarah Scales needs to approve this as GM of the AWB National Pool, accordingly to AWBI's Management Authorisations. I have separately forwarded that paperwork to her for signature. 797

Report of the Oil-for-Food Inquiry 273

27.416 Ms Scales' copy bears the handwritten notation 'AL—signed off on

agreement'. 798 The document was only produced after Ms Scales had given evidence.

Authorisation, execution and payment

27.417 The authorisation to pay Tigris Petroleum Corporation in US currency was signed by Mr Cooper on 2 December 2004 and by Ms Scales on 6 December 2004. The total was US$7,087,202.24.

27.418 The Tigris agreement was ultimately executed by Tigris on 7 December and received by Ivfr Cooper on the morning of 8 December 2004. 799 Sometime between 2 and 14 December 2004 Dr Fuller executed the agreement on behalf of AWB. An executed version was provided by AWB. 800 This version had as its effective date 12 December 2002 (the date of contracts A1670 and A1680). It described the payment to Tigris as a 'service fee' but did not describe the services said to have been provided by Tigris other than to note in recital (B): 'Tigris has been of significant material assistance in procuring for AWBI contracts for the supply of Australian wheat.' It is noted, in clause 4.2, that the service fee was the net amount payable to Tigris after deduction of a 'success fee' of US$500,000 payable by Tigris to AWBI, and Australian withholding

tax. The amount to be paid was US$7,087,202.24 as in the invoice provided by Tigris. The contract did not specify what the success fee was for. The only 'success' involved was in recovering the Tigris 'debt'. Tigris provided no services to AWBI, and had no arrangement with it to do so. The contract did not reveal interest paid to Tigris, or the fact that the payment was for the recovery of a debt, not for services provided. It is unknown whether the tax advice given by Mr Whipp, or the amount of tax ultimately paid reflected the actual transaction.

27 .419 The Tigris payment was effected on 9 December 2004 in the amount of the 'invoice' and the final contract. 801 It was discussed at an ELG meeting on 13 December 2004802 and at a Joint Information Session for the Directors of AWBL and AWBI on 14 December 2004. 803

27 .420 On 13, 14 and 15 December 2004, Messrs Stott, Long and Whitwell finally signed an agreed 'Project Water—Summary'; that summary is reproduced on p. 275 and following.

274 Report of the Oil-for-Food Inquiry

THIS DOCUMENT HAS BEEN PREPARED FOR THE PURPOSE OF THE PROVISION OF

LEGAL ADVICE TO A CLIEN F AND IS SUBJECT TO LEGAL PROFESSIONAL PRIVILEGE

[P L 111.194

PROJECT WATER

Summary

III

t

AWB .9002.0041

No. Event Reference

In 1995, EHP Petroleum Pry Ltd (BHP) was seeking to get into business in Iraq - specifically to acquire rights to develop oil fields in Iraq. At that time sanctions had been imposed against Iraq (UN Security Council Resolution 661 of 6 August 1990). However, the Oil for Food programme had not yet commenced.

.2. Tom Har!ley and Norman Davidson-Kelly of BHP approached Charles Stott of AWB with a proposal that involved the provision by BHP to Iraq of a cargo of grain. BHP would fund the supply of the grain. AWE was to negotiate the price with the Grain Board of Iraq (GEl) so that it would be a commercial price. BHP were prepared to fund a 25,000 tot -me cargo at a cost of between 6-7 million US dollars. The basis of the proposal is set out in a draft letter from BHP Development Finance Ltd to AWE (two drafts were faxed to AWE on 20 September 1995 and 21 September 1995 respectively).

3. Between September-December 1995, negotiations took place between AWB, Tabs 1 & 2 BHP and GEl culminating in execution of contract A2741 for the sale by AWE to GEl of 20,833 tonnes Australian standard white wheat for shipment to Umm Qssr between 20 December 1995-20 January 1996 at a CIF price of US$240.00 per tonne.

4. Payment was to be made by way of establishment, prior to shipment, of an Tab 1 irrevocable, transferable documentary letter of credit issued by Central Bank of Iraq in favour of AWB for US$5m requiring cash payment of the above sum, subject to receipt of documents at the counters of the Australian negotiating bank no later than 5 years from the bill of lading date. Interest at the rate of 10% per year was to be added to the amount of the credit on each anniversary of the bill of lading date and compounded on each anniversary such that the value of the credit at the end of 5 years would be US$8,052,550.

141687775

Report of the Oil-for-Food Inquiry 275

Tab

THIS DOCUMENT HAS BEEN PREPARED FOR THE PURPOSE OF THE PROVISION OF

LEGAL ADVICE TO A CLIENT AND IS SUBJECT TO LEGAL PROFESSIONAL PRIVILEGE

LPL.111.195

No Event AWB .9002.0042 Reference

5. GEl were obliged to discharge their obligations under the letter of credit by Tab! delivering oil or paying cash with a value equal to the compounded value to AWE or its nominee no later than 3 months after the UN restrictions on Iraqi oil exports were terminated, if the UN restrictions were terminated within 5 years from the bill of lading date. If the restrictions were not so terminated or oil was not delivered as above by the fifth anniversary of the bill of lading date GBl'a obligations under the credit were to be satisfied no later than 21 days after the fifth anniversary of the bill of lading date. AWB agreed not to claim payment prior to the fifth anniversary of the bill of lading date unless the UN restrictions on oil exports were completely lifted.

6. It was agreed between AWB and BHP that AWE would assign its payment Tab I and oil receipt rights under the letter of credit to BHP. In return for that assignment, BHP was to pay AWB US$5rn cash on the bill of lading date. AWB was to use reasonable endeavours to assist El-IP in obtaining recovery of the amount due under the credit.

7. Pursuant to contract No. A2741, 20,833.00 tonnes Australian standard wheat Tab 4 were loaded on the 'Ikan Sepaf and a bill of lading (No. 1) was issued on 26 January 1996,

8. As a result of his involvement in the negotiations with BHP, Charles Stott was offered a position with BHP. From 1996 to June 2000 Charles Stott worked for BHP Petroleum in Iraq, Iran, Pakistan and India.

9. In June 2000 Charles Stott returned to AWB as head of International Sales and Marketing.

10. At some time prior to 15 September 2000, Norman Davidson-Kelly left BI-IP. It was at this time that Norman Davidson-Kelly set up Tigris Petroleum and BHP gave him debt collecting rights and access to the development opportunities with the Oil and Trade Ministries in Iraq through the contacts he had developed whilst at BI-IP. BHP wished to retain the opportunity to renew its operations in Iraq if a development opportunity arose and the situation changed.

11. BHP then had a dialogue with DIII about the payment obligation for the cargo when the debt became due. GBI tried to argue that the cargo was a gift, but BHP insisted that it was not. Apparently GEl could not then repay the debt because the payment was subject to Saddam Hussein's approval.

12. On 15 September 2000 Norman Davidson-Kelly sent Charles Stott a draft of Tab 5 a letter from Tigris Petroleum regarding the "BHPF receivable".

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276 Report of the Oil-for-Food Inquiry

61

.

THIS DOCUMENT HAS BEEN PREPARED FOR THE PURPOSE OF THE PROVISION OF LEGAL ADVICE TO A CLIENT AND is SUBJECT TO LEGAL PROFESSIONAL PRIVILEGE 41,11 11111 14 '10 - AWB.9002.0043 13. On 28 September 2000, Norman Davidson-Kelly sent a letter to Charles Stott in similar terms to the draft of 15 September. The letter enclosed a copy of a Notice of Assignment from BHP Petroleum to Tigris in relation to the Grain Board Receivable dated 13 September 2000. The notice authorises Tigris to discuss the Grain Board Receivable with the appropriate parties and to negotiate details and terms of payment as Tigris in its sole discretion shall deem appropriate, without further BHP Petroleum involvement. Payments made in relation to the Grain Board Receivable should be made as directed by Tigris. 14. The Tigris letter of 28 September 2000 referred to Norman Davidson-Kelly 's Tab 6 understanding that AWB would be making a Visit to Iraq in the near future and to the fact that Norman Davidson-Kelly would be very grateful if Charles Stott were to open discussions with the appropriate parties relating to the recovery of the Obligation'. 15. On 16 January 2001 (the letter is dated 16 January 2000 but this is Tab 8 presumably an error) Norman Davidson-Kelly again wrote to Charles Stott referring to his letter of 28 September 2000 and to Charles Stotts discussions with the Ministry of Trade during Charles Stotts visit to Baghdad in October 2000. Norman Davidson-Kelly noted that the due date for repayment of the amount due in respect of the lkan Sepat shipment was 26 January 2001, Norman Davidson-Kelly further stated that he would appreciate it if Charles Stott were to raise the subject with GBI during his next visit and that he was due to report to BHP and the Australian Government shortly and would be grateful for an update of the current situation. 16. in February 2001, Dominic Hogan met with GBI and inquired as to the Tab 9 status of the Tigris matter. Dominic Hogan was advised that the issue was being discussed by the Central Bank of Iraq and the Ministry of Petroleum (see Dominic Hogans fax to GM dated 20 February 2001). 17. In March 2001 Dominic Hogan and Yousif Abdul-Rahman of GBI exchanged Tab 10 emails regarding a meeting with representative of Tigris. However, subsequent emails regarding that trip do not indicate whether the Tigris issue was discussed. 18. On 30 January 2002 Norman Davidson-Kelly wrote to Yousif Abdul- Tab 11 Ftahman setting out proposals for the repayment mechanism 141657775 3. Report of the Oil-for-Food Inquiry 277 No. Event

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9. On 21 May 2002, Norman Davidson-Kelly emailed Charles Stott attaching Tab 12 copies of Norman Davidson-Kelly's letter to Philip Aiken of BHP (apparently intended to be dated 21 May 2002, but actually dated 21 May 2001) and to Taha Yassin Ramadan apparently intended to be dated 26 April 2002. The letter to Philip Aiken refers to the steps taken by Tigris to recover

the outstanding loan and to the engagement by Tigris of AWB to assist Tigris in the recovery of the debt. The letter refers to the fact that in January 2001 the Iraqis acknowledged the legitimacy of Tigris' claim and that since that date Tigris, together with AWB, had been exploring with the Iraqi authorities a mechanism to enable repayment to be made. The letter refers

. consider Tigris's request at a meeting to be held on 25 May 2002. Chairman of the Supreme Economic Council. The Council was due to

to a direct approach made by Tigris to the Vice President (Ramadan), the

20. In the letter to Taha Yassin Ramadan of 26 April 2002 Norman Davidson- Tab 12 Kelly refers to the fact that BHP formerly appointed Tigris as its agent in the recovery of the obligation.

21. In June 2002, Dominic Hogan and Michael Long visited Baghdad and were told of the intended reduction in GBl's purchase of Australian wheat, In addition, there was a backlog of vessels awaiting discharge at Umm Qasr at that time and there was also the matter of the "iron filings" dispute.

22. On 23 July 2002 the Iraqi Government advised the media of their intention to cut AWBs expected imillion tonne order by half due to the Australian Government's support of the US position on Iraq.

23. On 12 August 2002, Michael Long sent Norman Davidson-Kelly an email Tab 13 thanking Davidson-Kelly for his message and friendly contacts and said "I will do my beat with the Minister if the timing is appropriate and will let you know of the Outcome".

24. In August 2002, an AWB delegation visited Baghdad to discuss a number of Tabs 14 & issues, particularly settlement of GEl's "iron filings" claim. 19

25. On 6 September 2002 Yousif Abdul-Rshman of GBI Cent Dominic Hogan of Tab 15 AWE an email inviting AWE and a representative of Tigris to Iraq to discuss the Tigris issue.

26. On 11 September 2002, Michael Long emailed Norman Davidson-Kelly Tab 16 advising him of GEl's invitation to Iraq discuss the Tigris issue and seeking Norman Davidson-Kelly's assistance in providing documentation showing that AWB was authorised to negotiate settlement of the Tigris issue.

27. On 16 and 17 September 2002 there were further internal email exchanges Tab 17 within AWE concerning the Tigris issue.

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~TI~ 1~11 1111 AWB 9002 0045

28. On 15 and 16 October 2002, emails were exchanged between Michael Long and Norman Davidson-Kelly regarding payment of a fee of US$500,000 to AWB, in respect of AWB's assistance in concluding the matter.

29. Shortly before 28 October 2002, while en route to Baghdad, Dominic Hogan and Chris Whitwell met with Norman Davidson-Kelly in Amman, Jordan. Norman Davidson-Kelly produced his file which included details of the debt due to Tigris. Norman Davidson-Kelly then discussed with Dominic Hogan and Chris Whitwell various permutations of the calculation of the debt, for example the application of compound or simple interest. However, Norman Davidson-Kelly considered that GEl would probably baulk at paying compound interest..

30. On 28 October 2002, Dominic Hogan and Chris Whitwell met with Yousif Tabs 20 ,Sc Abdul- Rahman of GUI in Baghdad and subsequently with Minister Medhi 21 Saleh on the same day. The outcome of those meetings was that GBI agreed to pay simple interest on the amount due to Tigris and the total amount

would be recovered by 'loading up the next phase 13 wheat business' - this had received Cabinet approval. The Minister also said that until the Australian Governments position towards Iraq and its people changed, AWBs phase allocations would remain at 500,000 tonnes. The Minister asked AWB to visit Baghdad prior to the commencement of Phase 13 of the Oil-for-Food programme so that the contracts could be negotiated and submitted immediately following the implementation of that Phase so that

AWB could head the funding list. It was also agreed that AWE would explore new avenues for bringing pressure to bear both within Iraq and also within Australia to bring about some softening of Iraqi positioning via a vis Phase allocations.

31. On 29 October 2002, Dominic Hogan and Chris Whitwell met with Sabah Tab 21 Jumah. Sabah Jumah was a consultant to Tigris Petroleum and was apparently well connected with the Iraqi elite and in particular, appeared to have connections with the Ministry of Oil. Chris Whitwell and Dominic Hogan briefed Sabah Jumah as to the Iraqi position vis a via the Tigris debt. Sabah advised that a "Tigris rep would be in Iraq shortly to finalise the

matter. Whitwell and Hogan discussed possible difficulties in incorporating the entire debt into one 500,000 tonne contract. They suggested that some alternate pressure could be brought to bear on the Iraqi Government to increase the tonnage of the next Contract to make things easier to pass

through the UN. Sabah Jumah said that he would look into it.

32. Around this time discussions took place between David Johnson, Michael Long, Sarah Scales and Chris Whitwell concerning the Tigris issue generally and in particular the US$500,000 success fee payable to AWB. Although those concerned were comfortable with the proposed deal, there was some discussion as to which AWE entity the fee should ultimately be paid.

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33. On 20 November 2002, Michael Long and Chris Whitwell met with WNW Tab 22 (acting Director General) of GBI and Miss Moons of GIll in Baghdad. The note of that meeting Stales that the Tigris debt was to be discussed with the Minister.

34. On 21 November 2002 Michael Long and Chris Whitwell met with the Tab 22 Minister of Trade. There is no specific mention of the Tigris issue, only that the question as to whether the iron filings rebate could be 'paid through Tigris. The Minister of Trade said that he would discuss with the Minister of Finance.

35. On 4 December 2002, Chris Whitwell sent Yousif Abdul-Rahman of GIll an Tab 23 email confirming sale of lmillion tonnes of wheat at a price of US$220 per metric tonne CIF free out Umm Qaer (transport was not included in the price and was to be mutually agreed).

36. On 5 December 2002 Norman Davidson-Kelly provided Chris Whitwell Tab 24 with a draft of a letter he had prepared for Yousif Abdul-Rahman, in which Tigris waived its right to compound interest.

37 On 8 December 2002, Chris Whitwell sent a further email to Yousif Abdul- Tab 2$ Eahman in relation to contract A1670 suggesting two options for inclusion of the Tigris debt.

38. On 22 December 2002, Yousif Abdul-Rahmsn sent Chris Whitwell an email, Tab 26 which appears to be a copy of a previous message to Norman Davidson- Kelly in which he informed Norman Davidson-Kelly that GIll had reached an agreement with AWB.

39. The 1 million tonnes contract was subsequently split into two contracts for Tabs 27 &

S

500,000 tonnes each. 28

40. On 18 December 2002 Yousif Abdul-Rahnian of GBI sent Dominic Hogan an Tabs 29 Ic email confirming the contract price breakdown. AWE subsequently 31 confirmed the contract price breakdown.

41. Further internal AWB emails were exchanged in relation to the Tigris issue. Tabs 30, 32, 34 Ic 35

42. Contracts 1670 and 1680 were duly executed and the sale proceeds were Tabs 36 & received by AWB. 37

43. Whilst attending the Boxing Day Test Match at the MCG, Chris Whitwell met, by chance, with Phil Aiken of BHPP. Phil Aiken told Chris Whitwell that he had heard that AWE were helping to get some of BHP Petroleum's money back from the Iraqis". Chris Whitwell's response was to the effect that" we will have to wait and see'.

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44. The matter was discussed within AWB during 2003 in Iraq Crisis meetings, attended by members of the Executive including Andrew Lindberg, Paul Ingleby, Sarah Scales and David Johnstone.

To the best of my recollection, and to the extent of my knowledge, the above summary is a true synopsis of the events relating tojba.'igris issue.

Charles Stott Melbourne, \'l December 2004

To the best of my recollection, and to the extent of my knowledge, the above summary is a true synopsis of the events relating to the Tigris issue.

Michael Long Melbourne, (if December 2004

To the best of my recollection, and to the extent of my knowledge, the above summary is a true synopsis of the events relating to the Tigris issue. It should be noted, however, that I had no involvement in, or knowledge of, the Tigris issue until October 2002. It follows that the matters noted in paragraphs 1-27 are not within my personal knowledge.

.,

Chris Whitwell' ,j

Melbourne, S December 2004

141657775 7.

Report of the Oil-for-Food Inquiry 281

27,421 It was on the basis of earlier drafts of this statement of facts that Counsel had

advised, that the Tigris agreement had been drawn and that Mr Cooper sought and obtained Mr Lindberg's authority to proceed.

27.422 When asked why the final agreement said nothing about what AWB did to earn the success fee of US$500,000, Mr Cooper said:

I personally couldn't explain that, because I relied on the drafting that was done by others. 804

Mr Cooper was at that time General Counsel of AWB; he was responsible for the comprehensive review of the Tigris transaction known as Project Water; it was he who forwarded the final agreement for execution to Mr Davidson Kelly, and to Mr Lindberg and Dr Fuller, and he who had checked and verified all aspects of the transaction. In those circumstances it is disingenuous of him to disclaim responsibility for the form of the agreement.

27.423 There was no evidence before the Inquiry which would support the view:

• that there was any agreement made in December 2002 that AWB or AWBI would pay Tigris a commission;

• that Tigris provided any 'service' to AWB or AWBI in relation to execution of existing wheat contracts with the 1GB, or the securing of future markets.

The evidence did establish that AWB and Tigris agreed that AWB would recover the alleged debt of US$8.375 million by inflating the price of contracts A1670 and A1680, and that AWB would receive a fee of US$500,000 for so doing. That is what occurred.

27.424 Messrs Cooper and Quenneil, and Ms Peavey and Ms Lyons all knew the true facts of the Tigris transaction. Whilst they claimed to rely on Mr Whitwell's or Mr Long's instructions, neither Mr Whitwell or Mr Long was prepared to sign a statement saying that there was any commission arrangement between

Tigris and AWB as the final agreement provided. None of them offered any credible explanation of what they thought that commission arrangement to be, or how the final agreement could have omitted all reference to a debt.

27.425 Mr Quennell gave evidence that he did not believe the transaction to be falsely described 'on the basis of the instructions I had received', 805 and that he accepted those instructions. 806 The summary of the facts does not accord with those instructions and Mr Quennell's email of 23 November 2004 shows that he knew the true factual situation.

282 Report of the Oil-for-Food Inquiry

No valid reason was ever given to him which might explain how a debt due

from 1GB to Tigris collected by AWB could change in character to be a commission payable to Tigris for services it allegedly rendered to AWB. Mr Quennell acknowledged that the two scenarios were different. 807 He also acknowledged that the money had been recovered by AWB as a debt. 808 He

instructed Counsel it was a debt on 3 occasions when he was briefing them to see if monies were lawfully obtained. He knew the summary of facts had no reference to a commission agreement. Mr Quennell could not explain why no such reference appeared in the summary.809

Tigris' decision to forego money due to it, which was a decision Mr Quennell was aware of, 810 made no sense if what it was to receive was payment of a commission payable by AWB.

27.426 Despite Mr Cooper's assertions that there were two transactions between Tigris and AWB, the final agreement executed between AWBI and Tigris, which Mr Cooper circulated and sought to have finalised, made reference only to one transaction. It made no reference to a debt.

27.427 It should be noted that it appears that a sum of US$263,449.39, in addition to the debt amount of US$8,375,000, was paid to AWB from the escrow account. This was due to the shipment under contracts A1670 and A1680 being 31,453.644 tonnes of wheat in excess of 1 million tonnes. 811 Mr Cooper suggested that these excess funds should be refunded to the IGB. 812 There is no evidence before this Inquiry to suggest that the amount was in fact refunded to the 1GB. Nor is there evidence to show to what other purpose those funds were applied.

Notifying the Boards

27.428 With the exception of Mr Lindberg, none of the directors of AWBL and AWBI were notified of the Tigris transaction until the meetings of the Boards in December 2004.813

27.429 There were three meetings attended by directors in December 2004 at which the Tigris transaction was discussed. The first was a joint information session on 14 December 2004. Later that day there was a meeting of the board of AWBI. On 15 December there was a meeting of the board of AWBL.

Before the joint information meeting, Mr Lindberg told Mr Stewart, the Chairman, that he had a matter he needed to raise with the directors. He did not elaborate. 814

Report of the Oil-for-Food Inquiry 283

At the joint information session, Mr Lindberg introduced the matter of Tigris.

He indicated the transaction fell within the scope of his delegated authority, and the matter was being brought to the Boards' attention for their information. Approval for the transaction was thus not being sought from the Boards. The Boards were told the transaction was 'done', 815 as indeed it was, having been completed on 9 December 2004. As Mr Stewart said:

It was an information item, it was presented as being within the delegated authorities, there was no decision required. I think, had it been a decision item, it certainly would have sparked a great—basically more detail in terms of analysis by - certainly by myself, and certainly I would understand by the other directors. So it's in that context, I think, that it is understandable, although I think regrettable, that the board didn't look at it in a different light and turn its mind to

it in a more detailed fashion. 816

27.430 The substance of the information conveyed to the Directors by Mr Lindberg was recorded in a file note by Mr Cooper.817 The Boards were informed that:

Tigris - English owned, Gibraltan regd company.

Tigris was owed money by 1GB for wheat delivered in 1995.

• Tigris assisted AWB in recovering its mkt share and in return AWB agreed to assist Tigris in recovering its debt—no grower money expended.

• Debt was collected—AWBI received USD 1.3m. Payment by AWBI to Tigris.

• I have checked compliance with all necessary laws + confirm there have been no breaches. 818

Earlier that day Mr Cooper had emailed Mr Quennell to get confirmation from Mr Richter of his advice that there was 'no criminal exposure.' 819 Mr Richter did not respond until 17 December 2004.

27.431 According to the evidence of the directors, they were informed at this joint meeting and the two board meetings that:

• AWB had recovered a debt for Tigris, and thus had earned a commission820

• legal advice had been obtained and there had been compliance with all necessary laws.

284 Report of the Oil-for-Food Inquiry

However:

• the nature of the agreement in the executed document was not explained to the board

the agreement as signed was not tabled

• the directors were not told of any arrangement between Tigris and AWB or AWBI which would entitle Tigris to receive a commission from AWB or AWBI for services allegedly provided to either by Tigris821

• the directors were not told how the debt had been collected, that is, by inflating prices in two wheat contracts.877

27.432 Concerns regarding the transaction were raised by Mr Simpson and Mr Thame. To Mr Simpson, the transaction seemed 'extraordinary', and he requested that a memorandum about the matter be provided at the next board meeting. It was not. To Mr Thame, AWBI had been tainted by the transaction, it raised reputational issues, and AWB would be unwise to rely purely on legal advice. He compared the situation with that then facing James Hardie which, in the face of large asbestos related claims, had moved its assets offshore, and was subject to widespread reputational criticism and inquiry .823 Mr Gibson asked for an explanation of how the transaction would appear in the accounts.824

Neither query was answered at the board meeting. Both directors expected management would follow up on their queries. Nothing was done by management about either query, and neither matter was apparently raised or followed up at later board meetings. 825

27.433 The minutes of the later meeting of the Board of AWBI record:

The Managing Director briefed the Board in relation to the Tigris transaction. It was noted that Tigris had assisted AWB in recovering threatened wheat sales in Iraq in 2002; in consideration for that assistance AWB had assisted Tigris in recovering a debt owed to Tigris by the Grains Board of Iraq; Tigris had paid a commission for the recovery of the debt and all of that commission was paid to

AWB (International) Limited and therefore to growers. 826 AWB had obtained legal advice regarding the transaction, and the Board was informed that, having collected the money, it was lawful to pay jt. 827

The minutes record that AWBI received a commission for assisting Tigris in

recovering a debt. That is not what the agreement between AWBI and Tigris recorded, but the Board was not informed of the substance of the document signed on behalf of AWBI by its executives.

Report of the Oil-for-Food Inquiry 285

27.434 The AWBL Board met on 15 December. Mr Lindberg again gave a

presentation. The minutes again record the Board being told a commission had been received for assistance in recovery of a debt, in precisely the same terms as the AWBI board had been informed the preceding day. Again the Board was told that Counsel's advice was that, having collected the money, it was lawful to pay it to Tigris.

27.435 What Mr Lindberg conveyed to the Boards was consistent with the advice he had received from Mr Cooper, in particular as set out in Mr Cooper's memorandum to him on 10 November 2004. It was consistent with the legal advice AWB had received as Mr Cooper had conveyed it to Mr Lindberg. Mr

Lindberg assumed that having been advised that factual matters had been examined and legal advice obtained, the Tigris agreement would accord with the verified factual position and that advice. The concerns raised by the Boards related to absence of a satisfactory explanation how AWB had been involved in collecting a debt on behalf of a third party.828

27.436 On 17 December 2004, Mr Cooper received Mr Richter's email confirming 'the advice I gave in the urgent conference we had with the AWB was that none of the crimes with respect to which I was asked were committed.'829

On 22 December 2004, he received Mr Richter's and Dr Donaghue's advice that in their opinion, despite the fact that the United Nations may have been deceived and might not have paid the money if it knew it was for other than a humanitarian purchase, no crime had been committed.

Counsel's advice included the following:

There are several references in the documents to getting the transaction 'through' the UN. There are also discussions about the 'difficulty' in incorporating the entire Tigris debt into one 500,000 tonne contract. Those documents suggest that the relevant AWB employees believed that a single contract was not large enough to absorb the additional US$8.3 million without that affecting the price of the contract in a way that would put it beyond the normal commercial wheat price parameters acceptable to the OFF program. There were, however, other considerations which made this the lever to increase the quantum of wheat which

would be sold and in preserving the important market share of wheat sales by the AWB.

In light of the above, while we consider it possible that the AWB employees who structured the Tigris transaction might be found to have engaged in misleading conduct for certain purposes, this is not sufficient to establish the offence. There must be a causal link between the obtaining of the property and the deception— it must be obtained by the deception. It does not follow from the fact that a deception might have been carried out that that deception caused the obtaining of property in the required sense. 830

286 Report of the Oil-for-Food Inquiry

Payment to Iraq of the agreed compensation and excess

funds collected

27.437 On 9 February 2005, Ms Peavey emailed Mr Cooper to advise that AWBI still retained US$250,000 being excess funds recovered from Iraq by the inflation of contracts A1670 and A1680. 831 She advised:

Chris Whitwell, Michael Long and David Johnston are putting a proposal to Management about what to do with the money. They are aware that there is a risk that the 1GB may request repayment of this money sometime in the future. If the 1GB is aware of the situation, however this is unclear.

It is being suggested to Management that the money be used for training and machinary in Iraq- 832

27.438 That money was not refunded to Iraq and not paid to any of Tigris, Mr

Davidson Kelly or BHPP. Mr Long gave evidence that, as at 31 January 2006, AWB had 'never paid a cent' of the amount agreed to be paid to Iraq in respect of the iron filings and other quality claims. 833 He said the amount due is 'still sitting in the accounts of AWBI.' 834 That sum of US$2.17 million remains due. Nor, it seems, was the US$250,000 excess collection from 1GB in respect of the Tigris debt, ever repaid by AWB to 1GB.

Report of the Oil-for-Food Inquiry 287

Notes

I Ex 527, WST.0024.0002_R, para. 1. 2 E 527, WST.0024.0002_R at 0003R, para. 11. Ex 524, WST.0022.0001 at 0004, para. 18. Ex 524, WST.0022.0001 at para. 1.

Ex 536, WST.0025.0001_R at 0002_R, para. 6-9. 6 Ex 538, WST.0026.0001_R at paras 4 and 8. Ex 1068, AWB.0274.0120_R at 0121R. 8 Ex 410, JMC.0001.0102_R at 0103_R.

