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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 4 Findings


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REPORT OF THE INQUIRY INTO CERTAIN AUSTRALIAN COMPANIES IN RELATION TO THE UN OIL-FOR-FOOD PROGRAMME

COMMISSIONER THE HONOURABLE TERENCE RH COLE AO RFD QC

VOLUME 4 NOVEMBER 2006

Report of the Inquiry into certain Australian companies in relation to the UN Oil-for-Food Programme

Volume 4

Findings

Commissioner The Honourable Terence RH Cole AO RFD QC

November 2006

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© 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

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Contents

29 The Wheat Export Authority.............................................................................1

The history of the WEA's involvement with AWB Limited .............................. 2

The August 2001 market brief............................................................................2

The October 2002 market brief...........................................................................2

The November 2002 market brief......................................................................4

The April 2003 market brief................................................................................ 5

Late 2003: responding to 'kickback' reports ...................................................... 5

WE A requests......................................................................................................6

The May 2004 briefing note ................................................................................ 7

A joint meeting of the Boards ............................................................................. 8

The August 2004 briefing paper..........................................................................8

Inspection of contracts.........................................................................................9

The AWBI Board meeting on 14 December 2004..............................................13

The WE A Board meeting on 7 April 2005 ........................................................ 14

Conclusion..........................................................................................................15

Possible offences................................................................................................ 17

30 The knowledge of the Commonwealth ....................................................... 21

Circumstances in which the knowledge of the Commonwealth may be material..............................................................................................................21

Did AWB ever tell DFAT about the inland transportation fee arrangements?...................................................................................................27

Did AWB ever tell the Prime Minister or the Ministers for Foreign Affairs and Trade about the inland transportation fee arrangements? ........... 46

Did DFAT obtain the relevant knowledge from any other source? ................ 48

Did the Prime Minister or the Ministers obtain knowledge from sources other than AWB?..................................................................................88

Conclusion and summary............................................................................... 100

31 Findings: AWB and associated persons ....................................................... 109

Offences involving bribery or secret commissions ......................................... 109

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Offences involving money laundering ........................................................... 109

Offences relating to terrorism.........................................................................110

Offences under the Banking (Foreign Exchange) Regulations.......................113

The Customs (Prohibited Exports) Regulations ............................................. 113

The Corporations Act ...................................................................................... 113

Corporate responsibility..................................................................................114

Was the Commonwealth misled?....................................................................118

Did AWB mislead the United Nations? .......................................................... 120

Referral.............................................................................................................122

Possible offences by persons associated ......................................................... 201

The Banking (Foreign Exchange) Regulations................................................319

Taxation offences.............................................................................................324

32 Findings: Alkaloids of Australia Pty Ltd .................................................... 331

Statement of facts.............................................................................................331

Issues and findings..........................................................................................346

Conclusion.......................................................................................................347

33 Findings: Rhine Ruhr Pty Ltd....................................................................... 353

Statement of facts.............................................................................................353

Issues and findings..........................................................................................376

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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

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Volume 3 Sales, allegations and inquiries January 2001 - December 2005

23 January 2001 to June 2002: more sales to Iraq

24 June 2002 to March 2003: contracts A1670 and A1680

25 March to September 2003: renegotiation of AWB contracts

26 August 2000 to March 2003: inland transportation fees

27 BHPP, the Iron Filings Claim, and Tigris

28 May 2003 to December 2005: allegations and inquiries

Volume 5 Appendices

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29 The Wheat Export Authority

29.1 The Wheat Export Authority was created as a statutory authority under the Wheat Marketing Act 1989. Its statutory functions are defined in s. 5 of that Act:

Functions and powers of the Authority

(1) The Authority has the following functions:

(a) to control the export of wheat from Australia;

(b) to monitor nominated company B's performance in relation to the export of wheat and examine and report on the benefits to growers that result from that performance.

(2) The Authority has power to do all things that are necessary or convenient to be done in connection with the performance of its functions.1

Company B is AWB (International).

29.2 The Wheat Export Authority has compulsory information-gathering powers by which it can require AWB (International), and through it AWB Limited, to provide it with information or documents relevant to the operation of the pools, including the costs of operating them and the returns to growers that result from them.2 The WEA's power to require AWBI or AWB to provide information to it was not introduced until June 2003 by the passage of the Wheat Marketing Amendment Act 2003.3 Prior to that time, the advice received by the WEA was that it had no such compulsive powers and had to rely on the agreement of AWBI or AWB to provide such information.4 The WEA also has the power to request, rather than compel, information relevant to its monitoring function.5 Pursuant to s. 5C of the Wheat Marketing Act, the WEA prepares an annual report to the Minister for Agriculture, Fisheries and Forestry (which report is confidential) and an annual report to wheat growers. Each of these reports deals with AWBTs performance in relation to the export of wheat and the benefits to growers resulting therefrom.

29.3 The WEA has no statutory function to inquire into the operations of AWB save insofar as those operations affect returns to growers. It does not have power to investigate or control AWB or AWBI generally.

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The history of the WEA's involvement with AWB Limited

29.4 The WEA obtained market information from AWBI in relation to the WEA's export control and monitoring functions. The information included documents that were already in existence or documentary or oral information or reports prepared by AWBI specifically at the request of the WEA.6 The WEA produced to the Inquiry all reports received by it and prepared by it dealing with Iraq.

29.5 AWB maintained a database, known as the market profiles database, in which it kept information on the countries with which it dealt.7 The database for each market was created and maintained by the account manager for that market; in the case of Iraq, the market profiles database was prepared and updated by Mr Hogan until Mr Whitwell took over responsibility for the Iraq market in or about July 2002.8 Copies of the market profiles for Iraq as at about August 2001, November 2002 and 20 April 2003 were produced by AWB.

The August 2001 market brief

29.6 The market brief as at August 20019, prepared by Mr Hogan, contains the following:

Contracts are concluded with the IGB on a Free in Truck Basis, delivered to all governorates of IRAQ. The Inland Transport fees (and all discharge fees) are included in the inland transport fee. Inland Transport fees are paid via Alia transport Company in Jordan, who then pay the Ministry of Transport in Iraq. These fees are approved by the UN.10

29.7 The August printout states:

Vessels on birth #1, #2 and #4 are discharged directly into road trucks, and the rate is effected by the number of road transports available. This can be an issue during the local Iraqi harvest (May-August), when the Grain Board remove transports from the Port to use moving local production to storage facilities.11

29.8 In the November 200212 and the 20 April 200313 briefs these paragraphs were reproduced in similar terms. None of this material appeared in any of the briefs or reports produced to the WEA by AWBI.

The October 2002 market brief

29.9 On 17 September 2002 Mr Herpen sent an email to Mr Sheridan, AWBI's National Pool Performance Manager, with the following request:

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Glenn Taylor has asked me to forward the following request onto AWB(I).

Last week Glenn spoke to Tim Goodacre about AWB(I)'s involvement with the Iraq market. As a result of this discussion it is requested AWB(I) provide the following to the WEA:

1. A brief on AWB(I)'s current state-of-play with IRAQ (i.e. what were the recent trade issues in this market for AWB(I) and how were these resolved? What issues in this market remain unresolved for AWB(I), and what strategies does AWB(I) have in place to address these unresolved issues?); and

2. A brief on the scenario/contingency marketing strategies AWB(I) has developed for the Iraq market, given the issues identified in para 1 (above) (e.g. what is AWB(I)'s strategy if Iraq reduced bulk wheat imports from AWB(I) by

50%, 75%, or 100%?) *

29.10 Mr Sheridan forwarded Mr Herpen's request to Mr Long and Mr Johnson, noting that he would 'clarify the extent of the information and purpose'.15 Mr Long forwarded the two emails to Messrs Whitwell, Hogan and Edmonds- Wilson with the message 'Please discuss before we formulate a reply'.16

29.11 Mr Herpen subsequently confirmed to Mr Sheridan that the 'context of the request' was 'a general brief for the WEA Board'.17 Messrs Long, Whitwell, Hogan and Edmonds-Wilson were informed of this in a train of emails.18

29.12 On 23 October 2002 AWBI produced a market brief in response to the WEA's request.19 The brief principally dealt with 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. The 10 per cent after-sales-service fee incorporated in, and paid through, the inland transport fee was not mentioned; nor was there mention of the proposal by AWB to inflate the contract prices to recover the Tigris debt.

29.13 It appears from a draft of the report, prepared by Ms Cattanach, AWB's Research Market Analyst20, that AWB originally did include mention of the Tigris proposal.21 The draft noted that the Iraqi Grain Board owed 'Tigris Petroleum US$8 million for cargo of wheat sent to Iraq in 1996'22 and that:

We have proposed the current rebates for 'Iron powder' should be offset against Tigris Petroleum. We have received a positive response from IGB. ISM [International Sales and Marketing] requires ELG [Executive Leadership Group] direction in regard to this matter.23

29.14 The draft was provided by Ms Cattanach to Mr Whitwell for comment around 17 October 2002.24 Ms Cattanach's email to Mr Whitwell read, in part:

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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?25

Next to the paragraph about Tigris just quoted Ms Cattanach noted, 'Steve does WEA need to know this info??'26

29.15 The entry about Tigris was removed at the suggestion of Mr Whitwell.27 He wrote on the draft:

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. ??28

Mr Whitwell was addressing Ms Cattanach and Mr Sheridan, who were responsible for preparation of responses to WEA inquiries and providing the necessary information to it.

29.16 When questioned by Counsel Assisting as to why he had formed the view that the information about 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.29

29.17 Mr Whitwell disputed Counsel Assisting's 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 AWB might settle the Iron Filings Claim.30 He also disputed the suggestion that there had been a deliberate decision not to tell the WEA about the Tigris debt.31

The November 2002 market brief

29.18 On 8 November 2002 (misdated 2003) AWBI provided to the WEA a market brief for the '1st Quarter 2003'.32 This report did mention that 'all suppliers sell Free in Truck all governorates of Iraq' but did not explain this

expression.33 Costs factored into AWBI prices were listed, but the list did not include inland transport costs or the 10 per cent after-sales-service fee paid through the inland transport fee.34 It was neither clear nor explicit whether the

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'finance' cost included compensation for prepayment of inland transport fees. There was no indication of any payment to Alia or Iraq. The Tigris proposal was not mentioned.35

29.19 Mr Taylor did not remember noticing the 'Free in Truck' clause but believed he would have read it.36 A summation by the WE A secretariat of the key points of the two market briefs dated 14 November 2002 does not mention the FIT clause, supporting Mr Taylor's belief that it went unnoticed.37 Mr Taylor stated that neither then nor at the time of giving evidence did he understand the meaning of the expression 'free in truck', but he accepted that it was probably related in some way to payment for inland transport.38

The April 2003 market brief

29.20 A further Iraq brief was sent to the WEA on 17 April 200339 *that is, after the contracts inflated to recover the Tigris debt were entered into40and after hostilities had commenced.41 The brief discussed contingency planning and risk minimisation strategies adopted by AWB for the war but did not disclose inland transport payments. In particular, it did not discuss the risk inherent in prepaying transport fees, which had by then eventuated: Alia had been paid transport fees for two vessels and had passed the fees on to Iraq, so that when the vessels were diverted because of the war Alia was unable to repay the transport fees. The Tigris debt recovery, which was then in the process of being implemented, was not disclosed.

Late 2003: responding to 'kickback7 reports

29.21 In late 2003 the WEA's Senior Manager Performance Monitoring, Mr Charman, informed the WEA of allegations in the press about 'kickbacks' by AWB.42 Payments to Iraq, lawful or otherwise, might adversely affect returns to growers. Unlawful payments could seriously damage AWB's reputation in that and other markets and thus have a serious detrimental affect on grower returns.

29.22 On 31 October 2003 Mr Sheridan forwarded to the WEA a briefing note on the allegations recorded in the media and initiated by US Wheat Associates.43 The note refuted the allegations of 'kickback' payments and described the allegations as 'ludicrous' and 'absolutely untrue'.44 It stated that a formal complaint had been made to the US Secretary of State and that all contracts 'including pricing aspects' had the approval of the United Nations.45

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29.23 In November 2003 AWBI provided a further briefing note.46 Again, Tigris and inland transport arrangements were not mentioned.

WEA requests

29.24 On 11 February 2004 the WEA Board decided that an important subject 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'.47

29.25 Between February and June 2004, the WEA requested:

" a copy of AWBI's booklet on corporate ethics

" defined policy arrangements, as approved by the Board or management, that 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 the organisation's business conduct *specifically in dealing with governments or business partners

" a summary of all contracts with Iraq and their execution and payment status

" an update to the briefing note on Iraq provided in April 2003.48

29.26 On 19 March 2004 AWBI provided its 'Guidelines on business conduct' and a booklet on its corporate ethics.49 In response to the WEA's request to provide a summary of all contracts with Iraq and their execution and payment status and an update to the briefing note on Iraq provided in April 2003, AWBI provided information on the then current contracts * A1670 and A1680.50 It also provided a schedule of Iraq shipments for the period October 2003 to February 2004.51 Again, the Tigris dealings and inland transport arrangements were not mentioned.

29.27 On 7 April 2004 AWB provided to the WEA a general explanation of its types of costs. This included 'land freight cost', but there was no explanation of how or when that cost was paid or its quantum in actual or percentage terms.52 This information was not related specifically to contracts with Iraq.

29.28 In May 2004 Mr Charman became aware of further media allegations referring to inflation of contract prices. The WEA then requested copies of all contracts, as well as advice about whether agency or facilitation payments had been made.53

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The May 2004 briefing note

29.29 On 21 May 2004, in preparation for Senate estimates, the WEA asked AWBI for a briefing note about Iraq and the alleged kickbacks. Mr Cooper drafted the briefing note54, which advised:

Every AWBI contract for the sale of wheat to the Grain Board of Iraq ('GBI') under the Oil-for-Food (OFF') Program was vetted by the Office of the Iraq Program (*Ã¥*ô*°') at the United Nations (UN). The OIP was obliged, under UN Security Council guidelines to determine, among other things, whether the price of goods sold under the OFF program was reasonable. The price and value of every AWBI shipment to Iraq under the OFF program has been examined and declared, by the relevant OIP officials, to be reasonable and acceptable (or in words to that effect).

Prior to July 1999, AWBI sales under the OFF program to GBI were on GIF (Cost, Insurance, Freight) Umm Qasr terms. AWBI's price for wheat shipped under the OFF program factored in contingencies for demurrage costs, war risk premium,

interest costs due to delay in processing payments for the wheat by the UN, rejection of cargo by GBI, shrinkage and currency exposure.

From July 1999 to February 2003, the sale price included an inland transport component to cover transport by truck from Umm Qasr to silos within all Governorates of Iraq. The trucking costs were paid to a Jordanian company

responsible for that part of the contract. That same trucking company continues to provide all current trucking required for AWBI's wheat exports to Iraq in 2004.55

29.30 On 2 June 2004 AWBI provided a further briefing note, advising of the status of the Iraq debt and noting that growers were still due US$98 million.56 The briefing note did not disclose that AWB had inflated prices in contracts A1670 and A1680 to recover the debt for Tigris.57

29.31 At the WEA's 30 June 2004 Board meeting it was noted that AWBI had not provided contracts concerning Iraq and the secretariat was to follow this up.58 It was also noted that in writing up the 'kickback' allegations in the Performance Monitoring Review report, the WEA 'should only reflect the WEA's responsibilities of reporting on AWBI's export performance, including corporate governance, but indicate the WEA's watching brief on the outcomes of any investigations by appropriate authorities'.59

29.32 On 8 July 2004 Mr Sheridan wrote to Mr Long, Mr Whitwell and Ms Scales, advising them that he had 17 Iraq contracts and the relevant UN approvals and customs clearances ready for the WEA and seeking their permission to provide those documents to the WEA.60 Mr Long replied that he had reviewed the documents and there was 'nothing that hasn't already been seen by DFAT/UN' in the documents; he approved their provision to the WEA.61 The documents were not, however, sent.

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29.33 On 16 July 2004 AWB provided records of agency and facilitation payments, showing there had been none to Iraq.62 It was not clear whether the payment of transport fees or the 10 per cent after-sales-service fee was considered an agency or facilitation fee by AWBI; in any case, it was not specifically disclosed. It is of note that by at least 23 April 2004 Mr Johnson, the Pool Manager, was referring to the Tigris debt as a 'commission' for Tigris' assistance in obtaining sales.63 If it were truly regarded as such, this ought to have been advised in response to WEA's request. AWBI had still not provided the Iraq contracts to the WE A.

A joint meeting of the Boards

29.34 On 27 July 2004 the Boards of the WE A and AWBI met.64 At the meeting they discussed the draft Performance Monitoring Review report, the report to growers, international visits by the WEA, the 2004 review and report, and future Board-to-Board meetings.

29.35 The Boards discussed the status of the WEA's unmet request for copies of Iraq contracts.65 Because of concerns about confidentiality, AWBI senior management proposed that the WEA attend AWBI's offices to see the contracts and carry out their audit in house.66

29.36 At this time the AWBI Board was aware that AWB had been conducting an internal investigation known as Project Rose into its Oil-for-Food contracts with Iraq; this had involved a comprehensive review of all contract arrangements for AWB's export of wheat to Iraq from mid-1999 to 2003, including inland freight arrangements in Iraq.67 The Board was also aware that Mr Tracey QC had been briefed to advise on whether AWB may have contributed to a contravention by Australia of its obligations under UN Resolution 661 or contravened any Commonwealth or State legislation.68 The Board did not disclose this information to the WEA.

The August 2004 briefing paper

29.37 On 11 August 2004 Mr Sheridan provided to the WEA a briefing paper previously forwarded to the Australian Government on AWB's involvement in the Oil-for-Food Programme.69 The paper was supplied to Mr Sheridan by Mr Hargreaves, who was working with Mr Cooper coordinating Project Rose.70 The paper noted:

3. AWB's supply of wheat to Iraq under the OFF Program

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" 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 contracts the terms specified that the grain was supplied GIF Free on Truck (FOT) to silos at all Governorates.

" IGB also specified the transport company to be used and the cost of the transport services was specified by either IGB 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.71

29.38 AWBI did not disclose in the briefing paper that neither the fact nor the amount of the payments for trucking fees made to Alia was shown on the face of any of the 26 contracts. It also did not disclose prepayment of the fees, the fact the fees included a 10 per cent surcharge and that the fees were passed on to an Iraqi instrumentality. Nor did the brief disclose the statement contained in the AWB market brief: The inland transport fees are paid via Alia Transport Company in Jordan who then pay the Ministry of Transport in Iraq'.72

The Tigris dealings were not disclosed.

Inspection of contracts

29.39 On 11 August 2004 Mr Charman and Ms Duck attended the offices of AWB in Melbourne and were given access to the following documents in a folder:

" 17 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 Programme for each contract

" variations to the contacts.73

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29.40 The primary purpose of the WEA's review was to confirm that the contract data that had previously been provided to the WEA reconciled with the information previously provided by AWBI, particularly in relation to a net back calculation of an FOB price. However, since the contracts did not separate any of the costs, including inland transport costs, Mr Charman could not have reconciled the FOB amount.74 In addition, one of the matters 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. 75

29.41 Mr Charman instead satisfied himself that the price in the contracts, less such costs as he had previously been advised by AWBI (which did not include inland trucking fees), exceeded the FOB price AWB had also previously advised. He apparently noted that this was above the benchmark price and was accordingly satisfied.76 In truth, this was no check at all.

29.42 Mr Besley, the WEA Chairman, acknowledged that Mr Charman would have needed to know the contract price and all costs to be deducted from that price in order 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: Mr Charman did not have before him the material necessary to calculate the FOB price.77

29.43 Mr Charman and Ms Duck also reviewed two letters from the World Food Programme, relating respectively to contracts A1670 and A1680.78 The letters stated that the World Food Programme had been asked by the Coalition Provisional Authority to deduct the after-sales-service fee of 10 per cent on each contract. On seeing this, Mr Charman asked Mr Sheridan why a 10 per cent reduction had been agreed. Mr Sheridan left the meeting and sought a response from Mr Fong or Mr Whitwell.79 He then returned to the meeting and conveyed the response provided to him by Mr Fong or Mr Whitwell80:

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 suppliers agreed bar one, a Russian company, and that Russian company's contract was cancelled.81

Mr Whitwell did not believe he had provided the information to

Mr Sheridan.82

29.44 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 growers.83 It necessarily follows, however, that a reduction of

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10 per cent in the contract price results in growers receiving less than they otherwise would.

29.45 Mr Charman and Ms Duck were not told that the prices in the contracts had been increased to recover the Tigris debt from the UN escrow account or that AWB held that recovered money.

29.46 On his return to Canberra, Mr Charman prepared a record of the meeting84:

Iraq Sales Contracts

10. AWB(I) provided a folder, for WEA perusal, which contained:

" 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

Report of the Oil-for-Food Inquiry 11

a Russian supplier of food products refused to meet the demand and was unable to make a sale to Iraq.85

I

29.47 On 24 August 2004 Mr Sheridan sent an email entitled 'Iraq query' to Mr Hargreaves and copied it to other employees of AWB, including Mr Cooper and Mr Whitwell.86 The email enclosed a copy of the WEA'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 the 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,

Steve87

29.48 The same day Mr Hargreaves forwarded Mr Sheridan's email to Mr Long, requesting his assistance in preparing a response to the WEA's request.88 On 28 August 2004 Mr Long asked Mr Whitwell to provide for Mr Hargreaves 'a short note regarding the matter'.89

29.49 On 13 September 2004 Mr Sheridan was copied an email to Mr Hargreaves from Mr Whitwell, providing a different account of the 10 per cent Coalition Provisional Authority reduction.90 The email read:

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 pet 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 pet far outweighed any benefit. We had been carrying the stock in a small 02/03 pool and

12 Report of the Oil-for-Food Inquiry

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 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 pet 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 assists91

29.50 Mr Whitwell's email did not mention that the reason for the 10 per cent reduction was to remove the after-sales-service fee. This was known to Mr Whitwell and to Mr Long, who was also copied in. Mr Whitwell's email said nothing about moves by the Coalition Provisional Authority to gain credibility or about the demand being unrelated to the alleged kickback claims, both matters the WEA had been told about on 11 August 2004. AWBI did not relay this information to the WEA. Confirmation of the reason for the reduction in contracts A1670 and A1680 was never given to the WEA.92

The AWBI Board meeting on 14 December 2004

29.51 At the AWBI Board meeting on 14 December 2004, the Tigris matter was first raised with the Board and the disposition of the money collected was discussed.93 Dr Fuller records a director, Mr Ian Donges, raising the question of whether the WEA should be informed.94 He noted 'to do' after this item but

gave evidence that this may have been superseded by later discussion at that meeting.95

29.52 Mr Donges' evidence in this regard was:

A: My recollection of my comments referred to there in Dr Fuller's notes were along the lines that I thought for proper accountability factors the Wheat Export Authority should be informed of the transaction if it went ahead.

Q: What caused you to form that view?

A: Because the Wheat Export Authority is our regulator, and they, of course, take keen interest in all matters to do with AWB International.

Q: What did you think should be disclosed to the Wheat Export Authority?

A: I thought the disclosure should be, if the transaction were to be successfully, I guess, completed * that the $500,000, if it was to happen, should be drawn to the attention of the Wheat Export Authority.

Q: Why?

Report of the Oil-for-Food Inquiry 13

A: Why?

Q: Yes.

A: Because it was not part of a normal contractual wheat sale.96

Q: In other words, you made it pretty clear on that occasion that you thought the Wheat Export Authority should be told of what you considered to be an extraordinary transaction?

A: Well I consider it certainly a contractual arrangement that was different to our normal transactional arrangements, contractual arrangements, in terms of selling wheat and being paid for that wheat.97

29.53 AWBI did not notify the WEA of the Tigris transaction.

The WEA Board meeting on 7 April 2005

29.54 On 7 April 2005 the WEA secretariat reported to the Board on the IIC investigation. It noted:

" DFAT had informed it in January 2005 of the IIC's interest in reviewing WEA documents.

" On 18 February 2005 the WEA sought AWBI approval, pursuant to its confidentiality arrangements, to release information to the IIC.

" On 22 February 2005 AWBI inspected the documents proposed to be released and advised the 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 IIC.

" The WEA secretariat met with the IIC on 25 February 2005 but felt unable to assist it with useful information because of the confidentiality constraints.98

29.55 On 8 November 2005 Mr Taylor sent an email to Mr Fuller and Ms Scales, copied to Mr Sheridan, requesting 'a detailed brief on the operation of the escrow account for Australian wheat sales under the OFF program'.99 In particular, Mr Taylor asked for a brief from AWBI on 'how the payments for transport made under the OFF program worked'.100

29.56 On 14 November 2005 AWBI provided to the WEA a document entitled Operation of United Nations escrow account Oil for Food Program'.101 In the

14 Report of the Oil-for-Food Inquiry

document AWBI asserted that it adhered to UN procedures. But it failed to disclose:

" the 10 per cent after-sales-service fee or that the fee was paid through Alia

" that the Iraqi Grain Board set the rate for transport and directed the use of Alia

" the inflation of contracts A1670 and A1680 to recover the Tigris debt

" that Alia on-paid transport fees to the Ministry of Transport

" that using the transport fees mechanism was one of the means discussed with Iraq for the payment to it of compensation for the Iron Filings Claim.

Conclusion

29.57 Throughout the Oil-for-Food Programme, the WEA did not have knowledge of the true arrangements between AWB (on behalf of AWBI) and the Iraqi Grain Board. The WEA did not know:

" AWB had agreed with the IGB to include in the wheat price a fee that

varied between US$12.00 per tonne and US$51.15 per tonne so that the fee was paid from the escrow account to AWB.

" AWB had agreed to pay the fee to Iraq or an Iraqi entity.

" The fee was fixed by Iraq for each phase of the Oil-for-Food Programme as a condition of tender.

" The fee was not related to any contractual obligation AWB had with the IGB for discharge or transport of wheat.

" AWB had agreed with the IGB to pay the fee to an account nominated by the IGB.

" The IGB was obliged to discharge the wheat at Umm Qasr and transport it to all governorates of Iraq.

" The fee was paid to a third party in order to disguise the fee's payment to an Iraqi entity.

" The wheat price from November 2000 included a sum equivalent to 10 per cent of the agreed price. This sum was recovered from the UN escrow account and paid to Iraq by AWB.

Report of the Oil-for-Food Inquiry 15

" In the case of contracts A1670 and A1680, the price included the sum of US$8,375 per tonne not related to the price of wheat but being the amount of an alleged debt to Tigris that the IGB had agreed with AWB would be recovered from the UN escrow account for payment by AWB to Tigris. The US$8,375 per tonne included a sum of US$500,000 (equivalent to US$0.50 per tonne) to be retained by AWB as its commission for recovering the Tigris debt, which sum was to be paid to AWBI on behalf of the National Pool.

" In the case of contracts A1670 and A1680, AWB had agreed to pay to Iraq via payment to Alia an additional sum of US$2,016 per tonne as payment of compensation for the Iron Filings Claim. This was in addition to the 'trucking' fee, which included a 10 per cent surcharge.

29.58 The WEA did not know of the foregoing because neither AWB nor AWBI told it of those matters. Throughout the period of the Oil-for-Food Programme and until July 2003 there was doubt about the power of the WEA to compel AWBI, and through it AWB, to provide information to it. After July 2003 there was no such doubt.

29.59 Irrespective of its power, the WEA did not probe AWBI or AWB about its contracts with Iraq. Such requests as were made were of a general nature and were unlikely to elucidate or reveal any inappropriate conduct on the part of AWBI or AWB. The WEA accepted what it was told by AWBI and AWB. It accepted AWBI's statements about net back calculations of the FOB price and did not check them. This meant that in reality it was not performing its function of monitoring AWBI's performance in relation to the export of wheat and examining and reporting on the benefits to growers that result from that performance * at least in relation to sales to Iraq.

29.60 I have not examined what part, if any, factors such as the WEA's

understanding of its role, the scope and use of its legislated powers, or the adequacy of its management, staff or consultants might have played in its performance in monitoring AWBI's sales to Iraq. That was not within my terms of reference and involves broad policy considerations. It will be apparent, however, from the findings I make that, as long as AWB or AWBI is

responsible for the export of Australian wheat, a strong and vigorous regulatory regime will be required. In relation to exports to Iraq, the Wheat Export Authority did not display the necessary strength or vigour.

16 Report of the Oil-for-Food Inquiry

Issue

The Wheat Marketing Act 1989 imposes on the Wheat Export Authority two functions:

" to control the export of wheat from Australia

" to monitor AWB (International) *s performance in relation to the export of wheat and examine and report on the benefits to growers that result from that performance.

Insofar as those functions include the obligation to monitor performance of proper standards of commercial conduct by AWB I, and through it AWB, the WEA was not successful in so doing in relation to sales to Iraq. A strong and vigorous regulatory or monitoring organisation is required whilst AWB I or AWB is responsible for the export of Australian wheat.

Recommendation 5

I recommend that there be a review of the powers, functions and responsibilities of the body charged with controlling and monitoring any Australian monopoly wheat exporter. A strong and vigorous monitor is required to ensure that proper standards of commercial conduct are adhered to.

Possible offences

29.61 It is an offence under s. 149 of the Criminal Code to obstruct or hinder a Commonwealth public official in the performance of his or her functions as such. Each of Messrs Besley, Taylor and Charman, and Ms Duck, were officers or employees of a Commonwealth authority and thus 'Commonwealth public officials' within the meaning of s. 149.102 The wilful provision of false, misleading or materially incomplete information in response to a request for information can constitute a hindrance or obstruction. Requests for information by WEA staff appear to have been made in the performance of their statutory functions.

29.62 The WEA's requests for information were of such an unspecific nature and couched in such general terms it cannot be said that failure to provide the information I find was not provided by AWBI or AWB to the WEA

constituted an obstruction by AWBI and AWB of WEA officers in the performance of their functions as public officials.

29.63 The conduct of AWB and AWBI towards the WEA did not constitute any breach of a Commonwealth, State or Territory law.

Report of the Oil-for-Food Inquiry 17

Notes

1 Wheat Marketing Act 1989 s. 5. 2 Wheat Marketing Act 1989 s.5D. 3 Wheat Marketing Amendment Act 2003 Schedule 1 item 2. Section 5D commenced on 22 July 2003: Wheat Marketing Amendment Act 2003 s. 2 and Commonwealth of Australia, Gazette, GN 31 (5/08/2003) 2274. 4 Senate Rural and Regional Affairs and Transport Legislation Committee, Provisions of the Wheat Marketing Amendment Bill 2002, Senate June 2003 7 [3.15] *[3.16] (footnotes omitted). 5 Wheat Marketing Act 1989 s.5. 6 Ex 493, WST.0018.0008 at 0011, para. 17. 7 T 2673. 3 T 2673.23 - T 2674.3. 9 Ex 1400, AWB.0264.0001_R. 10 Ex 1400, AWB.0264.0001_R at 0010_R. .

u Ex 1400, AWB.0264.0001JR at 0014_R. 12 Ex 1401, AWB.0264.0027 at 0042_R, 0058_R. 13 Ex 1402, AWB.0264.0071_R at 0086_R, 0108_R. 14 Ex 704, AWB.0405.0200JR at 0200_R-0201_R. is Ex 704. AWB.0405.0200JR. is Ex 704, AWB.0405.0200_R. 17 Ex 705, AWB.0405.0197_R. is Ex 705, AWB.0405.0197_R. 19 Ex 464, WEA.0011.0001; Ex 1495, AWB.0267.0256.

20 Ex 706, AWB.0405.0194_R; Ex 707, AWB.0405.0192. 21 Ex 1410, AWB.0177.0013JR at 0016_R. 22 Ex 1410, AWB.0177.0013_R at 0016_R. 23 Ex 1410, AWB.0177.0013_R at 0016_R. 24 Ex 707, AWB.0405.0192. 25 Ex 707, AWB.0405.0193_R. 26 Ex 1410, AWB.0177.0013_R at 0016_R.

27 Ex 465, AWB.0142.0283; Ex 1505, AWB.0300.0002 at 0006. 28 Ex 1505, AWB.0300.0002 at 0006. 29 T 5808.9-19. 30 T 5811.32-36. 31 T 5811.44. 32 Ex 1495, AWB.0267.0262. 33 Ex 1495, AWB.0267.0262 at 0264. 34 Ex 1495, AWB.0267.0262 at 0264. 35 Ex 1495, AWB.0267.0261. 36 Ex 493, WST.0018.0008 at 0011, para. 19. 37 Ex 1569, WEA.0001.0111. 38 Ex 493, WST.0018.0008 at 0011, para. 19. 39 Ex 1413, AWB.5024.0348_R; Ex 470, AWB.5024.0344_R. 40 Contracts A1680 and A1670 were both executed on 11 December 2002. 41 Hostilities commenced on 19 March 2003. 42 Ex 495, WST.0018.0029, para. 5. 43 Ex 466, WEA.0010.0020. 44 Ex 466, WEA.0010.0021. 45 Ex 466, WEA.0010.0021. ´ Ex 1511, AWB.6024.0309_R. 47 Ex 1415, WEA.0002.0012 at 0014. ´ Ex 1377, WEA.0010.0006. 49 Ex 1377, WEA.0010.0006. so Ex 1377, AWB.0267.0148_R at 0160_R.

18 Report of the Oil-for-Food Inquiry

51 Ex 1377, WEA.0001.0041_R. 52 Ex 1569, AWB.0267.0200_R.

53 Ex 495, WST.0018.0029 at 0030, para. 11. 54 Ex 472, SHE.0001.0004. 55 Ex 474, WEA.0001.0067. 56 Ex 1569, WEA.0001.0038, WEA.0001.0039_R. 57 Ex 1569, WEA.0001.0039_R. 58 Ex 1569, WEA.0002.0023_R. 59 Ex 1569, WEA.0002.0023_R at 0024. 60 Ex 328, WST.0004.0056. 61 Ex 328, WST.0004.0056. 62 Ex 482, AWB.0267.0137; Ex 495, WST.0018.0029 at 0030, para. 12.

63 T 3844; Ex 327, AWB.0202.0154. 64 Ex 1411, WEA.0002.0033_R. 65 Ex 495, WST.0018.0029 at 0031, para. 13; Ex 1411, WEA.0002.0033_R at 0034_R. 66 T 3690.4-8. 67 Ex 498, AWB.0338.0050; Ex 1421, JMC.0002.0045JR at 0076_R; Ex 768, AWB.0413.0177.

68 Ex 768, AWB.0413.0177 at 0182. 69 Ex 330, AWB.0269.0002; T 3694.6; T3896.13. 70 T 3694.13. 71 Ex 330, AWB.0269.0002 at 0003-0004. 72 See, for example, Ex 1400, AWB.0264.0001_R at 0010_R.

73 Ex 468, WEA.0002.0193 at 0194.

74 T 3918.39-3920.3. 75 T 3870.46. 76 Ex 495, WST.0018.0029 at 0032, para. 22; T 3901-3902. 77 T 3919-3920. 78 Ex 468, WEA.0002.0193 at 0195. 79 T 3703 - T 3704. so T 3704.43 si Ex 495, WST.0018.0029 at 0032, para. 20. sz T 5842.14. 83 Ex 495, WST.0018.0029 at 0032, para. 22.

84 Ex 495, WST.0018.0029 at 0033, para. 26. ss Ex 468, WEA.0002.0193 at 0194-0195. 86 Ex 329, WST.0004.0057. 87 Ex 329, WST.0004.0057. 88 Ex 699, WST.0038.0091. sª Ex 699, WST.0038.0091. 90 Ex 334, AWB.0266.0046_R. 91 Ex 334, AWB.0266.0046JR.

92 Ex 698, WST.0038.0001 at 0012, para. 49. 93 Ex 1239, AWB.0194.0039_R at 0041_R. 94 Ex 518, WST.0016.0141_R at 0142_R. 95 T 4144.10-21. 96 T 5608.21-43. 97 T 5609.20-27. 98 Ex 1512, WEA.0002.0010 at 0010-0011. 99 Ex 480, AWB.0259.0006.

100 Ex 480, AWB.0259.0006. 101 Ex 481, WEA.0001.0059. 102 Criminal Code Dictionary.

Report of the Oil-for-Food Inquiry 19

30 The knowledge of the Commonwealth

Circumstances in which the knowledge of the Commonwealth may be material

30.1 The Inquiry's terms of reference do not extend to investigating and reporting on whether the actions or conduct of the Commonwealth, or any of its officers, might have constituted a breach of a law of the Commonwealth, a State or Territory. It was made clear, however, that if during the conduct of the Inquiry it appeared there might have been a breach of any

Commonwealth, State or Territory law by the Commonwealth or any officer of the Commonwealth related to the subject matter of the terms of reference, I would approach the Attorney-General, seeking a widening of the terms of reference. That situation did not arise.

30.2 It does not follow, however, that it is not relevant to examine what knowledge the Commonwealth, or certain of its officers, may have possessed at material times about the activities of AWB Limited, the terms on which AWB was shipping wheat to Iraq, and whether it was breaching or circumventing the sanctions in any way. Such knowledge may be material when considering any potential liability of AWB or its officers. It may provide a possible defence to certain actions potentially available against AWB or its officers. The consideration of the possible knowledge of the Commonwealth is limited to the circumstances relating to AWB's trade with Iraq. There is no suggestion in the evidence that the Commonwealth possessed any knowledge that the Rhine Ruhr or Alkaloids of Australia contracts included any arrangements relating to the payment of fees to Iraq.

30.3 A number of the offences that might potentially have been committed by AWB or its officers or employees have as one of their elements the deception of Commonwealth officers in the course of their duties, or the obtaining of a benefit, advantage or other gain from the Commonwealth as a result of the making of a false or misleading representation or the provision of misleading information or as a result of some other dishonest or fraudulent conduct towards the Commonwealth. Those offences include the offences created by ss. 29B and 29D of the Crimes Act 1914 (in relation to conduct occurring prior to 24 May 2001) and ss. 134.2, 135.1, 135.2, 135.4 and 136.1 of the Criminal

Report of the Oil-for-Food Inquiry 21

Code. The elements of these and other offences are considered in Appendix 26.

30.4 For offences involving the obtaining of a benefit or advantage by reason of misleading representations or information or some other deceptive or dishonest conduct, the misleading information or deception must operate on the mind of the person to whom it was directed.1 If that person was the Commonwealth, the misleading information or deception must have been a material cause of the decision by the Commonwealth to confer the benefit or advantage.

30.5 It follows that if, at the time that any misleading information was furnished to the Commonwealth and the benefit or advantage was conferred, the Commonwealth knew that the information was misleading, the person who provided the misleading information could not be convicted of an offence of obtaining the benefit or advantage by reason of the provision of the misleading information.2 In certain circumstances, however, the person could be convicted of an attempt to commit such an offence.3

30.6 In the case of information provided by AWB to the Commonwealth about its wheat contracts with Iraq, if the Commonwealth or certain of its officers knew that the information provided by AWB was false or misleading, it could not be found that such benefit, advantage or gain that AWB obtained from the Commonwealth consequent upon the provision of that information was obtained as a result of the misleading representation or information. Knowledge on the part of the Commonwealth would also make it difficult to establish dishonesty or fraud on the part of AWB.

30.7 It is the actual knowledge of the Commonwealth that the information was false or misleading that is material in considering whether a benefit or advantage was conferred by the Commonwealth by reason of the provision of misleading information. It is immaterial that the Commonwealth may have had the means or ability to find out that the information was misleading4, or that it ought reasonably to have known that the information was misleading.5 It is also immaterial that the Commonwealth, at the time it conferred the benefit or advantage, suspected but did not know that the information was misleading.6 The question is whether the alleged false or misleading statement operated on the mind of the person to whom it was directed * here, the Commonwealth. Accordingly, the question whether the Commonwealth may have had constructive knowledge (in the sense that it ought reasonably to have known the truth or that it had the means and ability to find out the truth) is immaterial. A false statement may still operate on the mind of a person who merely has constructive knowledge so as to result in the person being misled or deceived.

22 Report of the Oil-for-Food Inquiry

What is the relevant information or knowledge?

30.8 In considering the knowledge of the Commonwealth in this context, it is important to define the knowledge or information that is, or may be, material. This requires a consideration of the relevant information or statements AWB gave or made to the Commonwealth that might provide the basis for charges under the Crimes Act or the Criminal Code and how it might be said that this information or the relevant statements was or were false or misleading. In short, what are the particulars of any potential offences that might have been committed by AWB that rely on the allegation that AWB misled or deceived the Commonwealth?

The particulars of potential offences that AWB might have committed are considered in Appendix 26. The primary information that was provided by AWB to the Commonwealth in relation to each wheat contract comprised a UN 'Notification or request to ship goods to Iraq' form7 and a copy of AWB's short-form contract with the Iraqi Grain Board. These documents were submitted to the Department of Foreign Affairs and Trade, ultimately for transmission to the United Nations.

The notification form included certain basic information about the contract, including the 'value per item' and the 'total value' of the goods proposed to be shipped. In the case of AWB's wheat contracts, the 'value per item' was the

price per tonne of the wheat to be shipped and the 'total value' was the total contract price, being the price per tonne multiplied by the number of tonnes of wheat the subject of the contract. The information in the notification form also included shipping arrangements (border point or point of entry into Iraq) and the means of transport. In AWB's notification forms, the point of entry was invariably specified as Umm Qasr and the means of transport was specified as 'bulk carrier(s)'. Nothing was stated about the inland destinations in Iraq or the method of transportation thereto.

30.11 AWB's short-form contracts that were submitted to DFAT included, amongst other things, the quantity of wheat the subject of the contract, details of the shipment and discharge, and the price per tonne. In most cases the shipment details included that the cargo would be 'discharged Free in Truck to all silos within all Governates of Iraq' at a specified average rate, and the price per tonne was specified as being on terms 'C.I.F., Free in Truck'.

30.12 Full details of the notification forms and contracts AWB sent to DFAT for submission to the United Nations are given in Chapter 11 and Appendix 15. The arrangements between AWB and the IGB in relation to the payment of inland transportation fees and other amounts are discussed in detail in Chapters 13 to 26. The following general conclusions may be drawn about the notification forms and contracts AWB furnished to DFAT:

Report of the Oil-for-Food Inquiry 23

" With the possible exception of four contracts in 1999 that disclosed a maximum discharge cost of US$12.00 payable to the nominated Maritime Agents in Iraq8, the notification forms and the short-form contracts did not disclose that the specified price per tonne had incorporated in it a figure representing fees * ostensibly related to costs associated with trucking the wheat to destinations inside Iraq and described as inland transportation fees * and other amounts payable, directly or indirectly, to the IGB or another Iraqi entity or its nominee, Alia.

" The notification forms and short-form contracts did not disclose that it was a term of the relevant contracts between AWB and the IGB or, alternatively, a collateral agreement or arrangement between AWB and the IGB that AWB would pay the inland transportation fees and other amounts payable to the IGB that had been incorporated in the price per tonne in the contract directly or indirectly to the IGB or another Iraqi entity or its nominee, Alia.

" Contracts A1670 and A1680 and the notification forms relevant to them did not disclose that the specified contract price had incorporated in it a substantial sum referable to debt said to be owed by the IGB for a shipment of wheat that had been made in 1996 or that there was a

collateral arrangement to pay to Iraq an amount per tonne as

compensation for alleged contamination of earlier shipments through the inland transport mechanism.

30.13 This information was information that was material to the decisions and actions taken by officers of DFAT in relation to AWB's contracts and applications to participate in the OFF Programme. The failure to refer to these matters in both the notification forms and the short-form contracts that were submitted to DFAT was capable of rendering the information that was provided misleading in a material respect. It was potentially misleading to specify the price per tonne for the supply of wheat whilst neglecting to inform DFAT that the price incorporated fees not genuinely ancillary to the supply of wheat on the terms disclosed in the contract.

30.14 It is also open to construe the submission of the notification forms and contracts in the circumstances as an implied statement or representation by AWB that the details in the notification form and the accompanying contracts contained the entirety of the terms on which AWB was supplying wheat to the IGB and there were no additional terms or collateral or side agreements relating to the supply. It was potentially misleading and deceptive to furnish the notification forms and contracts without also disclosing the additional terms or collateral arrangements involving the payment of inland

24 Report of the Oil-for-Food Inquiry

1

transportation fees and other amounts directly or indirectly to the IGB or another Iraqi entity or its nominee.

30.15 It follows that the relevant inquiry in relation to the knowledge of the Commonwealth is whether the Commonwealth, or certain of its officers, had actual knowledge that:

" The prices, or 'values', specified in the notification forms and contracts submitted to DFAT had incorporated in them fees *in particular, inland transportation fees *and other amounts payable directly or indirectly to Iraqi entities or their nominee, Alia.

" The wheat contracts between AWB and the IGB included additional terms or collateral arrangements not disclosed in the short-form contracts submitted to DFAT that required AWB to pay fees * in particular, inland transportation fees * and other amounts to Iraqi entities or their nominee, Alia.

Who are the Commonwealth officers whose knowledge is relevant?

30.16 The Commonwealth can acquire knowledge only by its officers. In this sense, the Commonwealth is in a position analogous to that of a company. In the case where it is alleged that a person obtained a benefit or advantage from a company by reason of the provision of misleading information, the company is not deceived by and the benefit or advantage is not conferred by reason of the misleading information if an employee with requisite status and authority in relation to the conferral of the benefit or advantage, or any employee whose state of mind represents the mind and will of the company, knew that the information was misleading.9 The principles relating to imputing to a company the knowledge of its officers or employees apply equally to the imputation of knowledge to the Commonwealth.10

30.17 In the case of the information provided by AWB to the Commonwealth (the notification forms and its short from contracts), the relevant benefit or advantage conferred by the Commonwealth is one or both of the following:

" the benefit or advantage of having DFAT, via Australia's mission to the United Nations, certify and submit the notification form and contract to the United Nations for approval under the Oil-for-Food Programme (in circumstances where the United Nations would not accept notification forms or contracts directly from companies or individuals) and where approval by the United Nations was a precondition to AWB obtaining payment from the escrow account

Report of the Oil-for-Food Inquiry 25

the granting of a permission to export by the Minister for Foreign Affairs or his delegate under the Customs (Prohibited Exports) Regulations.

30.18 The officers with requisite status and authority in relation to the conferral of these benefits or advantages were the officers of DFAT who were responsible for 'processing' AWB's notification forms and contracts for submission to the United Nations, the officers who were delegates of the Minister in relation to the granting of permissions to export to AWB, and the officers who were responsible for recommending and causing the permissions to export to be signed by the delegates. The DFAT officers who fell within this category were Messrs Bowker, Cuddihy and Grenenger and Ms Drake-Brockman, Ms Courtney, Ms Moules, Ms Brodtman and delegates, including Messrs Aitken, Quinn and Richardson and Ms Owens.11 Since the Minister for Foreign Affairs is the ultimate repository of the power to grant permission under the Regulations, the knowledge of the Minister, Mr Downer, would also be material.

30.19 In addition to the Minister for Foreign Affairs and the specific DFAT officers with authority and responsibilities in relation to the Oil-for-Food Programme, there are other persons whose status and authority at the relevant time was otherwise such that their knowledge would be imputed to the

Commonwealth. This would include the Prime Minister and the Minister for Trade.

30.20 The knowledge, or possible knowledge, of other officers of the

Commonwealth who were not responsible for receiving or acting on the information furnished by AWB, or whose knowledge cannot relevantly be imputed to the Commonwealth, is not material to whether AWB may have committed the Crimes Act or Criminal Code offences relating to the obtaining

of a benefit or advantage from the Commonwealth. It is immaterial that some other officer of the Commonwealth may have possessed some relevant knowledge if that knowledge was not conveyed to the Ministers or the responsible DFAT officers. For example, it would not be relevant that an officer of the Australian intelligence community may have possessed some intelligence about Iraq requiring suppliers of humanitarian goods under the Oil-for-Food Programme to make surcharge payments if that information was not conveyed to the relevant Ministers or DFAT officers. Knowledge by an officer of the intelligence community is not imputed to the Commonwealth in the relevant circumstances.

26 Report of the Oil-for-Food Inquiry

The material time in relation to the possession of knowledge

30.21 The relevant inquiry is whether the Commonwealth knew that the information conveyed to it by AWB was false or misleading at the time AWB conveyed that information to it, and at the time it conferred the relevant benefit or advantage on AWB. The relevant time is therefore the period

during which AWB submitted to DFAT the notification forms and contracts that omitted to disclose the arrangements relating to the payment of inland transportation fees and other payments to Iraqi entities and the period during which permissions to export were signed consequent on UN approval of the

contracts. That period was from late 1999 to early 2003.

30.22 It is immaterial if the Commonwealth came to possess information about AWB's arrangements relating to the inflation of contract prices and payment of inland transportation fees after early 2003, unless the actions of the Commonwealth on receipt of the information at that later time bear upon the question whether the Commonwealth knew the information during the relevant period. The question whether the Commonwealth's actions when it did receive allegations about these matters in mid to late 2003 could provide the basis for an inference that it knew the information during the relevant period is discussed in detail below.

Did AWB ever tell DFAT about the inland transportation fee arrangements?

30.23 There is no direct evidence that anyone at AWB ever told anyone at DFAT that AWB's wheat prices incorporated inland transportation fees or other payments to be made to Iraqi entities, or that its contracts with the IGB were subject to terms or collateral arrangements requiring it to make payments, directly or indirectly, to Iraqi entities or their nominees. Indeed, such evidence as there was on this issue was to the contrary.

30.24 It is unsurprising that the evidence supports a finding that DFAT was not told by AWB or its officers that AWB was paying inland transport fees and after≠ sales-service fees to Alia for forwarding to Iraq. In 1999 and 2000 AWB went to great lengths to disguise the fact of making such payments. Thereafter, and to the date of the Inquiry, AWB maintained that such payments to Alia were legitimate payments to a legitimate trucking company performing a legitimate service. It rejected all claims of improper payments. In the circumstances, it would be extremely improbable that AWB would have discussed Alia with DFAT or informed DFAT that it was indirectly making payments to Iraq. To have done so would have involved informing DFAT it (AWB) was acting contrary to UN sanctions.

Report of the Oil-for-Food Inquiry 27

Documentary evidence

30.25 No document obtained by the Inquiry * either from AWB, DFAT or any other person or entity * constituted or evidenced a communication of the relevant information by AWB to DFAT during the period late 1999 to early 2003.

30.26 DFAT was required by notice to produce to the Inquiry, amongst other things, any document that evidenced, recorded or concerned any communication, written or oral, passing between it and AWB relating to the sale of wheat, the use or engagement by AWB of trucking companies, including Alia, or the sanctions on Iraq.12 Many thousands of documents were produced by DFAT and examined by the Inquiry. Those documents that constituted or recorded a communication between DFAT and AWB were identified and collated into seven lever-arch folders that were tendered as exhibit 542. No document within exhibit 542 constitutes, or is capable of constituting, an advice or acknowledgment by AWB that it was paying, or had or was being required to pay, inland transportation fees directly or indirectly to the IGB or any Iraqi entity or its nominee. No document refers to Alia or to the fact that AWB was making payments to Alia ostensibly in relation to inland transportation. No correspondence or communication from AWB refers to the fact that the price per tonne in AWB's contracts incorporated amounts referable to the payment of such fees or refers to the fact that AWB had any collateral agreement or arrangement not recorded in the contract in relation to the provision or payment for inland transportation services.

30.27 The only correspondence that referred in any material way to AWB's inland transportation arrangements in Iraq was correspondence between Mr Stott of AWB and Ms Drake-Brockman of DFAT in October and November 2000, in which AWB sought, and DFAT provided, advice about whether DFAT was 'comfortable' with AWB entering into discussions with Jordan-based trucking companies with a view to agreeing to a commercial arrangement relating to the discharge of wheat cargoes. This correspondence, and the evidence relating to whether there were any other communications between AWB and DFAT in relation to it, is discussed in detail below. Suffice it to say that nowhere in the letter Mr Stott sent to DFAT is it revealed that by October 2000 AWB had already entered into arrangements whereby it paid substantial sums per shipment (calculated on a per tonne basis) to Alia, a Jordanian company nominated by the IGB to receive the payments. Indeed, Mr Stott had amended a draft of the letter to specifically delete any reference to the fact that AWB's contracts had incorporated in them a 'predetermined and UN approved transport fee'.13 Nowhere in this letter is it stated that AWB's contracts with the IGB were conditional on AWB agreeing to make these payments or that the payments were factored into the contract price.

28 Report of the Oil-for-Food Inquiry

30.28 There were also communications between AWB and officers of DFAT during the period commencing in about mid to late 2003 concerning allegations made by a United States agricultural lobby group, US Wheat Associates, that AWB's wheat prices had been inflated to include payments to the regime of Saddam Hussein. The US Wheat Associates allegations and DFAT's responses are discussed in Chapter 28. Whilst the US Wheat Associates allegations used pejorative terms and suggested that the 'excess' added to the price of the wheat contracts was paid to Saddam Hussein and his family, the basic thrust

of the allegations * that AWB's contract prices had been inflated to incorporate amounts that were ultimately paid to the Iraqi regime *was in substance accurate.

30.29 The documentary evidence demonstrates that, far from conceding to DFAT that this may be the case, AWB stridently denied the US Wheat Associates allegations. On 6 June 2003 AWB issued a press release that forcefully denied the allegations, Mr Lindberg describing them as 'absurd, with no foundation and an insult to Australian farmers and damaging to our reputation'.14 In a letter dated 12 June 2003 from Mr Lindberg to the US Wheat Associates President, Mr Tracey (a copy of which was provided to DFAT officers in the Iraq Task Force15), Mr Lindberg wrote that the allegations that ' [AWB] contracts with prices inflated by millions of dollars per shipload has provided foundation to the rumours that some of the excess may have gone into the accounts of Saddam Hussein's family' were not true and were unsupported by any evidence.16 Internal DFAT communications concerning the US Wheat Associates allegations repeatedly state, 'Government has been assured by AWB Ltd that no such kickbacks were paid'.17

30.30 The communications concerning the US Wheat Associates allegations occurred after the end of the Oil-for-Food Programme and therefore well after the time DFAT officers and the Minister or his delegate were considering granting permissions to export to AWB. They are, however, relevant insofar as they are inconsistent with any notion that AWB had advised DFAT during the currency of the Programme that its contracts incorporated inland transportation fees and surcharges that were paid indirectly to the IGB or other Iraqi entity via its nominee, Alia. Far from confirming to DFAT that there was some substance in the US Wheat Associates allegations, at least insofar as they alleged that AWB's prices had been inflated to incorporate payments made to the Iraqis by way of inland transportation fees and 10 per cent after-sales-service fees, AWB rejected them as 'baseless and outrageous'.18 AWB maintained the same position in its communications with DFAT concerning its potential role in an investigation conducted by the United States Senate Committee on Foreign Relations into the Oil-for-Food Programme.19

Report of the Oil-for-Food Inquiry 29

30.31 The first documentary record of any advice by AWB to DFAT to the effect that it had made payments relating to inland transport to a company nominated by the Iraqis is in a letter dated 10 June 2004 from Mr Lindberg to the Minister for Foreign Affairs. In that letter, which was AWB's first formal response to the announcement by the United Nations of the establishment of the Independent Inquiry Committee, Mr Lindberg stated:

Wheat was delivered to Iraq by AWB for distribution to all governates of Iraq in accordance with the Distribution Plan for the relevant Phase of the OFF Programme 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 governates of Iraq'. The Iraq

Grains Board (IGB) nominated the preferred trucking supplier and the rate to apply.20 %†

Mr Lindberg reiterated to the Minister, however, that at all times AWB had acted with integrity in its dealings with Iraq.

30.32 The revelation * for the first time in explicit terms * that AWB's wheat contracts incorporated the payment of trucking fees to a trucking supplier nominated by the IGB and at rates specified by the IGB, was still at best a half truth. What Mr Lindberg omitted to inform the Minister was that the trucking supplier nominated by the IGB was not itself providing the transport services but was simply channelling the funds paid to it back to the Iraqis. Nor did Mr Lindberg nominate the name of the trucking supplier *Alia. Nor did he inform the Minister that included in the 'transportation fee' was a sum equivalent to 10 per cent of the contract price that AWB knew was not related to any transport cost. The question of whether Mr Lindberg knew at this time that Alia was not providing the trucking but was simply channelling the funds back to Iraq and knew of the 10 per cent after-sales-service fee is dealt with elsewhere. Whatever Mr Lindberg knew, it had been known at a senior level within AWB since November 1999, and the 10 per cent fee had been known to be unrelated to any trucking service since its inception.

30.33 The first correspondence from AWB that identified Alia as the Jordanian transport company to which AWB made payments was a briefing paper relating to the Independent Inquiry Committee investigation that was provided to DFAT in August 2004.21 In this briefing paper AWB continued to assert that Alia was a legitimate trucking company that provided actual transportation services for AWB. It maintained this position even though it had no contract with Alia, yet had paid it US$223 million. In all its

communications with DFAT concerning the IIC investigation, AWB maintained the position that, so far as it was aware, Alia provided transport services and AWB did not know that Alia merely channelled the payments to Iraq. Statements to this effect were made by officers of AWB in meetings with

30 Report of the Oil-for-Food Inquiry

DFAT officers on 27 September 200522 and 13 October 200523 and with Mr Downer (and DFAT officers) on 4 October 2005.24 The discussions that occurred at these meetings are addressed further below.

30.34 As late as October 2005, and in the face of findings made by the Independent

Inquiry Committee, senior officers of AWB continued to maintain to DFAT and the Ministers that it did not know that Alia did not itself provide any transport services and channelled the inland transportation fees AWB paid to it back to Iraq. In letters to the Ministers for Foreign Affairs and Trade dated 26 October 200525 Mr Stewart and Mr Lindberg wrote:

... the Committee has concluded that AWB did not actually know of the matters alleged, namely that the transport company, Alia for Transportation & General Trade ('Alia'), was a 'front company' for the former government of Iraq and that it channelled transport fees to the regime. Nevertheless, the Committee will find that the $200m paid by AWB to Alia for transport fees was 'channelled through Alia to the government of Iraq'. The Committee has found there is insufficient evidence to support a 'knowing' finding and the test by which it assesses the weight of the evidence is one of 'reasonable sufficiency'. This is a lower threshold than tests applied by courts and so the Committee's finding is supportive of AWB's position that it did not know of the matters that have now been uncovered by the

Committee's extensive investigations.

Like its responses to the US Wheat Associates allegations, AWB's communications with DFAT and the Ministers in 2004 and 2005 concerning the Independent Inquiry Committee investigation were inconsistent with AWB having previously advised DFAT during the operation of the Oil-for- Food Programme that it had made or was making payments indirectly to Iraq ostensibly in relation to inland transport. Even when AWB eventually advised DFAT in mid-2004 that its arrangements with the IGB included paying amounts relating to inland transport to a company nominated by the IGB, it continued to maintain that these payments related to transport services provided by that company and continued to deny that it knew that any payments were being made to Iraq.

The evidence of officers and employees of AWB

30.36 With the possible exception of Mr Stott, no past or present officer or employee of AWB claimed to have ever advised anyone at DFAT that AWB's wheat contract prices incorporated inland transportation fees payable to Alia or otherwise indirectly to the IGB or Iraq or that there were arrangements with the IGB collateral to the written wheat contracts that involved paying inland transportation fees, or 10 per cent surcharges disguised within inland transportation fees, to Alia or otherwise indirectly to the IGB or any other Iraqi entity. None of the officers whose duties included communicating with DFAT in relation to substantive issues involved in the contract approval

Report of the Oil-for-Food Inquiry 31

process, or who had some contact with DFAT in relation to AWB's wheat contracts with Iraq, or who otherwise knew what information was being provided to DFAT * such as Messrs Officer, Hogan, or Emons * suggested that they had ever told any officer of DFAT about these matters. Indeed, a number of them positively stated that they did not advise DFAT about the payment of inland transportation fees, including at meetings with DFAT where aspects of AWB's dealings with Iraq were discussed.

Mr Officer

30.37 Mr Officer was the General Manager, Global Sales and Marketing, at AWB between late 1995 and early June 2000.26 In this position he was responsible for AWB's international activities, including sales to Iraq. Mr Emons, the Regional Manager for the Middle East, Africa and Europe, reported to him. Mr Officer's involvement in and knowledge concerning AWB's payment of inland transportation fees is discussed elsewhere in the report. Suffice it to say that he knew that the IGB required AWB to pay inland transportation fees, that AWB's standard contract had to be changed to allow for payment of the fees by increasing the contract price, that the contract price (including the 'uplift' for transport fees) was paid from the UN-controlled escrow account, and that AWB would remit the transport fees to a party nominated by the IGB either directly or via an intermediary.27

30.38 Whilst Mr Officer rarely had discussions with DFAT28, he was on good terms with Mr Bowker, the Director of the Middle East Section of DFAT, and met with him in December 1999 to discuss AWB's marketing strategy for Iraq and the commercial environment in which AWB was operating.29 He never told anyone at DFAT, including Mr Bowker at the December 1999 meeting30, about AWB's payment of trucking fees. Nor was he aware of anyone else at AWB advising DFAT about the true contractual relations between AWB and the IGB insofar as they involved the payment of transportation fees:

Q: Are you aware that, after October of 1999, no contract between the AWB and the IGB under the Oil-for-Food Program ever again identified a specific amount as payable on account of discharge costs or inland transport fee or trucking fee?

A: I'm aware as of the January 2000 contract that that was in fact the case. After that, I had left the AWB, I think, when the next contracts were negotiated, so to that extent, yes, that's correct.

Q: Did you, yourself, ever inform anybody at DFAT as to what the full terms and conditions of the arrangements between the IGB and the AWB were *

A: No.

Q: * insofar as they related to the payment of trucking fees *

32 Report of the Oil-for-Food Inquiry

A: No.

Q: * or inland transport fees?

A: No.

Q: Are you aware of any communication between AWB and any officer of DFAT in which DFAT was told the detail of the true contractual arrangement as between the IGB and the AWB, other than what appeared on the face of the written contracts that were submitted to DFAT?

A: No.31

Mr Emons

30.39 As Regional Manager of the Middle East, Africa and Europe section of AWB during the period 1996 to June 2000, Mr Emons had regular meetings with DFAT concerning issues that arose in the markets for which he was responsible, including Iraq.32 In particular, he was requested by the government relations officers of AWB once or twice a year to accompany them to Canberra to give an overview of the various AWB markets to DFAT and other Commonwealth departments.33 Those meetings did not descend into the details of the contractual arrangements with the Iraqis.34 He also attended the meeting between Mr Officer and Mr Bowker in December 1999, although Mr Emons was unable to recall that meeting.35

30.40 Mr Emons' knowledge of the payment of trucking fees indirectly to Iraq through Ronly Holdings Limited and Alia is discussed in detail elsewhere in the report. He knew AWB was not responsible for trucking within Iraq but was responsible only for payment of a fee to an account nominated by the IGB. Mr Emons did not recall informing DFAT of AWB's arrangements to pay trucking fees at any of the meetings that he attended:

Q: Did you ever, in any of those meetings, inform a DFAT officer of the

arrangement that AWB had to pay trucking fees to the Iraqis?

A: I don't recall that happening. I'm not saying it wouldn't have occurred through the government relations officer, but I certainly, myself, don't recall doing it.

Q: Did you ever inform anybody at DFAT that AWB was making the payment via ship owners?

A: No.

Q: Are you aware of any conversation within AWB which indicated that DFAT had been told that the trucking fee was being paid to the Iraqis?

A: I'm sorry, I don't recall any.36

Report of the Oil-for-Food Inquiry 33

30.41 Mr Emons' non-disclosure of AWB's arrangements in relation to the trucking fee payments was deliberate. Mr Emons first learnt about the Canadian complaint from Mr Officer.37 He was aware that Messrs Flugge, Snowball and McConville met with the Austrade Commissioner in Washington, Mr Nicholas, on 9 March 2000 and the Canadian complaint was discussed.38 After the meeting, he received an email from Mr Snowball in which Mr Snowball stated, amongst other things, that 'if all the UN wants is some understanding on standard terms and conditions in AWB contracts then I think we have nothing to worry about'.39 He understood from this that if there was mention of the trucking fee to the UN, there would be an issue and something to worry about40 and that he was being told to keep this in mind if he was contacted by DFAT.41

30.42 Following his receipt of Mr Snowball's email about the Canadian complaint, Mr Emons took a step that was plainly intended to minimise the risk that the United Nations or DFAT would find out about the trucking fee from the IGB. He sent a fax to the Director General of the IGB, advising the IGB that AWB had been questioned by the United Nations about payments by AWB to the 'Jordanian trucking company' and that AWB was concerned that the Canadian Government had taken action within the United Nations to discover the 'manner of AWB payments'. He asked for the IGB's assistance in ensuring that 'no information of a confidential nature is released'.42

Mr Hogan

30.43 Tike Mr Emons, from the time Mr Hogan was appointed Regional Manager of the Middle East Section in August 2000, he was involved in communications with DFAT in relation to AWB's wheat contracts with Iraq. He was aware of the procedures for obtaining UN approval of contracts under the Oil-for-Food Programme and the documentation that was submitted to DFAT in that regard.43 He was involved in sending contracts to DFAT in the course of this process.44

30.44 In early August 2000 Mr Hogan wrote to DFAT, seeking its advice in relation to a proposed change in the terms of AWB's wheat contracts and a proposed change in the way contracts were submitted to the United Nations.45 In each case the advice sought from DFAT was whether the proposed changes would be accepted by the United Nations. Mr Hogan subsequently received written advice from DFAT about these matters and was involved in a telephone hook≠ up with DFAT personnel to discuss the advice.46 Mr Hogan did not seek DFAT's advice regarding the payment of trucking fees to Iraq via Alia.47 There was no discussion about payment of trucking fees to Iraq or payments to Alia during this telephone hook-up.48

34 Report of the Oil-for-Food Inquiry

30.45 In mid-October 2000 Mr Hogan and Mr Stott travelled to Iraq via Jordan. Prior to entering Iraq, Mr Hogan and Mr Stott met with Mr Twisk, from the Australian Embassy in Amman. The discussions with Mr Twisk concerned the current state of affairs in Iraq.49 Mr Hogan also met with the Trade Minister, Mr Vaile, in Egypt after the visit to Iraq.50 On none of these occasions were there any discussions about the inland transportation fee or its method of payment.51

30.46 Mr Hogan was involved in the drafting of a letter to DFAT concerning AWB entering into discussions with Jordan-based trucking companies. The final version of this letter was signed by Mr Stott. This letter, DFAT's reply and the question of whether there were any discussions between Mr Stott and DFAT about the letter's terms is considered in Chapter 20. Mr Hogan's draft of the letter, dated 27 October 2000, included a reference to the fact that all Iraq contracts were concluded with a 'predetermined and UN approved transport fee'.52 This reference was removed in the final version of the letter that was settled and signed by Mr Stott and dated 30 October.53 Mr Hogan's evidence was that in any conversation he had with any DFAT officer between 27 and 30 October he would not have mentioned anything about payment of the inland trucking fee or whether or not it had been approved by the United Nations.54

Messrs Flugge, Snowball and McConville: the Canadian complaint

30.47 If there was any intention on the part of officers or employees of AWB to tell DFAT about the payment of inland transport fees to Alia and indirectly to Iraq or to seek DFAT's advice about or attitude to the payment of such fees, an occasion when that would have been expected to have occurred was when AWB was asked by DFAT and Austrade to respond to the Canadian

complaint. The facts relating to the Canadian complaint are discussed in detail in Chapter 16.

30.48 The first officer of AWB to respond to the complaint was Mr McConville. His response, when Mr Bowker put the complaint to him in January 2000, was, 'This is bullshit'. He went on to emphatically deny the allegations and tell Mr Bowker that AWB would continue to uphold its responsibilities in relation to Iraq.55 The second occasion that the complaint was raised directly with AWB was on 9 March 2000, when Messrs Flugge, Snowball and McConville met with Mr Nicholas, the Austrade Commissioner in Washington. On this occasion, Mr Nicholas was assured by the AWB representatives that there were no irregularities in their dealings with Iraq.56

30.49 At the meeting with Mr Nicholas, and following it, the question of the alleged irregular payments related to transport fees became subsumed in a request by DFAT that AWB provide to it (and the United Nations) copies of any 'parallel

Report of the Oil-for-Food Inquiry 35

contracts' between AWB and the IGB. This latter issue was able to be resolved by AWB's provision to DFAT of a document setting out AWB's standard terms and conditions in April 200057 *a document that revealed nothing about the payment of inland transportation fees by AWB. Mr Bowker had a further conversation with Mr McConville in the context of AWB providing a copy of its standard terms and conditions. During that conversation Mr McConville suggested that AWB's competition were 'throwing mud' at it because 'that is how competition between wheat traders works'.58

30.50 AWB's response and what may be inferred from it in relation to the

knowledge of the officers involved in response to the Canadian complaint, including Mr Emons, are discussed in Chapter 16. Suffice it to say that, in relation to Messrs Flugge, Snowball and Emons, it may be inferred that they knew the allegations concerning 'irregular payments' related to AWB's payment of inland transportation fees, that the failure to disclose this to DFAT

during the March meeting was deliberate, and that Mr Snowball cooperated with DFAT's request for the standard terms and conditions as a way of playing down the issue. As for Mr McConville, there is no evidence that he was aware of the specifics of AWB's contracts, including that AWB was paying inland transportation fees to Alia. It is, however, surprising that he dismissed the allegations put to him by Mr Bowker in such emphatic terms, without raising the matter with those at AWB who were responsible for the Iraq contracts.59

30.51 The point of immediate relevance insofar as the knowledge of the

Commonwealth is concerned, is that despite the fact that questions had been specifically directed to whether AWB was making 'irregular' payments outside the terms of the Oil-for-Food Programme, AWB did not tell DFAT (or Austrade) anything about the payment of inland transportation fees.

Mr Stott: the October-November 2000 correspondence

30.52 Another occasion when it might reasonably be expected that AWB would disclose to DFAT that it was making inland transportation payments to Alia and indirectly to Iraq, was in the context of correspondence on the subject of Jordanian trucking companies that occurred in October and November 2000.

30.53 The facts relating to this correspondence are addressed in detail in Chapter 20. The evidence, in summary, establishes the following:

" Following a trip to Iraq in October 2000, Mr Stott instructed Mr Hogan to draft a letter to DFAT, 'seeking advice as to a proposal to introduce a performance incentive scheme with the transport provider in Jordan'60

" Mr Hogan drafted a letter and emailed it to Mr Stott on 27 October 2000.61

36 Report of the Oil-for-Food Inquiry

" Mr Hogan's draft of the letter included a reference to the fact that all contracts were concluded as free in truck all governorates of Iraq with a 'predetermined and UN approved transport fee'.62

" Mr Stott made a number of changes to Mr Hogan's draft letter.63

" The final version of the letter, signed by Mr Stott and dated 30 October 2000, made no reference to the inclusion of a transport fee in the contract price64 and sought DFAT's advice not in relation to the payment of inland transportation fees but in relation to whether DFAT was 'comfortable' with AWB 'entering into discussions with the Jordan trucking companies with a view to agreeing a commercial arrangement in order to ensure that there are enough trucks to enable the prompt discharge of Australian wheat cargoes'.

" Both the signed version of the letter and an unsigned version with minor and immaterial differences65 were sent to DFAT, although Ms Drake- Brockman recalled seeing only the unsigned version.66

" DFAT's reply to Mr Stott's letter, dated 2 November and signed by Ms Drake-Brockman, advised AWB that DFAT could see no reason 'from an international legal perspective' why AWB should not proceed with its 'proposed course of action' *namely, entering into discussions with Jordanian trucking companies with a view to entering into commercial

arrangements to ensure there are sufficient trucks to ensure prompt discharge * and that 'this would not contravene the current sanctions regime on Iraq'.67

30.54 Ms Drake-Brockman's evidence was that she did not draft the DFAT letter she signed.68 A number of issues arise in relation to the drafting of the letter and whether, as the letter states, the 'International Legal Division' at DFAT was consulted about the terms of the letter.69

30.55 As noted, AWB's request for advice did not convey any information to DFAT about the fact that AWB had been paying, and intended to keep paying, inland transportation fees to Alia and indirectly to Iraq. It is open to infer from the fact that Mr Stott deleted the reference to the 'UN approved transport fee' from Mr Hogan's draft that Mr Stott consciously withheld this information from DFAT. Plainly, the letter of 30 October 2000 does not inform DFAT of the true arrangements between AWB and the IGB in relation to transportation or payment of fees to Alia.

30.56 So far as the knowledge of the Commonwealth is concerned, the more important question is whether there were any conversations between Mr Stott and any DFAT officer about the terms of the letters that revealed to DFAT that

Report of the Oil-for-Food Inquiry 37

AWB was making payments to Alia. The evidence relating to this and the conclusions to be drawn from it are discussed in Chapter 20. The evidence can be summarised as follows:

" Whilst Mr Stott could not recall having any discussions with anyone at DFAT about the terms of AWB's letter, he thought he had such a

discussion because it was customary practice for him to talk to DFAT about the terms of correspondence before he sent it.70

" If there was such a conversation, Mr Stott could not recall who he spoke with at DFAT before his letter was sent but said it 'would have been' either Ms Drake-Brockman71 or Ms Courtney.72

" Mr Hogan's evidence was that in any discussions with DFAT around the time of the correspondence he would not have mentioned anything about the payment of the inland trucking fee or whether or not it had been approved by the United Nations.73

" Ms Drake-Brockman denied ever having a discussion with Mr Stott about the terms of a letter he wished to write to DFAT.74 She did not have a practice of settling letters with the author before they were sent to her.75

" Ms Courtney had no recollection of having a discussion with anyone from AWB about the terms of the letter76 and said she would be surprised if she had had such a conversation.77 It was not her practice to negotiate the form in which letters ought be addressed to her.78

" Mr Stott claimed that he spoke with Ms Drake-Brockman after he received DFAT's letter of 2 November 2000. He said Ms Drake-Brockman advised him that DFAT was 'aware of'79 or had had 'looked into'80 Alia and that it was 'okay'.81

" Ms Drake-Brockman's evidence was that she had no discussions with Mr Stott about Alia. She had not heard of Alia until the Independent Inquiry Committee began its investigation in 2005.82

30.57 A number of issues arise from the evidence relating to DFAT's receipt of Mr Stott's letter and the drafting of the reply ultimately signed by Ms Drake- Brockman. In particular, there are some inconsistencies and unexplained gaps in both the documentary evidence and the evidence of the DFAT officers who were in Ms Drake-Brockman's section at the time. They include the following.

30.58 First, it is apparent that both an unsigned version of Mr Stott's letter and a signed version (with minor differences) were faxed to DFAT. Ms Drake- Brockman's evidence was that she had a specific recollection of having been

38 Report of the Oil-for-Food Inquiry

shown only the unsigned version. Only the unsigned version remained on DFATs files. No satisfactory explanation for this was provided by any officer of DFAT. It is unusual that both an unsigned and a signed version of the letter was sent to DFAT. This would tend to support one portion of Mr Stott's

evidence * that there may have been some discussion about the terms of the letter before it was signed * although it is contrary to a draft unsigned statement taken from Mr Stott by Minter Ellison in 2004, which records, T did not discuss the drafts of my letters with DFAT'.83

30.59 It is unusual that, on Ms Drake-Brockman's evidence, a reply was drafted in response to an unsigned letter, particularly if the signed version was available. It is unusual that the signed reply was not maintained on any file in the relevant section.

30.60 Second, Ms Drake-Brockman had a clear recollection of how the letter was presented to her by her staff. This included discussions about the terms of the draft reply with both Ms Courtney and Mr Cuddihy. Ms Drake-Brockman's evidence in this regard was not corroborated by either Ms Courtney or Mr Cuddihy. Neither recollected having any role in the preparation of the reply to Mr Stott's letter or having any discussions with Ms Drake-Brockman about it. No DFAT officer who gave evidence to the Inquiry recollected being involved in the drafting of the reply. DFAT's files contain no record of who drafted the reply.

30.61 Third, the reply signed by Ms Drake-Brockman concludes with the sentence, 'International Legal Division has been consulted in the preparation of this response'. Ms Drake-Brockman's recollection was that she was advised by her staff that the Assistant Secretary of the Legal Branch was comfortable with the reply and that, when she asked to see him, she was advised by her staff that he was out of the office and not contactable. DFAT's files contained no record of any consultation between an officer or officers in the Middle East Section and DFAT's International Organisations and Legal Division or Legal Branch in relation to Mr Stott's letter or the reply. The evidence of officers in the Legal Branch was that if the branch had been consulted, a note or written record of any advice provided by the branch would be retained on file. No officer of the Legal Branch who gave evidence or provided a statutory declaration to the Inquiry recalled providing any advice or input into the letter signed by Ms Drake-Brockman.

30.62 These matters reflect on the reliability of the documentary systems within DFAT. They raise a concern that Mr Stott's request for advice and the response may not have been dealt with in the ordinary course. They do not, however, reflect upon whether Mr Stott told DFAT that AWB was making trucking payments to Alia and had been for the past year, that AWB did not

Report of the Oil-for-Food Inquiry 39

have a contract with Alia for provision of trucking, that AWB had no real obligation to arrange trucking services in Iraq, that Alia had been nominated by the IGB as the body to whom fees were to be paid, or that the contract price had been inflated to include the trucking fee.

30.63 Insofar as Mr Stott's alleged conversations with officers of DFAT arise as an aspect of the knowledge of the Commonwealth, my conclusions are as follows:

" First, I do not accept that there was a conversation between Mr Stott and anyone at DFAT about the terms of the 30 October letter. Mr Stott's evidence about whether such a conversation occurred was vague and general, and the evidence of Ms Drake-Brockman and Ms Courtney is preferred.

" Second, and more importantly, even if there had been such a

conversation, Mr Stott did not convey to DFAT during the conversation that AWB had been making, and was going to continue to make,

payments to Alia in respect of inland transportation fees. Mr Stott had deleted any reference to such payments from Mr Flogan's draft of the letter. Had he intended to inform DFAT about the inland transportation

fees or Alia, he no doubt would have retained the reference to

transportation fees in the letter and perhaps included a specific reference to Alia. Mr Stott did not suggest that he deleted the reference to transportation fees as a result of, or following, his supposed discussions with DFAT.

" Third, Mr Stott's evidence that after his receipt of DFAT's reply he had a discussion with Ms Drake-Brockman about Alia is rejected. Ms Drake- Brockman's evidence that she never discussed Alia with Mr Stott is preferred. In addition to the general unreliability of Mr Stott's evidence, the main reasons for rejecting Mr Stott's evidence about this conversation are several:

- There is an absence of any documentary record of such a

conversation * an absence for which Mr Stott was unable to provide any rational or logical explanation.84

- If Alia was a topic for discussion with DFAT, there is no rational reason why Mr Stott would not have referred to it in his letter or would not have confirmed Ms Drake-Brockman's statements about Alia in a subsequent letter.

40 Report of the Oil-for-Food Inquiry

I

- There is no reason why Alia would have been raised in a conversation following the letter when the letter itself makes no reference to it. The letter referred to 'Jordanian trucking companies', not Alia.

- There is an absence of any other evidence capable of corroborating Mr Stott's evidence on this matter. Mr Stott claimed he told his manager, Mr Goodacre, about the conversation with Ms Drake-Brockman.85 Mr Goodacre did not recall any such conversation86, although he conceded that it was possible that Mr Stott did.87

30.64 Even if Mr Stott's evidence were to be accepted, it does not follow that it should be concluded that he told Ms Drake-Brockman that AWB's wheat prices were inflated to incorporate the payment of an inland transportation fee or that the fee was paid to Alia or that Alia passed on these fees to Iraq. Mr Stott did not claim that he told Ms Drake-Brockman any of those things.

30.65 The evidence does not support the conclusion that in October or November 2000, in the context of Mr Stott's letter and Ms Drake-Brockman's reply, Mr Stott, or anybody else at AWB, told Ms Drake-Brockman, or anybody else at DFAT, that AWB was paying inland transportation fees to Alia and that these fees were incorporated in its contract prices. I find that they did not do so.

Mr Lindberg and Mr Long

30.66 There was a very belated suggestion in the evidence of both Mr Lindberg and Mr Long that, on a visit to Iraq via Jordan in August 2002, they met with the Australian Ambassador to Jordan, Mr Tilemann, and that during that meeting AWB's use of Alia was mentioned. This evidence arose following the tender of a note made by Mr Cooper of meetings that occurred on 1 and 2 June 2005.88 Mr Cooper's note recorded the words 'AL told Australian Ambassador in Iraq in 2002 of using Alia'. Mr Lindberg's evidence was that at the meeting that occurred on 2 June 2005 between himself, Mr Trewin and members of the Project Rose team he said 'something, by way of an aside, to the effect that I might have mentioned Alia to the Ambassador' during the Iraq trip in August 2002.89 When examined, however, Mr Lindberg conceded that he said 'might' because he was not sure whether it was mentioned or not.90 He had not recollected this supposed exchange when he provided his first statement to the Inquiry.91

30.67 In a statutory declaration, Mr Long stated that, having had his attention drawn to Mr Cooper's note, he recalled meeting the ambassador at the ambassador's house in Amman on the way into Iraq in August 2002.92 Mr Long had no specific recollection of the substance of the conversation, but he believed that he and Mr Lindberg told the ambassador about 'the quality claim' and that Mr Cooper's note was 'likely to reflect some of what Andrew

Report of the Oil-for-Food Inquiry 41

30.68

30.69

30.70

said in the course of the conversation'.93 The basis for Mr Long's statement that this was 'likely' was that 'because meetings such as this inevitably turn to discussions of our [AWB's] business in Iraq'.94

Mr Long's supplementary statement also contains the following passage:

I have known Mr Tilleman in a professional capacity since 2002. It is difficult to have specific recollections of specific conversations but I believe it was well known to Mr Tileman that Alia supplied trucking services to the AWE. On an occasion that I am now unable to date I do recall Mr Tilleman saying to me words to the effect:

'We know Alia, we have entertained them, they are a trucking firm/

My memory does not allow me to provide the context in which this was said.95

Mr Tilemann had no recollection of being told by Mr Lindberg or Mr Long about Alia *in 2002 or at any other time. He considered it unlikely that he was told anything about Alia because he would remember it if he had. The first he came to know about Alia was in September 2005:

Q: Do you have any recollection of being told in Jordan in 2002 that the AWE were using Alia for transport services from Umm Qasr?

A: No.

Q: No recollection at all?

A: No recollection.

Q: Do you say that it wasn't said to you?

A: I think it is unlikely that it was said to me. That somebody is using the name Alia would have a particular sort of impact, because the name is associated with some very specific moments in Jordanian history and to my knowledge it was not used and the first I ever heard of a trucking company by the name of Alia was in September 2005.96

The evidence of Mr Tilemann is preferred to the evidence of Mr Lindberg and Mr Long in relation to whether or not either of them ever discussed Alia with Mr Tilemann. In relation to the August 2002 meeting, Mr Lindberg's evidence is no higher than that he 'might' have said something about Alia and that he was unsure whether he did. Mr Long's evidence about the August 2002 meeting is at best speculation and based on the fact that conversations with Mr Tilemann usually turned to AWB's business in Iraq. The specific business discussed at this meeting was the quality claim. There is nothing to suggest that the discussion extended beyond that. Mr Long's recollection about the statement made by Mr Tilemann is vague and not specific as to time or context. It was a belated recollection apparently prompted by somebody else's

42 Report of the Oil-for-Food Inquiry

note of a conversation to which Mr Long was not a party. It is not

corroborated by any note or other evidence. There is no other evidence that Mr Tilemann, or anyone else at the embassy in Jordan, was aware of Alia or ever reported this fact to DFAT Canberra. In any event, there is no suggestion that Mr Lindberg told Mr Tilemann in August 2002 that AWB was paying monies to Alia as a conduit for paying money to Iraq. I find that neither Mr Lindberg nor Mr Long spoke to Mr Tilemann in 2002 about Alia.

Mr Long and Mr Whitwell: the Coalition Provisional Authority and US Wheat Associates allegations

30.71 Following the hostilities in Iraq in early 2003, the Coalition Provisional Authority obtained possession of documents held by various ministries and interviewed people who had occupied positions in the ministries. As a result of these investigations, the CPA made a number of assertions about the inflation of contract prices for humanitarian goods supplied under the Oil-for- Food Programme and the payment of 'kickbacks'. These allegations * including Captain Puckett's memorandum dated 10 June 2003 * are addressed in Chapters 25 and 28. The CPA resolved to renegotiate all the outstanding contracts entered into under the Programme and reduce the price by 10 per cent.

30.72 By May 2003 Mr Long had been appointed to the CPA. As further details about the price in AWB's wheat contracts under the Programme emerged, specific allegations were made against AWB by US Wheat Associates. These allegations, and DFAT's written responses to them, are discussed in Chapter 28.

30.73 In this context, Mr Long and Mr Whitwell had a number of conversations with officers of DFAT's newly established Iraq Task Force *in particular, Ms Armstrong. Ms Armstrong's evidence was that, far from acknowledging that AWB's prices had been inflated by the requirement to pay inland transportation fees and that AWB had paid these fees to Alia and indirectly to Iraq, Mr Long and Mr Whitwell denied that AWB had inflated its prices or paid any kickbacks.

30.74 It was not until March or April 2004 that Mr Long and Mr Whitwell advised Ms Armstrong of the fact that AWB's contracts included inland transport, that AWB used a Jordanian trucking company, and that AWB made payments to Jordanian accounts in the name of Alia or Alia transport. Ms Armstrong's uncontradicted evidence was that on 18 March 2004 Mr Whitwell said to her:

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

Report of the Oil-for-Food Inquiry 43

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 2000.97

30.75 In April 2004 Mr Long told Ms Armstrong:

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 a 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.98

30.76 These statements were made well after the end of the Oil-for-Food Programme and in the context of mounting allegations about inflated contract prices and kickbacks. Mr Long and Mr Whitwell were telling Ms Armstrong about incorporation of the inland transport fee in the contract price and the payments to Alia in this context because DFAT had never been told of this previously. They neglected to tell Ms Armstrong that Alia did not itself provide the transport, that the 'transport fee' included from November 2000 a 10 per cent surcharge unrelated to transport, and that Alia remitted the funds it received to Iraq.

The evidence of DFAT officers

30.77 Statutory declarations from some 112 past or present officers of DFAT were provided to the Inquiry. Some 24 statutory declarations were also provided from present or former officers of other Commonwealth departments. Some officers provided more than one statutory declaration. Of these statutory declarations, 92 were from officers who were on the distribution lists for various cables and addressed nothing more than whether the officer received, read or acted on any of the relevant cables. The significance of these cables is considered below. The balance of the statutory declarations were from officers who had some involvement in the Oil-for-Food Programme, either because

they were posted for a period to the Middle East and Africa Branch or to the Australian mission to the United Nations or a relevant embassy. Appendix 27 lists the names of all Commonwealth officers who provided statutory

44 Report of the Oil-for-Food Inquiry

I

declarations to the Inquiry. Those statutory declarations that deal solely with cables are listed separately in the appendix.

30.78 No DFAT officer stated that he or she was told at any time by anyone from AWB during the currency of the Oil-for-Food Programme that AWB's wheat prices had incorporated in them fees for inland transport payable to Iraq or a 10 per cent after-sales-service fee or that AWB had entered into collateral arrangements that involved it in paying inland transportation fees to Alia or otherwise indirectly to Iraq. Without exception, those officers who were involved in the Oil-for-Food Programme and dealt with AWB stated that they were unaware of these matters until well after the Programme ended.

30.79 It was not put to Ms Drake-Brockman that Mr Stott informed her of any of these matters. Consistent with Mr Stott's evidence, all that was put to Ms Drake-Brockman by Mr Stott's counsel was that after Ms Drake-Brockman sent the 2 November letter to AWB Mr Stott telephoned her and during that conversation she told Mr Stott that DFAT knew of Alia and that she was comfortable with Alia." Ms Drake-Brockman denied that she made these statements to Mr Stott, and I accept her evidence in preference to the evidence of Mr Stott. Even if it were to be accepted that Ms Drake-Brockman did say

these words to Mr Stott, it does not follow from this that Mr Stott had informed Ms Drake-Brockman about AWB's payment of inland transportation fees to Alia or that Alia was forwarding those payments on to Iraq.

Conclusion: AWB did not inform DFAT of the inland transport fee arrangements

30.80 I find that during the Oil-for-Food Programme no officer of AWB ever told DFAT or its officers that AWB was paying fees to Alia, that Alia did not provide transport services for the cartage of AWB's wheat, that AWB had no contact with Alia, that Alia had been nominated by the IGB as the recipient of fees, that the contract price included the so-called transport fee, that from November 2000 there was included in the fee a sum equivalent to 10 per cent of the price that was unrelated to transportation, or that Alia was a conduit for the payment of such fees to Iraq. Indeed, the inference to be drawn from the evidence is that on those occasions when AWB's contracts and dealings with Iraq were the subject of discussion between officers of AWB and officers of DFAT, the AWB officers involved deliberately refrained from telling the DFAT officers anything that might have revealed these facts to them. The failure to notify DFAT was by no means accidental. This finding is consistent with the fact that no officer of AWB asserted that he did so inform DFAT and no officer of DFAT said he or she was so informed.

Report of the Oil-for-Food Inquiry 45

30.81 It follows that, if DFAT did come to possess the relevant information, it did so from sources other than AWB.

Did AWB ever tell the Prime Minister or the Ministers for

Foreign Affairs and Trade about the inland transportation fee arrangements?

30.82 A related question is whether AWB ever told either the Prime Minister or the Ministers for Foreign Affairs and Trade about its arrangements in relation to the payment of inland transportation fees to Alia and indirectly to Iraq. The improbability of it having done so, in circumstances where it had refrained from telling DFAT, is obvious.

30.83 There were a number of occasions during the operation of the Oil-for-Food Programme when AWB had the opportunity to directly advise the Prime Minister or the Ministers for Foreign Affairs and Trade of its arrangements relating to inland transportation fees. First, AWB wrote to the Prime Minister and the Ministers on a number of occasions. Second, senior AWB officers met with the Minister for Foreign Affairs and the Minister for Trade on a number of occasions during the currency of the Oil-for-Food Programme and shortly after it ended. There were also some meetings involving the Prime Minister. AWB did not disclose the relevant information either to the Prime Minister or the Ministers either in its correspondence or during any of the meetings. AWB did not claim to have done so.

Documentary evidence

30.84 As well as serving notices to produce on DFAT and the Department of the Prime Minister and Cabinet, the Inquiry asked that the offices of the Prime Minister, the Minister for Foreign Affairs and the Minister for Trade produce any documents that evidenced or constituted communications to or from AWB. None of the documents produced pursuant to this request revealed that AWB ever advised the Prime Minister or the Ministers that AWB was inflating the prices in its Iraq wheat contracts by incorporating fees payable to the Iraqis or that AWB was paying inland transportation or any other fees to Alia or otherwise directly or indirectly to Iraq.

30.85 A number of the letters AWB sent to the Ministers are considered in the foregoing paragraphs in the context of the knowledge of DFAT. None of the letters to the Ministers disclosed the existence of the relevant information.

46 Report of the Oil-for-Food Inquiry

30.86 Letters from AWB to the Ministers during the currency of the Oil-for-Food Programme did not descend at all into any details of AWB's contractual arrangements with Iraq or make any reference to the payment of inland transport fees or any other fees or payments directly or indirectly to Iraq. The letters that followed the end of the Programme * including those that related to allegations made by US Wheat Associates and those that dealt with the IIC investigation and possible findings against AWB * denied the allegations that AWB's wheat prices were inflated or that AWB paid 'kickbacks' to Iraq.100 The letters in 2004 and 2005 that disclosed that AWB's contracts had incorporated payments referable to trucking and that the IGB had nominated Alia as the trucking company are inconsistent with AWB having previously advised DFAT or the Ministers during the operation of the Oil-for-Food Programme that it had made or was making payments indirectly to Iraq ostensibly in relation to inland transport. Even these letters maintain that Alia provided a transport service to AWB and do not suggest that it simply channelled the fees paid to it back to Iraq.

The evidence of officers and employees of AWB

30.87 There is no evidence that anyone from AWB ever informed the Prime Minister, the Minister for Foreign Affairs, the Minister for Trade or any other Minister of the relevant dealings between AWB, Alia and the Iraqis. No past or present AWB officer claimed in evidence that they informed the Prime Minister or the Ministers about AWB's payment of inland transportation fees or after-sales-service fees and their incorporation in the contract price.

30.88 Senior officers of AWB did meet with the Ministers and the Prime Minister during the Programme and during the period 2003 to 2005, when allegations were being made about AWB's contracts under the Programme. There is no evidence to suggest that officers of AWB disclosed the relevant information to the Ministers or the Prime Minister during any of these meetings. In those instances where formal records were made of the conversations that occurred at the meetings, the records do not reveal that the AWB participants conveyed the relevant information at the meeting.101

30.89 Even in mid to late 2005, when it was apparent that the IIC was alleging that Alia was a front company, senior officers of AWB continued to tell the Minister for Foreign Affairs that AWB's payments to Alia were in respect of genuine trucking services provided to it by Alia and that it did not know Alia was making any payments to Iraq. This was the effect of what Mr Stewart and Mr Lindberg told the Minister at meetings on 1 June 2005102 and 4 October 2005.103 The record of conversation prepared in relation to the 4 October 2005 meeting includes the following:

Report of the Oil-for-Food Inquiry 47

2. Mr Downer said the IIC allegations were worse than he had thought. There was evidence presented by the IIC in the most recent letter. Mr Downer noted the letter claimed that Alia was a front company. He enquired what was the role of the Iraqi State Company for Water Transport (ISCWT). Mr Lindberg replied it was the port authority, which had responsibility for discharging goods from ships. Alia was not a front company and had provided transportation services. The AWB had been unaware of any wrongdoing and had used its services in good faith. Mr Downer said AWB needed to provide evidence. Mr Lindberg said AWB had been seeking additional information from the IIC about the claims, before providing a written response to the 26 September letter. The so-called evidence did not support the facts. AWB had provided explanations to the IIC which had been ignored. AWB could demonstrate that it had paid no kickbacks. Nor had AWB breached the sanctions regime. This had been confirmed by independent legal advice both in Australia and overseas (Richard Tracy in Australia and a Cornell University Professor who had previously participated in drafting the sanctions regime).104

30.90 AWB's continuing protestations at this late stage *that AWB was merely paying Alia for transport services provided by it and that it knew nothing of Alia paying the fees it received from AWB to Iraq *is inconsistent with any suggestion that AWB had told the Minister the true position in relation to the inland transportation fees at any time.

The evidence of the Prime Minister and the Ministers for Foreign Affairs and Trade

30.91 The Prime Minister and the Ministers for Foreign Affairs and Trade each provided statutory declarations to the Inquiry and gave oral evidence.105 The content of their statutory declarations is inconsistent with any notion that they were ever told at any time by anyone from AWB during the currency of the Oil-for-Food Programme that AWB's wheat prices had incorporated in them fees for inland transport or after-sales-service fees of 10 per cent payable to Iraq or that AWB was paying inland transportation fees to Alia or otherwise indirectly to Iraq. Each of them stated that they were unaware of these matters until well after the Programme ended.

30.92 It follows that, if the Prime Minister or the Ministers did come to possess the relevant information, they did so from sources other than AWB.

Did DFAT obtain the relevant knowledge from any other source?

30.93 In considering the question whether DFAT obtained from sources other than AWB knowledge of AWB's payment of inland transportation fees to Alia, and indirectly to Iraq, and its incorporation of these fees into its contract prices, it is important to emphasise again that it is only the actual knowledge of DFAT

48 Report of the Oil-for-Food Inquiry

that is relevant in assessing any potential defence available to AWE. It is immaterial whether DFAT was in a position to find out, or could have, or should have, discovered the information from some other source.

30.94 DFAT received or had available, or potentially available, to it information concerning Iraq and AWB's wheat sales to Iraq from a number of sources, among them:

" the United Nations *in particular the 661 Committee and the Office of the Iraq Programme

" the Australian intelligence community

" other Commonwealth departments, authorities and organisations * including the Wheat Export Authority and Austrade

" foreign governments or foreign quasi-government organisations or groups or non-government organisations that had some involvement or interest in Iraq or the Oil-for-Food Programme * relevantly, the Coalition Provisional Authority and US Wheat Associates.

30.95 Two questions arise in relation to DFAT's acquisition of knowledge from any of these sources. The first is whether there is direct evidence of the communication to DFAT of the relevant information from any of these sources. The second is, if there is no direct evidence of the communication of the information from these sources, whether knowledge may be inferred from a combination of the information that was known to DFAT and a failure on the part of DFAT to make any inquiry or take any action in relation to that information. In certain circumstances 'a combination of suspicious circumstances and failure to make inquiry may sustain an inference of knowledge of the actual or likely existence of the relevant matter...a failure to make inquiry may sometimes, as a matter of lawyers shorthand, be referred to as wilful blindness'.106

Information obtained from the United Nations

30.96 Throughout the operation of the Oil-for-Food Programme DFAT liaised with the UN Office of the Iraq Programme and the 661 Committee via Australia's mission to the United Nations. On at least two occasions DFAT obtained from the United Nations information that was potentially relevant to AWB's actions in paying inland transportation fees.

Report of the Oil-for-Food Inquiry 49

The Canadian complaint

30.97 The first such occasion was the Canadian complaint. The facts relating to the Canadian complaint, and in particular the information that was communicated to DFAT by the United Nations in relation to it, are discussed in Chapter 16. The information that was conveyed to Ms Moules at the mission by Ms Johnston, the Chief Customs Expert attached to the Office of the Iraq Programme, in January 2000 can be summarised as follows:

" The Office of the Iraq Programme had received information about possible irregularities concerning payments by AWB in relation to contracts for the sale of wheat to Iraq under the Oil-for-Food Programme.

" Ms Johnston had been contacted by a mission in New York (the identity of which Ms Johnston could not reveal), advising that its National Wheat Board, when recently negotiating a contract with the IGB under the Programme, had been asked to agree to a payment system whereby US$14 per metric tonne of wheat would be paid 'outside the Oil-for-Food Programme'.

" The supplier was to have been provided with a bank account outside Iraq *in Jordan *into which the additional money would be paid.

" The supplier would be paid using funds from the UN's Iraq account but at a 'slightly inflated price'.

" The supplier would then *'in a highly irregular move' * pay a 'return percentage of the value of the contract' in US dollars to the non-Iraq account.

" The Office of the Iraq Programme believed that the company involved in the 'scheme' was owned by the son of Saddam Hussein.

" The country of the wheat board concerned, having drawn the matter to the attention of the United Nations and been advised that such payments were not permissible under the Programme, declined the Iraqi request and was not awarded the contract, 'apparently because of its refusal to become involved in the kickback scheme'.

" The country in question advised the Office of the Iraq Programme that the IGB had indicated that 'other companies', including AWB, had concluded contracts similar to the one that had been requested of that country.

" The Office of the Iraq Programme had no way of judging the accuracy or otherwise of the claims, although it was possible that a company could agree to a payment and be unaware of its irregularity.

50 Report of the Oil-for-Food Inquiry

30.98 Ms Johnston also conveyed some information about the Canadian complaint to Mr Nicholas, the Australian Trade Commissioner in Washington, in March 2000. That information was essentially the same as the information Ms Johnston had conveyed to Ms Moules, although the account of the complaint that Ms Johnston gave to Mr Nicholas was less detailed than the account she gave Ms Moules.107 Ms Johnston also raised with Mr Nicholas, as an additional issue, the fact that AWB's short-form contract contained a term that referred to AWB's standard terms and conditions and that this 'implied that additional conditions were attached to the contract, but not included in the paper submitted to the UN'.108 This was the main focus of the

conversation between Ms Johnston and Mr Nicholas.109

30.99 There is an issue as to whether Ms Johnston told Ms Moules and Mr Nicholas that irregular payments ostensibly related to transport costs. It is clear from contemporaneous documentation that the information conveyed to Ms Johnston by Lt Colonel Saunders of the Canadian mission included that the additional payments related to transport costs.110 Ms Johnston did not, however, make notes of her conversations with Ms Moules and Mr Nicholas. Ms Johnston maintained that she conveyed all the information she received from Lt Colonel Saunders to Ms Moules, including the reference to transportation costs111, and that she conveyed the same information to Mr Nicholas, again including the reference to transportation costs.112 Ms Moules' evidence, on the other hand, was that nobody from the United Nations in any of their communications with her referred to trucking fees. The only reference was to irregular payment methods.113 Ms Moules' cable to DFAT in Canberra, recounting her conversation with Ms Johnston, made no reference to transport costs or trucking fees.

30.100 Mr Nicholas' evidence was that Ms Johnston did not say anything to him about the detail of the irregular payments.114 Mr Nicholas' cable that included detail of his discussions with Ms Johnston and was prepared within a week of those discussions also made no reference to transport costs or trucking fees.115

30.101 For the reasons that follow, it is not strictly necessary to make a finding about whether Ms Johnston told Ms Moules and Mr Nicholas that the irregular payments related to trucking or transport. If it was necessary to make a finding on this, there are sound reasons for preferring the evidence of Ms Moules and Mr Nicholas. The most significant factor is that Ms Moules' cable constitutes a detailed contemporaneous record of her conversations with Ms Johnston. Ms Johnston accepted that, but for the absence of any reference to

transport costs, Ms Moules' cable was an accurate rendition of what she said to Ms Moules.116 Ms Johnston's evidence, on the other hand, was based entirely on her recollection of a conversation that occurred over six years ago.117 Mr Nicholas' cable also contains a fairly contemporaneous record of

Report of the Oil-for-Food Inquiry 51

his conversation with Ms Johnston. Again, it does not refer to transportation costs or trucking fees. It is unlikely that Ms Moules and Mr Nicholas both forgot or neglected by oversight to refer to the fact that Ms Johnston had told them the irregular payments related to transport costs. There was no reason why both Ms Moules and Mr Nicholas would intentionally exclude any reference to transport costs in their cable reports if Ms Johnston had included such details in her conversation. On balance, the likelihood is that Ms Johnston's recollection about a conversation that occurred six years ago was

faulty and that for some reason she neglected to tell both Ms Moules and Mr Nicholas that the alleged irregular payments related to transport costs.

30.102 Whether or not the information conveyed to Ms Moules and Mr Nicholas included a reference to transport costs, it was very close to an accurate account of the arrangements that were in place between AWB and the IGB. Most importantly, it included information to the effect that AWB's wheat contract prices were inflated by US$14 per tonne and that this additional component of the price was paid by AWB into a bank account outside Iraq. All that was missing was a specific reference to Alia and, if it is accepted that it was unlikely that Ms Johnston told Ms Moules and Mr Nicholas that the irregular payments related to transport costs, specific reference to the fact that the payments were for inland transportation fees.

30.103 The significant point, however, is that the information that was conveyed to DFAT by the United Nations was put as being no more than an allegation and an allegation in respect of which the United Nations had no way of 'judging the accuracy or otherwise'.

30.104 It was also an allegation that DFAT took up with AWB and that was

emphatically denied. The actions taken by DFAT in response to the Canadian complaint are detailed in Chapter 16. In short, the only step taken by DFAT was a step taken by Mr Bowker on his receipt of Ms Moules' 13 January 2000 cable reporting on Ms Johnston's contact with her. The step taken by Mr Bowker was to telephone Mr McConville, AWB's Manager of Government Relations, who emphatically denied the allegations. Mr Bowker did not take the matter up with any other senior officers of AWB or seek a more detailed or considered or written response from AWB. He did not, for example request any information from AWB about the structure of AWB's contract prices and how they were arrived at or whether it made any payments to a Jordanian account. Mr Bowker's belief was that DFAT had neither the power nor the capacity to investigate AWB's commercial arrangements, other than by inquiry of AWB.

52 Report of the Oil-for-Food Inquiry

30.105 As a result of AWB's denials and the absence of any information gained from any other inquiries, DFAT was in possession of no information to substantiate the allegation or any part of it. It follows that, as far as DFAT was concerned, the allegation was unfounded, and AWB was neither inflating its contract prices nor making irregular payments to an account outside Iraq. It accordingly had no actual knowledge of these matters from that source.

30.106 Any issues regarding the steps taken by DFAT in relation to the Canadian complaint and the adequacy of the inquiries it did make are immaterial unless they support an inference that DFAT actually knew the claims to be true and did not follow up the allegations adequately or at all because it was deliberately turning a 'blind eye'. This is considered further below.

March and April 2001: Iraq's attempts to circumvent the sanctions regime

30.107 The United Nations *or at least the United Nations missions of various of its member states, including the United States, the United Kingdom and Norway (in its capacity as chair of the 661 Committee * conveyed some general information to DFAT in relation to attempts by Iraq to manipulate the Oil-for Food Programme and circumvent the sanctions.

30.108 On 9 March 2001 Ms Moules sent to DFAT a cable118 that referred to and discussed a report by the United Nations Secretary-General on the Oil-for- Food Programme. It also contained Ms Moules7 report on information she obtained from consultations with members of the Security Council about the Security Council's discussion concerning the report, which occurred in closed session on 8 March 2001.119 Ms Moules' report on the Security Council's discussions included the following:

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 issues 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.

Report of the Oil-for-Food Inquiry 53

30.109 Three points may be made about this information. First, it did not relate directly to AWB and its contracts under the Oil-for-Food Programme, although it does refer generally to contracts for humanitarian supplies. Second, the information about Iraq demanding kickbacks and illegal commissions is again in the nature of an allegation, in the sense that, as the Norwegian mission pointed out, there was a lack of 'hard evidence' to support the claims. Third, the United Nations, in performing its export examination of contracts submitted to it for approval, had not detected any excessive pricing showing that prices included surcharges.

30.110 It is apparent, however, that Ms Moules appreciated the risk that AWB might be the subject of Iraq's attempts to circumvent the sanctions. Less than two weeks after the 9 March 2001 cable, Ms Moules was contacted by Mr Snowball and asked to provide some advice in relation to the payment of port fees in Iraq. The terms of Mr Snowball's request for advice and Ms Moules' response are addressed in Chapter 12. One of Ms Moules' cables to DFAT in Canberra, reporting on her efforts to clarify the issue of port fees, includes the following passage:

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.120

30.111 It is self-evident that general information that Iraq was alleged to be involved in manipulation of the Oil-for-Food Programme and that AWB may be put under pressure by Iraqi agents to pay port fees in a manner inconsistent with the sanctions is not the same as specific information that AWB had inflated its contract prices to facilitate payment of inland transportation fees to Alia and, indirectly, Iraq.

Information from the Australian intelligence community

30.112 During the period 1998 to 2004 agencies within the Australian intelligence community produced a number of intelligence reports that, in general terms, concerned issues or events relating to the Oil-for-Food Programme. Pursuant to notices to produce served on agencies within the Australian intelligence community, a number of reports were produced to the Inquiry and inspected by counsel and solicitors assisting. Of the reports inspected, 15 documents

54 Report of the Oil-for-Food Inquiry

were found to be of relevance. Public interest immunity was claimed by the Commonwealth on behalf of the Australian intelligence community in respect of the 15 for the reasons set out in confidential statutory declarations provided by the heads of the agencies that produced the relevant reports.121 The claim for public interest immunity was upheld122, and the reports were tendered as a secret exhibit (secret exhibit 4). However, I prepared a document that distilled the content of the relevant reports and their distribution, without disclosing the source of the information within them or any other matters

adverse to the public interest. The distillation was in the following terms:

1. In 1998 the AIC held unassessed intelligence indicating that Alia Corporation (Alia), based in Jordan, was part owned by the Iraqi Government and that it was involved in circumventing United Nations sanctions (sanctions) on behalf of the Iraqi Government.

Distribution

The intelligence reports comprising this information were distributed on or about the date of their creation to other AIC members. Each was also distributed on or about that date to the Department of Foreign Affairs and

Trade (DFAT), various areas of the Department of Defence including the International Policy Division and the Office of the Deputy Secretary Intelligence and Security (Defence), the Office of the Inspector-General of Intelligence and Security (IGIS) and to the Department of the Prime Minister and Cabinet (PMC)

2. By the first quarter of 2000 the AIC held unassessed intelligence indicating that Alia received fees in Jordan for the discharge and inland transport within Iraq of goods purchased by Iraq under the Oil for Food Program (OFFP). It received these fees as agent for the Iraqi Government. The fees, less a small commission, were paid into accounts accessible by Iraq in violation of sanctions. The amounts involved were very substantial.

Distribution

The intelligence report comprising this information was distributed on or about the date of its creation to other AIC members. It was also distributed on or about that date to DFAT, Defence, IGIS and PMC.

3. By November 2000 the AIC held unassessed intelligence indicating that Iraq's transport charges for humanitarian goods under the OFFP had been very substantially increased. Alia was one means by which these transport fees were paid to Iraq. The AIC also held unassessed information that such fees would probably be used for procurement purposes outside Iraq.

Distribution

The intelligence reports comprising this information were distributed on or about the date of their creation to other AIC members. Each was also distributed on or about that date to DFAT and Defence. Only 3 of the 4 were sent to IGIS and PMC; the reports sent to IGIS and PMC did not contain the

Report of the Oil-for-Food Inquiry 55

intelligence on the increased transport charges or the probable use of fees for procurement outside Iraq.

4. By March 2001 the AIC held unassessed intelligence of endeavours by Iraq to breach sanctions by, amongst other methods, collecting commission on contracts for humanitarian goods imported into Iraq under the OFFP. It included unassessed information that Iraq violated sanctions by charging a 'commission' of at least 10% on imported humanitarian goods under the OFFP and that the 10% commission was rigidly enforced.

Distribution

The intelligence reports comprising this information were distributed on or about the date of their creation to other AIC members. Each was also distributed on or about that date to DFAT, Defence and IGIS. One report was distributed to PMC; this report did not contain the intelligence that the 10%

commission was being rigidly enforced.

5. By September 2001 the AIC held unassessed intelligence indicating that inland transport fees for humanitarian goods, including fees paid through Alia, were proposed to be increased very substantially by Iraq. This increase was on top of the 10% commission already paid and the fees were payable in advance of delivery. The proposed increase in transport fees was to apply to all humanitarian goods delivered under the OFFP through the port of Umm Qasr.

Distribution

The intelligence report comprising this information was distributed on or about the date of its creation to other AIC members. It was also distributed on or about that date to DFAT, Defence and IGIS.

6. By December 2002 the AIC held unassessed intelligence that Iraq was enforcing the 10% commission on imports under the OFFP and that one means by which it continued to be paid was by payment into accounts in Jordan.

Distribution

The intelligence report comprising this information was distributed on or about the date of its creation to other AIC members. It was also distributed on or about that date to DFAT, Defence, Customs, the Australian Federal Police, the Office of the Foreign Minister, the Office of the Minister for Trade, the

Prime Minister's Office, the Australian embassy in Washington and the High Commission London.

7. Between June 2003 and January 2004 the AIC held unassessed intelligence that the former Saddam regime had forced suppliers under the OFFP to pay Iraq the 10% commission.

Distribution

The three intelligence reports comprising this information were distributed on or about the date of their creation to other AIC members. Each was also

56 Report of the Oil-for-Food Inquiry

distributed on or about that date to DFAT. Two of the reports were

distributed to Defence, the Australian Embassy Washington and the High Commission London. One was distributed to the Australian Representative Office Baghdad, one to Treasury and one to the Department of Industry, Tourism and Resources.

8. The intelligence held by the AIC between 1998 and 2004 did not mention any Australian company by name. Unassessed intelligence held in November 2003 included that not all large companies had agreed to pay the Iraqi imposed surcharges, and cited as an example wheat imports from Australia.

Distribution

The intelligence report comprising the information held in November 2003 was distributed on or about the date of its creation to other AIC members. It was also distributed on or about that date to DFAT, Defence, the Australian Embassy Washington, the High Commission London and the Australian Representative Office Baghdad.

9. None of the details or particulars of information contained in secret exhibit 4 is inconsistent with the distillation above save that the details above do not include details of the distribution of the certain documents within secret exhibit 4 after the commencement of this Inquiry.123

30.113 Senior officers of the Office of National Assessments124 and DFAT125 provided the following additional evidence in relation to the documents in secret exhibit 4 or the context in which these reports were prepared and distributed:

" All of the documents in secret exhibit 4 were unassessed intelligence * meaning they constituted specific individual items typically obtained by covert means. Unassessed intelligence reports often do not carry the status of proven fact. They typically have to be assessed, put in context, and weighed as to their veracity and significance126, although unassessed intelligence sometimes contains information as to the source of the intelligence, comments about the reliability of the source, and other information sufficient to allow an informed reader to form judgments about its reliability.127

" None of the material contained in the reports in secret exhibit 4 was collected by Australian agencies. The information was received from Australian intelligence partners.128

" The Office of National Assessments did not consider the specific matters addressed in the reports in secret exhibit 4 to be of sufficient significance to warrant a separate assessment.129 The assessment agencies, including the Office of National Assessments, put individual pieces of intelligence in a broader context and make judgments about what the intelligence on a particular matter suggests.130 They are best placed to make the fine

Report of the Oil-for-Food Inquiry 57

judgments required to determine the appropriate weight and significance of a particular piece of unassessed intelligence.131 In relation to certain issues or topics, however, the only intelligence available to DFAT officers may be unassessed intelligence.132

" Australia's foreign intelligence agencies are generally prohibited by law from collecting intelligence on Australian citizens, permanent residents or corporate entities either in Australia or overseas.133 It is not generally the task of Australian intelligence agencies to monitor the behaviour of Australian companies.134 Where foreign intelligence collection results in the collection of incidental information about Australians, the standard practice is that the identity of the Australians or Australian bodies in intelligence reports is usually concealed though the use of generic terms such as 'a named Australian' or 'a named Australian entity'.135

" Unassessed intelligence reports are distributed not just to assessment agencies such as the Office of National Assessments but also to various 'customers' in government, including 'policy departments' and Ministers' offices.136 It is open to appropriately cleared officers in policy departments to ask individual collection agencies or assessment agencies if they have any intelligence material on a particular subject.137 Intelligence reports are maintained on a secure electronic database and can be provided to government 'customers' on request.138

" Asa matter of practice, each intelligence agency determines to whom and how its intelligence reports will be distributed.139 Classified material distributed in hard copy to a department or ministerial office is usually marked to an authorised officer in that department or ministerial office for further distribution. Some classified material is also distributed electronically to departments and some ministerial offices. Some reports include a list of names or positions to whom the report should be distributed. The further internal distribution of the classified material in hard copy or electronically is a matter for the receiving department or, in the case of a Minister's office, for the authorised officer. It is not always possible, based on the distribution lists of the relevant documents, for the relevant agencies to determine what further distribution has occurred, since this is a matter for the recipient department or office.140

" There was a considerable volume of unassessed intelligence reports distributed weekly. The evidence was that in excess of 1,000 items per week were so distributed.141

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30.114 As set out in the distillation, exhibit 641, each of the reports in secret exhibit 4 was distributed to DFAT. Intelligence reports distributed to DFAT during the relevant period were received and disseminated in the following way:

" When an Australian intelligence community report with a high or very high security classification was distributed to DFAT, it was received in a secure location maintained by the Intelligence Policy and Liaison Section of DFAT.142 Depending on the agency distributing the report, the report was provided either electronically or in hard-copy form.143

" The Intelligence Policy and Liaison Section arranged for distribution of the report or reports to particular officers in DFAT. The internal DFAT distribution list was usually either determined by the particular intelligence agency or, in the absence of a specified distribution, by the Intelligence Policy and Liaison Section officers on the basis of topic profiles or headings provided by the agency or through a process of liaison or dialogue with 'users' in the department.144 Individual officers of DFAT can indicate the types of topics or types of reports they would find useful to receive in the course of their duties, subject to them having the necessary security clearance and a 'need to know'.145

" A hard copy of the relevant report is distributed to the individual officers on the internal distribution list in a locked bag that is taken around to those officers by a designated Intelligence Policy and Liaison Section officer.146 The DFAT officer is left with the bag and may open it and read the report but is not compelled to do so. No record is kept of whether or not the officers on the distribution list actually read the report.147 The officers are required to read the report in a locked, or lockable, room with protection from oversight and are not permitted to photocopy or make any other record of its contents.148 The officer must return the document in the locked bag to the Intelligence Policy and Liaison Section or one of its officers, who then takes the document to the next DFAT officer on the internal distribution list.149 Usually, only one copy of the report is circulated, although for lower security classification documents a few copies may be provided and dealt with in the same way.150 Once the copy or copies of the report have gone to all officers on the DFAT internal distribution list, the copy or copies are either destroyed or returned to the originating intelligence agency.151

" In relation to reports that were received in hard-copy from one of the intelligence agencies during the relevant period, a hard-copy receipt that recorded the names of persons who received the report on the DFAT internal distribution list was held by DFAT for about five years. In relation to reports that were received electronically from another agency

Report of the Oil-for-Food Inquiry 59

during the relevant period, that agency retained electronic records of the distribution list for only a limited period.152

30.115 In relation to the reports in secret exhibit 4 before late 2002, only very limited records of the names of individual DFAT officers who were on the internal DFAT distribution list or who may have accessed one of the reports electronically had been retained by DFAT or the intelligence agencies concerned. The only written receipts held by DFAT related to two reports; one of those receipts specified that the report was to be distributed to two individual officers.153 Those officers were the then director of the Middle East Section and a director of another geographic section in another division of DFAT.154 The intelligence agencies themselves also had very limited records of the internal DFAT distribution list. The agency that had provided most of the reports in secret exhibit 4 to DFAT in an electronic format had no record of the distribution list.155 The second agency that provided reports to DFAT electronically had retained some limited records of who opened documents after the middle of the second half of 2002.156 Those records that did remain did not establish that any of the delegates or relevant officers from the Middle East Section of DFAT opened electronically any of the reports in secret exhibit 4.

30.116 None of the delegates of the Minister for Foreign Affairs who signed permissions to export in relation to relevant AWB shipments, including Ms Drake-Brockman and Mr Bowker, recalled seeing or being provided with any of the reports in secret exhibit 4.157 Nor did any of the officers of the Middle East and Africa Branch during the relevant period who received and sent to the United Nations copies of AWB's contracts and notification forms, including Ms Courtney, Mr Cuddihy and Mr Grenenger.158 Nor were any of the delegates or relevant officers of the Middle East Section aware during the relevant period of the substance of the contents of the reports in secret exhibit 4, other than in respect of some immaterial matters or matters that were the subject of public knowledge or discourse.159

30.117 Even if the relevant delegates or officers did receive and read any of the reports in secret exhibit 4 or otherwise became aware of the substance of the content of these reports, it would not follow that they came to possess information or knowledge that AWB was inflating the prices in its Iraq wheat contracts by incorporating an inland transportation fee or that AWB was paying inland transportation fees to Alia, or otherwise indirectly to Iraq. It is apparent from the distillation that none of the reports contained that information. None of the reports referred to AWB. None of the reports referred specifically to the inflation in the price in wheat contracts under the Programme, although one report that referred to wheat cited wheat imports

60 Report of the Oil-for-Food Inquiry

from Australia as being an example of some large companies not agreeing to pay Iraqi-imposed surcharges.160

30.118 The intelligence reports do, however, refer to Alia and its involvement with Iraq in the circumvention of sanctions and the exploitation of the Oil-for-Food Programme. They also refer to the imposition by Iraq of fees relating to inland transportation of humanitarian goods imported to Iraq under the Programme and note that Alia was one means by which these transport fees were to be paid to Iraq. The question whether the existence and potential availability of this information to DFAT, taken together with other surrounding information, facts and circumstances could support an inference that DFAT was turning a blind eye to AWB's potential involvement in the sort of activities referred to in the report is dealt with below.

Information from other Commonwealth sources

30.119 In addition to DFAT, notices to produce documents were served on a large number of other Commonwealth departments, agencies or authorities, among them the Department of Agriculture, Fisheries and Forestry; the Department of Defence; Treasury; the Attorney-General's Department; the Department of the Prime Minister and Cabinet; the Wheat Export Authority; AusAID; Austrade; and the Australian Customs Service. These notices broadly required the production of any documents constituting or relating to communications between the department or agency and AWB or other departments or agencies or their Ministers concerning wheat sales by AWB to Iraq, Alia, the payment of inland transportation or other fees to Alia or indirectly to Iraq, and the possible breach of sanctions by AWB. The offices of the various Ministers responsible for these departments, authorities and agencies were also asked to produce any documents within the terms of the notices to produce.

30.120 A large number of documents were produced by the departments, agencies or authorities and the offices of their Ministers. None of the documents produced to the Inquiry revealed that any of the departments, agencies or authorities or their responsible Ministers possessed information to the effect that AWB was inflating the prices in its Iraq wheat contracts by incorporating fees payable to the Iraqis or that AWB was paying inland transportation or

any other fees to Alia or otherwise directly or indirectly to Iraq. There is no suggestion that any such information was communicated by any of these departments, agencies or authorities or their Ministers to DFAT or the

Ministers for Foreign Affairs and Trade or the Prime Minister.

30.121 The functions or responsibilities of some authorities or agencies did bring them into contact, or potential contact, with AWB or AWB (International) in

Report of the Oil-for-Food Inquiry 61

relation to its wheat sales to Iraq or payments relating to such sales. The agencies or authorities with the most direct contact with AWB were the Wheat Export Authority and Austrade.

The Wheat Export Authority

30.122 The functions and powers of the Wheat Export Authority and its involvement

with AWB and AWB (International) are discussed in Chapter 29. Suffice it to say that the authority's functions included control of the export of wheat from Australia and monitoring the performance of AWB (International). Its powers included the power to compel AWB (International) to provide information or documents relating to certain matters.

30.123 During the relevant period the Wheat Export Authority, in the performance of

its functions and the exercise of its powers, obtained information and documents from AWB (International) that included information about AWB's wheat sales to Iraq. The documents provided by AWB (International) to the Authority included market briefs for August 2001 161, October 2002162, November 2002163 and April 2003.164 Whilst these market briefs specified that AWB's contracts with the IGB were on a free in truck basis, delivered to all

governorates of Iraq, they did not elaborate in any way on this condition. They did not, for example, disclose the amount of the costs associated with this condition or what percentage of the contract price these costs accounted for, or that AWB, purportedly pursuant to this condition, paid an inland

transportation fee determined (without negotiation) by the IGB to a company nominated by the IGB (namely, Alia) or that Alia was an agent for Iraq and paid the inland transportation fee to Iraq. Nor did the later reports disclose that the contract price in contracts A1670 and A1680 had been inflated to incorporate a substantial sum referable to a debt allegedly owed by the IGB for a shipment of wheat that had been made in 1996.

30.124 In late 2003 and late 2004, following the publication of allegations concerning

the payment of kickbacks to the Iraqi regime under the Oil-for-Food Programme, the authority made specific requests for information from AWB (International) concerning AWB's Iraq contracts. In response, AWB (International) provided a number of briefing notes to the authority. These briefing notes provided some more detail about the inclusion of trucking costs in the contract prices but again omitted material information concerning the costs and how they were paid. In a May 2004 briefing note165 prepared by Mr Cooper, the following passage appears:

From July 1999 to February 2003, the sale price included an inland transport component to cover transport by truck from Umm Qasr to silos within all Governorates of Iraq. The trucking costs were paid to a Jordanian company

62 Report of the Oil-for-Food Inquiry

responsible for that part of the contract. That same trucking company continues to provide all current trucking required for AWBI's wheat exports to Iraq in 2004.

30.125 The briefing note did not include details of the amount or percentage of the 'inland transport component', or advise the authority that this 'component' was not specified in the contracts, was imposed by the IGB and was not negotiated by AWB, or that the Jordanian trucking company was not in fact 'responsible for that part of the contract' (at least in relation to all contracts under the Programme) because it did not provide any trucking services but instead passed on the fee to the Iraqis. Nor was the authority told the name of the Jordanian trucking company. The authority was first notified that the trucking company was named Alia in August 2004.

30.126 There are grounds for concluding that the failure of AWB to fully advise the authority of the inclusion in its contract prices of inland transportation fees, the nature of those fees and the manner of payment, was deliberate and was not a result of mere oversight. For present purposes, however, it need only be noted that at no material time was the authority in possession of the relevant information concerning the inland transportation fees. It was accordingly in no position to, and did not, convey any of this information to DFAT.

Austrade

30.127 The Australian Trade Commission, or Austrade, is a statutory authority established by the Australian Trade Commission Act 1985. Its functions include to facilitate and encourage trade between Australia and foreign countries by representing the trading and commercial interests of Australia in foreign countries and assisting Australian companies in trade negotiations and obtaining and making available to Australian companies information relating to export trade.166 Austrade is within the Foreign Affairs and Trade portfolio and reports to the Minister for Trade.

30.128 During the period August 1994 to January 2003 Mr Ayyash was a locally engaged staff member of Austrade in Amman, Jordan.167 He was responsible for Austrade's activities in Jordan, Syria, Iraq and Palestinian areas and reported to the Australian Trade Commissioner based in Saudi Arabia or Dubai. His role with Austrade was to provide assistance and facilitation for Australian companies wishing to do business in any of the countries or territories covered by his post. His role with Austrade brought him into contact, albeit limited contact, with AWB. He also had regular contact with staff from the Australian Embassy in Amman.

30.129 Mr Ayyash's contact or involvement with AWB was essentially limited to organising transport for AWB officers travelling into Iraq. He acted once as a 'kind of post office' by couriering wheat contracts to AWB at the request of

Report of the Oil-for-Food Inquiry 63

the IGB.168 Mr Ayyash did not obtain any information or have any communications with AWB or its employees or agents concerning the Oil-for- Food Programme, the export of wheat to Iraq, permissions to export under the Customs (Prohibited Exports) Regulations, or any payments made to any Iraqi government official or entity.169 He also knew nothing about Alia or any other Jordanian trucking company or about the use by AWB of any trucking company in Jordan.170 Nobody from AWB ever discussed with him trucking, the use of trucks, trucking companies or anything to do with Alia.171 He did not have any meetings or discussions with anyone he knew to be an officer or employee of Alia172, including Mr A1 Absi. He knew nothing about any payments made by AWB to Alia or otherwise indirectly to Iraq.173

30.130 The documents produced by Austrade do not disclose that Mr Ayyash reported any relevant communication with, or information about, AWB to his superiors or DFAT. Nothing in the documents produced by Austrade suggests that Austrade had any knowledge of these matters independently of Mr Ayyash. Nor was there any communication between DFAT and any other person at Austrade that touched on any of these matters.

Information from miscellaneous foreign sources

30.131 DFAT officers * particularly those in overseas postings *had access to and obtained information relating to the Oil-for-Food Programme from various foreign associations, authorities or other bodies. If the information was of significance, it would usually be reported back to DFAT in Canberra by cable. From about mid-2003 DFAT was made aware of allegations by at least two foreign associations or authorities that AWB had, or might have, inflated its wheat contract prices under the Oil-for-Food Programme to facilitate the payment of fees or kickbacks to the Iraqis. The allegations emanated from US Wheat Associates and the Coalition Provisional Authority in Iraq. The allegations were made after conclusion of all contracts under the Programme.

Allegations by US Wheat Associates and others in the United States

30.132 The allegations against AWB made by US Wheat Associates and other persons or bodies in the United States are discussed elsewhere in this report. Following is a brief summary of the allegations and DFAT's response to them.

30.133 On 3 June 2003 US Wheat Associates, a US-based grain industry peak body that represented the interests of US wheat growers, wrote to the then US Secretary of State, Mr Powell, a letter that contained allegations that the AWB had been involved in 'price gouging' and overcharging in its wheat contracts under the Oil-for-Food Programme. The substance of the letter was published in the US publication Congress Daily on 4 June 2003.174 This information came

64 Report of the Oil-for-Food Inquiry

to the attention of a DFAT officer attached to the Iraq Task Force, Mr Walker. On 6 June 2003 Mr Walker sent to the Australian Embassy in Washington a cable that stated, in part:

START OF SUMMARY

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 the 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.

END OF SUMMARY

1. US Wheat Associates (USW) Director of Public Affairs, Dawn Forsythe, has alleged publicly that AWB Ltd's contracts for the export of wheat to Iraq under the Oil-for-Food Program (OFF) were over-priced and, while being careful to avoid directly accusing AWB Ltd of making payments to the Saddam regime, strongly hinted that this was the case. Forsythe alleged that this lack of transparency

provided grounds for the renegotiation of AWB Ltd's existing wheat contracts under the OFF against US competition. USW has written to Colin Powell in similar terms and made this correspondence public. Forsythe's comments were widely reported in the Australian media on 5 June. Mr Vaile has responded strongly to the allegations. AWB Ltd has threatened USW with a defamation suit in US courts, unless USW fully retracts the statements publicly and in a further letter to Secretary Powell.

3. We have registered with the US embassy in Canberra (DCM Owen) our deep regret that USW has chosen to embark on this egregious public campaign to denigrate AWB Ltd.

4. Mr Vaile has advised the media that our embassy in Washington will be raising the matter with Secretary Powell. Grateful if the Ambassador could make appropriate representations drawing on the following talking points:

* Allegations by US Wheat Associates that AWB Ltd paid kickbacks to the Saddam regime in exchange for wheat contracts are outrageous.

- USW have made this allegation in a letter to US Secretary of State Colin Powell, now published on the internet, and are conducting a media campaign to discredit AWB Ltd.

* Government has been assured by AWB Ltd that no such kickbacks were paid.

- USW is not claiming they have any evidence either, and is making speculative allegations based on their interpretation of the price of the contracts.

Report of the Oil-for-Food Inquiry 65

- AWB Ltd is unaware of how USW obtained commercial-in-confidence information about prices and is very concerned at this development.

* 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.175

30.134 Mr Walker drafted this cable, under the 'close guidance' of more senior officers in the Iraq Task Force, on the basis of exchanges with AWB officials and his understanding that the AWB contracts had been approved by the relevant UN structures.176 Mr Walker did not claim to have made any further inquiries into the allegations independent of his discussions with AWB officials. The talking points referred to in the cable were drawn from a

document also drafted by Mr Walker.177 Mr Walker's immediate supervisor at DFAT was Ms Armstrong. Ms Armstrong was also aware of the US Wheat Associates allegations and was aware that Mr Walker had contacted AWB and been assured that its contracts were not overpriced or inflated and that AWB had not paid any kickbacks.178 The response of both Ms Armstrong and Mr Walker was also influenced by the fact that the allegations by US Wheat Associates were not supported by any evidence or substantiating facts.179

30.135 A number of other cables between DFAT in Canberra and the embassies in Washington and Baghdad during 2003 refer to US Wheat Associates allegations and the diplomatic response to the allegations that was managed by DFAT. Similar allegations were picked up and publicised by other persons or bodies in the United States during 2003, including some US Senators. DFAT's response to these allegations, and the resultant diplomatic response, were essentially the same as the response to the US Wheat Associates allegations * namely, to refute the allegations on the basis of AWB's strong

denials. Among the cables referring to the response to the allegations in the United States during 2003 were the following:

" A cable dated 6 June 2003 from Mr Thawley, then Australia's Ambassador to the United States, to DFAT in Canberra and the post in Baghdad reported that Mr Thawley had acted on the request in Mr Walker's cable

66 Report of the Oil-for-Food Inquiry

to raise the matter at a senior level with the US Administration.180 Mr Thawley used Mr Walker's talking points referred to in his cable.