Ex 1123, AWB.0306.0377_R at point 2. 10 Ex 1124, AWB.0306.0390_R. 11 Ex 1122, AWB.0306.0368_R. 12 Ex 1125, AWB.0306.0413_R at 0414_R. 13 Ex 1129, AWB.0306.0443_R. 14 Ex 1121, AWB.0306.0366_R. 15 Ex 1126, AWB.0306.0418_R. 16 Ex 1128, AWB.0306.0430_R at 0431_R. 17 Ex 1128, AWB.0306.0430_R. 18 T 2165.28-30. 19T 2166.37-39. 20 Ex 1148, BHP.0003.0018_R-0022_R. 21 Ex 1148, BHP.0003.0018_R at 0019_R. 22 Ex 1148, BHP.0003.0018.R at 0021_R. 23 Ex 1148, BHP.0003.0018_R at 0022_R. 24 Ex 1147, BHP.0003.0017_R. 3° Ex 524, WST.0022.0001 at 0011, para. 54. 3° Ex 1149, BHP.0003.0068_R. 27 Ex 1146, BHP.0003.0003_R - 0006_R. 28 Ex 1165, BHP.0006.0007. 29 Ex 524, WST.0022.0001 at 0012, paras 58-61. 3° Ex 524, WST.0022.0001 at 0015, paras 62-64. 31 Ex 1120, AWB.0306.0350_R-0351_R. 32 Ex 1127, AWB.0306.0429_R. 33 Ex 1116, AWB.0306.0332_R at 0333_R. 3° Ex 1116, AWB.0306.0332_R at 0333_R. 35 Ex 1119, AWB.0306.0345_R at 0346_R. 3° Ex 1118, AWB.0306.0343_R. 37 Ex 1172, BHP.0007.0014.

3° Ex 1137, BHP.0001.0060_R. 39 Ex 524, WST.0022.0001 at 0019, para. 76. 4° Ex 1117, AWB.0306.0335_R. 41 Ex 1166, BHP.0006.0014. 42 Ex 1167, BHP.0006.0017. 4° Ex 524, WST.0022.0001 at 0022, paras 87-90. 4° Ex 1173, BHP.0007.0015. 45 Ex 219, AWB.0129.0054. 46 T 2227.12-14. 47 Ex 219, AWB.0129.0054. 4° Ex 223, AWB.0129.0011-0014. 49 Ex 223, AWB.0129.0011 at 0015. 50 Ex 223, AWB.0129.0032-0035.

51 Ex 201, AWB.0129.0003-0006. 52 Ex 529, WST.0022.0076 at 0101.

288 Report of the Oil-for-Food Inquiry

Ex 202, AWB.0129.0043.

54 Ex 1098, AWB.0306.0247_R. 55 Ex 1111, AWB.0306.0275_R. 56 Ex 1186, BHP.0009.0146. 57 Ex 223, AWB.0129.0053_R. -18 Ex 223, AWB.0129.0047-0049.

59 Ex 1114, AWB.0306.0307_R at 0310_R. 60 Ex 223, AWB.0129.0055. 61 Ex 1174, BHP.0007.0016. 62 Ex 203, AWB.0129.0057. 63 Ex 1106, AWB.0306.0262_R. 64 Ex 1107, AWB.0306.0263_R.

65 Ex 1105, AWB.0306.0261_R. 66 Ex 1104, AWB.0306.0260_R. 67 Ex 1104, AWB.0306.0260_R. 68 Ex 524, WST.0022.0001 at 0027, para.108.

69 Ex 524, WST.0022.0001 at 0027, para.107-109. 70 Ex 1170, BHP.0007.0009. 71 Ex 1170, BHP.0007.0009. 72 Ex 1171, BHP.0007.0010-0012. 73 Ex 1175, BHP.0007.0018-0020. 74 Ex 524, WST.0022.0001 at 0029, para. 113.

5 Ex 1175, BI-IP.0007.0018 at 0019. 76 Ex 1175, BHP.0007.0018 at 0019. Ex 1175, BHP.0007.0018 at 0020. 78 Ex 1175, BHP.0007.0018 at 0020. 7° Ex 1182, BHP.0008.0006-0009. 80 Ex 1182, BHP.0008.0006 at 0007. 91 Ex 1183, BHP.0008.0010- 0016. 82 Ex 529, WST.0022.0076 at 0129. 83 Ex 524, WST.0022.0001 at 0033, para. 131. 9° Ex 1103, AWB.0306.0258_R. 85 Ex 1187, BHP.0009.0150. 86 Ex 524, WST.0022.0001 at 0035, para. 138. 87 Ex 1102, AWB.0306.0256_R. 9° Ex 566, DFT.0013.0092. 89 Ex 566, DFT.0013.0092. 9° Ex 1169, BHP.0006.0029. 9° Ex 524, WST.0022.0001 at 0038, paras 144-145.

92 Ex 1193, DFT.0001.0004. 9° Ex 1193, DFT.0001.0004. 9° Ex 1100, AWB.0306.0253_R. 95 Ex 1101, AWB.0306.0255_R.

96 Ex 545, DFT.0010.0012. 97 Ex 545, DFT.0010.0012. 98 Ex 569, DFT.0013.0094-0095. 9° Ex 569, DFT.0013.0094. 108 Ex 566, DFT.0013.0099-0101.

101 Ex 566, DFT.0013.0099. 102 Ex 1196, DFT.0010.0021-0022. 9° Ex 204, AWB.0106.0018-0019. 184 Ex 204, AWB.0106.0018. 105 Ex 204, AWB.0106.0018 at 0019. 106 Ex 1108, AWB.0306.0267_R.

Report of the Oil-for-Food Inquiry 289

107

Ex 1112, AWB.0306.0277_R at 0278_R.

108 Ex 1099, AWB.0306.0251_R. 109 Ex 843, DFT.0013.0501 at 0502. 110 Ex 1115, AWB.0306.0311_R at 0312_R. 111 Ex 1109, AWB.0306.0271_R. 112 Ex 1110, AWB.0306.0272_R. 113 Ex 1097, AWB.0306.0240R-0241_R. 114 Ex 1115, AWB.0306.0311_R at 0312_R. 115 E X 1097, AWB.0306.0240_R. 116 Ex 529, WST.0022.0076 at 0151. 117 Ex 524, WST.0022.0001 at 0040, paras 156-157. 118 Ex 1096, AWB.0306.0238_R. 119 Ex 537, WST.0025.0032.

° Ex 524, WST.0022.0001 at 0042, para. 164. 121 Ex 1176, BHP.0007.0021. 122 Ex 655, WST.0027.0016 at 0020, para. 21. Ex 655, WST.0027.0016 at 0020, para. 21. 124 Ex 200, AWB.0129.0002. 125 Ex 200, AWB.0129.0002. 126 Ex 205, AWB.0129.0062. 127 Ex 207, AW0.0129.0059.

Ex 1095, AWB.0306.0206_R. 129 Ex 1092, AWB.0306.0197_R. 130 Ex 1532, AWB.0306.0203-0204. 131 Ex 200, AWB.0129.0002. 132 Ex 531, BHP.0007.0025-0028. 133 Ex 531, BHP.0007.0025 at 0026. 134 Ex 531, BHP.0007.0025 at 0027.

Ex 531, BI-IP.0007.0025 at 0027. 136 Ex 1138, BHP.0001.0061_R. 137 Ex 269, DFT.0010.0180. 138 Ex 269, DFT.0010.0180. 139 Ex 269, DFT.0010.0180. 140 Ex 199, AWB.0129.0076_R. 141 Ex 1089, AWB.0306.0180_R.

142 Discussed below. 143 Ex 1094, AWB.0306.0200_R-0201_R. 144 Ex 1094, AWB.0306.0200_R. 145 Ex 410, JMC.0001.0013. 146 Ex 1091, AWB.0306.0196_R. 147 Ex 1531, AWB.0306.0191. 148 Ex 741, AWB.0306.0186-0187. 149 Ex 1086, AWB.0306.0150_R. 150 Ex 270, DFT.0010.0182-0183. 151 Ex 270, DFT.0010.0182 at 0183. 152 Ex 1085, AWB.0306.0149_R. 153 Ex 1084, AWB.0306.0148_R. 154 Ex 1083, AWB.0306.0147_R.

155 Ex 1082, AWB.0306.0144_R. 156 Ex 1150, BHP.0003.0078_R. 157 Ex 1150, BHP.0003.0078_R. 158 Ex 271, DFT.0010.0184. 159 Ex 738, AWB.0269.0137. 160 Ex 1081, AWB.0306.0139_R.

290 Report of the Oil-for-Food Inquiry

161

Ex 740, AWB.0306.0188.

162 Ex 524, WST.0022.0001 at 0047, para. 188. 161 Ex 1080, AWB.0306.0133_R. 164 Ex 1093, AWB.0306.0199_R. 165 Ex 700, DFT.0035.0006-0009. 166 Ex 700, DFT.0035.0006 at 0008. 167 Ex 998, WST.0026.0124_R.

168 Ex 998, WST.0026.0124_R. 169 Ex 1068, AWB.0274.0120_R at 0121_R. 170 Ex 524, WST.0022.0001 at 0047, para. 190; Ex 536, WST.0025.0001_R at 0008_R, para. 34; Agenda at Ex 1377, WST.0025.0033_R-0035_R; Minutes at Ex 529, WST.0022.0076 at 0185-0188. 171 Ex 1377, WST.0025.0033_R. 172 Ex 529, WST.0022.0076 at 0186. 172 Ex 1188, BHP.0009.0165_R at 0167_R. 174 Ex 1188, BHP.0009.0165_R at 0167_R.

175 Ex 1188, BHP.0009.0165_R at 0168_R. 176 Ex 1188, BHP.0009.0165_R at 0168_R. 177 Ex 1188, BHP.0009.0165_R at 0169_R. 178 Ex 1177, BHP.0007.0035. 179 Ex 1178, BHP.0007.0036.

° Ex 537, WST.0025.0046. 181 Ex 1075, AWB.0306.0091_R. 182 Ex 1075, AWB.0306.0091_R. 183 EX 1078, AWB.0306.0099. 184 Ex 1079, AWB.0306.0102_R.

185 Ex 1076, AWB.0306.0096_R. 186 Ex 1077, AWB.0306.0097_R. 187 Ex 1077, AWB.0306.0097_R at 0098_R. 188 Ex 1140, BHP.0001.0066i4.

189 Ex 1140, BHP.0001.0066_R. 190 Ex 1139, BHP.0001.0062_R-0063_R. 191 Ex 1139, BHP.0001.0062_R at 0063_R. 192 Ex 1074, AWB.0306.0089_R. 193 Ex 1073, AWB.0306.0087_R. 194 Ex 1197, DFT.0010.0091-0092. 195 Ex 1197, DFT.0010.0091.

196 Ex 632, DFT.0013.0571 at 0572, para. 8. 197 Ex 632, DFT.0013.0571 at 0572, paras 9-10. 198 Ex 536, WST.0025.0001_R at 0016_R, para. 60. 199 Ex 536, WST.0025.0001_R at 0016_R, para. 62.

°°T 4327.46-T 4328.4. 201 Ex 1071, AWB.0306.0048-0049. 202 Ex 1071, AWB.0306.0048 at 0049. 203 Ex 1071, AWB.0306.0048 at 0049. 204 Ex 1070, AWB.0306.0047_R. 205 Ex 1066, AWB.0247.0271-0274. 206 Ex 1066, AWB.0247.0272 at 0273. 207 Ex 1072, AWB.0306.0085_R.

208 Ex 267, AWB.0205.0019. 209 Ex 1151, BHP.0003.0085. 210 Ex 272, DFT.0010.0185.

211 Ex 630, DFT.0010.0114. 212 Ex 742, BHP.0007.0047-0048. 213 Ex 629, DFT.0010.0109.

Report of the Oil-for-Food Inquiry 291

2l4 Ex

629, DFT.0010.0109. 215 Ex 742, BHP.0007.0047. 216 Ex 742, BHP.0007.0047. 217 Ex 742, BHP.0007.0046. 218 Ex 532, AWB.0306.0185. 219 Ex 1145, BHP.0002.0008_R. 220 Ex 1189, BHP.0009.0173 at 0246. 221 Ex 1189, BHP.0009.0173 at 0246.

Ex 1090, AWB.0306.0181_R. Ex 1088, AWB.0306.0178_R-0179_R. 224 Ex 1190, BHP.0009.0295. 225 Ex 1190, Bl -JP.0009.0295 at 0296. 226 Ex 539, WST.0026.0128. 227 Ex 539, WST.0026.0128. Ex 539, WST.0026.0128. Ex 538, WST.0026.0001 R at 0003_R, pare. 11. ° T 4426.15. 231 Ex 538, WST.0026.0001_R at 0013_R, para. 46. 232 Ex 538, WST.0026.0001_R at 0013_R, para. 46. 233 4427.26. T 4427.47. 235 Ex 199, AWB.0129.0075_R. ° Ex 1087, AWB.0306.0177_R. 237 Ex 540, BI1P.0007.0049. T 4358.20. 239 Ex 208, AWB.0129.0152-0153. 240 T 2180.9. 241 Ex 537, WST.0025.0058, WST.0025.0228. 242 Ex 208, AWB.0129.0152-0153. 243 Ex 208, AWB.0129.0152. 244 On 26 October 2000 (Ex 209, AWB.0129.0151), Mr Davidson Kelly faxed Mr Stott and enclosed a copy of the letter of 21 June 1996 that Mr Stott had sent to Mr Daoud suggesting that, 'At a later stage in accordance with the original understanding, BHP to receive value by presenting the original documents to the IGB/CBI.' (Ex 209, AWB.0129.0152 at 0153) This supports the inference that the letter was actually sent. 24 T 2451.37-43. 246 Ex 1195, DFT.0001.0335-0336. 247 Ex 1194, DFT.0001.0332-0334. 248 Ex 1195, DFT.0001.0335. 249 Ex 1195, DFT.0001.0335. ° Ex 1195, DFT.0001.0335. 251 Ex 1195, DFT.0001.0335 at 0336. 252 Ex 1195, DFT.0001.0335 at 0336. 253 Ex 1195, DFT.0001.0335 at 0336. 254 Ex 1195, DFT.0001.0335 at 0336. 255 Ex 1185, BHP.0008.0036 at 0043. 256 Ex 1191, Bl -IP.0009.0299. 257 Ex 657, Bl -IP.0003.0091 at 0093. 258 Ex 1152, BFIP.0003.0094_R-0100_R. 259 Ex 1152, BHP.0003.0094_R at 0096_R. ° Ex 1141, BHP.0001.0067_R-0070_R. 261 Ex 1153, BHP.0003.0109. 262 Ex 1153, 131 -IP.0003.0109 at 0110. 263 Ex 537, WST.0025.0196. 264 Ex 537, WST.0025.0196.

292 Report of the Oil-for-Food Inquiry

265

Ex 1399, BHP.0004.0003.

266 Ex 273, BHP.0004.0071. -7 EX 1158, BHP.0005.0043. 265 Ex 1155, BHP.0004.0076.

269 Ex 1155, BHP.0004.0076. 270 Ex 1156, BHP.0004.0080. 271 Ex 1156, BHP.0004.0080. 272 Ex 1159, BHF.0005.0062_R. 273 Ex 274, BHiF.0004.0082. 274 Ex 274, BI -IP.0004.0082.

275 Ex 524, WST.0022.0001 at 0057, para. 230. 276 Ex 275, BHP.0004.0083. 277 Ex 1157, BHP.0004.0084. 278 Ex 524, WST.0022.0001 at 0059, para. 237. 279 Ex 527, WST.0024.0002_R at 0015_R, para. 63.

°T 4294.30. 281 Ex 276, BHP.0004.0081. 282 Ex 537, WST.0025.0199. 283 Ex 537, WST.0025.0199. 284 Ex 537, WST.0025.0199.

285 Ex 1192, BHP.0009.0310-0314. 216 Ex 1192, BHP.0009.0310 at 0311. 287 Ex 198, WST.0001.0137 at 0138, para. 5. 288 Ex 1179, BHP.0007.0090-0093. 289 Ex 1179, BHP.0007.0090. 290 Ex 1179, BHP.0007.0090. 291 Ex 1179, BHP.0007.0090 at 0091. " Ex 1184, BHP.0008.0030-0031. 293 Ex 1184, BHP.0008.0030. 294 Ex 210, AWB.0102.0176. 295 Ex 527, WST.0024.0002_R at 0020_R, paras 79-80. 296 Ex 527, WST.0024.0002_R at 0015_R, para. 63. 297T 4294.30. 200 Ex 1179, BHP.0007.0090 at 0091, para. 3.1. 299 Ex 527, WST.0024.0002_R, paras 3-6. 300 Ex 527, WST.0024.0002_R at 0015_R, para. 63; T 4293.6-T 4294.34. 301 T 4294.32. 302 Ho and Szeto (1989) 39 ACrimR 145,147 (Maxwell, Hunt and Mclnerney JJ); R v Benli 1998 2 YR 157, 161. 303 Ex 211, AWB.0106.0104. 304 Ex 211, AWB.0106.0104.

°T 2190.18. 306 Ex 220, AWB.0102.0185_R. 307 Ex 220, AWB.0102.0185_R. 308 Ex 220, AWB.0102.0185_R. 309 Ex 221, AWB.0102.0184. 310 Ex 221, AWB.0102.0187, AWB.0102.0188-0189, AWB.0102.0190. 311 Ex 221, AWB.0102.0184. 312 Ex 155, AWB.5004.0168_R-0171_R.

313 Ex 155, AWB.5004.0168 at 0169_R. 314 T 2101-T 2102. 315 T 2102.32. 316T 2101.32-40. 317T 2102.34. 318 T 2251.33-T 2253.18.

Report of the Oil-for-Food Inquiry 293

319 Ex 224, AWB.5009.0368_R.

° Ex 224, AWB.5009.0368_R. 321 T 2254.4. 322T 2254.14. 323 T 2255.23. 324 Ex 743, TIG.0001.0015. 325 Ex 743, TIG.0001.0015. 326 Mr Stott would not accept he made the changes but agreed he may have directed them to be made:

T6221.29-T 6777.18. 327Ex 743, TIG.0001.0015. 328 Ex 743, TIG.0001.0015. 329 T 6222.32. 330 Ex 528, WST.0024.0089 at 0112; Ex 527, WST.0024.0002_R at 0020_R, para. 82 (a). 331 Ex 225, AWB.0129.0080. 332 Ex 381, AWB.0084.0046_R-0050_R. 333 Ex 174, AWB.0185.0450_R. 334 T 2102.35. 335 Ex 1067, AWB.0247.0261_R. 336 Ex 226, AWB.0129.0082. 337 Ex 1180, BHF.0007.0095.

° Ex 175, AW13.0129.0083. 339 Ex 1181, 1311P.0007.0099. 80 Ex 1181, BHP.0007.0099. 341 Ex 527, WST.0024.0002_R at 0020_R, para. 82; Ex 528, WST.0024.0089 at 0113.

Ex 1051, AWB.0129.0085_R. Ex 1052, AWB.0129.0087_R. Ex 384, SNO.0001.0073_R-0077_R. 345 Ex 227, AWB.0103.0071-0072.

346 Ex 227, AWB.0103.0071 at 0072. 347 Ex 257, AWB.0103.0074. 348 Ex 1053, AWB.0129.0088_R-0089_R. 349 Ex 1053, AWB.0129.0088_R. 350 Ex 259, AWB.0129.0095 at 0096. 351 Ex 259, AWB.0129.0095 at 0096. 352 Ex 1142, BFJP.0001.0074_R.

Ex 258, AWB.0129.0093_R-0094_R. 354 Copies of this document were produced by AWB (Ex 258, AWB.0129.0093_R) and BI -IPP (Ex 1143, BHP.0001.0075_R-0076_R). 355 Ex 259, AWB.0129.0092. 356 Ex 1142, BHP.0001.0074_R. 357 Ex 1133, AWB.5046.0055R. 358 Ex 1055, AWB.0140.0390_R. 359 Ex 1134, AWB.5046.0058_R. 360 Ex 1242, WST.0004.0022. 361 Ex 1069, AWB.0305.0161_R-0162_R. 362 Ex 694, WST.0036.0126_R at 0127_R. 363 Ex 335, WST.0009.0481. 36 Ex 497, WST.0019.0046_R at 0059_R, para. 57. 365 Ex 1135, AWB.5061.0271_R. 366 Ex 260, AWB.0129.0097_R. 367 Ex 260, AWB.0129.0097_R.

Ex 260, AWB.0129.0097_R. 369 Ex 262, AWB.0129.0099_R. 370 Ex 996, AWB.0247.0255.

294 Report of the Oil-for-Food Inquiry

371 Ex 261, AWB.0129.0100.

372 Ex 75, WST.0001.0088, para. 3. 373 Ex 1377, WST.0041.0021_R at 0026_R. 3' Ex 1236, AWB.0176.0053_R. 375 Ex 1236, AWB.0176.0053_R at 0055_R. 376 Ex 1132, AWB.5001.0011_R-0012_R. 377 Ex 1533, AWB.0411.0041. 378 Ex 1054, AWB.0140.0038_R. 379 Ex 745, TIG.0001.0029.

° Lx 957, AWB.0140,0022. 381 Ex 957, AWB.0140.0022. 382 Lx 957, AWB.0140.0022. 383 Ex 542, DFT.0005.0175. 384 Ex 1467, AWB.0062.0244_R at 0248_R, para. 9.F; Ex 1468, AWB.0062.0099_R at 0103_R, para. 9.F. 385 Ex 301, AWB.0140.0011. 386 Ex 301, AWB.0140.0011. 387 Ex 263, AWB.0129.0104. 388 Ex 301, AWB.0129.0102. 389 Ex 336, AWB.0157.0096_R at 0101_R.

° Ex 264, AWB.0129.0105. 391 Ex 265, AWB.0129.0106. 392 Ex 1377, WST.0041.0067_R. 393 Ex 1037, WST.0041.0044 at 0049. 394 Ex 1037, WST.0041.0044. 395 Ex 1037, WST.0041.0003 at 0006, para. 15. 396 Ex 1377, WST.0041.0067 at 0068. 397 Ex 410, JMC.0001.0003 at 0004. 398 Lx 23, AWB.0129.0116-0117. 199 Lx 23, AWB.0129.0116.

400 T 7088.2. 401 Ex 23, AWB.0129.0116. 402 T 3184.17. 403 Ex 335, WST.0009.0447. 401 Ex 335, WST.0009.0447.

405 Ex 1130, AWB.0376.004_R. 406 Ex 137 AWB.0425.0001_R-0022_R. 407 Ex 1130, AWB.0376.0004R. Ex 1037, WST.0041.0003 at 0007, para. 19.

Ex 335, WST.0009.0001 at 0039, paras 154-155. 410 Ex 339, WST.0004.0176 at 0179, para. 16. 411 Ex 409, WST.0010.0076 at 0079, para. 16. 412 T 3182.22.

413 T 3182.41. 414 T 5805.27. 1 T 5807.4. 416 Ex 1037, WST.0041.0003 at 0009, para. 20. 417 Ex 1572, AWB.0142.0356. 418 Ex 1377, AWB.0129.0137. 419 Ex 1377, HDD.0014.1197_R. 420 Ex 410, JMC.0001.0036. 421 Ex 410, JMC.0001.0037. 422 Ex 707, AWB.0405.0193_R.

3 Ex 707, AWB.0405.0193_R.

Report of the Oil-for-Food Inquiry 295

424

Ex 464, WEA.0011 0001 (request); Ex 1495, AWB.0267.0256_R (response), AWB.0267.0257_R-

0260_R (Brief). 0-5 Ex 706, AWB.0405.0194_R; Ex 707, AWB.0405.0192. 426 Ex 1410, AWB.0177.0013_R at 0016_R. 427 Ex 1410, AWB.0177.0013.,R at 0016_R. 428 Ex 1410, AWB.0177.0013_R at 0016_R. 429 Ex 465, AWB.0177.0012.

° Ex 1410, AWB.0177.0013_R at 0016_R. 431 T 5808.9-19. 4321 5811.32-36. 433 T 5811.38-T 5812.3.

434 Ex 746, TIG.0001.0031-0032. 435 Ex 195, AWB.0191.0013_R. '1' Ex 195, AWB.0191.0013_R. 437 Ex 196, AWB.0129.0159_R. 438 T 683.28-33. 439 Ex 335, WST.0009.0001 at 0048, paras 207-209.

"° T 285124. T 2851.34; T 2850.39. 442 T 2851.40-T 2852.20. 443 Ex 194, AWB.0129.0167. 444 Ex 28, WST.0002.0079. 445 T 969.13-16.

146 T 683.38-41, 688.8-12. 447 T 690.28; T 691.9, Ex 26, AWB.0129.0171. 449 T 2136.45.

° T 2137.20. 451 T 2695.30. 432 12695.30. 453 Ex 26, AWB.0129.0171 at 0172. 454 Ex 26, AWB.0129.0171 at 0173. 455 Ex 26, AWB.0129.0171 at 0174. 456 1 2139.13-T 2140.6.

457 Ex 339, WST.0004.0176, para. 18. 458 Ex 27, AWB.0129.0178. 459 Ex 27, AWB.0129.0178. ° Ex 27, AWB.0129.0178.

461 T 269827-1 2699.16. 462 Ex 1321, AWB.9002.0041 at 0045, para. 32. 16' Ex 277, AWB.0104.0293. 164 Ex 277, AWB.0104.0294-0295. °°' Ex 277, AWB.0104.0294. 466 Ex 744, TIG.0001.0035-0036.

7 Ex 996, TIG.0001.0038. 468 Ex 76, WST.0004.0063 at 0088, para. 83. 469 Ex 1242, WST.0004.0028_R. ° Ex 1242, WST.0004.0028_R at 0030...R. 471 Ex 1032, AWB.8001.0033_R at C. 472 Ex 76, WST.0004.0063 at 0088, para. 84. 473 Ex 76, WST.0004.0063 at 0088, para. 84.

'°' Ex 580, DFT.0001.0489. 475 Ex 304, AWB.5020.0203. 476 Ex 43, DFT.0001.0490.

296 Report of the Oil-for-Food Inquiry

4

77 Ex 43, DFT.0001.0490. 478 Ex 304, AWB.5020.0203. 479 Ex 304, AWB.5020.0203; Ex 43, DFT.0001.0490. ° Ex 1377, AWB.0427.0001_R.

41 Ex 300, WST.0001.0066 at 0069, para. 16; Ex 1377, AWB.0147.0131_R-0134_R. 402 Ex 300, WST.0001.0066 at 0069, para. 16. 483 Ex 1424, AWB.0356.0119_R. See also Mr Emons email to Messrs Lindberg, Ingleby and others of 5 December 2002 (Ex 278, AWB.5020.0234_R).

u4 Ex 1424, AWB.0356.0119_R. See also Mr Emons email to Messrs Lindberg, Ingleby and others of 5 December 2002 (Ex 278, AWB.5020.0234_R). 485 Ex 1377, AWB.0129.0187_R. 486 Ex 1377, AWB.0129.0192. 487 Ex 1377, AWB.0129.0193-0194.

Ex 1377, AWB.0129.0192. 489 Ex 1223, AWB.0147.0119-0120. 490 Ex 1223, AWB.0147.0119. 491 Ex 28, AWB.0129.0199.

492T 2706.38. 493 T 2706.45. 04 T 1129.41. 495 T 1130.45-T 1131.

496T 1132.41. 497 T 1132.45. 498T 1133.25. 4 99 T 1133.47-1 1134.12.

500 T 1149.14. 501 T 1140.14; 11147.17. 502T 1143.44. °T 1138.12.

504 11154.6. 5051 1160.8. 506 1161.22.

507 11162.16; 11165.27. 508 11135.38. °T 1179.35-T 1180 36 510 Ex 1223, AWB.0060.0343. 511 Ex 1223, AWB.0060.0343. 512 Ex 1223, AWB.0060.0336-0339. 51311180.33. 5141 1127-T 1128. 515 Ex 410, JMC.0001.0052_R-0053_R.

516 Ex 410, JMC.0001.0052_R at 0053_R. 517 Ex 340, AWB.0147.0092_R-0094_R. 518 Ex 1037, WST.0041.0003 at 0010, para. 22. 519 Ex 722, WST.0038.0143_R at 0164_R, para. 19.3.

5201 5846.43. 521 T 2858-T 2861. 522 T 1662. 523 16224.25.

524 1622429 525'J 6227.34. 526 1681.6. 527 1678.16. 528 Ex 1223, AWB.0147.0084.

Report of the Oil-for-Food Inquiry 297

529

Ex 1223, AWB.0147.0084.

340 Ex 1377, AWB.0129.0215. 531 T 2144.28. 532 Ex 1377, AWB.0247.0233. 533 Ex 410, JMC.0001.0041_R. 534 Ex 729, AWB.0111.0492.

Ex 028, AWB.0129.0199; Ex 1198, HDD.0014.0968-0969; Ex 1199, HDD.0014.1168; Ex 1200, HDD.0014.1169-1170; Ex 1064, AW13.0247.0224-0225; Ex 1065, AWB.0247.0229-0231 (contains claimed LPP material; Ex 1201, HDD.0014.1174-1176. 536 Ex 30, AWB.0129.0220. 537 Ex 30, AWB.0129.0220. 538 T 1662.15. 539 T 1662.25.

°T 1664.16. -141 Ex 410, JMC.0001.0040. 342 Ex 1277, WST.0048.0047 at 0050, para. 19; T 6914. 543 Ex 1277, WST.0048.0047 at 0050, para. 21; T 7215. 544 Ex 1278, AWB.9000.0009. This file note was the subject of a privilege claim when Ms Lyons first gave evidence.

Ex 306, AWB.0129.0217-0218. 546 T 6936.7. 547 Ex 1279, AWB.9000.0014. 548 Ex 1279, AWB.9000.0014. 549 Ms Lyons' evidence was that she asked Ms Brasington to consider whether a payment could be made to

Alia in the mariner requested by 1GB (T 7224.28). Ms Brasington identified the 'real answer to the question' Ms Lyons had raised by reference to the making of a cash rebate to 1GB. As Ms Lyons accepted (T 7228.34), Ms Brasington's advice could relate to that question only. Nowhere in the memorandum is reference made by Ms Brasington to payment being made to a Jordanian trucking company. Finally, Ms Lyons did not suggest that she contacted Ms Brasington to ask her to answer the question she stated she wanted Ms Brasington to answer.