" A cable dated 10 June 2003 from Mr Baxter, Deputy Chief of Mission at the Embassy in Washington, to DFAT in Canberra, the mission in New York and the post in Baghdad referred to further diplomatic steps relating to 'the need for the Australian Government to refute Tracy's [the US Wheat Associates] allegations strongly and publicly'.181

" A cable dated 21 October 2003 from Australia's mission to the United Nations in New York to DFAT in Canberra and the posts in Washington and Baghdad reported on allegations by a journalist from the

Washington-based journal Congress Daily to the effect that AWB's 'contract prices seemed high, implying they included a cut for the Saddam regime'.182

" A cable dated 22 October 2003 from Ms Freeman, an officer attached to the Washington post, to DFAT in Canberra and the post in Baghdad reported that a letter was 'circulating within Congress addressed to the President expressing concern about the high prices received for wheat exports to Iraq under the United Nations Oil-for-Food Program'.183 It also reported that the letter quoted a Congress Daily article that alleged that 'the Iraqi Government agreed to buy wheat from AWB at a price nearly double the price of comparable US Wheat' and that 'the high prices "would appear to support charges that AWB was involved in kickbacks to Hussein or his family before the war ...'" The cable asked Canberra to encourage AWB to make a formal statement 'explicitly rejecting and rebutting' the allegations and to provide some 'cost and price details where possible'. It was noted that the post had drawn on 'talking points provided from Canberra rejecting these claims made previously by US Wheat Associates'.

" A cable dated 22 October 2003 from the post in Washington to DFAT in Canberra, the mission in New York and the post in Baghdad included further details of the Congress Daily article referred to in the previous cable, including a quoted response from Mr McBride of AWB to the effect that whilst AWB's prices may seem high, they included inland transportation from the port of Umm Qasr to 'all mills around Iraq'.184

" A cable dated 23 October 2003 from Mr Baxter in Washington to DFAT in Canberra, the mission in New York and the post in Baghdad provided further details of the letter addressed to the President referred to in the cable of 22 October, including that it had been instigated by Senator Daschle and had attracted a number of other Senate signatories.185 It

Report of the Oil-for-Food Inquiry 67

reported that Mr Baxter had met Senator Daschle and, 'drawing on existing talking points [had] strenuously rebutted the allegation that the price received by AWB for wheat to Iraq implied that kickbacks were paid to the Saddam regime' and had told Senator Daschle that the 'allegation

was without foundation and utterly reprehensible'. It also referred to information it received from Senator Daschle's staff to the effect that they had been 'advised by State that its scrutiny of OFF contracts revealed that 10% had been added to the price of every OFF contract'. Mr Baxter advised that 'we will at some point have to be ready to explain specific aspects of the contracting process'.

" A cable dated 23 October 2003 from DFAT in Canberra to the posts in Washington and Baghdad and the mission in New York reported that AWB did not intend to make a public statement on the allegations in the Congress Daily article or the letter to the President but that it stood by its previous public description of the allegations as 'baseless and outrageous'.186 It included talking points that largely replicated those in Mr Walker's 6 June cable extracted above.

" A cable dated 31 October 2003 from Ms Freeman in Washington to DFAT Canberra summarised the 'numerous representations on allegations surrounding AWB Ltd sales of wheat to Iraq under the Oil for Food Program' that had been made by the post during the previous months.187

30.136 During the period that US Wheat Associates was making allegations against AWB, Ms Freeman was a counsellor at the Australian Embassy in

Washington. She, together with Mr Thawley, the Ambassador, and Mr Baxter, the Deputy Chief of Mission, was involved in Australia's diplomatic response to the allegations. Her evidence was that over a number of months from about April 2003 Mr Hockey, AWB's General Manager, Public Affairs, provided her with information aimed at demonstrating that AWB did not overprice the wheat it sold to Iraq, contracts had been openly negotiated with the Iraqis, and the prices charged by AWB included additional costs for distributing wheat to all governorates of Iraq.188 There were a number of considerations that led her to accept AWB's denials of the US Wheat Associates allegations. In summary, they were:

" Australia and the US had been the two main suppliers of wheat to Iraq for a number of years, both selling approximately 1 million tonnes per year to that market.

" When the US imposed sanctions on Iraq in 1998 AWB became the

principal supplier of wheat to Iraq, supplying the majority of the wheat previously supplied by the US wheat industry.

68 Report of the Oil-for-Food Inquiry

" At this time, despite the fact that the sanctions were imposed by the US Government, there were allegations in the US to the effect that the AWB had 'stolen' the US's share of the Iraq wheat market.

" There was a longstanding rivalry between the Australian and US wheat industries. Australian farmers have long resented the benefits provided to US grain growers through program payments in successive Farm Bills, while US farmers have held up the export arrangements of both the Canadian Wheat Board and AWB as representing unfair trading practices.189

" An article published in Washington in October 2003 by a trade consultant stated that, while AWB received high prices for its wheat sales to Iraq, US wheat growers had received equally high prices for their wheat sales to Afghanistan in previous years, highlighting the considerable additional expenses in delivering wheat into a war zone.190

" The president of one US wheat lobby group and a former president of another sought a meeting with Ms Freeman and the First Secretary, Trade, and told them that, in their view, the allegations of US Wheat Associates had no basis in fact.191

30.137 It was also important to Ms Freeman that no evidence had been put forward by US Wheat Associates to back up its claims:

Mr Tracy [President of the US Wheat Associates] did not provide any evidence supporting his allegations against AWB or the Australian government to me or, to my knowledge, anyone else. I was not independently aware of any information or material that gave me reason to believe that Mr Tracy's allegations might have any basis in fact.192

30.138 The evidence of Mr Baxter was to the same effect. Mr Baxter was also involved in responding to Senator Daschle and the other US Senators who had picked up the US Wheat Associates allegations; he was also involved with the US Senate Permanent Subcommittee for Investigations.

Throughout 2003 and 2004 the issue of the Australian Government's support for the single desk marketing arrangements for wheat was the subject of strong criticism from US agricultural interests and became a highly sensitive issue in the negotiations underway on a bilateral free trade agreement between Australia and the United States. The Embassy sought to ensure that unsupported allegations by commercial competitors of Australia did not become accepted as fact in the Washington policy community and that any investigations of those allegations be handled fairly and openly. Following the conclusion of the Iraq war several congressional inquiries, with overlapping terms of reference, were set up to investigate the OFFP. There was strong competition among the leaders of the various committees to attract favourable publicity to their inquiries and boost their political positions. There had been widespread criticism of the United

Report of the Oil-for-Food Inquiry 69

Nations within congress in the period leading up to the establishment of the various congressional inquiries and OFFP provided a focus for those seeking to expose corruption in the UN.193

30.139 In the context of ascertaining DFAT's knowledge of whether AWB had inflated its contract prices to facilitate the payment of inland transportation and other fees indirectly to Iraq, the significant point that emerges from the evidence relating to the US Wheat Associates allegations is that, like the Canadian complaint, the information DFAT obtained was no more than an allegation or a series of related allegations. These allegations, at least as far as DFAT was concerned, were unsupported by evidence or supporting facts, were potentially motivated by competitive forces and political considerations, and were emphatically rejected by AWB. Since DFAT accepted AWB's assurances that the allegations were unfounded, it had no actual knowledge that AWB had in fact been involved in the alleged conduct.

30.140 The US Wheat Associates allegations were also made at a time effectively after the end of the Oil-for-Food Programme, or at least after the time that DFAT was called upon to consider AWB's wheat contracts and to decide whether permission to export ought be given under the Customs (Prohibited Exports) Regulations. Information or knowledge obtained or acquired by DFAT after the effective end of the Programme could only be relevant to any defence AWB might have if it could provide the basis for an inference that DFAT possessed the information or knowledge during the currency of the Programme * that is, at the time of the alleged misleading or deceptive statements or conduct by AWB.

30.141 The scope of any power DFAT might have to conduct inquiries in relation to allegations that Australian companies had breached sanctions may be open to debate. In fact, DFAT conducted no inquiries about the allegations beyond seeking AWB's response. Acting on AWB's assurances, it strenuously defended AWB and took extensive diplomatic action to rebut the allegations. DFAT's response is, however, immaterial to the question whether DFAT had actual knowledge of AWB's conduct unless the nature of DFAT's response is able to support an inference that DFAT was deliberately turning a 'blind eye' to the allegations because it already knew the facts. This is considered further below.

Information obtained from the Coalition Provisional Authority

30.142 The information DFAT obtained from the Coalition Provisional Authority during 2003 and 2004 was of a similar nature to the US Wheat Associates allegations, albeit from a source that might reasonably have been regarded as less likely to be influenced by competitive motivations than US Wheat Associates.

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30.143 On 12 June 2003 Mr Long sent an email to various officers of AusAID and DFAT. By this time the Coalition Provisional Authority had appointed him an advisor to the Ministry of Trade in the Interim Iraqi Administration. Mr Long's email included a memorandum of instruction from Captain Blake Puckett of the Coalition Provisional Authority to 'Ministry Advisors' in relation to the renegotiation and reprioritisation of contracts entered into under the Oil-for-Food Programme.194 The memorandum included the following passage:

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:

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.

30.144 Ms Armstrong received a copy of Mr Long's email. The possibility that contracts under the Programme might have included some sort of kickback to the regime was not new information to her.195 She was aware of the US Wheat Associates allegations and AWB's denial of them. She also did not regard Captain Puckett's memorandum as a communication to the Australian Government that the Coalition Provisional Authority believed or even suspected that AWB's contracts contained a kickback:

Q: Did you take Captain Puckett's memorandum as a way of conveying the message to you?

A: No, not at all. The memorandum was provided to all Coalition Provisional Authority ministerial advisers to the interim Iraqi authority. It included no mention of any Australian contracts and no specific mention of AWB. I saw that very much as a generic advice that was being prepared across the whole range of the Oil-for-Food Program contracts.

Q: Do you say that DFAT, to the best of your knowledge, never received any advice from the CPA or the World Food Programme that the contracts 1670 or 1680 had contained a kickback?

A: To the best of my understanding, we received no such advice.196

30.145 Ms Armstrong took three steps upon receiving Captain Puckett's memorandum.197 First, she sent a copy of the email to Mr Whitwell of AWB. Second, she instructed Mr Walker to advise the Baghdad post and the UN mission that DFAT should make strong representations on behalf of AWB in relation to the reprioritisation of the remaining Oil-for-Food contracts. Third,

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she instructed Mr Walker to contact DFAT's post in Baghdad to ask 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.

30.146 In response to the last of these requests, Ms Venamore, then Deputy Head of Mission at the Australian Embassy in Baghdad, subsequently attended a briefing by Captain Puckett. She reported on the briefing in a cable to DFAT in Canberra dated 23 June 2003. The cable included the following passages:

START OF SUMMARY

The CPA's small new office on Oil-for-Food has tasked Ministries to sort through approved and funded contracts to check against priorities. Contracts which have been neither approved nor funded as of UNSCR1483 will not proceed under OFF.

END OF SUMMARY

Blake Puckett, a captain in the U.S. Army's civil affairs command and running the CPA's OFF work, briefed us on the CPA's approach to its obligations under UNSCR 1483.

5. Every contract since phase 9 included a kickback to the regime from between ten and nineteen percent. Tire CPA was advising Ministries to tell companies with contracts that the 'after sales service fee', which was usually to be deposited in offshore banks, would be remitted to them.

COMMENT

8. The recent establishment of the office played out through some hesitant answers from Puckett, and at times extensive discussion on issues with his colleagues. Two of the three staff of the office have been in place only a few days. Policy on some aspects of CPA management of OFF is likely to go through some refinement in

coming months.198

30.147 Mr Whitwell also responded to Ms Armstrong's email that forwarded Mr Long's email and Captain Puckett's memorandum.199 In his email reply Mr Whitwell provided comments in relation to numerous issues raised in Captain Puckett's memorandum. However, he made no comment about the paragraph relating to kickbacks or surcharges. Ms Armstrong did not attribute any significance to this.200

30.148 Ms Armstrong made no further inquiry herself of either AWB, the World Food Programme or the Coalition Provisional Authority in relation to the

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contention in Captain Puckett's memorandum. It did not occur to her at the time that the AWB contracts should be subjected to any rigorous examination by DFAT.201 Ms Armstrong gave the following explanation for why that was so:

Q: Did you have the capacity at that time to rigorously examine the AWB contracts?

A: No, I didn't, and I think if we were going to do something like that to actually launch an investigation, we probably would have sought more authority. If I could say in regard to that paragraph, while I agree it is definitive, my assessment of this cable was very much defined or led, I think, by the comment in paragraph 8, where it was made clear by the post that the office had only recently been established, that they were still very much in an establishment phase. I took a view that that paragraph 5 statement really needed to be tested. In light of the comments, the very firm denials that we had from AWB, I really thought that the CPA perhaps needed to test that assumption that they were best placed to test that assumption, and I knew that that testing of that assumption was occurring in Baghdad.

We couldn't see, from Canberra, how they could make such a definitive statement at this particular point in time. The CPA was, at this time, in June, in a state of great chaos, actually. They had only been in Baghdad a relatively short time.

Documents were only just starting to come forward. In no way, I think, could they have made any definitive assessment of all the documents that might have been available on the Oil-for-Food Program in just two months, I think, after the

coalition authorities got into Baghdad, and I really felt that that was something that we really needed to see properly tested.

I had an understanding, of course, that this was going to happen. One of the things that we as a coalition partner, in concert with the Coalition Provisional Authority, were doing was going through very rigorously all the documents that were coming forward, and you might recall that initially we were looking for WMD, but we were also looking for where Saddam's assets had gone to, and in the course of all of that I felt that if there were any documents that might relate to any untoward behaviour or illegal activity on the part of Australian companies they would inevitably come forward, but I thought it was far too early for the CPA to be making categorical statements like that.202

30.149 Ms Armstrong was influenced by her belief that, if AWB contracts were to undergo reprioritisation and renegotiation, they would be 'specifically examined and vetted by the Coalition Provisional Authority, with the assistance of the Iraqi officials, and the relevant UN agencies, including the World Food Programme for the purpose, amongst others, of ascertaining whether they involved kickbacks of any kind.' She was of the view that AWB's contracts would be 'examined and tested by the competent authorities,

including the 661 Committee which was ultimately responsible for giving the final approval for the outstanding wheat contracts'.203

Report of the Oil-for-Food Inquiry 73

Ms Armstrong also took into account that no specific allegations were being made regarding AWB contracts, that no specific allegations were being made that AWB had been involved in paying kickbacks204 and that the Coalition Provisional Authority had not conveyed to the Australian Government any such allegation.205 She was also aware of the recent and

strong public denials by AWB in the media and to the Australian

Government, rejecting such allegations.206

30.150 Ms Armstrong had a number of conversations in the latter part of 2003 and into early 2004 with Mr Long and Mr Whitwell of AWB about the

reprioritisation process and the renegotiation of the two remaining AWB contracts under the Programme. In each of the conversations with Mr Whitwell that touched on the allegations concerning kickbacks, Mr Whitwell denied that AWB's contracts incorporated or involved kickbacks.207 Indeed, Mr Whitwell told Ms Armstrong the Coalition Provisional Authority accepted that the two contracts being renegotiated did not incorporate kickbacks and the authority did not insist on a 10 per cent reduction of the contract price but rather accepted only a very nominal reduction. Ms Armstrong took the view that a reduction of significantly less than 10 per cent was consistent with advice that Mr Whitwell had given her to the effect that the Coalition Provisional Authority had accepted that AWB had not paid any kickbacks.208

30.151 In addition to Australian advisers working for ministries, such as Mr Long,

there were a number of other Australians who were seconded to or retained by the Coalition Provisional Authority in Iraq. Between May and November 2003 and March and July 2004 an Australian Defence Force officer, Colonel

Kelly, was seconded to the Office of General Counsel in the Coalition Provisional Authority.209 In the course of his duties in 2004 Colonel Kelly acquired information from a variety of sources about the Oil-for-Food Programme and the mechanisms that had been used to corrupt it.210 He became aware that 'illicit' payments were made to the Iraqi Government by virtually all parties who entered into contracts under the Programme, that these payments were outside the terms of the Programme and that they were used by the Iraqi regime for purposes other than humanitarian purposes. The payments included after-sales-service fees amounting to 10 per cent of the contract price and inland transportation payments made to Jordanian companies that were channelled back to Iraq.211 He formed the opinion that anyone involved in significant and regular contracts and dealings under the Programme must have been aware of the after-sales-service fee demanded by the Iraqi regime and inland transportation fee payments and that AWB, as the largest supplier of food under the Programme, was almost certainly directly and knowingly involved in making these payments.212

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30.152 Between March and July 2004 Colonel Kelly regularly reported the detail of his activities, insofar as they related to the Oil-for-Food Programme, to the deputy head of the Australian mission in Baghdad, Ms Venamore.213 Colonel Kelly reported to Ms Venamore that those in the Coalition Provisional Authority with access to the paperwork believed that any company doing business in Iraq through the Programme could not have escaped being involved in some kind of inappropriate action, whether or not they were aware of it.214 Ms Venamore reported this observation to DFAT in Canberra in a cable dated 19 May 2004. In an email on the same day Colonel Kelly informed Ms Venamore that '[it] looks like the jig is up on AWB and the OFF scandal'.215 Colonel Kelly also advised Ms Venamore that in his opinion it was almost certain that AWB would be caught up in the investigations relating to the Oil-for-Food Programme.216 Ms Venamore thought that the email meant that information had emerged which might implicate AWB. Neither in that email nor subsequently did Colonel Kelly provide to Ms Venamore any such evidence.217

30.153 Upon his return to Australia in July 2004 Colonel Kelly debriefed DFAT and officers from the Attorney-General's Department about his knowledge and involvement in the investigations surrounding the Oil-for-Food Programme.218 A number of participants at this meeting who provided statutory declarations to the Inquiry had marginally differing recollections about what Colonel Kelly said at this meeting. It is unnecessary to resolve these differences. It is clear that by the date of this meeting, officers of both DFAT and the Attorney-General's Department were well aware of the allegations relating to the manipulation of the Oil-for-Food Programme, that various agencies or bodies had been investigating, or would be investigating, the alleged manipulation of the Programme, that it was likely that AWB's conduct would come under close scrutiny in those investigations, and that AWB's potential exposure or vulnerability related to payment of service fees through transport companies of between 10 and 30 per cent.219

30.154 DFAT regarded the Authority's contentions about contracts under the Programme involving kickbacks as unproven allegations subject to further investigation by the Authority. It did not amount to actual knowledge on the part of DFAT that AWB's contracts had been inflated or that AWB had made payments to the Iraqis.

30.155 Like the US Wheat Associates allegations, the information DFAT received from the Coalition Provisional Authority was largely after the effective end of the Oil-for-Food Programme. It emerged at a time when DFAT's role in relation to the Programme related only to liaising with the responsible parties in relation to the reprioritisation of contracts that had been entered into under the Programme and did not involve the sending of AWB contracts to the

Report of the Oil-for-Food Inquiry 75

United Nations or the giving of permission to export. It is therefore not relevant to the availability of any defence unless it can support an inference that DFAT knew the information at an earlier stage.

30.156 DFAT did not conduct any inquiries into the information it received from the Coalition Provisional Authority. It did not investigate AWB's contracts with these allegations in mind. Whether DFAT's response could, taken together with other relevant circumstances, support an inference that it knew about AWB's actions in relation to payments to Iraq during the currency of the Oil- for-Food Programme is discussed below. The conclusion I have reached is that it does not support such an inference.

The evidence of DFAT officers

30.157 All the delegates who signed permissions to export relating to AWB's wheat shipments and all relevant DFAT officers who were in the Middle East Section of DFAT and were involved in 'processing' AWB's contracts, UN notification forms and applications for permission to export provided statutory declarations to the Inquiry. All stated, in substance, that at no time during the currency of the Oil-for-Food Programme did they know that the Iraqi Grain Board or the Iraqi Government had required AWB to pay money, either directly or indirectly, to it in relation to inland transportation or after-sales- service fees. All but one officer, Ms Courtney, stated, in substance, that they did not know about Alia or that AWB paid inland transportation or other fees to Alia or that Alia paid these fees on to Iraq.

30.158 The only DFAT officer who stated that she knew anything about Alia was Ms Courtney. In her statutory declaration, Ms Courtney stated:

When I saw the name 'Alia' in newspaper reports of the Cole Inquiry over the last few weeks in relation to the Jordanian trucking company used by AWB I recognised the name and now believe that it was a name that I heard in that context during the time I worked in the Middle East Branch in 2000 and 2001. I had no knowledge of that name beyond that. I have no recollection of a

conversation with Mr Stott about Alia, nor do I recall a conversation with AWB where the name Alia was mentioned. I have no knowledge of the Department having looked into Alia. I do not recall when I became aware of the name Alia. I do not recall seeing a document where that name was mentioned.

30.159 Her oral evidence was to the same effect:

Q: Let's take this slowly. You read the name Alia in the newspaper reports and you recalled that you had heard the name Alia as a trucking company whilst you were working in the Middle East branch?

A: Heard or read.

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Q: Heard or read of it *as a trucking company?

A: Yes.

Q: As a Jordanian trucking company?

A: Yes.

Q: Did you hear or read of it as a Jordanian trucking company that was being used by AWB?

A: Yes.

Q: That was material that you heard or read whilst you were in the Middle East branch between 2000 and 2001?

A: That is my recollection.

Q: Do you say that you cannot remember whether you were told that or whether you read it?

A: That's right.

Q: Might it be both?

A: If I don't remember, I don't remember. I am sorry.

Q: You just don't know how you came by that information?

A: If I knew, I would tell you. I don't. I just was familiar with the name, and it certainly *all the things I have said are correct.220

30.160 In addition to not knowing how she came to possess this information or knowledge, Ms Courtney had no recollection of ever discussing it with any other DFAT officers.221

30.161 Ms Courtney's evidence concerning her knowledge of Alia is anomalous and unsupported by any other evidence. It is difficult to see how she could have come to learn about Alia from discussions with other DFAT officers in circumstances where all other relevant DFAT officers who worked in the Middle East Section knew nothing about Alia and therefore could not have told her about it. It is equally difficult to see how Ms Courtney could have learnt about Alia from AWB in circumstances where no past or present officer

of AWB claimed to have discussed Alia with Ms Courtney and where the evidence points strongly to the fact that those AWB officers who knew anything about Alia deliberately refrained from telling DFAT anything about it.

30.162 There is also no evidence to support the proposition that Ms Courtney learnt about Alia by reading a document. Putting aside the reports disseminated to

Report of the Oil-for-Food Inquiry 77

DFAT by the Australian intelligence community, there is no evidence of DFAT being in possession of any document that refers to Alia. In relation to the intelligence reports, whilst the reports refer to Alia, none of them refers at all to AWB or AWB's use of Alia. Even if Ms Courtney had read the

intelligence reports, they would not have conveyed to her that Alia was a Jordanian trucking company being used by AWB. In any event, Ms Courtney could not recall having seen any of these reports whilst she worked at DFAT:

Q: Finally, would you have a look at our folder of secret exhibits. I think in preparation for giving evidence you have had an opportunity to look at these documents, have you not?

A: Yes.

Q: Prior to preparing to give evidence before this inquiry had you seen any of those documents?

A: Not to my recollection.

Q: Prior to giving evidence before this inquiry were you aware of the substance or content of any of those documents?

A: Only insofar as it may have mirrored other sources of information, such as newspapers or public documents.

Q: Were you aware of the substance or content of any of those documents in relation to AWB?

A: No. 222

30.163 There is no material suggesting that any 'newspapers or public documents' during the period that Ms Courtney was at DFAT published information that Alia was a trucking company used by AWB.

30.164 Ms Courtney did not accept that her recollection that she knew about Alia was a vague recollection.223 She also did not accept that it was possible that she had heard about Alia as a Jordanian trucking company and that, when she read in more recent newspaper reports concerning this Inquiry that it was a company used by AWB, she fused the two matters together.224 Nevertheless, and without in any way suggesting that Ms Courtney's evidence was untruthful, there are sound reasons for doubting the reliability of her recollection. Her recollection is vague to the extent that she is unable to recall anything about how or in what circumstances she came to learn about Alia. It is a recollection about her state of mind five years ago and it is unaided by any note or other memory prompt. It also does not sit well with all the other available evidence about DFAT's knowledge of Alia and the absence of any DFAT documentation from the time recording anything about Alia.

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30.165 I am unable to accept Ms Courtney's evidence about Alia. However, even if Ms Courtney's evidence about Alia were to be accepted, it does not establish that DFAT knew all the relevant information about AWB's use of Alia. Ms Courtney does not suggest that she knew that AWB's contract prices were inflated to incorporate fees paid to Alia or that Alia did not itself provide any trucking for AWB, or that Alia paid the trucking fees it received from AWB to Iraq. Nor is there any evidence that Ms Courtney conveyed any such knowledge to the officers at DFAT who made relevant decisions about AWB's contracts, in particular the delegates who signed permissions to export.

Summary and conclusion: no direct evidence that DFAT obtained the relevant knowledge from some source other than AWB

30.166 The analysis of the evidence of DFAT's sources of information and the communications in fact received and read by DFAT officers demonstrates that there is no direct evidence that DFAT actually knew the relevant information during the currency of the Oil-for-Food Programme. In summary, the direct evidence establishes the following:

" All relevant officers of DFAT in effect denied that they knew that AWB was inflating its contract prices to incorporate inland transport or other fees or that AWB was paying these fees to Alia or otherwise indirectly to Iraq. Each of the DFAT officers denied that any such information was conveyed to them by anyone. I do not accept Ms Courtney's evidence that she knew in 2000 to 2001 that AWB was using Alia as a trucking company in Iraq.

" Putting aside the Canadian complaint, no witness claimed to have expressly advised DFAT of the relevant information. No document produced to the Inquiry constituted or evidenced the communication of this information to DFAT.

" In relation to the Canadian complaint, whilst the communication of the complaint by Ms Johnston contained the essence of the relevant information (apart from a specific reference to Alia), Ms Johnston made it clear to DFAT that the information she was conveying was no more than an allegation that the United Nations had no way of verifying. The allegation was put to AWB and denied. In these circumstances, the information conveyed as a result of the Canadian complaint cannot constitute actual knowledge of the relevant facts.

" Other information conveyed by or received from the United Nations and the intelligence obtained by the Australian intelligence community comprised, in general terms, nothing more than information that Iraq was

Report of the Oil-for-Food Inquiry 79

imposing fees and surcharges on suppliers under the Oil-for-Food Programme and requiring payments to be made outside Iraq so as to circumvent the sanctions. None of the intelligence related specifically to AWB. In any event, there was no evidence that any of the relevant officers from DFAT read the intelligence reports and each of them either denied or did not recollect doing so.

" From mid-2003 and throughout 2004 DFAT received information about allegations made by US Wheat Associates and other individuals and bodies in the United Nations about AWB's wheat contracts. It also obtained information from the Coalition Provisional Authority about the imposition by the Iraqis of surcharges and fees in respect of Oil-for-Food contracts generally. This information was received for the large part after the cessation of DFAT's active role in relation to the Oil-for-Food Programme (other than in respect of the reprioritisation of two AWB contracts) and in any event was viewed by DFAT as constituting allegations not substantiated or supported by evidence and denied by AWB.

Can actual knowledge on the part of DFAT be inferred?

30.167 The remaining question is whether the evidence of what was communicated to DFAT, coupled with the evidence of DFAT's response or reaction to this information and other surrounding facts and circumstances, is capable of supporting an inference that, despite the denials of the relevant DFAT officers, DFAT actually knew about AWB's payment of inland transportation fees to Iraq via Alia. That inference would be available only if the evidence demonstrated that DFAT was intentionally turning a 'blind eye' to the allegations and intelligence it had received by not investigating them further because it already knew what any further investigations or inquiries would reveal. As a matter of shorthand, such conduct is often referred to as wilful blindness. That expression should not, however, deflect attention from the fact that the relevant question is whether DFAT actually knew the relevant information, not whether it ought to have known or had the means to discover it.

30.168 Although I summarise below a number of events and circumstances that occurred over a lengthy period encompassing both some of the period of the Oil-for-Food Programme and events in the period after that Programme had ended, it is not a correct approach to consider such events and circumstances cumulatively. Events and circumstances do not necessarily build on preceding events or circumstances so as to magnify or render more important the second or later event or circumstance. That is so for at least two reasons. First, any

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relationship between a series of events is time related. Whether a relationship exists at all between two events is critically time dependent. Second, any relationship between events depends on whether it is appropriate to regard an earlier event as still being of currency when the later event occurs. An event regarded as resolved or satisfactorily explained or answered may not have the necessary currency at the time of the happening of the later event for it to be appropriate to associate the two. It is not permissible to use hindsight to seek to establish a relationship between events when, in reality, at the time of occurrence of a later event a relationship with an earlier one was not apparent or did not exist.

30.169 With that caution, in summary, the primary facts that could possibly support an inference of wilful blindness on the part of DFAT, put at their highest, are as follows.

" In January and March 2000 DFAT received information in the form of an allegation by another country, the substance of which was that AWB had entered into a contract or contracts with the IGB in which it agreed to inflate its price and in return to pay US$14 into an account outside Iraq. Cables reporting these allegations were distributed widely within DFAT and to other government departments and agencies.

" The extent of DFAT's reaction to and investigation of this allegation was that Mr Bowker inquired of the AWB Government Relations Officer, Mr McConville, who was not directly involved with the Iraq contracts, whether there was any substance to the allegation. Mr Bowker made no inquiry of more senior AWB officers, including Mr Officer, with whom he was on favourable terms, and did not request or require any further information from AWB about the pricing in its wheat contracts. He did not ask to look at the AWB contracts. Mr Bowker conducted no

independent inquiries. He did not endeavour to ascertain whether DFAT or the Australian intelligence community held any relevant intelligence. Nor did he refer the matter to any other agency that might have been able to further investigate the allegation.

" At the time that DFAT received the information concerning these allegations against AWB, the Australian intelligence community was in possession of unassessed intelligence that indicated, in general terms, that Alia was part-owned by the Iraqi Government and was involved in circumventing sanctions on behalf of the Iraqi Government, that Alia received fees in Jordan for the discharge and inland transport of goods purchased by Iraq under the Programme, and that Alia received these fees as an agent of the Iraqi Government in accounts accessible to Iraq in

Report of the Oil-for-Food Inquiry 81

violation of sanctions. The reports containing this intelligence were distributed to DFAT.

" Neither Mr Bowker nor any other officer of DFAT who was aware of the allegations received in early 2000 read, recalled or sought access to this intelligence. Whilst the intelligence did not specifically relate to AWB, it was at the very least capable of adding some substance to the allegations and thereby suggesting that further investigation was warranted.

" Further intelligence about Iraq's conduct in relation to the Oil-for-Food Programme and in circumvention of the sanctions was received and reported on by the Australian intelligence community in late 2000 and throughout 2001. The reports containing this intelligence were distributed to DFAT. None of the relevant DFAT officers in the Middle East and Africa Branch read, recalled or sought access to this intelligence.

" In March 2001 DFAT obtained information from the United Nations to the effect that Iraq was manipulating the Oil-for-Food Programme by demanding kickbacks and illegal commissions on contracts for humanitarian supplies. DFAT was also advised by AWB that Iraq had been demanding the payment of port fees. DFAT did not revisit, or conduct any further inquiries in relation to, the Canadian complaint in the light of this further information.

" In June 2003 DFAT was made aware of a contention by the Coalition Provisional Authority that contracts since phase IX of the Programme had incorporated in them a kickback or surcharge to Iraq of between 10 per cent and 19 per cent. No specific contention was made in relation to AWB.

" From about mid-2003 DFAT became aware of allegations made by US Wheat Associates and other persons or bodies in the United States that AWB's wheat contracts under the Programme were inflated to include kickbacks to the Iraqi regime.

" By June 2003 the Australian Intelligence Community held intelligence to the effect that the former Iraqi regime had forced suppliers under the Programme, including suppliers of humanitarian goods, to pay Iraq a 10 per cent commission. This intelligence did not specifically relate to AWB. Reports containing this intelligence were distributed to DFAT. None of the relevant DFAT officers in the Middle East Section read, recalled or sought access to this intelligence.

" DFAT took no steps to independently investigate the Coalition

Provisional Authority's contentions or the US Wheat Associates allegations in relation to AWB. DFAT regarded the contentions and

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allegations as unsupported by evidence. It relied on, and supported, AWB's denials.

" By June 2004 DFAT was aware that AWB's wheat prices had included costs associated with transportation of the wheat within Iraq, that AWB claimed to have retained and paid money to a Jordanian trucking company in relation to transportation within Iraq, and that AWB had conceded that the Jordanian company might of its own volition have provided kickbacks to the regime. DFAT did not itself conduct any investigations in the light of this information in relation to how AWB set its prices, what proportion of the prices was referable to the inland transport, the name of the Jordanian trucking company, how much AWB had paid to the Jordanian trucking company, and how it had paid the Jordanian trucking company. By this time, DFAT was aware that the Independent Inquiry Committee was investigating corruption within the Oil-for-Food Programme and that AWB's contracts were likely to come under scrutiny in that investigation.

30.170 These facts must also be considered in the light of DFAT's role in relation to the Oil-for-Food Programme. This is addressed in detail in Chapter 12. In short, DFAT was the primary, if not the sole, point of liaison between Australian companies that participated in the Oil-for-Food Programme and the United Nations. It received and submitted AWB's contracts and notification forms to the United Nations. As delegates of the Minister for Foreign Affairs, DFAT officers signed permissions to export under the Customs (Prohibited Exports) Regulations. In doing so, they were required to be satisfied that permitting the exports would not infringe Australia's international obligations. They relied on the United Nations' inspection and approval of Australian companies' contracts under the Programme and did not see any real role for themselves in this process. If the United Nations approved a contract as not infringing Resolution 661 and as being appropriate for payment from the escrow account, export approval was given.

30.171 The critical fact that emerges is that DFAT did very little in relation to the allegations or other information it received that either specifically related to AWB, or related generally to Iraq's manipulation of the Programme. DFAT's response to the information and allegations was limited to seeking AWB's assurance that it was doing nothing wrong. The question is whether the only reasonable inference to be drawn from this lack of action on the part of DFAT is that DFAT was turning a blind eye to the information because it already knew that AWB was involved, wittingly or unwittingly, in the conduct as alleged.

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30.172 That inference is not available. Rather, DFAT's lack of action is explicable for a number of reasons that do not involve actual knowledge by DFAT of AWB's wrongdoing.

30.173 First, DFAT understandably regarded AWB as a company of the utmost integrity; it had been a Commonwealth statutory authority until recent times, and was highly unlikely to have been involved in any conduct that was in any way untoward or improper. This was explained by Mr Bowker, the DFAT officer who was given primary responsibility for responding to the Canadian complaint:

I was well aware, from that experience [of the commercial issues which Australian companies frequently address in the Middle East] of the importance of integrity in business dealings on the part of those Australian and other companies wishing to engage in high-level business activity. It was most unlikely, in my view, that AWB, which enjoyed an enviable reputation for integrity in the Middle East, would be likely to jeopardise that reputation and its stature. It had considerable experience in the region of dealing with commercial activities, and I am sure it would have understood the consequences of being perceived to be willing to lower its standards.225

30.174 Mr Bowker believed that AWB was reliable in terms of its adherence to sanctions:

In my experience, AWB had been careful to observe the requirements as explained to them by the department in regard to dealings with Iraq. I base that partly on the open manner in which they dealt with us concerning the transport of gold bullion from Iraq in 1990, which was an issue requiring close consultation with the Australian Government and it occurred at a time when I was in Jordan. I was therefore fully familiar with that process.226

30.175 This view or opinion of the integrity of AWB was not unique to DFAT. Ms Johnston from the United Nations also considered at the time that AWB 'had an excellent reputation within the program of cooperation with the program'.227 It was a view also shared by the Prime Minister228 and the Ministers for Foreign Affairs229 and Trade.230

30.176 DFAT's belief about AWB's honesty and integrity at the relevant time was a belief that was reasonably held. It understandably tempered its response to both the Canadian complaint and the contentions and allegations by the Coalition Provisional Authority and US Wheat Associates. It also explained

the willingness on the part of DFAT to accept the categorical denials by AWB without conducting any independent investigations, even assuming it had the power to do so.

30.177 Second, DFAT saw its role as including supporting Australian economic interests and Australian companies who were involved in international

84 Report of the Oil-for-Food Inquiry

trade.231 The allegations it received emanated from countries that were major competitors of AWB and Australia's international wheat trade. Officers of DFAT knew this. It was pointed out to DFAT by AWB. These circumstances caused DFAT to view the allegations with some scepticism.

30.178 Third, in responding to the allegations or information it received, DFAT did not consider it was an investigatory agency or that its role encompassed investigating alleged breaches of the sanctions, or that it was equipped or empowered to conduct investigations beyond seeking information from the Australian company concerned. DFAT's role, and specifically whether it extended to investigating alleged breaches of the sanctions regime, is explored in Chapter 12. Suffice it to say that both Mr Bowker, who was primarily responsible for responding to the Canadian complaint, and Ms Armstrong, who was involved in DFAT's response to the Coalition Provisional Authority and the US Wheat Associates allegation, believed that they were not empowered to investigate allegations beyond seeking advice from the company concerned.232

30.179 DFAT did not have in place any systems or procedures in relation to how its staff should proceed in response to allegations relating to the breach of sanctions. No specific officer was given responsibility for responding to or investigating such matters. It does not appear that there was in place any protocol, if DFAT was not itself proposing to investigate, for referring matters for investigation to other agencies such as the Australian Federal Police or that staff were given any instructions about how, if at all, they could investigate such allegations or what resources were available to them. It must be acknowledged that for DFAT to refer a matter to the Australian Federal Police would be a serious matter, particularly in the absence of any evidence of breach of sanctions or the law. There was no evidence provided in support of the Canadian complaint.

30.180 Fourth, an additional compelling reason to doubt the availability of any inference that DFAT knowingly turned a blind eye to AWB's actions is that it is difficult, if not impossible, to see what possible motive DFAT would have for turning a blind eye or how DFAT could conceivably see that turning a blind eye would advance either AWB's or Australia's interests in any way. That is all the more so because there is no evidence to suggest that DFAT's lack of action was the result of complicity with AWB. If DFAT was turning a blind eye, it was doing so at its own volition and not at the behest of AWB.

30.181 Whilst it may be that it was in Australia's economic interests for AWB's wheat trade to Iraq to continue, it could never have been in Australia's interests for the trade to continue if it involved Australia breaching its international obligations. Mr Bowker explained how DFAT's and Australia's interests in

Report of the Oil-for-Food Inquiry 85

supporting Australia's economic interests and its international obligations were not contradictory:

Q: Is it because you didn't really want a full inquiry at that stage as to whether or not AWB was making these irregular payments to the Iraqis?

A: No. There were two factors guiding our approach to our role as a department, and, indeed, as a portfolio. The first was to support Australian economic interests, including, obviously, in regard to Iraq. Our second concern was to uphold the

integrity of and pursue Australia's interests within the multilateral system. The two objectives were not contradictory. They were mutually complementary. Our concern was to provide the best service that we could to Australian companies within the framework of Australian Government policy and within the framework allowed by UN sanctions. If there had been evidence of a departure on the part of AWB or any Australian company, then we would have taken the evidence of that *not allegations, but evidence of that *to the government to consider what steps it may wish to take.233

30.182 Ms Armstrong also denied that it could have been in DFAT's or Australia's interests to turn a blind eye to any allegation against AWB:

Q: What do you say to a suggestion that might be made that your interest, as you saw it, might have been to turn a blind eye to any suspicious material which you saw?

A: I would refute that.

Q: Why is that?

A: I believe, as Australian public servants, we have obligations under the Australian Commonwealth Code of Conduct for public servants and also under various different legislation, if we find evidence where Australian Commonwealth officials or Australian companies might be engaged in improper activity, that we need to take the proper steps to deal with it, which I believe would involve some form of reporting, and in this case ministers were extremely focused on the matter of the reprioritisation of the wheat contracts. They were also very concerned to ensure that our obligations as the Australian Government coalition ally were properly met, and I think if there was any suggestion that we *or that I *if I was to uncover any suggestion of improper activity in regard to United Nations *our obligations under the United Nations resolutions, I would have had a duty to pursue it, follow it up and to report it.

Q: Would you have seen it in any way to be in your interest not to have disclosed any suspicious material * that is, in your own personal interest?

A: No, not at all.

Q: Would you have seen it to be in any way in Australia's interest or in the interests of the Department of Foreign Affairs and Trade not to disclose any material that you saw as suspicious?

A: Not at all.234

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30.183 Fifth, DFAT had been astute to give proper advice, when asked, regarding the operation of the UN sanctions and the Oil-for-Food Programme. Australian government policy was to support the sanctions. It would have been an extraordinary contradiction of that policy for DFAT to have determined to act contrary to that policy, and the advice it gave, by disregarding departures from that policy and advice. There is no evidence that it did so.

30.184 Sixth, during the period with which I am concerned *June 1991 to March 2003, being the period during which the Oil-for-Food contracts pursuant to which payments were made to Iraq *only one event occurred that came to DFAT's attention. That was the Canadian complaint. It was forcefully denied by AWB. In addition, there was the unassessed intelligence information. The evidence is clear that no one in the Australian intelligence community, let alone DFAT officers, regarded the scattered information available as of sufficient importance to seek to draw the available material together, let alone to assess its credibility. It was drawn together only by this Inquiry after an extensive discovery process. Its credibility was never established at the time. It now has credibility only by the application of hindsight and with the knowledge gained from the Independent Inquiry Committee's final report and material discovered in this Inquiry.

Conclusion

30.185 The evidence does not support an inference of actual knowledge on the part of DFAT. There is no direct evidence of actual knowledge.

30.186 Accordingly, I find that DFAT, and its officers, did not have knowledge that:

" The prices in the UN notification forms and in the contracts submitted to DFAT for transmission to the United Nations or for the grant of permission to export had incorporated in them fees * in particular, inland transport fees or after-sales-service fees * or other amounts payable directly or indirectly to Iraq.

" The wheat contracts between AWB and the IGB included additional terms or collateral arrangements not disclosed in the contracts submitted to DFAT that required AWB to pay such fees and other amounts to Iraqi entities or their nominees.

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Did the Prime Minister or the Ministers obtain knowledge from sources other than AWB?

30.187 I have already concluded that on no relevant occasion during the currency of the Oil-for-Food Programme did AWB ever inform the Prime Minister or the Ministers for Foreign Affairs or Trade that its contracts with Iraq incorporated an inland transportation fee or that it paid an inland transportation fee, or any fee however described, to Alia or otherwise indirectly to Iraq. The only remaining question is whether it is open to conclude that the Prime Minister or the Ministers obtained this knowledge from any other source.

The Prime Minister

30.188 The Prime Minister's evidence was that at no time during the currency of the Oil-for-Food Programme did he know that the Iraqi Grains Board or the Iraqi Government had required AWB to pay money indirectly to it, ostensibly in relation to inland transportation fees, either via Alia or any other Jordanian trucking company or companies, or that any money that was paid by AWB to Alia or any other trucking company in that regard was paid to the Iraqis. Nor did the Prime Minister believe that he knew anything about a requirement imposed by the Iraqi Government on participants in the Oil-for-Food Programme, or specifically AWB, to pay a 10 per cent 'after-sales-service' fee. 235

30.189 There is no basis for doubting the Prime Minister's evidence.

30.190 There is no evidence to suggest that the Prime Minister possessed any such information at any material time.

30.191 By reason of his position, the Prime Minister was at least one step further removed from the relevant information than were the Minister for Foreign Affairs and the Minister for Trade. AWB's participation in the Oil-for-Food Programme and its wheat sales with Iraq were within the portfolio responsibly of DFAT and the Ministers for Foreign Affairs and Trade. Neither the Prime Minister nor the Department of the Prime Minister and Cabinet were directly responsible for issues arising in relation to these matters, though one of the issues that was of interest to both the Prime Minister and the Government during the Oil-for-Food Programme was whether or not Iraq was abiding by the sanctions imposed on it and whether or not Iraq might be manipulating the Programme so as to accumulate for itself a source of funds to be used for nefarious activity.236

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30.192 The only evidence that could support a conclusion that the Prime Minister was aware of anything to do with AWB's participation in the Oil-for-Food Programme was that he was listed on the distribution list for some of the cables relating to the Canadian complaint and his office was on the distribution list for one of the reports within secret exhibit 4.

Cables

30.193 The Prime Minister did not have provided to him all the cables that were received in his office as a consequence of the Prime Minister being included on the distribution list for the cable. Cables that included the Prime Minister on the distribution list were (at least from about mid-2001) considered first by the Department of the Prime Minister and Cabinet, which would then send the Prime Minister's Senior Adviser (International Relations) either a summary or a list of cables it considered the adviser should consider. Prior to 2001 the cables were accessed electronically in the first instance by the Senior Adviser (International Relations).237 The adviser would then scan or skim the cables, or the list or summary, read some of the cables and form a view whether any of the cables should be brought to the attention of the Prime Minister based on the adviser's experience and appreciation of the issues that warranted the Prime Minister's attention.238 Only a very small proportion of the very large number of cables directed to the Prime Minister's office were brought to the attention of the Prime Minister in this way.239 No written record of those cables that were shown to the Prime Minister was kept before about 2003.240

30.194 The Prime Minister's Senior Adviser (International Relations) during the currency of the Oil-for-Food Programme did not recollect reading any of the relevant cables or bringing them to the attention of the Prime Minister. The Prime Minister's evidence, based on his own recollection and upon searches conducted by his staff at his request, was that he did not read any of the relevant cables, and that he did not believe that any of the cables were brought to his attention during the currency of the Oil-for-Food Programme.241 He would not have expected that the cables would have been brought to his attention, given the 'context of the time'.242 The 'context of the time' included that there was no belief anywhere in the Government at the time that AWB was other than a company of great reputation, that there was nothing by way of hard evidence in relation to any of the allegations in the cables, and that the cables suggested that the matters were going to be dealt with.243 It would also have been expected that those things would have been

dealt with by DFAT.244

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Intelligence materials

30.195 In relation to the intelligence materials in secret exhibit 4, as distilled in exhibits 584 and 641, the Prime Minister's evidence was that he did not read or become aware of any of the unassessed intelligence in the exhibit or the substance of any of the information distilled from it.245

30.196 Whilst some unassessed intelligence was made available to the Prime Minister's office and read by one of his advisers, it was rare for unassessed intelligence to be drawn directly to his attention. The Prime Minister estimated that he might be shown about 10 items of unassessed intelligence in a year, and those items tended to relate to active questions of national security or matters relating to particularly sensitive issues.246

30.197 Only one of the items in secret exhibit 4 was recorded as having been distributed to the Prime Minister's office. The Prime Minister assumed from his inquiries of staff in his office that this item was accessed by one of his advisers but not drawn to his attention.247

Conclusion: the Prime Minister

30.198 There is no basis for concluding that the Prime Minister knew or was made aware during the currency of the Oil-for-Food Programme that AWB was inflating its wheat prices to incorporate inland transportation fees, or other fees however described, or that AWB was paying money to Alia or otherwise indirectly to Iraq. I am satisfied, on the material before me, that the Prime Minister did not have that knowledge.

The Minister for Foreign Affairs

30.199 The evidence of the Minister for Foreign Affairs was that he did not know and was not any time aware during the period from about 1999 to 2003 of anything about any of the following matters:

" that the Iraqi Grain Board or the Iraqi Government had required AWB to pay money to Alia or any other Jordanian trucking company or

companies ostensibly in relation to inland trucking or transportation

" that money paid by AWB to Alia or any other Jordanian trucking

company was paid, whether advertently or inadvertently on the part of AWB, to the Iraqis

" that Alia had any formal or informal connection with the Iraqi

Government

90 Report of the Oil-for-Food Inquiry

" any requirement imposed by the Iraqi Government on participants in the Oil-for-Food Programme, whether generally or specifically in relation to AWB, to pay an'after-sales-service fee' of any kind.248

30.200 There is no basis for doubting Minister Downer's evidence.

30.201 There is no evidence to suggest that Minister Downer possessed any such information at any material time.

30.202 The Minister's primary source of information in relation to anything to do with the Oil-for-Food Programme was DFAT. I have already concluded that DFAT did not know any of the relevant information. It is difficult to see how, in those circumstances, the Minister could have been told or otherwise have come to know the information.

30.203 The main ways in which DFAT formally communicated with the Minister were by cable distributed to the Minister and in ministerial submissions or briefings. There is no evidence of any communication between any DFAT officer and the Minister concerning AWB's contracts under the Oil-for-Food Programme that is not recorded in either a cable or a ministerial submission.

Cables

30.204 The Minister was on the 'for information' distribution list for a number of the cables discussed that dealt with the Canadian complaint, Iraq's attempts to circumvent the sanctions regime, the Coalition Provisional Authority's contentions concerning contracts under the Programme and the US Wheat Associates allegations about AWB. It does not follow, however, that these cables were brought to the Minister's attention or that he read them.

30.205 The procedure in the Minister's office in relation to cables during the relevant period was that, whilst a large number of cables (estimated at up to 250) were received in the Minister's office each day, only a small fraction of them were brought to the Minister's attention. Most of the cables were delivered electronically and were read first by the Minister's advisers for the purpose of selecting those they judged to be sufficiently important, relevant or of interest

(from a policy perspective) to be shown to the Minister.249 The Minister would receive in hard copy and read only those cables selected by his advisers.250 He estimated that when he was in Canberra or his Adelaide office he received about 25 cables daily and that he received fewer when he was overseas.251 The Minister also received a daily summary of each cable that included him on the distribution list.252 No record was kept of the cables that were put before the Minister.

Report of the Oil-for-Food Inquiry 91

30.206 The Minister's evidence was that he rarely read the cable summaries, but did

read the cables that were provided to him.

Q: Mr Willox has given evidence that you received a daily summary of the cables.

Is that the current practice?

A: I receive it. I very seldom read it, but I receive it *I receive two. One is a

category A summary and the other is a category B summary. Category B are more highly classified cables than category A.

Q: Which are you more likely to read?

A: I don't read the summaries unless I have a good deal of time, I'm stuck on a

plane, I've run out of everything else to read, I might read the summaries. I [really do] 253 read the cables that are provided to me in the package * 20, 25, 30, it would depend on the day, it depends on the circumstances, it depends on what issues I'm dealing with.

Q: I don't want to take this entirely in a vacuum. You have a department and you have a ministerial office. Are there people within your department or within your office who are assigned the task of reading the cables?

A: Yes, of course. Action officers in the department read the cables that are

relevant to them, their particular sections, branches or divisions. People in my office are assigned different tasks. Somebody in my office, as I explained earlier, looks after the Middle East; somebody looks after Europe; somebody looks after international organisations, the United Nations; somebody looks after economic affairs, and so on.

Q: When you determine that you don't have the time to read the cable, or cables, on any particular day, do you make that determination in the expectation that others will have or would have or should have read the cables?

A: Oh, look, I know that relevant people in my office will have read the specific cables relevant to their areas of responsibility and that people in the department who are the action officers in relation to the cables will have read those cables.254

30.207 In relation to the cables dealing with the Canadian complaint and the US

Wheat Associates and Coalition Provisional Authority allegations, the Minister's chiefs of staff during the relevant period had no recollection of passing any of the relevant cables to the Minister, in accordance with the practice in the office.255 The Minister had no recollection of having any of the

cables provided to him or brought to his attention, including the 9 March 2001 cable authored by Ms Moules.256 In respect of most of the relevant cables, the Minister's evidence was that he did not consider the contents of the cables were likely to have been judged sufficiently urgent for the cables to have been shown to him and that he considered it unlikely for various reasons, including that he was on leave or overseas as at the date of the cable, that the cables were brought to his attention.

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30.208 The Minister was, however, aware in general terms of the content of some of the cables. In relation to the Canadian complaint, the Minister was 'aware in general terms that allegations had been made in relation to Australian wheat exports to Iraq, and that they were being addressed by the Department of Foreign Affairs and Trade'.257 He was also generally aware of the US Wheat Associates allegations.258

Ministerial submissions

30.209 No ministerial submission provided to the Foreign Minister conveyed to him that AWB had incorporated inland transportation fees in its contract prices and that it was paying those fees indirectly to Iraq, via Alia or otherwise. The first ministerial submission that referred to the fact that AWB had any dealings at all with a Jordanian trucking company was a Ministerial Submission dated 30 March 2004 from Mr Quinn, then head of the Iraq Task Force.259 That submission referred to the various investigations being conducted into the Oil-for-Food Programme, including the investigation to be established by the United Nations, and included the following passage relating to AWB:

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 has acted with propriety at all times in Iraq. The company concedes, however, that the Jordanian company handling the 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.

30.210 The Minister noted on the ministerial submission, 'This worries me. How were AWB prices set and who set them? I want to know about this'.

30.211 The Minister's notation plainly demonstrates that he was unaware of these matters at any time before he received the ministerial submission. On 16 June 2004 the Minister received a copy of a letter from the Managing Director of AWB dated 10 June 2004 that purported to be a 'formal advice' on AWB's position, although it did not provide any information about how AWB's prices were set and who set them.260 He never received a sufficient response to the query he noted on the ministerial submission:

Report of the Oil-for-Food Inquiry 93

Q: Can you offer any explanation as to how it came about that, even after the

receipt of this letter from AWB, the letter of June 2004, your request went

unanswered?

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, *ä 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.261 .

30.212 DFAT's response to the Minister's request for information about how AWB set its prices, which appears to have been to accept that AWB's denial of wrongdoing was a sufficient response, may have been inadequate. However, this circumstance does not provide the basis for any inference of knowledge on the part of the Minister. Indeed, the Minister's response plainly demonstrates that he did not know AWB was inflating its contract prices so as to allow it to make payments indirectly to the Iraqis.

Intelligence material

30.213 The only other potential source of information for the Minister was the intelligence from the Australian intelligence community. Only one of the documents within secret exhibit 4 was distributed to the Minister's office. The practice in the Minister's office in relation to intelligence was similar to the practice in relation to cables. Not all intelligence received in the Minister's office was shown to the Minister. The intelligence was first considered by one of the Minister's advisers and only shown to him if it was judged by the adviser to be sufficiently important. No record was kept of what intelligence reports were shown to the Minister.262 Unassessed intelligence was rarely brought to his attention.

Q: Does somebody in your office have responsibility for determining whether or not documents such as those * in other words, documents of a time [sic] similar to that in secret exhibit 4 *ought to be brought to your attention?

A: Yes, again, it's the individual advisers in the individual areas of responsibility. Crude intelligence, though, raw intelligence, doesn't very often come to me. It does occasionally, but it doesn't very often. The sort of intelligence that I get is assessed material, assessments.263

30.214 The Minister's evidence was that he had not previously seen any of the documents in secret exhibit 4 and he was not aware of the substance of those

94 Report of the Oil-for-Food Inquiry

documents. Nor was he aware of any of the unassessed intelligence distilled in exhibits 584 and 641.264

Conclusion: the Minister for Foreign Affairs

30.215 There is no basis for concluding that the Minister knew, or was made aware during the currency of the Oil-for-Food Programme that AWB was inflating its wheat prices to incorporate inland transportation fees, or any other fees however described, or that AWB was paying money to Alia or otherwise indirectly to Iraq. I am satisfied, on the material before me, that Minister Downer did not have that knowledge.

The Minister for Trade

30.216 The Minister for Trade was in a position very similar to that of the Minister for Foreign Affairs. Like the Minister for Foreign Affairs, the Minister for Trade's primary source of information in relation to anything to do with the Oil-for-Food Programme was cables and ministerial submissions from DFAT. As has already been concluded, DFAT did not itself know the relevant information about AWB's dealings with the Iraqis and Alia and therefore could not have communicated this information to the Minister.

30.217 The Minister for Trade's evidence was that he did not know the relevant information during the currency of the Oil-for-Food Programme:

At no time during the relevant period (1999-2003) did I know that the Iraqi Grains Board or the Iraqi Government had required AWB to pay money to a Jordanian trucking company or companies (including Alia for General Transportation *

'Alia') ostensibly in relation to inland trucking companies. I had no knowledge that AWB had any relationship with a Jordanian trucking company, or Alia

specifically, during the relevant period. I did not meet with any Iraqi Government or Iraqi Grains Board official during the relevant period. I have no recollection that any employee or agent of AWB ever discussed with me the detailed nature of AWB's arrangements to deliver wheat to Iraq.265

30.218 There is no basis for doubting Minister Vaile's evidence.

30.219 There is no evidence to suggest that Minister Vaile possessed any such information at any material time.

Cables

30.220 The Minister for Trade's evidence was that cables were not the principal means by which DFAT provided him with information or requested him to make decisions in his areas of responsibility. The principal means of transmitting advice and information to him was through the ministerial submission system.266 The Minister's understanding was that where a cable

Report of the Oil-for-Food Inquiry 95

recommended that some action or information be brought to his attention, DFAT would prepare a ministerial submission to transmit that information to him. He was aware that staff in his office would from time to time ask DFAT to prepare ministerial submissions as a result of them reading a cable.267 The Minister was, however, also given oral briefs in relation to information that his staff may have received and on occasion was provided with hard copies of cables.268

30.221 The procedures in place in the Minister for Trade's office in relation to the dissemination of cables were not significantly different from those in the Minister for Foreign Affairs' office. The Minister was not provided with copies of all cables that were received in his office because of the Minister's inclusion on the distribution list. The Minister's evidence was that where cables were specifically brought to his attention it was generally only 'due to the very specific nature of the cable relating to international travel arrangements or reports of media comments made in the international press by Trade Ministerial colleagues'.269 The general procedure was that cables received in the Minister's office were read by the Minister's advisers or liaison officers from DFAT or Austrade, for the purpose of them determining whether the cables were significant or required action by the Minister. If a cable was determined to be sufficiently important, the cable would then either be provided to the chief of staff, who would consider whether it was of sufficient significance to show to the Minister, or provided directly to the Minister.270 The procedure was slightly different when the Minister was overseas: generally the ambassador or mission staff in the country where the Minister was travelling would give the Minister and his staff hard copies of all cables that included the Minister on the distribution list.271 No record was kept of the cables that were drawn to the Minister's attention.272

30.222 The chiefs of staff in the Minister for Trade's office for most of the period during which the relevant cables were sent to the Minister's office had no recollection of receiving or reading the relevant cables, although the chief of staff for the period from March 2002 to February 2003 recalled that 'intelligence cables' relating to the Middle East and Iraq would have been shown to the Minister because 'these were important matters in the lead-up to the war'.273 The Minister had no recollection of receiving any of the relevant cables, although he was generally aware of the content or subject matter of a number of the cables. Specifically:

" In relation to the first Canadian complaint cable, the Minister was aware 'in a very general sense that concerns had been raised by the UN about an AWB contract and that the matter was being dealt with by DFAT and Australia's UN Mission in New York'.274 He presumed that he had been briefed by an adviser on the substance of the cable.275 He was not aware

96 Report of the Oil-for-Food Inquiry

that the allegation was that the wheat was being sold at an inflated price and that the supplier would pay a return on the value of the contract to a non-Iraqi bank account.276 The Minister was confident that DFAT would handle the issue appropriately 277, and his best recollection was that he was ultimately advised that the issue had been resolved to the satisfaction

of the United Nations.278

" The Minister was aware of the allegations that were made by US Wheat Associates from about June 2003. He was of the view that US Wheat Associates was a particularly aggressive competitor and detractor of the AWB and Australia's Single Desk marketing system and that aggressive complaints by the US were simply a means of deflecting criticism of the huge subsidies the US wheat industry received.279 The Minister's attitude, based on the information and advice provided by DFAT, was that there was no basis for the allegations.280

30.223 In relation to the 23 June 2003 cable that referred to the Coalition Provisional Authority contentions, the Minister had no recollection of ever being advised that concerns had been raised about contracts containing a 10 per cent kickback, either specifically against AWB or more generally for all Oil-for- Food contracts, and had never heard of Captain Puckett or his 10 June 2003 memorandum.281 He did not consider that he had direct ministerial responsibility for the Oil-for-Food Programme or the Coalition Provisional Authority, which may explain why this information was not specifically brought to his attention.282

Ministerial submissions

30.224 As was the case with the Minister for Foreign Affairs, the first ministerial submission to the Minister for Trade that referred to the fact that AWB had any dealings at all with a Jordanian trucking company was the ministerial submission dated 30 March 2004 from Mr Quinn.283 This was the first time the Minister became aware that AWB was using a Jordanian trucking company.284 The reference in the background portion of the submission to the fact that the trucking company may have paid kickbacks of its own volition created a concern for the Minister, but he believed AWB's denials and believed that this matter was best investigated by the UN inquiry:

A: When I read that and became aware of that, as you say, the concession by the company that the local transport company might, of its own volition, have paid kickbacks to the regime, it did create concern, but I recall also that over a period of time AWB had strenuously denied allegations and, again, on the front of this

ministerial submission the note was that AWB denies any involvement in direct payment of kickbacks. I still accepted that then, but took the view that the UN, given that that's what the submission was about, was about to conduct an inquiry and that that would be tested as part of that inquiry.285

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30.225 The first time the Minister became aware of Alia was from a DFAT ministerial submission dated 4 April 2005 that dealt with the Volcker Inquiry.286

Intelligence material

30.226 The Minister's recollection was that he had not previously seen any of the documents in secret exhibit 4 and that he was not previously aware of the substance or content of these documents or the distillation of secret exhibit 4 in exhibits 584 and 641.287

30.227 Only one of the items in secret exhibit 4 included the Minister for Trade on the distribution list. The Minister's inquiries with his staff indicated that a former departmental liaison officer from DFAT who was attached to his office may have been in receipt of that intelligence report and that officer may have made the decision not to show it to him288 because it was regarded as unimportant to his ministerial responsibilities.289

Conclusion: the Minister for Trade

30.228 There is no basis for concluding that the Minister for Trade knew, or was made aware during the currency of the Oil-for-Food Programme, that AWB was inflating its wheat prices to incorporate inland transportation fees, or other fees however described, or that AWB was paying money to Alia or otherwise indirectly to Iraq. I am satisfied, on the material before me, that Minister Vaile did not have that knowledge.

The Minister for Agriculture, Fisheries and Forestry

30.229 Between 20 July 1999 and 6 July 2005 the Minister for Agriculture, Fisheries and Forestry was the Hon. Warren Truss. The Minister's department had no responsibility for and played no part in the matters related to the Oil-for-Food Programme. The Minister for Agriculture was, however, the statutory recipient, pursuant to the Wheat Marketing Act 1989, of an annual confidential report from the Wheat Export Authority regarding the operation of the wheat pool. Those reports did not mention any matters relevant to this Inquiry.

30.230 Minister Truss was not called to give oral evidence because he played no material part in the Oil-for-Food Programme. However, on the last day of hearings, a letter dated 5 April 2000, addressed to the Iraqi Minister of Trade, signed by Mr Flugge and delivered to the Iraqi Minister of Trade became available and was tendered. It stated that subsequent to a meeting between Minister Saleh and Mr Flugge in October 1999 in Baghdad, Mr Flugge had undertaken to:

... pass your comments regarding Iraq/A ustralia trade to our Government in

Canberra and in particular to the Minister for Agriculture. This I have done and as

98 Report of the Oil-for-Food Inquiry

such my comments met with a very positive response from the Australian

Government.

As a consequence of my discussion with the Minister, the Australian Government in now undertaking an extensive review of policy in terms of Iraq and the region. Without wishing to prejudge the conclusions of this review I am confident that we will see recognition for the importance to Australian farmers of the relationship

between Iraq and Australia.

While in Baghdad I will ask AWB to discuss the recent communication from United Nations concerning trucking fees. As you are aware both the Canadian and American Governments have raised this issue with the United Nations. It is our intention to remain committed to the terms of trade agreed between IGB and

AWB. The Australian government equally supports this commitment to our trade.

30.231 Mr Flugge gave no evidence of discussions with Minister Truss or regarding the matters referred to in the passage quoted.

30.232 A statement was sought and obtained from Minister Truss and became exhibit 1425. Having considered the statement, neither Counsel Assisting nor Counsel for AWB or any individual sought to cross-examine Minister Truss.

30.233 The undisputed evidence of Minister Truss was thus:

6. During the period from 1999 until 2003 (the relevant period)

(a) I had no knowledge of Alia for General Transportation (Alia);

(b) I had no knowledge that AWB had at any time dealt with a Jordanian

trucking company or companies, whether Alia or otherwise; and

(c) I had no knowledge that the Iraqi Grains Board (IGB) or the Iraqi

Government had required AWB to pay money to any Jordanian trucking company or companies, including Alia, whether ostensibly in relation to inland trucking or transportation or otherwise.

7. During the relevant period I had no knowledge that the IGB or the Iraqi

Government had required AWB to pay money, directly or indirectly, to it, whether ostensibly in relation to inland trucking or transportation or

otherwise.

8. During the relevant period I had no knowledge that any of the money paid

by AWB to Alia or any other Jordanian trucking company was paid, whether advertently or inadvertently on the part of AWB, to the Iraqis.

9. During the relevant period I did not know anything about Alia, or any

connection, whether formal or informal, that it had with the Iraqi

Government.

10. During the relevant period I had no knowledge about any requirement

imposed by the Iraqi Government on participants in the Oil-for-Food

Programme, or specifically on AWB, to pay a 10% 'after sales service fee',

Report of the Oil-for-Food Inquiry 99

whether separately or as an adjunct to payments for inland trucking or

transportation.

11. No officer, employee or agent of AWB ever advised me that AWB had

directly or indirectly, (whether by Alia or any other method) made payments to Iraq during the relevant period. Every representative of AWB who spoke with me during the relevant period as to any allegations that money paid by AWB might have made its way to Iraq denied those allegations.

30.234 Minister Truss acknowledged he may have had discussions with AWB representatives about the wheat trade between Australia and Iraq. He said:

On several occasions Mr Flugge or other representatives of AWB discussed with me allegations that had been made by US Wheat Associates concerning the terms of Australia's wheat trade with Iraq. In this context there may also have been some discussions as to complaints or inquiries made by the United Nations or Canada. Every representative of AWB who spoke with me about these matters consistently denied that there was any substance in the allegations, complaints or inquiries. Their position was always to the effect that the allegations, complaints or inquiries had been made with the intention of prejudicing Australia's wheat trade with Iraq. I was informed that AWB had taken the same position in its

dealings with the Wheat Export Authority.

30.235 There is no basis for doubting Minister Truss' evidence.

30.236 There is no basis for concluding that the Minister knew, or was made aware during the currency of the Oil-for-Food Programme, that AWB was inflating its wheat prices to incorporate inland transportation fees, or any other fees however described, or that AWB was paying money to Alia or otherwise indirectly to Iraq. I am satisfied, on the material before me, that Minister Truss did not have that knowledge.

Conclusion and summary

30.237 I make the following findings in relation to the Commonwealth's knowledge of the relevant actions of AWB during the currency of the Oil-for-Food Programme.

30.238 First, there is no evidence that any of the relevant officers of DFAT *the delegates of the Minister for the purposes of the Customs (Prohibited Exports) Regulations or any of the officers who forwarded AWB wheat contracts and notification forms to the United Nations under the Programme * had actual knowledge that AWB had inflated its contract prices to incorporate inland transport fees, or any other fees however described, or that AWB paid fees to Iraq indirectly via Alia or any other transport company. AWB never advised DFAT of these matters, and there is no direct evidence that DFAT obtained the information from any other source.

100 Report of the Oil-for-Food Inquiry

30.239 Second, although DFAT received some information concerning allegations that AWB had engaged in such activities, these allegations were dismissed by DFAT as being unsupported by evidence and as being contrary to express denials by AWB. The allegations that DFAT became aware of included the Canadian complaint to the United Nations, allegations by US Wheat Associates and others in the United States, and a contention by the Coalition Provisional Authority that all Oil-for-Food Programme contracts had been inflated with a 10 per cent after-sales-service fee payable to the Iraqis. Such matters do not support an inference that DFAT deliberately turned a blind eye to the allegations because it already knew what any investigations would disclose.

30.240 Third, during the currency of the Oil-for-Food Programme the Australian Intelligence Community acquired intelligence about Iraq's manipulation of the Oil-for-Food Programme and Alia's involvement in that manipulation. However, the information provided in the unassessed intelligence reports in secret exhibit 4 was not regarded as being of sufficient importance to be the subject of a specific assessment report by the intelligence assessment agencies

(such as the Office of National Assessments) and did not specifically relate to AWB or its wheat sales to Iraq. The DFAT officers responsible for the Oil-for- Food Programme and the issuing of permissions to export did not read the relevant intelligence reports.

30.241 Fourth, there is no evidence that any of the Prime Minister, the Minister for Foreign Affairs, the Minister for Trade or the Minister for Agriculture, Fisheries and Forestry were ever informed about, or otherwise acquired knowledge of, the relevant activities of AWB. Nobody from AWB ever so advised any of them, and there is no evidence that they acquired this knowledge from any other source, via DFAT, the Australian intelligence community or otherwise.

30.242 It follows that, if charges relating to misleading or obtaining by deception benefits from the Commonwealth are potentially available against AWB or any of its officers * based on the allegation that AWB did not disclose to the Commonwealth anything about its payment of inland transportation fees indirectly to Iraq or its incorporation of such fees in its contract prices * there is no evidence supporting any possible defence that the Commonwealth was not misled or deceived because it already knew these matters.

Report of the Oil-for-Food Inquiry 101

Notes

1 Kassis v Katsantonis [1984] 3 NSWLR 330; R v Laverty [1970] 3 All ER 432; R v Royle [1971] 1 WLR1764; R v Kovacs [1974] 1 WLR 370; R v Davies [1982] 1 All ER 515; R v Perera [1907] VLR 240 at 244; R v Gulyas (1985) 2 NSWLR 260. 2 R v Laverty [1970] 3 All ER 432; R v Royl; R v Kovacs [1974] 1 WLR 370; R v Davies [1982] 1 All ER 515; R v Perera [1907] VLR 240 at 244; R v Gulyas (1985) 2 NSWLR 260; Kassis v Katsantonis [1984] 3 NSWLR 330. 3 Kassis v Katsantonis [1984] 3 NSWLR 330; R v Roebuck (1855) Dearsley & Bell 24; 169 ER 900; R v Mills (1857) Dearsley & Bell 207; 169 ER 978; R v Hensler (1870) 11 Cox CC 570. 4 R v Jessop (1858) Dearsley & Bell 442; 169 ER 1074; R v Woolley (1850) 1 Denison 559; 169 ER 372; R v Wickham (1839) 10 Adophus & Ellis 34; 113 ER 14. 5 The circumstance that a person ought reasonably to have known something is commonly referred to as 'constructive' knowledge. 6 R V Miller (1992) 95 Cr App R 744. 7 Some Notification forms were completed by AWB. Others were completed by DFAT on the basis of information or draft Notification forms provided by AWB: see Chapter 12. s Contract No. A4653 (Ex 1480, AWB.0058.0414_R); Contract No. A4654 (Ex 1481, AWB.0058.0415_R); Contract No. A4655 (Ex 1482, AWB.0044.0042_R); Contract No. A4822 (Ex 542, DFT.0006.0153). 9 Police v Carradine (1996) 66 SASR 584; R v Roziek [1996] 1 WLR 159; [1996] 1 Cr App R 260. 10 Western Australia v Watson [1990] WAR 248. 11 A few isolated Permissions to Export were also signed by Messrs Doran, Williams and Hennessy and Ms Birgin. 12 Notice to Produce No. 4 dated 1 December 2005. 13 See paragraph 34.55 below. 44 Ex 610, DFT.0013.0040. 15 Ex 601, DFT.0013.0019 at 0025, para. 13; see also Ex 542, DFT.0006.0038. is Ex 542, DFT.0006.0039; also Ex 88, AWB.0214.0001. 17 Ex 542, DFT.0007.0188 and DFT.0006.0176. is Ex 610, DFT.0013.0040; Ex 542, DFT.0006.0176. 49 Ex 542, DFT.0007.0210; DFT.0007.0222; DFT.0007.0224. 20 Ex 542, DFT.0007.0191; Ex 622, DFT.0013.0016. 21 Ex 330, AWB.0269.0002 at 0004; Ex 542, DFT.0007.0201 at 0203. 22 Ex 542, DFT.0008.0125. 23 Ex 542, DFT.0008.0143. 24 Ex 542, DFT.0008.0132. 23 Ex 506, DFT.0001.0459; Ex 507, AWB.0338.0141. 26 Ex 228, WST.0003.0001_R at 0001_R, para. 4. 27 Ex 230, WST.0007.0014JR at 0020_R - 0021_R, para. 33. 28 T 6098.13-17. 29 Ex 565, DFT.0013.0057, para. 4; T 4581.24-40; 30 Ex 565, DFT.0013.0057, paras 4-5. 31 T 2313.29 - T 2314.9 32 T i9i719_25 33 *Æ’ 1917.27-34.

34 T 1917.36-39. 35 *Æ’ 1917.12-25. 36 T 1917.41 - T 1918.8. 37 Ex 96, WST.0006.0001 at 0009-0010, para. 58. 38 T 1918.19-22. 39 Ex 121, MAE.0002.0091. 40 T 1921.17-43. 41T 1922.5-14. 42 Ex 122, AWB.0136.0524; see also Ex 122, AWB.0136.0526. 43 Ex 142, WST.0005.0001 at 0043, paras 155-157.

102 Report of the Oil-for-Food Inquiry

44 Ex 150, AWB.0069.0060; Ex 151, AWB.0069.0061; Ex 215, AWB.0069.0073_R - 0076_R.

45 Ex 149, AWB.0106.0092. 46 T 2034.6 - T 2035.3. 47 T 2031.17-33. 48 T 2035.5-14. 49 T 2040.34-43. so T 2040.42-43. si T 2040.24-29; T 2041.7-13. sz Ex 159, AWB.0106.0107 at 0108. 53 Ex 77, WST.0004.0003; T 2051.33 - T 2053.5. s* T 2091.29 - T 2092.5. 55 Ex 565, DFT.0013.0057 at 0058, para. 7. 56 Ex 701, DFT.0013.0599, para. 5; Ex 702, DFT.0013.0702_R at 0703JR, para. 14. 57 Ex 124, DFT.0001.0438 and DFT.0001.0439JR-0441JR. 58 Ex 565, DFT.0013.0057 at 0058, para. 8. 59 Mr McConville's evidence was that it was likely that he would have spoken with Mr Officer or Mr Emons, though he had no recollection of doing so: T 3785.16-44; T 3788.1. Mr Officer had no recollection of discussing the Canadian complaint with Mr McConville: T 6072.7. Mr Emon's evidence was that he had no knowledge of the Canadian complaint until the March 2000 meeting with Mr Nicholas: T 1918.15-17. 60 Ex 142, WST.0005.0001 at 0026, para. 88; T 2614.36-39. 61 T 2049.6-27; Ex 197, AWB.5010.0037-38. 62 Ex 159, AWB.0106.0107. 63 T 2053.1 - 2054.9; T 2293.43 - T 2294.28. 64 Ex 581, AWB.0106.0110-0111. 65 Ex 297, AWB.0173.0261 (unsigned); Ex 581, AWB.0106.0110-0111 (signed). 66 Ex 578, DFT.0013.0157_R at 0158_R, para. 13. 67 Ex 582, DFT.0001.0013. 68 Ex 579, DFT.0013.0176JR at 0177_R, para. 9. 69 Ex 582, DFT.0001.0013. 70 T 2304.2 -13. Compare Ex 1337, AWB.9001.0212 at 0217, para. 7.5. 71 T 2303.43 - 45. 72 T 2631.45-46. 73 T 2091.29-T 2092.5. 74 Ex 579, DFT.0013.0176JR, para. 7. 75 T 4813.44-4814.2. 76 Ex 588, DFT.0013.0140JR at 0142_R, para. 12. 77 T 4769.7-12.

78 T 4769.19 - 35. 79 T 2296.35 - 39. 8∞ Ex 198, WST.0001.0137 at 0145-0146, para. 30. 81 T 2296.37-39. 82 Ex 579, DFT.0013.0176_R at 0178JR, para. 14. S3 Ex 1337, AWB.9001.0212 at 0217, para. 7.5. 84 T 2300.37 - T 2301.43. 85 T 2301.32-T 2302.23. 86 T 3387.22-25. 87 T 3389.34-40. 88 Ex 685, AWB.0393.0003 at 0004. 89 Ex 767, WST.0038.0171 at 0172, para. 8. 90 T 6516.30 - 34. 91 T 6517.20 - 23. 92 Ex 784, WST.0038.0169, para. 3. 93 Ex 784, WST.0038.0169, paras 3 and 4. 94 Ex 784, WST.0038.0169, para. 4.

Report of the Oil-for-Food Inquiry 103

95 Ex 784, WST.0038.0169, para. 5. 96 T 6340.35 - T 6341.2. 97 Ex 600, DFT.0013.0003 at 0006, para. 21. 98 Ex 600, DFT.0013.0003 at 0006-0007, para. 26. " T 4861.28-31. ifª Ex 542, DFT.0007.0191, DFT.0007.0210; Ex 506, DFT.0001.0459; Ex 845, DFT.0026.0083; Ex 507, AWB.0338.0141. 101 Ex 542, DFT.0036.0013JR, DFT.0008.0125; DFT.0006.0125; Ex 771, DFT.0028.0114; Ex 845, DFT.0026.0163. 102 Ex 763, DFT.0028.0113; Ex 771, DFT.0028.0002 at 0012, para. 48; Ex 510, DFT.0008.0063; T 6410 - T 6415. loo Ex 845, DFT.0026.0163. *Ø*ø* Ex 845, DFT.0026.0163, para. 2. 105 Ex 764, DFT.0027.0002; Ex 931, DFT.0033.0008; Ex 771, DFT.0028.0002, DFT.0028.0014-0156, GOV.0003.0018-0021; Ex 841A, DFT.0033.0102_R, DFT.0036.0027_R, DFT.0036.0029_R; Ex 775, PMC.0003.0001, PMC.0003.0008-0083, PMC.0003.0097-0317; Ex 856, DFT.0033.0041; T 6433 - T 6458; T 6529 - T 6599; T 6632 - T 6647. 106 pereira v DPP (1989) 82 ALR 217. 107 T 6762.11-15. 108 Ex 965, WST.0032.0001_R at 0005JR, para. 28. 109 *Æ’ 6762.4-9.

no Ex 546, UNO.0006.0030; Ex 547, UN0.0006.0037. in T 6735.19-32. 112 T 6762.34-44.

113 Ex 543, DFT.0013.0622 at 0625, para. 9(b). 114 T 5781.13-16. ns Ex 701, DFT.0013.0600. n6 T 6736.34-37. 117 *Æ’ 6736.39-T 6737.3

ns Ex 878, DAF.0002.0095. no Ex 877, DFT.0033.0097_R at 0098_R, para. 7. 120 Ex 394, DFT.0001.0193 at 0194. 121 Secret Exhibits 1, 2 and 3. 122 TRH Cole AO RFD QC, Reasons by Commissioner (14/03/2006). 123 Ex 641, GOV.0003.0018.

124 Ex 573, GOV.0002.0037 and GOV.0002.0047; Ex 583, GOV.0002.0068; Ex 642, GOV.0003.0024. These statutory declarations were adopted by the Director-General of the Office of National Assessments: T 6421.40 - T 6422.2.

125 Ex 757, DFT.0013.0663JR. 126 Ex 573, GOV.0002.0037 at 0040, para. 18. 127 Ex 757, DFT.0013.0663JR at 0664JR, para. 6; T 6379.38 - T 6380.45. 128 Ex 583, GOV.0002.0068 at 0070, para. 12. 129 Ex 583, GOV.0002.0068 at 0070, para. 13. ´*ø Ex 573, GOV.0002.0037 at 0042, para. 23. 131 Ex 573, GOV.0002.0037 at 0041, para. 20; Ex 757, DFT.0013.0663JR at 0064JR, para. 5. 132 T 6383.4-9. 133 Ex 757, DFT.0013.0663JR at 0671JR, paras 30-31. 134 Ex 573, GOV.0002.0037 at 0041, para. 21; Ex 757, DFT.0013.0663JR at 0672JR, para. 32.

135 Ex 573, GOV.0002.0037 at 0041-0042, para. 22. 136 Ex 573, GOV.0002.0037 at 0042, para. 24. 137 Ex 573, GOV.0002.0037 at 0043, para. 26; T 6397.35 - T 6398.25. 138 Ex 573, GOV.0002.0037 at 0043, para. 28. 139 Ex 642, GOV.0003.0024 at 0027 para. 17.

104 Report of the Oil-for-Food Inquiry

140 Ex 642, GOV.0003.0024 at 0027-0028, para. 18.

*º Ex 757, DFT.0013.0663 at 0665 para. 9; T 6382,5-8; T 6383.11-31.

142 T 6370.41 - T 6371.22. 143 T 6371.24-34. 144 T 6372.26 - T 6373.46; Ex 757, DFT.0013.0663_R at 0666_R, para. 11. 145 T 6374.40-44; Ex 757, DFT.0013.0663_R at 0671_R, para. 28; see, for example, Ex 645, GOV.0003.0041 and Ex 646, GOV.0003.0042. 146 T 6374.46 - T 6375.10; Ex 757, DFT.0013.0663_R at 0667_R, para. 14. 147 T 6375.12-27. 148 T 6375.29 - T 6376.29; Ex 757, DFT.0013.0663_R at 0667_R, paras 15-16. 149 T 6376.31-45. iso T 6376.47 - T 6377.18. 151 T 6377.20-31. 152 T 6377 - 6379. 153 T 6378.26-30; T 6379.5-10. is* T 6395.2-6. 155 T 6378.37-44; T 6394.36-47. 156 T 6379.12-25. 157 x 4822.2-9; T 4611 - T 4613. 158 T 4667 - T 4673; T 4780 - T 4781. 159 x 4822.7-9; T 4611 - T 4613; T 4667 - T 4673; T 4780 - T 4781. 160 Ex 641, GOV.0003.0018 at 0020-0021, para. 8. 161 Ex 1400, AWB.0264.0001JR. 162 Ex 1410, AWB.0177.0013_R. 163 Ex 1447, AWB.0267.0262JR, AWB.0267.0257. 164 Ex 1508, WEA.0001.0114JR; Ex 470, AWB.5024.0344JR. 165 Ex 472, SHE.0001.0004; Ex 474, WEA.0001.0067. 166 Australian Trade Commission Act 1985, section 8. 167 Ex 989, DFT.0037.0052 at 0052, para. 2.

168 Ex 989, DFT.0037.0052 at 0053, para. 10. 169 Ex 989, DFT.0037.0052 at 0054, para. 12. 170 Ex 989, DFT.0037.0052 at 0056, paras 18-19. 171 Ex 989, DFT.0037.0052 at 0057, para. 21. 172 Ex 989, DFT.0037.0052 at 0057-0058, para. 25. 173 Ex 989, DFT.0037.0052 at 0059-0060, paras 30-32. 174 Ex 542, DFT.0006.0026. 175 Ex 890, DFT.0025.0049. 176 Ex 936, DFT.0013.0554 at 0561, para. 27. 177 Ex 542, DFT.0007.0188. 178 Ex 600, DFT.0013.0003 at 0004, para. 9; Ex 936, DFT.0013.0554 at 0559, para. 21. I7ª Ex 600, DFT.0013.0003 at 0004, para. 9; Ex 936, DFT.0013.0554 at 0559, para. 21. 180 Ex 636, DFT.0021.0001 at 0020-0022.

181 Ex 636, DFT.0021.0001 at 0023-0025. 182 Ex 771, DFT.0028.0049. 183 Ex 636, DFT.0021.0001 at 0035-0037.

is* Ex 771, DFT.0028.0053. 185 Ex 815, DFT.0021.0040. 186 Ex 542, DFT.0006.0176. 187 Ex 771, DFT.0028.0062. 188 Ex 845, DFT.0023.0060 at 0061-0062, paras 7-14. isª Ex 845, DFT.0023.0060 at 0064, para. 23. I * Ex 845, DFT.0023.0060 at 0063 para. 18. m Ex 845, DFT.0023.0060 at 0063, para. 19-20. i92 Ex 845, DFT.0023.0060 at 0060 para. 5.

Report of the Oil-for-Food Inquiry 105

193 Ex 815, DFT.0023.0004 at 0005, para. 7. 194 Ex 609, DFT.0013.0038. 195 *« 4 9 5 2 .2 9 - T 4953.25. 196 T 4949.45 -T 4950.13. 197 Ex 601, DFT.0013.0019 at 0023-0025, paras 9-12. 198 Ex 771, DFT.0028.0047. 199 Ex 542, DFT.0006.0031. zoo *Æ’ 4956.29-43. 201 x 4954.38-45. 202 X 4954.47 -T 4955.42. 203 Ex 601, DFT.0013.0019 at 0023 para. 10. 204 X 4950.2-3. 205 x 4 9 4 9.6-8 . 206 Ex 601, DFT.0013.0019 at 0022 para. 7(h).

207 Ex 600, DFT.0013.0003, paras 13,15,17,21, 23. 208 Ex 601, DFT.0013.0019 at 0026, para. 16.

209 Ex 862, GOV.0001.0008 at 0009 paras 4-7. 210 Ex 862, GOV.0001.0008 at 0010, para. 8. 211 Ex 862, GOV.0001.0008 at 0010, para. 8. 212 Ex 862, GOV.0001.0008 at 0011-0012, para. 12. 213 Ex 862, GOV.0001.0008 at 0012, para. 14; Ex 934, DFT.0023.0298 at 0299, para. 4. 214 Ex 934, DFT.0023.0298 at 0300, para. 11. 215 Ex 862, GOV.0001.0008 at 0013, para. 18; GOV.0001.0024. 216 Ex 862, GOV.0001.0008 at 0013, para. 18; Ex 934, DFT.0023.0298 at 0301-0302, para. 14. 217 Ex 934, DFT.0023.0298 at 0302-3 para. 18. 218 Ex 862, GOV.0001.0008 at 0013, para. 18. 219 Ex 862, GOV.0001.0008 at 0015-0016, para. 24; Ex 892, DFT.0023.0195 at 0197, para. 9; Ex 834, DFT.0023.0183 at 0185, para. 20; Ex 828, AGD.0003.0002 at 0004, paras 16-17. 220 x 4754.26 - T 4755.9. 221 X 4756.8-28. 222 X 4780.44 - T 4781.15.

223 X 4782.3-10.

224 X 4757.17-23.

225X4580.24-34. 226 X 4584.35-42.

227X6738.5-8. 228 X 6640.8-15. 229 x 6535.32-39.

230 X 6448.46 - T 6449.20. 231 X 4591.25-39. 232 X 4623.13-21; T 4940.3-8.

233X4591.22-39. 234 X 4940.15 -T 4941.1. 235 Ex 775, PMC.0003.0001 at 0004-0005, para. 21. 236 X 6635.25-38. 237 Ex 894, DFT.0013.0543 at 0543-0545, para. 5. 238 Ex 775, PMC.0003.0001 at 0001-0002, para. 5; Ex 894, DFT.0013.0543 at 0543-0545, para. 5; Ex 858, GOV.OOOl.OOOl at 0001-0002, paras 3-9; Ex 932, GOV.0001.0005 at 0005, para. 5.

239 Ex 775, PMC.0003.0001 at 0001-0002, para. 5; Ex 894, DFT.0013.0543-0545, para. 5; Ex 858, GOV.OOOl.OOOl at 0001-0002, paras 3-9; Ex 932, GOV.0001.0005 at 0005, para. 5. 240 T 6639.5-16. 241 Ex 775, PMC.0003.0001 at 0003, para. 9; T 6638.46 - T 6639.42. 242 T 6639.44-T 6640.6. 243 T 6640.8-15.

106 Report of the Oil-for-Food Inquiry

244 *« 6640.21-34. 245 Ex 775, PMC.0003.0001 at 0004, para. 18.

246 *« 6643.36-44. 247 *Æ’ 6643.13-17. 248 Ex 771, DFT.0028.0002 at 0008-0009, para. 34. 249 Ex 771, DFT.0028.0002 at 0002, para. 3; Ex 758, DFT.0013.0578 at 0578-0579, para. 4; Ex 945, DFT.0013.0590

at 0590-0592, paras 3-7; Ex 912, DFT.0013.0583, para. 4. 250 Ex 771, DFT.0028.0002 at 0002, para. 3(d). 251 Ex 771, DFT.0028.0002 at 0003, paras 4-5. 252 Ex 758, DFT.0013.0578, para. 4(c); T 6401.21 - T 6403.37; Ex 945, DFT.0013.0590 at 0590-0591, para. 4. 253 T 6566.44-6567.6. 254 T 6564.2-38. 'Rarely' was corrected to 'really' T 6566.44-6567.6. 255 Ex 758, DFT.0013.0578, paras 2-3; Ex 945, DFT.0013.0590 at 0593, para. 10; Ex 912, DFT.0013.0583 at 0584≠

0586, paras 9-11. 256 Ex 841 A, DFT.0033.0102JR, para. 4. 257 Ex 771, DFT.0028.0002 at 0003, para. 8. 258 Ex 771, DFT.0028.0002 at 0006-0007, paras 23-25. 259 Ex 542 and 619, DFT.0007.0148. 260 Ex 85, EXH.0001.0087; also Ex 542, DFT.0007.0090 at 0091; Ex 622, DFT.0013.0016. 261 T 6562.37 - T 6563.5. 262 *Æ’ 6565.33-45. 263 T 6565.47-T 6566.9. 264 Ex 771, DFT.0028.0002 at 0008, para. 31. 265 Ex 764, DFT.0027.0002 at 0009, para. 11. 266 Ex 764, DFT.0027.0002 at 0003, paras 5-6. 267 Ex 764, DFT.0027.0002 at 0003, para. 6. 268 *Æ’ 6435.41 - T 6436.13. 269 Ex 764, DFT.0027.0002 at 0003, para. 6; T 6436.9-13. 270 Ex 812, GOV.0002.0004_R at 0004_R-0005_R, paras 7-12; Ex 857, GOV.0002.0030_R at 0031_R, paras 7-9. 271 Ex 812, GOV.0002.0004_R at 0006_R, para. 17. 272 Ex 812, GOV.0002.0004_R at 0005_R~0006_R, para. 14; Ex 857, GOV.0002.0030_R at 0032_R, para. 13.

273 Ex 812, GOV.0002.0004_R at 0007_R, para. 18. 274 Ex 764, DFT.0027.0002 at 0004, para. 7a. 275 T 6436.21-37. 276 T 6437.23-33. 277 Ex 764, DFT.0027.0002 at 0004, para. 7a. 278 T 6439.20-30. 279 Ex 764, DFT.0027.0002 at 0005-0007, paras 71. and 7p. 280 Ex 764, DFT.0027.0002 at 0007, para. 7p; T 6443.3-21. 281 Ex 764, DFT.0027.0002 at 0006, para. 7n. 282 T 6445.18-23; T 6446.18-41. 283 Ex 542 and 619, DFT.0007.0148. 284 Ex 764, DFT.0027.0002 at 0009, para. 12. 285 T 6449.10-20. 286 Ex 764, DFT.0027.0002 at 0009-0010, para. 13. 287 Ex 764, DFT.0027.0002 at 0008, para. 8. 288 *Æ’ 6447.32-41. 289 Ex 764, DFT.0027.0002 at 0008, para. 9.

Report of the Oil-for-Food Inquiry 107

31 Findings: AWB and associated persons

31.1 Counsel Assisting have submitted that the findings I have made of factual circumstances should be considered against certain Commonwealth, State and Territory legislation in order to determine whether there might have been the commission of an offence. Appendix 26 is an analysis prepared by Counsel Assisting of possibly applicable laws required to be considered. I first address

those statutes which in my view have no application.

Offences involving bribery or secret commissions

" Division 70 Criminal Code: Bribery of Foreign Officials

" Section 176 (2) of the Crimes Act 1958 (Vic)

For the reasons advanced in Appendix 26, these offences have no application to the facts as found.

Offences involving money laundering

" Confiscation Act 1997 (Vic) s. 122 and s. 123 prior to 1 January 2004

" Crimes Act 1958 (Vic) s. 194 and s. 195 after 1 January 2004

31.2 If AWB dishonestly obtained a financial advantage contrary to s. 82 of the

Crimes Act 1958 (Vic) for itself or Tigris in recovering from the United Nations escrow account the Tigris debt, the question arises whether it might have committed an offence against s. 194 or 195 of the Crimes Act 1958 (Vic) after 1 January 2004, or s. 122 or s. 123 of the Confiscation Act 1997 (Vic) prior to that

date.

31.3 Each offence requires either that the person knew that the property being

dealt with was the proceeds of crime or was reckless as to whether or not it was the proceeds of crime.

31.4 There is no evidence that AWB or its officers knew that the recovered funds were the proceeds of crime. AWB and its officers sought advice regarding whether it was legally entitled to pay such monies to Tigris. Seeking such

Report of the Oil-for-Food Inquiry 109

advice, as distinct from the quality or advice itself, negates any concept of recklessness or negligence in AWB or its officers regarding whether such funds were the proceeds of crime.

31.5 Accordingly I am satisfied that there is no basis for any finding that AWB might have breached s. 194 or s. 195 of the Crimes Act 1958 (Vic), or s. 122 or s. 123 of the Confiscation Act 1997 (Vic). Nor am I satisfied, in the light of my finding that there is insufficient evidence that AWB knew or was reckless or negligent about whether the money was the proceeds of crime, that this is a matter that it would be appropriate to refer to appropriate authorities for consideration of whether proceedings should be instituted.

31.6 Regarding Tigris and its officers, there is no evidence before me sufficient to establish the mental element of any breach of s. 194 or 195 Crimes Act 1958 (Vic) or s. 122 or s. 123 Confiscation Act 1997 (Vic).

Offences relating to terrorism

31.7 The Member for Mitcham in the Parliament of Victoria, Mr Robinson MP, by letter dated 31 January 2006 sought that the Inquiry consider whether the material before the Inquiry might constitute a breach by AWB of the provisions of Part 5.3 of the Criminal Code relating to terrorism. Counsel Assisting placed available relevant material before me and advanced submissions on the issue.

31.8 It was submitted the material before me was not sufficient to support an allegation that AWB might have committed an offence against s. 102.6 of funding a terrorist organisation.1 I agree with that submission. The reasons why that is so are set out in Appendix 26.

31.9 However, Counsel Assisting submitted that the material before me was sufficient to support a finding that AWB might have committed an offence against s. 103.1 of the Criminal Code, namely, that AWB intentionally provided funds to Iraq and was reckless as to whether the funds would be used to facilitate or engage in a terrorist act.

31.10 Section 103.1 as it stood between 6 July 2002 and 29 May 2003 provided:

(1) A person commits an offence if:

(a) the person provides or collects funds

(b) the person is reckless as to whether the funds will be used to facilitate or engage in a terrorist act.

110 Report of the Oil-for-Food Inquiry

31.11 AWB submitted that the material before me was insufficient to support a finding that there might have been the commission of such an offence, or any basis upon which any such offence should be referred to a relevant agency. It submitted:

(a) there was inadequate evidence on which to do so

(b) the trucking fees and after-sales-service fees were in the nature of an excise or tax imposed by a sovereign government as a fee due upon the importation of goods and thus such payment could not be characterised as funds 'provided' under s. 103.12

(c) the Iraqi Government did not fall within the statutory definition of 'terrorist organisation'3

(d) no 'terrorist act' with which the payment must be connected, had been identified. Amendments to s. 103 made in 2005 meant a prosecutor must identify the 'terrorist act'.4

(e) the evidence at best established that some portion of the funds paid by AWB to Iraq were paid to the 'Ministry of Finance', or the Iraqi

consolidated revenue. The evidence did not establish how that Ministry used such funds.5

31.12 The evidence before me does establish that AWB paid money indirectly to the Government of Iraq through one of its instrumentalities. It also establishes that it intended to make those payments to Iraq. It establishes that the payments were made because they were regarded as necessary if AWB was to retain its market in Iraq.

31.13 There is evidence before the Inquiry from which a tribunal of fact might find that the acts of the Iraqi Government prior to 2002 might fall within the definition of 'terrorist act' as that expression was defined in the legislation commencing on 6 July 2002 and thereafter. It would be for a tribunal of fact to determine what inferences, if any, should be drawn from that circumstance regarding the possibility or probability of the government of Iraq again engaging in such acts, in so far as such inferences of fact might be regarded as relevant.

31.14 The evidence before me does not establish that AWB gave any consideration to: (i)

(i) the use to which payments made to Iraq might be put

Report of the Oil-for-Food Inquiry 111

(ii) whether funds paid to Iraq might be used for purposes which might fall within the meaning of 'terrorist act'

(iii) the character, nature or objectives of the former Iraqi Government

(iv) whether the former Iraqi regime might be regarded as a 'terrorist organisation'

(v) reasons why payments to Iraq were prohibited, or reasons for the United Nations sanctions.

31.15 The terms of s. 103.1 are extremely wide. The section does not restrict its scope by specifying any characteristic that the person to whom funds are provided must have to attract the operation of the section. It need not be a terrorist organisation as defined. Reading paragraphs (a) and (b) together seems to import some unspecified relationship between the provision of funds and a terrorist act, and require a finding of recklessness on the part of the provider of funds in relation to the possible or probable use of the provided funds to attract the section. That a mental element of intention is required is clear because of s. 5.2(1) of the Code, but the extent to which the intention to make the payment is to be judged against the background of an unspecified relationship between the making of the payment and the terrorist act is not so clear.

31.16 Section 5.4(2) of the Code provides:

(2) A persons is reckless with respect to a result if:

(a) he or she is aware of a substantial risk that the result will occur

and

(b) having regard to the circumstances known to him or her, it is unjustifiable to take the risk.

The 'result' contemplated in s. 103.1 is that funds provided might be used to facilitate or engage in a terrorist act.

31.17 There is no direct evidence before me that AWB was aware of any risk, let alone a substantial risk, that the funds it provided to Iraq might be so used. Nor am I prepared to draw any inference that AWB was aware of a risk on the basis of the material before me relating to the public notoriety of acts of the Iraqi Government prior to 2002. It is to be noted that s. 5.2(a) refers to the person being 'aware'; it does not refer to 'ought reasonably to have been aware'.

112 Report of the Oil-for-Food Inquiry

There being no evidence that AWB was aware of a substantial risk that funds it provided to Iraq might be used to facilitate or engage in a terrorist act, no question can arise whether it was unjustifiable for AWB to take such risk.

31.18 Accordingly, the material before me does not support a finding that AWB might have breached s. 103.1 of the Criminal Code.

Offences under the Banking (Foreign Exchange) Regulations

31.19 I addressed these regulations in Chapter 2. For the reasons there given, the only regulation having any possible application is Regulation 5 as in force prior to 10 March 2002. Reference may also be made to the discussion in Appendix 26.

The Customs (Prohibited Exports) Regulations

31.20 I addressed these regulations in Chapter 2. For the reasons given in Appendix 26 no question of any breach of these regulations arise.

The Corporations Act

31.21 Counsel Assisting contended that ss. 180,181,182 and 184 of the Corporations Act 2001, concerning the duties of directors and officers of a corporation, and ss. 1307 and 1309 might be applicable. Those sections are addressed in Appendix 26.

31.22 I am of the view that s. 1307 has no application to the Tigris agreement, the only document said to have been falsified contrary to the section.

Section 1307 of the Corporations Act

31.23 Counsel Assisting have submitted that various persons might have committed an offence against s. 1307 of the Corporations Act 2001, in that the agreement referred to as the Tigris agreement does not truthfully record the actual agreement between AWB and Tigris Petroleum Limited, and thus there has been a falsification of a 'book effecting or relating to affairs of the company'.

31.24 'Books' are defined, subject to contrary intention, in the dictionary found in section 9 of the Act to include:

(a) a register; and

Report of the Oil-for-Food Inquiry 113

(b) any other record of information;

(c) financial reports or financial records, however compiled, recorded or stored; and

(d) a document;

but does not include an index or recording made under Subdivision D of Division 5 of Part 6.5

Clearly enough the Tigris agreement is a document within that definition.

31.25 Section 1307 appears in Chapter 9 of the Act addressing miscellaneous matters. Part 9.3 addresses books. It contains eight sections being sections 1300 to 1307 inclusive. In my view it is apparent from a consideration of those sections that the 'books' referred to in those sections are books which are required to be kept under the provisions of the Corporations Act 2001. That appears from a consideration of s. 1300 (1) which addresses inspection of books that are 'by this Act required to be available for inspection'; s. 1301 (1) which permits the location on computers of 'matters this Act requires to be contained in a book'; s. 1302 (1) which addresses the location of registers 'required by section 271 to be kept by a company'; s. 1305 (1) which addresses admissibility of books in evidence kept by a body corporate 'under a requirement of this Act'; and s. 1306 (1) which addresses the form and evidentiary value of books 'required by this Act to be kept or prepared'. It is falsification of such books to which section 1307 refers.

31.26 The Tigris agreement is not a document which AWB is required to maintain under any provision of the Corporations Act 2001. Accordingly, in my view, section 1307 has no application to that agreement.

Corporate responsibility

31.27 There remains to consider whether AWB, Rhine Ruhr, Alkaloids of Australia, BHP, Tigris or persons or companies associated with them might have committed offences of the following categories;

" offences involving deception, false statements and dishonesty

- Crimes Act 1914 ss 29D, 29A, 29B prior to 24 May 2001

- Criminal Code ss 135.1(7) and 136

- Crimes Act 1958 (Vic) s. 82.

114 Report of the Oil-for-Food Inquiry

It is also necessary to consider whether any officers or employees of AWB might have committed offences against ss 184 and 1309 of the Corporations Act 2001, or civil contraventions of ss 180,181 and 182 of the Corporations Act 2001.

Findings in relation to Alkaloids of Australia and Rhine Ruhr are dealt with in Chapters 32 and 33 respectively.

31.28 AWB did not deny its corporate criminal responsibility for the acts of its

executives. Nor did it address the acts or culpability of its officers as addressed in submissions of Counsel Assisting. Indeed it made no submissions of substance on the facts and evidence which emerged during the Inquiry. It reserved its position simply stating:

In parts E to K we respond to the allegations that AWB was in breach of

Australian laws. In so doing we will refrain from addressing the culpability of officers and employees even though in many instances Counsel Assisting have submitted that the companies are primarily liable for their conduct. This is not to say that should the need arise in the future, in a different context, the companies will not contend that there are circumstances which negate any primary liability.6

31.29 I have considered the matter of corporate responsibility in accordance with

the principles enunciated in Appendix 26.

31.30 During the period July 1999 to March 2003, AWB lodged twenty Notification

forms and contracts with DFAT as follows:

(a) contracts A4653, A4654 and A4655 lodged with DFAT on 3 August 1999

(b) contract A4822 lodged with DFAT on 29 October 1999

(c) contracts A4970, A4971 and A4972 lodged with DFAT on 2 February 2000

(d) contracts A0265, A0266 and A0267 lodged with DFAT on 14 August 2000

(e) contract A0430 lodged with DFAT on 2 November 2000

(f) contracts A0552 and A0553 lodged with DFAT on 27 February 2001

(g) contracts A0784 and A0785 lodged with DFAT on 27 June 2001

(h) contracts A llll and A1112 lodged with DFAT on 22 January 2002

(i) contract A1441 lodged with DFAT on 24 July 2002

0) contracts A1670 and A1680 lodged with DFAT on 23 December 2002.

31.31 DFAT certified all of the Notification forms relating to these contracts and

submitted the forms and the copy contracts provided to it by AWB to the United Nations. All of the contracts were approved for payment from the

Report of the Oil-for-Food Inquiry 115

escrow account by the United Nations 661 Committee. In due course, permission was given by delegates of the Minister for Foreign Affairs to export the wheat the subject of these contracts.

31.32 Throughout the period during which DFAT considered contracts sent to it by

AWB, liaised with the United Nations in relation to those contracts and caused permissions to export to be issued, AWB concealed from DFAT, and ultimately the United Nations, material information concerning the arrangements it had with IGB in relation to the sale and export of the wheat the subject of these contracts. In general terms, the material information that AWB concealed was that the arrangements it had with IGB were materially

different from the contractual terms that were disclosed in the Notification forms and contracts that it lodged with DFAT. The arrangements not clearly and accurately disclosed (in the case of the first four contracts) or disclosed at all (in the case of all later contracts) included that AWB had agreed to pay substantial fees in United States dollars (and later in deutschmarks or Euros) to Iraq or an Iraqi entity, ostensibly in relation to the discharge and transportation of the wheat in Iraq, that the amount of the fees to be paid by AWB was added to the contract price, and therefore would ultimately be paid out of the United Nations controlled escrow account. The extent of the differences between the disclosed and non-disclosed arrangements, and the amount of the fees that AWB agreed to, and did, pay to Iraq, differed between the various contracts. The first four contracts (A4653, A4654, A4655 and A4822) contained a clause referring to the payment of a 'discharge cost' to 'Maritime Agents in Iraq', but this did not clearly and accurately record the actual arrangements. In relation to contracts A1670 and A1680, the arrangements concealed from DFAT and the United Nations also included: first, that the contract price had been inflated, with the agreement of IGB, to facilitate the repayment of a debt supposedly owed by IGB to Tigris; and second, that AWB and IGB had entered into a collateral arrangement relating to the payment of compensation to IGB for alleged contamination of earlier shipments contrary to the UN sanctions in a way designed to circumvent the sanctions.

31.33 The concealment by AWB of this material information from DFAT and the

United Nations was intentional and dishonest. It was known by senior officers of AWB who had actual or de facto responsibility for AWB's trade with Iraq and whose knowledge and intentions accordingly can and should be attributed to AWB. Senior officers of AWB knew that AWB's arrangements included the making of substantial payments indirectly to Iraq and that, with the exception of contracts A4653, A4654, A4655 and A4822 the Notification

forms and contractual documents made no reference to the arrangements in relation to these payments. Although contracts A4653, A4654, A4655 and

116 Report of the Oil-for-Food Inquiry

A4822 did include a clause referring to payment of a 'discharge cost', this clause did not fully or accurately reveal the actual arrangements between AWB and IGB in relation to the payments. Senior officers of AWB also knew about the inflation of the contract price in contracts A1670 and A1680 for the purpose of recovering the Tigris debt, and the collateral arrangements relating to the payment of compensation to IGB, and that the documents submitted to DFAT did not reveal these matters.

31.34 At no time did anyone at AWB ever disclose this material information to DFAT. Nor did DFAT or relevant Ministers of the Commonwealth discover the information from any other source during the period that the Oil-for-Food Programme was on foot.

31.35 The reason for the dishonest concealment from DFAT and the United Nations was that senior management at AWB wanted to retain its substantial wheat trade with Iraq and were therefore disposed to meet the IGB's demands for the payment of these fees. Senior officers of AWB knew, however, that the arrangements which it agreed with IGB and pursuant to which it paid the inland transportation fees and after-sales-service fees, breached, or circumvented the UN sanctions. AWB also knew that if it disclosed these arrangements to DFAT, which would in turn have led to disclosure to the United Nations, the likelihood was that the arrangements would not be approved. The chosen solution to this dilemma was to conceal the true nature of its arrangements with IGB from DFAT and the United Nations. By the time contracts A1670 and A1680 were entered into in December 2002, it was known that the by then well established inland transportation fee mechanism was a mechanism that could be readily used to pay foreign currency to Iraq in circumvention of the sanctions and without the knowledge of the United Nations and DFAT, and that it was possible to extract funds from the escrow account (in the case of these contracts, to facilitate the repayment of the Tigris debt) by inflating the contract price, again without disclosing this fact to DFAT or the United Nations.

31.36 During late 1999 and 2000, AWB also entered into contracts with foreign grain traders in relation to wheat that was to be shipped to Iraq from Australia. These contracts included:

(a) contracts A4906, A4907 and A4908, concluded in December 1999

(b) contracts A4993, A0662 and A0101, concluded in February, March and April 2000.

31.37 AWB did not seek the approval of the United Nations 661 Committee for any of these contracts. It was not necessary for AWB to do so. Such approval was

Report of the Oil-for-Food Inquiry 117

sought by the Russian Federation on behalf of Russian based grain trading companies. It was accordingly not necessary for AWB to submit any of these contracts to DFAT. AWB did, however, seek and obtain permission to export

the wheat the subject of these contracts from the Minister for Foreign Affairs. When it sought this permission, it concealed from DFAT that under the arrangements for the sale and shipment of this wheat, AWB had agreed to, and would, pay fees to an Iraqi entity through third parties, purportedly on account of inland transportation of the wheat. Again, the concealment of these undoubtedly material facts from DFAT and the Minister was intentional and dishonest.

31.38 The differences between the provision in the tender form, the short-form contract, the long-form contract and the true arrangement made with IGB is set out in schedule form in Appendix 28.

31.39 The possible offences that might have been committed by AWB arising from its deception of DFAT are offences under sections 29A, 29B and 29D of the Crimes Act (in the case of conduct occurring before 24 May 2001), and sections 135.1(7) and 136.1 of the Criminal Code (in the case of conduct occurring after 24 May 2001). The offences that might have been committed by AWB arising from its deception of the United Nations are offences under section 82 of the Crimes Act 1958 (Vic). The elements of these offences are addressed in Appendix 26. The application of these offences to the facts is addressed after the individual contracts, or groups of contracts, have been considered.

Before dealing with the specific groups of contracts entered into by AWB, I will deal with submissions made by AWB that deal in a global way with whether AWB might have committed any of these offences relating to deception of DFAT and the United Nations.

Was the Commonwealth misled?

31.40 AWB and others submitted it was not the function of this Inquiry to consider whether there might be a defence to a charge of deceiving the Commonwealth by determining whether the Commonwealth knew of the subject matter of the alleged deceit.7

31.41 I reject that submission. If I was satisfied that the Commonwealth knew of the subject on which it was alleged to have been deceived, I would find that a charge alleging deceit could not be maintained, and would not find that there ' might' have been the commission of such an offence.

118 Report of the Oil-for-Food Inquiry

31.42 AWB also submitted that there should be no referral to a prosecutorial authority because the submission of Counsel Assisting that the evidence established that the Commonwealth did not know of the true circumstances regarding AWB's contracts, should be rejected. It contended it should be rejected because:

(a) DFAT witnesses were unreliable and lacked credibility

(b) DFAT had been required to produce only limited material because of the alleged narrow scope of notices served upon it

(c) DFAT did not rely on any AWB forms given to it: it acted only as a 'post box'

(d) regarding permission to export applications, AWB was under no duty at all. It merely had to apply for permission to export. The only duty was imposed upon the Minister or delegate to be satisfied of compliance with international obligations.8

31.43 Regarding (a), I did not detect such lack of credibility or unreliability as would deter me from referring a matter which depended on the evidence of DFAT or Commonwealth witnesses.

Regarding (b), I reject the submission that notices served on DFAT or the Commonwealth were other than wide-ranging. Three notices were served on DFAT and a further eighteen on the departments of the Commonwealth. AWB sought to demonstrate a failure by the Commonwealth to produce documents to the Inquiry by annexing to its submissions 12 pages of documents AWB and a member of parliament had obtained through a Freedom of Information application. All of these documents were produced to the Inquiry in response to notices, and included in the Inquiry's database. They were not tendered because they are irrelevant.

Regarding (c), there was material before the Inquiry which I accept that senior officers of DFAT would not have permitted contracts to be forwarded to the United Nations if they knew or suspected that the contracts did not comply with United Nations sanctions. The so called 'post box' approach arose against a background of the perceived reliability and supposed integrity of AWB, an approach based upon a long history of dealings between AWB and DFAT. Had AWB advised DFAT of its true arrangement with Iraq and the IGB, and advised DFAT of information that was known to be material to the decision to grant permission to export there could be little doubt DFAT would have refused to forward the contracts to the United Nations or declined to grant permission to export, under r. 13CA of the Customs (Prohibited Exports) Regulations.

Report of the Oil-for-Food Inquiry 119

Regarding (d), AWB had a duty of honesty. If it wished to obtain the benefit of an export permit, it was obliged to act honestly in seeking that permission. That involved being truthful about the terms of the contracts pursuant to which it sought to export.

31.44 AWB also submitted that, as officers of DFAT and the Minister's delegate relied upon the consent of the United Nations in granting the permission to export under the Customs regulations, 'the conduct of AWB was irrelevant when informing that part of the process.'9 I reject that submission. Obtaining approval for payment from the escrow account from the United Nations was of no value at all without the approval to export. The two matters are inextricably linked as both AWB and DFAT well knew. They were part of a continuum. Deception in the first part of the process continued to the second part.

I should also add that, even if I accepted AWB's submission that the evidence did not establish that the Commonwealth did not know of the true

circumstances regarding AWB's contracts, this would not be an answer to possible offences under s. 135.1(7) of the Criminal Code. To make out an offence under s. 135.1(7) it is necessary only to prove that the person did something with the intention of dishonestly influencing a Commonwealth public official in the exercise of the official's duties. It is not necessary to prove that the official was in fact deceived, or that he or she would necessarily have acted differently if not deceived.

Did AWB mislead the United Nations?

31.45 AWB and others submitted, based on its analysis of the IIC September report, that:

(a) The 661 Committee therefore acquiesced in the payment of 'internal transport costs to transportation companies that may have links to the Government of Iraq'. The alternative might have been to see the OFF Programme collapse10

and thus:

(b) It is not open to me to 'conclude that the payment of inland transport fees to transportation companies with links to the Government of Iraq were not authorised'11

and further:

120 Report of the Oil-for-Food Inquiry

(c) the OIP and the 661 Committee treated contract provisions calling for inland transportation terms as acceptable, provided that the amounts at issue were reasonable12

and finally:

(d) 'during 2001 the 661 Committee (and, in particular, the OIP, which was responsible for contract approval) was well aware that:

1. a fee equal to 10% of the total contract value of any goods shipped to Umm Qasr was payable prior to discharge of any cargo at Umm Qasr

2. that fee was payable either to Alia or the ISCWT

3. other fees, levies and charges were imposed on humanitarian suppliers by Iraq yet no stop was placed on any contracts.

51. As AWB's contracts all involved shipments to Umm Qasr, it logically follows that it must have been obvious to the OIP that each AWB contract that it approved would necessarily have included an amount to cover these payments. Even if AWB had expressly disclosed that its contracts contained inland transportation and after-sales service fees, it would not have been telling the OIP anything that it must already have been known (sic) or at least suspected.

52. In those circumstances, it is impossible to maintain that AWB misled the United Nations in any relevant respect.'13

31.46 AWB also submitted that the fact that the United Nations approved four AWB contracts which showed a price term 'GIF Free in Truck to Silo at All Governates' and specified a 'discharge cost' of US$12.00 pmt 'properly gave AWB cause to believe that these payments were approved'.14

31.47 These submissions ignore the facts.

31.48 First, AWB denied to the United Nations and the Commonwealth that it was making payments to Iraq outside the Oil-for-Food Programme.

Second, AWB knew that the fee it was paying to Alia was not for the

provision of transport services. It knew the fee was a payment to Iraq.

Third, AWB knew it was not responsible for transportation within Iraq. AWB knew it had no contract with Alia to provide transport services. It was obliged to pay a fee.

Report of the Oil-for-Food Inquiry 121

Fourth, AWB went to extraordinary lengths to hide the payment of the fee to Alia. It did so by using shipowners to pay the fee and by interposing Ronly and Tse Yu Hong Metal Limited. These subterfuges were undertaken because AWB knew that the fees were not approved by the United Nations. If AWB believed the payments were approved by the United Nations, it would have paid the monies direct to the Iraqi entity nominated in each tender.

Fifth, AWB knew that its contracts submitted to the United Nations did not reflect the true agreements it had with Iraq. The true agreements reflected the Iraqi tenders which specified a fee to be paid to Iraq by way of Transportation fee' and 'after-sales-service fee'. The contracts did not. The reason the contracts did not show the 'transportation fee' was because AWB knew such fees were not approved by the United Nations, were not for transportation, from November 2000 included a 10% contract value factor bearing no relationship to transport, and were to be paid to Iraq contrary to sanctions.

Sixth, the proposition in paragraph 51 amounts to a contention that, the United Nations having imposed sanctions to prevent payments to Iraq, if told that such payments in breach of sanctions were to be made to Iraq, would

have approved contracts which so stated. There is no material to support that proposition and it is contrary to Ms Johnston's evidence. Common sense suggests the contrary proposition.

Further, including an element of debt recovery within a price for wheat as AWB did in the Tigris transaction but submitting the contract as though the stated price related only to the wheat price and legitimate wheat costs was plainly to mislead the United Nations.

31.49 I find that AWB did mislead the United Nations.

Referral

31.50 An alternative argument was advanced.15 Even if it was accepted that the

United Nations was deceived by the conduct of AWB, there should not be a recommendation to refer a possible breach of Australian law to a prosecuting authority because such prosecuting authority would face insurmountable difficulties in mounting proceedings against AWB because the 'political' nature of the United Nations, and its operations through its committees would mean it could not be established that the United Nations had been misled.

31.51 No doubt any prosecuting authority to whom a possible offence may be

referred will consider difficulties of proof in determining whether

122 Report of the Oil-for-Food Inquiry

proceedings should be commenced. Difficulties of proof are not a bar to a referral unless I am satisfied they are insurmountable. I do not regard as insurmountable the establishment in an Australian court the proposition that

the United Nations would have rejected for approval a contract which disclosed payments contrary to United Nations sanctions, or the issue whether the United Nations was deceived.

31.52 It was also submitted by AWB that:

Because the [UN] Resolutions do not impose obligations on non-political entities, such as AWB, it would be difficult to contend that AWB had a legal duty to inform the UN (or even DFAT) about anything. The UN (and the Minister under Reg 13CA) were bound by a political compact to achieve the agreed outcome. The political objective does not become law unless translated expressly in a rule of domestic law. It was not.16

I reject that submission. A body such as AWB, seeking approval from the United Nations for a contract so that it may be paid from a fund controlled by the United Nations, has a legal duty of honesty in making its application. That negates the right of a company, such as AWB, to deceive or defraud the United Nations in making its application.

Contracts A4653, A4654 and A4655

31.53 These contracts and the arrangements between AWB and IGB relating to the payment of inland transportation fees in respect of these contracts are considered in Chapter 13. Mr Emons was primarily responsible for the negotiation of these contracts.

31.54 The short-form contracts prepared within AWB for each of contracts A4653, A4654, and A4655 were signed by Mr Emons and contained the following clause:

The cargo will be discharged Free into Truck to all silos within all Governates of Iraq at the average rate of 3,000 metric tons per weather working day of 24 consecutive hours. The discharge cost will be a maximum of USD 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.

The price of the wheat sold under the contracts was also expressed in the short-form contracts as being on 'C.I.F. Free in Truck' Terms.

31.55 The IGB long-form version of these contracts expressed the price as being on terms 'GIF F.O.T TO SILO AT ALL GOVERNATE OF IRAQ VIA UMM QUSER PORT' but made no reference to any requirement to pay a 'discharge cost,' or of any payment to maritime agents in Iraq.

Report of the Oil-for-Food Inquiry 123

31.56 The UN Notification forms for these contracts contained details of the price

per tonne in the contracts and referred to the fact that the wheat was to be shipped to Umm Qasr by bulk carrier. They made no reference to a discharge cost.

31.57 The IGB long-form contracts were forwarded to DFAT between 27 July 1999

and 29 July 1999. The short-form contracts signed by Mr Emons were sent to DFAT by Mr Borlase on 3 August 1999.

31.58 DFAT certified the Notification forms on 3 August 1999 and sent the

documents to the United Nations 661 Committee. On 13 August 1999, the United Nations advised that the contracts were eligible for payment under the Oil-for-Food Programme. The approval notices were subsequently sent by DFAT to AWB. Between 7 October 1999 and 8 March 2001 Mr Lister sought and obtained on behalf of AWB permissions to export to Iraq the wheat sold under these approved contracts.

31.59 None of the documents sent by AWB to DFAT accurately stated the true

contractual arrangements between AWB and IGB in relation to the supply of the wheat the subject of these contracts. Nor did AWB otherwise advise DFAT, or through it the United Nations, at any time during the period between 27 July 1999 (when the contracts were first forwarded to DFAT) and 8 March 2000 (when the last permission to export referable to these contracts was signed by a delegate of the Minister for Foreign Affairs) of the true contractual arrangements between it and IGB. The true contractual arrangements were:

(a) AWB was not responsible for delivering the wheat Tree in truck' or 'FOT' to 'all silos within all Governates of Iraq,' contrary to the appearance created by the terms of its written contracts. AWB was responsible only for shipping the goods to Umm Qasr (that is, the true terms were GIF free out Umm Qasr); the IGB remained responsible for the discharge of the wheat and its inland transportation within Iraq and delivery to silos in all governates in Iraq.

(b) AWB was obliged to pay a fixed fee of US$12.00 per tonne (described variously as a 'trucking' or 'inland transportation fee'). At the time the contracts were entered into, there was no final agreement between AWB and IGB as to how the fee would be paid, but it was understood that it would be paid at the direction of IGB to an Iraqi entity or bank account nominated by IGB and that it would be paid indirectly, via third parties, to avoid any scrutiny of the payments by DFAT or the United Nations and because the UN sanctions prevented the payment of foreign currency to an Iraqi entity.

124 Report of the Oil-for-Food Inquiry

(c) The fee of US$12.00 was to be added to what was otherwise the GIF price for the goods so that AWB's payment of the fee was funded from the UN controlled escrow account.

(d) The fee that AWB was obliged to pay at IGB's direction was not, as represented by the clause included in its short-form contracts, a variable cost (to a 'maximum' of $US12) related to the discharge of vessels at Umm Qasr at the specified rate and payable to the maritime agents responsible for the discharge of the vessels on AWB's behalf, but rather:

(i) was unrelated to any contractual obligation that AWB had with IGB (or any other person or entity) to discharge, truck or transport the wheat beyond the ships rail at Umm Qasr

(ii) was a fixed fee payable at the direction of IGB irrespective of the actual costs of discharge of the vessels that shipped the wheat to Umm Qasr

(iii) was imposed by the IGB and payable to an Iraqi entity or account nominated by IGB.

31.60 In short, the true contractual arrangement between AWB and IGB in relation

to these contracts was the supply of wheat on terms GIF free out Umm Qasr, as it had been in the past, with the only additional obligation being one upon AWB to pay a fee of US$12.00 per tonne to an Iraqi entity or account

nominated by IGB. The fee was added to what was in effect the GIF price, though there was no breakdown of the price specified in the contract. The result was that AWB effectively recovered an amount equivalent to the fee from the escrow account when it was paid for the wheat. In his evidence before the Inquiry, Mr Hogan agreed that this was the substance of the agreement between AWB and IGB.

31.61 The contractual arrangements were not, as represented in the documents

lodged with DFAT, that AWB was contractually obliged to discharge and deliver the wheat internally in Iraq to nominated silos in different governorates. Nor was AWB's contractual obligation, as a fair reading of the

clause in the short-form contract would suggest, to pay to nominated maritime agents in Iraq the cost of actually discharging the vessels, capped at US$12.00 per tonne, such services being performed on AWB's behalf because it was contractually obliged to discharge the wheat. The actual arrangement negotiated between AWB and IGB was that IGB would advise AWB of the

account into which it was to pay the US$12.00 per tonne fee, not that it would advise AWB of the maritime agents that were responsible for discharging the wheat. The Iraqi wheat tender for phase VI also specified that the payment

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was to be made to the 'Land Transport Co', most likely a reference to the Iraqi State Company for Land Transport or possibly the Iraqi State Company for Water Transport. Unlike the wheat tender, the clause in the short-form contract did not make it explicit that the payment was required to be made to Iraq or an Iraqi entity, still less the ISCWT or the Land Transport Co. A maritime agent in Iraq is not necessarily an Iraqi entity, although as a practical matter it seems likely it would have been at that time. Nor did the clause in the short-form contract make it explicit that the specified contract price was arrived at by adding the amount of the fee payable by AWB to an Iraqi entity to the negotiated CIF wheat price in circumstances where the fee did not relate to a contractual obligation and was effectively payable to the buyer or at its direction.

31.62 For the reasons given below, it should be inferred that the clause was drafted in the way it was to make it appear to be a normal commercial clause which one would expect to see in a contract that recorded that AWB was responsible for the cost of discharge and transport to all governates in Iraq. It was drafted in a way designed to obscure or conceal the real arrangements between AWB and IGB.

31.63 It was known to senior officers of AWB who were responsible for the Iraq trade and for the documentation of AWB's contract with IGB and the submission of these documents to DFAT, including Messrs Officer, Emons, Hogan, Watson, and Lister, that AWB's true contractual arrangement with IGB was not to discharge and deliver the wheat within Iraq, and to pay maritime agents in relation to discharge and transport, but was simply to pay a US dollar fee or impost demanded by IGB and payable, at IGB's direction, to an Iraqi entity. It was known that the requirement to pay the fee was simply a mechanism by which Iraq could extract foreign currency from the escrow account. The following matters support that conclusion.

" Following his initial discussions with the Director General of IGB in June 1999, Mr Hogan reported to Mr Emons, Mr Geary, Ms Scales, Mr Snowball, Mr Watson, Mr Lister and Mr Owen that IGB's reason for requiring suppliers to add US$12.00 to their offers and then pay this amount back to Iraq was 'due to the excessive amount of Iraqi Dinars placed into the market by the Ministry of Finance for every Phase'. Thus the object of the imposition of the fee was for Iraq to obtain foreign currency. It had nothing to do with requiring suppliers, such as AWB, to accept contractual responsibility for discharge or delivery, or requiring suppliers to pay the entity or entities in fact responsible for discharging and transporting the wheat.

126 Report of the Oil-for-Food Inquiry

" None of the communications between IGB and AWB during the course of the negotiation of these contracts suggested that AWB would be actually responsible for discharging the vessels and trucking the wheat within Iraq. The Iraqi wheat tender spoke only of the obligation on the part of the supplier to pay a fixed cost of US$12.00 to the 'Land Transport Co/ not of an obligation to actually discharge or transport the wheat within Iraq, or negotiate with the 'Land Transport Co' to do so.

" Following the change in the terms of its contracts, AWB did not seek to contract with any stevedore or transport company to discharge or transport the wheat within Iraq on its behalf. It did not seek to negotiate with IGB or any other entity in relation to the rate of US$12.00 per tonne, or to ascertain from IGB or the 'Land Transport Company' how the figure of US$12.00 was arrived at, or what it represented, or how it was calculated, or precisely who was the ultimate beneficiary of the payment, or who exactly was responsible for discharge and delivery of the wheat. AWB took no steps to ascertain the identity of the 'Land Transport Company' referred to in the wheat tender, though it was known that it was an Iraqi company and most likely the ISCLT or ISCWT. AWB did not insure the wheat in respect of possible loss or damage to it whilst being transported within Iraq, which it would be expected to have done had it in fact been obliged to arrange for or carry out the transportation of the wheat during that inland leg.

" AWB had no agreement with IGB that IGB would arrange for the

discharge of the wheat or its transportation on AWB's behalf. Such an agreement was not included in either the short or long-form contracts, or in any other document. Nor was this ever agreed in any conversation between officers of AWB and IGB.

" AWB, through Mr Lister, took steps to amend the letters of credit which were to be drawn on the UN controlled escrow account and by which AWB would be paid for the wheat shipped under these contracts, so as to remove provisions that required it to provide delivery dockets evidencing

delivery to governates in Iraq. AWB was entitled to payment under the letters of credit when the grain was delivered from the vessel at Umm Qasr. AWB sought to have the letters of credit reflect this by describing

the sale within them as GIF Umm Qasr. This was done because AWB and Mr Lister recognised that discharge and delivery was in fact the responsibility of IGB, and that AWB had no control of the wheat beyond the ships rail.

" Various internal AWB communications make it plain that senior AWB officers knew that AWB was not responsible for trucking, but was simply

Report of the Oil-for-Food Inquiry 127

obliged to pay a fee in US dollars back to the Iraqis. In an email dated 17 June 1999 to Messrs Borlase, Emons and Hogan, Mr Owen queried why 'land transportation costs' of US$12.00 were included in the price *a query which only made sense if it was known that AWB was not

responsible land transport. In an email dated 11 October 1999 to Messrs Emons, Borlase and Owen, Mr Hogan described the origins of the fee as being a direction issued by 'the President' that all suppliers must pay the US$12.00 before the ship bringing the produce into Iraq arrived. Mr Emons likewise described the origins of the fee as being a 'Presidential decree.' In email exchanges between Messrs Watson, Emons, Officer, Lister and Owen on 20 October 1999, AWB's obligation was variously referred to as an obligation to 'refund the trucking charges to Iraq,' or a contractual obligation to pay a 'trucking fee.' Mr Emons described it as being 'the payment of the trucking cost as per our contract back to IGB.' In an email to Mr Officer on 4 November 1999, Mr Emons reassured Mr Officer that that AWB was 'not responsible for the trucking in Iraq only the payment.'

" The absence of any attempt by AWB to negotiate in relation to the

US$12.00 charge is explained not only by its knowledge that the imposition of the fee was the result of a Presidential decree, but also because the arrangement was that the fee was to be added to AWB's GIF price and therefore ultimately recouped by AWB from the escrow account. As Mr Hogan put it in an email to Mr Snowball, Mr Emons and others when first advised of the imposition of the fee, the fee was 'no skin off our [AWB's] nose.'