° T 7231.44. 551 Ex 1280, AWB.9000.0017-0018. 552 See below. 553 7238.9. 554 Ex 491, AWB.5016.0093_R. 55- 1 Ex 1063, AWB.0247.0220. 556 Ex 1063, AWB.0247.0220. 557 Ex 33, AWB.5016.0115.

Ex 1534, AWB.8001.0016 at 0018. -559 Ex 1279, AWB.9000.0114. 560 T 7239.38. 561 Ex 1534, AWB.8001.0016 at 0017.

562 Ex 410, JMC.0001.0062-0064. 563 Ex 410, JMC.0001.0062 at 0064. 564 T7280. 565 T 5883.32. 566 T 5818.30. 567 T 3828.16; T 3830.12. 34 T 3830.3. 569 T 7089.39. 570 T 7090.2. 571 Ex 1037, WST.0041.0003 at 0010, para. 23. 572 T 2870-T 2871. 573 T 2864.

298 Report of the Oil-for-Food Inquiry

574 T 7241.9.

575 T 7242.6. 576T 7242.6. 577 Ex 410, JMC.0001.0059. 578 T 1192.14. 579 Ex 410, JMC.0001.0059. 580 Ex 56, AWB.0060.0174.

581 Ex 1282, AWB.9000.0023. 2 T 7246.39. 583 T 7248.15. T 7276.6. 585 Ex 412, AWB.0293.0231 at 0232. 586 Ex 410, JMC.0001.0060. 587 Ex 410, JMC.0001.0060.

T 865.9. 589 T 3200.19-20. 58 T 2721.37. 591 Ex 1026, WST.0043.0033_R. 592 Ex 1026, WST.0043.0001 at 0007, paras 51-52; Ex 1026, WST.0043.0031 at 0032.

Ex 281, AWB.0129.0240. 594 Ex 281, AWB.0129.0240. 595 Ex 1037, WST.0041.0003 at 0010, para. 24. Ex 1037, WST.0041.0102. 596 Ex 1037, WST.0041.0003 at 0010, para. 24. 597 Ex 335, WST.0009.0379. 598 Ex 1161, BHP.0005.0081..R. 599 Ex 1160, BHP.0005.0077.R - 0080...R.

600 Ex 315, ELG.0002.0087_R - 0088...R. 601 Ex 315, ELG.0002.0087.R at 0088_R. 602 1 2738.8. 603 Ex 410, JMC.0001.0080. 604 Ex 410, JMC.0001.0081. 605 T 2881.40. 606T 2496.9. 607 T 774.18.

608 Ex 1041, AWB.0294.0331; Ex 1041, AWB.0294.0332-0338. 609 Ex 1041, AWB.0294.0331. 610 Ex 283, AWB.0129.0283_R. 611 Ex 308, AWB.0129.0291. 612 Ex 74, AWB.0129.0300 at 0301. 613 Ex 34, AWB.0129.0298; Ex 74, AWB.0129.0300-0306. 614 Ex 34, AWB.0129.0298. 61ST 2725-1 2726.

616 T 2728.21. 617 1 2728.42. 618 T 2729.1. 619 Ex 310, AWB.0216.0049.

620 Ex 309, AWB.0216.0031. 621 Ex 309, AWB.0216.0032-0038. 6221 6977. 62316978. 624 Ex 310, AWB.0216.0049. 625 Ex 311, AWB.0216.0058. 626 Ex 1377, AWB.9001.0098. 627 Ex 312, AWB.0216.0066.

Report of the Oil-for-Food Inquiry 299

628

Ex 313, AWB.0216.0070. 629 Ex 314, AWB.0216.0072. 630 Ex 1057, AWB.0199.0047_R. 631 Ex 323, AWB.0202.0049_R-0050_R. 632 Ex 1555, AWB.0202.0044_R-0047_R. " Ex 1037, WST.0041.0003 at 0011, para. 25. 6m Ex 316, AWB.0202.0077. 05 Ex 316, AWB.0202.0077. 636 T 7097.15-T 7098.42. 637 Ex 318, AWB.0202.0076. 638 Ex 318, AWB.0202.0081-0084. 639 Ex 318, AWB.0202.0081 at 0082. "° Ex 1555, AWB.0202.0091_R. 641 Ex 1555, AWB.0202.0092_R. "4 Ex 322, AWB.0060.0320. "4 Ex 322, AWB.0060.0320.

6" Ex 321, AWB.0060.0317_R-0319_R. "4 Ex 321, AWB.0060.0317_R at 0318_R. "4 Ex 1223, AWB.0060.0315 at 0316. 647 Ex 1223, AWB.0060.0315 at 0316.

60 Ex 324, AWB.0154.0144. 649 Ex 1555, AWB.0202.0006_R. 650 Ex 1376, AWB.0202.0113_R. 651 Ex 1376, AWB.0202.0113_R. 652 Ex 1555, AWB.0202.0114_R. 653 Ex 1223, AWB.0060.0308-0312. 654 Ex 1555, AWB.0202.0117_R. 655 Ex 1555, AWB.0202.0116_R. " Ex 1555, AWB.0202.0116_R. 657 Ex 1555, AWB.0202.0115_R.

658 Ex 1555, AWB.0202.0115_R. 659 Ex 1306, DFT.0039.0005 at 0008, para. 16. "° Ex 1555, AWB.0202.0115_R. 661 Ex 527, WST.0024.0002_R at 0027_R, para. 101. 662 Ex 527, WST.0024.0002_R at 0027_R, para. 101. 663 Ex 527, WST.0024.0002_R at 0027_R, para. 102. 664 Ex 1555, AWB.0202.0131_R. " Ex 1377, AWB.8001.0072. 666 Ex 1041, AWB.0247.0160. 667 Ex 1041, AWB.0247.0160. 668Ex 1555, AWB.0202.0147_R; Ex 1041, AWB.0202.0148_R-0153_R.

669 Ex 1555, AWB.0202.0147_R. 670 Ex 327, AWB.0202.0154. 671 Ex 327, AWB.0202.0154. 672 Ex 327, AWB.0202.0168. 673 Ex 327, AWB.0202.0168. 674 Ex 327, AWB.0202.0170_R. 675 Ex 327, AWB.0202.0164_R. 676 Ex 327, AWB.0202.0174.R 677 Ex 327, AWB.0202.0174_R. 678 Ex 1555, AWB.0202.0200_R. 679 Ex 327, AWB.0202.0154. 680 Ex 327, AWB.0202.0171_R. - 1 Ex 327, AWB.0202.0163.

300 Report of the Oil-for-Food Inquiry

682

Ex 327, AWB.0202.0177.

Ex 327, AWB.0202.0177. Ex 327, AWB.0202.0180. 685 Ex 327, AWB.0202.0182_R. 686 Ex 327, AWB.0202.0184. 687 Ex 327, AWB.0202.0186_R; All of the above emails in the chain are in Ex 327, AWB.0202.0186_R-0187_R. 688 Ex 1041, AWB.0199.0187_R at 0189_R.

Ex 1041, AWB.8001.0080. 690 Ex 1041, AWB.0199.0187 R at 0189_R. 691 Ex 1555, AWB.0202.0008_R. 692 Ex 1555, AWB.0202.0008_R. 693 Ex 1060, AWB.0216.0077_R. 694 Ex 1041, AWB.8001.0099_R. 695 Ex 1041, AWB.8001.0099_R. 696 Ex 1377, AWB.8001.0116_R. 697 Ex 1377, AWB.8001.0118_R-0124_R. 698 Ex 1041, AWB.8001.0090_R at 0097_R. 699 Ex 1377, AWB.8001.0118 at 0120, para. 3.2. 700 Ex 1377, AWB.8001.0116_R. 701 Ex 1041, AWB.8001.0108 R at 0109_R. 7021 7357.32. 703 T 7358.3. 794 See the evidence of Mr Quennell at T 7378. 705 T 7358.36; the evidence of Mr Quennell is to the same effect- see 17378. 706T 7359.13. 7071 7359.40-47. 70817360.4. 7091 7365.44. 710 1 7378.34. 711 1 7380.37. 712 Ex 1041, AWB.8001.0126_R. 713 Ex 1041, AWB.8001.0127_R-0132_R. 714 Ex 1377, AWB.8001.0138_R. 711 Ex 1041, AWB.0202.0033_R-0037_R. 71613205.23. 717 Ex 1041, AWB.8001.0194_R-0198_R. 718 Ex 1041, AWB.8001.0192. 719 Ex 1377, AWB.0242.0025_R. 720 Ex 538, WST.0026.0001_R at 0027R, para. 98. 721 Appears to be called Tigris 05C.doc. 722 Ex 1163, BHP.0005.0108-0109; Ex 1164, BHP.0005.0110_R-0114_R. 723 Ex 1164, BHP.0005.0110_R at 0113_R. 724 Ex 538, WST.0026.0001_R at 0030_R, para. 107; Ex 539, WST.0026.0267. 725 Ex 319, AWB.0216.0084_R. 726 Ex 1377, AWB.8001.0140. 727 Ex 1061, AWB.0216.0083R.

° Ex 1061, AWB.0216.0083_R. 729 Ex 1059, AWB.0199.0194_R. 730 Ex 1321, AWB.9002.0041 at 0046, para.32. 731 13209.10-17.

71213234.6. ° Ex 1283, AWB.9003.0333_R. 734 T 7252.25. 735 T 7254.43.

Report of the Oil-for-Food Inquiry 301

736

T 7255.8.

737 Ex 681, JMC.0002.0001 at 0021, para. 46. 738 Ex 461, WST.0015.0189_R. 739 T 3218.37-40. 740 Ex 414, AWB.0277.0025. 741 Ex 414, AWB.0277.0025; The email records that Mr Cooper responded to Ms Scales at 9.21 am and she replied at 9.38 am. Given the time of Ms Scales' initial email was 9.38 am, the time recorded on at least one of the emails must be incorrect. 742 Ex 1377, AWB.0277.0026_R. 743 T 7285. 744 Ex 1293, AWB.0430.0038_R. 745 T 3218.8-15. 746 T 3234.18-38 747 T3237.2-6 748 T 3250.31-33

749 Ex 1555, AWB.0202.0199_R. 7- 10 Ex 461, WST.0015.0191_R. 751 Ex 415, JMC.0001.0102_R - 0103_R. 752 Ex 1377, AWB.0277.0029_R. 7-13 Ex 409, WST.0010.0076 at 0083, para. 25. 754 Ex 1295, AWB.8001.0200_R, AWB.8001.0201_R-0205_R. 755 Ex 1294, AWB.8001.0194_R-0198_R.

756 Ex 1571, WST.0016.0104_R - 0108_R. 757 T 7296.7. 758 Ex 1131, AWB.0425. 0026_R. 759 Ex 1131, AWB.0425.0026_R. 760 Ex 1276, AWB.9001.0311. 761 Ex 1276, AWB.9001.0337. 762 Ex 1276, AWB.9002.0083 at 0084. 763 Ex 1276, AWB.9002.0083 at 0084. 764 Ex 1276, AWB.9002.0083 at 0085. 765 Ex 1276, AWB.9001.0362, para. 3. 766 Ex 1377, AWB.9002.0049_R. 767 Ex 1377, AWB.9001.0375_R-0376_R. 768 T 2954. 769 Ex 1544, AWB.9001.0115. 770 Ex 1544, AWB.9001.0115 at 0119. 771 Ex 1544, AWB.9001.0115 at 0119.

M Ex 409, WST.0010.0076 at 0083, para. 25; T 7136. T 7136.21. 774 Ex 1377, AWB.8001.0207_R. 775 Ex 682, AWB.0331.0262_R. 776 Ex 44, EXH.0001.0039. 777 Ex 44, EXH.0001.0039. 778 Ex 44, EXH.0001.0039. 779 Ex 1377, AWB.8001.0209. 780 Ex 1377, AWB.8001.0215_R at 0216_R. 781 Ex 1041, AWB.8001.0219_R. 782 Ex 1041, AWB.8001.0219_R. 783 Ex 1144, BHP.0001.0104-0130. 7114 Ex 1144, BHP.0001.0104 at 0118.

Ex 1045, AWB.8001.0238_R, AWB.8001.0240...R-0243_R. 786 Ex 408, WST.0001.0350 at 0354, para. 22. 787 Ex 1377, AWB.0277.0072_R at 0073_R.

302 Report of the Oil-for-Food Inquiry

788

Ex 416, JMC.0001.0104.

789 Ex 416, JMC.0001.0104. °° Ex 1056, AWB.0199.0039_R-0040_R. 791 Ex 343, AWB.0269.0144_R at 0145_R. 792 Ex 343, AWB.0269.0144_R at 0145_R. 795 Ex 343, AWB.0269.0144_R at 0145_R. 794 Ex 343, AWB.0269.0144_R. 795 Ex 1041, AWB.8001.0245. 796 The paperwork referred to in Mr Cooper's email is Ex 343, AWB.0269.0144R. 797 Ex 1571, WST.0016.0110_R.

° Ex 1041, AWB.8001.0252. 7°°Ex 1377, AWB.0277.0090. 800 Ex 38, AWB.0193.0265-0269. 801 Ex 41, EXH.0001.0034 at 0035. 102 Ex 1571, WST.0016.0126_R. 803 Ex 410, JMC.0001.0112; Ex 040, EXH.0001.0032; Agenda is Ex 1203, AWB.0373.451_R. 804 T 5480.18-19. 805 T 7390.41-42. 806 T 7390.44-47. °°7T 7383.26. 808 T 7383.44. 809 T 7396.31-33. 810 T 7392.5. 811 Ex 1377, AWB.0277.0098; 31,453.644 mt x US$8.375 per mt = US$263,449.39. 812 Ex 353, AWB.0281.0001_R 813 Ex 519, WST.0020.0002_R at 0019_R, para. 59; T 4210.33; T 4226.1. 814 Ex 497, WST.0019.0046_R at 0072_R, para. 119. 81ST 4212.18; T 4278.44; No vote was taken on it-see Ex 1239, AWB.0194.0039_R at 0041_R; Ex 1240,

AWB.0194.0047_R at 0057_R; T 4213.44. 816 T 4037.37. 817 Ex 410, JMC.0001.0112. 818 Ex 410, JMC.0001.0112. 819 Ex 1377, AWB.9002.0036. 820 This evidence is also consistent with Mr Fuller's notes of the meeting of AWBL held on 15 December 2004,

which refers to the recovery of US$8 million. See Mr Moffet at T 4193.30; Mr Simpson at T 4211.33; Mr Thame at T 4235.29; Mr Donges at T 5605.19-45; Mr Barry-Ex 778, AWB.0415.0002_R at 0003_R, para. 8; Mr McClelland -Ex 779, AWB.0415.0004 at 0005, para. 9; Mr Martin-Ex 976, WST.0033.0154_R at 0155_R, paras 11-12. This was also Mr Lindberg's understanding -T 771.11.

821 Mr Simpson at T 4211.43; Mr Stewart at T 4030.8. 822 Mr Moffet- Ex 519, WST.0020.0002_R at 0020_R, para. 61; T 4194.45-T 4195.7; Mr Bansy- Ex 778, AWB.0415.0002_R at 0003_R, para. 8; Mr Barry-Ex 973, WST.0033.0093 R, para. 5; Mr McClelland-Ex 779, AWB.0415.0004 at 0005, para. 9; Mr McClelland-Ex 977, WST.0033.0123_R at 0125_R, para. 5; Mr Chamarette-Ex 780, AWB.0415.0006, para. 8; Mr Fitzgerald-Ex 781, AWB.0415.0008 at 0009, para. 9; Mr Polson-Ex 782, AWB.0415.0010 at 0011, para. 9; Mr Starr-Ex 788, AWB.0417.0009 at 0010, para. 8; Mr Simpson at T 4212.28 and T 4218.24; Mr Stewart-Ex 497, WST.0019.0046_R at 0073_R, para. 122, T 4030.46;

T 4031.11; T 4039.27; T 4040.36; Mr Donges said that he had no recollection of what was said about how the money was collected (T 5624.9); Mr Gibson's evidence was that he either did not hear reference being made to the means of payment or he could not recall reference to it (T 5654.28). The evidence of Mr Lindberg (for example at T 817.4, T 817.21, T 846.21) and Mr Cooper (Ex 681,

JMC.0002.0001 at 0023, para. 56) was to the contrary and to the effect that the Boards were in fact informed that the wheat prices were inflated. Mr Cooper's evidence was to the effect that Mr Lindberg told the board that AWB had collected the debt through its contract but he did not discuss the detail about what those contracts were or the mechanism (T3238.18).

Report of the Oil-for-Food Inquiry 303

Neither the formal minutes nor the notes prepared by Dr Fuller, Mr Cooper and Ms Scales advert to the

contractual price being inflated. Mr Thame, according to Ms Scales' note, thought AWBI to be tainted because the Tigris cheque had passed through AWBI's account and not because AWBI had inflated the wheat prices. (Ex 344, AWB.0270.0024_R). 823 Ex 344, AWB.0270.0024_R, set out above. 824 Ex 508, WST.0016.0141_R at 0142_R. 825 Mr Donges at T 5610; Mr Gibson at T 5369. 826 Ex 1239, AWB.0194.0039_R at 0041_R. 827 Ex 1377, AWB.9005.0144_R at 0146_R. 828 Ex 973, WST.0033.0093_R, para. 5; Mr Simpson at T 4212.8. 829 Ex 1377, AWB.9002.0049_R.

830 Ex 1276, AWB.9002.0051 at 0066. 831 Ex 41, E)(H.0001.0034. 832 Ex 41, EXH.0001.0034. 833 T 1668.35; T 1672.21.

'T 1669.46.

304 Report of the Oil-for-Food Inquiry

28 May 2003 to December 2005:

allegations and inquiries

Further rumours of kickbacks

May 2003: further kickback rumours

28.1 On 2 May 2003, Mr Hockey sent an email to Mr Whitwell entitled 'kickback rumour':

It is purported [sic] that AWB Limited deposited funds into a Jordanian account - ultimately benefiting Saddam Hussein—in order to secure the wheat sales under

the UN's Oil-for-Food Program??

Am also told that there are existing contracts that have the clause included in them (i.e. 20 percent deposit, or said another way ... kick back) .. .

28.2 Mr Hockey could not recall the source of the rumour but thought it most

likely came informally from one of his international contacts. 2 He said that a short time after sending this email, he spoke face to face with Mr Whitwell. Mr Whitwell advised him that AWB did pay money into a Jordanian account but this was for the inland transportation component of wheat contracts, and that the 20 per cent 'kickback' rumour was untrue. 3

28.3 Later that day, Mr Hockey sent a further email to Mr Whitwell entitled 'Jordanian a/c'. The email contained a series of dot points as follows:

• we did pay money into a Jordanian account for the inland transportation component of the transaction

• we did it as requested by UN

• we had no discretion

• the 20% 'kickback' is completely untrue

• the payment is visible in all documentation

• it was monitored by the UN through the Office of Iraq Program

• it was consistent with the requirements of the UN resolution

• it is covered by a letter of credir from the UN. 4

28.4 Mr Whitwell's evidence was that Mr Hockey was putting together a series of dot points which were AWB's understanding of the situation at that point of

I ,

Report of the Oil-for-Food Inquiry 305

time.5

He could not recall the source of the rumour. 6 He agreed that the second dot point, 'we did it as requested by UN' was not a 'particularly accurate point'.7

28.5 On 4 May 2003, Mr Hockey sent a further email to Mr Whitwell entitled 'Jordanian a/c mark II'. The email read:

Once we finalise this, pis send back to me and I will top and tail it as a briefing note for Embassy/dfat officials.

Darryl

• we did pay money into a Jordanian account for the inland transportation component of the transaction

• we did it as requested by UN

• other traders do the same

• we had no discretion

• the 20% 'kickback' is completely untrue

• the payment is visible in all documentation

• it was monitored by the UN through the office of Iraq Program

• it was consistent with the requirements of the UN resolution

• it is covered by a letter of credit from the UN. 8

It is thus apparent that Mr Hockey was marshalling material for the purpose of briefing government officials to assist them in understanding AWB's position, as well as to assist both them and AWB to respond to inquiries.

28.6 Mr Whitwell responded to Mr Hockey's email the following day with 'some small changes'. 9 He copied his response to Mr Hogan for comment. Mr Whitwell incorporated his changes into Mr Hockey's dot points as follows:

• we did pay money into a Jordanian account for the inland transportation component of our contract

• this method was approved by the UN and signed off by the 661 committee

• we are led to believe this was the same arrangements for all companies supplying wheat under OFF

• the method asked for by the Iraqis and agreed by the UN gave us no discretion with regard to inland transport

• the 20% 'kickback' is completely untrue - it is not in our contract and we do not pay a 20 percent deposit

306 Report of the Oil-for-Food Inquiry

• the payment is linked to vessel arrival in Umm Qasr and payments where

correctly described and transparent

• we are led to believe it was monitored by the UN through the Office of Iraq Program

• it was consistent with the requirements of the UN resolution

• payment for the whoe transactrion was received through a UN approved LC.1°

28.7 Mr Hockey's evidence was:

As he [Mr Whitwell] was very busy at the time I wrote down a number of points explained to me by Mr Whitwell then read them back to him to check if I had noted them correctly. He acknowledged that I had done so. He asked me to send him a copy of these for his records once I had typed them and provided them as backgrounding to the media desk to assist them in formulating responses to potential media enquiries. These points were later further refined by Mr Whitwell and Mr Hogan. 11

28.8 It is probable Mr Hogan did not read the emails as he was absent from AWB

at the time they were sent. 12

June 2003: the US Wheat Associates allegations

28.9 On 3 June 2003, the President of the US Wheat Associates, Mr Tracy, wrote to Mr Powell, the then US Secretary of State. The letter read:

The recent announcement on the renegotiating of contracts under the Iraq Oil-For-Food (OFF) program raises several important issues for the United States. We are particularly concerned as to whether old wheat contracts with the Australian Wheat Board (AWB) are or have been included in this exercise.

• Will these renegotiated contracts be at current market prices or at earlier prices that were undoubtedly inflated? Earlier OFF wheat contracts with prices inflated by millions of dollars per shipload have provided foundation to the rumours that some of the excess may have gone into accounts of Saddam Hussein's family.

• Will there be competitive bidding on the renegotiated contracts such as wheat or will one's previous position as a supplier determine who gets the business?

• Will there be transparency on the renegotiated contracts including information on the prices and quality of the commodities? Making this information public will encourage competition and help insure that prices are in line with the commodity provided.

The U.S is providing most of the funding for the WFP feeding effort, so possible price gouging for Australian wheat - regardless of whether it's through OFF or WFP—is appalling. We certainly support all efforts to see that the Iraqis do not go

Report of the Oil-for-Food Inquiry 307

hungry, but there is no reason for the U.S. to pony up funding

if the Australians

continue to overcharge for such a basic commodity. The U.S. must require open bidding and complete transparency in the process

We urge that you direct your staff involved in WFP and OFF contract approvals to be alert to these issues and to inform themselves on the going prices for these commodities. 13

This letter and similar statements were published in the US and Australian press. 14

2810 On 4 June 2003, Mr Hockey sent an email to Ms Freeman and Mr Walker,

amongst others, and copied to Messrs Whitwell, Long, McBride (AWB's Media Manager) and Trewin (AWB's Corporate Affairs Manager). Mr Walker was a DFAT officer working with the Iraq Task Force. Ms Freeman was a Counsellor with the Australian Embassy in Washington. The email read:

Fran

A contact in DC has advised the following:

'US Wheat Associates are pursuing you guys ... they have got the pricing information on AWB Limited's contracts over the past two years with Iraq - they are saying that it was 30 pct above the market price. USW is firing off a letter to the State Department— requesting an inquiry on this— etc, etc, etc -,

Just for the record, yes it has always been a lucrative market and we have always

been upfront about that.

Couple of interesting points:

our contracts are all independently approved by the UN

our contracts include extensive financial risk management as a result of payment after delivery and authentication; allowances for significant shipping delay; poor unloading facilities ...; all sorts of other financial and execution risks

our contracts include costs for distribution to all governates of Iraq. 15

28.11 On 6 June 2003, AWB responded to the US Wheat Associates allegations in a media release:

Allegations by US lobby group, the US Wheat Associates, that AWB has illegally paid money to Saddam Hussein's family were described as baseless and outrageous today by AWB Limited Managing Director, Andrew Lindberg.

The accusations were made in a letter from the US Wheat Associates to the US Secretary of State, Cohn Powell, which alleged Australian wheat was being sold to

308 Report of the Oil-for-Food Inquiry

Iraq at inflated prices, and that money had been underhandedly paid to the

Hussein family.

'These comments are absurd, with no foundation, and are an insult to Australian wheat farmers and damaging to our reputation,' Mr Lindberg said. 'We are currently investigating our legal options,' Mr Lindberg said.

'We are calling for the US Wheat Associates to retract their comments, and have had discussions with the Australian Federal Government who have also expressed their concern at the accusations.

'The US Wheat Associates themselves have admitted they have no proof of this ever occurring, so these comments seem to be an act of desperation on their behalf.

'All our contracts have been approved and executed through the United Nations' Oil-For-Food program, and have been totally transparent and above board,' Mr Lindberg said.

Mr Lindberg said AWB had been supplying wheat to Iraq for more than 50 years, and had earned its market share based on a high quality product, strong customer relationships, and a high level of service.

'We are more than happy to compete with US wheat in a free market on a level playing field, but that will mean the US will have to match their rhetoric and only allow unsubsidised wheat to be marketed,' Mr Lindberg said.

Mr Lindberg said the prices AWB negotiated with Iraq were commercially confidential. However, the price not only includes delivery to Umm Qasr, but also insurance, on-ground distribution to all governates of Iraq and ongoing technical support.

'The US Wheat Associates obviously have no understanding of the current Iraqi market,' Mr Lindberg said.

'We have existing contracts with Iraq which were struck on commercial grounds prior to the recent hostilities, and we certainly believe that it is fair and reasonable that these contracts be honoured,' Mr Lindberg said. 16

28.12 That day, Mr Walker sent a cable to Washington regarding the allegations. The cable stated:

We are very concerned at egregious allegations made by US Wheat Associates against AWB Ltd that the latter paid bribes to the Saddam regime in exchange for wheat export contracts under the Oil-for-Food Program. Grateful Ambassador raise this matter at a senior level with the US Administration, noting our concern that AWB Ltd's international reputation could be damaged by the unfounded claims, and reiterating our expectation that Australian and US wheat exporters

will compete fairly on an open Iraqi market. Grateful you also clarify the status of any US plans to reactivate export enhancement programs for Iraq. 17

Report of the Oil-for-Food Inquiry 309

28.13

The cable requested the then Ambassador (Ambassador Thawley) to make 'appropriate representations' drawing on 'talking points' provided. Some of those talking points included:

• Allegations by US Wheat Associates that AWB Ltd paid kickbacks to the Saddam regime in exchange for wheat contracts are outrageous

• Government has been assured by AWB Ltd that no such kickbacks were paid

• AWB's contracts were openly negotiated with the Iraqis against international competition through a transparent multilateral process, the UN Oil-for-Food Program (OFF)

Many other countries have been exporting wheat to Iraq under the OFF (e.g. Canada, Russia, France Syria, India)

- AWB Ltd.s contracts were approved by the UN's Iraq sanctions committee (on which the US has always been represented)

- AWB Ltd have made clear that the contract price included not just the price of the bulk wheat, but also costs for internal distribution within Iraq, equipment for discharging the wheat, and premiums for a range of financial and execution risks such as payment after delivery, allowances for significant shipping delay, and poor unloading facilities.

• The US Administration has raised no complaints about AWB Ltd's exports to Iraq; nor has it suggested that AWB Ltd's OFF contracts should be renegotiated. 18

28.14 Ambassador Thawley responded to Mr Walker's cable by cable dated

6 June 2003 19 , confirming that he had conveyed Australia's concerns about the allegations made by the US Wheat Associates.

28.15 On 10 June 2003, Mr Cooper attended a meeting of senior managers familiar with the inland transport arrangements to consider the US Wheat Associates letter. Mr Cooper's evidence was that Messrs Lindberg, Stott and Whitwell were present at the meeting. 20 Mr Cooper's notes of the meeting record discussions occurring within senior management of AWB of matters which pointed to AWB's breach of sanctions. 21 These included:

• the role of Ronly

• the sharp increases in the inland transport fee

• the addition of the 10 per cent fee

• Alia's role as a 'channel' only

310 Report of the Oil-for-Food Inquiry

• the fact that the inland trucking fees were not described as a component

of the CIF price

• the Canadian complaint"

• the contents of the Arthur Andersen report. 23

28.16 On 12 June 2003, Mr Lindberg wrote to Mr Tracy in response to 'a number of potentially very damaging statements' which Mr Tracy and other representatives of the US Wheat Associates had made. This letter read:

All contracts entered into between AWB and the Iraqi Grains Board were made and executed in accordance with the United Nations (UN) sanctioned Oil-For-Food Programme. Each and every contract for the supply of wheat by AWB under the Oil-For-Food Programme has been examined by the UN Office of the Iraq Programme to determine its conformity with the provisions of Security Council Resolution 1284 (1999) and all related procedures and guidelines. In particular, the price and value of the wheat shipped under each contract has been considered and found by the UN to be reasonable and acceptable. 24

28.17 Mr Lindberg requested that US Wheat Associates immediately publish 'a

detailed unreserved retraction and apology' for the statements made. Mr Hockey forwarded a copy of this letter to Mr Walker. 25 Mr Walker subsequently provided a copy of the letter to Ms Armstrong and Mr Quinn (at DFAT).26 A copy was also faxed to Mr Baxter (who was also stationed at the

Australian Embassy in Washington). 27 Mr Hockey also sent a copy to Ms Freeman. 28 Mr Lindberg's letter said nothing about the matters which had been canvassed by senior management of AWB two days earlier.