" It was plainly known to all concerned at AWB that the fee was to be paid to Iraq or an Iraqi entity. The only concern expressed internally by AWB officers in relation to the obligation to pay the fee arose from the recognition that the payment of amounts in US dollars to Iraq was prevented by the UN sanctions. This, of course, would not be a problem if the payments were genuinely to be made to a non-Iraqi entity. In Mr Owen's email of 17 June 1999 to Messrs Borlase, Emons and Hogan he queried how the fees would be paid given that Iraqi funds were frozen. In the same email in which he described the fee as being 'no skin off our

[AWB's] nose,' Mr Hogan noted that because Iraq's accounts were frozen 'discretion is required here.' In an email dated 30 September 1999, Mr Emons advised Mr Hogan that because of sanctions the payment could not be effected through any OECD country and that, having discussed the matter with Mr Owen, it appeared that the alternatives were either to pay the money into a Jordanian account or 'drop the USD12 from the contract'. Mr Hogan also proposed paying the money into a Jordanian

128 Report of the Oil-for-Food Inquiry

account, or transferring the money direct to 'the "special" nominated account * so long as the link is not apparent that the funds were going into Iraq/ In an email dated 20 October 1999, Mr Emons explained to Mr Officer (as well as Messrs Watson, Lister and Owen who were copied in on the email) that AWB was prevented from paying the trucking fee direct to Iraq 'for obvious reasons' and that AWB knew from the outset that 'this issue is some what grey/ Mr Emons proposed to arrange for the fees to be paid through shipping companies 'to remove any potential criticism ... of AWB or longer term considerations relating to facilitation payments etc.' In response to an email from Mr Owen which outlined his concerns about the fee and suggested, amongst other things, that AWB get a one off approval from the UN to allow payment of the fee to the 'Iraqi trucking company/ Mr Emons replied that the UN was 'an unnecessary complication/

" Specification of a sum for 'discharge' cost or 'transportation' would be unnecessary if AWB had the obligation to arrange discharge and for transportation throughout Iraq. Specification of the fee was necessary only because it was the sum to be paid to Iraq.

31.64 IGB ultimately advised AWB that the account into which it should pay the

fees was an account maintained in Jordan by Alia. Because they knew that the fee was payable to Iraq, it follows that Messrs Officer, Emons, Hogan, Borlase, Watson and Owen must also have known that Alia did not perform trucking

or transport services in relation to the wheat shipped by AWB to Umm Qasr. It merely operated the account into which the fees were to be paid. It was, in other words, merely a conduit for the payment of the inland transportation fees. But even payment to Alia was considered by these officers to be too direct and an insufficient disguise of the true nature of the payments. When circumstances required AWB to make the fee payment for the first shipment of wheat under these contracts in November 1999 direct to Alia, Mr Emons advised Mr Watson in an email that this was a 'little too direct' and that he had been assured by the Director General of IGB that it was a 'one off.'

31.65 Mr Watson was tasked with further disguising and distancing AWB from the

payments by using shipping companies that carried the wheat to Iraq as a conduit for the payment of these fees by AWB to Alia. Mr Watson entered into arrangements with several shipping companies whereby AWB would pay to them not only the cost of sea freight, but also the so-called inland

transportation or trucking fee, which the shipping companies would then pay on to Alia. Messrs Officer, Emons, Hogan Borlase, Watson and Owen knew that those shipping companies that agreed to assist AWB in receiving and paying these fees were mere conduits, designed to disguise the payments of these fees to Iraq by AWB. Mr Watson also subsequently arranged for the

Report of the Oil-for-Food Inquiry 129

interposition of Ronly Holdings Limited, via its nominee, the Liechtenstein registered company Tse Yu Hong Metal Limited, between the shipowners and AWB, and for Ronly and its nominee to receive the inland transportation fees from AWB and pay them on to Alia in the manner described in detail in

Chapter 18. There was no genuine commercial reason for using the shipowners and Ronly in this way, or for interposing Tse Yu Hong Metal Limited into its existing contracts with shipowners, and paying them a fee for the 'service' provided by them. The only possible reason for the use of the shipping companies, Ronly and its nominee Tse Yu Hong Metal Limited in this way, was as a conduit so as to disguise and distance AWB from the payments so that it was not apparent that AWB was paying the US$12.00 per tonne fee to Iraq. The only rational reason for seeking to disguise the payments in this manner was because it was known by those within AWB responsible for the Iraq trade that the payments were contrary to the UN sanctions and had not been approved by the United Nations. In an email to Mr Bali of Ronly dated 7 March 2000, Mr Emons told Mr Bali that the reason AWB paid the trucking fees through the shipping companies, and wanted Ronly to assist, was to 'disguise the fee' because 'under UN/Australia policy no payment can be made directly to Iraq' and 'to divorce clearly from the FOB price any connection with a shipping/logistics charge should the contracts come under scrutiny.' To similar effect, Mr Bali of Ronly explained in a letter that Ronly became involved in making the payments because in early 2000 AWB became concerned whether payments it was making for inland trucking in Iraq, were in breach of UN sanctions and so approached Ronly to 'front' the payments.17

31.66 In their evidence to the Inquiry, Mr Hogan and Mr Emons claimed that the payments were disguised not because of a concern to conceal them from the United Nations, but because payment of the fees in US dollars was not possible as a result of the embargo imposed by the United States Government that effectively prevented any payments in US dollars being made to Iraq. It may be accepted that it was recognised at the time by officers at AWB, perhaps including Messrs Emons and Hogan, that the US embargo prevented direct payments of US dollars to Iraq. It does not follow, however, that the steps that were taken to disguise the payments were taken only or principally to circumvent the US embargo. The practical problems created by the US embargo could easily have been resolved by AWB paying the fees into the Jordanian Bank account of Alia. Such payments were not prevented by the US

embargo. But the additional steps taken by AWB to use shipping companies to make the payments and to interpose Ronly and its nominee into existing contracts with shipowners in the manner described sought to disguise the payments further and to further distance AWB from even the payments to Alia. Circumvention of the US embargo did not require such steps. These

130 Report of the Oil-for-Food Inquiry

additional steps can only be explained by a recognition both that direct payments of US dollars to Iraq could not be made as a result of the US

embargo, and that any payments that found their way to Iraq involved a contravention or circumvention of the UN sanctions. That is why Mr Hogan advised Mr Emons, Mr Snowball and others that 'discretion' was required when implementing the payments: because AWB did not want to be the one waving the 'red flag' in front of the United Nations in relation to the payment for fear of losing the Iraqi wheat trade. Mr Emons agreed in evidence that he

knew both that the payments were outside the UN sanctions and that direct payments of US dollars to Iraq could not be made through the US Treasury. Mr Emons' email to Mr Bali of Ronly on 7 March 2000, referred to above, demonstrated that AWB's concern with direct payments to Iraq arose from 'UN/Australian policy', not the US embargo.

31.67 I reject any suggestion that the steps taken to disguise the transaction were taken only to avoid the problems in making the payments created by the US embargo. It is also difficult to see how anyone could seriously entertain the belief that the United Nations had approved contractual arrangements that included the making of payments that were prevented by the US embargo. If that belief was genuinely held, one would imagine that the logical step for AWB to take would have been to approach DFAT or the United Nations for advice concerning how to make the payments. That, of course, was not a step that was ever taken by AWB or anyone employed by AWB. On the contrary, AWB assiduously denied the payment of such fees when raised with them. Alternatively, AWB could have approached IGB and suggested that the fee be paid in some other foreign currency, such as Deutschemarks, as occurred in relation to later payments. When fees under later contracts were paid in Deutschemarks and Euros, the payment nevertheless continued to be made via Alia. Mr Hogan was unable to offer a plausible explanation for why this was so if the only concern was the US embargo.

31.68 It follows that, despite the reference in the short-form contracts to the payment of a 'discharge cost' of US$12.00 to 'the nominated maritime agents in Iraq,' senior officers of AWB who were primarily responsible for the Iraq trade, including Messrs Officer, Emons, Watson, and Hogan, knew that DFAT and the United Nations did not know, and the United Nations had not approved, AWB paying a fee of US$12.00 per tonne to an Iraqi entity as part of its contractual arrangements with IGB. At the highest, the United Nations had approved no more than the payment of a genuine variable discharge cost payable to an entity that had actually performed the service of discharging the wheat.

31.69 Knowledge of the introduction of the arrangements relating to the payment of fees to the Iraqis was not limited to those directly responsible for the Iraq

Report of the Oil-for-Food Inquiry 131

trade. It also extended to the then Chairman, Mr Flugge AO, Chief Executive Officer, Mr Rogers AM and the Chief Financial Officer, Mr Ingleby. The overriding conclusion to be drawn from the evidence is that AWB's trade with Iraq was sufficiently important, and the imposition of the fee sufficiently significant, that Messrs Rogers and Flugge were consulted. Their response was that AWB should do whatever was necessary to retain the Iraq trade. By implication this included concealing facts from DFAT and the United Nations.

31.70 In relation to Mr Flugge, the evidence before the Inquiry supports the finding that from as early as June 1999, and in any event by October 1999, Mr Flugge knew that the arrangements between AWB and IGB included the payment by AWB of a US$12.00 per tonne fee, that the fee was included in the contract price, that the fee was to be paid ultimately to an Iraqi entity, that because payments in US dollars were not possible as a result of the sanctions, a method had to be found to make the payments and that Ronly had offered to be a conduit for the payments. The following matters support that finding:

" The evidence of Messrs Officer and Emons in relation to discussions that occurred with representatives of Ronly at the International Grains Conference in London in June 1999, which included an offer from Ronly to help AWB pay the fees to Iraq.

" The evidence concerning the meeting between Messrs Flugge, Rogers and Hogan and the Director General of IGB in Iraq in October 1999. In the circumstances, it is not credible that Messrs Flugge and Rogers would not have been fully briefed by those who knew about the arrangements between AWB and IGB about the issues likely to arise at the meeting, including issues relating to the payment of the fee. The payment of such a fee was unique, if not extraordinary, for AWB. The evidence before the Inquiry suggests that issues relating to the fee were the most significant matters discussed at the meeting

" The evidence relating to the Canadian complaint. At the beginning of 2000 and by at least March 2000 Mr Flugge was aware of the Canadian complaint which made it clear that DFAT and the United Nations did not know about and had not approved the payment of trucking or

transportation fees. Mr Flugge's response to the Canadian complaint addressed in Chapter 16 and is considered further below in the context of contracts A4970, A4971 and A4972.

" The evidence from which it can be concluded that Mr Flugge, together with Messrs Watson, Officer and Emons, met with Mr Nori Bali of Ronly in early 2000 to seek Ronly's assistance because AWB was concerned 'at whether payments which they were making for inland trucking in Iraq

132 Report of the Oil-for-Food Inquiry

were in breach of UN sanctions against Iraq/ Mr Flugge's involvement in the agreement with Ronly is addressed in Chapter 18. Suffice it to say that correspondence from Ronly in July and August 2002 shows that Mr Flugge was involved in the meetings and discussions with Mr Bali of Ronly in early 2000, together with Messrs Watson and Emons, and that he was aware of the arrangements between AWB and Ronly. When issues later arose in relation to the agreement between AWB and Ronly in the context of a claim by Ronly concerning the vessel Amarantos, Mr Flugge told Mr Long that he wanted to 'distance himself' from the matter.

" The evidence that in March 2000, Mr Emons discussed trucking fees in Iraq with Mr Flugge, recording such discussion in the following terms:

I had a discussion with Trevor Flugge last week to discuss some of the finer points of the trucking fees. He is happy for us to carry on in fact he is

determined that we should be accommodating to the Iraqi's so that our business does not come under threat from our US or CWB friends.18

" The evidence that Mr Flugge signed a letter to an Iraqi Minister of State dated 5 April 2000 concerning United Nations enquiries about trucking fees and expressing AWB's 'intention to remain committed to the terms of trade agreed between IGB and AWB'.19

" The notes taken by Mr Quennell of a conversation with Mr Flugge.

31.71 The evidence also supports a finding that by October 1999 Mr Rogers was aware of the imposition of the fee by IGB, that the fee was to be paid to an Iraqi entity, that the payment of the fee was not permitted under the sanctions and that, as a result, AWB was proposing to pay the fee via various

intermediaries. The matters supporting this finding include, in short:

" Mr Officer's evidence that he kept Mr Rogers informed about AWB's relationship and arrangements with IGB, and that he required the authority of either Mr Rogers or Mr Flugge to accept the imposition of the fee as a new term of the arrangements with IGB. The imposition of the fee was exceptional and not without its difficulties or risks as far as AWB was concerned. It is the very thing that one would expect to be raised with the

Chief Executive Officer.

" The evidence concerning the October 1999 meeting with the Director General of the IGB. As discussed in the preceding paragraph, it is not credible that Mr Rogers would not have been fully briefed in relation to the fee prior to this meeting.

Report of the Oil-for-Food. Inquiry 133

" Mr Officer's evidence that he told Mr Rogers about the proposal to use Ronly as a conduit for the payments and that Mr Rogers raised no objection to it.

" Mr Officer's evidence that he told Mr Rogers that 'the fee had been

imposed by the IGB and that we had no choice as if we did not pay, wheat sales would be lost to our competitors'.20

" Mr Emons' evidence of discussing the problems for AWB arising from the IGB's requirement that a US dollar sum be paid to an Iraqi entity.21

31.72 In relation to Mr Ingleby, the evidence before the Inquiry supports the

conclusion that he was part of the group of senior officers who considered and authorised the arrangements with Ronly. Each of Messrs Emons, Officer and Watson gave evidence to the effect that Mr Ingleby was involved in the discussions concerning the arrangements with Ronly and that he approved the mechanism for paying the fees. Mr Emons' evidence was that upon his

return from the International Grains Conference in June 1999, he had a meeting with Mr Officer and Mr Ingleby about Ronly's offer to assist AWB in making the payments. During the meeting, Mr Officer told Mr Ingleby that AWB had to pay the trucking fee to the Iraqi maritime agent and that it was proposed to pay Ronly and the shipping companies to 'save our [AWB's] involvement.' No part of the proposed arrangements was kept secret from Mr Ingleby during the discussions. Mr Ingleby said that he was 'comfortable' with the arrangements. Mr Officer's evidence confirmed Mr Emons' recollection of the discussions following the International Grains Conference. Mr Officer claimed that Mr Ingleby and Mr Rogers 'were aware that the payment of these fees was the price for doing business in Iraq.' Mr Watson also gave evidence of a meeting with Mr Officer and Mr Ingleby in June 1999 in relation to the proposed 'mechanics' of making the payments via third parties. The evidence of Messrs Emons, Officer and Watson is supported by the following evidence.

" The correspondence received from Ronly by AWB in July and August 2002, in the context of the Amarantos dispute, recorded that Mr Ingleby was 'fully aware of and authorised' the transactions with Ronly. Whilst the reference to the 'transactions with Ronly' is likely to refer to the arrangements that were put in place in February or early March 2000, this correspondence supports the conclusion that Mr Ingleby was also a party to the initial discussions concerning Ronly in July 1999.

" When Mr Ingleby raised an issue relating to the payment of the

commission due to Ronly in September 2000, Mr Cowan responded to Mr Ingleby's email by pointing out that Messrs Emons and Officer 'wanted to

134 Report of the Oil-for-Food Inquiry

disguise AWB payments into Iraq for trucking fees/ Mr Ingleby claimed in his evidence that he read this as referring to the need to disguise the payments because of the US embargo. I reject that evidence for the same reasons given above in relation to similar evidence by Messrs Emons and Hogan.

" In March 2000 Mr Ingleby was involved in AWB's response to the audit inquiry from Pacific Rim Shipping Pty Limited. Mr Kudelka's letter asked for confirmation that the fees that had been paid in December 1999 by Atlantic and Orient Shipping were 'sanctioned by the United Nations and approved by the Australian Government.' AWB's reply, signed by Mr Ingleby, did not directly answer this question, but instead stated that 'all wheat contracts between Australia and Iraq are approved by the United Nations and the Australian Government. Whilst Mr Ingleby's evidence was that this draft reply was prepared by someone else for him and he quickly read it before signing it, Mr Watson's evidence was that the reply was drafted at a meeting attended by himself, Mr Officer, Mr Emons and Mr Ingleby and that the letter and the reply were fully discussed at the meeting because it 'went to the heart of what AWB was trying to

disguise.' Whilst this letter relates to the use of shipping companies as conduits for the payment of the fees, rather than Ronly, the fact that Mr Ingleby was party to these discussions supports the conclusion that he was involved in the discussions relating to the payment mechanisms, including the use of Ronly.

31.73 It is entirely plausible that Mr Ingleby would have been consulted about the arrangements in relation to the payment of the trucking fees and the mechanism adopted to pay them. As previously discussed, these arrangements were considered and authorised at the highest level of management by Messrs Flugge and Rogers. They involved a major change to AWB's arrangements with IGB and, of particular significance as far as Mr Ingleby was concerned, the need to make large payments in an unusual context.

31.74 Once it is accepted that Mr Ingleby was made aware of and approved the arrangements for use of third parties to make the payments, including using Ronly, it should be inferred that he knew that the primary purpose of those arrangements was to disguise and distance AWB from the payments because it was recognised that they were not permitted by the sanctions and had not been approved by the United Nations. There was no sensible commercial purpose to interpose third parties. He must accordingly have recognised that the payments involved a deception of the United Nations and most likely DFAT. As Chief Financial Officer and head of AWB's Treasury, Mr Ingleby was ultimately responsible for making the payments. Mr Ingleby had

Report of the Oil-for-Food Inquiry 135

authority to put a stop to the payments. He did not do so. He approved the involvement of Ronly and either expressly or impliedly authorised the payment of the fees to Iraq. By approving the arrangements with Ronly, he

assisted in the concealment of AWB's arrangements in relation to the payment of the fees. It should also be observed that Mr Ingleby expressly authorised significant payments to Alia in relation to later contracts.

31.75 The evidence before the Inquiry suggests that both DFAT and the United

Nations overlooked, or at least did not appreciate the significance of, the reference in the short-form contracts to the payment of the 'discharge cost.' Nobody at DFAT appeared to notice the clause or appreciated its meaning or

significance when the short from contracts were sent to DFAT. The inclusion of the discharge cost clause did not cause DFAT to query whether the arrangements were, or may have been, in breach of the sanctions and did not stop it from transmitting the contracts to the UN for approval. The long-form contracts were initially forwarded to Ms Brodtman at DFAT on 27 July 1999. Subsequently, copies of the short-form contracts were sent to DFAT and Ms Brodtman forwarded them to Ms Moules at the Australian mission to the United Nations. Ms Brodtman's evidence was that she was not aware of any requirement by the IGB or the Iraqi Government that AWB pay money,

directly or indirectly, to it ostensibly in relation to trucking or transportation. Ms Moules' evidence was to the same effect. She had no recollection of any issue being raised about clauses concerning the payment of discharge costs at

the UN mission during the relevant period. As for the United Nations, the Customs Expert who reviewed these contracts was Ms Johnston. Her evidence was that she overlooked and did not appreciate the significance of the discharge cost clause.

31.76 A number of points may be made about the fact that both DFAT and the UN

appear to have overlooked or failed to appreciate the significance of the 'discharge cost' clause. As has already been observed, the discharge cost clause did not clearly, fully or accurately disclose the true nature of the fee payable and the arrangements actually in place between AWB and IGB in relation to it. The clause misleadingly described the fee as a 'discharge cost', connoting that it was a payment referable to the actual cost of discharging the cargo incurred at the port by maritime agents in Iraq. Whilst the clause did record that a payment was to be made in US dollars to maritime agent in Iraq, it did not make it clear that the agent was an Iraqi entity. No reference was made to transportation, or inland transportation. In reality, the fee was not related to either *it was just a fee payable to Iraq. Nor was it made explicit in

the contract that the cost had been added to the negotiated wheat price so that it was, in effect, to be met from funds extracted from the escrow account in circumstances where AWB had no obligation to provide the service to which

136 Report of the Oil-for-Food Inquiry

it was said to relate. Whilst the reference in the clause to payments in US dollars being made to agents 'in Iraq' should have alerted a careful reader of the clause to its potential significance, the apparent failure of DFAT and the United Nations 661 Committee to pick this up may have been due to the innocuous and unclear way in which the clause was worded. It is less likely that the clause would have been overlooked if it had clearly, fully and accurately disclosed the true nature of the fee payable by AWB and the actual arrangements between AWB and IGB in relation to its payment.

31.77 I am satisfied that if the true nature of the arrangements had been disclosed to officers of DFAT, they would have acted differently, both in relation to the documents AWB submitted to them, and in relation to the issuing of permissions to export. The only reasonable inference to be drawn from the evidence before the Inquiry is that DFAT officers would not have simply certified the Notification forms and contract documents if they had been fully apprised of the facts. A number of matters support this inference. First, as discussed in Chapters 12 and 27, DFAT's responses to the proposals put forward by AWB and BHP in 1995 and 1996, which involved, at one stage, the suggestion that documents that did not fully disclose the proposed transaction would be sent to the United Nations, was emphatic. Senior officers of DFAT, and ultimately the Minister for Foreign Affairs, made it plain that DFAT would not compromise its reputation with the UN for 'frankness and transparency' by failing to ensure that applications put forward fully complied with UN resolutions and that DFAT 'could not collude in presenting deliberately incomplete documentation.' There is no reason to suppose a different approach would have been taken by DFAT between mid 1999 and March 2003. Second, the evidence of more senior DFAT officers who dealt with AWB's contracts was that they would not have put forward an application for approval of a contract if they had any concerns about any aspect of it, or if they knew that an aspect of the transaction was inconsistent with the sanctions regime. The evidence of other DFAT officers was that if the documentation raised any concerns about whether the transaction complied with the sanctions, they would have referred the matter to more senior officers. Third, it is, in these circumstances, difficult to accept that DFAT officers would have permitted documents to go to the UN which they knew did not fully and accurately document the arrangements in place between AWB and the IGB * particularly when those arrangements involved an indirect payment to Iraq in breach of the sanctions. It was implicit in DFAT's published procedures that it would not send contract documentation to the UN if it appeared that the transaction breached the sanctions. There is no evidence to suggest why DFAT officers would not have followed these procedures had they been fully apprised of the facts in relation to AWB's arrangements with IGB.

Report of the Oil-for-Food Inquiry 137

31.78 The conclusion that DFAT would have acted differently had AWB disclosed

the true nature of its arrangements with IGB is not affected by the fact that, in general terms, DFAT officers largely regarded their roles as being akin to a 'post box' and that, for the most part, they did not scrutinise in any detailed way the terms of AWB's contracts. Whilst the DFAT officers may have seen themselves as having a limited role in relation to scrutinising the contracts, nevertheless they did give some consideration to the contracts. The evidence before the Inquiry is that if DFAT officers had picked up anything that was unusual or obviously outside the terms of the Programme, they would have referred the matter to a more senior officer or officers. By omitting any clear and accurate reference to the transportation arrangements, AWB effectively deprived DFAT of the opportunity to properly scrutinise and consider the legality of the arrangements actually in place between AWB and the IGB. A proper disclosure of the transportation fee arrangements in the contracts would have been so obvious it is difficult to accept that it would not have been picked up by DFAT, even if it was only performing a 'post-box' function.

31.79 The clearest indication both that DFAT and the United Nations did not know

that AWB's contractual arrangements with IGB included paying a US$12.00 fee to Iraq, and that senior officers of AWB knew that DFAT and the United Nations did not know this, came in January and March 2000 when the Canadian complaint was raised with AWB. By early 2000, mid March at the latest, senior officers of AWB, including Messrs Flugge, Snowball and Emons, knew that the United Nations, via DFAT, had been informally investigating an allegation by Canada that AWB had agreed with IGB to make irregular payments outside the terms of the Oil-for-Food Programme. They also knew

that these queries related to the 'discharge/trucking payment issue.' During their meeting with Mr Nicholas of Austrade on 9 March 2000, when the Canadian complaint was raised with AWB for the second time, Messrs Flugge and Snowball deliberately 'played down the issue.' In email exchanges following the meeting, Messrs Snowball and Emons made it clear that they believed that if the United Nations query could not be satisfied by deflecting attention towards an issue that had also arisen in relation to AWB's standard terms and conditions, AWB had something to 'worry about.' Mr Emons subsequently wrote to IGB and requested that it ensure that 'no information of a confidential nature' was released in relation to 'the manner of AWB payments' to the Jordanian trucking company.

31.80 Mr Emons' evidence was that the Canadian complaint raised concerns

amongst senior management at AWB about future sales to Iraq and that the 'entire organisation,' including Messrs Flugge and Rogers, wanted to find a way to avoid attracting the attention of the United Nations.

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31.81 There can be no doubt that if these senior officers of AWB genuinely believed

that the United Nations and DFAT knew of, and approved, the arrangements that AWB had entered into with IGB in relation to the payment of fees of US$12.00 per tonne, they would simply have confirmed to DFAT that AWB was paying these trucking fees and indicated that that they believed that, by approving the July contracts, the United Nations had approved the making of these payments. Instead, they denied that AWB was making any payments outside the Programme, deflected attention from the issue and told IGB not to disclose any information about the payments. They also sought to disguise the payments and distance AWB from them by interposing shipowners and Ronly between AWB and Alia. The evidence before the Inquiry suggests that Messrs Flugge, Officer, Emons and Watson met with Mr Bali of Ronly at the beginning of 2000 and sought Ronly's assistance because of concerns that the inland trucking payments were in breach of the UN sanctions. An available inference is that the approach to Ronly was a response to the Canadian complaint.

31.82 The letter that Mr Emons drafted for Mr Flugge to sign in early April 2000

clearly demonstrates that the attitude of senior officers of AWB was that AWB would continue to pay the trucking fees to Iraq, as had been agreed, despite the fact that they knew that the Canadian government had raised with the United Nations the issue whether such payments were contrary to the sanctions.

31.83 Despite the knowledge that the contracts submitted to DFAT, and ultimately

the United Nations, did not reveal the true arrangements between AWB and IGB, and did not clearly reveal the fact that as part of the arrangements AWB was paying fees in US dollars to Iraq, senior officers of AWB failed to reveal to DFAT the true arrangements and in particular the true arrangements in relation to the payment of the fee. Indeed, they took steps to conceal these arrangements from DFAT, both by ensuring that the payments in fact made pursuant to the arrangements were concealed and by denying, when the matter was raised with them in the context of the Canadian complaint, that AWB had entered into any arrangements involving payments to Iraq via accounts in Jordan. It may readily be inferred that this concealment was both intentional and dishonest. The evidence before the Inquiry supports the inference that AWB, through its senior officers, knew that if they disclosed to DFAT that AWB's arrangements were different to those set out in the contractual documents, or that they included a requirement that AWB pay substantial fees in US dollars to Iraq, DFAT would not have certified the documents and transmitted them to the UN, or would at the very least have drawn these matters to the attention of the UN. The result would be either that its contracts would not have been submitted to the United Nations at all

Report of the Oil-for-Food Inquiry 139

(because DFAT would not have certified and sent the documents and the UN procedures required that contracts be submitted by member states) or the UN would have put the contracts on hold. It was for this reason that the fees and the payments were disguised in the first place. It was for this reason that AWB's payment of the fees was not disclosed to DFAT even when the payment of such fees was specifically raised with senior officers of AWB in the context of the Canadian complaint. It was for this reason that AWB never requested DFAT's advice whether the payment of the fees contravened the sanctions regime.

31.84 In summary, I make the following findings in relation to contracts A4653,

A4654 and A4655:

(a) Senior officers of AWB, whose knowledge and intentions may be attributed or imputed to AWB, knew that the arrangements between AWB and IGB in relation to the supply of the wheat the subject of these contracts included that AWB would supply the wheat to Iraq on terms GIF Free Out Umm Qasr, but would pay a fixed fee of US$12.00 per tonne, to an Iraqi entity at the direction of IGB. The payment was to be made indirectly because of the sanctions. The amount of the fee was to be added to the contract price and in this way recouped by AWB from the UN controlled escrow account.

(b) The same officers knew that the contractual documents that AWB supplied to DFAT for transmission to the United Nations did not disclose the true arrangements in relation to the payment of the fee of US$12.00 per tonne. Both the short and long-form contracts incorrectly recorded that the wheat was supplied on terms that required AWB to deliver the wheat to silos in all governates of Iraq. The long-form contract made no reference to AWB's obligation to pay the inland transportation fee. The short-form contract recorded that the terms included the payment of a 'discharge cost to a maximum of USD12.00 to the nominated Maritime Agents in Iraq.' However, this clause did not fully or accurately disclose the true arrangement in relation to the payment of that US$12.00 fee. It falsely represented that the payment was related to a contractual obligation that AWB had to discharge the wheat, that the amount of the payment was variable according to the actual cost of discharge and that it was payable to an entity responsible for supplying the discharge service. It did not expressly reveal that the payment was in fact a fee payable to an IGB nominated Iraqi entity in US dollars.

(c) The same officers knew that the payment of a US$12.00 fee to an Iraqi entity contravened the UN sanctions and that the United Nations had not approved the making of such a payment. For this reason, steps were taken

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to ensure that the payments were not made directly to Iraq, but were disguised, as payments to shipping companies, or payments to Alia, or both, ostensibly for transport services provided by Alia. Senior AWB officers were a party to, or knew of the steps to disguise the payments, and why they were necessary.

(d) Throughout the period that officers of DFAT and the United Nations were responsible for making decisions or taking action relevant to these contracts, namely the period from July 1999 (when the contracts and UN Notification form were lodged with DFAT) to March 2000 (when the last permission to export wheat the subject of these contracts was issued), AWB, through its senior officers, concealed from DFAT the fact that its arrangements with IGB were materially different to those recorded in the contracts and the UN Notification forms referable to them and that the arrangements included payments by AWB indirectly to Iraq in contravention of the sanctions.

(e) The concealment of those facts was intentional and dishonest. It was known that the facts were material to the decisions and actions to be taken by the DFAT officers and in due course the United Nations. The facts were concealed notwithstanding that it was known that these facts were material to the actions and decisions taken by DFAT and the United Nations. Indeed, they were concealed because it was known that the likely effect of disclosure would have been that the contractual arrangements, involving as they did the payment of substantial fees to Iraq, would not have been sent to the United Nations or approved by it.

31.85 The senior officers of AWB who were involved in, or knew about and authorised, the negotiation of the arrangements with IGB, the drafting and submission of the contracts to DFAT and the concealment of information relating to the arrangements were:

(a) Mr Hogan, who, together with Mr Emons, was responsible for negotiating the contracts, reporting back to senior officers in relation to the imposition of the US$12.00 fee and making suggestions and recommendations about how the payment of the fee could be disguised.

(b) Mr Emons, who negotiated the contract and was responsible for dealing with the IGB in relation to the payment arrangements, which were designed to disguise the true nature of the payments, and who knew of the steps taken to hide the fee by using shipowners to make the fee payments.

Report of the Oil-for-Food Inquiry 141

(c) Mr Watson, who was the officer primarily responsible for establishing the mechanisms by which the payments were disguised by the interposition of shipowners. Mr Watson knew that the reason for disguising the payments was to conceal this fact from DFAT and the United Nations.

(d) Mr Lister who was head of the Contract Administration Department. Mr Lister knew the precise terms of the short-form contracts that were submitted to DFAT. The action he took to change the terms of the letters of credit demonstrates that he knew that, despite the terms of the contracts, AWB did not deliver or transport the wheat within Iraq. Mr Lister was also primarily responsible for applying for permission to export each shipment under these contracts on behalf of AWB.

(e) Mr Officer, who was senior to and supervised Messrs Hogan and Emons and was a party to much of the internal correspondence and discussion about how the fees could be paid in the light of the restrictions created by the UN sanctions. His actions amounted to express or implied authorisation of the actions of Messrs Hogan and Emons.

(f) Mr Rogers was made aware by Mr Officer of the nature of the

arrangements with IGB in relation to the payment of the fees and the mechanisms proposed for the payment of the fees. He participated in the meeting with the Director General of the IGB in October 1999 during which the fees were discussed. His actions amounted to the authorisation of the arrangements in relation to the fees.

(g) Mr Flugge, like Mr Rogers, was made aware of the arrangements in relation to the fees and participated in the meeting with the Director General of the IGB in October 1999. His actions amounted to the authorisation of the arrangements. His attitude was that Mr Emons should do whatever was necessary to retain the Iraq trade.

(h) Mr Ingleby, who as Chief Financial Officer approved the arrangements for use of third parties, including Ronly, that were designed to disguise and distance AWB from the payment of the fees. It is open to conclude that his actions amounted to an express or implied authorisation of the payments and their concealment.

31.86 These officers occupied positions within AWB such that their knowledge and intentions can be imputed or attributed to AWB. At the time, Mr Flugge was the Chairman, Mr Rogers was Chief Executive Officer, Mr Officer was General Manager, Global Sales and Marketing, Mr Emons was the Regional Manager, Middle East and Africa, Mr Hogan was an Account Manager for Iraq based in AWB's Cairo office, Mr Watson was the Chartering Manager of AWB

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Chartering, Mr Lister headed AWB's Contract Administration Department and Mr Ingleby was Chief Financial Officer. Collectively, these officers had actual or de facto delegated responsibility for all aspects of AWB's trade with Iraq, including negotiations, entry into contracts and dealings with DFAT in relation to the Oil-for-Food Programme.

31.87 Other senior officers of AWB were copied into correspondence that revealed

that AWB's arrangements with IGB included paying a fee and that the payment of the fee was disguised, but were not in positions that made them responsible for negotiating or causing AWB to enter into the arrangements, or dealing with DFAT in relation to the arrangements, or otherwise authorising

or approving such actions. Included in this category of officers is Mr Geary, who at the time was Pool Manager, Mr Owen, who at the time was National Trade Finance Manager, and Ms Scales who at the relevant time was Pricing Manager.

31.88 The evidence before the Inquiry also indicates that more junior AWB officers

who carried out duties in relation to wheat sales to Iraq were also aware of the true nature of AWB's arrangements with IGB and were aware that those arrangements were not, and were not to be, revealed to DFAT. At the time of these contracts, and until January 2001 when he was transferred to AWB's Cairo office, Mr Borlase was a marketing executive within the International Sales and Marketing Division whose principal duties were to provide general administrative assistance to the Regional Manager and Account Managers, including Mr Emons. Mr Borlase was copied into correspondence that revealed that the fees were to be paid to an Iraqi entity and that AWB had taken steps to disguise the payments by paying them surreptitiously, through shipowners and Ronly. Mr Borlase is recorded as having authorised contracts A4653, A4654 and A4655 and was responsible for forwarding them to DFAT. As discussed below, Mr Borlase was also directly involved in negotiating later contracts with Russian grain traders that revealed the true nature of the so- called transport fees. He was involved in the decision to remove the US$12.00 discharge clause from later short-form contracts. Mr Borlase was a relatively junior officer, with little authority, who performed administrative tasks under

direction of his superiors. Whilst I am satisfied of his knowledge of the nature of the payments and the way they were disguised, his junior position and the fact that he acted under direction means that his acts are not to be regarded as the acts of AWB.

Contracts A4821 and A4822

31.89 The circumstances relating to contract A4822 are addressed in Chapter 14. It

was entered into on 11 October 1999. Copies of the short and long-form

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contracts were sent by Mr Borlase to DFAT on 29 October 1999. The short- form contracts were signed by Mr Emons. Permission to export wheat referable to this contract was sought by Mr Lister on behalf of AWB and granted by delegates of the Minister between 16 March 2000 and 16 April 2000.

31.90 In most respects, the arrangements between AWB and IGB in relation to this contract and the way in which it was documented and presented to DFAT were exactly the same as contracts A4653, A4654 and A4655. Like those contracts, the arrangements in place between AWB and IGB included that AWB would be responsible for transporting the wheat to Umm Qasr (that is, the terms were GIF Free Out Umm Qasr) and IGB was responsible for discharge and transportation of the wheat within Iraq. AWB was, however, obliged to pay a fee of US$12.00 per tonne to Iraq and the fee payable was added to what would otherwise have been the negotiated GIF price of the wheat.

31.91 As was the case with contracts A4653, A4654 and A4655, the short-form and long-form contracts and the Notification form referable to this contract that were lodged with DFAT did not reveal the true arrangements between AWB and IGB. The long-form contract made no reference to the payment of a US$12.00 fee and the short-form contract contained a clause referring to the payment of a 'discharge cost' in the same terms as the clause in each of contracts A4653, A4654 and A4655.

31.92 The evidence concerning the knowledge of senior AWB officers in relation to the true arrangements between AWB and IGB in relation to this contract, and the fact that these true arrangements were concealed from DFAT and the United Nations has been discussed in the context of contracts A4653, A4654 and A5655. There is, however further evidence relating to the concealment of the true arrangements that relates to the period relevant to this contract and the shipments made under it.

31.93 Contract A4822 was negotiated together with, and entered into at the same time as, contract A4821. Contract A4821 was treated as a contract under phase IV of the Programme and was therefore not subject to IGB's

requirement to pay the US$12.00 fee. The contract was expressed to be on GIF Free Out terms. The GIF Free Out price in contract A4821 was exactly US$12.00 per tonne less than the GIF Free in Truck price in contract A4822 * thus demonstrating that the fee payable under contract A4822 was simply

added to the negotiated GIF Free Out price. Despite there being no contractual or other obligation to pay fees in respect of wheat shipped under contract A4821, AWB paid US$12.00 per tonne to Tse Yu Hong Metal Limited for payment on to Alia.

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31.94 The terms of other contracts entered into by AWB at about the same time as A4822 are also illustrative of the true arrangements between AWB and IGB. In particular, AWB entered into contracts to sell wheat to two grain trading companies in December 1999. AWB entered into these contracts to enable the

grain traders to fill contracts that they had earlier concluded with IGB. Despite the fact that the grain was to be shipped to Iraq, because the grain traders had contracted with IGB, it was their grain trader's contracts with IGB that were ultimately submitted to the United Nations for approval. AWB's contracts were not submitted to DFAT because it was unnecessary for AWB to obtain United Nations approval in respect of these contracts. The clear inference is that the contracts were drafted with knowledge that they would not be seen by DFAT or the United Nations. It is of considerable significance that the contracts entered into by AWB with the grain traders included the following clause:

This price includes a fee of USD12.00 per tonne to be paid directly by Sellers to Grain Board of Iraq advised account, for each shipment at latest 3 days prior to the arrival of each shipment.

31.95 This clause is to be contrasted with the clause in the near contemporaneous AWB contracts that were submitted to DFAT, including contracts A4653, A4654, A5655 and A4822. It is to be noted that it is explicitly stated in the clause that the contract price includes the payment of US$12.00 per tonne and that the payment is described as a fee. It is not described as a 'discharge cost' to a maximum of US$12.00. It is also stated that the money is to be paid to 'Grain Board of Iraq advised account', as opposed to the 'nominated Maritime Agents in Iraq.' There is also no reference to the clause being subject to UN approval of the Iraq distribution plan.

31.96 In short, the clause in AWB's contracts with the grain traders accurately described the true arrangements in place relating to the payment of the US$12.00 fee. There is no explanation as to why these arrangements, and particularly the US$12.00 per tonne fee, were not accurately described in the AWB short from contract A4822. The only reasonable inference is that AWB's contracts with the grain traders accurately recorded the arrangements because there was no requirement to disclose it to DFAT or the United Nations. On the other hand, the clause in the contracts that were to be submitted to DFAT and the United Nations was drafted in such a way as to misrepresent the true nature of the arrangements.

31.97 The actual payments of the fees referable to A4821 and A4822 contracts were made to Alia through the Liechtenstein registered nominee of Ronly Holdings Limited, Tse Yu Hong Metal Limited. Alia in turn transferred the fees to Iraq. It was known to all officers at AWB who were involved with the Iraq trade

Report of the Oil-for-Food Inquiry 145

and the fee payments that Ronly and its nominee performed no service relating to the transport of the wheat. The only service they provided was as a conduit in relation to the payments, for which service AWB remunerated Ronly. The only rationale for the convoluted payment mechanism was to disguise the payments and distance AWB from what was recognised by senior officers of AWB to be payments that contravened the sanctions. Mr Emons' email to Mr Bali of Ronly on 7 March 2000 makes this clear.

31.98 Further, correspondence during the period referable to this contract and the

shipments made under it clearly indicated that AWB was aware that the United Nations did not know that AWB's arrangements with IGB included the payment of fees to Iraq. In a fax to IGB on 7 April 2000, Mr Emons wrote that 'you [IGB] will be aware of the restrictions that the UN has placed on such payments ...we can discuss with the UN as to the appropriate method for paying the trucking fee/ As discussed below, Mr Emons' evidence was

that the purpose of this letter was to threaten IGB with disclosure to the UN of the trucking fee 'system.' It is implicit in this that the United Nations was ignorant of, and certainly had not approved, the payment of the fees to Iraq, as AWB knew.

31.99 I made the same findings as I made in relation to contracts A4653, A4654 and

A4655 in relation to contract A4822, namely:

(a) Senior officers of AWB knew that the arrangements between AWB and IGB in relation to the supply of the wheat the subject of contract A4822 included that AWB was to supply the wheat to Iraq on terms GIF Free Out Umm Qasr, but pay a fixed fee of US$12.00 per tonne, to an Iraqi entity at the direction of IGB.

(b) Senior officers also knew that the contractual documents that AWB supplied to DFAT for transmission to the United Nations did not disclose the true arrangements in relation to the payment of the fee of US$12.00 per tonne. The clause that recorded AWB's obligation to pay a 'discharge cost' to a maximum of US$12.00 did not fully or accurately record the arrangements.

(c) The same officers knew that the payment of a US$12.00 fee to an Iraqi entity contravened the sanctions and that the United Nations had not approved the making of such a payment. For this reason the payments were disguised.

(d) Throughout the period that officers of DFAT and the United Nations were responsible for making decisions or taking action relevant to this contract, namely October 1999 and April 2000, AWB, through its senior officers,

146 Report of the Oil-for-Food Inquiry

concealed from DFAT the fact that its arrangements with IGB were materially different to those recorded in the contract and the UN Notification forms referable to them, and that the arrangements included payments by AWB indirectly to Iraq in contravention of the sanctions.

(e) The concealment of those facts was intentional and dishonest and intended to influence the actions of DFAT and the UN in relation to the contract and shipments made under it.

31.100 The officers who were involved in, or knew about and authorised, the

negotiation of this contract and the associated arrangements with IGB, the drafting and submission of the contracts to DFAT and the concealment of information relating to the arrangements were the same as those involved in contracts A4653, A4654 and A4655, namely Messrs Rogers, Flugge, Ingleby, Officer, Emons, Hogan, Watson, and Lister.

The Russian trade: contracts A4908, A4906 and A4907

31.101 In December 1999, AWB concluded contracts with foreign grain trading

companies in relation to the supply of wheat to Iraq. The grain traders entered into these contracts in order to fulfil contracts that the Russian companies had with IGB. Because AWB's contracts were not with IGB, it was not necessary for AWB to seek approval from the United Nations under the Oil-for-Food Programme. Such approval was sought by the Russian companies through the mission of the country in which they were based, namely the Russian Federation. Accordingly AWB did not submit these contracts to DFAT. However, because the wheat the subject of these contracts was shipped from Australia, it was necessary for AWB to obtain permission to export under the Customs (Prohibited Exports) Regulations.

31.102 AWB entered into contract A4908 with Commodity Specialists Company

(CSC) on 2 December 1999. It was negotiated and authorised by Mr Borlase under the supervision of Mr Emons. The written contract was signed by Mr Emons. As indicated above, the contract included the following clause:

6. PRICES

USD [deleted] per tonne GIF FOT to silo at all governates of Iraq via Umm Qasr port.

This price includes a fee of USD 12.00 per tonne to be paid directly by Sellers to Grain Board of Iraq advised account, for each shipment at latest 3 days prior to the arrival of each shipment.

31.103 As previously indicated, it is of significance that this clause makes it clear that

the payment of US$12.00 was:

Report of the Oil-for-Food Inquiry 147

(a) a fee

(b) payable directly to an account nominated by IGB

(c) included in the specified price per tonne.

31.104 The fee was not said to be for 'discharge' or 'transportation.'

31.105 In short, this clause more accurately described the true nature of the

arrangements between AWB and IGB than did the clause that referred to the payment of the 'discharge cost' in contracts A4653, A4654, A4655 and A4822. It can have been no mere coincidence that the contracts that did not go to DFAT and the United Nations clearly and accurately described the nature of the arrangements concerning the payment of the fee, whereas contracts that did go to DFAT and the United Nations did not.

31.106 Despite the fact that this clause referred to the price being on terms GIF FOT

to silos in all governates, it is clear that AWB did not regard itself as contractually bound to discharge and deliver the goods within Iraq. AWB had made no arrangements with any company for the transport of the wheat the subject of these contracts to silos throughout Iraq. The fact that AWB did not regard itself as contractually obliged to deliver the goods is also apparent from correspondence between Mr Lister of AWB and CSC in which Mr Lister requested that the letter of credit be amended by deleting any reference to delivery to silos in all governorates and inserting instead clauses that made it clear that the price and destination were described as GIF Umm Qasr. As Mr Lister put it in a telex to CSC: 'what happens to the goods after that [arrival and discharge] is strictly beyond our/your control and as such should not impinge on L/C requirements.' Mr Emons was aware of, and involved in, Mr Lister's efforts to have the letter of credit amended.

31.107 Consistent with clause 6 of the contract, AWB Chartering paid fees of

US$12.00 per tonne in respect of the two shipments of wheat under this contract. AWB paid these fees despite the fact that it had no contractual obligation to transport or deliver the wheat to silos in Iraq. The fees in respect of the first shipment were paid to Alia and the fees in respect of the second shipment were paid to Tse Yu Hong Metal Limited for payment on to Alia. It follows that Alia's account in Jordan was the IGB 'advised account.' The only purpose of the interposition of Tse Yu Hong Metal Limited was to 'disguise the fee.'

31.108 Mr Lister, on behalf of AWB, applied for and obtained approval from a

delegate of the Minister to export wheat the subject of contract A4908 on 22 and 23 February 2000 (in respect of the first shipment under the contract) and 24 March 2000 (in respect of the second shipment). In seeking permission to

148 Report of the Oil-for-Food Inquiry

export this wheat, AWB provided DFAT with copies of United Nations approvals that had been obtained by the Russian Federation on behalf of a Russian based grain trader associated with CSC. AWB did not provide DFAT with a copy of its contract with CSC, or otherwise advise it that the

contractual arrangements it had with CSC included a requirement that it pay substantial fees direct to IGB.

31.109 The criterion for the grant of permission to export under the Customs

(Prohibited Exports) Regulations is that the Minister be satisfied that the export would not infringe Australia's international obligations. For the reasons given above, by the time that permission to export was sought in relation to the shipments under contract A4908, senior officers of AWB knew that AWB had agreed to, and would pay fees of US$12.00 per tonne to Iraq before the shipments were discharged in Iraq, that the payment of these fees was indirectly a payment to Iraq and as such a breach of UN sanctions, and that the making of these payments had not been approved by the United Nations. They must, therefore, have known that the fact that AWB had agreed to, and would, pay these fees before the shipments were discharged in Iraq was a fact material to DFAT's consideration of whether the export of this wheat would infringe Australia's international obligations and whether permission to export should be granted. They must therefore have known that they were obliged to disclose this to DFAT. Yet there is no suggestion that this information was disclosed to DFAT. Indeed, as already indicated, the payments that were to be made to IGB under the terms of this contract were disguised as payments to Tse Yu Hong Metal Limited and Alia because it was known that DFAT and the United Nations did not know about the payments. Tse Yu Hong Metal and Alia were interposed to distance AWB from the payments to avoid detection of the fact that the payments contravened or circumvented the UN sanctions.

31.110 The circumstances surrounding contract A4906 were relevantly the same as

contract A4908. It was entered into with Savas Grain & Commodities Ltd on 14 December 1999. It was negotiated and authorised by Mr Borlase and signed by Mr Emons. It contained a price clause in identical terms to the clause in contract A4908 considered above. AWB Chartering paid fees of $US 12.00 referable to the two shipments under this contract to Alia in two instalments in March 2000. Mr Lister sought and obtained permission for AWB to export the two shipments of wheat referable to this contract on 14 February 2000. In applying for permission, AWB sent DFAT a copy of the United Nations approval obtained by the Russian Federation on behalf of a Russian-based company associated with Savas Grain. AWB did not provide DFAT with a copy of its contract with Savas Grain or otherwise advise it that under its

Report of the Oil-for-Food Inquiry 149

arrangements to supply the wheat it was obliged to pay fees of US$12.00 to IGB.

31.111 Contract A4907 was also with Savas Grain and was also entered into on 14

December 1999. A significant difference between A4906 and A4907 was that, because A4907 related to the supply of wheat under phase V of the Oil-for- Food Programme, Savas Grain advised AWB that no payment of US$12.00 was required. Accordingly the contract provided that the price was on terms 'OF Free Out Umm Qasr port' and the price was exactly US$12.00 per tonne less than the price in A4906. Despite there being no contractual or other obligation to pay fees in respect of wheat shipped under this contract, AWB paid US$12.00 per tonne to Tse Yu Hong Metal Limited for payment on to Alia. In this respect it was similar to contract A4821 considered above.

31.112 The AWB officers who were directly involved in these contracts and the

obtaining of permission to export the wheat the subject of them were Mr Emons, Mr Borlase and Mr Lister. Whilst the evidence before the Inquiry does not indicate that Messrs Rogers, Flugge, Ingleby and Officer were directly involved in these contracts, it is nevertheless clear that they had previously authorised contracts or arrangements that provided for the payment of fees to IGB or an Iraqi entity, and that they knew that these arrangements had not been, and could not be, disclosed to DFAT and the United Nations. It is unlikely that Messrs Borlase and Emons would have agreed to such an extraordinary clause in an AWB contract without approval from senior management. In these circumstances, it should be inferred that they either expressly or impliedly authorised or approved the payments to Iraq in relation to these contracts. Mr Watson was responsible for arranging the payment mechanism through Tse Yu Hong Metal and the fees were paid for by the Chartering Division that he headed.

Contracts A4970, A4971 and A4972

31.113 The circumstances relating to these contracts are addressed in Chapter 15.

They were entered into on 2 February 2000. Copies of the short and long-form contracts were sent by Mr Borlase to DFAT on 4 February 2000. The short from contracts were signed by Mr Emons. Permissions to export wheat referable to these contracts were sought by Mr Lister on behalf of AWB and granted by delegates of the Minister between 31 March 2000 and 4 September 2000.

31.114 These contracts were under phase VII of the Programme. The relevant Iraqi

wheat tender for this phase included, in relation to price:

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CIF Free on Truck to all silo to all govemate of Iraq. Cost of discharge at Umm Qaser and land transport will be U.S.D. (14) per metric ton. To be paid to the Land Transport Co. For more details contact Iraqi Maritim in Basrah.

31.115 As was the case with the earlier contracts, it was apparent that to secure a contract under this tender, AWB would be required to pay a fee of US$14.00 to the 'Land Transport Co/ an Iraqi entity. Following negotiations between IGB and Mr Emons, IGB and AWB struck an agreement the effect of which was that AWB would pay IGB a fee of US$15.00 per tonne and that this fee would be included in the price. It is unclear why Mr Emons agreed to pay fees in excess at those identified in the tender. AWB drafted short-form contracts that contained a clause in substantially the same terms as the 'discharge cost' clause in the earlier contracts, except that the 'discharge cost' was specified as being a maximum of US$15.00. By the time that the short-form contracts came to be executed, however, this clause had been deleted from the contracts. The IGB prepared long-form contract also made no reference to the payment by AWB of a discharge cost, transport cost, or fee. Both forms of the contracts expressed the terms to be 'CIF Free on Truck to all silos within all governates of Iraq.' Neither forms of the contract revealed that the CIF Free on Truck price had included in it the fee payable by AWB to Iraq.

31.116 Thus, despite the terms of the agreement between AWB and IGB, the contracts that were submitted to DFAT and ultimately to the United Nations did not reveal in any way AWB's obligation to pay a fee, or that the fee had been included in the price, or that the fee was payable to an Iraqi entity. The contracts also recorded that the terms were CIF Free in Truck, thus suggesting that AWB's contractual obligations included discharge and delivery. In truth, however, nothing had changed from the position that existed in the earlier contracts. That is, AWB had no contractual obligation to discharge or transport the wheat to all governates, only an obligation to pay a fee to an Iraqi entity. AWB made no arrangements for either discharge or trucking within Iraq.

31.117 In short, the documents submitted to DFAT and the United Nations did not accurately reflect the arrangements in fact in place between AWB and IGB.

31.118 The only reasonable inference to be drawn from the deletion from the draft short-form contracts of any reference to the payment of a 'discharge cost' is that it was intended to conceal from DFAT and the United Nations AWB's agreement or obligation to pay the fee. These contracts were negotiated and finalised within weeks of the Canadian complaint having been raised with AWB. It was apparent to senior officers of AWB that both the United Nations and DFAT were looking into the very matter of payments of US$14.00 per metric tonne of wheat 'outside the Oil-for-Food Programme' to an account in

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Jordan. It must have been apparent to officers at AWB that the implication was that the United Nations considered such payments to be suspect. An available inference is that a decision was made at AWB to delete any reference in the short-form contract to the requirement to pay a discharge cost because this was more likely to be scrutinised by DFAT and the United Nations as a

result of the Canadian complaint.

31.119 This was effectively conceded by Mr Officer in his evidence to the Inquiry. Mr Borlase, on the other hand, said that the change was made in compliance with instructions from Mr Emons to bring the terms of the short from contract into line with the long-form contract. Whilst he had no specific recollection of the circumstances in which the change was made, Mr Emons thought it may have been made because of a desire not to 'advertise the fact we were paying a fee'. I do not doubt that was the reason for the change.

31.120 There can be no question that the contracts that AWB submitted to DFAT did not record the true arrangements between AWB and IGB in relation to the supply of the wheat the subject of these contracts because:

(a) AWB was not contractually responsible for delivering the wheat free in truck to all governates.

(b) AWB was, as part of the agreement with IGB, obliged to pay a fee of US$15.00 per tonne to an Iraqi entity. This is not revealed in any way in the contracts.

(c) The fee payable by AWB to an Iraqi entity was added to, or included in, the contract price. This was not revealed in the contracts.

31.121 Nor could there be any doubt that these aspects of the actual arrangements between AWB and IGB were deliberately and dishonestly concealed from DFAT and the United Nations. Four things that occurred contemporaneously with these contracts and the permissions to export related to them make this clear. The first is the Canadian complaint, which included a denial by senior officers of AWB that its contracts involved the making of any payments to accounts in Jordan outside the terms of the Oil-for-Food Programme when clearly it was making payments to Alia at this time. Second, Messrs Flugge, Officer, Emons and Watson met with Mr Bali of Ronly in early 2000 to arrange for Ronly to act as a conduit in relation to the payment of the fees because of concerns that the fees breached the UN sanctions. Mr Emons' 7 March 2000 email to Ronly demonstrates that the intention of interposing Ronly was to disguise the fees. An available inference is that the approach to Ronly was motivated by the Canadian complaint.

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31.122 Third, the letter that Mr Emons drafted for signature by Mr Flugge in early

April 2000 makes it plain that AWB 'intended to remain committed to the terms of trade agreed between IGB and AWB' despite the Canadian complaint and AWB's knowledge that the payments were contrary to the sanctions. The fourth matter was a letter that Mr Emons sent to the Director General of IGB In on 7 April 2000 on the eve of his trip to Iraq with Mr Watson. In that letter, which was sent in the context of a suggestion that the Director General may not meet with the AWB delegation in Iraq, Mr Emons referred to the 'restrictions that the UN has placed on' the payment of the 'trucking fee' and threatened that if the Director General of IGB did not meet with the AWB delegation, AWB would 'discuss with the UN as to the appropriate method of paying for the trucking fee.' Mr Emons agreed in evidence that he was using the fact of illegality as a threat, the threat being that 'we would make the UN aware completely of the trucking arrangements for everybody.' The threat was credible only if Mr Emons knew the United Nations had not approved the fee payments. Mr Emons agreed that because the Director General agreed to meet with Messrs Emons and Watson, he never followed through on his threats to go to the UN about the trucking fee and the manner of payment.

31.123 As with the earlier contracts, AWB disguised and distanced itself from the

payments to Iraq by the interposition of shipping companies, Ronly, Tse Yu Hong Metal Limited and Alia.

31.124 In summary, I make the following findings in relation to contracts A4970,

A4971 and A4972:

(a) Senior officers of AWB knew that the arrangements between AWB and IGB in relation to the supply of the wheat the subject of contracts A4970, A4971 and A4972 included that AWB would supply the wheat to Iraq on terms CIF Free Out Umm Qasr, but would pay a fixed fee of US$15.00 per tonne, to an Iraqi entity via Alia.

(b) Senior officers also knew that the contractual documents that AWB supplied to DFAT for transmission to the United Nations did not disclose the true arrangements between AWB and IGB in relation to the supply of the wheat the subject of these contracts. They did not disclose AWB's obligation to pay the US$15.00 fee or that this fee had been incorporated in the contract price.

(c) The same officers knew that the payment of a US$15.00 fee to an Iraqi entity contravened the sanctions and that the United Nations had not approved the making of such a payment. For this reason the payments were disguised.

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(d) Throughout the period that officers of DFAT and the United Nations were responsible for making decisions or taking action relevant to these contracts and the wheat shipments made under them, namely February 2000 to September 2000, AWB, through its senior officers, concealed from DFAT the fact that its arrangements with IGB were materially different to those recorded in the contracts and the UN Notification forms referable to them, and that the arrangements included payments by AWB indirectly to Iraq in contravention of the sanctions.

(e) The concealment of those facts was intentional and dishonest and intended to influence the actions of DFAT and the UN in relation to the contracts and shipments made under them.

31.125 The officers who were involved in, or knew about and authorised, the negotiation of these contracts and the associated arrangements with IGB, the making or payments pursuant to the arrangements, the drafting and submission of the contracts to DFAT and the concealment of information relating to the arrangements and payments were Messrs Rogers, Flugge, Ingleby, Officer, Emons, Watson, Lister and Borlase. As discussed below, Mr Stott rejoined AWB during the time that Permissions to export referable to these contracts were issued. Mr Fiogan also returned to AWB's Melbourne office during that time.

31.126 Mr Rogers left AWB in April 2000. Whilst the evidence does not indicate that he had any direct involvement in relation to these contracts, he had previously authorised the payment of the so-called transport fees and the mechanism by which they were paid.

31.127 In relation to Mr Flugge, Mr Emons' evidence was that he discussed with Mr Flugge the fact that the trucking fee had increased and that Mr Flugge needed no explanation about the nature of the trucking fee or the complicated mechanism by which it was paid. As discussed below in the context of contract A0265, A0266 and A0267, prior to his trip to Iraq in April 2000, Mr

Emons discussed the 'finer points' of the trucking fee with Mr Flugge, including the complicated payment mechanism through the shipping companies, Ronly and Alia, and Mr Flugge advised that he was happy for the trade to continue on this basis so as to avoid threats from AWB competitors.

31.128 By July 2000, Mr Stott had returned to AWB and was appointed to the office of General Manager, Sales and Marketing. In this position he was in charge of the division in AWB that was responsible for contracting with Iraq. As discussed below in the context of contracts A0265, A0266 and A0267, shortly following his appointment Mr Stott became fully apprised of the arrangements in place between AWB and IGB, including the arrangements in

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relation to the payment of fees, and the fact that these arrangements had been concealed from DFAT and the United Nations. Shipments of wheat under contracts A4970, A4971 and A4972 continued until September 2000. Permissions to export were sought and granted by delegates of the Minister in relation these shipments. Despite his knowledge of the arrangements and the fact that they had not been disclosed to DFAT and the United Nations, Mr Stott took no steps to ensure that DFAT was apprised of the true

arrangements between AWB and IGB. It follows that, even though the contracts were submitted to DFAT before his appointment, Mr Stott was nonetheless involved in the concealment of information from DFAT in relation to the contracts.

31.129 Mr Hogan had little or no direct involvement in the negotiation of these contracts or the associated arrangements and the payment of the fees to Iraq. He was located in AWB's Cairo office during the period that the contracts were negotiated and entered into. However, in about July or August 2000 Mr Hogan returned to AWB's Melbourne office and took up an appointment as Regional Manager * Middle East. Mr Hogan's evidence was that he learnt about the Canadian complaint upon his return to the Melbourne office. After his return he took no steps to ensure, in relation to permissions to export that were applied for in respect of these contracts, that DFAT was notified of the arrangements in relation to the fees paid and payable to Iraq that he knew had not been disclosed to, let alone approved by, DFAT and the United Nations.

31.130 Messrs Emons and Officer departed AWB in June and July 2000 respectively.

Further Russian trade: contracts A4993, A0662 and A0101

31.131 The circumstances relating to these contracts are similar to those relating to the contracts entered into between AWB and Savas Grain and CSC in December 1999 (A4906, A4907 and A4908) considered above. Contract A4993 was entered into on about 4 February 2000, contract A0662 was entered into on 15 March 2000 and contract A0101 was entered into on 6 April 2000. In each case the contract entered into by AWB included a clause requiring AWB to pay either an 'IGB nominated trucking fee' or a fee of $US15.00 per tonne to either 'Trucking Company advised account' or 'Grain Board of Iraq advised account.' Fees amounting to US$15.00 per tonne for all shipments under these contracts were paid by AWB in the same way as it paid the fees payable under its contracts with IGB *that is to Iraq via Tse Yu Hong Metal Limited and Alia.

31.132 Mr Emons negotiated and signed contract A4993 and was aware of the term obliging AWB to pay the 'trucking fee.'

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31.133 AWB was provided with a copy of the contract between Savas Grain and IGB.

It made no reference to the payment of any fee of US$15.00.

31.134 As was the case with the earlier Russian contracts, AWB did not seek United

Nations approval of its contracts with Savas Grain or CSC and therefore did not send its contracts to DFAT. United Nations approval was sought and obtained by the Russian Federation on behalf of Russian companies

associated with Savas Grain and CSC. AWB relied on the approvals obtained by the Russian Federation when seeking permission to export the shipments of wheat under these contracts from a delegate of the Minister during the period August to October 2000. When seeking permission to export, Mr Lister, on behalf of AWB, did not advise DFAT, or through it the Minister, that its arrangements to ship this wheat to Iraq included that it was required to pay a fee of $US15.00 to Iraq. The payments that were made by AWB pursuant this requirement were disguised so as to avoid detection of the payments by DFAT or the United Nations.

31.135 As was the case with the earlier Russian contracts entered into in December

1999, AWB's non-disclosure to DFAT of the fact that its arrangements relating to these shipments included a requirement to pay a fee to Iraq was deliberate. At the time that these arrangements were entered into, senior officers of AWB knew that such payments were not permitted under the sanctions. They must have known that if DFAT had been informed of these arrangements, it would have been obliged to advise the Minister, or his delegate, not to issue permissions to export the wheat the subject of these contracts.

31.136 The officer principally involved in negotiating and causing AWB to enter into

these contracts was Mr Emons. However, the following officers were also responsible for documenting and authorising the arrangements and the payments made pursuant to them. Mr Lister was responsible for applying for permission to export. Mr Watson was involved insofar as the Chartering Division, which he headed, was responsible for paying the fees. He also was responsible for establishing the payment mechanism. As with the previous

Russian contracts, it may be readily inferred that Messrs Rogers, Flugge, Ingleby and Officer knew about and authorised these contracts or the arrangement to pay the fees to an Iraqi entity pursuant to them, and that they knew that these arrangements and payments had not been disclosed to DFAT and the United Nations. By the time permission to export the shipments referrable to these contracts was sought and given (August to October 2000), however, Messrs Rogers, Officer and Emons had all left AWB. Mr Hogan had returned to AWB's Melbourne office as Regional Manager * Middle East by this time. Mr Stott had also taken up his position as General Manager, Sales and Marketing by this time. Having regard to their positions and knowledge of the arrangements in relation to earlier contracts, it is open to infer that, by

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the time that permissions to export were sought in relation to these contracts, Messrs Stott and Hogan were aware of AWB's agreement to pay fees to Iraq referrable to them and that these fees were not disclosed to DFAT when the permissions to export were applied for. They were both in positions with authority to ensure that permissions were not sought from DFAT without disclosure of the arrangements in relation to payment of fees. Their failure to act amounted to implicit, if not express, authorisation of the concealment of the facts from DFAT.

Contracts A0265, A0266 and A0267

31.137 The circumstances relating to these contracts are addressed in Chapter 17.

They were entered into on about 16 July 2000. The short-form contracts were signed by Mr Stott. Copies of the short and long-form contracts were sent by Mr Hogan to DFAT on 14 August 2000. Permission to export wheat referable to this contract was sought by Mr Lister and granted by delegates of the Minister between 12 October 2000 and 5 March 2001.

31.138 These contracts were under phase VIII of the Programme. The Iraqi tender

was in essentially the same terms as the phase VII tender in that it required the supplier to pay US$14.00 per tonne to the Iraqi State Company for Water Transport. Like contracts A4970, A4971 and A4972, the short and long-form contracts A0265, A0266 and A0267 that AWB submitted to DFAT (and ultimately the United Nations) did not contain any reference to any obligation on the part of AWB to pay a 'discharge cost' or fee of any sort, or that this fee was added to or included in the contract price. It is clear, however, that the arrangements between IGB and AWB did include the payment of a fee: fees of US$14.00 per tonne were paid in respect of each of the shipments made by AWB under these contracts. All the fees were paid by AWB Chartering direct

to Alia.

31.139 The evidence concerning the knowledge of senior AWB officers in relation to

the true arrangements between AWB and IGB in relation to the payment of fees, and the fact that these true arrangements were concealed from DFAT and the United Nations has been discussed in the context of the earlier contracts. Of significance, however, is that by the time that these contracts were entered into and performed, there had been a significant management restructure at AWB following the appointment of Mr Lindberg as Chief Executive Officer in April 2000. This restructure is addressed in Chapter 18. In addition to the appointment of Mr Lindberg, the main changes relevant to the

Iraq trade were the departure of Messrs Officer and Emons and the return of Mr Stott. Mr Hogan also returned to AWB's Melbourne Office in about August 2000 and took up the position of Regional Manager * Middle East.

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31.140 Prior to his departure in June 2000, Mr Emons travelled to Iraq in April and May, together with Mr Watson. Communications prior to, and reporting on, these trips reveal clearly that Mr Emons, Mr Watson and those to whom they reported, in particular Mr Officer, were aware that AWB's arrangements with IGB involved the paying of fees to Iraq and that the UN neither knew of, nor approved, these payments. In particular:

" Prior to his trip to Iraq in April 2000, Mr Emons discussed with Mr Flugge the 'finer points of the trucking fee,' including the complicated mechanism for paying the fees via shipowners. Messrs Flugge, Officer, Emons and Watson met with Ronly to request Ronly's assistance in paying the fee because of concerns that it breached the UN sanctions. Mr Emons' 7 March 2000 email makes it plain that the intention was to disguise the fee.

" In an email to Mr Watson shortly before his trip, Mr Emons reported that Mr Flugge was 'happy for us to carry on in fact he is determined that we should be accommodating to the Iraqi's so that our business does not come under threat from our US or CWB friends.' The reference to 'CWB' was a reference to Canadian Wheat Board. By this time, Mr Flugge was well aware that the Canadian Wheat Board had refused to pay a trucking fee to Iraq outside the terms of the Oil-for-Food Programme. The only reasonable inference to be drawn from this exchange is that Mr Flugge was prepared to have AWB pay the fees and conceal this from the United Nations to ensure that it retained the Iraqi business. That this was Mr Flugge's attitude is confirmed in the letter that Mr Emons drafted for Mr Flugge to sign following his discussions with Mr Flugge in early April 2000. The draft letter records that AWB remained 'committed to the terms of trade agreed between IGB and AWB' despite the Canadian complaint. The letter was signed by Mr Flugge and delivered to an Iraqi Minister.

" Prior to Mr Emons and Mr Watson's trip, Mr Emons faxed a letter dated 7 April 2000 to the Director General of the IGB. This letter has been considered above. In it, Mr Emons included a thinly veiled threat to expose to the United Nations Iraq's use of transportation fees to circumvent the sanctions if the Director General refused to meet the AWB delegation. It was unnecessary to carry out this threat because the Director General agreed to and did meet with Messrs Emons and Watson. Mr Emons discussed the making of this threat with Mr Officer.

" Mr Emons and Mr Watson met with Mr A1 Absi in Jordan in April 2000. The discussions concerned the proposal to appoint Alia as a protective agent for AWB. There were no discussions about trucking or transport. There could be no doubt that Messrs Emons and Watson knew that Alia

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was not transporting the wheat in Iraq for AWB because AWB had no contract with Alia to do so. Had Alia been trucking AWB wheat, that would have been the subject of some discussion.

" On 17 April, Mr Watson signed a letter of appointment of Alia as AWB's protective agent. The letter set out the respective terms and conditions of the appointment. This may be contrasted with AWB's position in relation to the trucking fee payments it was making to Alia. No attempt was ever made to document the terms and conditions upon which these payments were made. AWB did not enter into any agreement with Alia despite paying it millions of dollars in inland transportation fees. It was not until October 2003 when AWB was obliged to honour the terms of its written contracts for the first time and arrange for the transportation within Iraq that AWB concluded an agreement with Alia.

" In an email to Mr Officer during the May 2000 trip to Jordan and Iraq, Mr Watson wrote that 'UN Contract does not allow for payment of demurrage/ despatch, i.e. no transfer of funds, with exception of trucking fees, as agreed in the contract and approved by UN Security Council/ This demonstrated that Mr Watson knew that the fees were paid to Iraq. The reference to UN approval was disingenuous. Both Mr Watson and Mr Officer knew that the Security Council did not know about, let alone approve, any 'transfer of funds' concerning 'trucking fees.' Mr Officer forwarded Mr Watson's email to Messrs Ingleby, Emons, Watson, Snowball, Geary and Ms Scales.

" During the meetings with the IGB in May 2000, there were discussions concerning the possibility of compensating AWB for increased demurrage by making adjustments to the trucking fee. This would not have been possible if AWB had a contract with Alia to perform trucking services, or if the fee represented the true cost of trucking grain. An email that Mr Watson sent to Mr Officer on 29 May 2000 reporting on his discussions with Alia and the Minister for Trade made it clear that transportation was the responsibility of the 'Director General of inland transport' in Iraq, not Alia.

" During the trip, IGB disclosed to AWB that the Minister for Trade

proposed to increase the trucking fee for phase VIII contracts but that this had not yet been approved by the President. The reports on the meeting prepared by Messrs Watson and Emons clearly show that both well understood that the so called 'trucking fee' was simply a guise for fees payable to Iraq.

Report of the Oil-for-Food Inquiry 159

31.141 Mr Lindberg was appointed Chief Executive Officer in April 2000. Mr Emons' evidence was that he had discussions with Mr Lindberg after his appointment and that during those discussions he referred to the payment of trucking fees and that AWB had been instructed by IGB to pay those fees. Mr Lindberg's evidence was that he became aware of the Oil-for-Food Programme and the fact that a trucking cost was incorporated in AWB's contracts during Corporate Risk Committee meetings during 2000, though he said that he was also told that this had been approved by the United Nations. The evidence does not suggest that Mr Lindberg's knowledge of the trucking fees at this time extended beyond this limited knowledge.

31.142 The same cannot be said of Mr Stott. The evidence before the Inquiry supports a finding that Mr Stott, who replaced Mr Officer as General Manager, International Sales and Marketing, quickly became fully apprised of the arrangements in place between AWB and IGB, including the arrangements in relation to the payment of fees, and the fact that these arrangements had been concealed from DFAT and the United Nations. Whilst Mr Stott put an end to the involvement of Ronly (and its nominee, Tse Yu Hong Metal Limited) in channelling the fee payments to Iraq, he approved and authorised direct payments of the fees to Alia, knowing that Alia was also acting as a mere conduit and was not in fact providing any trucking or transport services for AWB. He took no steps to advise DFAT of the payments of trucking fees, and indeed assisted in concealing this from DFAT. The following material supports this finding.

" Upon taking up his position, Mr Stott was told that AWB was using Ronly as a conduit for the payment of money to Alia for the purpose of

distancing AWB from the payments. Whilst he claimed that he did not believe that this was the explanation for the payments to Ronly, he nevertheless decided to put a stop to the arrangement with Ronly. At the very least, the claim by those who were responsible for setting up the payment mechanism that the mechanism had been put in place to distance AWB from the payments put Mr Stott on notice of issues concerning the propriety of AWB's payment of the fees. The effect of Mr Stott's direction to cease using Ronly was that the fees were paid by AWB

direct to Alia's bank account in Jordan.

" It is clear from an email that Mr Stott sent to Mr Snowball on 31 July 2000, and a letter that Mr Hogan sent to DFAT on 7 August 2000, that it was well known by all concerned at AWB that payments to Iraq were not permitted under the sanctions.

" Mr Stott claims to have investigated the probity of the payment of the trucking fees, both by making inquiries of Messrs Hogan and Watson and

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by examining the contracts. In relation to the latter, the contracts entered into in July and the previous group of contracts entered into in February 2000 said nothing about the payment of trucking fees. Whilst Mr Stott claims to have taken comfort from the fact that the contracts referred to the delivery to all governates in Iraq, he could not seriously have entertained the belief that AWB had assumed contractual responsibility for delivery. Had Mr Stott actually investigated the probity of the mechanism for paying the trucking fees, he would have discovered that AWB had no contract with Alia, or any other entity, in relation to the transportation of the wheat within Iraq, or any insurance that covered transportation, and had never endeavoured to negotiate, or even ascertain the basis of, the amount of the fee payable. The only available inference is that Mr Stott could have taken no comfort from the reference in the contracts to delivery to silos in all governates in Iraq. He knew it was false.

" In relation to Mr Stott's claim that Messrs Watson and Hogan told him that the payments had been approved by the United Nations, Mr Hogan had no recollection of Mr Stott ever asking him about whether the trucking fee had been approved, though Mr Hogan claimed in evidence that if he had been asked, he would have told Mr Stott that it had been approved. Having regard to the state of Mr Hogan's knowledge by this stage, Mr Hogan's evidence to that effect should be rejected. There is no evidence of any correspondence between Mr Stott and Messrs Hogan and Watson on this topic.

" In any event, even if Mr Watson had told Mr Stott that the payment had been approved by the United Nations, having regard to the fact that Mr Watson had also told him that the payments had been made through Ronly to distance them from AWB and the fact that, according to Mr Stott, he regarded this as a false explanation, one could reasonably expect Mr Stott to have entertained some doubts or at least scepticism concerning this advice. One way that he could have resolved such doubts would be to ask DFAT whether it knew about the payments and whether they had been approved by the United Nations. By early August 2000 Mr Stott was corresponding with DFAT in relation to the terms of AWB's trade with Iraq, but he never sought confirmation or advice from DFAT about the trucking fees. In his evidence before the Inquiry, Mr Stott was unable to provide any rational reason why he did not raise this matter with DFAT. An available inference is that he never asked DFAT whether the fees had been approved because he knew what the answer would be if he did. As discussed further below, Mr Stott's subsequent correspondence with

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DFAT in October and November 2000 points even more clearly to Mr Stott's conscious decision not to raise the matter with DFAT.

" On 31 August 2000, Mr Stott read DFAT's reply to Mr Hogan's request to DFAT for advice on proposed contractual changes, which changes were proposed for the purpose of remedying losses incurred through demurrage. DFAT's reply made it clear that AWB's proposal to establish a trust account in favour of Iraq would breach sanctions, that a proposal to introduce a despatch incentive scheme would need to be negotiated with the United Nations, and that dispatch incentives would need to be paid through the escrow account.

" Following his trip to Iraq with Mr Hogan in October 2000, Mr Stott claims to have developed a concern that Iraq was benefiting from the trucking fees and that he undertook a number of tests to ascertain if that was so. For the reasons given in Appendix 18, Mr Stott's evidence concerning these tests should be rejected. Again, if Mr Stott was concerned about this issue, he need only have contacted DFAT and sought its advice. He did not do so.

" In October 2000, Mr Stott wrote to IGB in relation to the price at which AWB could supply wheat and suggested that one way in which AWB could meet the price requested by IGB was for IGB to remove the trucking fee. This demonstrates knowledge on the part of Mr Stott that the fee was determined by IGB, was a payment to Iraq, and did not relate to the true cost of transporting the wheat.

" Also in October 2000, there was email correspondence between Mr Stott and Mr Watson (with copies of some of the emails being sent to, amongst others, Ms Scales and Mr Goodacre) about claims that had been made by IGB during the recent trip that trucking fees were outstanding in relation to a number of vessels. The claim of short-payment was made by IGB, not Alia. This correspondence indicated to those who were involved in it, or received copies of it, that Iraq was the ultimate beneficiary of the fees. In his evidence before the Inquiry Mr Stott denied that this was the case. His evidence to that effect is rejected.

31.143 Perhaps the clearest evidence of Mr Stott's knowledge and his intention to conceal the true arrangements between AWB and IGB in relation to the payment of fees is the correspondence he initiated with DFAT in late October 2000. The evidence in relation to this correspondence is addressed in Chapter 20. Despite apparently having had concerns about the trucking fees following his trip to Iraq during October 2000, the letter that Mr Stott sent to DFAT in late October made no reference to the fact that AWB's arrangements

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with IGB included paying a fee. Indeed, Mr Stott amended a draft of the letter prepared by Mr Hogan by removing a reference to the contracts including a 'predetermined and UN approved transport fee/ The letter sent to DFAT also did not reveal to DFAT that AWB already had any existing relationship with Alia, despite the fact that AWB had been paying fees to Alia during the previous year. The explanation given by Mr Stott, in his evidence before the Inquiry, for the absence of any reference to the trucking fee or Alia in this letter lacks credibility and is rejected. Further, for the reasons given in Chapters 20 and 30, Mr Stott's evidence that he discussed Alia with Ms Drake- Brockman should also be rejected. When he was interviewed by AWB's solicitors in 2004, Mr Stott told them that his purpose in writing to DFAT was that he wanted a 'paper trail.' He also stated that he did not discuss drafts of the letter with DFAT. He did not suggest that he had told anyone at DFAT about Alia. The only reasonable inference to be drawn from Mr Stott's correspondence with DFAT is that he was attempting to obtain

correspondence from DFAT that would appear to justify AWB's dealings with Alia and the payment of trucking fees (including a proposal that AWB had raised with IGB and wished to continue to explore with IGB for using the trucking fees as a mechanism for the payment of despatch and demurrage as between AWB and IGB) without revealing to DFAT the true arrangements

AWB had in place, or hoped to put in place, with IGB and Alia in relation to the payment of the fees. This was a matter that Mr Stott and AWB at all times intended to conceal from DFAT.

31.144 Mr Goodacre was also appointed during this period. There was led from Mr Emons evidence that he told Mr Goodacre 'the true nature of the payments that were being made as trucking payments', the 'methods by which payments were being made' but he did not tell Mr Goodacre that 'Alia didn't do the trucking'. In substance, Mr Emons said he told Mr Goodacre that 'a fee... was charged by IGB to ensure our vessels were discharged'.22 However when cross examined Mr Emons accepted that his discussion with Mr Goodacre was 'in the briefest terms' and that 'the only issue that was occupying Mr Goodacre's attention at the time in international marketing was the fact that we had an enormous demurrage bill in Iraq and how we were going to solve it.'23

Mr Goodacre denied being told by Mr Emons of the 'true nature of the trucking fees or their link with IGB'. He acknowledged that Mr Emons may have referred to 'trucking fees' but not in any context of there being concerns or problems in relation to such fees.

I am satisfied that whatever may have been said in the brief conversation, nothing was said sufficient to inform Mr Goodacre of the true arrangements

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between AWB and IGB. Nothing was said which raised in Mr Goodacre's mind any question of impropriety or illegality.

31.145 By late October the review being conducted by Arthur Andersen was nearing

completion. The Arthur Andersen report is addressed in Chapter 22 and considered further below. Suffice it to say that drafts of the report included references to the Canadian complaint and the payment mechanism, including the involvement of shipowners and Ronly and its Liechtenstein registered subsidiary.

31.146 Following Mr Emons departure, Mr Hogan returned to AWB's Melbourne

office, took up the appointment as General Manager * Middle East and became directly involved again in the Iraq trade, the arrangements with IGB and liaison with DFAT. Upon his return he became aware of Canada's complaint to the United Nations concerning the trucking fee. He travelled to Iraq with Mr Watson in July 2000 and met with the Director General of IGB and the Minister for Trade in Iraq. In August and September 2000 he corresponded with DFAT concerning the possibility of changing various

terms of AWB's contracts with IGB, in particular in relation to despatch and demurrage, and other aspects of AWB's trade with Iraq. He did not inform DFAT or otherwise seek its advice or assistance in relation to AWB's payment of trucking fees to Iraq. Having regard to his knowledge of the nature of the trucking fees and the arrangements AWB had entered into to pay the fees, the reference to a 'UN approved transport fee' in the draft of the letter that he provided to Mr Stott in October 2000 was disingenuous. Mr Hogan did not genuinely believe that the United Nations had approved the payment of the fee.

31.147 In summary, the following findings should be made in relation to contracts

A0265, A0266 and A0267:

(a) Senior officers of AWB knew that the arrangements between AWB and IGB in relation to the supply of the wheat the subject of contracts A0265, A0266 and A0267 included that AWB would supply the wheat to Iraq on terms GIF Free Out Umm Qasr, but would pay a fixed fee of US$14.00 per tonne, to Iraq via Alia. This fee was to be added to the GIF price but not separately disclosed as a component of the price in the contract.

(b) Senior officers also knew that the contractual documents that AWB supplied to DFAT for transmission to the United Nations did not disclose the true arrangements between AWB and IGB in relation to the supply of the wheat the subject of these contracts.

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(c) The same officers knew that the payment of a US$14.00 fee to an Iraqi entity contravened the sanctions and that the United Nations had not approved the making of such a payment. For this reason the payments were disguised as payments to Alia for transport services.

(d) Throughout the period that officers of DFAT and the United Nations were responsible for making decisions or taking action relevant to these contracts, namely between July 2000 and March 2001, AWB, through its senior officers, concealed from DFAT the fact that its arrangements with IGB were materially different to those recorded in the contracts and the UN Notification forms referable to them and that the arrangements included payments by AWB indirectly to Iraq in contravention of the sanctions.

(e) The concealment of those facts was intentional and dishonest and intended to influence the actions of DFAT and the UN in relation to the contract and shipments made under it.

31.148 The officers of AWB who were involved in, or knew about and authorised, the negotiation, drafting and submission of these contracts to DFAT and the concealment of information relating to the arrangements were Messrs Hogan, Watson, Stott, Lister and Borlase. Whilst Messrs Flugge and Ingleby were not directly involved with these particular contracts or the payments made under them, their knowledge of and express or implicit authorisation of previous contracts that involved substantially the same arrangements and payments provides the basis for an inference that they implicitly, if not expressly, authorised the same arrangements and payments in relation to these contracts.

31.149 By the time these contracts were entered into and submitted to DFAT, Messrs Emons and Officer had left AWB.

31.150 Other officers of AWB at this time may have possessed some knowledge in relation to the payment of fees to Iraq as part of the arrangements with IGB. It does not follow that they knew about, were involved in, or authorised the concealment of facts relating to the fees from DFAT and the United Nations. In the case of Mr Lindberg, there is some evidence that Mr Emons told him that AWB's arrangements with Iraq included the payment of fees, however there is insufficient evidence to support a conclusion that Mr Lindberg knew that these arrangements had been concealed from DFAT and the United Nations.

31.151 Other officers whose duties and responsibilities did not directly relate to the Iraq contracts may also have known about the arrangements by reason of

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being copied into correspondence that, had it been read and considered, would have revealed the nature of the fees AWB was paying as part of its contractual arrangements with IGB and the fact that they were being paid indirectly to Iraq via intermediaries because of issues relating to the sanctions. These officers include Ms Scales and Mr Geary, each of whose responsibilities related more to the National Pool. By July 2000, when these contracts were entered into, Ms Scales and Mr Geary had been sent copies of the following emails:

(a) Mr Hogan's email of 24 June 1999 that reported on IGB's request that offers include a payment of US$12.00, outlined the problem in finding a payment mechanism because Iraq's accounts had been frozen and suggested that the payments be made to an Iraqi bank in Jordan

(b) Mr Hogan's email of 25 June 1999 that again referred to difficulties in implementing payments to the 'Land Transport Company,' pointed out that the payment was financially neutral to AWB because it was added to the GIF price and pointed out that 'discretion' was required

(c) Mr Jones' email of 10 July 2000 that attached a market brief, prepared by Mr Borlase, that referred to the fact that IGB had indicated that the 'fee' would be reduced from US$15.00 to US$14.00 for future business and that '[c]urrent mechanism of payment is via transport company/s in Jordan.'

31.152 By the time that these contracts were entered into, Ms Scales was National Pool Manager and Mr Geary was General Manager of the National Pool. The relationship between AWB and the National Pool (AWB International) is addressed in Chapter 9. In short, when it negotiated and entered into contracts with IGB, AWB was providing services for and acting on behalf of the National Pool in selling the Pool's wheat. AWB was remunerated by the Pool for the services it provided and the Pool received the proceeds of sale, net of expenses such as ocean freight. It was the Pool that ultimately bore the cost of the transport fee, although because the fee was added to the contract price, this cost was essentially revenue neutral. By reason of the relationship between AWB and the National Pool and their respective responsibilities, Mr Geary and Ms Scales would no doubt have been interested in the contracts between AWB and IGB and any associated arrangements, particularly if the arrangements resulted in a cost ultimately borne by the Pool. They were not, however, directly involved in negotiating those arrangements, or documenting the contracts, or in any of the procedures relating to DFAT. Having regard to their particular duties and responsibilities and their limited, if any, involvement in the negotiation of the contracts and the arrangements relating to the payment of the fees, the documentation of these contracts and the provision of contracts to, or liaison with, DFAT, the evidence does not

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establish they were involved in, or assisted in any way, the concealment of information concerning these particular contracts from DFAT or the United Nations. Nor, at this stage, could it be said that they approved or authorised the arrangements or the payments made by AWB pursuant to them.

Contract A0430

31.153 The circumstances relating to this contract are addressed in Chapters 19 and 21. It was entered into on about 2 November 2000. Copies of the short and long-form contracts were sent by Mr Hogan to DFAT on the same day. The short-form contract was signed by Mr Hogan. Permission to export wheat referable to this contract was sought by Mr Lister and granted by delegates of the Minister between 5 March 2001 and 2 April 2001.

31.154 The significant difference between the arrangements ultimately agreed between AWB and IGB in relation to this contract, and the arrangements that had existed in relation to earlier contracts, was that the inland transportation fee imposed by IGB was US$25 per tonne * a significant increase (though less

than the increase * to US$35.00 per tonne * that had been foreshadowed to Mr Hogan during his October 2000 trip to Iraq in respect of phase IX contracts). Further, AWB was notified by IGB that it was also required to pay a 'handling fee' calculated at the rate of 10% of the contract price. The contract negotiations between AWB and IGB proceeded on the basis that the price was

to include both the US$25 per tonne transport fee and the 10% handling fee and on the further basis that the increased fee and the 10% handling fee would be paid to Alia. Neither the short-form or long-form contract submitted to DFAT and the United Nations made any reference to the arrangements between AWB and IGB including the payment of a US$25 per tonne fee or a 10% handling fee, or that these fees had been incorporated in the contract price. Nor were these matters otherwise disclosed to DFAT and the UN.

31.155 Mr Hogan conducted the contract negotiations on behalf of AWB. He obtained authorisation from Mr Stott before finalising the contract with IGB. The following points may be made about AWB's reaction to the increase in the transportation fee and the imposition of the new 'handling fee.'

" Neither Mr Hogan nor Mr Stott nor anyone else at AWB made any

attempt to require IGB to justify the increase in the transport fee. No attempt was made to ascertain whether the actual cost of transporting the wheat had increased by US$11.00 per tonne (or 78%) in the period between the last contract (July 2000) and this contract (November 2000). Alia was not referred to in the context of the increased fee. This demonstrates that AWB well knew that the so-called transport fee was

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simply a fee that was imposed by and payable to Iraq that had nothing to do with Alia or the actual cost of transport.

" Likewise, neither Mr Hogan, nor Mr Stott, nor anyone else at AWB

questioned the additional 10% fee, or sought to ascertain who it was ultimately payable to or what it was for, let alone negotiate with IGB about its inclusion in the price.

" The additional 10% was to be included in the 'transportation fee' and paid to Alia. By this time it was well known by those concerned at AWB that the transportation fee was a means of remitting funds to Iraq. It follows that the only reasonable inference is that AWB knew that the 10% fee was also being remitted to Iraq.

" No attempt was made to include a reference to payment of either the US$25.00 fee or the 10% fee in either the short-form or long-form contracts.

" In an email dated 2 November 2000 to Ms Scales and Messrs Stott,

Hughes, Jones, Borlase, Snowball and Lister, Mr Hogan reported that the trucking cost was US$25.00 and that 10% would be added to the price and 'included in the trucking fee' *making the trucking fee total US$44.50. The fact that AWB was prepared to simply add the 10% fee to the trucking fee, despite the fact that there was nothing whatsoever to suggest that it related to the cost of, or payment for, transport services, demonstrates that AWB saw the trucking fee as nothing more than a device by which foreign currency payments could be channelled to Iraq via Alia. There could be no serious suggestion that the author or any of the recipients of this email could seriously have entertained the view that the fee now totalling US$44.50 genuinely related to trucking or transport within Iraq. Ms Scales said she did not turn her mind to the issue, that being for others, but had she done so she would have noted the email said after referring to US$44.50 that the fee had been approved by the United Nations.

" In the same email, Mr Hogan reported that the US$44.50 'trucking fee ... has been approved by the UN (as per IGB *I will get this in writing).' Mr Hogan never did get confirmation in writing that the United Nations had approved the payment of the trucking fee, including as it now did, an additional 10% impost. Mr Hogan never asked DFAT or, through it, the United Nations, to confirm that the payment of a trucking fee to Iraq of any amount had been approved by the United Nations.

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e Mr Stott's evidence was that he also required written confirmation from IGB that the arrangements including the payment of this trucking fee had been approved by the United Nations. He claimed to have been shown a contract that explicitly identified the US$44.50 trucking fee on its face. For the reasons given in Chapter 21,1 reject that evidence. This evidence was a deliberate fabrication. A draft statement prepared by AWB's solicitors following an interview with Mr Stott in 2004 recorded Mr Stott's recollection then as being that it was his responsibility to obtain the approval and that he did not recall ever receiving such a written approval. Mr Stott also claimed that he did not 'think to' expressly ask the United Nations, or to include the new fees in the short-form contracts that AWB prepared and presented to DFAT. I also reject that evidence. The only rational inference to be drawn is that Mr Stott deliberately did not ask DFAT or the United Nations, or take steps to refer to these fees in the short-form contract, because he well knew that DFAT and the United Nations knew nothing about them and would not have approved arrangements that involved payment of the fees if they had. It should also be observed in this context that Mr Stott claimed to have told Mr Goodacre and Mr Geary about his requirement that written confirmation that the UN had approved the trucking fee be obtained before proceeding with the contract. This evidence is also rejected.

" The inference to be drawn from Mr Stott's failure to raise this issue with DFAT and the United Nations is all the more powerful having regard to the fact, as discussed in the context of the previous contracts, that at the very time that this contract was being finalised and the payment of the fee agreed to by AWB, he was in correspondence with DFAT supposedly about entering into discussions with Jordanian based trucking companies. Yet he did not write to DFAT informing it of the increase in either the trucking fee or the new 10% 'service charge'.

" As referred to below in the context of contract A0552 and A0553, by early February 2001 (before any permissions to export were issued in relation to the wheat the subject of these contracts) Mr Borlase's report concerning his and Mr Hogan's trip to Iraq had been widely circulated at AWB. In that report, Mr Borlase reported that the 'trucking fee' had been increased to US$25.00, that there was now a 10% 'service fee' on the entire value of the contracts and that '[w]e believe the increase in the trucking fee and addition of the service charge is a mechanism of extracting more dollars from the escrow account.' It is implicit in this note that Mr Hogan and Mr Borlase knew that the trucking fee was a system by which Iraq was able to obtain foreign currency in circumvention of the sanctions, and that the

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increase in the fees and the addition of the service charge was simply an escalation of that system.

" Whatever views Mr Hogan and Mr Stott may claim to have had based on the fact that the July 1999 contracts containing a reference to the payment of a US$12.00 'discharge fee' had been approved by the United Nations, they had no reasonable basis upon which to believe that either DFAT or the United Nations knew about, let alone approved, the payment of fees of US$25 and 10% of the contract price.

31.156 In summary, I make the following findings in relation to contract A0430:

(a) Senior officers of AWB knew that the arrangements between AWB and IGB in relation to the supply of the wheat the subject of contract A0430 included that AWB would supply the wheat to Iraq on terms GIF Free Out Umm Qasr, but would pay a fee of US$25.00 per tonne, and a fee

amounting to 10% of the contract price, to Iraq via Alia. These fees were to be added to the negotiated GIF price but not separately disclosed as a component of the price in the contract.

(b) Senior officers also knew that the contractual documents that AWB supplied to DFAT for transmission to the United Nations did not disclose the true arrangements between AWB and IGB in relation to the supply of the wheat the subject of these contracts.

(c) The same officers knew that the payment of a fee or fees totalling US$44.50 to an Iraqi entity contravened the sanctions and that the United Nations had not approved the making of such a payment. For this reason the payments were disguised as payments to Alia for transport services.

(d) Throughout the period that officers of DFAT and the United Nations were responsible for making decisions or taking action relevant to this contract, namely between November 2000 and April 2001, AWB, through its senior officers, concealed from DFAT the fact that its arrangements with IGB were materially different to those recorded in the contracts and the UN Notification forms referable to them and that the arrangements included payments by AWB indirectly to Iraq in contravention of the sanctions.

(e) The concealment of those facts was intentional and dishonest and intended to influence the actions of DFAT and the UN in relation to the contract and shipments made under it

31.157 The senior officers of AWB who were involved in, or knew about and authorised, the negotiation, drafting and submission of these contracts to DFAT and the concealment of information relating to the arrangements were

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Messrs Hogan, Stott, Lister, Ingleby and Flugge. Mr Watson left AWB in November 2000.

31.158 Mr Stott claimed that he told Mr Goodacre in November when the 10% occurred that he, Mr Stott, would only accept that increase in fees if he was satisfied by documentary evidence that the United Nations approved of the fee.24 It was then, he said that he told Mr Goodacre about seeing a contract which the United Nations had approved which showed on its face a trucking fee of '$44 or $45 a tonne'.25 Mr Goodacre had no recollection of ever being informed of a 10% service fee imposed on contracts, although he accepted he had learnt of a significant trucking fee in excess of '$45'.26 All of the payments Mr Goodacre approved were in the seven months between May and December 2001 when all trucking fees were of a similar level. I do not accept

that Mr Stott told Mr Goodacre either of seeing a contract with a disclosed fee of $44 or $45, or that he told Mr Goodacre of the increased 10% charge. I accept the evidence of Mr Goodacre that he approved payments on the basis that he believed the payments to be legitimate and approved by the United Nations.

31.159 Whilst there is no direct evidence of Mr Flugge's involvement in relation to this particular contract, having regard to his knowledge and authorisation of the payment of fees relating to earlier contracts, it should be inferred that Mr Flugge authorised the payment of fees relating to this contract.

31.160 Mr Geary and Ms Scales also knew about, and were involved in, the payment of fees to Alia in respect of this contract. After Mr Stott put an end to the arrangements whereby the fees were paid via Ronly and the shipowners, the fees were paid direct to Alia by AWB. Internally, the cost of the fees was met by the Pool. The internal AWB procedure involved in generating this payment included that a payment request was made by an officer of the International Sales and Marketing Division, usually Mr Hogan or Mr Edmonds-Wilson. The payment request was required to be authorised by two managers. Pursuant to this procedure, both Mr Geary and Ms Scales authorised significant payments to Alia referable to this contract in April and June 2001 (in the case of Ms Scales) and August 2001 (in the case of Mr Geary). However Mr Geary was not involved in sales until he became General Manager Trading in March 2001.

31.161 Ms Scales' evidence was that she did not inquire into the increase of the trucking fee and did not turn her mind to the fact that the fees now also included an additional component being 10% of the contract price. She also claimed that she worked on the basis that the fee had received the approval of the United Nations. I accept that evidence.

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Contracts A0552 and A0553

31.162 The circumstances relating to these contracts are addressed in Chapter 23.

They were entered into on about 2 February 2001. Copies of the short and long-form contracts were sent by to DFAT by Mr Fiogan on 27 February 2001. Mr Hogan signed the short-form contracts. Permission to export wheat referable to these contracts was sought by Mr Lister and granted by delegates of the Minister between 11 April 2001 and 9 August 2001.

31.163 These contracts were under phase IX of the Oil-for-Food Programme. The

Iraqi wheat tender for this phase specified that offers to supply under this phase were required to include the payment of the equivalent of US$25.00 in any exchangeable currency to the Iraqi State Company for Water Transport prior to the arrival of the vessel in Umm Qasr. The tender made no reference to any requirement to pay an additional 10% fee. Nonetheless, it is clear that the arrangements negotiated by AWB and IGB in relation to these contracts included the payment of an additional 10% fee, now referred to as a 'service' or ' after-sales-service' fee, and the inclusion of that fee, as well as the US$25.00 per tonne fee, in the contract price. As with the previous contract, AWB treated the 10% fee as an addition to the trucking fee: making a total fee payable in respect of A0552 of US$44.80 per tonne and a total fee payable in respect of A0553 of US$45.00 per tonne. AWB successfully negotiated with IGB for the fees to be paid in two instalments: the first instalment being US$14.00 payable prior to arrival of the vessel and the balance being paid within a week of AWB's receipt of the proceeds of sale of the relevant shipment.

31.164 The short and long-form contracts that were presented to DFAT and the

United Nations did not refer to AWB's agreement or obligation to pay either the US$25.00 fee, or the 10% 'service' fee. Nor was this revealed in any way in the UN Notification form. Nor did anyone at AWB take any steps to inform

DFAT or the United Nations that its arrangements with IGB included the payment of those fees.

31.165 The evidence concerning the knowledge of senior AWB officers in relation to

the true arrangements between AWB and IGB in relation to this contract, and the fact that these true arrangements were concealed from DFAT and the United Nations, has been discussed above in the context of contract A0430

and the earlier contracts. There is, however, some further evidence relating to the knowledge of AWB in relation to the payments and the concealment of the true arrangements that relates to the period relevant to this contract and the shipments made under it. That evidence includes the following:

" Despite the fact that the contract price agreed with IGB included the 10% service fee, the contract price reported internally at AWB included the

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US$25.00 trucking fee, but not the 10% fee. In particular, Mr Stott's reporting of the sale to his superiors, Messrs Goodacre and Lindberg, made no reference to the 10% fee, or to the prices that incorporated it. The way officers of AWB dealt, reported and administered these contracts

clearly indicated that it was recognised that the 10% fee had nothing to do with trucking or transport and was simply an impost by Iraq.

" In Mr Borlase's report of his and Mr Hogan's February 2001 trip to Iraq, which was circulated widely by email within AWB, AWBI and AWB's New York office, Mr Borlase reported that the 'trucking fee' had been increased to US$25.00, that there was now a 10% 'service fee' on the entire value of the contracts and that '[w]e believe the increase in the trucking fee and addition of the service charge is a mechanism of extracting more

dollars from the escrow account.' Mr Borlase's evidence before the Inquiry was that he believed that a portion of the trucking fee was being used by Iraq for 'some other purpose.' It is apparent from their report that Mr Hogan and Mr Borlase knew that the transport fees were simply a mechanism for sending foreign currency payments to Iraq, that they had nothing to do with the actual transportation of wheat in Iraq, that there was no proper justification for the increase in the fees and the imposition

of a 'service fee.' It is implicit in the note that Mr Hogan and Mr Borlase knew that the UN did not know about this mechanism. Mr Hogan and Mr Borlase made no attempt to conceal their views about the fees from other

officers of AWB. Nobody within AWB responded by telling Mr Borlase and Mr Hogan that their views were unfounded or incorrect. Nobody within AWB suggested that AWB should not continue to participate in this mechanism which allowed Iraq to extract foreign currency from the escrow account

" Mr Hogan's evidence was that during his trip to Iraq in February 2001, he was told by IGB that the service fee would be used for other purposes and that this 'triggered' his concern that the 10% fee was not a legitimate transport cost and was merely a way of 'siphoning' money to Iraq.

" Mr Hogan raised his concerns about the legitimacy of the 10% fee with Mr Stott. Mr Stott rejected them without any further inquiry. Despite his concerns and Mr Stott's precipitate dismissal of them, Mr Hogan was content to allow the contract documents that made no reference to the fees, to be submitted to DFAT and made no attempt to disclose the existence of these fees, or his concerns or queries about them, to DFAT. His failure to raise or disclose the matter with DFAT supports the inference that he well knew that neither DFAT nor the United Nations knew about, let alone approved of, the payment of these fees to Iraq.

Report of the Oil-for-Food Inquiry 173

" About a month after AWB submitted the short and long-form contracts to DFAT, AWB sought DFAT's advice about attempts by Iraq to levy a port fee of 50 cents per tonne. Mr Snowball requested Ms Moules of the Australia mission to the United Nations to advise whether such port fees were permissible under the sanctions regime and expressed concern that, given the quantity of wheat involved, the sums involved were considerable. Ms Moules made inquiries of the United Nations and in due course reported to Mr Snowball that the payment of port fees was not inconsistent with the sanctions so long as the charges were reasonable and were paid in Iraqi dinars. Mr Snowball was also made aware of cases where contracts had been put on hold where the fees were large, even when the amounts were included in the contracts. Mr Hogan in due course took this matter up with IGB and advised it that AWB had received advice from the United Nations that 'direct payments to Iraq are not permitted under the sanctions.' Ultimately, following extensive discussions, IGB did not insist on port fee payments in relation to these contracts. As will be seen, however, despite the advice it had received, AWB subsequently agreed with IGB to add 50 cents per tonne to the trucking fee that was incorporated in the contract prices for subsequent contracts * thereby effectively circumventing the clear advice it had received from DFAT about the payment of fees to Iraqi entities. The significance of the evidence concerning the port fees is threefold. First, it clearly demonstrates that AWB was aware that the sanctions did not permit the payment of fees to Iraq that were not reasonable and that were in a currency other than the dinar. Second, it shows that AWB was well aware that if it needed advice about the propriety of payments demanded by IGB, including whether the arrangements were approved by the United Nations, it need only ask DFAT. The fact that AWB readily raised the issue concerning port fees with DFAT, but never raised with DFAT the propriety of the trucking fee and service fee demands of IGB, supports the inference that it was always AWB's intention to conceal the existence of the latter fees from DFAT because it knew that they would not be acceptable. Third, AWB's actions in subsequently factoring the port fees into the trucking fee demonstrates a willingness on the part of AWB to conceal arrangements from DFAT which it knew were not permitted under the sanctions.

31.166 By February 2001, Arthur Andersen had, pursuant to its engagement by AWB, produced a report concerning the integrity of transactions conducted by the International Marketing Group. The report is addressed in Chapter 22. Arthur Andersen's report was seen by, and was the subject of discussions between, senior management including Messrs Lindberg, Goodacre and Stott. The report referred to a number of 'red flags,' or warning signs, including the fact

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that the United Nations had made inquiries in relation to the payment of trucking fees, that there had been management pressure to maintain the sales to Iraq despite the United Nations inquiry concerning the trucking fee payments and the concerns that it created, that officers of AWB had sought to disguise the payment of the trucking fee and that the trucking fees appeared to be excessive and that there was therefore a risk that the fees or a portion of them were being diverted to purposes other than trucking.

31.167 For the reasons already considered, by the time that he saw the Arthur Andersen report, Mr Stott already knew about the 'red flag' matters outlined in it. He had been involved in authorising AWB's agreement to the fees in November 2000. Arthur Andersen was not asked to pursue the matter further. The investigations were not pursued further. Whilst Mr Stott was nominated to follow up some of the matters in the report, he did not further investigate matters raised in it. The report was discussed at a meeting of the Executive Leadership Group, but copies of the report were not distributed to its members. The fact that Arthur Andersen was conducting a review of some sort was disclosed at a Board meeting, but the Board was not given a copy of the report or even a summary of Arthur Andersen's findings.

31.168 Of particular significance is that the Arthur Andersen report referred to the recent increase in the trucking fees to US$45.00 and noted that this 'appears to be high' and 'excessive' and that there was a 'risk that this money is being diverted to other purposes.' Despite this warning, AWB continued to pay fees to Iraq that exceeded US$45.00 per tonne. Mr Goodacre's evidence was that Mr Stott undertook to investigate Arthur Andersen's concerns about the trucking fees and that at some later stage Mr Stott told him that he had spoken to DFAT and that he was satisfied that the level of trucking fees was justified and the Alia was legitimate. On Mr Goodacre's evidence, he did not ask for, and Mr Stott did not give him, any further detail or supporting material beyond this very general assurance. Mr Stott's evidence, to the extent that it is able to be comprehended, is that following his October 2000 trip to Iraq he was concerned that Iraq was benefiting from the trucking fees and that he did a number of tests to satisfy himself that this was not the case. Mr Stott claimed that he discussed his conclusion that the fee was justifiable with Mr Goodacre and Mr Hogan and also discussed it at a meeting with Arthur Andersen, also attended by Mr Goodacre, in December 2000. Mr Stott also claims that he told Mr Goodacre about the conversation that he claimed he had with Ms Drake- Brockman at DFAT in November 2000.1 reject that evidence.

31.169 The evidence of Mr Stott in relation to the response to the Arthur Andersen report lacks credibility, is uncorroborated by documentary evidence and is inconsistent and contradictory. Mr Stott's evidence concerning the tests he performed to ascertain whether the fees were justifiable is discussed in detail

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in Appendix 18. For the reasons there given, it should be rejected. Mr Stott's evidence concerning his supposed discussion with Ms Drake-Brockman is discussed in Chapter 20 and 30. For the reasons there given, it should be rejected. Because Mr Stott neither performed the tests nor discussed Alia with Ms Drake-Brockman, his evidence that he discussed these matters with Mr Goodacre and others should also be rejected.

31.170 Mr Lindberg, on his evidence, left the issues and recommendations arising from the Arthur Andersen report entirely up to Messrs Goodacre and Stott. He was entitled to rely upon his managers to investigate and implement the report recommendations. Mr Lindberg did nothing more having regard to his position. In the absence of any direct evidence that he had been informed about the true nature of the trucking fees, it cannot be inferred that he knew the true nature of the trucking fees at this time.

31.171 In summary, I make the following findings in relation to contracts A0552 and A0553:

(a) Senior officers of AWB knew that the arrangements between AWB and IGB in relation to the supply of the wheat the subject of contracts A0552 and A0553 included that AWB would supply the wheat to Iraq on terms GIF Free Out Umm Qasr, but would pay a fee of US$25.00 per tonne, and a fee amounting to 10% of the contract price, to Iraq via Alia. These fees were to be added to what was otherwise the GIF price of the wheat. The contracts did not reveal that the fees were a component of the price.

(b) Senior officers also knew that the contractual documents that AWB supplied to DFAT for transmission to the United Nations did not disclose the true arrangements between AWB and IGB in relation to the supply of the wheat the subject of these contracts.

(c) The same officers knew that the payment of a fee or fees totalling US$44.80 and US$45.00 to an Iraqi entity contravened the sanctions and that the United Nations had not approved the making of such a payment. For this reason the payments were disguised as payments to Alia for transport services.

(d) Throughout the period that officers of DFAT and the United Nations were responsible for making decisions or taking action relevant to these contracts, namely between February 2001 and August 2001, AWB, through its senior officers, concealed from DFAT the fact that its arrangements with IGB were materially different to those recorded in the contracts and the UN Notification forms referable to them and that the

176 Report of the Oil-for-Food Inquiry

arrangements included payments by AWB indirectly to Iraq in contravention of the sanctions.

(e) The concealment of those facts was intentional and dishonest and intended to influence the actions of DFAT and the UN in relation to the contract and shipments made under it

31.172 The officers who were involved in, or knew about and authorised, the negotiation of this contract and the associated arrangements with IGB, the drafting and submission of the contracts to DFAT and the concealment of information relating to the arrangements were Messrs Hogan, Stott, Lister, Flugge and Ingleby. Payments of fees to Alia under these contracts were authorised by Messrs Goodacre and Ingleby and Ms Scales.

Contracts A0784 and A0785

31.173 The circumstances relating to these contracts are addressed in Chapter 23. They were entered into on or about 6 June 2001. Copies of the short and long- form contracts were sent by to DFAT by Mr Hogan on or about 27 June 2001. The short-form contracts were signed by Mr Hogan. Permission to export wheat referable to this contract was sought by Mr Lister and granted by delegates of the Minister between 10 September 2001 and 24 December 2001.

31.174 Like contracts A0552 and A0553, these contracts were under initially under phase IX of the Programme (and later transferred to phase X). The arrangements that AWB agreed with IGB in relation to these contracts were that AWB would pay fees to IGB totalling US$46.70 (contract A0784) and US$46.90 (contract A0785). These fees included the so-called trucking fee, the 10% service fee and an amount of 50 cents per tonne referable to port fees.

31.175 The short and long-form contracts that were presented to DFAT and the United Nations did not refer to AWB's obligation to pay these fees to Iraq. Nor was this revealed in any way in the UN Notification forms. Nor did anyone at AWB take any steps to inform DFAT or the United Nations that its arrangements with AWB included the payment of those fees.

31.176 The evidence concerning the knowledge of senior AWB officers in relation to the true arrangements between AWB and IGB in relation to these contracts, and the fact that these true arrangements were concealed from DFAT and the United Nations, has been discussed above in the context of the earlier contracts. A number of matters occurred between the negotiation and submission to DFAT of contracts A0552 and A0553 and these contracts that further reveal the knowledge and intention of senior officers of AWB in

Report of the Oil-for-Food Inquiry 177

relation to AWB's arrangements with IGB and their disclosure to DFAT. That evidence includes the following.

" In May and June 2001 Mr Hogan travelled to Iraq and Jordan with other officers of AWB. During the May trip, Mr Hogan met with representatives of both IGB and Alia. During these meetings, the transport arrangements in Iraq were explained to Mr Hogan and his evidence was that it became clear to him that Alia's only involvement in the arrangements was as a mere conduit for the channelling of the so-called transport fees to Iraq. In fact, as discussed above, Mr Hogan already knew that Alia was a mere conduit. Mr Hogan's evidence before the Inquiry was that this was not new information to him because he always knew that the money was going to Iraq, whether it was $12.00 or more, and that he always knew that the IGB used its own trucks and infrastructure to do the trucking.

Using their own infrastructure. They [IGB] used rail and truck. Then they change it and they put inland transport fee, $12 per tonne, which I

understood was to ease inflation and problems internally with the company, and so that that cost would then be recovered from the escrow account. Why would a company then subcontract that out to an Alia transport?

" Following his meeting with the Minister for Trade in Iraq, Mr Hogan thought that a sum of $0.50 per tonne was introduced into the contracts to allow for the cost of equipment at Umm Qasr. In fact, this amount was added to the transport fee payable to Iraq in relation to these contracts. In an email to Messrs Owen, Aucher, Cracknell, Werner and McMullen on 12 June 2001, Mr Hogan reported that the 'USD0.50 fee (which Umm Qasr Port tried to apply earlier in the year) is now built into inland transport fee.' Thus, despite the clear advice that AWB had received from DFAT that such fees were only payable in Iraqi dinars, AWB had agreed to pay the fee in foreign currency and conceal it from DFAT and the United Nations, and use the 'trucking fee mechanism' to pass the funds to Iraq.

31.177 In summary, I make the following findings in relation to contracts A0784 and

A0785:

(a) Senior officers of AWB knew that the arrangements between AWB and IGB in relation to the supply of the wheat the subject of contracts A0784 and A0785 included that AWB would supply the wheat to Iraq on terms GIF Free Out Umm Qasr, but would pay a fee to an Iraqi entity totalling US$46.70 (contract A0784) and US$46.90 (contract A0785) per tonne. This fee was added to what was in effect the GIF price, but the contract did not reveal that the fee was a component of the price.

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(b) Senior officers also knew that the contractual documents that AWB supplied to DFAT for transmission to the United Nations did not disclose the true arrangements between AWB and IGB in relation to the supply of the wheat the subject of these contracts.

(c) The same officers knew that the payment of a fee or fees totalling US$46.70 (contract A0784) and US$46.90 (contract A0785) per tonne to an Iraqi entity contravened the sanctions and that the United Nations had not approved the making of such a payment. For this reason the payments were disguised as payments to Alia for transport services.

(d) Throughout the period that officers of DFAT and the United Nations were responsible for making decisions or taking action relevant to this contract, namely between June 2001 and December 2001, AWB, through its senior officers, concealed from DFAT the fact that its arrangements with IGB were materially different to those recorded in the contracts and the UN Notification forms referable to them and that the arrangements included payments by AWB indirectly to Iraq in contravention of the sanctions.

(e) The concealment of those facts was intentional and dishonest and intended to influence the actions of DFAT and the UN in relation to these contracts and shipments made under it

31.178 The officers who were involved in, or knew about and authorised, the

negotiation of these contracts and the associated arrangements with IGB, the drafting and submission of the contracts to DFAT and the concealment of information relating to the arrangements were the same as those involved in contracts A0430, A0552 and A0553: namely Messrs Hogan, Stott, Ingleby, Lister, and Flugge. Payments of fees to Alia under these contracts were authorised by Messrs Goodacre, Ingleby, Geary and Ms Scales amongst others. As with previous contracts, whilst Mr Flugge may not have been directly involved with these contracts, it may be inferred that he expressly or impliedly authorised the arrangements and the payment and concealment of the fees. The same can be said of Messrs Ingleby and Stott.

31.179 As discussed below in the context of contracts A llll and A1112, by

November 2001 Mr Long had taken up his position as General Manager, International Sales and Marketing and had learnt about the arrangements relating to the inland transportation fees. Permissions to export referrable to these contracts were issued up to December 2001. Mr Long was in a position to, but did not, ensure that DFAT and the United Nations knew about the arrangements.

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Contracts A llll and A1112

31.180 The circumstances relating to these contracts are addressed in Chapter 23.

They were entered into on or about 20 December 2001. Copies of the short and long-form contracts were sent by to DFAT by Mr Hogan on 22 January 2002. The short-form contracts were signed by Mr Hogan. Permission to export wheat referable to these contracts was sought by Mr Lister and granted by delegates of the Minister between 19 March 2002 and 2 October 2002.

31.181 These contracts were under phase XI of the Oil-for-Food Programme. The

Iraqi wheat tender for this phase specified that offers to supply under this phase were required to include the payment of the equivalent of US$26.50 in any exchangeable currency to the Iraqi State Company for Water Transport prior to the arrival of the vessel in Umm Qasr. Thus, the transport fee had once again been increased by the Iraqis. The tender made no reference to any requirement to pay an additional 10% fee. Nonetheless, as was the case with all contracts since November 2000, it is clear that the arrangements negotiated by AWB and IGB in relation to these contracts included the payment of an additional 10% 'after-sales-service' fee, as well as the US$26.50 (or euro equivalent) per tonne fee, in the contract price. As with previous contracts, AWB treated the 10% fee as an addition to the trucking fee. The agreement struck between AWB and IGB was that the fee payable was ¨55.17 per tonne in respect of A llll and ¨55.40 per tonne in respect of A1112.

31.182 The short and long-form contracts that were presented to DFAT and the

United Nations did not refer to AWB's obligation to pay these fees. Nor was this revealed in any way in the UN Notification form. Nor did anyone at AWB take any steps to inform DFAT or the United Nations that its arrangements

with AWB included the payment of those fees. As the evidence relating to the earlier contracts clearly demonstrates, the reason that the contracts made no reference to AWB's obligation to pay the fees was that senior officers of AWB were well aware that these fees were being paid to Iraq, were contrary to the sanctions, plainly had not been disclosed to DFAT and the United Nations and would have been disallowed if they had been disclosed. A number of further dealings contemporaneous with these contracts further establishes these matters.

" When negotiating these contracts, Mr Hogan noted that war risk

premiums were being imposed on vessels entering the Arabian Gulf. He proposed to IGB as part of the contract negotiations that for various reasons the settlement of any War Risk premium should be 'managed via the inland transport fee/ Mr Hogan's email to IGB containing this proposal referred to the fact that 'AWB's support in previous times is testimony to our willingness to work together, irrespective of the situation

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or restrictions imposed/ an apparent reference to AWB's willingness to enter into arrangements that circumvented the sanctions.

" Also as part of the contract negotiations, Mr Hogan sought to reverse IGB's position that all of the fees were to be paid prior to discharge of the vessels. AWB wanted the fees to be payable in instalments, as had occurred in the context of some of the previous contracts. In an email to IGB on 20 December 2001, Mr Hogan noted that the only risk to ISCWT from such an arrangement was that AWB would not make the second payment. This once again clearly indicated AWB's knowledge that the fees were paid to ISCWT, an Iraqi entity, and that Alia was a mere conduit.

" In February 2002, an AWB delegation headed by Mr Flugge, and

accompanied by officers from Australia's United Nations mission, attended meetings with the United Nations Treasury and Office of the Iraq Programme. One of the topics discussed was delays in payment from the escrow account * an issue that was significant to AWB having regard to the fact that under its arrangements with IGB it was required to pay some or all of the fees prior to the vessels discharging. Despite this issue being discussed, and despite Mr Flugge's knowledge of the Iraq market, the mechanisms involved in sales under the Oil-for-Food Programme and AWB's payment of fees to Iraq, Mr Flugge raised no queries and sought no advice from the United Nations about the fees or AWB's means of paying them.

31.183 A matter of some significance is that in November 2001 Mr Long took up the position of General Manager, International Sales and Marketing after Mr Stott joined the Executive Leadership Group of AWB as head of mergers, acquisitions, strategy and business development. Following his appointment,

Mr Long learnt that the arrangements between AWB and IGB in relation to sales to Iraq included that AWB had agreed to, or was required to, pay substantial fees, referred to as 'inland transport fees' to Iraq via Alia. He did not know if AWB had a written contract with Alia in relation to the

transportation of the wheat, but thought there was a 'contract by conduct', that the fees were not genuinely related to the cost of the provision of transport or any contractual obligation that AWB had to discharge and deliver the wheat within Iraq, and that the payment of the fees was not referred to in the contracts or otherwise approved by DFAT or the United Nations. The following evidence supports this finding:

" Shortly following his appointment, Mr Long learnt that that the fees were paid to Alia. He did not know if there was a written contract in place

Report of the Oil-for-Food Inquiry 181

between AWB and Alia in relation to the delivery of AWB's wheat within Iraq, but thought there was a 'contract by conduct'.

" In September 2001, Mr Long was sent emails by Mr Hogan that referred to a proposal to hold back payment of inland transport fees that were 'due to Iraq' because a Letter of Credit in respect of a particular shipment had not been put in place. For the reasons given in Chapter 23 Mr Long's evidence that he did not pick up the 'nuance' in these emails that the payments were in fact being made to Iraq is rejected. The proposal only made commercial sense if Iraq was the recipient of the fees.

" In November 2001, Mr Long (and others, including Mr Hogan and Mr Edmonds-Wilson) received copies of emails from a shipping company which referred to the fact that it had been informed by ISCWT that 'the inland transport charges as well as the A.S.S. charges and agency fees on cargo of USD0.50 per ton HV [had] not been paid yet.' Mr Edmonds- Wilson replied that the ISCWT fees were 'incorporated into Inland Transport Payments made to Alia prior to vessel discharge.' It was clearly recognised that the beneficiary of the fees was an Iraqi entity.

" In December 2001, Mr Hogan sent senior officers of AWB, including Mr Long, an email that identified, in relation to contracts A llll and A1112, the price payable by IGB, including the components referable to AWB's obligation to pay the 'inland transport' fee of ¨55.17 and ¨55.40 respectively. Mr Long also received and sent correspondence to IGB in relation to IGB's attempts to renegotiate these contracts, including the 'inland charges' payable by AWB. The other recipients of this email included Messrs Ingleby, Johnson, Stott and Ms Scales.

" In February 2002, Mr Long authorised a payment to Alia in respect of fees payable for shipments under contract A0785.

31.184 Another matter of significance in relation to these contracts is that in mid August 2002, a high level AWB delegation comprising Messrs Flugge, Lindberg, Long and Cracknell travelled to Iraq and met with the Iraqi Minister for Trade. Before the delegation departed for Iraq, an executive brief was prepared and provided to the members of the delegation. Mr Long read and checked the brief to ensure it was accurate. Under a heading entitled 'Iraq at a Glance,' the brief included a number of basic facts concerning AWB's trade with IGB, including that 'AWB also pays a fee, covered under sales contract, to the Ministry of Transport covering inland transport fees and discharge costs.' This statement made it clear that the fee was paid to Iraq. Each of Messrs Flugge, Lindberg and Long claimed in their evidence before the Inquiry that they did not recall reading the brief or this particular part of

182 Report of the Oil-for-Food Inquiry

the brief. For the reasons already given, Messrs Flugge and Long already knew by August 2002 that the fees were paid to Iraq. In relation to Mr Lindberg, even assuming that he read the quoted passage, that would not convey to a reader who believed that the trade with Iraq was being conducted lawfully and in accordance with sanctions, knowledge to the contrary. Mr Lindberg's evidence was that he was told by Mr Long or Mr Flugge whilst travelling to Iraq that AWB was required by IGB to use a particular trucking company. That is not sufficient to attach to Mr Lindberg knowledge of the true arrangements between AWB and IGB, or that payments were being made by AWB to Iraq.

31.185 In summary, I make the following findings in relation to contracts A llll and

A1112:

(a) Senior officers of AWB knew that the arrangements between AWB and IGB in relation to the supply of the wheat the subject of contracts A llll and A1112 included that AWB would supply the wheat to Iraq on terms GIF Free Out Umm Qasr, but would pay a fee to an Iraqi entity totalling was ¨55.17 per tonne (Allll) and ¨55.40 per tonne (A1112). These fees were added to what was otherwise the GIF price, but the contracts did not reveal that the fees were a component of the price.

(b) Senior officers also knew that the contractual documents that AWB supplied to DFAT for transmission to the United Nations did not disclose the true arrangements between AWB and IGB in relation to the supply of the wheat the subject of these contracts.

(c) The same officers knew that the payment of a fee or fees totalling ¨55.17 per and ¨55.40 per tonne to an Iraqi entity contravened the sanctions and that the United Nations had not approved the making of such a payment. For this reason the payments were disguised as payments to Alia for transport services.

(d) Throughout the period that officers of DFAT and the United Nations were responsible for making decisions or taking action relevant to these contracts, namely between 20 December 2001 and October 2002, AWB, through its senior officers, concealed from DFAT the fact that its arrangements with IGB were materially different to those recorded in the contracts and the UN Notification forms referable to them and that the arrangements included payments by AWB indirectly to Iraq in contravention of the sanctions.

Report of the Oil-for-Food Inquiry 183

(e) The concealment of those facts was intentional and dishonest and intended to influence the actions of DFAT and the UN in relation to the contract and shipments made under it.

31.186 The senior officers who were involved in, or knew about and authorised, the negotiation of these contracts and the associated arrangements with IGB, the drafting and submission of the contracts to DFAT and the concealment of information relating to the arrangements were Messrs Hogan, Long, Ingleby, Lister and Flugge. By January 2002 Messrs Stott and Mr Goodacre had taken up positions that did not include duties and responsibilities in relation to the Iraq trade. Mr Flugge left AWB in March 2002, the same month that these contracts were entered into. Whilst he may have had little direct involvement in these particular contracts, his knowledge and authorisation of past arrangements relating to the payment of the fees means that he implicitly, if not expressly, authorised the same arrangements in relation to these contracts. He also returned to AWB as a consultant and travelled to Iraq with Messrs Lindberg and Long in August 2002.

31.187 There were more junior officers at AWB who were directly involved in the Iraq contracts and who knew that the beneficiary of the fees was an Iraqi entity, that the fees were not genuinely referrable to transport services, that the contracts submitted to DFAT made no reference to the fees and that DFAT and the United Nations had not been, and were not to be, told about the payment of the fees. Mr Edmonds-Wilson was an officer who, like Mr Borlase before him, assisted the Regional Manager from time to time. In addition to assisting Mr Hogan, one of Mr Edmonds-Wilson's responsibilities was to monitor payments to Alia. As a result of being the recipient of, or instigator of, some of the correspondence or communications referred to above, Mr Edmonds-Wilson learnt that the fees were ultimately paid to ISCWT or the Ministry of Transport in Iraq. Mr Edmonds-Wilson was also responsible for sending AWB's contracts to DFAT for submission to the United Nations. However, Mr Edmonds-Wilson's role was purely administrative involving no decision making or exercise of authority. His was not of sufficient seniority to make his acts those of AWB.

31.188 Payments of fees to Alia under these contracts were authorised by Messrs Ingleby, Geary and Mr Long.

Contract A1441

31.189 The circumstances relating to this contract are addressed in Chapter 23. It was entered into on or about 23 June 2002. Copies of the short and long-form contracts were sent to DFAT by Mr Edmonds-Wilson on 24 July 2002. The short-form contract was signed by Mr Hogan. Permission to export wheat

184 Report of the Oil-for-Food Inquiry

referable to this contract was sought by Mr Lister and granted by delegates of the Minister between 29 October 2002 and 28 April 2003.

31.190 Like contracts A llll and A1112, this contract was under phase XII of the Oil- for-Food Programme. The agreement struck between AWB and IGB in relation to this contract was that AWB was obliged to pay a fee of US$47.75 per tonne or its equivalent in Euros ( ¨48.53 per tonne). As was the case with previous contracts, the short and long-form contracts that were presented to DFAT and the United Nations did not refer to AWB's obligation to pay these fees. Nor was this revealed in any way in the UN Notification form. Nor did anyone at AWB take any steps to inform DFAT or the United Nations that its arrangements with AWB included the payment of those fees.

31.191 The evidence demonstrating that senior officers of AWB knew that the true arrangements between AWB and IGB, that they included the payment of substantial fees to an Iraqi entity and that this was concealed from DFAT and the United Nations has been addressed in the context of previous contracts.

31.192 Mr Long led the contract negotiations in relation to this contract during a visit to Iraq with Mr Hogan in June 2002. During this trip, Mr Long was made aware that Iraq was insisting on the payment of a 10% fee in addition to the fixed amount in relation to the trucking fee. Mr Hogan briefed Mr Long on the method of calculating the 'trucking' fee, including that it was a fee the Iraqis imposed on all suppliers under the Programme.

31.193 After the trip, Mr Long claimed that he 'rationalised' the inland transportation fee and discussed with Mr Geary how it was calculated, including the fact that it had been set by IGB, that it had significantly increased and involved an 'unusual' and 'absolutely extraordinary' calculation, a clear reference to the

10% charge, and the fact that it was paid to Alia. His rationalisation comprised comparing the amount of the fee with the amount it would cost to transport grain in Australia. It did not include asking the IGB or Alia to

explain or justify how the fee was set. Nor did it involve contacting DFAT or, through it, the United Nations to seek their view on the fees. This was despite the fact that Mr Long knew that the 'extraordinary calculation' was not disclosed in the documents sent to the United Nations.

31.194 In his evidence before the Inquiry, Mr Long claimed that he relied on a reference in an email from Mr Hogan dated that 1 July 2002 that 'all payment processes for Inland Transport are UN approved.' I do not accept Mr Long's evidence that he relied on this email and on that basis believed that the payment of fees to Iraq was known to and approved by the United Nations. On his own evidence, Mr Long was concerned about the probity of the fee. If Mr Long had genuinely believed the fee to be approved, there would have

Report of the Oil-for-Food Inquiry 185

been no need for him to attempt to rationalise or justify the amount of the fees and how they were calculated * particularly since he knew the fees to be essentially revenue neutral as far as AWB was concerned. The real reason for Mr Long's exercise was to satisfy himself and Mr Geary that the amount of the fee and the ultimate contract price was not such as to arouse the suspicions of the United Nations, or that if it was challenged he could justify it.

31.195 Mr Long was also privy to other correspondence that demonstrated that he

knew the true nature of the fees. Along with Messrs Flugge and Lindberg, Mr Long received an executive brief prior to his trip to Iraq in August 2002. He said he checked it for accuracy, later qualifying his evidence to say he checked it to ensure that it 'accorded with the objectives of the trip and the background to the market'. This brief clearly stated that the fees were paid to the Iraqi Ministry of Transport. By this time, at least, it was no secret within senior management at AWB that the fees were paid to Iraq. In September 2002, Mr Long also sent an email to Mr Geary in which he revealed his knowledge that in 2000 AWB had interposed Ronly and 'some shelf company' between it and Alia 'because of alleged problems with the UN/IGB.'

31.196 In summary, I make the following findings in relation to contracts A llll and A1112:

(a) Senior officers of AWB knew that the arrangements between AWB and IGB in relation to the supply of the wheat the subject of contracts A llll and A1112 included that AWB would supply the wheat to Iraq on terms GIF Free Out Umm Qasr, but would pay a fee to an Iraqi entity totalling US$47.75 per tonne ( ¨48.53 per tonne). These fees were added to what was otherwise GIF price, but the contracts did reveal that the fees were a component of the price.

(b) Senior officers also knew that the contractual documents that AWB supplied to DFAT for transmission to the United Nations did not disclose the true arrangements between AWB and IGB in relation to the supply of the wheat the subject of these contracts.

(c) The same officers knew that the payment of a fee or fees totalling US$47.75 per tonne ( ¨48.53 per tonne) to an Iraqi entity contravened the sanctions and that the United Nations had not approved the making of such a payment. For this reason the payments were disguised as payments to Alia for transport services.

(d) Throughout the period that officers of DFAT and the United Nations were responsible for making decisions or taking action relevant to these contracts, namely June 2002 and April 2003, AWB, through its senior

186 Report of the Oil-for-Food Inquiry

officers, concealed from DFAT the fact that its arrangements with IGB were materially different to those recorded in the contracts and the UN Notification forms referable to them and that the arrangements included payments by AWB indirectly to Iraq in contravention of the sanctions.

(e) The concealment of those facts was intentional and dishonest and intended to influence the actions of DFAT and the UN in relation to the contracts and shipments made under them.

31.197 The officers who were involved in, or knew about and authorised, the negotiation of this contract and the associated arrangements with IGB, the drafting and submission of the contracts to DFAT and the concealment of information relating to the arrangements were the same as those involved in contracts A llll and A1112: namely Messrs Hogan, Long and Lister. Payments to Alia ref err able to this contract were authorised by Messrs Long, Geary and Johnson.

Contracts 1670 and 1680 *the Tigris contracts

31.198 The circumstances relating to these contracts are addressed in Chapters 24

and 27. They were entered into on 12 December 2002. Copies of the short and long-form contracts were sent to DFAT on 23 December 2002. UN approval was given in respect of A1680 on 17 January 2003 and in respect of A1670 on 22 January 2002 (though the approval was not issued in respect of A1670 until 2 September 2003). Permissions to export referable to these contracts were issued by delegates of the Minister between February and May 2003.