Captain Puckett's memorandum

28.18 On 12 June 2003, Mr Long sent an email to Messrs Stott, Ingleby, Hockey, Johnson, Geary, Lindberg, Whitwell, Johnstone, Jones and Lynch and Ms Scales enclosing a 'Memorandum of Instruction' from Captain Blake Puckett dated 10 June 2003. At the commencement of his email Mr Long

wrote:

Please don't let DFAT know you know ... I will tell them and ask them to tell you 29

28.19 The memorandum was addressed to Ministry Advisors and the subject matter was 'Processing Oil for Food (OFF) Contracts'. The memorandum stated:

As you know we have been working with OCPA ministry liaisons, the UN and Ministry representative to process these OFF program contracts. We are asking you to work with your ministry and the appropriate UN agency to do the following.

Report of the Oil-for-Food Inquiry 311

II. Identify which contracts have a kickback or surcharge (often 10%). We need to

know what percentage kickback or 'after sales service fee' was involved under the 'Extra Fees' category. Your Ministry is likely aware of the charge so please work with them to identify and indicate on the matrix. 30

Later that same day, Mr Long sent a copy of the memorandum to a number of AusAid and DFAT officers requesting DFAT to 'please advise AWB'. 31

28.20 One of the recipients was Ms Armstrong, who was then with the Iraq Task Force. Upon receiving Mr Long's email, Ms Armstrong took several steps. First, she sent a copy of the email to Mr Whitwell. 32 Second, she instructed Mr Walker to advise the Baghdad post and the Australian mission to the United Nations that DFAT should make strong representations on behalf of AWB in relation to the reprioritisation of the remaining Oil-for-Food contracts. Third, she instructed Mr Walker to contact DFAT's post in Baghdad to request that someone at the post speak with Captain Puckett about the reprioritisation process and the issue of kickbacks or surcharges, and inform Captain Puckett that AWB had strongly refuted any suggestion that it had been involved in kickbacks. 33

28.21 Mr Whitwell responded to Ms Armstrong in an email dated 13 June 2003 copied to Messrs Hockey, Geary and Stott. 34 He addressed the status of contracts A1670 and A1680. He did not address the comment made by Captain Puckett set out above, nor the issue of 'kickbacks' or 'after-sales-services fees'. Mr Whitwell forwarded the email he sent to Ms Armstrong to

Messrs Hockey and Long asking if they had anything to add. 35 Mr Long responded that evening requesting Mr Whitwell to 'keep me off the airwaves on this stuff pls'.36

28.22 On 23 June 2003, Ms Venamore, then Deputy Head of Mission at the Australian Embassy in Baghdad, sent a cable to Canberra reporting on a briefing given by Captain Puckett regarding the CPA's approach to its obligations under UNSCR 1483. Ms Venamore reported:

4. The CPA was going through a process with Ministries to assess all oil-for-food contracts to ascertain whether they remained a priority. This included approved and funded contracts. (this process is intended to weed out contracts for unnecessary goods or services procured by the regime.) The CPA document outlining this process was forwarded to Canberra (ITF) by Long, Trade Ministry Adviser, last week. Puckett said funds freed up by the removal of approved and funded contracts would not be reallocated under OFF but would go to the development fund.

5. Every contract since phase 9 included a kickback to the regime from between ten and nineteen percent. The CPA was advising Ministries to tell companies with

312 Report of the Oil-for-Food Inquiry

contracts that the 'after sales service fee', which was usually to be deposited in

offshore banks would be remitted to them. 37

AWB's internal investigation: 'Project Rose'

The instigation of 'Project Rose'

28.23 Following the publication of the US Wheat Associates allegations, Mr Lindberg requested Mr Cooper to investigate the allegations in the letter and provide legal advice on them to the Executive Leadership Group. 38 The resulting inquiry later became known within AWB as 'Project Rose'. 39

28.24 Mr Cooper was responsible for the management of Project Rose from its commencement until late July 2004 when Mr Hargreaves, Stakeholder Relations Manager, was given management responsibility for it by Mr Lindberg. 40 Following the announcement of this Inquiry, Project Rose was renamed 'Project Lilac' and Ms Gillingham took over responsibility. 41

28.25 Mr Cooper retained Mr Quennell, then of Blake Dawson Waldron, to conduct the review. 42 He instructed Mr Quennell to conduct a factual review designed to gather together all AWB documents which would disclose relevant facts. 43 After undertaking the factual review, Mr Quennell was to advise AWB on the

legal consequences of the facts which had been found. 4'1

28.26 Mr Quennell did not receive a written brief in June 2003. He was given 'an open ended instruction to ... come into the company and undertake this review and report back on his findings from time to time'. 45 He was given a copy of the US Wheat Associates letter of 12 June 2003, and was directed to all the sources of information he would need to access. Those sources included electronic records of AWB and the names of persons he would need to

interview. 46

28.27 In June 2003, Mr Quennell and his staff commenced compiling documents and information in relation to all of the AWB contracts dealing with the Oil-for-Food Programme and the inland trucking component of those contracts. 47

28.28 From time to time Mr Cooper and Mr Quennell provided briefings to members of the Executive Leadership Group and the AWB and AWBI Boards regarding Project Rose. 48

28.29 The first of these briefings was on 12 June 2003 when Mr Quennell gave a presentation to the Executive Leadership Group. Mr Quennell's presentation was both verbal and in hard copy form. The presentation identified a number of factual and legal issues requiring further investigation and legal analysis. 49

Report of the Oil-for-Food Inquiry 313

28.30 Under the heading 'Legal Considerations' Mr Quennell's presentation

informed the ELG of the following:

• S.70.2 Criminal Code Act 1995 (Cth)

It is an offence for a person including a corporation to provide a benefit to another person with the intention of influencing a foreign public official in the exercise of the official's public duties as a foreign public official in order to (i) obtain or retain business or (ii) obtain or retain a business advantage that is not legitimately due to the recipient or intended recipient of the business advantage.

• EG, an offence would have been committed if AWB provided a benefit to Alia with the intention of influencing the director of the GBI in the exercise of his duties at GBI to commit GBI to buy Australian wheat.

• As long as the payments to Alia were legitimately due, no s.70.2 offence has been committed.

• UN Resolution 661 (1990)

All States shall not make available to the Government of Iraq or to any commercial, industrial or public utility undertaking in Iraq any funds or any other financial or economic resources and shall prevent ... persons ... from making available to that Government any funds or resources and from remitting any other funds to persons or bodies within Iraq except payments exclusively for [humanitarian purposes].

• UN Resolution 986 (1995) authorised certain sales of oil by Iraq and the setting up of an escrow account at the UN for the receipt of proceeds of those sales. Funds in the escrow account may be used to meet the humanitarian needs of the Iraqi population, including the export to Iraq of foodstuffs.

• The authorised use of funds under resolution 986 (1995) extends to financing the export to Iraq of relevant essential civilian supplies. Does this include cost of moving supplies within Iraq or only to Iraq?

• AWB/GBI terms of delivery:

'the wheat will be discharged free into truck to all silos within all Governates of Iraq'

• UN Committee approval was given to sales on above basis. The contract documents accompanying each request for approval contained the above terms of delivery and price. However, the contract document submitted to the UN did not spell out in clear terms (a) the kinds of freight that the price covered, and (b) the mechanism for refunding part of the price to Alia in

Jordan.

• However, if payment of trucking fees is considered borderline, the preamble to Resolution 986 mentions that the Security Council was 'convinced of the need for equitable distribution of humanitarian relief to all segments of the

314 Report of the Oil-for-Food Inquiry

Iraqi population throughout the country' and these delivery terms furthered

that objective. To that extent, it must be arguable that even if it is not clear that the UN Committee expressly approved the payment of the trucking freight, it would have done so in any event.50

28.31 On 15 August 2003, Mr Quennell provided to Mr Cooper and Ms Fullarton- Healey (AWB Acting General Counsel) a draft advice entitled 'Wheat Exports to Iraq - Trucking fees'. 51 In his draft advice, Mr Quennell made the following comments about the 'trucking fee':

The documents which we have examined do not indicate whether the 'trucking fees' paid by AWB to Alia can be regarded as a genuine payment for the provision of inland freight services actually provided by Alia. We have not seen any contract between AWB and Alia. We have seen no evidence to indicate whether or not the trucks used to transport wheat after its discharge at Umm Qasr were provided by

Alia. We have seen no explanation as to how the 'trucking fee' was calculated or the basis upon which the 'trucking fee' was subsequently increased. 52

Mr Quennell then set out extracts of emails which demonstrated that concern had been expressed within AWB on a number of occasions as to the validity or otherwise of the 'trucking fee'. He also noted that the documents which he had examined did not disclose whether, and to what extent, AWB employees had discussed the 'trucking fee' issue with persons at the United Nations.

28.32 Mr Quennell then considered whether the payment of trucking costs to a Jordanian company constituted an offence under Commonwealth or Victorian legislation and whether such payment was contrary to any UN treaty. His advice was:

In our view:

• it is possible that AWB and/or certain of its employees have committed breaches of the Criminal Code Act 1995 (Cth)

• it is possible that AWB and/or certain of its employees have committed breaches of the Crimes Act 1958 (Vic)

• it is possible that AWB's conduct has resulted in a contravention by Australia of UN Resolution 986 (1995). 53

Mr Quennell advised that his research had given rise to a number of further issues which were unlikely to be resolved without interviewing relevant AWB employees.54

28.33 On reviewing the draft advice, Mr Cooper requested Mr Quennell to continue his investigation. -15 Mr Quennell's initial review occurred during the period June to December 2003. 56 In March and April 2004 Mr Quennell and members of the AWB Legal Division, including Ms Peavey and Mr Cooper, interviewed

Report of the Oil-for-Food Inquiry 315

the following AWB employees and produced to each of them relevant

documents from Mr Quennell's investigation for them to consider and answer questions: Messrs Lister, Owen, Jones, Aucher, Tyas, Rowland, Borlase, Snowball, Stott, Geary and Flugge and Ms Gatto and Ms Scales. 57 Mr Quennell and Ms Peavey took notes of these interviews 58 and Mr Querinell also produced a typed summary of the interviews conducted with Messrs Owen, Lister, Jones, Aucher, Tyas and Rowland and Ms Gatto. 59

The US Wheat Associates allegations revisited

28.34 On 22 October 2003 Ms Preiss forwarded to Mr Quinn a letter which was, at the time, 'circulating the Hill for signatures'. 60 Mr Preiss was stationed at the Australian Embassy in Washington DC. Mr Quinn was with the Iraq Task Force. The letter, dated 22 October 2003, stated:

Dear Mr. President:

We read with interest a news report today that indicates that in January of this year, Saddam Hussein's government agreed to buy Australia wheat from the Australian Wheat Board (AWB) at a price nearly double the price of comparable U.S. wheat. This matter concerns us greatly.

The high prices, the news article states, '...would appear to support charges that AWB was involved in kickbacks to Hussein or his family before the war and raises questions about prices the Iraqis have been paying for Australian wheat under the United Nations' Oil for Food programme since the U.S.-led coalition provisional

government took over.' 61

The letter was forwarded to Mr Whitwell by Ms Armstrong on 24 October 2003. 62

28.35 The article referred to in this letter was published in the Con gressDaily on 22 October 2003. 63 The article stated:

Iraq Paid Well For Australian Wheat

In January 2003, the government of former Iraqi President Saddam Hussein contracted to pay the Australian Wheat Board almost twice as much per metric ton for wheat as the United States' price, according to contract documents obtained by CongressDaily. At a time when U.S. export wheat prices were approximately $151 per metric ton, Hussein's government agreed to pay the AWB 280 euros, at a time when a euro was worth about $1.

According to the contracts, the price the Hussein government paid in January was higher than the price it had paid in July 2002, even though wheat prices in the United States had fallen and the Hussein government had threatened to cut AWB purchases due to the Australian government's support of the United States as war neared.

316 Report of the Oil-for-Food Inquiry

The high prices would appear to support charges that the AWB was involved in

kickbacks to Hussein or his family before the war and raise questions about the prices the Iraqis have been paying for Australian wheat under the United Nations' Oil for Food program since the U.S.-led coalition provisional government took over.

Peter McBride, an AWB spokesman, said in a telephone interview late Tuesday that compared to other wheat contracts the prices 'may seem a bit high,' but they included 'demurrage, shrinkage and a reflection of market conditions at the time' and inland transport from the port of Umm Qasr to 'all the mills around Iraq.'

McBride added, 'All these contracts had the approval of the [United Nations],' although U.N. officials have said that they did not get involved in the price negotiations between the Iraqi government and its suppliers.

Australia was a partner with the United States in the war, and Trevor Flugge, a former AWB chairman, jointly leads the coalition's agricultural effort in Iraqi with Dan Amstutz, an American. Last month, the AWB said the provisional Iraqi government had agreed to buy 800,000 metric tons of wheat under a remaining Oil for Food contract.

The contracts were made between the government of Iraq and AWB Ltd under the Oil for Food program, but the prices of the wheat sold have not been released.

The wheat industry source who provided the contracts to CongressDaily said he obtained them from a U.S. government official. The Oil for Food program has continued, but is scheduled to expire Nov. 21.

The contracts listed officials of the Australian mission to the United Nations in New York as a contact, but an Australian mission official said late Wednesday that the mission had only delivered the contracts to the United Nations.

'No one in the Australian government had a role in the negotiations on the contracts,' the official said.

According to a contract submitted by the Australian Mission to the United Nations' Office of the Iraqi Program on July 24, 2002, the Grain Board of Iraq had agreed to pay 237.550 euros per metric ton for 525,000 metric tons of wheat at a total cost of 124.7 million euros.

The contract specified that the wheat would not be genetically modified - a point Flugge has raised as a reason under international law that the coalition cannot bring genetically modified foods into Iraq. A second contract submitted by the Australian mission to the U.N.'s Iraq program office last Jan. 9 said the Iraqi Grain

Board had agreed to pay 280.370 euros per metric ton for 525,000 metric tons of wheat with the same specifications at a total cost of nearly 147.2 million euros.

U.S. Wheat Associates President Alan Tracy said that even if the price included an international shipping cost of about $20 per ton, war insurance of $10 per ton and inland shipping of perhaps another $20 per ton, the 280 euros price left room for speculation on what happened to the extra money.

'The contracts appear to confirm that the AWB played along with Saddam's corrupt regime,' Tracy said. 'The question is whether the renegotiated contracts

Report of the Oil-for-Food Inquiry 317

are at current market prices or are they still inflated? Unfortunately, there's still no

competitive bidding or transparency in this process - and given the billions of U.S. dollars going to Iraq, that is a real concern.'

But McBride said of those comments: 'That's absolutely absurd. Mr. Tracy is clutching at straws.'

President Bush was scheduled to arrive in Australia today for a visit with Prime Minister John Howard and a free trade agreement with Australia is expected to be one of the topics. By Jerry Hagstrom 64

28.36 The 22 October 2003, CongressDaily article was the subject of a cable from Mr Francis, in Australia's Washington embassy, to DFAT Canberra. 65

28.37 Allegations made in the CongressDaily article of 22 October 2003 were repeated in an article published in the CongressDaily on 23 October 2003.66 Ms Armstrong forwarded a copy of the 23 October 2003 article to Mr Whitwell by email. 67

28.38 On 22 October 2003 Ms Freeman sent Mr Quinn an unsigned copy of a letter from the Charge d'affaires at Australia's Washington embassy, Mr Baxter, to US Senator Baucus.68 The letter stated (in part):

Dear Senator

You may be aware of allegations in a report in the 22 October edition of Congress Daily that the price received for a sale of Australian wheat to Iraq in January 2003 under the UN Oil for Food Program implied complicity between the Australian firm AWB Ltd and Saddam Hussein's regime.

I wish to reject such allegations completely.

The allegation made in the article that AWB Ltd made illicit payments to Saddam's regime is reprehensible. 69

28.39 On 22 October 2003 Ms Freeman sent a cable from Australia's Washington

embassy to DFAT Canberra. The subject of the cable was the allegations being made against AWB in the letter addressed to the President of the United States, Mr Bush, which was 'circulating the Hill for signatures', as well as the 22 October 2003 article published in the CongressDaily. 70 The embassy requested that:

2. ...Canberra move quickly to contact AWB Ltd encouraging them to make a formal public statement explicitly rejecting and rebutting allegations in the letter and the Congress Daily article. 71

318 Report of the Oil-for-Food Inquiry

5. Post has drawn on previous talking points provided from Canberra rejecting

these claims made previously by US Wheat Associates President, Alan Tracy. 72

28.40 On 23 October 2003, Mr Baxter and Mr Davies (both in Washington) sent a cable to DFAT Canberra. 73 The cable reported that the letter to President Bush, which had been circulated within Congress on 22 October 2003, was initiated by Senate Minority Leader Daschle. 74 The cable stated:

2. Charge met Daschle staff late on 23 October. Drawing on existing talking points we strenuously rebutted the allegation that the price received by AWB for wheat to Iraq in any way implied that kickbacks were paid to the Saddam regime. Such an allegation was without foundation and utterly reprehensible. 75

28.41 On 23 October 2003, a cable was sent from DFAT Canberra to Australia's embassy in Washington. The cable reported:

AWB Limited management does not support a further public announcement on the part of the company. To do so would, in their assessment, only further inflame the issue and generate unwanted Australian publicity. AWB Limited stands on its statement of 6 June 2003 that the claims are 'baseless and outrageous' 76

28.42 The cable also included a number of talking points which, it was suggested, could be incorporated into letters to members of Congress in order to 'dissuade them from adding their support' to the 'LJWA's campaign'.n' Some of those talking points were that:

• The Government has been assured by AWB Limited that no such kickbacks were paid. US Wheat Associates is not claiming that any evidence of kickbacks exists, and is making an allegation based on their interpretation of the contract price.

• AWB Limited's contracts were approved by the UN's sanctions committee (on which the US has always been represented)

• AWB Limited have made clear that the contract price included not just the price of the bulk wheat, but also costs for internal distribution within Iraq, and equipment for discharging the wheat. 78

28.43 In October 2003, Ms Armstrong spoke with Mr Whitwell about the

renegotiation of contracts A1670 and A1680. 79 Ms Armstrong's evidence was that Mr Whitwell said words to the effect:

The renegotiation has been through the WFP and the UN and has been accepted by Lee Schatz of the CPA. The price has only been reduced by a very nominal amount. The WFP renegotiations focused on the freight component of the two AWB contracts that were being renegotiated. The WFP believed the price of wheat

was acceptable but was querying the freight component and said that it was concerned that the freight component may be disguising kickbacks. We rejected these claims as spurious and fought hard against them. There were no kickbacks.

Report of the Oil-for-Food Inquiry 319

The freight costs for the contracts were high because they covered the delivery of

wheat all over Iraq and reflected the greater inland distribution costs. The FOB price was US$151 while the delivered price to every town in Iraq was Euros 280. The prices also take into account risks and demurrage. Ship discharges are often delayed by up to six weeks and often take 28 days.

As an example of how expensive it is to do business in the Middle East and the sort of prices that need to be charged, you should look at an article in March 2001 where the US Wheat Associates refer to complaints from growers about USAID selling wheat for $408 per tonne in Afghanistan. US Wheat Associates responded by pointing to the high costs of transport and insurance.

We strongly refute the US Wheat Associates claims that AWB had paid kickbacks. The figures have now been publicly cleared by the CPA. 80

28.44 Towards the end of October 2003 Ms Armstrong spoke to Mr Whitwell about

the allegations made by the US Wheat Associates. Ms Armstrong's evidence was that Mr Whitwell said words to the effect:

The allegations by the US Wheat Associates that AWB had charged Iraq twice the price of US wheat are preposterous. AWB had to charge risk premiums and freight premiums. We are not prepared to pass these costs on to the Australian wheat grower.

We refused to agree to a blanket 10 per cent reduction in the contract price. We argued strongly that we had not paid any kickbacks - and this was accepted by the CPA. 81

Ms Armstrong gave further evidence about this conversation in the following terms:

After Mr Whitwell said the words the effect of which I set out in that paragraph, he said words to the effect of, 'We only had to agree to a nominal reduction. We agreed to it but very reluctantly.' This subject was of interest to me as I understood from having read Captain Puckett's memorandum that reductions of 10 per cent might reflect the view of the CPA and WFP that a contract had, upon

investigation, included kickbacks or the like. I took the view that a reduction of significantly less than 10 per cent would be consistent with Mr Whitwell's advice that the CPA had accepted that AWB 'had not paid any kickbacks'. I therefore said words to the effect of, 'How much is nominal?' He replied in words to the effect of, 'I don't want to divulge it.' I said words to the effect of, 'Was it five per cent?' He replied in words to the effect of, 'Much less than that.' I said words to the effect of, 'Was it two per cent, or one per cent?' He replied in words to the effect of, 'Around there.' I accepted this, and took the view that such a result was consistent

with Mr Whitwell's advice that the CPA had accepted AWB's position that it 'had not paid any kickbacks'. 82

28.45 Mr Whitwell's evidence was that he did not believe that he said 'we only had to agree to a nominal reduction. We agreed to it but very reluctantly' to Ms Armstrong. 83 His evidence was:

320 Report of the Oil-for-Food Inquiry

The only thing that I can suggest which might assist is that there may be a

misunderstanding in what Ms Armstrong asked me and the answer that I gave her, which is in relation to what effect the renegotiations had on the final FOB price of our contract, which is—the FOB price of the contract is that part which goes back to the growers, so it is our essential price to defend, and after the renegotiations, because of some FX differences, because of some active management and some cost management, we had managed to get to a stage

where worst-case budget the FOB price, even after the 10 per cent reductions, was only 1 or 2 per cent different from where it had been prior to the negotiations. So I can only think that that was the situation. And that was our outcome that we were very focused on.84

Mr Whitwell accepted that it would not have been accurate to say to Ms Armstrong that AWB had only agreed to a nominal reduction because AWB had accepted the 10 per cent reduction.85

28.46 On 31 October 2003, Ms Armstrong forwarded to Mr Long, by email, a copy of the US Wheat Associates Wheat Letter of 30 October 2003 which included an article entitled 'AWB-Iraq Contract Prices Confirmed'. The Wheat Letter of 30 October 2003 stated:

AWB-IRAQ CONTRACT PRICES CONFIRMED

Jerry Hagstrom, a reporter for the highly respected Congress Daily and AgDayta news service, broke a story last week about some amazing prices in Australian wheat contracts with Iraq. U.S. Wheat Associates has also obtained copies of those contracts, and can confirm that Hussein's government agreed to pay about $297

per metric ton for wheat in December 2002, when the U.S. price for comparable wheat was approximately $151 per ton FOB.

In addition to asking USW for our views on the contracts, Hagstrom went to the AWB and to the Australian Mission to the UN (which was listed as the official contact) for their perspectives. The Mission spokesperson said, according to Hagstrom, that they only delivered the contracts and had no role in the negotiations. The AWB spokesperson, not surprisingly, offered no numbers but

tried to justify the prices by generalizing about incidental costs that normally go into wheat contracts.

USW is not convinced. 'Even if the price included an international shipping cost, war insurance and inland shipping, there's still a big gap between these prices and any credible listing of costs,' USW president Alan Tracy states. 'It's troubling that the AWB refuses to explain why Iraq would agree to such exorbitant prices— with

millions of dollars unaccounted for - after initially threatening to halve their purchases' because Australia announced they were joining the U.S. military coalition.

Australian Trade Minister Mark Vaile tried to deflect the questions about the contracts, telling an Australian television reporter that the contracts were 'closely scrutinized by the United Nations. Go to the UN. It has been endorsed by the Coalition Provisional Authority, which is headed up by Americans.' U.N. officials told Hagstrom, however, that they did not supervise the price negotiations in the Oil for Food Program, that their job was to certify that Iraqi was buying food and

Report of the Oil-for-Food Inquiry 321

medicine allowed under the program. And, incidentally, the Coalition Provisional

Authority wasn't in existence when the AWB and the government of Saddam Hussein signed the contracts.

Remaining wheat contracts with Iraq, which were initially negotiated under the Oil For Food program, were recently renegotiated. 'The question is whether the renegotiated contracts are at current market prices or are they still inflated?' Tracy asked. 'Unfortunately, there's still no competitive bidding or transparency in this process—and given the billions of U.S. dollars going to Iraq, that is a real concern.'

But USW is primarily concerned about the future, Tracy says. 'When the thug was in charge, you had to play by the thug's rules. But it's a new day for Iraq, and we ought to at least be able to prevail upon our own government to make sure that a fair and open competitive system is established so that U.S. wheat has an equal chance to participate in that market.' 86

28.47 On 31 October 2003, Mr Long replied to Ms Armstrong's email of the same date. He stated:

Thanks Zena

Still think it best to keep quiet and not fuel the fire. We have refuted all these claims before.

Rgs Michael87

Mr Long also forwarded Ms Armstrong's email to Mr Whitwell with a similar message:

Chris

Still think that we keep quiet and not fuel the fire. Pls chat with Michael T and his team to make sure we are all on the same page. 88

28.48 On 31 October 2003, Ms Freeman sent a cable to Canberra outlining the 'numerous representations to the Administration, Congressional Members and the American wheat industry' that had been made by the Embassy 'to rebut and refute allegations made by US Wheat Associates President Alan Tracy'. 89

28.49 The Wheat Export Authority (WEA), through its Senior Manager Performance Monitoring, Mr Charman, became aware of the allegations in the press concerning 'kickbacks' by AWB to Iraq. 90

28.50 On 31 October 2003, Mr Sheridan (Performance Manager, AWB National

Pool) forwarded to the WEA a briefing note entitled 'USWA allegations about AWB wheat contracts to Iraq'. 91 The note refuted the allegations of 'kickback' payments and described the allegations as 'ludicrous' and 'absolutely untrue'. It noted a formal complaint had been made to the US Secretary of State, and

322 Report of the Oil-for-Food Inquiry

that all contracts 'including pricing aspects' had the sanction of the United

Nations. 92

28.51 On 1 November 2003, Mr Baxter wrote to Ms Armstrong by email. 93 He referred to the US Wheat Associates 'Wheat Letter' of 30 October and asked whether it was known if prices quoted as having been paid for AWB's December 2002 wheat shipment with Hussein's government were accurate. 94

2852 On 3 November 2003, Ms Armstrong replied to Mr Baxter's email of 1 November 2003. The email stated:

AWB Ltd has confirmed that they do not want to pass across details of the costs of the contracts. They don't want to get into a slanging match with USWA over the costs—not, they say, because they have anything to hide but because USWA isn't particularly interested in the facts.

The AWB had to renegotiate the costs [of contracts A1670 and A1680] with the WFP after the reprioritization. The WFP said it would take off 10 per cent but AWB refused saying these were bona fide costs that directly arose from the costs associated with transportation, insurance etc NOT a kickback. I don't have details of the final price that was agreed but I understand that WFP, after threatening to ditch the contracts, finally agreed with AWB's costings, less around one per cent

that AWB capitulated to with extreme re1uctance. 9

Ms Armstrong's email set out her understanding of the position based on what she had been told by Mr Whitwell. 96

The Wheat Export Authority: issues for examination

28.53 On 11 February 2004, the WEA Board decided that an important issue for examination in its 2004 report was an 'analysis of AWBI policies and procedures in regard to its relationship and conduct in the Iraq market'. 97 This was noted by the WEA secretariat as an item required to be followed up. 98

28.54 During February and March 2004, WEA requested from AWBI:

• a copy of AWBI's booklet on corporate ethics

• what defined policy arrangements as approved by the Board or management had been made for the provision of agency payments and a list of all payments recorded and reported to the Managing Director

• AWBI's guidelines and policies in relation to AWBI's Business Conduct, specifically dealing with governments or business partners relationships

Report of the Oil-for-Food Inquiry 323

• a summary of all contracts with Iraq and their execution and payment

status

an update to the Brief Note on Iraq previously provided in April 2003. 99

28.55 On 19 March 2004, AWBI provided its 'Guidelines on Business Conduct', and a booklet on its corporate ethics. In response to WEA's request to provide a summary of all contracts with Iraq and their execution and payment status and an update to the Brief note on Iraq previously provided in April 2003, AWBI provided information on the then current contracts, A1670 and A1680.100 It also provided a schedule of Iraq shipments for the period October 2003 - February 2004.101 AWBI did not disclose the Tigris dealings or inland transport arrangements in the material provided to the WEA.

The commencement of the IIC investigation

28.56 On 18 March 2004, Ms Armstrong spoke to Mr Whitwell about AWB contracts under the Oil-for-Food Programme. Ms Armstrong's evidence was that Mr Whitwell said words to the effect:

AWB entered into a number of contracts with the Iraqi Grains Board. Because of the way in which the UN OFF program was set up, the Iraqis required the contracts to include inland transport and AWB was instructed to use a Jordanian trucking company. The prices were loaded up in the freight costs and insurance and risk premiums. The UN paid the contract.

The cost of freight and associated insurance charges and risk premiums were high and this is why the extra costs were high. Monopolies were charging what they liked - it was not exactly an open bidding system.

AWB paid the Jordanian trucking company. The Jordanian trucking company might have made payments to the Iraqis of their own volition.

AWB advised DFAT of the arrangement with the Jordanian trucking company in 2000. 102

28.57 Mr Whitwell said that he did not believe that he said the words 'AWB paid

the Jordanian trucking company. The Jordanian trucking company might have made payments to the Iraqis of their own volition' to Ms Armstrong. 103 He said that his belief in March 2004 was that AWB had paid Alia for inland transport, and Alia paid the Iraq Ministry of Transport for the inland transport and that it was UN approved. 104 If Mr Whitwell's evidence were to be accepted, it meant that he knew in March 2004 that Alia had not been

providing trucking services during the Oil-for-Food Programme, but was a conduit for payments to the Iraq Ministry of Transport. In contrast, AWB maintained in correspondence with the TIC that it was not until October 2005

324 Report of the Oil-for-Food Inquiry

that it became aware that Alia had not provided trucking services, and was a

conduit for money to Iraq.