31.199 Like the earlier contracts that have been considered, the agreement struck

between IGB and AWB in relation to these contracts included that AWB would pay fees to Iraq totalling ¨51.30 per tonne and that these fees would be added to what was otherwise the negotiated GIF price for the wheat. AWB had no contractual obligation beyond this to discharge or deliver the wheat within Iraq. As with previous contracts, the short and long-form contracts that were presented to DFAT and the United Nations did not refer to AWB's

obligation to pay these fees, the payment of the fees was not revealed in any way in the UN Notification forms and nobody at AWB took any steps to inform DFAT or the United Nations that its arrangements with IGB included the payment of fees.

31.200 In addition to the payment of fees to Iraq, there were two other critical aspects

of the agreement struck between AWB and IGB in relation to these contracts that were not revealed in the written contracts or otherwise disclosed in any way to DFAT or the United Nations. The additional terms of the agreement were:

Report of the Oil-for-Food Inquiry 187

(a) The price of the wheat in the contracts was inflated or 'loaded up' by ¨8.40 per tonne. This amount was added to the agreed price for the wheat to facilitate the repayment by IGB of a debt supposedly owed to Tigris Petroleum arising from a shipment of wheat in 1996. Because this amount was added to the wheat price, it was ultimately paid out of the UN escrow account. AWB entered into separate arrangements with Tigris in relation to the recovery of this supposed debt and AWB's remuneration

(US$500,000) for assisting in the debt recovery.

(b) AWB would pay IGB US$2,017 per tonne as agreed compensation for a previous delivery of wheat that was alleged by IGB to be contaminated. This payment was to be added to, and therefore paid in the same way as, the so-called inland transportation fee, that is, by payment through Alia. Whilst the compensation payments were to be paid under the guise of the transportation fee, unlike the transportation fee the compensation was not added to the wheat price and therefore not extracted from the escrow account.

The evidence relating to the loading up of the contract price with the Tigris debt and the agreement struck between AWB and IGB in relation to IGB's compensation claim is detailed in Chapter 27.

31.201 In September 2000, the debt said to arise from the 1996 shipment was assigned

to Tigris by BHPP. Two days later, Tigris sought AWB's assistance in recovering the debt said to exist as a result of the 1996 shipment. In October 2000, Mr Hogan, on the instructions of Mr Stott, raised the issue with IGB. The issue was also the subject of discussion and correspondence involving,

amongst others, Mr Hogan, Mr Stott and representatives of IGB in the first half of 2001. The issue was also raised directly with senior representatives of the Iraqi government by Mr Davidson Kelly, on behalf of Tigris. Mr Stott

liaised with Mr Davidson Kelly in relation to efforts to recover the debt.

31.202 In July 2002, IGB claimed that AWB wheat aboard a vessel seeking to

discharge at Umm Qasr was contaminated with traces of iron powder. IGB requested that the claim be settled by AWB paying compensation of US$7.00 per tonne. In mid August 2002, an AWB delegation including Messrs Flugge, Lindberg and Long travelled to Iraq primarily to deal with the compensation claim. An agreement was reached that AWB pay IGB US$6 per tonne for cleaning contaminated grain as compensation. The agreement was confirmed

by Mr Whitwell in an email to the Director General of IGB on 26 August 2002.

31.203 In an email to Mr Whitwell on 22 August 2002, Mr Hogan noted that AWB

needed to think how it could 'legally' pay IGB the compensation. It should be observed in this context that there was a straightforward response to Mr

188 Report of the Oil-for-Food Inquiry

Hogan's note: clause 9F of the long-form contract in relation to this shipment of wheat provided (as did all other IGB long-form contracts) that compensation payments were to be made to the UN escrow account. However, in Mr Whitwell's 26 August email to the Director General of IGB, Mr Whitwell raised, as an option for payment, that the compensation payment be offset against monies said to be owing to Tigris. This email was

copied to Messrs Long, Hogan and Edmonds-Wilson.

31.204 In September 2002, Mr Long raised issues concerning both the payment of the

compensation claim and AWB's role in relation to the recovery of the Tigris debt with the Corporate Risk Review Committee. At a CRRC meeting on 12 September 2002 and in a memorandum sent to CRRC members dated 16 September 2002, Mr Long raised as a possibility that the compensation payment be offset against the Tigris debt. In the memorandum, Mr Long noted that 'UN Regulations prohibit direct payment of funds to Iraq whilst Iraq is under UN sanctions.'

31.205 In late October 2002, Messrs Hogan and Whitwell travelled to Iraq and met

with the IGB in relation to both the recovery of the Tigris debt and the payment of the compensation claim. A report of their meeting with IGB was sent to a number of senior officers, including Messrs Lindberg, Stott, Ingleby, Geary, Long, Edmonds-Wilson, Goodacre, Fuller and Ms Scales as an annexure to a 'summary'. The 'summary' stated:

Iron powder rebate (USD6pmt) is separate from other debt issues. The Minister has asked for repayment through inland transport mechanism.

and

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.27

31.206 However the annexed trip report was somewhat different. Regarding the

Tigris debt it recorded that in a meeting with IGB a proposal had been put in the following terms:

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. USD7.5million (if using compound)

3. No further vessel claims would be used as offset *would need to be

redirected through UN account.

Report of the Oil-for-Food Inquiry 189

It makes clear no agreement was reached either as to the amount of the Tigris debt or the method of its recovery, and that AWB had clarified that it was not involved in the amount of debt, only the 'mechanism' for recovery.

It later recorded that in a meeting with the Iraqi Minister under the heading 'Tigris issue':

Simple interest amount to be recovered by Tigris through loading up the next Phase 13 wheat business.

Vessel rejection claims as per original agreement to be paid through inland transport payment 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.28

This made clear that AWB had not, at that time, accepted that the

compensation claim was to be repaid through the 'transport payment system'.

31.207 In relation to the meeting with the Oil Board representative, the report recorded the possible difficulties that may be encountered if the entire Tigris debt was incorporated in one 500,000 tonne wheat contract. The nature of Messrs Hogan and Whitwell's concern must have been apparent to the readers of the report: if the entire Tigris debt was added to the wheat price, it would be likely to be detected by the United Nations because the increased price would be anomalous and obvious. Thus, there was a clear

understanding that the recovery of the Tigris debt by 'loading up' the price in the next wheat contract would involve a deception of the United Nations.

Mr Lindberg's evidence was that whilst he read the summary of the October meeting, he did not read the detailed trip report. For the reasons considered later in this chapter, I accept Mr Lindberg's evidence in this regard. Mr Lindberg did not learn from this report that the Tigris debt was to be recovered by loading up the contracts then under discussions with the IGB.

31.208 Mr Whitwell travelled to Iraq again in mid November 2000, this time with Mr Long. Mr Whitwell and Mr Long met with representatives of IGB and the Minister for Trade. At both meetings, Mr Long requested that consideration again be given to the mechanism by which the compensation payment was to be made. In the meeting with IGB, Mr Long asked for the mechanism to be reconsidered 'for corporate governance reasons.'

31.209 In late November 2002, AWB sought DFAT's preliminary advice concerning how a compensation claim could be paid to IGB. DFAT's advice was that the United Nations had advised that there were two ways in which compensation

190 Report of the Oil-for-Food Inquiry

could be paid: either by discounting invoices in relation to future wheat shipments or paying the compensation into the UN escrow account. Mr Hockey, who dealt with DFAT in relation to this issue, advised Messrs Long, Whitwell and Hogan of this advice.

31.210 On 4 December 2002, Mr Whitwell, on behalf of AWB, struck an agreement with IGB in relation to the supply of 1 million tonnes of wheat. The agreed price incorporated an amount referable to the repayment of the Tigris debt, but did not include the inland transportation fee. That was to be agreed later.

31.211 The agreement to supply one million tonnes of wheat was subsequently

divided into two contracts that were allocated the numbers A1670 and A1680. These contracts were executed on 12 December 2002. The short-form contracts were signed by Mr Hogan and the long-form contracts were signed by Mr Long. Both were authorised by Mr Geary. Reports containing details of these contracts were sent by Mr Edmonds-Wilson to, amongst others, Messrs Lister, Geary, Long, Whitwell, Hogan, Johnson and Ms Scales. The reports clearly

disclosed that the price included transport fees of ¨51.30 per tonne and ¨8.40 per tonne to recover the Tigris debt. None of the recipients of the reports queried, or objected, to the contracts including the transportation fees or an amount referable to the recovery of the Tigris debt.

31.212 Despite the fact that Iraq's position in relation to the compensation claim had

been made clear in previous communications, in an email sent on 17 December 2002, Mr Whitwell again raised with IGB the question of how the compensation payment would be made and its effect on the contract pricing. The Director General of IGB sent an email to Mr Hogan on the same day advising again that the compensation payment of US$2,017 was to be added to the inland transport payment. There is no suggestion that this was to be added to the contract price. Mr Hogan forwarded this email to Messrs Whitwell and Edmonds-Wilson on 23 December 2002.

31.213 Mr Edmonds-Wilson sent DFAT copies of the short-form contracts and

accompanying Notification forms on 23 December 2002. None of these documents disclosed that the price included a fee of ¨51.30 per tonne, ostensibly relating to inland transport, or ¨8.40 per tonne, relating to the recovery of a debt, or that AWB had agreed to pay US$2,017 to Iraq as compensation for a past shipment and proposed to use the contracts as a vehicle to do so. Senior officers of AWB knew and intended that these matters would not be disclosed in the documentation that was to be sent to DFAT.

31.214 Following the finalisation of these contracts with IGB, Mr Whitwell, in

consultation with Messrs Geary and Long, prepared a memorandum to Mr Lindberg in relation to these contracts.

Report of the Oil-for-Food Inquiry 191

31.215 There were various iterations of this memorandum. The final version was settled and circulated to Messrs Geary, Long, Hogan, Johnson, Cooper, Hockey, Ms Scales and Ms Lyons. It was 'recommended' by Mr Long and 'approved' by Mr Geary. It was probably forwarded to Mr Lindberg's office. The memorandum:

(a) confirmed 'for the record' that International Sales & Marketing had, 'through an uplift in price' and 'by allowing the new contract to be the conduit,' negotiated the recovery of the US$8,375 million Tigris debt by IGB

(b) confirmed the agreement to pay the IGB the agreed 'quality rebate' in respect of the allegedly contaminated wheat 'through the inland transport payments for the new contract'

(c) noted that the Iraqi Minister of Trade had insisted that the compensation be repaid through the inland transport system, that this had been his understanding of the agreement he had reached with Mr Lindberg and that Mr Long, who was present during those discussions, confirmed that 'this was discussed'

(d) after referring to UNSCR 661, noted that 'the Government of the Commonwealth of Australia would be obliged to prevent AWB Limited from making any remittance of funds to the IGB'

(e) set out the terms of an 'AWB Legal opinion', the effect of which was that if AWB management determined to make the payment to Iraq, it should be made in instalments over time coinciding with shipments of wheat and to a company other than IGB and in a jurisdiction other than Iraq

(f) referred to the advice that had been received from DFAT *referred to (in the final version of the memorandum) as an 'informal discussion' * to the effect that the 'quality rebate' should be either repaid into the escrow account or as a future contract price reduction

(g) referred to the concern expressed by AWB Public Affairs that this 'may not be well received by the United Nations' and that 'there was a reasonable chance of them finding out' and, in that context, to the view expressed by International Sales & Marketing that it did not want the United Nations involved and that it was confident that 'this issue could be handled without the need for the United Nations to be consulted'

(h) recommended that the debt be repaid to Iraq in the way outlined in 'AWBs legal opinion' * that is, by payment through Alia Transport in Jordan in instalments

192 Report of the Oil-for-Food Inquiry

(i) recommended that Mr Lindberg only convey AWB's 'intentions' to the Australian Government after letters of credit were in place.

The United Nations approved contract A1680 on 17 January 2003. Contract A1670 was approved on 22 January 2003, but the approval was not issued until 2 September 2003.

31.216 Regarding whether Mr Lindberg received or saw the memorandum, his evidence was that he neither received or saw the document or discussed it with any executive.29 He did not waiver in that evidence. The evidence establishes that on 10 February 2003, Mr Geary prepared a file note addressed to Mr Lindberg to attach the signed memorandum by which he 'approved' Mr Whitwell's document. He said he forwarded it to Mr Lindberg's office, and there is other evidence suggesting he did. However, no document signed by Mr Geary to Mr Lindberg has been produced in answer to notices nor has any document bearing Mr Lindberg's initials been produced. Mr Geary's memorandum makes clear that it was intended to have a discussion of the contents with Mr Lindberg at which Mr Long and Ms Lyons were to be involved. No such discussion ever occurred.

I accept Mr Lindberg's evidence that he did not receive, see or discuss the document.

31.217 Ms Scales was on leave in early February until 14 February. At some time

after her return she read the memorandum. Although the memorandum noted the recovery of the Tigris debt by inflating the contracts, the endeavours to offset the iron filing compensation, and the US$500,000 fee, the real subject

of the memorandum was the proposal to pay back the iron filings

compensation through the inland transport mechanism. Ms Scales said, and I accept, that she assumed the contract, including the US$8,375 million in the price, would be information produced to the United Nations for approval, and that such approval would be obtained. She did not turn her mind to the mechanism of how that sum would appear in the contract, she never having

seen contracts submitted to the United Nations.30 Regarding the iron filings compensation she understood International Sales and Marketing were putting up a proposal, which was supported by legal advice, and which required management approval. The statements of the views of the Pool in the 7 February memorandum were not views emanating from her.

Ms Scales' evidence gains great support from her conduct in July 2004 when she learnt, for the first time, that there had not been disclosure in the contracts to the United Nations of the inflation by inclusion of the Tigris debt. She was

immediately concerned, fearing AWB may have breached sanctions and the Oil-for-Food Programme. She immediately suggested a meeting with Messrs

Report of the Oil-for-Food Inquiry 193

Lindberg, Geary, Long, Johnson and Cooper, and required senior legal advice before any pay out to Tigris was made.31

31.218 Although the memorandum is shown as having been sent to Mr Hockey, the evidence establishes:

(a) Mr Hockey was overseas at the time of distribution of the memorandum.

(b) There is no evidence that the memorandum was received by him.

(c) Mr Hockey disagreed with the course proposed in the memorandum.

(d) Mr Hockey took steps to obtain and then convey the advice of DFAT as to the appropriate means by which the compensation claim ought to be addressed by AWB. What was proposed in the memorandum was contrary to the advice which Mr Hockey had obtained and conveyed.

(e) Mr Hockey had no prior or subsequent knowledge about the inland transportation payments that were to be made as part of contracts A1670 and A1680, and thus had no knowledge that DFAT and the United Nations were unaware of such arrangements.

(f) Mr Hockey had no knowledge of the loading up of the contracts with the Tigris debt.

31.219 In summary, I make the following findings in relation to contracts A1670 and A1680:

(a) Senior officers of AWB knew that the arrangements between AWB and IGB in relation to the supply of the wheat the subject of contracts A1670 and A1680 included that AWB would supply the wheat to Iraq on terms GIF Free Out Umm Qasr, but would pay a fee to an Iraqi entity totalling ¨51.30 per tonne. These fees were to be added to what was otherwise the

GIF price, but were not revealed in the contracts as being components of the price.

(b) Senior officers of AWB also knew that the arrangements between AWB and IGB in relation to these contracts included that the price would be inflated by ¨8.40 per tonne to achieve recovery by AWB from the UN escrow account of US$8.2375 million to be used by AWB to facilitate the repayment by Iraq of a debt supposedly owed to Tigris and that AWB would be paid US$500,000 by Tigris for its participation.

(c) Senior officers of AWB also knew that the arrangements between AWB and IGB in relation to these contracts included that AWB would pay an

194 Report of the Oil-for-Food Inquiry

additional US$2.01389 per tonne (or the euro equivalent) to IGB in respect of compensation due to the escrow account for a previous shipment of wheat. This payment was to be added to the so-called inland

transportation fees of ¨51.30 per tonne.

(d) Senior officers also knew that the contractual documents that AWB supplied to DFAT for transmission to the United Nations did not disclose the true arrangements between AWB and IGB in relation to the supply of the wheat the subject of these contracts * and in particular did not disclose any of the arrangements in (a) to (c) above.

(e) The same officers knew that the payment of a fee or fees totalling ¨51.30 per tonne, and the payment of US$2.01389 per tonne, to an Iraqi entity contravened the UN sanctions and that the United Nations had not approved the making of such a payment. For this reason the payments were disguised as payments to Alia for transport services.

(f) The same officers knew that DFAT and the United Nations did not know, would not be told and had no way of finding out, that the contract price had been inflated by the amount of the Tigris debt.

(g) Throughout the period that officers of DFAT were responsible for making decisions or taking action relevant to this contract, namely between 20 December 2002 and May 2003, AWB, through its senior officers, concealed from DFAT the fact that its arrangements with IGB were materially

different to those recorded in the contracts and the UN Notification forms referable to them and that the arrangements included payments by AWB indirectly to Iraq in contravention of the sanctions. It concealed the facts from the United Nations until after the last payment for A1670 was made.

(h) The concealment of those facts was intentional and dishonest and intended to influence the actions of DFAT and the UN in relation to the contract and shipments made under it.

31.220 The officers of AWB who were involved in, or knew about and authorised, the

negotiation of these contracts and the associated arrangements with IGB, including the loading up of the contracts with the Tigris debt and the agreement to pay IGB compensation disguised as part of the transportation fees, and the concealment of information relating to the arrangements from DFAT are Messrs Geary, Long, and Whitwell. Mr Edmonds-Wilson performed only administrative functions in relation to these contracts. For reasons given above in the context of contracts A llll and A1112, Mr Edmonds-Wilson's position was such that his acts and knowledge were not attributable to AWB.

Report of the Oil-for-Food Inquiry 195

Conclusions in relation to AWB

31.221 In the report I have addressed the circumstances surrounding the agreements between AWB and IGB for the sale and delivery of wheat between June 1999 and March 2003, the contracts signed in respect of such agreements, the submission of such contracts and associated documents to DFAT and the United Nations for approval for payment from the United Nations escrow account under the Oil-for-Food Programme, and the application by AWB for permission to export from Australia to Iraq the wheat sold under those contracts. In that context, the question arises whether AWB might, prior to 24 May 2001, have contravened sections 29D, 29A or 29B of the Crimes Act 1914, or after 24 May 2001, contravened sections 135.1(7) and 136.1 of the Criminal Code and whether AWB might through out the whole of the period between June 1999 to March 2003 have contravened section 82 of the Crimes Act 1958

(Vic).

If, as I have found:

" AWB submitted to DFAT, and through it to the United Nations for

approval for payment from the UN escrow account, contracts and associated documents which did not truly reflect the agreements reached between AWB and the IGB in some or all of the following respects:

- the contracts submitted did not disclose:

(1) AWB's agreement to include in the wheat price an inland transportation (or trucking) fee which varied between the US$12.00 per tonne and US$51.15 so that such fee was paid to AWB from the escrow account

(2) AWB's agreement to pay such fee to Iraq or an Iraqi entity

(3) that the fee was a fixed fee for each phase determined by Iraq as a condition of tender

(4) that IGB had the obligation to discharge the wheat at Umm Qasr, and transport it to all governorates of Iraq

(5) that the above fee was not related to any contractual obligation that AWB had with IGB for discharge or transport of wheat

(6) AWB's agreement to pay the fee to an account nominated by the IGB

(7) that the fee would be paid to a third party to disguise the

payment of the fee to an Iraqi entity

196 Report of the Oil-for-Food Inquiry

(8) in the case of contracts from November 2000, that the wheat price in the contracts also included an additional 10% fee imposed by Iraq, to be recovered from the escrow account, and which was payable to Iraq by AWB

(9) AWB's agreement to pay this additional fee to Iraq or an Iraqi entity

(10) AWB's agreement to pay such fee along with and as if it were part of the inland transportation fee

(11) in the case of contracts A1670 and A1680, that the price included the sum of US$8,375 per tonne not related to the price of wheat but being the amount of an alleged debt to Tigris that AWB had agreed with IGB and Tigris would be recovered from the United Nations escrow account for payment by AWB to Tigris. The US$8,375 per tonne included a sum of US$500,000 (equivalent to US$0.50 per tonne) to be retained by AWB as its commission for recovering the Tigris debt

(12) in the case of contracts A1670 and A1680, that AWB had agreed to pay to Iraq via payments to Alia, in addition to the 'trucking' fee, including a 10% service fee, an additional sum of US$2,016 per tonne as payment of compensation for an iron filings

contamination claim.

- contrary to the terms of the contracts submitted, AWB did not have any obligation

(1) to discharge wheat at Umm Qasr or arrange or pay for such discharge

(2) to transport, or arrange or pay for transport of the wheat within Iraq.

and that under the terms of the agreement reached between AWB and IGB, those obligations remained at all times with IGB

- in the case of contracts A4653, A4654, A4655 and A4822, although the contracts submitted did refer to an obligation on AWB to pay 'discharge costs' of up to a maximum of 'USD12.00' (per tonne) 'to nominated Maritime Agents in Iraq':

(1) that clause did not accurately state or reflect AWB's agreement with IGB to pay the inland transportation fee

Report of the Oil-for-Food Inquiry 197

(2) the fee that AWB had agreed to pay under its agreement with IGB was not, as represented by that clause, a variable cost related to the discharge of the vessels and payable to the maritime agents in Iraq responsible for the discharge of the vessel's on AWB's behalf

and

" AWB applied to DFAT for permission to export from Australia to Iraq the wheat sold by it under those contracts

and

" AWB knew that the contracts submitted did not truly reflect the

agreements reached between it and IGB and at all relevant times concealed this fact from DFAT and the United Nations with the intention of deceiving DFAT and the United Nations and thereby to dishonestly influence their actions or otherwise obtain a benefit relating to or arising from participation in the Oil-for-Food Programme

and

" DFAT, unaware of the matters referred to above, forwarded to the United Nations the contracts and associated documents for approval for payment from the escrow account, and granted permissions to export the wheat sold under the contracts under the Customs (Prohibited Exports) Regulations

and

" The United Nations, unaware of the matters referred to above, approved the contracts for payment from the UN escrow account under the Oil-for- Food Programme

then, in my view, there might have been such a contravention.

It is a serious matter to mislead DFAT into certifying and sending documents to the United Nations and granting permission to export on a false basis, to mislead the United Nations to agree to provide payment for wheat on a false basis, and to agree to make payments to Iraq in known contravention of United Nations sanctions.

I recommend that this matter be referred to the Task Force for consideration whether proceedings under sections 29D, 29A and 29B of the Crimes Act 1914 and sections 135.1(7) and section 136.1 of the Criminal Code and section 82 of the Crimes Act 1958 (Vic) be instituted against AWB.

198 Report of the Oil-for-Food Inquiry

31.222 Chapters 14 and 15 deal with circumstances surrounding the agreements

between AWB and Savas Grain & Commodities Limited (Savas Grain) and Commodity Specialists Company (CSC) for the sale and delivery of wheat under contracts A4906, A4907, A4908, A4933, A0062 and A0101 and AWB's applications for permission to export from Australia to Iraq the wheat sold under those contracts between December 1999 and September 2000.

In that context, the question arises whether AWB might have contravened sections 29D, 29A or 29B of the Crimes Act 1914 in respect of those contracts and the applications for permission to export the wheat sold under those

contracts.

If, as I have found:

" AWB submitted to DFAT applications for permission to export wheat from Australia to Iraq under contracts A4906, A4908, A4933, A0062 and A0101

" AWB knew, yet failed to disclose to DFAT at the time the applications were made and concealed from DFAT at all relevant times thereafter, particulars of the abovementioned contracts materially relevant to the granting of permission to export, namely:

(1) AWB's agreement under those contracts to pay a fee of US$12 (in respect of contracts A4906 and A 4908) and US$15 per tonne (in respect of contracts A4933, A0062 and A0101) to an Iraq nominated account and thereby to Iraq or an Iraqi entity

(2) the payment of the above fee had not been approved by the United Nations

(3) the payment of the above fee had not been disclosed to the United Nations in obtaining its approval to the underlying sale under the Oil- for-Food Programme

(4) the wheat price for which the wheat was sold under these contracts included the abovementioned fee

(5) the above fee would in effect be paid from the UN controlled escrow account (through its inclusion in the underlying contracts with the IGB which these contracts were to fulfil)

(6) the fee was a fixed fee for each phase determined by Iraq as a

condition of tender

Report of the Oil-for-Food Inquiry 199

(7) contrary to the written terms of these contracts AWB did not in truth have any obligation

(a) to discharge wheat at Umm Qasr or arrange or pay for such discharge

(b) to transport, or arrange or pay for transport of the wheat within Iraq

(8) contrary to the written terms of these contracts, IGB had the obligation to discharge the wheat at Umm Qasr and transport it to all governorates of Iraq

(9) the fee payable by AWB was not related to any contractual obligation that AWB had under the contract for discharge or transport of wheat

(10) the fee would be paid to a third party to disguise the payment of the fee to an Iraqi entity

" AWB did so with the intention of deceiving DFAT and thereby to

dishonestly influence their actions or otherwise obtain a benefit relating to or arising from participation in or the shipment of wheat under the Oil- for-Food Programme

" DFAT, unaware of the matters referred to above, granted permissions to export the wheat sold under the abovementioned contracts under the Customs (Prohibited Exports) Regulations

then, in my view, there might have been a contravention of sections 29D, 29A or 29B of the Crimes Act 1914 in respect of the granting of permission to export wheat shipped under contracts A4906, A4908, A4933, A0062 and A0101.

It is a serious matter to agree to make payments to Iraq in known

contravention of UN sanctions, to assist in and facilitate such an agreement, to conceal that agreement from DFAT, and to mislead DFAT into granting permission for the export of wheat on a false basis.

I recommend that this matter be referred to the Task Force for consideration whether proceedings under sections 29D, 29A and 29B of the Crimes Act 1914 be instituted against AWB in respect of its applications for permission to export the wheat sold under contracts A4906, A4908, A4933, A0062 and A0101.

200 Report of the Oil-for-Food Inquiry

Possible offences by persons associated

31.223 I am required by my Letters Patent to report whether any person associated

with AWB Limited, as defined in the Letters Patent, might have, by decision, action, conduct, payment or writing, committed a breach of any law of the Commonwealth, State or a Territory.

31.224 Accordingly I must consider whether any directors or executives of AWB

Limited or AWB International Limited might have accessorial liability for breaches of such laws which I have found AWB Limited might have committed.

31.225 The principles relating to accessorial liability for criminal offences are

addressed in Appendix 26. Speaking generally, to establish accessorial liability, the following elements are required:

(1) the commission of the offence or offences by the principal offender (AWB):

" As discussed above, the offences that might have been committed by AWB are offences under sections 29A, 29B, 29D of the Crimes Act 1914 (Cth); or sections 135.1(7) and 136.1 of the Criminal Code and section 82 of the Crimes Act 1958 (Vic)

(2) The accessory (the AWB officer) knew all the essential facts or circumstances which must be established in order to show that the offence was committed by the principal offender (AWB), whether or not the accessory knew that those facts amounted to an offence. Actual knowledge of essential facts and circumstances is required. Recklessness or negligence is insufficient. However, actual knowledge can in some circumstances be inferred from a deliberate failure to make inquiries. Such an inference is commonly referred to as 'wilful blindness'.

(3) With that knowledge, the accessory (the AWB officer) intentionally assisted or encouraged the principal offender (AWB) to carry out the acts that constitute the principal offence.

" The accessory (the AWB officer) must, by his words or conduct do something to bring about or render more likely the commission of the offence by the principal offender (AWB) and must intend that result * or be 'linked in purpose' with the principal offender.

" Mere knowledge is not enough. There must be some act and an

intention to assist or encourage the principal offender * though in certain circumstances inactivity (the failure to stop conduct by a

Report of the'Oil-for-Food Inquiry 201

person who has authority to stop it; or inactivity in circumstances where that inactivity would amount to authorisation of the conduct) may amount to encouragement or assistance. That is ultimately a question of fact.

" The intention must be an intention to encourage or assist the principal offender to carry out the acts that constitute the offence. It is not necessary for the accessory to know or intend that those acts would constitute an offence.

31.226 Counsel Assisting have also contended that some officers might have breached the provisions of sections 180 to 184, and s. 1309 of the Corporations Act 2001, and s. 82 of the Crimes Act 1958 (Vic). The elements for breaches of those sections are also set out in Appendix 26.

31.227 The submissions of breach of each statutory provision is based on similar factual allegations. Accordingly it is convenient to address all submissions regarding each person whom Counsel Assisting submit might have breached any statutory provision. I will address the persons in alphabetical order. If a person is not addressed who has been mentioned in the report, that is because Counsel Assisting has not considered there is any material which would suggest that such person might have offended against any law of the Commonwealth, a State or a Territory. It is important that it be understood that because it is necessary to mention a person by name in the recounting of the events which have occurred that does not mean such person might, in any way, have been guilty of any impropriety.

31.228 Where I refer to 'accessorial liability' I am referring to possible accessorial liability in respect of possible offences by AWB against ss 29A, 29B and 29D of the Crimes Act 1914 ss 135.1(7), 135.4(7) and 136.1 of the Criminal Code and s. 82 of the Crimes Act 1958 (Vic).

Mr Borlase

31.229 It was submitted that Mr Borlase might have accessorial liability.

31.230 Mr Borlase joined AWB in 1995. In late 1998 he commenced with the International Sales and marketing desk as an entry level marketing executive. He was the most junior person on that desk, providing administrative assistance to his managers, Mr Emons and later Mr Hogan. At all times during his involvement with the trade with Iraq between June 1999 and November 2000 when he took up other duties, he acted under the supervision of his managers. As part of his administrative role he wrote correspondence to

202 Report of the Oil-for-Food Inquiry

traders and DFAT, and performed the function, in respect of several contracts, of forwarding contracts to DFAT for submission to the United Nations.

31.231 Mr Borlase, along with superior officers, was the recipient of Mr Hogan's email of 16 June 1999 seeking information prior to his visit with Mr Emons to Baghdad to discuss the new tender requirements. He was also the recipient of Mr Hogan's email of 11 October 1999 with suggestions of how to overcome the difficulties of making payments to Iraq. It must have been obvious to Mr Borlase that that issue was being discussed. In December 1999, under the supervision of Mr Emons, Mr Borlase negotiated, booked and authorised contracts A4908 and A4906 with Russian grain traders which contracts, prepared by Mr Borlase, provided:

This price includes a fee of USD12.00 pmt to be paid directly by seller to Grain Board of Iraq advised account.32

He also booked and authorised contract A4907 with the same traders. A letter to Mr Borlase from the traders noted:

As the contract is less recent, the payment of USD12.00 per m ton for inland transportation is not required.33

Mr Borlase must have been aware that when a transportation fee was required to be paid, it was a payment required to be made by and to Iraq.

31.232 In January and February 2000, Mr Borlase was involved in the removal of the clause from the AWB's short-form contract which disclosed payment of a fee to an Iraqi entity. Working under the supervision of Mr Emons until June 2000, it would seem unlikely he was unaware that the contract he prepared and submitted to DFAT for United Nations approval did not disclose the true arrangements made with IGB.

31.233 In January 2001, Mr Borlase was transferred to AWB's Cairo office as an Account Manager responsible for sales in Egypt and Yemen. In February 2001, he accompanied Mr Hogan to Iraq to negotiate further sales. His evidence was that, on the way to Baghdad, Mr Hogan explained to him the negotiations which had occurred in November 2000 that resulted in an increased 'trucking fee as well as the addition of a sum of 10% of the contract price as part of the undisclosed 'trucking fee' in the contract. He said that this was the first occasion he understood the arrangements, and it was not until this trip that 'the penny dropped'. In the trip report he prepared on the Iraqi trip he wrote:

Trucking fee/service 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.34

Report of the Oil-for-Food Inquiry 203

31.234 Undoubtedly Mr Borlase understood the true arrangement at least by then and that trucking fees and surcharges AWB was paying were payments back to Iraq.

31.235 The evidence of participation of Mr Borlase in activities relating to contracting with Iraq and any deception by AWB of DFAT and the United Nations which might attract accessorial liability is limited to the period June 1999 to February 2000, and contracts A4653, A4654 and A4655 (July 1999) and A4970, A4971 and A4972 (January 2000), and the removal of the clause in the AWB short- form contract which referred to payments to an Iraqi entity. In each instance, the activity Mr Borlase engaged in was of an administrative nature performed at the direction of Mr Emons. In my view having regard to Mr Borlase' junior position and lack of authority, such participation is not sufficient to attach to Mr Borlase any accessorial liability.

31.236 I make no adverse findings against Mr Borlase.

Mr Cooper

31.237 It was submitted that Mr Cooper might have committed offences against ss 180,181, 1307 and 1309 of the Corporations Act 2001, and ss 194 and 195 of the Crimes Act 1958 (Vic).

31.238 For reasons given, s. 1307 of the Corporations Act 2001 and ss 194 and 195 of the Crimes Act 1958 (Vic) have no application

31.239 Mr Cooper was General Counsel at AWB. At relevant times he reported to Mr Lindberg. His role was to oversee and manage the legal division within AWB. He played no role in relation to sales of wheat to Iraq or contracts related to those sales. His advice was not sought prior to AWB entering into contracts A1670 and A1680 and the inflation of those contracts by inclusion of the Tigris debt.

31.240 In about July 2004 Mr Cooper was instructed to investigate issues related to the Tigris matter. That occurred when Ms Scales learnt for the first time that contracts A1670 and A1680 as submitted to the United Nations were 'silent on Tigris'. She required that senior legal advice be obtained before any monies were paid out to Tigris. Mr Cooper instructed Mr Quennell, who had been investigating Project Rose, to investigate the matter. The investigation became known as Project Water.

31.241 From at least March 2003 various draft agreements between AWB and Tigris had been passing between Mr Whitwell, Ms Lyons, Mr Long and Mr Davidson Kelly. Mr Cooper was not involved in those exchanges.

204 Report of the Oil-for-Food Inquiry

31.242 On 9 September 2004 Mr Cooper advised Ms Scales:

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 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 programme was never disclosed and was not a payment for a humanitarian purpose.35

That was the advice Mr Cooper received from Mr Quennell of Blake Dawson Waldron.36

31.243 On informing Mr Lindberg of this on 10 September 2004, Mr Lindberg

required the advice of senior counsel before the matter proceeded to payment. Mr Cooper told Mr Lindberg the debt had been recovered by inflating the contract price for wheat.37

31.244 Advice was then obtained from Dr Donaghue, Mr Tracey QC and Mr Richter

QC. The advice received was based on a draft statement of facts prepared by Mr Quennell as a result of his inquiries, which was to be signed off by Messrs Stott, Long and Whitwell.

31.245 On 30 September 2004 Ms Peavey forwarded to Mr Cooper a draft agreement

which he forwarded to Mr Davidson Kelly, who approved it with minor amendments.

31.246 On 14 October 2004, on Mr Cooper's instructions, Mr Quennell briefed Mr

Tracey QC and Mr Richter QC. Each was informed of the inflation of contracts A1670 and A1680 to recover the Tigris debt.

31.247 By 26 October 2004, Mr Quennell had received advice from Mr Tracey QC that

resolution 661 had not been breached, and from Mr Richter QC that the crimes on which he had been asked to advise had not been committed. He advised that the payment to Tigris could be made. Mr Quennell passed that advice to Mr Cooper.

31.248 On 10 November 2004, Mr Cooper wrote to Mr Lindberg and Ms Scales

advising that Messrs Stott, Long and Whitwell had 'signed off on the chronological review of the facts, that each senior counsel confirmed 'there was no breach of the law involved in the transaction', that the transaction did not require board approval but it was 'required to be reported' to the board, that an agreement had been drawn up between AWBI and Tigris Petroleum which was attached, and that in Mr Cooper's view, Tigris had assisted AWBI in securing the IGB grain market in 2002.

Report of the Oil-for-Food Inquiry 205

31.249 On 19 November 2004, Mr Lindberg gave approval in principle to proceed,

with formal approval to occur the following week. Mr Lindberg advised through Dr Fuller that the 'success fee 100% to AWBI.'

31.250 On 21 November 2004, Mr Cooper forwarded the draft agreement to Mr

Quennell for necessary amendments, and sought tax advice regarding it.

31.251 On 26 November 2004, Mr Quennell provided Mr Cooper with an amended

draft which Mr Cooper sent to Mr Davidson Kelly as the 'final draft'. He replied suggesting one amendment.

31.252 On 1 December 2004, Tigris faxed an invoice for a 'service fee' for the agreed

amount payable by AWBI.

31.253 On 2 December 2004, Mr Cooper asked Mr Lindberg to sign off on the

agreement. Dr Fuller signed the agreement for AWBI. The monies were paid to Tigris on 9 December 2004.

31.254 At the joint information sessions and the board meetings on 14 and 15

December 2004, Mr Lindberg informed the boards of the transaction.

31.255 Against this background, the question arises whether Mr Cooper might have

breached s. 1309 Corporations Act 2001 in that he furnished or authorised the furnishing of information to directors, including Mr Lindberg, in relation to the Tigris matter which was false or misleading in the following respects:

(i) the information provided included information that Tigris had assisted AWB in recovering threatened wheat sales to Iraq, when in fact it had not done so

(ii) in consideration of that assistance AWB had assisted Tigris to recover its debt, when that was not the reason it had done so

(iii) Mr Cooper did not tell the Boards that the agreement AWB had executed with Tigris and under which it had paid it approximately US$7 million, was a sham agreement because it falsely portrayed that the payment was a service fee when in truth no service had been provided by Tigris and the money was payment of a collected debt

(iv) Mr Cooper failed to tell the Boards the manner in which AWB had recovered the Tigris debt, namely by 'loading up' the contract price, and deceiving DFAT and the United Nations

(v) Mr Cooper failed to inform the Boards that legal advice obtained included legal advice from junior counsel which suggested the law had been

206 Report of the Oil-for-Food Inquiry

breached, and the advice from senior counsel was qualified in certain aspects.

31.256 Regarding the meetings on 14 and 15 December 2004 with the directors, it is not clear whether Mr Cooper spoke at all, whether he provided notes to Mr Lindberg to which Mr Lindberg spoke, or whether Mr Lindberg spoke and Mr Cooper noted what he said. If Mr Cooper did speak, what he said is not clear.

31.257 It was submitted by Mr Cooper that the duty to inform the Board of the Tigris

matter lay either solely or principally with Mr Lindberg as Managing Director. Mr Cooper had advised him of that obligation on 10 November 2004. Mr Cooper had no right to address the boards unless invited to do so. The probability is it was Mr Lindberg who spoke of the matter to the boards. There is substance in those submissions.

31.258 Regarding the substance of the submission against Mr Cooper that he knew

that the agreement signed between AWB and Tigris did not reflect the true factual circumstances in that it did not mention debt recovery but referred to payment of commission when he knew there was no agreement for provision

of service by Tigris to AWB, Mr Cooper's submission was, in substance, that the evidence he had been able to give was constrained by AWB's claim for legal professional privilege. Nonetheless, Mr Quennell had explained to him that there were two parts to the Tigris transaction, the second presumably being the provision of services in Iraq to retain the IGB market; he had spoken to Mr Davidson Kelly in September 2004 regarding the influence of Tigris in Iraq in 2004 and this was an indication of a view or belief that Tigris had assisted AWB; there were other references in the notes of lawyers involved in examining the Tigris transaction including Blake Dawson Waldron, and Ms Peavey which supported the view that Tigris may have assisted AWB, that Ms Lyons and Ms Peavey, and Mr Quennell had all given evidence of instructions that Tigris may have assisted AWB, and that paragraph 19 of the final Project Water chronology states 'Tigris offered assistance to AWB in 2002 in procuring contracts between AWBI and IGB. Informal understanding reached with Tigris to this effect (no written agreement).' This last reference was to a document produced after the privilege hearing which apparently was a working document. The source of the quoted passage is noted as 'C. Whitwell, interview'. The comment regarding the passage was: 'What did Davidson Kelly do? Was the restoration of the lm MT sale a result of his efforts? We don't know. It was possibly a combination of AWB's and Tigris's efforts.'38 This document was not the 'final Project Water chronology', and was not signed off by Messrs Stott, Long and Whitwell as correct. However assuming it was the document to which Mr Cooper was making reference, contrary to paragraph 1 of his memorandum, it was no basis for the opinion expressed in paragraph 7 that Tigris had assisted in securing the Iraqi trade. The words

Report of the Oil-for-Food Inquiry 207

quoted make clear to a reader of them that it was not known whether any such effective assistance had been given by Tigris.

The final summary signed as correct by Mr Stott, Mr Long and Mr Whitwell makes no reference at all to Tigris offering assistance to AWB in 2002.39 Further, Mr Whitwell endorsed above his signature the following:

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 paragraph 1-27 are not within my personal knowledge.

31.259 Nobody familiar with the 'Project Water *Summary' of facts would draft or

approve the agreement in the form in which it was signed. The facts summary makes no mention of Tigris providing any service to AWB. The facts summary provides no basis for any view that Tigris 'secured' for AWBI the Iraq market as Mr Cooper's email of 10 November states in paragraph 7. That email in paragraph 1 states that the factual review had been completed and that the relevant business managers had signed off the document. They had not. The Tigris agreement was a sham and Mr Cooper must have known that. Once the transaction had been cleared by Counsel as not being contrary to law, it appears from paragraph 7 of the email that there still remained the need to provide an apparent basis on which Mr Lindberg and Ms Scales could justifiably be asked to pay the monies from the pool. They could do so if the

payment 'maximises the net pool to growers... by securing... markets'. Mr Cooper expressed the view that it did to provide a justification for payment out of the pool. He must have known there was no factual basis for his advice

in that regard to his Managing Director, Mr Lindberg.

31.260 He allowed Mr Lindberg to approve execution of the agreement on a false

basis, and inform the other directors of the Tigris transaction ignorant of the truth.

31.261 If, as I have found, on 10 November 2004 Mr Cooper, as an officer of AWB:

" furnished, or authorised or permitted the furnishing of information to Mr Lindberg, a director of AWB and AWBI, namely:

- information to the effect that in 2002 Tigris Petroleum provided assistance to AWBI which substantially contributed to AWBI saving its wheat market with the IGB after it was threatened to be cut in half because of Australia's political support of the US against Iraq and that, in return for this assistance from Tigris, AWBI agreed to assist in recovering the debt owed by IGB to Tigris Petroleum

208 Report of the Oil-for-Food Inquiry

Mr Cooper's view that 'this transaction' assisted AWBI in securing the Iraqi grain market

and

" that information related to the affairs of AWB and AWBI and to the

knowledge of Mr Cooper was false or misleading because:

- Tigris provided no assistance to AWBI in 2002 which assistance substantially contributed to AWBI saving its wheat market with the IGB

- There was no factual basis for Mr Cooper's view that anything done by Tigris assisted AWBI to secure the Iraqi grain market

then in my view, Mr Cooper might have committed an offence against section 1309(1) of the Corporations Act 2001.

Even if Mr Cooper did not know that the information he furnished, or permitted or authorised to be furnished to Mr Lindberg was false or misleading as indicated, if, as I have found, Mr Cooper nevertheless failed to take reasonable steps to ensure that the information was not false or misleading, in my view he might have committed an offence against section 1309(2) of the Corporations Act 2001.

It is a serious matter for an officer of a public corporation to knowingly provide materially misleading information in relation to the affairs of the corporation to a director of the corporation or to fail to take reasonable steps to ensure that information provided to directors is not misleading. Mr

Cooper's actions were particularly serious because they resulted in Mr Lindberg approving the execution of the agreement with Tigris on a false basis and caused Mr Lindberg, who remained ignorant of the true position, to

in turn provide the same false or misleading information to the other directors of AWB and AWBI.

I recommend that this matter be referred to the Task Lorce for consideration of whether proceedings under section 1309(1) or section 1309(2) of the Corporations Act 2001 be instituted against Mr Cooper.

Mr Edmonds-Wilson

31.262 It was submitted that Mr Edmonds-Wilson might have accessorial liability.

31.263 Mr Edmonds-Wilson was a marketing assistant in AWB's International Sales

and Marketing Division from April 2001 to May 2003. He was the most junior

Report of the Oil-for-Food Inquiry 209

employee in that division. His role was to provide administrative assistance to his superiors. He was not responsible for negotiating wheat sales contracts or preparation of the written agreements reflecting agreements reached.

31.264 When he took up his position in April 2001, the arrangements for payment to Alia were in place. He continued payments under those structures without inquiry.

31.265 I am satisfied that because of his junior administration role, no conduct of Mr Edmonds-Wilson was of such quality or character to attract any accessorial liability.

31.266 I make no adverse findings against Mr Edmonds-Wilson.

Mr Emons

31.267 It was submitted that Mr Emons might have accessorial liability, and might have committed offences against s. 184 of the Corporations Act 2001.

31.268 Mr Emons did not dispute that he was fully familiar with the true

arrangements between AWB and the IGB. He was involved in making those arrangements. He was also familiar with AWB contracts lodged with DFAT and the United Nations, signing many of them. It necessarily follows that he knew the contractual arrangements disclosed to DFAT and the United Nations did not disclose the true arrangements.

31.269 Mr Emons' evidence was supported by the documentary evidence. His recollection was generally sound. In its Project Rose investigation, AWB did not interview Mr Emons although advised to do so. Nor did AWB facilitate the IIC interviewing Mr Emons. I do not doubt that Mr Emons would have told the truth in either instance. I am satisfied that Mr Emons' evidence is generally accurate. Without his assistance, the task of this Inquiry would have been even more difficult. No doubt these are matters that the prosecuting authorities will consider.

31.270 I am satisfied Mr Emons was an officer within the meaning of s. 9 of the Corporations Act 2001.

31.271 If, as I have found:

" AWB might have committed offences against sections 29D, 29A and 29B of the Crimes Act 1914 and section 82 of the Crimes Act 1958 (Vic) in respect of contracts numbered A4653, A4654, A4655, A4822, A4970, A4971 and A4972

210 Report of the Oil-for-Food Inquiry

" Mr Emons knew all of the essential facts that constituted AWB's possible commission of those offences, namely that:

(1) AWB submitted to DFAT and thus to the United Nations the above contracts for approval for payment from the escrow account, which contracts did not truly reflect the agreements reached between AWB and IGB in some or all of the ways referred to in my findings concerning AWB referred to above

and

(2) At all relevant times AWB concealed from DFAT and the UN that the contracts did not truly reflect the agreements reached between AWB and IGB with the intention of deceiving DFAT and the UN and thereby dishonestly influencing the actions of DFAT and the UN or otherwise obtaining a benefit relating to or arising from participation in the Oil-for-Food Programme

and

(3) DFAT, unaware of the matters referred to above, forwarded to the UN the relevant contracts and associated documents for approval for payment from the escrow account, and subsequently granted permissions to export the wheat sold under the contracts under the Customs (Prohibited Exports) Regidations 1958

and

(4) The UN, unaware of the matters referred to above, approved the contracts for payment from the escrow account under the Oil-for- Food Programme

and

" Mr Emons engaged in conduct that aided, abetted, counselled or procured the offences that AWB might have committed in respect of these contracts, namely by:

(1) negotiating, together with Mr Hogan, the agreement with IGB which included payment of the fees

(2) signing, on behalf of AWB, some of the contracts with the IGB that were to be provided to DFAT and the UN (knowing that they did not accurately reflect the agreements between AWB and IGB)

Report of the Oil-for-Food Inquiry 211

(3) informing other senior persons within AWB, including Mr Officer, Mr Flugge, Mr Ingleby, Mr Rogers and Mr Snowball of the conduct AWB was engaging in and proposing to engage in and obtaining their consent or approval or assistance to engage in, and continue to engage in, that conduct

(4) arranging with others, including Mr Watson, Mr Owen, Mr Lister and Mr Hogan to create and implement systems giving effect to the true contract between IGB and AWB, including systems designed to disguise or conceal from DFAT and the UN that a payment was being made to Iraq or to an Iraqi entity

(5) not informing DFAT or Austrade during his dealings with them concerning the Canadian complaint that AWB was in fact making the payments the subject of the complaint

(6) writing to IGB to ensure that it did not disclose the fact of the payments

(7) causing, or directing, Mr Borlase to delete from the short-form contracts with IGB any reference to payments to 'the nominated Maritime Agents in Iraq'

(8) directing his subordinate, Mr Borlase, to forward the written contracts which did not contain the true arrangements to the UN for approval

and

" Mr Emons intended that his conduct would in some way aid, abet,

counsel or procure AWB to deceive DFAT and the UN and thereby dishonestly influence the actions of DFAT or otherwise obtain a benefit relating to or arising from participation in the Oil-for-Food Programme

or

" In the case of the offence under section 82 of the Crimes Act 1958 (Vic), Mr Emons was a manager and connived in and consented to the conduct of AWB that might have constituted an offence under that section

then, in my view, Mr Emons might have aided, abetted, counselled or procured the offences that AWB might have committed against sections 29D, 29A and 29B of the Crimes Act 1914 and section 82 of the Crimes Act 1958 (Vic) and therefore might have committed offences against these sections by reason of section 5 of the Crimes Act 1914, and sections 323 and 84 of the Crimes Act 1958 (Vic) respectively.

212 Report of the Oil-for-Food Inquiry

31.272 If, as I have found that:

" AWB might have committed offences against sections 29D, 29A and 29B of the Crimes Act 1914 (Cth) in respect of AWB's application for permission to export wheat shipped under contracts A4906, A4908, A4993, A0662, and A0101

" Mr Emons knew all of the essential facts that constituted AWB's possible commission of those offences, namely:

- that AWB was required to submit applications for permission to export wheat from Australia to Iraq

- that AWB did not disclose to DFAT at the time of those applications, and concealed from DFAT thereafter, information relating to the contracts under which the wheat was sold that was material to the granting of these permissions, namely:

(1) that the contracts included an agreement to pay a fee of US$12 per tonne to an Iraq nominated account and thereby to Iraq or an Iraqi entity

(2) that the payment of the fee had not been approved by the United Nations

(3) that the payment of the fee was otherwise in breach of United Nations sanctions

(4) that the fee would be paid to a third party to disguise the

payment of the fee to an Iraqi entity

(5) that contrary to the terms of the written contracts, AWB did not in truth have any obligation to discharge the wheat at Umm Qasr or arrange for or pay for the cost of its discharge or any obligation to transport the wheat within Iraq or arrange for or pay for the cost of the transportation of the wheat within Iraq

(6) that contrary to the terms of the written contracts, these obligations remained with IGB

(7) that the abovementioned fee paid by AWB under these contracts was not being paid in discharge of any contractual obligation that AWB had under the above contracts to discharge and transport the wheat sold within Iraq

Report of the Oil-for-Food Inquiry 213

- that AWB failed to disclose this information with the intention of deceiving DFAT and thereby to dishonestly influence their actions or otherwise obtain a benefit relating to or arising from participation in or the shipment of wheat under the Oil-for-Food Programme

- that DFAT, unaware of the matters referred to above, granted permissions to export the wheat sold under the abovementioned contracts under the Customs (Prohibited Exports) Regulations

and

" Mr Emons, as General Manager of International (Global) Sales and Marketing engaged in conduct that aided, abetted, counselled and procured the said conduct of AWB including by:

(1) negotiating and authorising AWB's entry into contracts A4906, A4908, A4993; A0662 and A0101 which included the contractual obligation to pay fees to an Iraqi entity or nominated account

(2) failing to disclose to DFAT, or failing to direct or cause other officers or employees of AWB to disclose to DFAT, the fact that AWB's contractual arrangements included the payment of fees to Iraq or an Iraqi entity and that the fees were incorporated in the contract price, in circumstances where he had a duty to disclose, or direct disclosure, because:

(i) he knew that those facts were material to the decisions or conduct of DFAT relating to the issuing of permissions to export

(ii) he knew that those facts had not been, and would not otherwise be disclosed to DFAT

and

" Mr Emons intended that his conduct would in some way aid, abet,

counsel or procure AWB to deceive DFAT and thereby dishonestly influence the actions of DFAT or otherwise obtain a benefit relating to or arising from participation in the Oil-for-Food Programme

then, in my view, between July 1999 and his departure from AWB in July 2000, Mr Emons aided, abetted, counselled and procured the offences that AWB might have committed against sections 29D, 29A and 29B of the Crimes Act 1914 in respect of contracts A4906, A4908 A4993, A0662, and A0101 and

214 Report of the Oil-for-Food Inquiry

therefore might himself have committed offences against those sections by≠ reason of section 5 of the Crimes Act 1914.

It is a serious matter to agree to make payments to Iraq in known

contravention of UN sanctions, to assist in and facilitate such an agreement, to conceal that agreement from DFAT and to mislead DFAT into granting permission for the export of wheat on a false basis. It is also a serious matter to intentionally participate and assist in such conduct and to thereby aid and abet in such conduct by AWB.

I therefore recommend that this matter be referred to the Task Force for consideration whether proceedings under sections 29D, 29A and 29B of the Crimes Act 1914 be instituted against Mr Emons in relation to contracts A4906, A4908, A4993, A0662, and A0101.

31.273 If, as I have found, Mr Emons, in the period from about June 1999 to July 2000:

" used his position or exercised his powers as an officer of AWB:

" authorised or permitted AWB to enter into arrangements with IGB relating to the sale of wheat, which arrangements he knew included:

- AWB's agreement to include in the wheat price a fee so that the fee was paid from the escrow account to AWB

- AWB's agreement to pay such fee to Iraq or an Iraqi entity

- the submission of written contracts to DFAT and thus to the United Nations, for approval for payment from the escrow account under the Oil-for-Food Programme, which did not fully and accurately disclose, or disclose at all, AWB's agreement to pay the fee to Iraq or an Iraqi entity or the inclusion of the fee in the wheat price

- that the fee would be initially paid to Alia (or to Alia via other third parties) to disguise the fact that the fee was ultimately paid to Iraq or an Iraqi entity in contravention of the UN sanctions

and

" authorised or permitted AWB to make payments to Alia in circumstances where he knew:

- there was no contract between AWB and Alia in relation to the

payment of the fees

- Alia performed no services for AWB

Report of the Oil-for-Food Inquiry 215

- Alia paid the fees on to Iraq or an Iraqi entity in contravention of the UN sanctions

- the above facts were concealed from DFAT or the United Nations

then, in my view:

" Mr Emons might have been either reckless, or intentionally dishonest, and might have failed to exercise his powers or discharge his duties either in good faith in the best interests of AWB or for a proper purpose and therefore might have committed an offence against s 184(1) of the Corporations Act 2001

" Mr Emons might have dishonestly used his position and been reckless as to whether the use of his position may have resulted in Iraq or an Iraqi entity directly or indirectly gaining an advantage and therefore might have committed an offence against s 184(2) of the Corporations Act 2001

It is a serious matter for an officer of a public corporation such as AWB to authorise the corporation to enter into agreements in breach of statutory duties that the officer owes to the corporation, particularly where the officer acts intentionally, dishonestly or recklessly in breach of those duties.

I recommend that this matter be referred to the Task Force for consideration of whether proceedings under section 184 of the Corporations Act 2001 be instituted against Mr Emons.

I make no findings against Mr Emons in relation to the civil penalty provisions of the Corporations Act 2001 because any proceedings against Mr Emons for any possible contravention of these provisions would be time barred by reason of s. 1317K of the Corporations Act.

Mr Flugge

31.274 It was submitted that Mr Flugge might have accessorial liability, and might

have committed offences against ss 180, 181 and 184 of the Corporations Act 2001.

31.275 Mr Flugge has had a long association with the Australian Wheat Board and

after its privatisation in 1998, with AWB. He was appointed a director of the Australian Wheat Board in 1984, became Deputy Chairman in 1991, and non≠ executive Chairman in 1995, retaining that position until March 2002. He visited Iraq in 1996, 1998, October 1999, June 2001 and August 2002. His evidence was that as Chairman he was responsible for the strategic direction of the company, but not its day to day management. Nonetheless he said he

216 Report of the Oil-for-Food Inquiry

was 'generally aware that our contract with Iraq included a transportation component', but was not aware of 'who provided the transportation or at what cost'.40

31.276 His evidence was:

I understand that the contracts also contained the provision for inland freight to the various Governorates or from Aqaba to Iraq by road. The contracts were in effect 'GIF all Governorates Iraq'. My understanding (and I am not certain ... how

I came about this understanding and the source of it) was that this was acceptable to the UN as the road freight was similar in nature to the sea freight.41

And later:

From 1999 to 2002, I was never informed of the manner in which inland transportation fees were negotiated or the identity of the transportation company.42

31.277 Mr Flugge believed that UN sanctions did not permit AWB to make payments to an Iraqi entity or to Iraq, unless approval was sought and obtained from the United Nations.43

31.278 There is evidence before the Inquiry that suggests Mr Flugge had a greater involvement in approving the changed contractual arrangements with Iraq in June 1999 than he maintained.

31.279 In June 1999, Mr Flugge together with Mr Officer and Mr Emons attended an International Grains Conference in London. Evidence I have accepted indicates there was publicly discussed the payment of trucking fees in Iraq, with an officer of Ronly suggesting that the company might be able to help AWB in relation to such payments. Mr Flugge could not recall hearing any such conversation.

31.280 The requirements of Iraq under the phase VI tender in June 1999 introduced for the first time in AWB's experience, a supposed obligation for AWB to both discharge and transport grain within Iraq. In truth they required AWB merely to pay a fee into an account nominated by Iraq. Mr Officer gave evidence that he spoke to Mr Flugge about the new contractual terms on the basis that if the US$12 payment was not made there would be no business. His evidence was that Mr Flugge said:

this was a necessary part of doing business with Iraq and that the role we had at AWB was to maximise opportunities and sales returns for the commodities we were dealing with, and that we should proceed.44

31.281 In October 1999, Mr Flugge headed a delegation comprising Mr Rogers and Mr Hogan (who substituted for Mr Emons at the last minute) to Iraq. Mr

Report of the Oil-for-Food Inquiry 217

Hogan's evidence was that, although he could not recall giving Mr Flugge the brief, Mr Flugge would have been briefed 'about any matters which were on the table, including the inland transport fee'.45 That is as one would expect. At a meeting between Mr Daoud, Mr Flugge, Mr Rogers and Mr Hogan, the inland transport fee of US$12 per tonne was discussed, Mr Hogan protested against the requirement that the sum be prepaid, and proposed mechanisms for payment were discussed. Mr Daoud explained that the President of Iraq had decreed that all suppliers to Iraq must make the payment before vessels would be unloaded. Mr Flugge's evidence was that he did not pay attention to the conversation and had no recollection of it. It is inherently improbable that, having come from Australia, Mr Flugge would not have paid attention to discussions regarding new and unique payments AWB was required to make. The matters referred to were undoubtedly discussed. Whether Mr Flugge heard them gives rise to the question of whether Mr Flugge's evidence of non hearing or non recall is accepted.

31.282 On 9 November 2000, Mr Flugge, accompanied by Mr McConville and Mr

Snowball, met Mr Nicholas of the Australian Trade Commission in Washington DC. Mr Nicholas raised with him what was in substance the Canadian complaint, namely whether there were irregularities in AWB's dealings with Iraq outside the purview of the Oil-for-Food Programme. Mr Nicholas told Mr Flugge the issue had been raised by the United Nations. Mr

Snowball related the United Nations query to 'discharge/trucking' arrangements. There is no evidence of any conversation between him and Mr Flugge on that topic, although he gave evidence that the main discussion was between Mr Flugge and Mr Nicholas. Mr Snowball's email reporting on the meeting recorded 'we played down the issue'.46 Mr Flugge understood that AWB would 'provide a full response', yet so far as the evidence extends, did nothing to ensure a response was provided. Either Mr Flugge knew what was being spoken of at this meeting or he did not. If the evidence of Mr Officer is accepted, or if it were found that he had heard the discussion in October 1999 between Mr Daoud and Mr Hogan, or if he had been briefed by Mr Hogan before that October trip, he would have known that what was being discussed was the trucking fee payments. If he did not know what was being spoken about, one would reasonably expect him to have asked Mr Snowball who undoubtedly knew for he said as much in both telephone conferences with Mr Emons and in an email shortly after the meeting. It is likely Mr Flugge did know what was being spoken about. Yet again, Mr Flugge could not recall the meeting.

31.283 In late March 2000, some three weeks after the meeting in Washington, Mr

Emons spoke to Mr Flugge about trucking fees in Iraq. He recorded in an email to Mr Watson dated 4 March 2000 the following:

218 Report of the Oil-for-Food Inquiry

For your information I had a discussion with Trevor Flugge last week to discuss some of the finer points of the trucking fees. He is happy for us to carry on in fact he is determined that we should be accommodating to the Iraqi's so that our business does not come under threat from our US or CWB friends.47

31.284 There is no basis whatsoever for doubting Mr Enrons' evidence, or the

substance of his discussion with Mr Flugge as recorded in the email. It was contemporaneous; it was written prior to Mr Emons going to Iraq to 'clarify when we get to Baghdad that the fee on the new contract is USD15 and that

the method of payment remains the same to Alia etc and in what amounts',48 and Mr Emons had no reason to record anything other than what had happened. Efe would not have expected that his email would later be studied. If the contents of the email accurately record the substance of the discussion it must be the case that Mr Flugge was, at the very least from late March 2000, fully informed about the details of the payments of fees to Iraq through Alia because Mr Emons was fully aware of the true arrangements with Iraq, and there was no reason for him not to fully inform Mr Flugge as he recorded he did. Urging Mr Emons to be accommodating to the Iraqis to retain the trade was the same sentiment Mr Officer said Mr Flugge had expressed to him. Again, Mr Flugge had no recollection of the discussion with Mr Emons.

31.285 At the latest, from March 2000, officers in AWB proceeded upon the basis that

payment of the trucking fees to Iraq through the mechanism of Alia, had the approval of the Chairman, Mr Flugge, as being a necessary step to keep the Iraqi business and repulse threats from American and Canadian competitors.

31.286 On 5 April 2000, Mr Emons drafted a letter in the name of Mr Flugge as

Chairman, to be sent to Minister Saleh in Iraq.49 It is now known the letter was drafted on 5 April 2000 the day following Mr Emons record of his discussion with Mr Flugge of the previous week. Mr Emons said he left the letter for Mr Flugge's signature and later collected it. The letter was delivered by Mr Laskie to Minister Saleh on 15 April 2000 in Baghdad.50 It is unlikely an unsigned letter would have been delivered. Mr Flugge had no recollection of ever seeing the letter before it was shown to him in the witness box.

31.287 The letter included:

While in Baghad I will ask AWB to discuss recent communication from [the] United Nations concerning trucking fees. As you are aware both the Canadian and American Governments have raised this issue with the United Nations. It is our intention to remain committed to the terms of trade agreed between IGB and

AWB. The Australian Government equally supports this commitment to our trade.51

Report of the Oil-for-Food Inquiry 219

This paragraph restates the sentiment expressed by Mr Flugge to Mr Emons in their conversation at the end of March 2000. It is an endorsement by Mr Flugge of the arrangements to pay trucking fees to Iraq via Alia.

31.288 On 22 July 2002, Mr Nori Bali, a director of Ronly, wrote to AWB's Corporate Counsel, Ms Peavey, concerning a commercial dispute:

I was present during the meetings and discussions which took place with Trevor Flugge, the then Chairman of AWB; Michael Watson, the then head of chartering and Nigel Officer and Mark Emons who, at the time were responsible for AWB's business with Iraq. Paul Ingleby head of AWB's finance department was also fully aware of and authorised those transactions.

Prior to being approached by the AWB we had no involvement either direct or indirect with the AWB's sales of wheat to Iraq. In early 2000 the AWB became concerned at whether payments which they were making for inland trucking in Iraq were in breach of UN sanctions against Iraq. The AWB approached us for assistance. At the time when the relevant discussions took place the AWB had already concluded the contract of affreightment with Atlantic and Orient pursuant to which the 'Amarantos' was chartered. Atlantic and Orient only agreed to the transfer of the contract on the basis that the AWB would remain responsible for the management and control of the vessels chartered for all financial obligations. Equally we were about to enter into a joint venture partnership with the AWB. We required and were given the assurance that this business would be fronted by us and an offshore company on a full indemnity basis.52

31.289 Mr Flugge thought he was never at such a discussion with Mr Bali, and Mr Bali was not called. Messrs Watson, Officer and Emons were not asked about any such meeting because the document was not produced until later in the hearings. It was submitted the document might not be admissible against Mr Flugge. Nonetheless, if on further investigations, it were to be found that Mr Flugge did partake in such meetings in March 2000 when it is known arrangements were made with Ronly by AWB to hide payments to Iraq by channelling them through a Liechtenstein company with a Chinese name, it would be strongly indicative of knowledge by Mr Flugge of the detail of arrangements with Iraq and the reason for AWB seeking to hide payments to Iraq by channelling them through Ronly or its nominee to Alia. On any view the letter gives strong support to the evidence of Mr Officer and Mr Emons that Mr Flugge had knowledge of AWB's arrangements for circumventing United Nations sanctions.

31.290 In 2004, Mr Quennell was making inquiries as part of Project Rose. He and Mr Cooper had a telephone conference with Mr Flugge. Mr Quennell's notes read, in part:

I can recall talking to the management team (Mark Emons).

Some discussion re transport thing.

220 Report of the Oil-for-Food Inquiry

Effectively we paid money back to IGB then they did inland transport *

we paid it back through Ronly *they paid Alia Transport.

I can remember discussions with Emons *in contract *yes we can do this *

never detailed discussion *not issue for board * management issue.