28.58 Following her conversation with Mr Whitwell, Ms Armstrong prepared a Ministerial Submission regarding the UN's imminent announcement of an investigation into allegations of corruption in the Oil-for-Food Programme for the Ministers for Foreign Affairs and Trade, Mr Downer and Mr Vaile.

The submission included:

4. While AWB Ltd is not included in an Iraqi Ministry of Oil list of companies and individuals alleged to have profited from the OFF program, as the largest single OFF supplier it is unlikely to escape scrutiny. The investigation may look particularly closely at contracts issued from OFF Phase 8 (1998), identified by the CPA as the phase when the so-called 10 per cent kickback was introduced. At that time AWB was still under government purview. AWB Ltd has strenuously denied US Wheat Associates' allegations that it paid kickbacks to the regime, advising

that the relatively high prices for OFF-contracted wheat reflected the costs of insurance, on-the-ground distribution and technical support not just the cost of acquiring and shipping the grain. The Iraqi Grains Board delegation currently in Australia has advised that AWB Ltd has acted with propriety at all times in Iraq. The company concedes however that the Jordanian company handling local

transport might, of its own volition, have provided kickbacks to the regime. Given the gravity of the allegations we have suggested to AWB Ltd that they may wish to provide more formal advice on their position to the Government. AWB Ltd is bound by the Commonwealth Criminal Code which contains offences relating to bribery and corruption by Australian companies and their officials overseas. 105

The submission also made the following recommendations:

That you:

(a) note UNSG Annan will establish an independent inquiry into allegations of fraud and corruption in management of the Oil-for-Food program

(b) note the Iraqi Governing Council is conducting a parallel investigation supported by the Coalition Provisional Authority

(c) note that AWB Ltd, the largest single supplier to the Oil-for-Food program, is likely to come under scrutiny especially as US wheat interests will want to pursue this

(d) note AWB Ltd denies any involvement in direct payment of kickbacks, including for the period it was still under government purview. 106

28.59 On 29 March 2004, Mr Long sent an email to Mr Trewin, copied to Messrs Thomas, Geary, Whitwell and others, in the following terms:

Kofi Anan has instigated an investigation into the alleged fraud surrounding the OFF program.

Report of the Oil-for-Food Inquiry 325

DFAT have forwarded correspondence in this regard and attached a letter from

Bremer instructing Interim Ministers and Senior Advisers within CPA to seize all records in this regard pending further investigation.

The note lists all companies to date that have been highlighted as being involved.

No Australian company is listed. No Jordanian company that AWB has dealt with in relation to the OFF Program/ inland transport is listed.

Zena (DFAT) held private discussions with Nazar (Head of 1GB delegation) who reiterated to her that according to his knowledge, AWB acted with utmost integrity during this period.

Zena has 'off the record' suggested we take a proactive approach in AL writing to Downer assuring him that there is nothing to be concerned about.

We need to hit on the following:

- AWB acted with utmost integrity during the OFP period

- AWB utilised the very good offices of the Australian Government and UN to process the contracts as per UN policy.

- AWB remains cognisant of its corporate standing and responsibilities as well as the reputation of the Australian Government and would in no way jeopardise this position

the OFF Program was seamless and transparent. AWB only ever paid inland transport to a Jordanian trucking company which was fully sanctioned under the program.

- AWB can assure the Govt that all its dealings are conducted within Australian and International law as well as AWB Values and Ethics. 107

28.60 On 30 March 2004, Mr Trewin sent a draft letter to Mr Long for comment. The draft read:

You would be aware that AWB was responsible for coordinating and financing inland transport costs in Iraq through a Jordanian trucking company that was sanctioned under the program. This cost, as well as other embedded costs of conducting business with Iraq, including shrinkage and demurrage, was incorporated into the overall price submitted and approved under the program. 108

28.61 Ms Armstrong's ministerial submission was noted by Mr Downer on 30 March 2004 and by Mr Vaile in April 2004. 109 Mr Downer noted the following under the word 'action':

This worries me, how were AWB prices set and who set them? I want to know about this.110

326 Report of the Oil-for-Food Inquiry

2862

Ivfr Downer did not receive a satisfactory response to the query he noted on

the Ministerial Submission. His evidence was:

A: The advice I've been given by the Department is that the response had come from AWB Limited; that is, the 10 June letter.

Q: One doesn't necessarily have to be experienced in government to know that if a minister writes something in such definitive terms, 'I want to know about this', one would expect normally that the minister's staff would make sure that he does, or she does in that case. Do you know what was done in response to your request that you wanted to know that information beyond the receipt of the letter from AWB?

A: No, I don't.hhl

28.63 On 1 April 2004, Mr Long sent a copy of the draft letter to Mr Downer to Ms Armstrong for her comments. 112 Mr Long had made some changes to the draft which now read:

Given the sensitive nature of the market and the rules of the OFF program, AWB maintained a close and effective dialogue with the Department of Foreign Affairs and Trade (DFAT). All contracts were passed through the good offices of DFAT for on forwarding to the United Nations as required under UN guidelines.

Inland transport costs paid to a Jordanian trucking company were a visible and essential part of the contract. UN regulations stipulated the wheat must be delivered to all Iraq Governorates. The Iraq Brains [sic] Board (1GB) nominated the preferred trucking supplier and the rate to apply. It was AWB's view that the rates charged seemed reasonable in the context of an Australian benchmark. In the circumstances, AWB did not have access to a range of transport suppliers. 113

28.64 Another undated version of the draft letter read:

Given the unique nature of the market and the rules of the OFF program, AWB maintained a close and effective dialogue with the Department of Foreign Affairs and Trade (DFAT). AWB actions were procedural according to the process outlined under the Security Council Resolution 986. All contracts were passed through the good offices of DFAT for on forwarding to the United Nations as required under UN guidelines.

Inland transport costs paid to a Jordanian trucking company were a visible and essential part of the contract. UN regulations stipulated the wheat must be delivered to all Iraq governorates. The Iraq Grains Board (1GB) nominated the preferred trucking supplier and the rate to apply. The distribution program was agreed between the 1GB and the UN as per the resolution. AWB was effectively at the mercy of a monopoly inland transport supplier, a situation sanctioned by the U.N. 114

Report of the Oil-for-Food Inquiry 327

28.65

Ms Armstrong's recollection regarding the draft letter was that she told Mr Long that in her view the draft misrepresented DFAT's role in the Oil-for-Food process. She suggested that he amend it. 115

28.66 On 6 April 2004, Ms Armstrong had a conversation with Mr Long regarding

AWB's contracts under the Oil-for-Food Programme in the context of the UN inquiry. 116 Ms Armstrong's evidence was that Mr Long told her:

The trucking company would not do anything until it received payment. We had to pay before final UN authentication came in. The Letter of Credit could come through as late as 21 to 25 days after unloading.

We sent remittances to Alia Transport to Jordanian Bank account. We knew the Jordanian company. It was a legitimate trucking company. The Iraqis handled the negotiations of the freight rates with Alia and advised AWB how much the fee was and the freight rate. It was that rate that went into the contract. 117

28.67 On 21 April 2004, United Nations Secretary-General Kofi Arinan announced

the formation of an independent panel to conduct an inquiry into allegations of impropriety in the administration and management of the Iraq Oil-for-Food Programme.

Notification to the Boards of AWB's internal investigation

28.68 On 6 May 2004, Mr Cooper sent a memorandum on behalf of Mr Lindberg to the AWB Limited and AWBI directors notifying them of AWB's investigation of its Oil for Food contracts with Iraq. 118 The memorandum stated:

Introduction

Media speculation regarding AWB's contracts with Iraq under the Oil for Food Program is increasing and is expected to intensify over the coming months.

Attached is a report from ABC national rural radio news today that KPMG has been appointed to investigate claims that AWB overpriced the wheat sold to the Iraqi Grains Board (see transcript from ABC news below).

Action already undertaken

Last year we commenced a detailed review of the facts surrounding AWB's Oil For Food Contracts with Iraq. This has involved reviewing over 30,000 emails, many files and interviewing AWB management. The process has been led by Chris Quennell, Trade & Transport lawyer with Blake Dawson Waldron, Melbourne.

A report on the factual findings will be tabled with AWB management tomorrow and I will be in a position to brief you next week.

328 Report of the Oil-for-Food Inquiry

We anticipated this enquiry over 12 months ago and put in place this process to

establish the facts and to manage AWB's risk. The enquiry has been rigorous and very detailed. Although substantially complete, the enquiry will take a further few weeks to fully complete. 119

28.69 Mr Cooper's evidence was that there was no such 'report on the factual findings', but that the documents that recorded the findings included:

the first board presentation on 25 May, briefs to senior counsel and all the attached documents, and Quennell kept a folder of core documents himself, which were used for interviewing witnesses and for briefing AWB management. 120

28.70 The same day, Mr Cooper briefed the Chairman, Mr Stewart, on Project Rose. Mr Cooper explained the work the Project Rose team had performed and the results. Mr Stewart asked his assistant to make notes of the meeting. 121 Those notes indicate that:

• the Board was seeking assurance that 'nothing wrong' and 'contracts all OK'

• Messrs Stewart and Cooper discussed Mr Quennell's legal review, including the fact that Mr Quennell had reviewed documents and interviewed AWB staff and the former Chairman Mr Flugge

• Mr Cooper assured Mr Stewart of his confidence in the 'integrity of AWB people'

• Messrs Stewart and Cooper discussed the Canadian complaint

• Mr Stewart was confident that Mr Cooper had 'processes in place to cover this'.

Project Rose continues

12 May 2004: memorandum of instructions to Senior Counsel

28.71 On 12 May 2004, Mr Quennell, on Mr Cooper's instructions, briefed Mr Tracey QC on Project Rose. Mr Quennell provided Mr Tracey QC with a memorandum of instructions, together with an accompanying volume of documents. 123

28.72 Mr Tracey QC was requested to advise upon:

whether AWB may have

Report of the Oil-for-Food Inquiry 329

a) contributed to a contravention by Australia of its obligations under UN

Resolution 661 ... and

b) contravened any Commonwealth and/or State legislation (including, in particular, the Criminal Code Act 1995).124

28.73 The memorandum of instructions set out the procedures for the provision of humanitarian supplies to Iraq and the UN contract approval procedure. It then went on to note that, prior to July 1999, AWB's contracts with 1GB were concluded on a CIF free out Umm Qasr basis. It set out the inclusion in the IGB's wheat tender dated June 1999 of the following clause:

10—PRICE

CIF free on truck to silo at all Governarate (sic). Cost of discharge at Umm Qaser and land transport will be USD 12 per metric ton to be paid to the land transport co. For more details contact Iraqi Maritin (sic) in Basrah.' 25

28.74 It then summarised the history of the introduction of the trucking fee into the three contracts A4653, A4654 and A4655 concluded on 14 July 1999 and contract A4822 concluded on 14 October 1999.

28.75 It noted the inclusion in the short-form contract A4653 of the following clause:

SHIPMENT: ... The cargo will be discharged Free in to Truck to all silos within all Governates of Iraq at the average rate of ... The discharge cost will be a maximum of US$12.00 and shall be paid by sellers to the nominated Maritime Agents in Iraq. This clause is subject to UN approval of the Iraq distribution plan.

PRICE: The OF, Free in Truck price per tonne of 1,000 kilos is ... UNITED Stews of America dollars is as follows [deleted for confidentiality].

and specifically noted that:

The 'discharge cost' of US$12 per mt. was added to the sale price of the wheat. There is no specific reference to 'land transport' . 126

28.76 The memorandum continued:

Subsequent contracts between AWB and 1GB (eg A4970, A4971 and A4972 dated 20 January 2000) ... continued to include a provision to the effect that the discharge costs would be a maximum amount (eg US$15 per m.t.) and was to be paid by the sellers to the nominated maritime agents in Iraq, the clause being 'subject to UN approval of the Iraq distribution plan'. However, the signed contracts (eg A4970, A4971 and A4972) as submitted to the UN ... did not include

the above provision. Instead, the shipment clause made no reference to the 'discharge costs' and merely stated

The cargo will be discharged free into truck to all silos within all Governafes of Iraq at the average rate of 3000 m. t. per day. [Emphasis in original] 127

330 Report of the Oil-for-Food Inquiry

2877

The instructions noted that all AWB contracts submitted to the United Nations from January 2000 made no specific reference to a payment of a discharge cost or a trucking fee and stated:

The trucking fee was increased from time to time, eg contract A1441 dated 23 June 2002 was for a total of [deleted] CIF Free in Truck to all Governates Iraq with a trucking fee of US$47.45 per m.t.128

28.78 In respect of the mechanism for payment of the trucking fee, the memorandum stated that:

The trucking fee in respect of contracts A4653, A4564, A4655 and A4822 was paid directly by AWB to a Jordanian company, Alia for Transportation and Trade ('Alia').

In relation to subsequent contracts, payment of the trucking fee was for a time effected by whichever shipping company had undertaken to provide the ocean carriage of the particular shipment. However as appears from an email from Charles Stott ... on 25 July 2000 ... the procedure was then changed so that AWB remitted the funds direct to Alia. 129

It made no mention of the suspicions which were current in AWB at that time that Alia was part owned by the Iraqi Ministry of Trade.

28.79 The memorandum then set out the substance of Mr Stott's letter of 30 October 2000 to Ms Coutney (at DFAT) 130 and of Ms Drake-Brockman's reply of 2 November 2000131, noting that:

• .as at 30 October 2000 the arrangements for the payment of the trucking fee had already been in place for approximately 8 months. 132

28.80 Mr Tracey QC was then instructed:

The documents which instructing solicitors have examined do not indicate whether the trucking fees paid by AWB to Alia can be regarded as a genuine payment for the provision of inland freight services actually provided by Alia. We have not seen any contract between AWB and Alia. We have seen no evidence to

indicate whether or not the trucks used to transport wheat after its discharge at Umm Qasr were provided by Alia. We have seen no explanation as to how the trucking fee was calculated or the basis upon which the trucking fee was subsequently increased. The trucking fee does not appear to have been calculated

with regard to the differing distances between Umm Qasr and the various Governorates 133

He was then referred to some internal AWB emails in which the trucking fee

was discussed.

28.81 The memorandum contained no reference to the after-sales-service fee of 10 per cent, to the ownership of Alia, to the negotiation of contracts A1670 and A1680 to include an uplift in price to cover the Tigris debt, or the proposed

Report of the Oil-for-Food Inquiry 331

payment via the trucking fee of the iron filings compensation of US$6 per

tonrie.

28.82 Mr Tracey QC gave oral advice in conference with Mr Cooper and Mr Quennell on 25 May 2004.134 Mr Quennell's notes of that conference record the following:

RT

If trucking was a legitimate service - don't see breach of resolution.

AWB people clearly had concerns about it.

But on the documents I can't see anything wrong with it.

Ic

Prices 'marvellous' We would have to sell elsewhere -

$50 discount per ton.

cQ

Trucking fees - no evidence of trucks.

RT

(1) no evidence of any breach of the UN Resolution or of Australian Domestic Law.

[illegible] 'underlying [illegible]'

were there trucks

re'ship between Alia and Government officials

why did UN express concern?

Why did we keep paying the trucking fees after UN expressed concern. 135

That oral advice was summarised in a PowerPoint presentation given at a joint information session of the Boards on 25 May 2004, the content of which is set out immediately below. The oral advice was confirmed much later in a memorandum of advice dated 12 August 2005. 136

25 May 2004: joint information session

28.83 On 25 May 2004, Mr Cooper and Mr Quennell gave a briefing to a joint

information session attended by the Directors of AWB Limited and AWBI. The minutes of the AWB Limited Board meeting held on 26 May 2004 summarised the briefing as follows:

332 Report of the Oil-for-Food Inquiry

Project Rose

The Board noted it had received a briefing on Project Rose (attended also by directors of AWB (International) Limited) on Tuesday 25 May 2004 and had also received a memorandum on this matter from the Managing Director on 6 May 2004. Project Rose is the code-name for the AWB Group's internal investigation of

AWB's wheat exports to Iraq and AWB's involvement in the United Nations Oil for Food Program (OFF) in regard to which allegations of impropriety had been made in the public arena.

The briefing session was addressed by Mr Jim Cooper, General Counsel, and Mr Chris Quennell, trade and transport lawyer of Blake Dawson Waldron. (The Board noted that a copy of the briefing presentation would be filed with the Board papers).

The Board noted the following with regard to the Project Rose briefing:

a) the allegations of impropriety had commenced with correspondence from the US Wheat Associates to the US Secretary of State, Mr Cohn Powell, on 3 June 2003. There had been sporadic media commentary since that time, and a number of inquiries (all of which remain unconfirmed) had been reported as follows: UN independent inquiry into the OFF program; Interim Iraqi Governing Council Investigation (reportedly to be conducted by KPMG); US

House of Representatives investigation; and a US Senate Committee on Foreign Relations investigation.

b) The Project Rose investigation commenced in June 2003 and has involved a comprehensive review of all contract arrangements for the export of wheat by AWB to Iraq from mid 1999 to 2002, including the inland freight arrangements within Iraq.

c) The findings to date of the Project Rose investigation are as follows:

1. all AWB contracts were approved by the Office of the Iraq Program at the United Nations;

2. no evidence has been identified of any AWB knowledge that money paid to the Jordanian transport firm, Alia, was onpaid to the Iraq regime;

3. no evidence has been identified of payment of funds by AWB to any other person in relation to the OFF shipments; and

4. no evidence has been identified of payment of funds to any AWB employee by any other person in relation to OFF shipments.

d) That the Board would be kept informed of any additional findings that may emerge from the Project Rose investigations. 137

Report of the Oil-for-Food Inquiry 333

2884 The PowerPoint presentation given at the briefing recorded:

AWB's internal process

Have taken a 'factual snapshot' by review of:

14 IS&M ring binders

100 chartering files

30,000+ AWB emails for 1999 & 2000

Interview of AWB personnel

Audit of documents held by AWB (USA)

Summary of findings

Contracts prior to July 1999—no grounds for concern

June 1999—AWB notified by Grain Board of Iraq ('GBI') that payment of inland transportation fee necessary for future contracts

Contracts from July 1999 to December 2002:

Contracts included payment of 'trucking fee' payable to Jordanian company (Alia) nominated by GBI

Same trucking fee payable under each contract regardless of destination of cargo (ie distance transported)

Trucking fee increased from time to time for no apparent reason

Summary of findings (cont.)

All AWB contracts were approved by the Office of the Iraq Program at the UN ('OIP')

No evidence of any AWB knowledge that money paid to Alia was onpaid to Iraqi regime

No evidence of payment of funds by AWB to any other person in relation to OFF shipments

No evidence of payment of funds to any AWB employee by any other person in relation to OFF shipments

Legal advice

Richard Tracey QC has been briefed and advised in conference today:

(i) no evidence of breach of relevant UN Resolution on sanctions (661)

334 Report of the Oil-for-Food Inquiry

(ii) no evidence of breach of Australian domestic law

RT is maintaining a watching brief and can advise at short notice if the matter develops further (eg by commencement of some form of inquiry)

OIP approval procedure

All AWB contracts were reviewed by OIP at the UN

For each AWB contract the OIP issued a report confirming that the price and value had been examined in accordance with its standing instructions and appeared reasonable and acceptable (or words to that effect)

GB! tender - Tune 1999

GBI invitation to tender received mid June 1999

New price provision:

'CIF free on truck to silo at all Governates. Cost of discharge at Umm Qasr and land transport will be US$12 per m.t. to be paid to the land transport co. For more details contact Iraqi Maritime in Basrah'.

AWB ultimately agreed to pay land transport costs to Alia.

Contracts A4653, 4654 and 4655... and Contract A4822

Sale on Free in Truck basis at US$155 per tonne

Shipment terms

'The cargo will be discharged free into truck to all silos within all Governates of Iraq at the average rate of 3000mt ... day... the discharge cost will be a maximum of US$12.00 and shall be paid by the Sellers to the nominated Maritime agents in Iraq. This clause is subject to the UN approval of the Iraq distribution plan.

These contracts were submitted to the OIP at the UN and approval was given

Subsequent contracts

Since January 2000, all AWB contracts submitted to the UN have included the words

'the cargo will be discharged free into truck to all silos within all Governates of Iraq at the average rate of . . .tons... per day ... '

ie without specific reference to discharge costs or inland transportation

component

The fee paid by AWB for inland transport has varied from initial cost of US$12/t to a maximum of US$47. 75/t. Immediately after the war cost dropped to US$251t and is now at US$35/t (affected by recent security risks)

Report of the Oil-for-Food Inquiry 335

AWB position

Every AWB wheat contract under OFF program has required specific approval of UN OIP

OIP was obliged under Security Council Guidelines to determine whether price of goods is reasonable

The price of every AWB shipment to Iraq under OFF program has been declared 'reasonable and acceptable' (or words to that effect)

AWB's price was high because it factored in contingencies for demurrage costs, war risk premium, interest costs due to delay in processing of payments by LTN/BNP, rejection, shrinkage, currency exposure, and after sales service

AWB continues to use Alia both as its vessel agents in 11mm Qasr and in relation to 100% of all inland transportation requirements. 138 [Emphasis added]

28.85 While the presentation noted that AWB continued to use Alia 'in relation to 100% of all inland transportation requirements', it did not mention that it was only after the incursion into Iraq in March 2003 that AWB was actually required to make arrangements for the movement of wheat, and only then negotiated a contract with Alia for the carriage of wheat.

28.86 Similarly, while it noted that AWB's price was high because it incorporated 'after-sales service', it did not mention that 10 per cent of the value of each contract, including the trucking component, was unilaterally imposed by 1GB, and paid by AWB via Alia, for all contracts from 2 November 2000. It also did not mention that after 2 November 2000, a portion of the amount paid to Alia represented a 10 per cent surcharge unilaterally imposed by the Iraqi government, in addition to a fee nominally for trucking.

28.87 The presentation stated that there was no evidence of any AWB knowledge that money paid to Alia was onpaid to the Iraqi regime. Prior to giving the presentation, Mr Cooper had conducted an internet search on Alia, from which he had found that:

• Alia was a Jordanian based company involved in transport,

• it was bidding to operate the new domestic Iraqi airline,

• the clan of its chairman, Mr Al-Khawam, was prominent in southern Iraq and Jordan. 139

28.88 Further, Mr Cooper was aware at that time of emails dating from June to

November of 1999 which made it clear that AWB staff knew that the Iraqi regime was the ultimate recipient of monies paid to Alia.

336 Report of the Oil-for-Food Inquiry

28.89 Mr A1-Khawam's family was based in Iraq and owned 51 per cent of Alia.

While it is not clear whether Mr Cooper knew this at 25 May 2004, he clearly knew it by 28 July 2004, when he incorporated it into his PowerPoint presentation for the next presentation to the board.

28.90 When he first attended before the Inquiry on 22 and 23 February 2006, Mr Cooper gave evidence that he learned sometime before the Board was briefed in May 2004 that Alia was 49 per cent owned by an Iraq instrumentality, and that the Board was advised of this at a presentation in May 2004. 140

28.91 However Mr Cooper resiled from this evidence in his third statement to the

Inquiry. 141 At paragraph 29 of that statement, he said:

Issue 15 [in a letter from the Inquiry to Mr Cooper's solicitor requesting a further statement] concerns a briefing to the Boards in May 2004 regarding the part ownership of Alia by an Iraqi instrumentality. As a result of this issue being raised I have further reviewed my files since I first gave evidence to this Inquiry, I am not in a position to say the JIS of the Boards was informed at the presentation on 25 May 2004 that 49% of Alia was owned by an Iraqi instrumentality...

I am not able to recall when the Board was briefed in relation to the ownership of Alia, however I can say that whatever was learnt about the payment of the inland trucking fees as a result of the investigation was passed on to the Boards and therefore I expect the Boards were informed at some time after we were informed of that fact. From late July 2004, the AWB executives, including Lindberg, were aware of this fact. 142

28.92 Mr Cooper gave evidence on 28 March 2006 that he recalled speaking to the

Board about Alia at the first board presentation (in May 2004):

the last bullet point was information that I had obtained before the first board presentation by conducting an Internet search on Alia, and I do recall at the first board presentation [in May 20041 talking about Alia to the board members. I told them I had done a Google search and I remember some of them remarking they

didn't know what that was, and I told them that it was a search engine on the Internet and that I had seen information on Alia, about them being a Jordanian-based company, they were involved in transport, they were currently bidding for the tender to operate the new domestic Iraqi airline, and the last piece of information at the bottom was historic information about the Al-Khawam family.

I believe I knew that information before the May board meeting

28.93 The Directors' evidence about what they learnt about Alia in May 2004 was varied. Mr Martin said that he learnt that some AWB contracts with the 1GB involved the use of a company known as Alia but he could not recall when he was first told of an allegation that Alia was partly owned by Iraq. 144

Report of the Oil-for-Food Inquiry 337

28,94

Mr Starr said that he recalled having been told prior to 28 July 2004 that Alia was a family owned company and that it had interests in other businesses. He was not told that Alia had any connection with Iraq or that the family which owned Alia had any connection with Iraq. 145

28.95 Mr Poison said that he first learned that AWB contracts with 1GB involved the use of a company known as Alia at the May 2004 briefing, however he could not recall having been told of the shareholdings or ownership of Alia until after the publication of the Volcker report in October 2005. 146

28.96 Mr McClelland said that he first learned that contracts between AWB and 1GB involved the use of Alia at the May 2004 briefing but he did not learn of the allegation that Alia was partly owned by Iraq until September 2005.147

28.97 It is clear that Alia was raised at the joint information session held on 25 May 2004. At the meeting the structure and shareholding of Alia was discussed. 148 There is insufficient evidence however to find that the Boards were told in May 2004 or July 2004 that Alia was 49 per cent owned by an Iraqi instrumentality.

3 June 2004: a further memorandum of instructions

2898 On 3 June 2004, Mr Quennell provided a further memorandum of instructions

to Mr Tracey QC regarding Project Rose. In that memorandum, Mr Quennell noted:

In their previous instructions to Counsel, instructing solicitors noted that they had seen no explanation as to how the trucking fee was calculated or the basis on which the trucking fee was subsequently increased. Although it remains the case that the original method of calculation of the trucking fee is unknown, instructing solicitors have now ascertained the basis of calculation of the increase as applied to AWB's contracts after 2 November 2000, commencing with Contract No.

A0430.149

The instructions also noted:

The original trucking cost under that contract (No. A0430) was US$25 per mt. However, an additional 10% (of US$[deleted]) was then added to the price per m.t. by way of an addition to the trucking fee. The total price then became US$[deleted] per mt. and the trucking fee was increased to US$44.50 (US$25.00 + US$19.50 per m.t.).150

28.99 Mr Quennell referred Mr Tracey QC to an email from Mr Hogan to Mr Morison (then General Manager Trading) and others dated 2 November 2000 entitled 'Iraq - confirmed sale'. 151 The memorandum also enclosed a graph which showed the trucking fee payable per metric tonne for each contract. Mr Quennell noted:

338 Report of the Oil-for-Food Inquiry

The reason for the sharp reduction in the trucking fee payable in respect of

contracts 1680 and 1670 is that these contracts were executed after the fall of the Iraqi regime and a reduction of the price for those contracts was agreed by AWB. 152

28.100 The memorandum made no mention of the uplift in the price of those two

contracts to recoup the Tigris debt, or the proposed payment via the trucking fee of the iron filings compensation of US$6 per tonne. Nor was it noted that the reason for the reduction in the contract price for those two contracts was an across the board directive from the CPA to remove the surcharge, usually

of 10 per cent, levied upon all contracts under the Oil-for-Food Programme since phase IX.

28.101 Mr Tracey QC was requested on the basis of the further information provided:

To advise whether his previous advice to the effect that there is:

a) no evidence of a breach by AWB (or more precisely, of a breach by Australia as a result of AWB's conduct) of the relevant UN resolutions on sanctions; and

b) no evidence of a breach by AWB of Australian domestic law,

remains unchanged. 153

28.102 This request for advice generated a series of emails between Mr Tracey QC and Mr Quennell.154 On 4 June 2004, Mr Tracey QC requested by email the following information from Mr Quermell:

1. whether the details contained in the Hogan memo were translated into contracts which were subsequently seen by the UN committee;

2. whether there was any commercial justification for the increase; and

3. why the 1GB (or its successor) agreed to a reduction after the fall of the Iraqi regime and, in particular, whether there was an commercial justification for the reduction. 155

28.103 Mr Quennell responded to Mr Tracey QC on 7 June 2004, in the following terms:

Dear Richard,

(a) each and every contract pursuant to which AWB supplied wheat to the Grain Board of Iraq under the Oil for Food Program was approved by the UN Committee; however, the price of the wheat as expressed in the contract was not broken down so as to identify the different components of the price, eg ocean freight and inland transport costs;

(b) there was no apparent commercial justification for the increase;

Report of the Oil-for-Food Inquiry 339

(c) I will obtain instructions but insofar as I am aware the reduction was

unilaterally imposed by the Coalition Provisional Authority upon all unexecuted contracts under the OFF Program.

In the circumstances please advise on the above basis. 156

June 2004: Mr Tracey QC's advice

28.104 On 8 June 2004 Mr Tracey QC advised by email:

Dear Chris

In the absence of commercial justification for the introduction, increases and decreases in the trucking fee and the lack of specific approval for the fee and its quantum by the UN there is reason to suspect that the fee (or part of it) was used as a kick-back to the 1GB or persons associated with it. Whether the money was so used can only be determined by an investigation of the finances of the Jordanian trucking company which was the recipient of the trucking fees.

A further reason for suspecting the efficacy of the fee is Hogan's assertion that UN approval for its payment had been obtained. If this was not the case then a question arises as to why the assertion was made. Was it a deliberate attempt to mislead AWB management or did he make an honest mistake?

None of this establishes that AWB or any of its employees is guilty of any offence or of breaching UN resolutions. What it does suggest is the need for further enquiries (if this is possible) to determine all the facts surrounding the payment of the trucking fee and, in particular, whether any part of it found its way to the 1GB or any Iraqi officials.

Regards,

Richard Tracey 157

28.105 Mr Quennell's evidence was that he discussed Mr Tracey QC's email with Cooper shortly after receipt of it.158 It is not known whether the AWB Board was informed of the considerable reservations and doubts expressed by Mr Tracey QC. There is no apparent reason why they would not have been so informed. Mr Cooper gave evidence that the Board was briefed about Project Rose on at least 16 occasions between May 2004 and November 2005. 159

28.106 In particular, there is no reason to think that in the many briefings given to the Boards of AWB Limited and AWBI on Project Rose, the legal advisers would not have informed the Boards of what those conducting Project Rose knew. Indeed, Mr Cooper's evidence was:

I can say that whatever was learnt about the payment of the inland trucking fees as a result of the investigations was passed on to the Boards. 160

340 Report of the Oil-for-Food Inquiry

It follows that from some time shortly alter June 2004, probably July 2004, the

Boards of AWB Limited and AWBI were aware that an additional fee equivalent to 10 per cent of the contract price had been included in the contract price, and added to the trucking fee, and that there was no known commercial reason for this fee to which AWB had agreed. Further, that such additional fee had been agreed to and paid by AWB from at least contract

A0430 (November 2000).

10 June 2004: letter to Mr Downer

28.107 The draft letter to Mr Downer referred to in paragraphs 28.63 and 28.64, was further amended by Mr Quennell and then Mr Cooper on 3 June 2004. Mr Cooper advised Mr Trewin by email:

The letter was amended by Chris Quennell of Blake Dawson Waldron and then by me. I approve its sending from a legal perspective.

If you amend the letter any further, could you please send it to me for final checking, otherwise it is ready for signing by Andrew and sending to Downer. 161

28.108 The letter was signed by Mr Lindberg and sent to Mr Downer on 10 June 2004.162 It was in different terms to the drafts previously prepared. It read:

Given the unique nature of the market and the rules of the OFF program, AWB maintained a close and effective dialogue with the Department of Foreign Affairs and Trade (DFAT). All AWB's contracts were passed through the good offices of DFAT for on forwarding to the United Nations (UN) as required under UN guidelines and particularly UN Security Council Resolution 986.

Wheat was delivered to Iraq by AWB for distribution to all governorates of Iraq in accordance with the Distribution Plan for the relevant Phase of the OFF program as approved by the UN. This was reflected in the terms of each AWB wheat sale contract approved by the UN, which provided for the cargo to be discharged 'Free

into Truck to all silos within all governorates of Iraq'. The Iraq Grains Board (1GB) nominated the preferred trucking supplier and the rate to apply. 163

28.109 This letter did not advise Mr Downer of the reservations expressed by Mr Tracey QC, or of the fact then known to AWB that from November 2000 AWB had been paying an unexplained additional fee of 10 per cent of the contract value to Alia as a supposed trucking fee.

28.110 Mr Downer responded to Mr Lindberg's letter on 25 June 2004. Mr Downer welcomed Mr Lindberg's assurances that 'AWB acted with integrity in its dealings with the Oil-for-Food program, and complied with the relevant UN-mandated procedures as set out in UN Security Council Resolution 986'. 164

Report of the Oil-for-Food Inquiry 341

PSI investigation

28.111 In late June 2004, AWB was informed of the commencement of an investigation by the United States Senate Permanent Subcommittee on Investigations (PSI) into the Oil-for-Food Programme. 165

28.112 On 30 June 2004, AWB's US lawyers, Piper Rudnick, met with PSI staff in Washington DC. Following this meeting AWB received a telephone briefing from Piper Rudnick about the nature of the PSI's proposed investigation. 166

28.113 On 2 July 2004, Mr Cooper provided a briefing paper to Mr Lindberg regarding Project Rose. In that briefing paper Mr Cooper noted:

AWB internally commenced review of issues and documentation in June 2003 and this finished late May 2004 when we reported to the AWBL and AWBI Boards on the issues. We have located all relevant documents from AWB's Portland, Cairo and Melbourne offices and built a chronology. Richard Tracey QC has advised that he can see no breach of Australian law. 167

Mr Cooper then went on to inform Mr Lindberg about the PSI investigation.

28.114 Following this briefing Mr Lindberg instructed Mr Cooper to establish a taskforce to respond to the investigation. 168 Mr Cooper retained Mr Scott Chesterman of Minter Ellison to provide strategic litigation advice to AWB regarding the investigation. 169

28.115 Members of the taskforce established by Mr Cooper included AWB staff from the Stakeholders Relations Division, Legal Division and International Sales and Marketing Division; US lawyers Piper Rudnick, and AWB's external Australian lawyers. AWB's Australian lawyers included Mr Chesterman, Mr Quennell, Mr Tracey QC and Mr Stephen Donaghue of counsel. 170

28.116 The taskforce had its first meeting on 7 July 2004. After that the taskforce met weekly until late November 2004 and had approximately 20 meetings. 171

28.117 In July 2004, Mr Cooper and Mr Quennell met with lawyers from Piper

Rudnick in London. At that meeting they received advice on the implications for AWB's operations of an Inquiry in the United States by the PSI. Piper Rudnick subsequently provided to AWB written legal advice on US law on these issues. AWB has claimed legal professional privilege over that advice. 172 This claim was upheld. 173

28,118 On 19 July 2004, Mr Cooper met with Mr Hockey and Mr Whitwell. At that meeting Mr Cooper was advised that Alia was 49 per cent owned by the Iraqi Ministry of Transport. 174

342 Report of the Oil-for-Food Inquiry

28.119 Mr Whitwell gave evidence that in mid July 2004 he thought it was important

that Project Rose staff were aware of the imposition of the 10 per cent after-sales-service fee, and how the 10 per cent was incorporated into the price of contracts for sale to Iraq. He approached Mr Long to discuss the matter. Mr Whitwell, together with at least Mr Long, briefed Mr Cooper about the

pricing components of contracts for the sale of wheat to Iraq, including the addition of a 10 per cent surcharge to the total contract price.175 It is not clear whether this is the same meeting at which Mr Cooper was advised that Alia was 49 per cent owned by the Ministry of Transport. It is likely however that Mr Cooper was already aware of the addition of 10 per cent to the contracts, having been aware of the Project Rose memorandum to counsel of 3 June 2004 which singled it out for the attention of Mr Tracey QC.

28.120 On 26 July 2004, Mr Cooper gave an update on Project Rose to the Executive Leadership Group. Dr Fuller's handwritten notes record an agenda item 'Iraq—OFF' but they do not record what was said by Mr Cooper. 176 Mr Cooper's notes of the meeting record, amongst other things:

Can't cooperate fully - too damaging

and

Limited cooperation— AL's preferred pos.177

'AL' is a reference to Mr Lindberg.

These notes indicate that AWB had formed a view that it would limit the cooperation it afforded to investigating authorities out of fear that full coopration would reveal facts damaging to it.

28.121 On that same day, Mr Thomas, AWB's then General Manager, Corporate sent an email to Messrs Hargreaves and Trewin copied to Messrs Cooper and McKinlay reporting on the overview given by Mr Cooper to the Executive Leadership Group. The email read:

Peter! Matt,

Jim gave a good overview to the ELG on where things are up to regarding Rose. Discussion took place. AL and Jim will present to the Board on Wed.

In summary, the view is that we should take a 'passive cooperative approach' -i.e. assist where asked and provide appropriate responses—but not much upside in being actively cooperative. 178

Report of the Oil-for-Food Inquiry 343

Further meetings and briefings

27 July 2004: the Wheat Export Authority - AWBI Board-to-Board meeting

28.122 On 27 July 2004, the Boards of the WEA and AWBI met. At the meeting the Boards discussed the draft Performance Monitoring Review Report, the Growers Report, International visits by WEA, the 2004 Review and Report and Future Board to Board meetings.

28.123 The Boards discussed the status of the WEA's request that had been made in March 2004 for copies of AWB's Iraq contracts which had not been met. 179 Because of concerns regarding confidentiality, it was proposed by AWBI senior management that the WEA attend AWBI's offices to sight the contracts and carry out their audit in house. 180

28.124 At this time, the AWBI Board was aware that AWB had been conducting an internal investigation into its Oil for Food contracts with Iraq since June 2003. 181 The Board was also aware that Mr Tracey QC had been briefed to advise upon whether AWB may have contributed to a contravention by Australia of its obligations under UN Resolution 661 or contravened any Commonwealth or State legislation. 182 The Board did not disclose this information to the WEA.

28 July 2004: a joint information session

28.125 On 27 July 2004, Mr Cooper sent a copy of the briefing he proposed to present to the Board on 28 July 2004 to Messrs Quennell and Chesterman requesting that any comments be provided by that afternoon.183 Mr Quennell responded to Mr Cooper's email in the following terms:

Jim,

One suggestion which was made at the last Board meeting was that we should conduct an investigation of Alia's structure, shareholding etc (I think the idea may have come from Chris Moffatt). The decision was subsequently taken (by management) not to go down that route. 1 84

28.126 AWB have claimed legal professional privilege over the remainder of Mr Quennell's email. This claim was upheld. 185 Mr Cooper responded to Mr Quennell's email that evening stating, 'Chris—thanks—I have added a page on Alia into the slides'. 186

28.127 The page on Alia drafted by Mr Cooper formed the final page of a PowerPoint presentation entitled 'AWB; Project Rose AWB Limited Board Briefing 28 July 2004'. It read:

344 Report of the Oil-for-Food Inquiry

Alia for Transportation and General Trade Company

• A Jordanian company based in Amman, Jordan

• Owned 51% by the Al-Khawam family based in Iraq

• Chairman is Mr Hussain Al-Khawam

• Directly reporting to him is the General Manager, Mr Othman Al-Absi (AWB's most frequent contact)

Apparently 49% owned by the Iraqi Ministry of Transport

• The company was formed in 1995 as a joint venture with the Iraqi Ministry of Transport

• Al-Khawam's clan is prominent in southern Iraq and in Jordan. His father led a rebellion against the British mandate in Iraq in 1920 and against a British-backed government in 1935.187

28.128 At the top of the page was a note in Mr Cooper's handwriting', which read 'Remove from pack'.

28.129 Mr Cooper described the circumstances in which he came to write these words 'Remove from pack':

I had inserted this page the day before to address the board's request for further information on Alia, and it was a combination of information that I had found and had been given instructions on by the business people, and I printed that document out and took the presentation to Andrew Lindberg. Some time after I finished it, I have reconstructed from my email records that I finished this draft at about 5 o'clock in the afternoon on 27 July 2004, and it was presented - it was used the following day at the various board meetings, and I, sometime between completing it—I took it upstairs in hard copy form as I hadn't reviewed it with

Andrew Lindberg at that stage, and as a non-member of the ELG and as someone presenting to the board I would always review such presentations with Andrew before they were presented.

And at that stage we had been working for the last - the previous seven weeks on the American investigation operated by the permanent subcommittee on investigations of the US Senate, and the presentation was mainly about that, but also included this page on Alia's background, which some of the board members had requested more detail on. I recall reviewing it in Andrew's office, the whole pack, and he was to present the next day to the AWB Limited board, which he subsequently did on his own, without my attendance, on just the PSI inquiry, and

I was separately presenting the next day for about half an hour to both boards, at what is called a joint information session. When we got to this slide, Andrew just said 'Oh, yeah, take that one out', and I did. That's my handwriting at the top, and it is not my relaxed form of handwriting, it indicates to me that I have scribbled it

while sitting at Andrew's desk.

Report of the Oil-for-Food Inquiry 345

So that page was taken out, but my understanding was that the slide pack was

going to be used for two presentations the following day—my presentation to the joint information sessions and that Andrew was going to use it for his presentation to the board on the PSI inquiry. 189

28.130 As to why Mr Lindberg wanted the page taken out, Mr Cooper said:

There was no elaboration about it. My sense of why he wanted it taken out was that he thought it was too much detail. 190

28.131 Mr Cooper gave evidence that, in response to Mr Lindberg's direction, he did the following:

Well, I did as he said, but I always intended to address it at the joint information session the next day. 191

I had no instruction from Andrew not to tell the board about the 49%, and I left that meeting with him taking the slide— removing that slide from the pack, but I intended to tell the board about Alia and their percentage shareholding. 192

28.132 When asked whether he did tell the Boards about the 49 per cent ownership of Alia by an Iraqi instrumentality, Mr Cooper's evidence was equivocal. He said:

To the best of my recollection, I can't recall telling the board about that the next day, but I cannot recall not telling them. I have made inquiries of other people who were at that presentation, and none of those people have kept notes or could remember whether I addressed that issue, but I certainly have a recollection that I intended to present that issue, and I assume that we had imparted that information to the board. 193

28.133 In his second supplementary statement to this Inquiry, Mr Cooper wrote

regarding the 28 July joint information session:

At that briefing the Board was informed of the following:

(a) the PSI inquiry could take in excess of 2 years and had the power to subpoena documents and testimonies from individuals;

(b) the prime target was the United Nations but the wheat market into Iraq was a likely secondary target;

(c) the PSI inquiry had bipartisan support but was very political;

(d) that AWB had obtained initial legal advice from US lawyers Piper Rudnick; and

(e) a list of relevant laws considered in the advice received from Piper Rudnick of the implications for AWB's US operations. 194

346 Report of the Oil-for-Food Inquiry

28.134 There is no other evidence before the Inquiry which would suggest that

Mr Cooper advised the Boards at the joint information session of 28 July 2004 of AWB's knowledge on this point.

28.135 It was the evidence of several Directors that the page regarding Alia was not used during the presentation, nor were its contents discussed. 195

28.136 Dr Fuller's notes of the joint information session do not refer to Alia. 196

28.137 Mr Lindberg denied instructing Mr Cooper to remove the page from the presentation. 197 His evidence was that Mr Cooper disclosed information about Alia's ownership at a presentation to either the Boards or the Executive Leadership Group in the second half of 2004. 198

28.138 The Minutes of the AWBI Board Meeting held on 27 July 2004 and those of the AWB Limited Board Meeting held on 28 July 2004 after the joint information session simply record that Directors of both Boards attended (or would attend) a joint information session including a presentation by Mr Cooper regarding 'Project Rose: Oil for Food Inquiry'. 199

28.139 The ownership of Alia was known to Mr Lindberg and Mr Cooper. The weight of evidence is that Mr Cooper did not tell the Boards at the joint information session of the structure and ownership of Alia. His evidence was no higher than that he assumed the information was imparted to the Boards.

28,140 On 6 August 2004 Ms Freeman 200 , met with Messrs Hargreaves, Long and Trewin in Melbourne. At that meeting Mr Hargreaves told Ms Freeman that AWB had been approached by PSI staff to provide information in relation to their contracts under the OFFP. 201

August 2004: Wheat Export Authority briefing paper

28.141 On 11 August 2004 Mr Sheridan provided the WEA with a briefing paper regarding AWB's involvement in the Oil-for-Food Programme. 202 The paper was supplied to Mr Sheridan by Mr Hargreaves. 203

28.142 Amongst other things, the paper noted:

3. AWB's supply of wheat to Iraq under the OFF Program

• From July 1999, there were 26 contracts supplied by AWB under the OFF program which included a freight component being fees for inland trucking from port to silos within Iraq. In all of these

Report of the Oil-for-Food Inquiry 347

contracts the terms specified that the grain was supplied CIF free on

truck (FOT) to silos at all Governorates.

• 1GB specified the transport company to be used and the cost of the transport services was specified by either 1GB or the transport company.

• Where contracts included a freight component for inland trucking, the transport within Iraq of grain supplied by AWB, was undertaken by Alia (a Jordanian transport company) in order to meet the contract requirements of the grain being delivered from the port to inland Iraqi silos. 204

28.143 AWBI did not disclose in the briefing paper that the fact or amount and

change in amount of the payments for trucking fees made to Alia, were not disclosed on the face of any of the twenty six contracts. It did not disclose the unexplained 10 per cent increase in trucking fees. It did not disclose prepayment of the fees, or that such fees were passed on to the Ministry of Transport. The inflation of the price in contracts A1670 and A1680 to recover the Tigris debt was also not disclosed.

Wheat Export Authority's inspection of contracts

28.144 On 11 August 2004, Mr Charman and Ms Duck (both from the WEA) attended the offices of AWB in Melbourne and were given access to documents in a folder, namely:

• seventeen sales contracts for the sale of wheat to Iraq under the United Nations Oil-for-Food Programme

permission to export details issued by DFAT

• 'authorisation letters from the UN World Food Programme for each contract'

'variations to the contacts'.205

These were the documents sought in March 2004 and which it was noted at 27 July 2004 Board meeting had not been supplied by that date.

28.145 In preparing the documents that were to be inspected by the WEA, Mr Sheridan spoke to Mr Long. He asked Mr Long for copies of 'contracts and associated documentation such as the UN approvals documentation'. 206

348 Report of the Oil-for-Food Inquiry

Mr Sheridan's evidence was that Mr Edmonds-Wilson was directed by

Mr Long to copy the documents. 207 Mr Sheridan also spoke to Mr Cooper about the request made by the WEA because he was coordinating Project Rose.208 Mr Sheridan did not limit the documents he requested from Mr Long or Mr Cooper. 209

28.146 On 8 July 2004, after the documents had been compiled, Mr Sheridan sent an email to Messrs Long and Whitwell and Ms Scales, copied to Messrs Johnson, Edmonds-Wilson, Cooper, Heath and McCormack:

Michael/Chris/Sarah,

as per request from WEA for Iraq contracts, Nigel has provided a set of documents which we are advised includes:

17 AWB Limited Export Sales Contracts (and amendments) between 20/1/00-23/6/02 (14 of these are with Grain Board of Iraq, 2 with Savas and 1 with CSC)

UN Approvals to Ship

Applicable customs clearances

Can you confirm it is okay to release documents to WEA accordingly?

Regards, Steve 210

Mr Long responded that same day noting that he had reviewed the documents. He advised:

there is nothing that hasn't already been seen by DFAT/UN. OK to go from my perspective. 211

28.147 The 17 contracts identified in Mr Sheridan's email would not have included the 14 July 1999 contracts A4653, A4654 and A4655 or the 14 October 1999 contract A4822 which all contained the clause:

The cargo will be discharged Free into Truck to all silos within all Governorates of Iraq at the average rate of 3,000 metric tonnes per weather working day of 24 consecutive hours. The discharge cost will be a maximum of USD12.00 and shall be paid by the Sellers to the nominated Maritime Agents in Iraq. This clause is subject to UN approval of the Iraq distribution plan. 212

The 17 contracts would also not have included contracts A1670 and A1680 which had been inflated to recover the Tigris debt.

28.148 Mr Sheridan's evidence was that it was the WEA who specified the two-year time frame for the contracts they wanted to inspect. 213

Report of the Oil-for-Food Inquiry 349

28.149 Mr Charman did not have a record of the dates of any of the 17 contracts that

he looked at. 214 He could not recall seeing contracts A1670 and A1680. 215 He said that if he had not seen contracts A1670 and A1680 on 11 August 2004 he would never have seen them. 216

28.150 The primary purpose of the WEA's review was to confirm that the contract

data which had previously been provided to them reconciled to the contracts that were on hand within the AWBI offices so that the WEA could be confident that its use of the data provided was producing a reliable result regarding calculation of an FOB price. 217 In addition, one of the matters that Mr Charman and Ms Duck were to review was the allegation that there may have been a 10 per cent kickback to the Iraqi Government or other entities in Iraq.218

28.151 Mr Charman considered his role to be to check the AWBI documents to establish whether the FOB prices previously advised by AWBI were consistent with the contracts. 219 As the contracts did not separate any of the costs, including inland transport costs, Mr Charman could not have reconciled the FOB amount. Nor could he have identified whether or not the contracts were of a kind that might have disguised a kickback.

28.152 Mr Besley, the WEA's Chairman, acknowledged that Mr Charman would have needed to know the contract price, and all costs to be deducted from that price, to establish the true FOB price. He accepted that tests carried out by Mr Charman could not possibly determine if the FOB price obtained by AWBI was the best available for growers, as Mr Charman did not have the material before him necessary to calculate the FOB price. 22 0

28.153 Mr Charman instead satisfied himself that the price in the contracts, less such costs as he had previously been advised, which did not include inland trucking fees, exceeded the FOB price AWB had previously advised. He apparently noted that this was above the benchmark price and was accordingly safisfied. 1

28.154 Mr Charman and Ms Duck also reviewed two letters from the WFP relating to contracts A1670 and A1680. The letters stated that the WFP had been requested by the CPA to deduct the after-sales-service fee of 10 per cent on each contract. Mr Charman's evidence was that, upon seeing these letters, he asked Mr Sheridan what this was about, and why a 10 per cent reduction had been agreed. He said Mr Sheridan left the room and when he returned said words to the effect:

When the coalition forces came into Iraq the CPA forced a 10% reduction on all suppliers of food imports to Iraq. This was because they wanted to gain credibility and show value to the Iraqis by reducing the costs of goods and services. All

350 Report of the Oil-for-Food Inquiry

suppliers agreed bar one, a Russian company, and that Russian company's

contract was cancelled. 222

28.155 Mr Sheridan's evidence was that when the WEA raised the query regarding the 10 per cent reduction he left the meeting and sought a response from Mr Long or Mr Whitwell. 223 He then returned to the meeting and conveyed the response provided to him by Mr Long or Mr Whitwell to Mr Charman and Ms Duck. 22 4

28.156 Mr Whitwell's evidence was that he did not believe that he had provided the

information to Mr Sheridan. His evidence was:

A: I don't think I was part of the process of providing that information to the WEA on 11 August. I did provide him with an email on or around 11 to 13 September, which did provide further information to him.

Q: But it was not your view, was it, that the 10 per cent deduction was unrelated to the alleged claims - that is, the claims of kickbacks - and was a move by the CPA to gain credibility from, and show value to, the Iraqis?

A: Again, that was not something that I—that's not a line that I would say that I had formed in my own mind.225

28.157 In truth, each of Mr Long and Mr Whitwell knew of the imposition of the 10 per cent after-sales-service fee by Iraq and its inclusion in the trucking fee. They had explained it to Mr Cooper in mid July. It had been highlighted in Mr Quermell's brief to Mr Tracey QC in early June. It was thus widely known

within AWB and AWBI. However, whoever of Mr Long or Mr Whitwell gave instructions to Mr Sheridan, they did not inform him of the known situation regarding the 10 per cent increase. The explanation conveyed to and by Mr Sheridan was untrue, as either of Mr Long or Mr Whitwell knew.

28.158 Mr Charman accepted Mr Sheridan's explanation. He stated that because the risk premium incorporated in the contract was so high, a 10 per cent reduction would still deliver a high FOB return against benchmarks. He could see no detriment to the growers. 6

28.159 Mr Charman and Ms Duck were not told that the prices in the contracts had been inflated to recover the Tigris debt from the UN escrow account, or that AWBI held that money.

28.160 On his return to Canberra, Mr Charman prepared a record of the meeting. 7 The record in relation to AWB's Iraq sales contracts read as follows:

Iraq Sales Contracts

10. AWB(I) provided a folder, for WEA perusal, which contained:

Report of the Oil-for-Food Inquiry 351

•

17 sales contracts for the sale of wheat to Iraq under the UN Oil for Food Programme;

• certification of export details by the Department of Foreign Affairs and Trade;

• authorisation letters from the UN World Food Program (WFP) for each contract; and

• any variations to the contracts,

11. The WEA read each document in the folder to verify that the details were consistent with information and data previously obtained by the WEA.

12. There were two letters dated 22 November 2003 from the WFP relating to contracts, A1670 and A1680, which stated that 'WFP have been requested by the CPA [Coalition Provisional Authority] to deduct the after sales service fee of 10 percent on this contract'.

• This was the documentation that some media reports claimed was proof of 10 percent 'kickbacks' to the Iraqi regime; and

• The letters did not contain any reference to the rationale for the deduction nor any specific arrangements.

13. AWB(I) explained that the 10 percent deduction was the result of a blanket demand from the CPA of a 10 percent reduction on all contracts for food imports, including wheat:

• The demand was unrelated to the alleged claims and was a move by the CPA to gain credibility from, and show value to, the Iraqis; and

• AWB(I) considered that:

• there was little choice but to comply, if the contracts were to be honoured;

there was sufficient risk dividend built into the contract price to allow for the deduction without significant detriment to the National Pool; and

• a Russian supplier of food products refused to meet the demand and was unable to make a sale to Iraq. 228

Meeting with PSI staff

28.161 On 14 August 2004, Messrs Cooper, Hargreaves and Chesterman (from

Minter Ellison) travelled to Washington DC to meet with staff of the PSI. This meeting took place on 17 August 2004. Present at that meeting were Messrs Hargreaves, Cooper and Chesterman, together with Mr McDermott and

352 Report of the Oil-for-Food Inquiry

Mr Merrigan of Piper Rudnick, AWB's US lawyers and four members of the

PSI staff. 799

28.162 On the following day, Messrs Cooper and Hargreaves met with Mr Baxter, the then Deputy Chief of Mission of the Australian mission, and Mr Davies at the Australian Embassy in Washington to brief them on their meeting with the PSI staff the previous day.

28.163 On 19 August 2004, Ivfr Davies sent a cable to Canberra reporting on the meeting. 23 0 In that cable Mr Davies noted that AWB was to consider its position about future cooperation with the PSI investigation.

Further interviews with AWB employees

28.164 Throughout August 2004 Mr Querinell, with the assistance of a lawyer from

Minter Ellison, conducted further interviews with AWB employees Messrs Stott, Geary, Whitwell, Snowball, Owen, Lister, Edmonds-Wilson and Borlase and Ms Scales.nl Mr Quennell recorded notes of those interviews and draft witness statements were produced. 232

Wheat Export Authority's request for a written explanation of the 10 per cent reduction in prices

28,165 On 24 August 2004, Mr Sheridan sent an email to Mr Hargreaves copied to other employees of AWB including Messrs Cooper and Whitwell entitled 'Iraq Query'. The email enclosed a copy of the Wheat Export Authority's record of meeting on 11 August 2004 and stated:

Peter,

Further to our meeting with WEA on 11 August, they have provided their minutes of the meeting below. They have also requested a written explanation of the 10% reduction in prices requested by CPA:

• An item that arises from the meeting is that relating to the reason for the 10% reduction in contract price. In addition to the items highlighted in this document, could you please provide a letter or email confirming the advice regarding the CPA's demand for the reduction. This just closes the WEA's audit loop.'

Peter could you provide a written explanation that we can forward to WEA to close this off. I believe Jim does not have an issue with it and suggested you or Chris could draft something??

Happy to discuss,

Steven3

Report of the Oil-for-Food Inquiry 353

28.166 On that same day, Mr Hargreaves forwarded Mr Sheridan's email to Mr Long

requesting his assistance in preparing a response to the WEA's request. 234 Mr Long sent Mr Hargreaves' email to Mr Whitwell on 28 August 2004 requesting that he provide Mr Hargreaves with 'a short note regarding the matter'. 235

25 August 2004: AWB Board presentation

28.167 On 25 August 2004, Mr Cooper and Mr Hargreaves gave an oral presentation to the AWB Board. This presentation was focused on their meeting in Washington DC with the PSI staff. 236

28.168 The AWB Board minutes record that the Board discussed the verbal presentation given by Messrs Cooper and Hargreaves. 237

Request for Government's support in responding to the PSI investigation

28.169 On 27 August 2004, Mr Lindberg wrote to Mr Downer and Mr Vaile seeking the government's support in responding to the PSI investigation. 23 8 Mr Lindberg urged Mr Downer and Mr Vaile to 'authorise the Ambassador to approach the PSI on our behalf to have this matter resolved in a way that does not damage relationships between our two counfries'. 9

Explanation of the 10 per cent reduction in prices

28.170 On 13 September 2004, Mr Whitwell sent an email to Mr Hargreaves in the following terms:

Peter

Sorry for the delay accessing emails has been a nightmare

from best recollection:

I was advised by certain CPA officials that there was a CPA directive to WFP to insist on a 10 pct reduction in ALL contracts that were to be renegotiated and that this was not supplier specific. When I was contacted by WFP in late September to renegotiate the balance of A1680 (approx 300 K) and A1670 (500K) this was again put to me. I protested in the strongest possible terms and took guidance from our contacts in Baghdad who confirmed the determination on this matter.

At the time the consequences of not taking the decision to reduce by 10 pct far outweighed any benefit. We had been carrying the stock in a small 02/03 pool and this was already costing large additional carry costs to supply chain. In addition I had freight contracts that if not executed would incur a loss to the Pool. In addition we also had possible Forex losses associated with not executing the contract. However, by far the most compelling need to execute the contracts was

354 Report of the Oil-for-Food Inquiry

that if we did not then the option of selling the wheat on the open market would

have incurred a loss to the pool model of at least USD 30 pmt on the net fob of the Iraq sale (even with the 10 pct reduction) compared to what the market was on the day for an equivalent type of wheat (you may want to check the exact figures if

necessary with the Pool pricing team).

I hope this assists 240

28.171 Mr Whitwell's email explained the commercial reasons why AWB had agreed to the reduction. It did not mention that the reason why the 10 per cent reduction was required was to remove the after-sales-service fee. This was known to Mr Whitwell and to Mr Long, who had been copied with Mr Whitwell's reply. Mr Whitwell's email said nothing about moves by the CPA to gain credibility, or about the demand being unrelated to the alleged kickback claims, both matters which the WEA had been told on 11 August 2004.

28.172 Mr Sheridan did not subsequently relay this information to the WEA 241 , nor did Mr Hargreaves. 242 WEA's request for a written explanation for the reduction in price of 10 per cent on contracts A1670 and A1680 thus went unanswered.

3 September 2004: AWBI Board update

28.173 On 3 September 2004, Mr Lindberg provided a verbal update on Project Rose to the AWBI Board. The AWBI Board minutes record under the heading 'Information/ Discussion items' that the Board discussed the verbal update provided by Mr Lindberg. 243 What was said is not known.

28.174 The AWBI Board was also briefed on a number of issues that had arisen regarding the draft Wheat Export Authority Performance Monitoring Review Report. Mr Sheridan's evidence was that the Board was told that the WEA had attended AWB's offices to review AWB's contracts with Iraq.2 44

The Australian Embassy's meeting with PSI staff

28.175 On 16 September 2004, Mr Cooper sent a status report on Project Rose to

Messrs Thomas and Hargreaves for provision to the ELG. 245 The status report noted the following under the heading 'AWB's Background Preparations':

An electronic database of all documents relevant to this matter has now been established by Minter Ellison. This has been an intensive effort over the past 8 weeks with approximately 14,000 documents being located, electronically scanned and indexed on the system. Now that this task is completed, costs will reduce significantly. Interviews with nearly all AWB management have been completed with written statements prepared. It will be necessary to hold some final

Report of the Oil-for-Food Inquiry 355

interviews with certain key executives to increase our understanding of key

events. 246

28.176 On 16 September 2004, Mr Baxter and Ms Freeman from the Australian

Embassy in Washington DC met with staff from the PSI.

28.177 On 20 September 2004, Ms Freeman sent a cable to Canberra reporting on the meeting with PSI.247 The cable noted that AWB had assured the government that it had acted with propriety at all times in its Oil-for-Food dealings. The cable also noted that the PSI staff did not appear to be swayed by the arguments put forward and were keen 'to determine the extent of AWB Ltd's cooperation in the investigation sooner rather than later'.248

28.178 On 21 September 2004, Mr Downer and Mr Vaile responded to Mr Lindberg's letter of 27 August 2004.249 The Ministers informed Mr Lindberg that they had 'directed the Australian Embassy in Washington to convey to the Subcommittee on Investigations Australia's concern that Australian companies be treated fairly, and receive no less favourable treatment in their dealings with the inquiry than their US counterparts'. 250

28.179 On 27 September 2004 Mr Hargreaves sent an email to Mr Baxter enclosing some brief notes to assist in 'preparing Ambassador Thawley for his meeting with Senator Coleman. 25 1 The notes comprised:

. An outline of suggested talking points which present our position

• A short summary of the analysis of the OFF Program by the US Joint Defence Contract Agency and why this shows that neither AWB nor Australia should be involved in the PSI Investigation

• An outline of the material AWB would consider providing to the PSI under agreed levels of cooperation. 252

Mr Hargreaves noted in his email:

It is also critical to us, that from this meeting, PSI understands that our reluctance is not because we believe we have anything to hide but our concern that on justifying our price, we will be obliged to divulge commercially sensitive information that shows how we do business in Iraq, how we cost it, and how we extract a premium but still remain competitive. 253

28.180 That day, Mr Baxter and Ms Freeman met with representatives of AWB's US-based legal counsel, Piper Rudnick, to discuss their views and experience about the operations and methods of the PSI and the possible implications of this for AWB. 254 During the meeting, the representatives of Piper Rudnick gave Mr Baxter and Ms Freeman a copy of a briefing it had prepared which summarised the Defence Counsel Audit Agency (DCAA) Report. This was a

356 Report of the Oil-for-Food Inquiry

report that had been jointly prepared with the Defence Contract Management

Agency on the pricing evaluation of contracts awarded under the Oil-for-Food Programme. 5

28.181 On 28 September 2004, Mr Blazey wrote a Ministerial Submission to Mr Downer and Mr Vaile regarding Mr Downer's request to review files held in Canberra and New York on the Government's involvement in the Oil-for-Food Programme between 1996 and 2003. 256 Mr Blazey reported:

We found no evidence on the files to support accusations that AWB Ltd paid kick-backs to the former regime, or to suggest that the Government was aware of, or involved in, any inappropriate conduct in connection with the Oil-for-Food programme. Our Mission to the United Nations was advised by OIP of accusations (raised by an unnamed third country) that AWB Ltd had used 'irregular payment methods', and the files also refer to kick-back allegations

levelled by US Wheat Associates, but we found no evidence to support either claim.n7

28.182 On 28 September 2004, Mr Cooper and Mr Hargreaves gave a verbal update

to the AWBI Board on Project Rose. 258 The Board minutes record that the Board discussed the update.259 Notes in Mr Cooper's notebook record the following information was to be conveyed to the Board:

• s report on the meeting with the PSI in Washington DC

• no document had yet been produced by AWB to the PSI and no official demand for documents had been received from the PSI

• 14,000 documents had been located by AWB, scanned and indexed, including all AWB Iraq contracts for the relevant period which had been reconstructed

• AWB management had been interviewed with statements prepared

• all legal issues had been researched with written opinions received

• a team of advisers had been assembled and was ready to move if PSI matter became active. 260

28.183 On 5 October 2004, Mr Hargreaves sent some revised talking points by email to Ms Freeman for Ambassador Thawley's meeting with Senator Coleman. 26 ' On 7 October 2004, Ambassador Thawley met with Senator Coleman in Washington DC .262

28.184 On 8 October 2004, Mr Hargreaves had a telephone conversation with Ms Freeman in which she enquired whether AWB would be prepared to submit a 'goodwill' document for the PSI.263 A 'goodwill' document was

Report of the Oil-for-Food Inquiry 357

something that would be a gesture towards the PSI by AWB providing some

information about their experience of doing trade in Iraq under the Oil-for-Food Programme. 264 A document was prepared by Minter Ellison for possible provision to the PSI however it was never provided. 265

28.185 Mr Hargreaves had a further telephone conversation with Ms Freeman and Mr Baxter on 12 October 2004. Messrs Cooper, Trewin, Chesterman and McDermott (from Piper Rudnick) also participated in the telephone conference. The purpose of the telephone conference was to provide AWB

with a summary of the meeting between Ambassador Thawley and Senator Coleman. 266

28.186 In November 2004, Mr Hockey contacted Mr Hargreaves and told him that DFAT required a point of contact at AWB to pass on to the Independent Inquiry Committee. 267 On 17 November 2004 Mr Hargreaves sent an email to Mr Blazey advising him that he was the AWB contact in relation to the United Nations and the Oil-for-Food Programme Inquiry. 268

The IIC investigation continues

Cooperation with the IIC

28.187 On 19 November 2004, Mr Blazey wrote a Ministerial Submission to

Mr Downer and Mr Vaile regarding a request for information received from the IIC.269 Mr Blazey referred to a meeting held on 8 November 2004 with the Australian mission to the United Nations and representatives of the TIC. Mr Blazey noted that

The high-level UN panel investigating alleged corruption in the Oil-for-Food (OFF) program has asked us for information about Australian suppliers to the program and possible breaches of sanctions. They have also asked for relevant documents held by the Government and to interview officials. We have an obligation under UNSCR 1538 to cooperate with the panel. While we propose to offer an appropriate level of assistance, we do not intend to provide copies of documents already held by the UN, and while we will entertain written questions,

we will not allow officials to be interviewed. We will encourage companies to seek independent legal advice. 270

On 22 November 2004, Mr Downer read and endorsed the recommendation

made by Mr Blazey. 271

28.188 On 22 November 2004, Mr Blazey wrote to Mr Hargreaves advising that the IIC inquiry had requested assistance from the Australian Government and that AWB was encouraged to co-operate with the inquiry. 272

358 Report of the Oil-for-Food Inquiry

28.189 On 2 December 2004, Messrs Hargreaves and McBride circulated a

memorandum to the ELG regarding Project Rose. The memorandum noted that through DFAT, AWB had been asked to provide a contact point for the TIC inquiry and that AWB's strategy was 'to insist that all communication be conducted through DFAT since they were conduit for approval process for sales into Iraq under OFF'. 273

28,190 On 11 December 2004, following receipt of this letter, Mr Hargreaves had a telephone conversation with one of the TIC investigators. Mr Hargreaves could not recall the precise details of the conversation but he could recall that it concerned the TIC inquiry and AWB's cooperation with it.274 Following

Mr Hargreaves' initial discussion with this IIC investigator, several emails passed between them regarding the TIC inquiry. Mr Hargreaves was also involved in discussions with Messrs Cooper and Chesterman in relation to his contact with the investigator. 275

28.191 In mid December 2004, Mr Stewart received a telephone call from Mr Downer. Mr Downer told Mr Stewart that some time prior to the call, the Prime Minister had received correspondence from the Volcker Inquiry (TIC), and that the Prime Minister had instructed him to tell AWB to cooperate. Mr Stewart told Mr Downer there were some differences concerning a protocol for the provision of confidential information to the Volcker Inquiry but that AWB would cooperate with the Volcker Inquiry. 276

14 December 2004: joint information session

28.192 On 14 December 2004, the Boards of AWB Limited and AWBI attended a joint

information session. Presentations were given by Mr Long about Iraq and by Mr Trewin about the Iraqi Debt Senate Inquiry. In addition a presentation was also made by Mr Cooper concerning 'Project Water-Tigris'.2 77

28.193 The minutes of the AWBI Board meeting held on 14 December 2004 and the AWB Limited Board meeting held on 15 December 2004 record that:

The Managing Director briefed the Board in relation to the Tigris transaction. It was noted that Tigris had assisted AWB in recovering threatened wheat sales in Iraq in 2002; in consideration for that assistance AWB had assisted Tigris in recovering a debt owed to Tigris by the Grains Board of Iraq; Tigris had paid a commission for the recovery of the debt and all of that commission was paid to

AWB (International) Limited and therefore to growers.

The Company had received advice from Senior Counsel that having collected the debt it was lawful to pay it to Tigris. 278

Report of the Oil-for-Food Inquiry 359

The JIC request for information and negotiation of memorandum of

understanding

28.194 On 22 December 2004, one of the TIC investigators wrote to Mr Hargreaves by email seeking access to documentation and interviews with relevant AWB staff. The investigator sought the following information from AWB:

a) Copies of all documents relating to contracts awarded under the UN's Oil-for-Food Programme to the Australian Wheat Board/AWB Limited, including letters of credit and bank transfers.

b) Details of any handling agents or transportation companies used by the Australian Wheat Board/AWB Limited in connection with the delivery of wheat to Iraq. This has been discussed in the press by the AWB (the Jordanian trucking company) and we request full details:

• Details of the transportation company, details of payments, copies of all correspondence, copies of all documents relating to financial agreements or transfers;

• We would also request interviews with AWB representatives who dealt with the transportation company.

c) Interviews with AWB staff who were involved in discussions with Iraqi authorities including Andrew Lindberg, Michael Long, Trevor Flugge and Dominic Hogan.

d) Any documents from the Australian Wheat Board/AWB Limited Audit Committee relating to the audit or general oversight of contracts with Iraq.

e) All documents relating to any internal or external investigation conducted in relation to contracts under the Oil-For-Food Programme.

f) Assistance in arranging interviews with any other personnel from AWB Limited and personnel from the former Australian Wheat Board, including members of the Audit Committee of both organizations who may have information of assistance to the inquiry. 279

28.195 On 12 January 2005, Mr Hargreaves travelled to Canberra to meet with DFAT officials. The purpose of his visit was to discuss the level of cooperation DFAT was providing to the TIC and to seek some guidance from them as to how to respond to the TIC to ensure a consistent approach between AWB and DFAT. Mr Hargreaves' evidence was that Mr Blazey told him that DFAT was just a 'post box' for the United Nations and they would not be duplicating documents already sent to the United Nations by DFAT, nor would they be making staff members available for interview with IIC investigators. 28 0

28,196 On 20 January 2005, Mr Hargreaves responded to the TIC investigator's email of 22 December 2004. Mr Hargreaves did not provide an answer to the

360 Report of the Oil-for-Food Inquiry

investigator's request but stated that AWB were continuing to 'explore what

would be the most appropriate way to assist the inquiry'. 281

28.197 On 24 January 2005, Mr Hargreaves circulated a memorandum to the ELG regarding Project Rose. The memorandum noted that AWB had received a detailed request from a senior investigator with the TIC but that no information had yet been provided. The memorandum noted in respect of 'AWB's strategy':

AWB's strategy continues to be to minimise the impact if the inquiry on AWB's reputation and its business activity by remaining in the 'middle of the pack' - not standing out for fulsome cooperation nor for recalcitrance. 282

28.198 On 27 January 2005, the TIC investigator again wrote to Mr Hargreaves seeking a response to his original request of 22 December 2004.283

28.199 On 31 January 2005, Mr Hargreaves responded to the IIC investigator's email. His response was:

We struggle to see how there would be any benefit in duplicating the chain of documentation regarding our trade with Iraq under the OFF program given you are already accessing this information through the United Nations, but would be prepared to discuss this with you.

Further, given the effluxion of time and company policy it would not be our intention to offer AWB representatives for interview but would consider a process for answering questions on notice. 2M

Ambassador and First Secretary's meeting with Mr Volcker

28.200 On 7 February 2005, Ambassador Dauth and First Secretary to the United

Nations Mr Milton, met with Mr Volcker and TIC senior investigators at Mr Voicker's request. Following the meeting Mr Milton sent a cable to Canberra reporting on the meeting. The cable read:

2. Volcker said he wished to discuss Australia's cooperation with the inquiry. Speaking frankly, he thought the IIC had encountered a problem with Australia's cooperation and, of all countries, did not want Australia to be on the inquiry's black-list. Australia, he said, had been 'beyond reticent, even forbidding' in

responding to the Committee's requests. It was important to break through this barrier.

3. Volcker said, quite bluntly, there was strong evidence the AWB had been involved in illegal surcharges and kickbacks under the Oil-for-Food program. According to Pieth, the AWB had operated through a middle-man in Jordan under the pretence of paying transportation costs. After calculating for haulage, Pieth

thought the AWB had paid perhaps an eight to ten percent surcharge. Volcker said the AWB's involvement was significant for the TIC. The AWB had been the largest contractor of sales of humanitarian goods to Iraq under the OFFP. While

Report of the Oil-for-Food Inquiry 361

the AWB

was not alone in paying surcharges for its shipments, its case could help the inquiry investigate other cases that were not as large but could be more damaging. Volcker said the UNSC 661 Committee had known about the surcharges, but had done nothing. This was of great concern and the Committee would need to look into this further.

Comment

12. Voicker's message was blunt. On the evidence available, his inquiry considers the AWB was involved in illegal surcharges and kickbacks under the Oil-for-Food program. His position that it would be in the AWB's interests to cooperate with the inquiry was clear—and underscored by his reference to the inquiry's 'neutral' treatment of BNP (at least in its interim report) following its cooperation with the

inquiry. We should make clear to the AWB it will need to consider its position carefully. Volcker also said that they had significant information about AWB's role from Iraqi sources and material. On the basis of Voicker's interim report, it is apparent he will not be afraid to name and shame those he considers acted outside the rules and regulations of the OFFP.

13. Volcker's unhappiness with Australia's cooperation in general is also apparent. We believe that we should reply to his requests for information quickly. 285

28.201 On 8 February 2005, Mr Borrowman, Assistant Secretary International Division of the Department of the Prime Minister and Cabinet, wrote a brief to the Prime Minister for the purpose of updating him on investigations into the United Nations' Oil-for-Food Programme. The brief read:

Key Issues: Volcker Approach: Volcker has told Australian officials that he considers there is 'strong evidence that AWE Ltd was involved in illegal surcharges and kickbacks under the OFFP', in particular that AWB knowingly paid inflated transportation costs which were kicked back to the Iraq regime. Volcker emphasised that it would be in AWB's interest to cooperate more fully with the HC.

Recommendation: that you note the above. 286 [emphasis added]

28.202 Mr Milton's cable was brought to the attention of Mr Downer on or about 9 February 2005. Mr Downer immediately telephoned Mr Milton and instructed him to convey to Mr Volcker that the Australian Government would give its full cooperation to the TIC. Mr Downer then discussed the matter with the Prime Minister, who endorsed his instruction. Mr Downer directed DFAT to ensure that the TIC had full cooperation. He also telephoned Mr Stewart to urge AWB to give its full cooperation to the IIC. 287

28.203 On 9 February 2005 Mr Blazey wrote a Ministerial Submission to Mr Downer and Mr Vaile regarding the Ambassador's meeting with Mr Volcker. The submission noted:

362 Report of the Oil-for-Food Inquiry

We understand you (Mr Vaile) are informing

AWB Ltd of the UN's concerns

about their perceived lack of cooperation and the risks from non-cooperation and are encouraging them to cooperate with the TIC. In doing so we recommend you also seek AWB Ltd's consent to the Government handing to the TIC AWB Ltd sourced information that may be in our possession.

Volcker also told us 'there was strong evidence AWB Ltd had been involved in illegal surcharges and kick-backs under the Oil-for-Food programme'. According to him, AWB Ltd paid an 8 to 10 per cent kick-back through a middle-man in Jordan under the pretence of paying transport costs. Volcker implied that if AWB Ltd cooperated it would be treated more generously. (AWB Ltd have acknowledged privately and in comments to the press in April 2004 that they could not vouch for the bona fides of the trucking company they used in Iraq, but that they were required to use the company under the terms of the programme, and did not knowingly pay kick-backs.) 288

28.204 On 9 February 2005, Mr Hargreaves wrote to the TIC investigator informing him of his and Mr Cooper's plans to be in the United States during February. Mr Hargreaves sought a meeting with the investigator to explore 'a mutually acceptable process by which AWB could assist the IIC in its inquiries'. 289

28.205 On 10 February 2005, a telephone conference was held regarding Project Rose. Attendees were Messrs Stewart, Lindberg, Cooper, Long, McBride, Trewin, Hargreaves and Dr Fuller. Mr Cooper's note of the telephone conference records:

Downer call - must be full cooperation

- won't have lack of cooperation

Aust. Govt respects Volcker

Last thing you want is for there to be allegations of corruption which wd require us to put Fed. Police on case

They won't release AWB K's w/o our permission

We will cooperate but it has got to be measured & sensible. 290

28.206 On 9 February 2005, Mr Vaile spoke to Mr Stewart. Mr Vaile told Mr Stewart

that concerns had been raised by Mr Volcker about the company's lack of cooperation with the Volcker Inquiry. Mr Vaile said that it was the government's view that the company ought to fully and expeditiously assist in the investigations. 291

Report of the Oil-for-Food Inquiry 363

28.207 On 10 February 2005, the Prime Minister endorsed Mr Borrowman's brief

noting 'there must be full disclosure & transparency'. 292 On the same day the Prime Minister requested that Mr Vaile write to Mr Stewart to impress upon AWB the importance of its full cooperation with the TIC. The Prime Minister discussed the contents of this letter with Mr Vaile, and approved them, before the letter was sent. 293

28.208 On 10 February 2005, Mr Vaile wrote to Mr Stewart referring to the matters raised in his telephone conversation with Mr Stewart on 9 February 2005. The letter read:

It is the Government's strong view that censure of AWB Limited by the Volcker panel would be seriously damaging to the reputation and standing of the company. For this reason, I urge you in the strongest possible terms to fully and expeditiously assist the HC in its investigations.

The IIC has proposed an MOU with the Australian Government which contains appropriate protections against improper use or release of confidential information passed by the Government to the IIC. In the Department of Foreign Affairs and Trade's previous correspondence with AWB Limited it indicated that AWB Limited should seek its own legal counsel. This remains the Government's view, including in relation to any interest AWB Limited may have in seeking appropriate assurances from the IIC regarding the improper use of AWB Limited information. That said, given the seriousness of the concerns raised by the IIC Chair, I am strongly of the view that it is in your interests to cooperate fully and supply the requested documentation. 294

That day, the TIC investigator responded to Mr Hargreaves' email of 9 February 2005. The investigator reiterated his request for access to information previously sought and stated:

In terms of 'a mutually acceptable process by which Al'VB could assist the IIC in its inquiries', the AWB was a leading contractor under the United Nations Oil-For-Food Programme (OFFP). The IIC has been tasked with conducting an

investigation of the OFFP. As part of that investigation the IIC will be investigating the very public allegations made against the AWB. In order to conduct a proper investigation it is necessary for the IIC to have access to all relevant documentation and to conduct interviews with AWB staff who have relevant information. 295

28.209 On 11 February 2005, Mr Blazey wrote to Mr Lindberg noting the recent correspondence and telephone conversation between Mr Stewart and Mr Vaile and seeking a response to Mr Vaile's request regarding AWB's consent to the department passing any relevant AWB material in its

possession to the TIC.296

28.210 On 14 February 2005, Mr Quennell met with Messrs Lindberg and Cooper, Dr Fuller and Mr Chesterman of Minter Ellison. At that meeting he showed Mr Lindberg a number of documents which, he said, required explanation.

364 Report of the Oil-for-Food Inquiry

His evidence was that he thought he discussed with Mr Lindberg emails

written in 1999 concerning the inland transport arrangements and that he expressed his own reservations. 297 Mr Lindberg agreed that he was briefed by Mr Quennell in February 2005 at which time he was shown documents which he subsequently described as 'blemishes'. 298

28.211 On 16 February 2005, Mr Lindberg had a telephone conversation with Mr Volcker regarding AWB's cooperation with the TIC Inquiry. Notes drafted in preparation for that telephone call contained a number of dot points regarding AWB's cooperation and the IIC's request for documents. Part of those notes were in the following terms:

It would be helpful in these dealings if the IIC understood the process for exports to Iraq under the OFF Program.

DFAT was central to this process. All communication with the United Nations pertaining to Australian involvement or the involvement of Australian companies in the OFF was undertaken through DFAT. For example:

1. All exports to Iraq throughout the life of the OFF Program were undertaken with the full knowledge of, and in consultation with, DFAT.

2. All documentation between AWB Limited (AWB) and the UN was handled through DFAT.

3. In each case DFAT granted permission to AWB to export pursuant to regulation 13CA of the Australian Customs (Prohibited Exports) Regulations (As Amended). 299

28.212 On 17 February 2005, Mr Lindberg responded to Mr Blazey's letter of

11 February 2005.00 Mr Lindberg confirmed that he had been in contact with Mr Volcker and reassured him that AWB would be cooperating with the TIC.

28.213 Mr Lindberg also wrote that day to Mr Volcker regarding the TIC's work and his request for assistance from AWB. 301 Mr Lindberg referred to matters discussed during a telephone conference on 16 February 2005 and provided a summary of the 'main points' made in that conversation. The TIC was

provided with a draft confidentiality agreement dated 18 February 2005.302

28.214 By letter dated 18 February 2005, Ms Ringler, Counsel to the TIC, informed Mr Lindberg that the Committee was unable to accept the confidentiality agreement proposed by AWB.303 Attached to Ms Ringler's letter was a proposed memorandum of understanding which Ms Ringler said embodied the extent of the protections that the Committee was willing to extend to

AWB.304

Report of the Oil-for-Food Inqu ry 365

28.215 Mr Lindberg subsequently gave Mr Cooper responsibility for negotiating the

Memorandum of Understanding. 305 These negotiations took place between 22 February and 26 February 2005.306

28.216 They concluded in a memorandum of understanding, pursuant to which AWB set up a data room comprising 24,000 pages of AWB documents being documents falling within the categories formulated in the memorandum of understanding. Those documents were made available at AWB's office in Melbourne for inspection by investigators from the IIC.307 Those documents were the 71 volumes initially made available to this Inquiry. They omitted many relevant documents briefed by Mr Quennell to Mr Tracey QC as being important. They did not contain any of the results of the investigations conducted by AWB during or as part of Project Rose.

22 February 2005: concurrent meeting of the Boards

28.217 On 22 February 2005, a concurrent meeting of the Boards of AWB Limited and AWBI was held to brief the directors on Project Rose. The minutes disclose that the Board was briefed by Mr Lindberg, Mr Cooper and external lawyers in relation to the following issues308 :

• the United Nations Independent Inquiry Committee (TIC) - first report into the Oil for Food Programme

• AWB's correspondence with the TIC, including the meeting held by telephone between Mr Volcker and the Managing Director in which Mr Volcker acknowledged that AWB may have been involved in inadvertent non-compliance of aspects of the Oil for Food Programme as an 'unwitting accomplice'

• confirmation that AWB's own internal legal review to date had disclosed no evidence of corruption by AWB staff, in particular no evidence of improper payments to Iraqi officials nor evidence of AWB staff having received improper payments from Iraq

• the negotiation of a memorandum of understanding between AWB and the IIC, negotiated by Mr Cooper, General Counsel

• the Australian Government's position regarding this issue including the clear message delivered to the Chairman that the Australian Government expected AWB to cooperate with the TIC

• legal advice to manage the issue, encompassing various stakeholders (media, government, staff etc)

366 Report of the Oil-for-Food Inquiry

•

the TIC inquiry appears to be directed to Alia, its ownership and trucking fees incurred by AWB from 1999

• other issues involving the Iraq market

• the requirement for good governance and the outcome from the legal review that aspects of AWB's internal procedures could be improved

• the need to maintain confidentiality and legal professional privilege

• the need for full time resources.

28.218 The minutes also disclose that a Working Group was to be established 'to oversee Project Rose matters and receive legal advice on an ongoing basis'. The Working Group comprised Mr Stewart, the Chairman, Mr Lindberg, Mr Barry (Chairman of the Audit Committee), Mr Polson (Chairman of the Group Corporate Risk Committee), and Mr Starr (Chairman, Compliance Committee).

28.219 Dr Fuller's notes of the meeting record the following in respect of Mr Lindberg's address to the Boards:

Issues • Alia

• Trucking fees - reasonable

• Compliance UN Conventions circumvented

• Iron filings. Negotiation of quality claims - $6/tonnes —$5 tonne

• Tigris

• Governance - past! future

• Issues mg't—Geoff Allen

• Board - oversight. 309

28.220 Dr Fuller's notes then record the following discussion (in part):

I Thame - Wisdom of hindsight. Wished hadn't done that.

AL—Tigris

J. Thame —Notified D & 0 Insurance

I.C. —Haven't yet but will do so

AL - Blemishes - emails. Former employees

Report of the Oil-for-Food Inquiry 367

Any poss—engaged in activities

AL —can't say that

Peter H— Briefing —Vaile's staff sympathetic 310

28,221 Dr Fuller's evidence about Mr Lindberg's reference to 'blemishes' was that Mr Lindberg was describing some of the documents that had been reviewed as part of AWB's internal investigation and that Mr Lindberg said 'well, look, there are some blemishes there; there are some emails that could be misinterpreted or would not look good'. 311

28,222 Mr Stewart said that Mr Lindberg did at some stage talk about the investigations that they had and about emails, in terms of some 'Boys' Own stuff. He said that the Board was continually reassured that there was nothing that had come to light that would cause them concern. 312

28.223 Mr Lindberg did not dispute that he reported to the Board that there were

some 'blemishes' and some 'Boys' Own' documents that had been assembled by Mr Quennell. He said that he told the Board that he had sought Mr Quennell's advice about the documents. 313

28.224 On 24 February 2005, Mr Cooper and AWB's stakeholder relations team met with Mr Zwier and Ms Thompson from Arnold Bloch Leibler for a 'brainstorming session'. On a whiteboard Mr Cooper took notes of 'worst case allegations that the stakeholder relations managers could come up with, for which they said we [AWB] need to have a developed and agreed position'. 314 The notes read:

Shortcomings (Alia) PROTECT ROSE

• Non-disclosure to UN re trucking fees and name & ownership of Alia

• Inadequate disclosure to DFAT re trucking fee & identity of Alia

• Misleading disclosure to DFAT & UN

• Misuse of escrow funds (wilful/reckless/negligent/duped)

• Failure of senior mgt to supervise

• Breach of [spirit] UN Security Council Resolutions 661 & 986

• Failure of staff to report to Senior Mgt

• Failure to investigate cost of trucking by Alia (proportionality)

• Failure to investigate ownership of Alia

368 Report of the Oil-for-Food Inquiry

•

Failure to have proper contract of service with Alia • Overzealous behaviour to pursue sales at all costs • Failure to appreciate the use of the escrow account for paying Alia and therefore regime

• Senior mgt sanitising reports to be read by MD & the Board • Failure of IS&M to obtain legal advice

• Cooperation of staff with 1GB to circumvent UN Security Council Resolutions 661 and 986

• Failure of internal a/cing systems and internal audit to pick up these high payments. 315

The IIC visit

28.225 Between 26 February 2005 and 2 March 2005, TIC investigators attended the

Melbourne office of AWB to review documents. 316 In addition, the investigators interviewed the former Chairman, Mr Flugge and three members of AWB's staff, Mr Lindberg, Mr Long and Mr Hockey. 317

28.226 On 3 March 2005, Mr Blazey wrote a Ministerial Submission for the information of Mr Downer and Mr Vaile. 318 The submission noted that two investigators from the TIC had visited Canberra and Melbourne from 22 February to 2 March in connection with their inquiry into the Oil-for-Food Programme and that full access to relevant documents and officials had been provided to them. The submission also noted that despite initial reluctance, AWB had eventually negotiated an arrangement with the TIC regarding the handling of AWB information resulting in the investigators being able to access AWB material and interview relevant employees.

28.227 On 4 March 2005, a telephone hook-up of the Project Rose Committee was held. 319 Mr Lindberg reported on the TIC investigators' attendance at AWB's Melbourne office. 320

28.228 A memorandum circulated to the email group 'All Board' detailed a 'strategy to contain the media and only respond to calls if required'. 321 Some of the 'key messages' were:

• AWB has fully and willingly cooperated with the UN investigation and will make a decision on other investigations as the need arises.

• AWB position remains that it has found no evidence to support allegations of corruption in its trade dealings with Iraq under the Oil-for-Food Programme.

Report of the Oil-for-Food Inquiry 369

28.229 On 7 March 2005, Mr Lindberg had a telephone conversation with

Mr Downer. 322 The purpose of the telephone call was to brief Mr Downer following the attendance of the TIC investigators at AWB's offices. 322 Prior to the telephone call, Mr Lindberg was provided with a document setting out talking points for his conversation. 324 Some of those talking points included:

• IIC interviewed AWB representatives including Andrew Lindberg and the former Chairman Trevor Flugge

• Clear from inquiries that they are asking companies a lot about the Jordanian transport company— Alia

• They are asking companies who used them whether they were aware of any connection with the old regime

• We only became aware of a possible connection when the allegations were raised in the media well after the OFF Program ended

• Given the interest in Alia, the IIC may well make the allegation that money paid to the trucking company found its way back to the old regime

• We are concerned about how this look for AWB, but it's early days

• Importantly there is no evidence of corruption by AWB or individuals. 325

28.230 There was no reference in the talking points to Alia being part owned by the Government of Iraq, although this was known by Mr Lindberg.

28.231 Mr Lindberg's evidence was he raised with Mr Downer a number of the mailers set out in the talking points and in particular, he recalled providing Mr Downer with information to the effect that:

• The IIC was pleased with the level of co-operation that the AWB had provided;

• The IIC was enquiring into the Jordanian trucking company, Alia;

• The IIC may allege that money paid to the trucking company found its way back to the old regime because they said that Alia was part owned by the government of Iraq; and

• The AWB had only become aware of this possible connection after the Oil For Food Programme ended. 326

28.232 The fact that Alia was part owned by the government of Iraq did not appear in the talking points provided to Mr Lindberg. Mr Lindberg was adamant however that he had a 'very clear recollection' of telling Mr Downer this. 327 I do not accept Mr Linderg's recollection.

370 Report of the Oil-for-Food Inquiry

28.233 Mr Downer's recollection was that Mr Lindberg told him that the TIC was

pleased with the level of cooperation that AWB had provided. 328 Mr Downer could not recall the remaining points being raised by Mr Lindberg. Mr Downer said that if he had been told all of those things he would have made a note of it and been quite focused. His recollection was that his

conversation with Mr Lindberg focused on the whole question of cooperation with the 11C. 329 I accept Mr Downer's evidence.

10 March 2005: briefing of the Boards

28.234 On 10 March 2005, a briefing of both Boards of AWB Limited and AWBI was held for the purpose of updating the directors on Project Rose. 330 The minutes of the AWBI Board meeting held on that same day record that the meeting had taken place prior to the AWBI Board meeting. 331

28.235 Mr Fuller's notes of the briefing record:

• Arrangements professional

• Focus is Alia

• Costs significant— on risk

• Jordanian Co. - didn't know at the time

• Advised agst using Alia - But no-one contacted AWB

• Potential breach of UN Res'n 661— procedural

• Unknowingly or unwittingly breached

Used by US thru CPA, used by W Food Prog

RB—were others using it

AL— yes, many

Left happy Prof fully cooperated

Focus on Alia - what we knew and when we knew it

PP —Did we document ability to deliver commercially. Due diligence?

AL—Required to use by 1GB. We formed the view

XM—Used before?

AL—Yes

WMcCl - Tigris?

AL—Not an issue. 332

Report of the Oil-for-Food Inquiry 371

28.236 Mr Stewart's evidence was that this meeting was convened essentially to

report on the visit to AWB by the TIC investigators. 333 Mr Stewart did not agree that there was a strong inference arising from Dr Fuller's notes that the Board related the Tigris matter to a possible breach of UN sanctions. He could not however explain why the Tigris matter had been raised in connection with a discussion of the Volcker Inquiry.334

28.237 Mr Cooper made notes in his workbook which read:

• Two representatives from the IIC had visited AWB's offices

• They interviewed 4 people

• The interviews were formal and done under the terms of the Memorandum of Understanding

• AWB provided a dataroom. The TIC representatives noted the dataroom was very professional

• Lindberg had spent 2 hours with them

• Lindberg told the IIC representatives that AWB had done its own inquiry and we found no evidence of corruption

• Lindberg asked if the IIC representatives had any evidence of corruption and they had none

• Focus was on Alia

• The issue is narrowing: has there been a breach of UN Resolution 661? Has the Government of Iraq been paid?

• In an exit interview the TIC representatives said that AWB had co-operated fully

• Lindberg said an issue was whether AWB had unknowingly or unwittingly breached UN Resolution 661.335

28.238 Mr Tracey QC had already raised the third last of the above bullet points in

his advice to AWB.

28.239 Mr Cooper recorded that the following Directors asked the following questions and the following answers were given:

Rob Barry 'Did other people use Alia?'

Lindberg 'Yes, many. There were many logistical issues'.

Peter Polson 'Did we document due diligence on Alia when we started using them?'

372 Report of the Oil-for-Food Inquiry

Lindberg

'No. We had to use them.'

Kerry Sanderson 'Third parties - did they know that Alia was being used?'

Lindberg 'Contract didn't mention Alia but there was common knowledge of Alia'. 336

28.240 It appears there was discussion concerning whether AWB had knowingly or unwittingly breached United Nations Resolution 661 by making payments to the Government of Iraq through Alia. There was an acknowledgement that there had been no due diligence upon Alia because AWB had been required to 'use' it by 1GB. So far as the notes extend, there was no discussion regarding

the reality of the 'trucking fees', the unexplained increase in the trucking fee by the equivalent of 10 per cent of contract value (although this was certainly known to Mr Lindberg and Mr Cooper, and, perhaps, to the Board), but the inquiry was made whether 'Tigris' had been raised by the TIC investigators.

28.241 On 11 March 2005, AWB received draft summaries of interviews from the TIC of Mr Lindberg, Mr Long and Mr Flugge. 337

23 March 2005: a further memorandum of instructions

28.242 On 23 March 2005, Mr Quennell provided an additional memorandum of

instructions to Mr Tracey QC. The memorandum stated:

Senior Counsel's advice has previously been sought by instructing solicitors in relation to this matter. Enclosed with these instructions are twenty-six documents selected by [names edited for confidentiality] of the Independent Inquiry Committee for reference in their interviews of Andrew Lindberg and Michael Long on 28 February 2005 and 1 March 2005 respectively.

On the basis of the documents now provided to Senior Counsel (some of which were included in Senior Counsel's brief delivered on 12 May 2004), Senior Counsel is requested to advise whether his previous advice to the effect that there is:

1. no evidence of a breach by AWB (or more precisely, of a breach by Australia as a result of AWB's conduct) of UN Resolution 661; and

2. no evidence of a breach by AWB (or its officers and/or employees) of Australian domestic law

remains unchanged. 338

Report of the Oil-for-Food Inquiry 373

24 March 2005: the DFAT briefing

28.243 In March 2005, Mr Hargreaves drafted a PowerPoint presentation in

collaboration with the Project Rose legal team for the purposes of a briefing that was to be given to DFAT on 24 March 2005. 339 A draft of the PowerPoint presentation which was entitled 'Report on TIC visit to AWB' read under the heading 'Issues':

Focus - inland trucking arrangements

Questioning seems designed to establish whether, through the use of Alia, AWB had wittingly or unwittingly paid money to the Government of Iraq in violation of the Security Council Resolutions 661 and 986.

Questioning also sought to establish:

. How much did AWB know about the background of Alia?

• AWB representatives assured the IIC they knew nothing of any connection between Alia and the former regime until well after the OFF Program ended and allegations first began to appear in the media

• Unreasonable expectation should AWB have known or inquired of any connection with the former regime?

• AWB saw nothing untoward—paying for a service that was genuinely needed to improve efficiency of humanitarian program - also reduced demurrage - a big cost to growers

• It was no secret that Iraqis were paying for inland trucking— it was stated on the contracts

• Un contractors Contechna were inspecting the port operation including the discharge into Alia trucks

• No concerns were raised with AWB by the UN, Contechna or any other body throughout the life of the OFF program

• Was AWB aware of any payments being channelled from Alia to the old regime?

• No and subsequent legal review has found no evidence to the contrary

Focus - Inland Trucking Arrangements

• Questions regarding working relationship between AWB, Alia and Grains Board of Iraq (1GB) and Iraqi State Company for Water Transport (ISCWT)

• Concern over close collaboration on issues such as discharge of vessels

• Correspondence causing confusion due to poor translations

374 Report of the Oil-for-Food Inquiry

•

AWB assured investigators the collaboration was typical of any port in the world where port discharge, stevedoring arrangements impact efficiency

• Issue will be whether IIC accepts position as outlined by AWB

Allegations of Corrupt Payments:

AWB's legal review had found no evidence of:

• Corruption by AWB or individuals

• Side payments or after sales payments to individuals of the former regime, or

• Payments by the regime to former or existing AWB representatives

Importantly, IIC advised they had found no evidence to the contrary. 340 [emphasis in original]

28.244 On 23 March 2005, Mr Hargreaves sent an email to Ms Sharpe, copied to Mr Cooper. Ms Sharpe was Mr Lindberg's personal assistant. Mr Hargreaves' email read:

Andrew

Please find attached revised presentation for DFAT tomorrow - this has been legalled by Leonie Thompson

I would like you to have one more look at it before our meeting with them tomorrow morning

We will be flying out about 8am. 341

28.245 AWB has claimed legal professional privilege over the remainder of

Mr Hargreaves' email. This claim was upheld. 342

28.246 The presentation attached to Mr Hargreaves' email was different to what Mr Hargreaves had first drafted. It was shorter by two pages and read under the heading 'Issues':

Inland trucking arrangements and fees

Questioning seemed designed to establish whether, through the use of Alia, AWB had wittingly or unwittingly paid money to the Government of Iraq through the trucking arrangements in violation of the Security Council resolutions 661 and 986.

AWB interviewees told the IIC that AWB had conducted a legal review in response to the allegations published last year in the media about Alia's connection to the former regime.

The legal review found that all fees for trucking had been paid to Alia, and no other party in accordance with the UN approved contracts

Report of the Oil-for-Food Inquiry 375

The legal review found no evidence of:

• corruption by AWB or individuals

• side payments or after sales payments to individuals of the former regime, or

• payments by the regime to former or existing AWB representatives

In response to a question from AWB, TIC advised they had found no evidence to the contrary

IIC were also informed that:

• AWB considers its trade with Iraq was undertaken in accordance with UN guidelines the OFF Program.

• Alia was a company providing a genuine service which saved Australian wheat growers considerable demurrage costs and through successful delivery of wheat to all Governorates, facilitated on-going business

Inland trucking arrangements and fees

Investigators sought to establish what AWB knew about the background of Alia during the life of the OFF Program

AWB interviewees told the TIC that:

• During their respective involvement in the OFF program they had no knowledge that Alia might have an ownership connection back to the old regime and

• They only became aware of a possible connection when the allegations were raised in the media well after the OFF Program ended.

• Unreasonable to expect should AWB could have known or inquired of any connection with the former regime

• It was no secret the Iraqis were paying for inland trucking—the contracts stated that they were 'free in truck' and the contracts approved by the UN.

• Process of vessel discharge to trucks took place at port under supervision of UN

• UN contractors Contechna were inspecting the port operation including the discharge into Alia trucks

• No concerns were raised with AWB by the UN, Contechna or any other body throughout the life of the OFF program

Inland trucking arrangements and fees

HC also posed questions regarding working relationship between AWB, Alia and Grains Board of Iraq (1GB) and Iraqi State Company for Water Transport (ISCWT)

376 Report of the Oil-for-Food Inquiry

•

Concern over close collaboration on issues such as discharge of vessels

• Correspondence suggesting link between Alia and ISCWT— misinterpreted by IIC

• Isolated payments of port fees

AWB assured investigators the liaison between Alia, ISCWT and AWB regarding discharge of ships was typical of any port in the world where port discharge, stevedoring arrangements impact efficiency. 343

28.247 On 24 March 2005, Mr Hargreaves travelled to Canberra to provide the

briefing to DFAT. Mr Hargreaves was not sure which of the two PowerPoint presentations was used to brief DFAT .344 It is likely that the presentation that was sent to Mr Lindberg was the one used to brief DFAT - it was written in clearer language, and, as Mr Hargreaves noted in his covering email, it had been 'legalled' by Ms Thompson.

31 March 2005: Mr Tracey QC's advice

28.248 On 31 March 2005, Mr Tracey QC provided a two page memorandum of advice to Mr Quennell, entitled 'Re AWB Limited - Project Rose'. That advice was said to confirm oral advice provided to Mr Quennell. 5

28.249 Mr Tracey QC advised that there was nothing in the further documents provided which caused him to vary advice earlier given.

28.250 On 1 April 2005, Mr Cooper wrote to Ms Ringler regarding the summaries of interviews conducted by the TIC investigators with Mr Lindberg, Mr Long and Mr Flugge. 346 Mr Cooper informed Ms Ringler that AWB considered the summaries to be flawed and that AWB planned to forward a detailed submission about the summaries.

28.251 Ms Ringler responded to Mr Cooper's letter on 6 April 2005. 347 In that letter Ms Ringler also requested further information from the AWB and sought interviews with Messrs Whitwell, Watson, Emons, Stott and Edmonds-Wilson.

28.252 On 4 April 2005, Mr Blazey wrote a Ministerial Submission for the information of Mr Downer and Mr Vaile regarding the recent briefing given to DFAT on 24 March 2005. The submission reported:

AWB Ltd told us its relationship with a trucking company named Alia for Transportation had been a particular focus of the IIC investigators' interest. AWB Ltd had engaged Alia, which the IIC suspected had channelled funds to the Saddam Hussein regime, to deliver wheat sold to Iraq under OFF contracts. AWB

Ltd indicated they had no knowledge of Alia's links with the regime; they had

Report of the Oil-for-Food Inquiry 377

understood Alia was a Jordanian company and made payments for services to a

Jordanian bank account. They also said it was an Iraqi Grain Board (1GB) requirement that they use this company.

AWB Ltd continue to use Alia's services to transport wheat within Iraq and advised us that the 1GB was happy for this arrangement to continue. AWB Ltd was aware that, in the event the TIC delivered an adverse finding against Alia, AWB Ltd could be tarnished by association. We cannot exclude the possibility that the TIC could find AWB Ltd unwittingly funded former Iraqi regime elements through Alia. We recommended that AWB Ltd have a risk mitigation strategy in place should there be a negative finding against Alia.

7 April 2005: the Wheat Export Authority Board meeting

28.253 On 7 April 2005, the Wheat Export Authority secretariat reported to the Authority's Board on the TIC investigation. It noted:

• that DFAT had informed it in January 2005 of the TIC interest in reviewing WEA documents

• on 18 February 2005, WEA sought AWBI approval, pursuant to their confidentiality arrangements, to release information to the TIC

• on 22 February 2005, AWBI inspected the documents proposed to be released, and advised WEA it would provide written consent to release them the following day. It subsequently declined to provide that consent until a confidentiality regime had been agreed with the TIC

• the secretariat met with the TIC on 25 February 2005 but felt unable to assist it with useful information because of the confidentiality constraints. 349

Further meetings in Washington DC

28.254 On 17 April 2005, Mr Hargreaves travelled to Washington DC with Mr Trewin. During this visit they met with Messrs McDermott and Merrigan of Piper Rudnick.

28.255 Whilst in Washington, Mr Hargreaves also met with Ambassador Thawley, Ms Carayanides and Ms Freeman. During this meeting Mr Hargreaves briefed Ambassador Thawley on the TIC's recent visit to AWB in Melbourne. 350

28.256 Ms Carayanides' evidence regarding this briefing was:

Mr Hargreaves said words to the following effect: 'I think that AWB has cooperated with the IIC and that the TIC now has a better appreciation of AWB operations under OFF. AWB has not been involved in paying bribes in Iraq. I

378 Report of the Oil-for-Food Inquiry

think the IIC will conclude that AWB was not knowingly involved in breaching

sanctions, or at worst that it was unwittingly involved.' When someone asked what he meant by that statement, he replied in words to the following effect: 'The TIC is looking at the use of a fictitious trucking company. But I'm confident that AWB does not fall in that category.' To my knowledge, Mr Hargreaves referred to Alia by name for the first time either in this meeting or in the meeting on 15 June 2005. 351

28.257 Ms Freeman's evidence regarding this meeting was:

39. ... A range of issues were discussed, including the Embassy's views on congressional interest in UN reform and the Volker inquiry, as well as the range of Congressional UN-related inquires. Mr Thawley expressly stated that while the Embassy wanted to be helpful, it was not appropriate for us to provide advice to AWB about the course of action they should take. Mr Hargreaves responded to the effect that he believed that the Inquiry's line of questioning was intended to test the theory that AWB had wittingly or unwittingly committed a technical breach of the OFFP rules in relation to its use of Alia and had therefore paid kickbacks to Saddam Hussein. Mr Hargreaves said he had no knowledge of this occurring. He referred to AWB's own legal review, which he said found that no payments to individuals had been made by AWB staff to Saddam Hussein's regime.

40. During that meeting Mr Hargreaves also reported that the Volker inquiry had asked the AWB about the 10 per cent price reduction referred to in the DCAA report (I understood the amount to be 11 per cent, but believed that we were talking about the same contract referred to in the DCAA report). Mr Hargreaves told us that the trucking component had been deleted from the contract. He said that the price in this particular contract reflected the risk of doing business in Iraq. One of us from the Embassy (I cannot recall specifically) asked if Alia was the only company that provided trucking services for goods in Iraq. I recall asking

Mr Hargreaves at that meeting what company had wheat (and rice) exporters from other countries used for their trucking services. Mr Hargreaves said that the World Food Program had used Alia just after the start of the war. Mr Thawley asked if US wheat exporters were also using Alia and suggested that this sort of

information might be useful in discussions with members of Congress and their staff. Mr Thawley again sought reassurance that AWB had not done anything wrong under the OFFP program and an express assurance was given by Mr Hargreaves. 352

28.258 Ms Carayanides and Ms Freeman met with Mr Hargreaves again on 21 April 2005. Ms Freeman's evidence was that Mr Hargreaves 'mentioned that AWB's practices were no different from anyone else's when it came to using Alia' and that he specifically said that other reputable allies were also using Alia. 353

28.259 on 22 April 2005, AWB provided a submission to the IIC regarding the summaries of interviews and documents referred to in the i nterv iews.354 Enclosed with the submission were copies of redlined versions of the summaries with a number of changes.

Report of the Oil-for-Food Inquiry 379

22 April, 27 April and 24 May 2005: joint Board committee meetings

28.260 On 22 April 2005, a Joint Board Committee meeting of the Boards of AWB Limited and AWBI was held on the subject of Project Rose. The meeting was conducted by telephone. 355 It was noted in the Board Minutes under the heading 'Committee's Operation' that the meeting was 'a forum for directors of AWB Limited and AWB (International) Limited to discuss Project Rose, to receive legal advice in relation to Project Rose, and if necessary, to provide advice to the respective Boards'. 356

28,261 The minutes of the Joint Board Committee meeting record that the Managing Director briefed the committee on Project Rose. AWB has claimed legal professional privilege over that portion of the minutes addressing the issues about which the Committee was briefed.

28.262 On 27 April 2005, a further joint Board Committee meeting of the Boards of AWB Limited and AWBI was held. 357 At that meeting Mr Lindberg briefed the Boards on the TIC investigation. 358

28.263 The minutes of the meeting record that Mr Lindberg briefed the Committee on Project Rose, including the following issues:

. advice received from Arnold Bloch Leibler 359

• the Company had received advice from Mr Tracey QC that there had been no breach of resolution 661 by Australia as a result of conduct by AWB, however, based on indications to date, the TIC may arrive at a finding that AWB had wittingly or unwittingly by its conduct caused Australia to breach UN resolution 661 by using Alia for inland transport of wheat in Iraq

• a finding of this kind represented a significant exposure for the company with regard to its reputation, its relationship with the Australian Government and consequent implications for the Single Desk, and its businesses overseas. 360

Dr Fuller's notes record that Mr Lindberg spoke in relation to the TIC Inquiry and used the expressions 'Major exposure. Strong defences - but the headlines. Major implications for our business overseas and whether this company is fit to hold the Single Desk'. 361

28.264 A further joint Board Committee meeting of the Boards of AWB Limited and AWBI on Project Rose was held on 24 May 2005. The Minutes note discussion by the Boards of the 'next steps':

380 Report of the Oil-for-Food Inquiry

a) That the Chairman and the Managing Director would meet with key

government ministers and ministerial advisors (Mr Downer, Mr Truss, and representatives of the Prime Minister's Office) to brief them on Project Rose (a separate briefing would be arranged with Mr Vaile, as he was currently overseas);

b) the Board would meet with the Company's legal advisors on Project Rose, Arnold Bloch Leibler, at the next Project Rose briefing;

c) the project to improve AWB's processes —would continue. 362

AWB have claimed legal professional privilege over the remaining portion of the Minutes. 363

28.265 Mr Cooper's notes record that Mr Lindberg said the following 364 :

• that the TIC's hypothesis was that AWB had paid Alia which passed the money back to Saddam Hussein

• that possible findings of the TIC were:

no finding

unwitting breach of UN sanctions

witting (wilful) breach of sanctions

• that the IIC said $80m was channelled by AWB.

Mr Cooper's notes also record the following discussion:

XM - does Aust Govt u/ stand deficiencies in the process of TIC

AL - no - we will brief them next wk

XM - we have an option of early disclosure

SC - have they specified the periods and tonnages?

AL - they have specified time period—yes

BF - do you think any linkage b/w this inquiry and latest in Iraq?

AL - there is a connection - US wheat interests have been saying that Australians recd inflated prices for wheat b/c Aust paid kickbacks to the Iraqi regime. This has caused witchhunt. US concern with UN. Trip to Iraq—US has Iraqi's agitated over prices, fraud and corruption. We are still using Alia.

XM - externals today?

AL - Arnold Bloch Leibler - strategic legal advice

Report of the Oil-for-Food Inquiry 381

XM—I favour early disclosure. 365

28.266 The Board minutes for the AWB Limited Board meeting held on 24 and 25 May 2005 record that the Board discussed the verbal report by the Chair of the Project Rose Committee, Mr Stewart, and noted the draft minutes of the Committee meetings held on 22 and 27 April 2005. 366

1 June 2005: meetings in Canberra

28.267 On 27 May 2005 and 30 May 2005, Mr Lindberg met with Mr Cooper, Dr Fuller, Mr Hargreaves and Mr Zwier and Ms Thompson of Arnold Bloch Leibler in preparation for forthcoming meetings that Messrs Stewart and Lindberg were to have with the Australian Government in Canberra. 367 Mr Cooper's notes of those meetings record the following observations:

• a concern by AWB over a lack of due process in the Volcker investigation

• the need for AWB to take the Government through AWB's legal review

• that AWB had suspicions over former employees

• that AWB did not know what will be unearthed in Iraq.3 68

28.268 On 30 May 2005, Mr Stewart and Mr Lindberg were provided by Mr Trewin and Ms Slack-Smith of AWB's Government Relations with an 'Issues brief for meetings in Canberra 1 June'. 369 The brief outlined numerous meetings that had been organised for Messrs Lindberg and Stewart to attend with Ministers and their staff and provided an outline of issues to be raised at those meetings.

28.269 On 31 May 2005, Mr Hargreaves sent an email to Messrs Stewart, Lindberg and Trewin enclosing a 'revised background sheet' on 'Wheat sales and OFF'. 370 The background sheet, which Mr Hargreaves noted in his email was , not for distribution', gave a brief background on the payment of trucking fees, allegations made against AWB and the launch of inquiries into the

program.371

28.270 On 1 June 2005, Messrs Stewart, Lindberg and Trewin met with Mr Downer in Canberra. Prior to the meeting Mr Downer was provided with a meeting brief which noted:

Main issues/outcomes:

382 Report of the Oil-for-Food Inquiry

(c) Note the report of the Independent Inquiry committee (IIC) into corruption in

the UN's Oil-for-Food Program (OFF) is likely to be released in July or August. Welcome indications that TIC investigators who visited Australia were pleased with the cooperation they received. Note the Government will provide advice to AWB Ltd on the conduct and political context of US inquiries into the OFF, but we are not in a position to provide legal or tactical advice. 372

28.271 Mr Downer's recollection of the meeting was that Mr Lindberg assured him that, despite its concerns about the direction of the Volcker Inquiry, AWB had given it its full cooperation. Mr Downer emphasised the importance of AWB continuing to do so. Mr Downer also recalled some discussion about AWB's use of a Jordanian trucking company and that Mr Lindberg told him that

AWB had no choice but to use that company. 373

28.272 Whilst in Canberra, Messrs Lindberg, Stewart and Trewin also met with Mr L'Estrange, Secretary of DFAT.

28.273 On 2 June 2005, Mr L'Estrange wrote a minute to Mr Downer and Mr Vaile concerning the meeting. The minute read:

4. According to Mr Lindberg, AWB had utilised Alia since the 1980s. AWB's understanding was that Alia was a Jordanian trucking company. In 2004, AWB's own investigations revealed that Alia was part-owned by the Iraqi Ministry of Transport. Mr Lindberg noted that AWB had had no choice but to use Alia and

that no concerns had been raised regarding Alia by other organisations, including UN bodies, during the Oil for Food Program.

5. Mr Lindberg was concerned that the investigation would make a finding that AWB payments to Alia would have, at least in part, made their way to the former Iraqi Government and could be interpreted as illegal payments. This concern was based on transcripts of the interviews held by Committee investigators with AWB officials. According to Mr Lindberg, the transcripts had been written in a way he considered reflected badly on the AWB. A complaint about these transcripts had been lodged with the Committee.

8. Mr Lindbergh noted that AWB had made all information requested available to the Committee and that it had been commended by the Committee for its cooperation.

9. The AWB considered that a contingency plan should be formulated by the AWB and considered by the Government in the event that an adverse finding is handed down. AWB might be asked why it had not enquired more closely into the company; whether all agency and handling fees were included in the contracts submitted to the UN; whether the handling charges seemed fair or excessive at the

time; and whether any other fees were paid at any time.374

Report of the Oil-for-Food Inquiry 383

Mr Downer endorsed the minute noting:

Spoke to them myself: have to take it as it comes but I'm more relaxed than they are. 375

28.274 Mr Stewart's evidence about the various meetings was:

Q: Did you tell anybody that you met on that day from a minister's office or any minister—or, indeed, anybody else that's referred to on this schedule—that AWB was aware that it had been paying money which had found its way to the Iraqi regime?

A: No, sir. That wasn't the state of my knowledge at the time.

Q: I just need to go through this with you. I am not suggesting that it was or it wasn't, but that's why I am asking you. Did you speak about the likelihood of an adverse finding because Alia was evidently part owned by the Iraqi regime?

A: I believe that was discussed.

Q: Did you speak about what AWB's position was concerning breach of sanctions?

A: I can't recall whether our position on breach of sanctions was actually discussed, but certainly the former issue was.

Q: Can you recall anything else that you spoke about during the course of any one of those meetings?

A: I think if there was any discussion around breaches of sanctions it would have centred around the issue as to whether ownership of Alia in itself would change any position in relation to breach of sanctions, but at that particular stage I had no other information that would suggest that that was the case. 376

28.275 Messrs Lindberg and Trewin reported back to a meeting of the Project Rose

team, including external legal advisers, regarding their meetings in Canberra on 2 June 2005.' Mr Cooper's file note of Mr Lindberg's briefing read:

AL told story.

Independent QC's advice that there is no breach of UN resolutions.

Lack of due process - will get no mileage from this.

Don't go there - can't win. Don't attack Volcker.

L'Estrange - parties who had taken criticism have since been left alone.

May be better conceding pt if it is 'unwitting'.

AL—we have been using Alia since 80's and we still using them. We thought it was Jordanian co.

AL told Australian Ambassador in Iraq in 2002 of using Alia.

384 Report of the Oil-for-Food Inquiry

Govt knows they are involved in this matter.

MT—They acknowledged AWB had to use Alia—no choice—we'd have lost market—we'd have not met humanitarian need.

Downer - you can't be responsible of what happened to $ after it was paid to Alia.

Contracts were approved by UN. 378

28.276 There is no basis for Mr Lindberg's statement that AWB had been using Alia 'since 80s'. AWB had not had any responsibility for trucking grain in Iraq prior to July 1999 and did not actually use Alia for that purpose until October 2003.

28.277 Mr Lindberg's evidence regarding Mr Cooper's file note was:

7. ... I have reviewed the note of Mr Cooper ('the Cooper note') from that meeting (Exh. 685). I believe that the Cooper note is an accurate account of what was said by Mr Trewin and I at the meeting on 2 June 2005, save for the matters set out below.

8. The Cooper note records the words 'AL told Australian Ambassador in Iraq in 2002 of using Alia'. This was not a matter that was raised in the meeting with Mr Downer or other government officials on 1 June 2005. At the 2 June 2005 meeting, I said something, by way of an aside, to the effect that I might have

mentioned Alia to the Ambassador during my trip to Iraq in August 2002.

9. The Cooper note records the words 'Govt. Feels untouchable on this. US will not criticise Australian Govt.'. I do not believe this was said by Mr Downer or any government official. I believe that this was said by Mr Trewin at the meeting on 2 June 2005 and that it represented Mr Trewin's own assessment of the government's views on this matter.

10. I do recall that in the course of the meeting with Mr Downer on 1 June 2005:

a. I repeated to him that the general thrust of the Volcker investigation was whether the money AWB paid to Alia did in fact make its way to the old Iraqi regime;

b. I reiterated that AWB had only become aware that Alia may have been part owned by the Iraqi Ministry of Transpo