Canadians had trouble *ships turned away from port

I recall this payment would be made through Ronly *

my suspicions were it was a set-up between Emons & Ronly.

Once AL came on board * clean out of staff *we were paying Alia direct *life went on

I thought it was approved by UN *always upfront *money went for inland transport

I have no idea where money actually went *some money would have been spent on inland transport *

Some transport from Jordan *

Significant costs for transportation

IGB had no money *need for infrastructure to be built *needed source of income to do that *

Extensive bunker building programme IGB were involved in.

Even Umm Qasr itself port improvements *

We're all looking for 'hidden dollar' *

most of money legitimately spent

This comes more from hindsight now as opposed to the time.

7/4/00.

Fair degree of openness about this

UN weren't saying don't pay, but this is how to pay

Don't Breach Rules!

My reason concern was Ronly link *53

31.291 These notes are, to some extent, equivocal. There is difficulty in establishing

with precision what knowledge disclosed by them related to the date of the teleconference, and which to an earlier period. They do display, however, a far greater understanding of events than Mr Flugge deposed to before me. They confirm discussions with Mr Emons about transport, and that must have been prior to June 2000. They disclose an understanding that money was being paid back to Iraq through Ronly and Alia. They acknowledge an understanding of the use of Ronly, which gives support to the evidence of Mr

Report of the Oil-for-Food Inquiry 221

Emons and the letter from Mr Nori. The tenor of the notes suggests an understanding that the 'transport' fees paid back to Iraq were used in part for transport and in part for infrastructure development in Iraq, it otherwise having no funds to build infrastructure. And they suggest a belief that the payments were approved by the United Nations.

31.292 Alone, Mr Emons' evidence supported by his email of 4 April 2000 is strong evidence that Mr Flugge had full knowledge of the true arrangements between AWB and the IGB, and understood and approved of AWB

continuing with such arrangements in order to preserve AWB's trade in Iraq. That view is given strong support by reference to the other material to which I have referred. I do not accept Mr Flugge's denials of knowledge of the true arrangements. I find that he did know the true arrangements and, as Chairman of AWB, approved of them. Those arrangements involved circumventing UN sanctions by paying money to Iraq using Ronly, shipowners and Alia to hide the making of such payments. By authorising officers of AWB to proceed with the arrangements insisted on by IGB in its phase VI tender and agreed to by AWB, Mr Flugge implicitly authorised officers of AWB to submit to DFAT and the United Nations contracts which did not disclose the true agreements reached with IGB. Mr Flugge approved of this course in order to preserve AWB's trade with Iraq which he knew would otherwise be lost.

31.293 If, as I have found:

" AWB might have committed offences against sections 29D, 29A and 29B of the Crimes Act 1914 and sections 135.1(7) and 136.1 of the Criminal Code and section 82 of the Crimes Act 1958 (Vic) in respect of contracts numbered A4653, A4654, A4655, A4822, A4970, A4971, A4972, A0265, A0266, A0267, A0430, A0552, A0553, A0784, A0785, A llll and A1112

and

" Mr Flugge knew all of the essential facts that constituted AWB's possible commission of those offences, namely that:

(1) AWB submitted to DFAT and thus to the United Nations the above contracts for approval for payment from the escrow account, which contracts did not truly reflect the agreements reached between AWB and IGB in some or all of the ways referred to in my findings concerning AWB referred to above

and

222 Report of the Oil-for-Food Inquiry

(2) At all relevant times AWB concealed from DFAT and the UN that the contracts did not truly reflect the agreements reached between AWB and IGB with the intention of deceiving DFAT and the UN and thereby dishonestly influencing the actions of DFAT and the UN or otherwise obtaining a benefit relating to or arising from participation in the Oil-for-Food Programme

and

(3) DFAT, unaware of the matters referred to above, forwarded to the UN the relevant contracts and associated documents for approval for payment from the escrow account, and subsequently granted permissions to export the wheat sold under the contracts under the Customs (Prohibited Exports) Regulations 1958

and

(4) The UN, unaware of the matters referred to above, approved the contracts for payment from the escrow account under the Oil-for- Food Programme:

and

" Mr Flugge engaged in conduct that aided, abetted, counselled or procured the offences that AWB might have committed in respect of these contracts, namely by

(1) participating in discussions concerning and authorising, either expressly or impliedly, the payment of the inland transportation fee to Iraq and the mechanisms adopted to pay it

(2) expressly or impliedly authorising AWB to enter into arrangements with Ronly to make the payments

(3) concealing material facts in relation to AWB's arrangements with IGB from DFAT and the United Nations

and

" Mr Flugge intended that his conduct would in some way aid, abet,

counsel or procure AWB to deceive DFAT and the UN and thereby dishonestly influence the actions of DFAT or otherwise obtain a benefit relating to or arising from participation in the Oil-for-Food Programme

or

Report of the Oil-for-Food Inquiry 223

" In the case of the offence under section 82 of the Crimes Act 1958 (Vic), Mr Flugge was the Chairman of AWB and connived in or consented to the conduct of AWB that might have constituted an offence under that section

then, in my view, Mr Flugge might have aided, abetted, counselled or procured the offences that AWB might have committed against sections 29D, 29A and 29B of the Crimes Act 1914 and sections 135.1(7) and 136.1 of the Criminal Code and section 82 of the Crimes Act 1958 (Vic) and therefore might have committed offences against these sections by reason of section 5 of the Crimes Act 1914, section 11.2 of the Criminal Code and sections 323 and 84 of the Crimes Act 1958 (Vic) respectively.

I recommend that this matter be referred to the Task Force for consideration of whether proceedings under the sections referred to should be instituted against Mr Flugge.

31.294 If, as I have found, Mr Flugge, in the period from about June 1999 to March

2002, used his position or exercised his powers as an officer:

" to cause, authorise or permit AWB to enter into arrangements with IGB relating to the sale of wheat, which arrangements he knew included:

- AWB's agreement to include in the wheat price a fee so that the fee was paid from the escrow account to AWB

- AWB's agreement to pay such fee to Iraq or an Iraqi entity

- the submission of written contracts to DFAT, and thus to the United Nations, for approval for payment from the escrow account under the Oil-for-Food Programme, which did not fully and accurately disclose, or disclose at all, AWB's agreement to pay the fee to Iraq or an Iraqi entity or the inclusion of the fee in the wheat price

- that the fee would be initially paid to a nominated third party (or to that third party via other third parties) to disguise the fact that the fee was ultimately paid to Iraq or an Iraqi entity in contravention of the UN sanctions

- the concealment of the above facts from DFAT and the United

Nations.

then, in my view:

" Mr Flugge might have been either reckless, or intentionally dishonest, and might have failed to exercise his powers or discharge his duties either in

224 Report of the Oil-for-Food Inquiry

good faith in the best interests of AWB or for a proper purpose and therefore might have committed an offence against s 184(1) of the Corporations Act 2001

" Mr Flugge might have dishonestly used his position and been reckless as to whether the use of his position may have resulted in Iraq or an Iraqi entity directly or indirectly gaining an advantage and therefore might have committed an offence against s 184(2) of the Corporations Act 2001

" Mr Flugge might have failed to exercise his powers and discharge his duties in the best interests of AWB and for a proper purpose and therefore might have contravened s 181 of the Corporations Act 2001

" Mr Flugge might have failed to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in AWB's circumstances and occupied the office held by, and had the same responsibilities within the corporation, as Mr Flugge and therefore might have contravened s 180 of the Corporations Act 2001.

It is a serious matter for an officer of a public corporation such as AWB to authorise the corporation to enter into agreements in breach of statutory duties that the officer owes to the corporation, particularly where the officer acts intentionally, dishonestly or recklessly in breach of those duties.

I recommend that this matter be referred to the Task Force for consideration of whether proceedings under sections 180, 181 and 184 of the Corporations Act 2001 be instituted against Mr Flugge.

I note that section 1317K of the Corporations Act 2001 imposes a six year limitation period for the commencement of proceedings arising from contraventions of civil penalty provisions. Accordingly, the referral to ASIC should only be in relation to the conduct of Mr Flugge that occurred from 2001 onwards.

Dr Fuller

31.295 It was submitted that Dr Fuller might have committed offences against ss 180,

181,1307 and 1309 of the Corporations Act 2001.

31.296 Dr Fuller was the Company Secretary. He played no part in the transactions

related to the sale of wheat to Iraq.

31.297 On 16 November 2004 he was advised by Mr Cooper, General Counsel at

AWB, that he might be required to execute the Tigris agreement. Prior to that

Report of the Oil-for-Food Inquiry 225

time he had no involvement in the transaction whatsoever, and had no knowledge of it.

31.298 In signing the Tigris agreement on behalf of AWB, Dr Fuller relied entirely upon what he was told by Mr Cooper. He was told by Mr Cooper that advice had been received from two Senior Counsel that it was legal to pay the Tigris debt to Tigris. He asked Mr Cooper if it was 'ok to sign the agreement. He said yes/54 He understood from Mr Cooper that the transaction had been thoroughly investigated from a factual and legal view point. Dr Fuller was entitled to rely on that advice in signing the agreement on behalf of AWB as Company Secretary. He had no knowledge that the Tigris agreement did not represent the true arrangement between AWB and Tigris.

31.299 Dr Fuller was present at the joint information session and board meetings on 14 and 15 December 2004. No criticism can be made of him concerning any supposed failure to inform the boards of additional information regarding the Tigris transaction because he had no knowledge of it other than that which he had gained from Mr Cooper, and that knowledge was that the transaction had been investigated, and found to be factually and legally acceptable.

31.300 For the reasons given above and elsewhere in relation to s. 1307, no question of any breach of ss 180,181,1307 or 1309 of the Corporations Act 2001 arises.

31.301 I make no adverse findings against Dr Fuller.

Mr Geary

31.302 It was submitted that Mr Geary might have accessorial liability, and might have committed an offence against s. 184 of the Corporations Act 2001, and contravened s. 180,181 and 182 of the same Act.

31.303 In 1998 Mr Geary was appointed Pool Manager of the National Pool. In 2000 he was appointed General Manager of the National Pool and in March 2001 he was appointed Group General Manager Trading.

31.304 In his capacity as Pool Manager or General Manager, Mr Geary had an interest in matters which might affect pool performance. However it was not his function to become involved in issues relating to the sale of wheat and the terms on which it was sold. That was the task of International Sales and Marketing. Whilst Mr Geary was included in or copied with emails addressing aspects of sales from members of the IS&M desk, the evidence is not sufficient to establish that Mr Geary read these emails with any care, or derived knowledge from them.

226 Report of the Oil-for-Food Inquiry

31.305 It would seem improbable that Mr Long would not have discussed with his

superior, Mr Geary, the Iraq market. It was a unique and profitable market, subject to difficulties of operating under the Oil-for-Food programme and subject to the risk of the trade being threatened by war. However, whilst Mr Geary said that he had with Mr Long 'conversations all the time on Iraq'55 the evidence of any such discussions is slight and not sufficient to attach Mr Geary with Mr Long's knowledge of the true arrangements in that trade.

31.306 Mr Geary provided the Inquiry with two statements which were of no

assistance.56 He prevaricated in his evidence, declined to address questions put to him, and obfuscated. I am not able to accept him as a frank truthful witness, nor can I accept that he had as little knowledge as he said. Some matters in his statement were wrong as ultimately Mr Geary accepted.57

31.307 On 10 July 2000, Mr Jones sent an email to Mr Geary.58 It addressed all the

problems that required attention in the Iraqi market and asked for strategies to address them. It attached an Iraq market brief which specified the 'mechanism for payment of trucking fee' as follows:

In existing contracts the fee is $15.00 per tonne. IGB have indicated the fee will be reduced to $14.00 for future business. Current mechanism of payment is via transport company/s in Jordan.59

I do not accept that Mr Geary did not read or understand this email. On 30 May 2000, Mr Geary had 'skim read' an email from Mr Officer dated 29 May addressing demurrage expenses being incurred by AWB in Iraq, a matter of concern to the pool as it was unresolved whether the pool or AWB was to bear the demurrage costs. It stated:

UN contract does not allow for payment of demurrage/dispatch, ie no transfer of funds, with exception of trucking fees, as agreed in the contract and approved by UN security council.60

Demurrage and capacity to make payments to Iraq was a matter at the forefront of concerns to AWB and the pool at that time. It was those and other concerns which Mr Jones addressed in his email of 10 July 2000 to Mr Geary.

31.308 Mr Geary authorised significant payments to Alia under contracts A0784,

A0785, A llll, A1112 and A1441. In so doing he was obliged to ensure the fees were properly payable by AWB. He failed to do so.

31.309 By December 2002, Mr Geary was Group General Manager Trading, and had

been since March 2001. As he said, he and Mr Long had many discussions about Iraq. It is inconceivable that he was not aware of the sale of 1 million tonnes to Iraq. Counsel for Mr Geary accept that he was and that Mr Geary:

Report of the Oil-for-Food Inquiry 227

(a) was aware of the inflation of contracts A1670 and A1680

(b) became aware of that some time after 12 December 2002

(c) knew the inflation was due to recoupment of the Tigris debt

(d) did not object to the recovery of the debt in this manner

(e) recognised that one means of paying the iron filings debt was to offset it against the Tigris recovery, and 'he recommended this course be explored on 7 February 2003'

(f) was not prepared to proceed with the iron filings payment under contracts A1670 and A1680 until such time as AWB had both the Managing Director's and the Commonwealth's approval.61

31.310 Mr Geary accepted in evidence that contracts A1670 and A1680 were entered into by AWB in the form signed on his authority.62

31.311 Mr Geary signed the 7 February 2003 memorandum as 'approved'. There is no evidence to suggest that any of the material in the memorandum came as a surprise to him, or required Mr Long to explain the background to the proposals to circumvent the United Nations sanctions. Mr Geary was a recipient of Mr Whitwell's email of 7 November 2002.63 That advised the Tigris debt had been approved by the Iraqi cabinet for repayment with the mechanism for repayment to be agreed during the next visit. It also noted that the Minister had asked for payment of the iron filings compensation through the 'inland transport mechanism.'64 He had also received Mr Hogan's and Mr Whitwell's report on their discussions with Iraq in which proposals to load up a contract for new business to recover the Tigris debt had been discussed.65 Mr Geary did nothing to stop those arrangements being finalised.

I am satisfied that prior to the execution of contracts A1670 and A1680 Mr Geary was aware that they would be 'loaded up' to recover the Tigris debt, and that the Iraqi Minister required the iron filings compensation to be repaid via the 'inland transport mechanism', and approved of those arrangements.

31.312 If, as I have found:

" AWB might have committed offences against sections 135.1(7) and 136.1 of the Criminal Code and section 82 of the Crimes Act 1958 (Vic) in respect of contracts numbered A0784, A0785, A llll, A1112, A1441, A1670 and A1680

and

228 Report of the Oil-for-Food Inquiry

Mr Geary knew all of the essential facts that constituted AWB's possible commission of those offences, namely that:

(1) AWB submitted to DFAT and thus to the United Nations the above contracts for approval for payment from the escrow account, which contracts did not truly reflect the agreements reached between AWB and IGB in some or all of the ways referred to in my findings concerning AWB referred to above

and

(2) At all relevant times AWB concealed from DFAT and the UN that the contracts did not truly reflect the agreements reached between AWB and IGB with the intention of deceiving DFAT and the UN and thereby dishonestly influencing the actions of DFAT and the UN or otherwise obtaining a benefit relating to or arising from participation in the Oil-for-Food Programme

and

(3) DFAT, unaware of the matters referred to above, forwarded to the UN the relevant contracts and associated documents for approval for payment from the escrow account, and subsequently granted permissions to export the wheat sold under the contracts under the

Customs (Prohibited Exports) Regulations 1958

and

(4) The UN, unaware of the matters referred to above, approved the contracts for payment from the escrow account under the Oil-for- Food Programme

and

" Mr Geary engaged in conduct that aided, abetted, counselled or procured the offences that AWB might have committed in respect of these contracts, namely by

(1) in his capacity as Group General Manager Trading, with authority to countermand arrangements entered into by the International Sales and Marketing Division and to give directions to its staff, permitting that Division to engage in the said conduct

(2) authorising the payment of fees to Alia in respect of contracts A0784, A0785, A llll, A1112 and A1441

Report of the Oil-for-Food Inquiry 229

(3) approving the Tigris transaction and the iron filings compensation arrangements prior to the submission of the contracts to DFAT

and

" Mr Geary intended that his conduct would in some way aid, abet, counsel or procure AWB to deceive DFAT and the UN and thereby dishonestly influence the actions of DFAT or otherwise obtain a benefit relating to or arising from participation in the Oil-for-Food Programme

or

" in the case of the offence under s. 82 of the Crimes Act 1958 (Vic), Mr Geary was a manager and connived in or consented to the conduct of AWB that might have constituted an offence under that section

then, in my view, Mr Geary might have aided, abetted, counselled or procured the offences that AWB might have committed against ss 135.1(7) and 136.1 of the Criminal Code and s. 82 of the Crimes Act 1958 (Vic) and therefore might have committed offences against these sections by reason of s. 11.2 of the Criminal Code and ss 323 and 84 of the Crimes Act 1958 (Vic) respectively.

As I have already indicated, AWB's deception of DFAT and the United Nation, the payment of money to Iraq in known contravention of the United Nations sanctions and the concealment of those payments are serious matters. The aiding and abetting of this conduct by officers and employees of AWB is equally serious.

I recommend that this matter be referred to the Task Force for consideration whether proceedings under sections 135.1(7) and section 136.1 of the Criminal Code and section 82 of the Crimes Act 1958 be instituted against Mr Geary.

31.313 If, as I have found, Mr Geary, in the period from about March 2001 to March 2003, used his position or exercised his powers as an officer or (in the case of s. 184(2) of the Corporations Act 2001 ) as an employee of AWB:

" to cause, authorise or permit AWB to enter into arrangements with IGB relating to the sale of wheat, which arrangements he knew included:

- AWB's agreement to include in the wheat price a fee so that the fee was paid from the escrow account to AWB

- AWB's agreement to pay such fee to Iraq or an Iraqi entity

- the submission of written contracts to DFAT, and thus to the United Nations, for approval for payment from the escrow account under the

230 Report of the Oil-for-Food Inquiry

Oil-for-Food Programme, which did not fully and accurately disclose, or disclose at all, AWB's agreement to pay the fee to Iraq or an Iraqi entity or the inclusion of the fee in the wheat price

- that the fee would be initially paid to Alia (or to Alia via other third parties) to disguise the fact that the fee was ultimately paid to Iraq or an Iraqi entity in contravention of the UN sanctions

- the concealment of the above facts from DFAT and the United

Nations

and

" to cause, authorise or permit AWB to make payments to Alia in

circumstances where the payments were ostensibly for discharge and transportation services performed for AWB by Alia in respect of wheat sold by AWB to IGB, but where he knew:

- there was no contract between AWB and Alia in relation to the

provision of any discharge and transportation services for which the fees were properly payable

- IGB had the obligation to discharge the wheat at Umm Qasr, and transport it to all governorates of Iraq

- Alia performed no discharge or transportation services for AWB in respect of wheat sold by AWB to IGB

- Alia was a mere conduit and the fees were paid on to Iraq or an Iraqi entity in contravention of the UN sanctions

- the above facts were concealed from DFAT or the United Nations.

and

" in the case of contracts A1670 and A1680, to cause, authorise or permit AWB to enter into arrangements with IGB relating to the sale of wheat, which arrangements he knew included:

- that the price included the sum of US$8,375 per tonne not related to the price of wheat but being the amount of an alleged debt to Tigris that IGB had agreed with AWB would be recovered from the United Nations escrow account for payment by AWB to Tigris (the US$8,375 per tonne also included a sum of US$500,000 (equivalent to US$0.50 per tonne) to be retained by AWB as its commission for recovering the Tigris debt)

Report of the Oil-for-Food Inquiry 231

* the relevant written contracts between AWB and IGB that were submitted to DFAT and thus to the United Nations did not disclose that this sum was included in the price and this fact was otherwise concealed from DFAT and the United Nations

then, in my view:

" Mr Geary might have been either reckless, or intentionally dishonest, and might have failed to exercise his powers or discharge his duties either in good faith in the best interests of AWB or for a proper purpose and therefore might have committed an offence against s 184(1) of the Corporations Act 2001

" Mr Geary might have dishonestly used his position and been reckless as to whether the use of his position may have resulted in Iraq or an Iraqi entity directly or indirectly gaining an advantage * and, in the case of contracts A1670 and A1680, reckless as to whether the use of his position may have resulted in Tigris directly or indirectly gaining an advantage * and therefore might have committed an offence against s 184(2) of the Corporations Act 2001

" Mr Geary might have failed to exercise his powers and discharge his duties in the best interests of AWB and for a proper purpose and might have improperly used his position to gain an advantage for Iraq (or in the case of contracts A1670 and A1680, Tigris) and therefore might have contravened ss 181 and 182 of the Corporations Act 2001

" Mr Geary might have failed to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were an officer of a corporation in AWB's circumstances and occupied the office held by, and had the same responsibilities within the corporation, as Mr Geary and therefore might have contravened s. 180 of the Corporations Act 2001.

In the case of section 180, even if Mr Geary did not know all or any of the matters referred to above in relation to the payments to Alia that he authorised, in my view having regard to the size of the payments authorised by him and the fact that there was no written contract between AWB and Alia pursuant to which the payments were properly made, and if, as I have found, Mr Geary nevertheless failed to satisfy himself that the payments were properly and lawfully payable to Alia, then in my view he therefore might have failed in any event to exercise his powers and discharge his duties with the required degree of care and diligence and therefore might have contravened s. 180 of the Corporations Act 2001.

232 Report of the Oil-for-Food Inquiry

It is a serious matter for an officer of a public corporation such as AWB to authorise the corporation to enter into agreements in breach of statutory duties that the officer owes to the corporation, particularly where the officer acts intentionally, dishonestly or recklessly in breach of those duties.

I recommend that this matter be referred to the Task Force for consideration of whether proceedings under s. 184 of the Corporations Act 2001 be instituted against Mr Geary.

Sections 180, 181 and 182 of the Corporations Act 2001 are civil penalty provisions. ASIC is the responsible entity for seeking relief in respect of alleged contraventions of civil penalty provisions. I recommend that this matter be referred to ASIC, in consultation with the Task Force, for consideration of whether proceedings under ss 180, 181 and 182 of the

Corporations Act 2001 be instituted against Mr Geary.

I note that s. 1317K of the Corporations Act 2001 imposes a six year limitation period for the commencement of proceedings arising from contraventions of civil penalty provisions. Accordingly, the referral to ASIC should only be in relation to the conduct of Mr Geary that occurred from 2001 onwards.

Mr Goodacre

31.314 It has been submitted that Mr Goodacre might have accessorial liability, and

might have committed an offence against s.184 of the Corporations Act 2001, and contravened ss 180,181 and 182 of the same Act.

31.315 Mr Goodacre was employed by AWB from 1990 until December 2002. Until

1998 he worked principally in the public affairs or corporate area. In 1998 he was appointed General Manager of Grower Services and then became a member of the executive management team. After the restructure by Mr

Lindberg in 2000, he was appointed Group General Manager of Trading in June 2000. He had at least three managers reporting to him, namely the General Manager of International Sales and Marketing, the General Manager

of AWB Australia (Domestic Trading) and the General Manager of Grower Services.

31.316 Mr Goodacre reluctantly accepted his new position because he had no prior

experience in the commercial trading aspect of AWB's business. He had no prior knowledge or experience in relation to wheat contracts or Iraq. Mr Goodacre's focus from June 2000 was upon aspects related to the preparation of AWB for public listing. He delegated to and relied upon the managers of the various divisions reporting to him to take responsibility for their divisions.

Report of the Oil-for-Food Inquiry 233

31.317 In June 2000, Mr Goodacre was aware that trucking fees were being paid to a trucking company in Jordan. He was not aware of any probity issues regarding those payments. He understood the trucking fees and arrangements were UN approved. He was not told by anyone that the trucking fees breached UN sanctions, that the trucking company did not do the trucking, or that the fees were diverted to Iraq.

31.318 An early task of Mr Goodacre was to appoint a new General Manager of the

International Sales and Marketing desk. Mr Officer had resigned and Mr Emons was acting in the position. He advanced to Mr Goodacre his credentials for appointment permanently to the position, but Mr Goodacre appointed Mr Stott. Mr Emons then went on immediate leave before resigning shortly afterwards. I am not satisfied on the material before me that Mr Emons raised with Mr Goodacre the terms of the Deed of Release signed by Mr Lindberg, or any reasons for it.

31.319 There was led from Mr Emons evidence that he told Mr Goodacre the True

nature of the payments that were being made as trucking payments', the 'methods by which payments were being made' but he did not tell Mr Goodacre that 'Alia didn't do the trucking.'66 In substance Mr Emons said he

told Mr Goodacre that 'a fee ... was charged by the IGB to ensure our vessels were discharged.'67 However in cross examination Mr Emons accepted that his discussion with Mr Goodacre was 'in the briefest terms'68 and that 'the only issue that was occupying Mr Goodacre's attention at the time in international marketing was the fact that we had an enormous demurrage bill in Iraq and how we were going to solve it.'69

31.320 The evidence of Mr Emons does not support a finding that Mr Emons told Mr

Goodacre anything which suggested that the trucking payments were otherwise than legitimate commercial payments. Certainly Mr Goodacre did not understand from anything told to him by Mr Emons that there was anything illegitimate or improper about the trucking payments.

31.321 Mr Goodacre denied being told by Mr Emons of the true nature of the

trucking fees, or their link with IGB.70 He acknowledged that Mr Emons may have referred to arrangements regarding trucking but not in any context of there being concerns or problems in relation to such fees. Mr Goodacre took nothing from the brief conversation he had with Mr Emons which gave him concern in that respect. I am satisfied that whatever was said between Mr Emons and Mr Goodacre regarding trucking in Iraq was not sufficient to attach to Mr Goodacre knowledge of the true arrangements which had been reached between AWB and IGB in the second half of 1999 when Mr Goodacre was unassociated with trading in AWB. I am also satisfied that, in June 2000,

234 Report of the Oil-for-Food Inquiry

Mr Goodacre did not suspect impropriety by AWB in relation to such payments.

31.322 After the appointment of Mr Stott as General Manager of International Sales

and Marketing, Mr Stott raised with Mr Goodacre the use of Ronly to make such payments, the fact he had stopped such payments and his concerns regarding the integrity of persons who had been employed in that division. Mr Goodacre supported Mr Stott's decision to engage Arthur Andersen to examine the division, its operations and it personnel. At some time Mr Goodacre may briefly have been consulted about a draft of the report but Mr Stott was the point of contact for Arthur Andersen, and the obtaining of its report fell within his responsibility.

31.323 In February 2001, the Arthur Andersen report was discussed between Mr

Goodacre, Mr Stott, Mr Tuohy and others from Arthur Andersen. Mr Goodacre learnt for the first time that there was a risk that some of the money paid to Alia was being diverted to other purposes than transportation, and

that Ronly had been used to disguise payments.71 He had previously understood from Mr Stott that there was no apparent purpose for the use of Ronly other than possibly to benefit individuals.72 Mr Goodacre charged Mr Stott with the responsibility of implementing the recommendations of the Arthur Andersen report. Mr Stott said he would investigate the payments AWB was making to see if there was substance in the Arthur Andersen remarks that there was a risk monies from those payments were being diverted to Iraq.73

31.324 Later Mr Stott told Mr Goodacre, falsely, that he had made inquiries with both

IGB and DFAT as part of his investigations into the issues relating to the trucking payments and was satisfied that the level of trucking fees was justified and that the trucking company Alia was legitimate.74 Mr Goodacre accepted those assurances. On that basis he subsequently authorised

payments to Alia for supposed transport fees. When he did so he believed the payments were legitimate and were United Nations approved.

31.325 No accessorial liability attaches to Mr Goodacre. His only involvement in

relation to contracts with or payments to Iraq was approving payments to Alia between April and December 2001. He approved those payments in the belief that they were legitimate, acting on the assurances of Mr Stott.

31.326 I make no adverse findings against him. He did not act contrary to ss 180,181

and 182 of the Corporations Act 2001.

Report of the Oil-for-Food Inquiry 235

Mr Hogan

31.327 It was submitted that Mr Hogan might have accessorial liability, and might have committed an offence against s. 184 of the Corporations Act 2001, and contravened ss 180,181 and 182 of the same Act.

31.328 From August 1998, Mr Hogan was in charge of AWB's office in Cairo. From there he made several trips to Iraq, although primary responsibility for the Iraq market lay with Mr Emons until June 2000. In August 2000, Mr Hogan was appointed Regional Manager * Middle East and he returned to the AWB Melbourne office. He then assumed and maintained responsibility for the Iraq market between August 2000 and July 2002 when he took stress leave. He officially handed over responsibility for the Iraq market in October 2002 to Mr Whitwell. He resigned from AWB in July 2003.

31.329 Mr Hogan visited Iraq on many occasions *June and October 1999, July, August and October 2000, February and May 2001, and October 2002.

31.330 Mr Hogan has submitted that:

(a) after the June 1999 trip, he did not know whether the new arrangements including payment of a 'transport fee' back to Iraq was approved by the United Nations, but believed it would have to be so approved.

(b) having been provided in October 1999 with copies of July 1999 contracts which showed 'discharge cost will be a maximum of USD12.00 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',75 and being told that such contracts had been approved by the United Nations, as they had, he assumed payments to Iraq for transportation costs were permissible and approved. He remained of that belief until February 2001 when he formed the view that the 'transport fee', which by then had risen to US$25.00 per tonne and had added to it a 10% surcharge, was no longer an approved fee but was a way of Iraq extracting US dollars from the UN escrow account to be used by Iraq to build infrastructure.

(c) His view held between October 1999 and February 2001 that the transport fee payment to Iraq was permitted was strengthened by the fact that in October 1999 at a meeting attended by him with the IGB at which the Chairman, Mr Flugge, and the Managing Director, Mr Rogers, were present, the question of the payment of such fee to Iraq and the method of making the payment was discussed. Neither of AWB's two most senior officers queried the making of the payment.

236 Report of the Oil-for-Food Inquiry

(d) In February 2001, having formed the view that the United Nations had not approved the increased trucking fee, or the 10% surcharge, and that the fee was being used in major part for non trucking purposes by Iraq, and having reported his view in writing in a trip report, he raised his concerns with his superior, Mr Stott. Mr Stott dismissed his concerns out of hand and instructed him to proceed as in the past.

(e) From February 2001, he did as instructed by Mr Stott. To have challenged Mr Stott's authority would have been employment 'suicide'. He did so unwillingly and to the detriment of his health knowing that AWB was acting in a manner not approved. Ultimately he felt obliged to resign due to the ill health caused by the pressure of acting improperly.

(f) Mr Hogan's honesty and integrity was demonstrated by his willingness, once he realised the fees were improper and unapproved, to record his view in writing and raise it with his senior management. He was the only officer within AWB to do so.

(g) Mr Hogan voluntarily and willingly assisted the Inquiry by providing a great deal of information which was of assistance and which, on one view, was against his interest.

31.331 It is necessary to consider closely the history of Mr Hogan's participation in,

and knowledge of, the transactions between June 1999 and October 2002 when he ceased involvement with the Iraq trade.

31.332 Prior to going to Iraq with Mr Emons in June 1999 to discuss the phase VI

conditions of tender, Mr Hogan sought a copy of 'UN contract conditions'.

31.333 After discussions in Iraq, Mr Hogan sent the email of 24 June 1999.76 The

difficulty identified was how to pay money to the 'maritime agents' as required by IGB. That had been discussed with the IGB. Mr Hogan suggested two methods of payment: one, to an Iraqi bank in Amman with the IGB to provide details of the banks which could be used, and two, by using shipowners to pay the maritime agents in Iraq. Mr Hogan always believed the payments were going to Iraq, and that payments to Iraq breached sanctions. Each method proposed was a means of circumventing those sanctions. Mr Hogan also understood that as the monies were reverting to Iraq to be used, at least in part, to cover the cost of transportation there was no need for AWB to arrange or contract with a transport company for inland transportation. Whatever else was contemplated, the quest within AWB, including by Mr Hogan, was to find a way of paying money back to Iraq, and to disguise that payment because it was known to be prohibited by sanctions.

Report of the Oil-for-Food Inquiry 237

31.334 Mr Hogan had been told by Mr Daoud that the fee had been included in the distribution plan and submitted for United Nations approval. However, Mr Hogan was not sure if it had been so approved, but was unwilling to have AWB raise the question formally with the United Nations for fear that it had not. And if it became known to IGB that AWB had raised the matter with the United Nations, and it had not been approved, Mr Hogan feared AWB would lose its wheat trade. So no formal inquiry was made of United Nations. However, Mr Hogan did write to Mr Snowball from Amman:

... we need to find a way to implement the payments as Iraq a/c's frozen.

Discretion is required here.77

31.335 No discretion would be required, and no means of paying monies to Iraq would need to be found if it was believed then or later, that the United Nations had given approval of such payments to Iraq.

31.336 If Mr Hogan believed, after seeing the UN approved contracts of July 1999 before his trip to Iraq in October, that the UN had approved transport fee payments to Iraq, there would have been no need to find ways to secrete such payments. However, at the meeting with IGB, Mr Flugge and Mr Rogers, 'proposed mechanisms' were discussed. His email of 11 October 1999 after the meeting, set out his 'brilliant idea' how to make the payment, namely, retain the funds due to Iraq until they were sufficient to finance a cargo of grain to Iraq.78 However, Mr Hogan had been told by the IGB that President Hussein required the US$12.00 per tonne to be paid to Iraq before vessels would be unloaded. So a system of setting up an account in Jordan was proposed, with the account to be 'nominated by IGB'. Mr Hogan made the comment:

We could probably bypass the Account in Jordan and transfer directly to the 'special' nominated account *as long as the link was not apparent that the funds were going into Irq.79

31.337 That is not consistent with a belief that payments to Iraq for such fees were permissible which belief was said to be gained from knowing contracts containing a US dollar payment clause to maritime agents in Iraq had been approved by the United Nations before the Iraq trip. It is consistent only with knowledge that they were not, and that there remained a need to find a discreet method of making payments to Iraq. The fact that Mr Flugge and Mr Rogers were present when Mr Daoud told Mr Hogan that President Hussein required the US dollar payments to be made to Iraq before unloading, and that they made no objection, does not mean that thereafter Mr Hogan believed the payments were approved by the United Nations: it means all three persons, and AWB, knew the payments were impermissible and in breach of sanctions, and that a hidden method of making such payments in breach of sanctions needed to be found in order to keep the Iraqi trade.

238 Report of the Oil-for-Food Inquiry

31.338 Mr Hogan, although not involved with Iraq thereafter until July 2000 must have realised that, as the Iraqi trade was not lost, a method of paying the fees in breach of sanctions must have been found. In the latter half of 2000 he learnt that funds had been paid through shipowners and Ronly, and was present with Mr Stott at a meeting with IGB in October 2000 when the issue of whether there were outstanding trucking fees arose.

31.339 In November 2000, Mr Hogan negotiated a contract on terms that the trucking fee was US$25.00 per tonne and in addition there was a 'handling fee' of 10% of the contract value to be added as part of the 'trucking fee'. He obtained Mr Stott's approval to that contract. In his note confirming the sale, Mr Hogan wrote:

** 10% will be added to px [price] and included into trucking fee *i.e. IGB will confirm USD ... and T/fee will be USD44.50 ... this has been approved by UN (as per IGB *I will get this in writing).80

31.340 Mr Hogan never did get any such approval in writing. The short-form contract signed by Mr Hogan and forwarded by him to DFAT for

transmission to the United Nations made no reference whatsoever to any payment of a transportation fee or other payment to Iraq although the email from IGB to Mr Hogan, confirming the rate, dated 2 November 2000 referred to a price 'including 44.5 inland transportation to be paid to the water transport co.'81 Mr Hogan must have known that the contract he signed and forwarded to DFAT did not reflect the true agreement he had, with Mr Stott's approval, reached with Iraq.

31.341 In February 2001, Mr Hogan visited Iraq. He learnt that at least some of the so called transport fee and the 10% 'service fee' was not being used to pay for transportation costs but was used for the development of infrastructure. He then knew that such inclusions in the contracts were a means of extracting US dollars from the escrow account. That was recorded in the trip report.82 He raised his concerns with Mr Stott who dismissed them out of hand on the basis that he was making 'assumptions', and directed him to continue executing business as usual.

31.342 After February 2001, Mr Hogan agreed with IGB or signed contracts A0784, A0785, A llll, A1112, A1441, A1670 and A1680. Mr Stott was no longer his superior, having moved to a different department.

31.343 Accordingly, if, as I have found:

" AWB might have committed offences against sections 29D, 29A and 29B of the Crimes Act 1914 and sections 135.1(7) and 136.1 of the Criminal Code and section 82 of the Crimes Act 1958 (Vic) in respect of contracts

Report of the Oil-for-Food Inquiry 239

numbered A4653, A4654, A4655, A4822, *õ4970, *õ4971, A4972, A0265, A0266, A0267, A0430, A0552, A0553, A0784, A0785, A llll, A1112, A1141, A1670 and A1680

and

" Mr Hogan knew all of the essential facts that constituted AWB's possible commission of those offences, namely that:

(1) AWB submitted to DFAT and thus to the United Nations the above contracts for approval for payment from the escrow account, which contracts did not truly reflect the agreements reached between AWB and IGB in some or all of the ways referred to in my findings concerning AWB referred to above

and

(2) At all relevant times AWB concealed from DFAT and the UN that the contracts did not truly reflect the agreements reached between AWB and IGB with the intention of deceiving DFAT and the UN and thereby dishonestly influencing the actions of DFAT and the UN or otherwise obtaining a benefit relating to or arising from participation in the Oil-for-Food Programme

and

(3) DFAT, unaware of the matters referred to above, forwarded to the UN the relevant contracts and associated documents for approval for payment from the escrow account, and subsequently granted permissions to export the wheat sold under the contracts under the

Customs (Prohibited Exports) Regulations 1958

and

(4) The UN, unaware of the matters referred to above, approved the contracts for payment from the escrow account under the Oil-for- Food Programme

and

" Mr Hogan engaged in conduct that aided, abetted, counselled or procured the offences that AWB might have committed in respect of these contracts, namely by:

240 Report of the Oil-for-Food Inquiry

(1) Negotiating and dealing with IGB in relation to the said contracts in his capacity as the relevant account manager and subsequently as Regional Manager-Middle East

(2) Counselling within AWB entry into the contracts with IGB with the knowledge that the so-called trucking fee was imposed by the Iraqi government and in circumstances where the payments to Iraq should be disguised

(3) Permitting AWB to engage shipping companies to make the payments so as to disguise the payment of those fees to Iraq and to avoid a breach of UN Sanctions being detected

(4) After July/ August 2000, in his capacity as Regional Manager-Middle East, authorising or permitting AWB to enter into the contracts with IGB notwithstanding that he knew that UN sanctions were being contravened

(5) Signing certain contracts * A0430, A0552, A0553, A 0265, A0266, A0267, A0784, A0785, A llll, A1112, A1141, A1670 and A1680-on behalf of AWB

(6) Forwarding certain contracts to DFAT *A0265, A0266, A0267, A0430, A0552, A0553, A0784, A0785, A llll, A1112

and

" Mr Hogan intended that his conduct would in some way aid, abet,

counsel or procure AWB to deceive DFAT and the UN and thereby dishonestly influence the actions of DFAT or otherwise obtain a benefit relating to or arising from participation in the Oil-for-Food Programme

or

" In the case of the offence under section 82 of the Crimes Act 1958 (Vic), Mr Hogan was a manager and connived in or consented to the conduct of AWB that might have constituted an offence under that section

then, in my view, Mr Hogan might have aided, abetted, counselled or procured the offences that AWB might have committed against sections 29D, 29A and 29B of the Crimes Act 1914 and sections 135.1(7) and 136.1 of the Criminal Code and section 82 of the Crimes Act 1958 (Vic) and therefore might have committed offences against these sections by reason of section 5 of the

Crimes Act 1914, section 11.2 of the Criminal Code and sections 323 and 84 of the Crimes Act 1958 (Vic) respectively.

Report of the Oil-for-Food Inquiry 241

I recommend that this matter be referred to the Task Force for consideration of whether proceedings under ss 29D, 29A and 29B of the Crimes Act 1914 and ss 135.1(7) and 136.1 of the Criminal Code and s. 82 of the Crimes Act 1958 (Vic) be instituted against Mr Hogan.

In relation to the submissions that Mr Hogan might have committed offences or contravened sections 180,181,182 and 184 of the Corporations Act 2001, 1 am not satisfied that Mr Hogan's position at AWB at relevant times was such as to make him an 'officer' for the purposes of sections 180 and 181. Sections 182 and 184(2), however, require only that he be an 'employee' of AWB.

If, as I have found, Mr Hogan, in the period from about June 1999 to August 2002 (with the exception of the period from about November 1999 to July 200083), used his position or exercised his powers as an employee of AWB:

" to cause, authorise or permit AWB to enter into arrangements with IGB relating to the sale of wheat, which arrangements he knew included:

- AWB's agreement to include in the wheat price a fee so that the fee was paid from the escrow account to AWB

- AWB's agreement to pay such fee to Iraq or an Iraqi entity

- the submission of written contracts to DFAT, and thus to the United Nations, for approval for payment from the escrow account under the Oil-for-Food Programme, which did not fully and accurately disclose, or disclose at all, AWB's agreement to pay the fee to Iraq or an Iraqi entity or the inclusion of the fee in the wheat price

- that the fee would be initially paid to Alia (or to Alia via other third parties) to disguise the fact that the fee was ultimately paid to Iraq or an Iraqi entity in contravention of the UN sanctions

- the concealment of the above facts from DFAT and the United

Nations

then, in my view:

" Mr Hogan might have dishonestly used his position and been reckless as to whether the use of his position may have resulted in Iraq or an Iraqi entity directly or indirectly gaining an advantage and therefore might have committed an offence against s 184(2) of the Corporations Act 2001

242 Report of the Oil-for-Food Inquiry

" Mr Hogan might have improperly used his position to gain an advantage for Iraq or an Iraqi entity and therefore might have contravened s 182 of the Corporations Act 2001.

I recommend that this matter be referred to the Task Force for consideration of whether proceedings under section 184 of the Corporations Act 2001 be instituted against Mr Hogan.

Section 182 of the Corporations Act 2001 is a civil penalty provisions. ASIC is the responsible entity for seeking relief in respect of alleged contraventions of civil penalty provisions. I recommend that this matter be referred to ASIC, in consultation with the Task Force, for consideration of whether proceedings under sl82 of the Corporations Act 2001 (Cth) be instituted against Mr Hogan.

I note that section 1317K of the Corporations Act 2001 imposes a six year limitation period for the commencement of proceedings arising from contraventions of civil penalty provisions. Accordingly, the referral to ASIC should only be in relation to the conduct of Mr Hogan that occurred from 2001 onwards.

Mr Ingleby

31.344 It was submitted that Mr Ingleby might have accessorial liability and might

have committed an offence against s. 184 of the Corporations Act 2001, and contravened ss 180,181 and 182 of the same Act.

31.345 Mr Ingleby was the Chief Financial Officer of the Australian Wheat Board

from 14 April 1998, and of AWB from 1 July 1999 when the Wheat Board was privatised.

31.346 Critical to Counsel Assisting's submissions is the knowledge of Mr Ingleby of

AWB's decision to pay and the making of payments to Iraq as the tender dated June 1999 under phase VI required.

31.347 There was evidence from Mr Emons and Mr Watson that in about June or July

1999, when methods of how the trucking fees required to be paid to an Iraqi entity were being discussed, Mr Ingleby was involved in a discussion with those two persons and Mr Officer regarding how the payment could be made.

Mr Officer did not give evidence of that specific meeting but said that 'we all within AWB, that is, the Middle East Desk and those Executive Team members with whom I spoke, including Murray Rogers, Paul Ingleby and others who attended the regular Executive Team meetings, were aware that

the payment of those fees was the price for doing business in Iraq.'

Report of the Oil-for-Food Inquiry 243

31.348 Mr Ingleby submitted that the evidence was insufficient to attach to him knowledge of payments to Iraqi entities, or knowledge that payments of trucking fees not being permissible under sanctions. Although he had no recollection of the meeting with Messrs Emons, Watson and Officer, he contended that the evidence at best only supported that he was asked about and only approved of a process of making payments of trucking fees to third parties from an accounting viewpoint.

31.349 I am not able to accept that submission. The meeting with Messrs Officer, Emons and Watson occurred against the background that the tender required payment of trucking fees to an Iraqi entity. A method had to be found to make that payment because it was not permitted by sanctions. The only reason for considering the making of payments by using third parties such as shipowners or Ronly was to hide the fact that the payment was going to an Iraqi entity and being made by AWB. It is not credible that Mr Ingleby did not understand that.

31.350 By approving the process or mechanism for payment by AWB of fees to an Iraqi entity through third parties, Mr Ingleby facilitated the making of those payments. There was no legitimate commercial reason to hide payments through the use of shipowners or Ronly. Mr Ingleby must have known that and known why the device was being used.

31.351 There was evidence from each of Mr Emons and Mr Watson to the effect that a means had to be found to make the payment. Mr Emons said Mr Officer said to Mr Ingleby: 'you know we have to pay this trucking fee' before addressing possible use of third parties. If Mr Ingleby thought the payments were genuine trucking fees, and it was permissible to pay the payments to Iraq, one would have expected him to reply to the effect of 'pay them to the trucking company'. Mr Watson's evidence was to the same effect as Mr Emons.

31.352 There is other evidence which supports Mr Ingleby's knowledge of the use of fronting mechanisms to hide payments to Iraq. In September 2000, Mr Ingleby was enquiring whether 'Iraq trucking' was to 'chartering's account'. He was told by Mr Cowan from Chartering: 'Mark Emons and Nigel Officer wanted to disguise AWB payments into Iraq for trucking fees'.

In correspondence from Ronly in July 2002, Mr Bali wrote that Mr Ingleby, along with Mr Flugge, Watson, Officer and Emons, were fully aware of and approved arrangements whereby Ronly made payments to Iraq. The arrangements had been made because 'In 2000 AWB became concerned at whether payments which they were making for inland trucking in Iraq were in breach of UN sanctions against Iraq/

244 Report of the Oil-for-Food Inquiry

31.353 As Chief Financial Officer, Mr Ingleby authorised significant payments to

Alia. Yet AWB had no contract with Alia for any services.

31.354 If, as I have found:

" AWB might have committed offences against sections 29D, 29A and 29B of the Crimes Act 1914 and sections 135.1(7) and 136.1 of the Criminal Code and section 82 of the Crimes Act 1958 (Vic) in respect of contracts numbered A4653, A4654, A4655, A4822,A4970, A4971, A4972, A0265, A0266, A0267 A0430, A0552, A0553, A0784, A0785, A llll, A1112, A1441, A1670 and A1680

" Mr Ingleby knew all of the essential facts that constituted AWB's possible commission of those offences, namely that:

(1) AWB submitted to DFAT and thus to the United Nations the above contracts for approval for payment from the escrow account, which contracts did not truly reflect the agreements reached between AWB and IGB in some or all of the ways referred to in my findings concerning AWB referred to above

and

(2) At all relevant times AWB concealed from DFAT and the UN that the contracts did not truly reflect the agreements reached between AWB and IGB with the intention of deceiving DFAT and the UN and thereby dishonestly influencing the actions of DFAT and the UN or otherwise obtaining a benefit relating to or arising from participation in the Oil-for-Food Programme

and

(3) DFAT, unaware of the matters referred to above, forwarded to the UN the relevant contracts and associated documents for approval for payment from the escrow account, and subsequently granted permissions to export the wheat sold under the contracts under the Customs (Prohibited Exports) Regulations 1958

and

(4) The UN, unaware of the matters referred to above, approved the contracts for payment from the escrow account under the Oil-for- Food Programme:

and

Report of the Oil-for-Food Inquiry 245

" Mr Ingleby, as Chief Financial officer of AWB, engaged in conduct that aided, abetted, counselled or procured the offences that AWB might have committed in respect of these contracts, namely

(1) Mr Ingleby was involved in the discussions within AWB concerning the use of third parties to make payment to Iraqi entities and he approved the mechanism for paying the fees to Iraq via such third parties, thereby assisting in the concealment of AWB's arrangements in relation to the payment of the fees to Iraq

(2) Mr Ingleby expressly authorised significant payments to Alia in relation to later contracts

(3) Mr Ingleby's actions amounted to an express or implied authorisation of the payments to Iraq via third parties and their concealment from DFAT and the United Nations.

(4) Whilst Mr Ingleby may not have been directly involved with all of the abovementioned contracts or the payments made under them, his knowledge of and express or implicit authorisation of previous contracts that involved substantially the same arrangements and payments provides the basis for an inference that he implicitly, if not expressly, authorised the same arrangements and payments in relation to these contracts.

and

" Mr Ingleby intended that his conduct would in some way aid, abet, counsel or procure AWB to deceive DFAT and the United Nations and thereby dishonestly influence the actions of DFAT or otherwise obtain a benefit relating to or arising from participation in the Oil-for-Food Programme

or

" In the case of offences the offence under section 82 of the Crimes Act 1958 (Vic), Mr Ingleby, as Chief Financial officer was a 'manager' of AWB and connived in or consented to the conduct of AWB that might have constituted an offence under that section

then, in my view, Mr Ingleby might have aided, abetted, counselled or procured the offences that AWB might have committed against sections 29D, 29A and 29B of the Crimes Act 1914 and sections 135.1(7) and 136.1 of the Criminal Code and section 82 of the Crimes Act 1958 (Vic) and therefore might have committed offences against these sections by reason of section 5 of the

246 Report of the Oil-for-Food Inquiry

Crimes Act 1914, section 11.2 of the Criminal Code and sections 323 and 84 of the Crimes Act 1958 (Vic) respectively.

As I have already indicated, AWB's deception of DFAT and the United Nations, the payment of money to Iraq in known contravention of the United Nations sanctions and the concealment of those payments are serious matters. The aiding and abetting of this conduct by officers and employees of AWB is equally serious.

I recommend that this matter be referred to the Task Force for consideration whether proceedings under sections 29D, 29A and 29B of the Crimes Act 1914 and sections 135.1(7) and section 136.1 of the Criminal Code and section 82 of the Crimes Act 1958 be instituted against Mr Ingleby.

31.355 If, as I have found, Mr Ingleby, in the period from about June 1999 to March 2003, used his position or exercised his powers as an officer or (in the case of s 184(2) of the Corporations Act 2001) as an employee of AWB:

" to authorise or permit AWB to enter into arrangements with IGB relating to the sale of wheat, which arrangements he knew included:

- AWB's agreement to include in the wheat price a fee so that the fee was paid from the escrow account to AWB

- AWB's agreement to pay such fee to Iraq or an Iraqi entity

- the submission of written contracts to DFAT, and thus to the United Nations, for approval for payment from the escrow account under the Oil-for-Food Programme, which did not fully and accurately disclose, or disclose at all, AWB's agreement to pay the fee to Iraq or an Iraqi entity or the inclusion of the fee in the wheat price

- that the fee would be initially paid to Alia (or to Alia via other third parties) to disguise the fact that the fee was ultimately paid to Iraq or an Iraqi entity in contravention of the UN sanctions

- the concealment of the above facts from DFAT and the United Nations

and

" to authorise or permit AWB to make payments to Alia in circumstances where the payments were ostensibly for discharge and transportation services performed for AWB by Alia in respect of wheat sold by AWB to IGB, but where he knew:

Report of the Oil-for-Food Inquiry 247

there was no contract between AWB and Alia in relation to the provision of any discharge and transportation services for which the fees were properly payable

- IGB had the obligation to discharge the wheat at Umm Qasr, and transport it to all governorates of Iraq

- Alia performed no discharge or transportation services for AWB in respect of wheat sold by AWB to IGB

- Alia was a mere conduit and the fees were paid on to Iraq or an Iraqi entity in contravention of the UN sanctions

- the above facts were concealed from DFAT or the United Nations

then, in my view:

" Mr Ingleby might have been either reckless, or intentionally dishonest, and might have failed to exercise his powers or discharge his duties either in good faith in the best interests of AWB or for a proper purpose and therefore might have committed an offence against s 184(1) of the Corporations Act 2001

" Mr Ingleby might have dishonestly used his position and been reckless as to whether the use of his position may have resulted in Iraq or an Iraqi entity directly or indirectly gaining an advantage and therefore might have committed an offence against s 184(2) of the Corporations Act 2001

" Mr Ingleby might have failed to exercise his powers and discharge his duties in the best interests of AWB and for a proper purpose and might have improperly used his position to gain an advantage for Iraq therefore might have contravened s 181 and 182 of the Corporations Act 2001

" Mr Ingleby might have failed to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in AWB's circumstances and occupied the office held by, and had the same responsibilities within the corporation, as Mr Ingleby and therefore might have contravened s 180 of the Corporations Act 2001.

In the case of section 180, even if Mr Ingleby did not know all or any of the matters referred to above in relation to the payments to Alia that he authorised, in my view having regard to the size of the payments authorised by him and the fact that there was no written contract between AWB and Alia pursuant to which the payments were properly made, if, as I have found, Mr

248 Report of the Oil-for-Food Inquiry

Ingleby nevertheless failed to satisfy himself that the payments were properly and lawfully payable to Alia, then in my view he therefore might have failed in any event to exercise his powers and discharge his duties with the required degree of care and diligence and therefore might have contravened section 180 of the Corporations Act 2001.

It is a serious matter for an officer of a public corporation such as AWB to authorise the corporation to enter into agreements in breach of statutory duties that the officer owes to the corporation, particularly where the officer acts intentionally, dishonestly or recklessly in breach of those duties.

I recommend that this matter be referred to the Task Force for consideration of whether proceedings under section 184 of the Corporations Act 2001 be instituted against Mr Ingleby.

Sections 180, 181 and 182 of the Corporations Act 2001 are civil penalty provisions. ASIC is the responsible entity for seeking relief in respect of alleged contraventions of civil penalty provisions. I recommend that this matter be referred to ASIC, in consultation with the Task Force, for consideration of whether proceedings under ss 180, 181 and 182 of the Corporations Act 2001 be instituted against Mr Ingleby.

I note that section 1317K of the Corporations Act 2001 imposes a six year limitation period for the commencement of proceedings arising from contraventions of civil penalty provisions. Accordingly, the referral to ASIC should only be in relation to the conduct of Mr Ingleby that occurred from 2001 onwards.

Mr Lindberg

31.356 It was submitted that Mr Lindberg might have accessorial liability, and might

have breached ss 180,181,182,184,1307 and 1309 of the Corporations Act 2001, and ss 194 and 195 of the Crimes Act 1958 (Vic).

31.357 Mr Lindberg replaced Mr Rogers as Managing Director in April 2000. He was

an experienced Chief Executive. His mandate was to transform a former statutory authority, concerned solely with the sale of Australian wheat, into a modern commercial diversified company.84 He had no prior experience in agriculture or international trade. Between April 2000 and December 2005, under Mr Lindberg's stewardship, AWB grew greatly: its full time staff grew in number from 450 to 2800. Shareholders funds increased from $600 million to $1.1 billion. The emphasis within AWB changed. It acquired rural businesses and operates some 430 rural stores around Australia. Wheat exports now account for only 20% of its earnings.85

Report of the Oil-for-Food Inquiry 249

31.358 It is important when considering Mr Lindberg's evidence to recognise that his

functions as Managing Director were diverse. He was responsible for leading change, giving direction to the various divisions within AWB, preparing it for public listing, and dealing with Government and stakeholders in the business. As the change he implemented progressed his attention and emphasis altered

to address differing challenges. Whilst wheat transactions account for 20% of earnings, Iraq was but one market in export sales. As with most Chief Executives he delegated responsibility to divisional heads, expected them to manage their divisions, and expected them to be honest and report to him any major difficulties. He did not usually become involved in detailed operational matters. He played no part in the formation of contracts for sales of wheat. That was addressed by the International Sales and Marketing division. Nor was he concerned with the terms of such contracts or their submission to

DFAT or the United Nations.

31.359 When Mr Lindberg joined AWB, United Nations sanctions against Iraq had

been in place for about 10 years and the Oil-for-Food programme had been operating for four years. The provisions in contracts with Iraq relating to the payment of inland transport fees had been agreed for 10 months. Mr Lindberg had no cause to suspect that those within AWB dealing with the Iraq trade were doing so otherwise than legally and in accordance with UN sanctions. Following his interview with executives, he introduced changes shortly after his appointment which saw Mr Goodacre introduced as Group General Manager for trading. He recruited Mr Stott. Some executives in IS&M and Chartering left. As a term of the severance of Mr Officer and Mr Emons, Mr Lindberg on behalf of AWB, acknowledged authorisation of 'agency payments' from December 1999. The evidence does not make clear why Mr Lindberg agreed to such a clause, or to what it related. Mr Lindberg and Mr Flugge were in conflict regarding whether they had discussed this. Those who wanted releases left AWB and within three months of Mr Lindberg's arrival new senior management was in place in IS&M. Whilst Mr Officer and Mr Emons gave some generalised evidence of discussions with Mr Lindberg about the Iraq market and conditions therein, it does not support any finding that either told Mr Lindberg of the detail of the true manner in which AWB was contracting in that market, or of the knowledge that each of Mr Officer and Mr Emons had regarding the payment of inland transport to Alia, the absence of a contract with that company, the obligation only to pay a fee to Alia, the knowledge that the fee was in truth a payment back to the IGB, the failure of the contracts to disclose the inclusion of the inland transport fee, the use of Ronly to disguise payments to Alia, or the differences between the true arrangements between IGB and AWB and those disclosed in the contract submitted to DFAT and the United Nations.

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31.360 So far as the evidence extends, after introducing the changes to IS&M in June

2000, Mr Lindberg left its management and the Iraq trade to Mr Stott under the authority of his manager, Mr Goodacre. He played no further part in its affairs until February 2001, when he received and discussed the Arthur Andersen report with Messrs Goodacre, Stott and Tuohy following its commissioning by Messrs Goodacre and Stott. That report raised questions relating to the use of Ronly (which had ceased), and the integrity of some executives (who had left). It raised the possibility that the trucking fees were of concern because the United Nations had made enquiries about AWB's payment of trucking fees for Iraqi contracts, there had been endeavours in the past to hide payment of such fees, some who had been asked to make payments on behalf of AWB had declined for fear of breach of sanctions or money laundering, and the recent increase in fees raised the risk that such fees may be being diverted for other purposes.

31.361 There was conflict regarding the evidence of the meeting and discussion, but

in the result it was delegated to Mr Stott to enquire into the matters raised in the report, to resolve problems and to implement Arthur Andersen's recommendations. The report made by Mr Lindberg to the board about the Arthur Andersen report does not appear to have been as full as one might expect. However, Mr Lindberg relied upon his executives to implement necessary change. Mr Lindberg did not draw as much from the Arthur Andersen report as one does coldly reading it in 2006 with the advantage of hindsight, and the knowledge that trucking fees were used as a mechanism to pay large sums to Iraq. Whatever criticism one may make of Mr Lindberg in that respect, the Arthur Andersen report did not instil in Mr Lindberg knowledge of the detail of the arrangements in fact operating between AWB and the IGB or their differences from those shown in the contracts. Mr Lindberg as Chief Executive Officer was entitled to delegate responsibility for detailed consideration of the report and implementation of necessary reforms to his executives, as he did.

31.362 It was not until August 2002 that Mr Lindberg played any material role in the

Iraqi trade. Early that month, the Iraqi's claimed initially one, and later more cargos were contaminated with iron filings. There were more ships on the water to Iraq. Mr Lindberg regarded the matter as of such seriousness that he decided to lead a delegation to Iraq to resolve the issue. The Chairman, Mr Stewart, agreed, and the former Chairman Mr Flugge was co-opted to

accompany Mr Lindberg, Mr Long and Mr Cracknell to Iraq. Counsel Assisting have submitted that from the meetings held in Iraq in August, Mr Lindberg gained and retained knowledge that the trucking fee mechanism was a method of paying funds to Iraq, and that Mr Lindberg agreed to utilise that method to pay iron filings compensation of US$2 million to Iraq. This,

Report of the Oil-for-Food Inquiry 251

together with knowledge gained of the loading up of contracts A1670 and A1680, and his approval of, or failure to prevent those contracts from proceeding, is said to attach accessorial liability to Mr Lindberg for any offence which AWB might have committed regarding the deceiving of DFAT and the United Nations flowing from forwarding those contracts for approval for permission to export to Iraq and payment from the escrow account, without disclosure of the inflation of the price or agreement to pay the iron filings compensation via the inland transport mechanism.

31.363 There were other objectives of the delegation. One was to try to clarify AWB's separation from Australian Government policy towards Iraq, and thus hopefully restore a 500,000 tonne contract Iraq was threatening to cancel. Another was to address some contractual issues such as demurrage.

31.364 Mr Lindberg's submissions regarding the trip to Iraq were:

(a) The evidence does not support a finding that he received the 'Executive Brief' which was prepared for the trip.86

(b) No agreement was reached by Mr Lindberg that AWB would pay the agreed iron filings compensation to Iraq by adding a fee per tonne to the inland transportation fees paid to Alia87.

31.365 An Executive Brief was prepared headed 'Executive Brief Iraq * AWB Delegation August 2002'.88 The brief contains a detailed statement of persons to be seen, their positions, the detailed objectives of the visit, the issues to be raised and arguments in support of AWB's position on those issues, a market overview, an Iraq overview, Iraq at a glance, an IGB customer profile, details of the last contract agreed (A1111-A1112), and details of recent vessel problems.

This was Mr Lindberg's first trip to Iraq, his first meeting with the Iraqi Minister of State, and with the Director of the IGB, and his first negotiation concerning the Iraq market. The brief contains all the information one would expect to find in a brief to a Managing Director about to go on such a trip. Indeed, one would expect Mr Lindberg to have demanded such a brief were one not provided to him. It is difficult to see how Mr Lindberg could have sensibly engaged in the discussions with a Minister of State and senior official without it. Somebody went to considerable trouble to prepare the brief for the delegation and the improbability of it not having been provided to members of the delegation is very high indeed.

Mr Lindberg said he could not recall receiving the brief. However Mr Long said the brief was prepared for Mr Flugge and Mr Lindberg.89 He said it was likely he received it and read it. Whilst there may be no direct evidence that

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Mr Lindberg received it, in the sense there is no evidence of someone handing it to him, and he can't recall seeing it, common sense suggests he did receive it. It is not credible to think Mr Long received it and not the other delegates, or that Mr Lindberg would not have required such a brief. The evidence that he was orally briefed on the way to Baghdad does not negate the common sense position. Further, Mr Lindberg told the IIC that 'there was a written briefing document prepared for the trip'. He did not suggest to the IIC he did not see it.

31.366 The importance of the brief is the statement in it under the heading 'Iraq at a Glance':

AWB also pays a fee, covered under sales contract, to the Ministry of Transport covering inland transport fees and discharge costs.

31.367 However, assuming Mr Lindberg received and read the brief, reading that last of ten bullet points on page three of the brief, would not attach to a reader who believed the trade with Iraq was being conducted lawfully and in accordance with sanctions, knowledge to the contrary. It says nothing about such payments being contrary to sanctions, nor about the arrangements

described being not approved by the United Nations. A lawyer, with hindsight and knowledge of UN sanctions might see unlawfulness, but it is not reasonable to expect that a Chief Executive unfamiliar with contractual details, approval processes, and the detail of UN resolutions, to do so. The brief, if read, did not attach to Mr Lindberg knowledge that AWB was making payments to Iraq in breach of sanctions.

31.368 Mr Lindberg's evidence was that he was first told there was an inland transport component to the contracts in discussion with Mr Long and Mr Flugge whilst they were in travel to Iraq. He thought he was told by Mr Long or Mr Flugge that AWB was required to use a particular trucking company and that the Director General of IGB had informed AWB staff of that90. He thought he was also told the amount of the fee was told to AWB by the IGB but he did not think that was strange because he thought it was all approved by the United Nations.91

31.369 Mr Lindberg agreed that, during the negotiations it was agreed AWB would pay a sum of US$6 per tonne as compensation to clean contaminated cargo. However he was adamant that during the conversations in which he participated there was no discussion about how that sum was to be paid. In particular, no agreement was reached during the visit that the compensation sum would be paid to Iraq 'via the inland transport mechanism'.92

Mr Lindberg's evidence of absence of discussion or agreement regarding method of payment is supported by Mr Long in his statement. Further Mr

Report of the Oil-for-Food Inquiry 253

Whitwell said on his return from Iraq, Mr Long said to him: 'we've agreed to $6 per tonne, and we need to work through how this can be settled.'

31.370 After the August trip there was correspondence relevant to whether an agreement had been reached regarding manner of payment.

On 22 August 2002, IGB wrote to Mr Hogan who had not been at the Iraq meetings:

Reference to our email ... and the agreement reached during the visit of yr delegation on 15-18/8/2002, you are kindly requested to 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.93

Mr Hogan, unaware of the discussions in Iraq, wrote when forwarding the email to Mr Edmonds Wilson and Whitwell, neither of whom had been present:

We need to think how we 'legally' pay Iraq.

31.371 On 26 August 2002, Mr Whitwell sent to Mr Long a draft of an email he proposed to send to IGB in reply. It read:

Thank you for your email. We would like to confirm our agreement to the settlement of contaminated quantities as agreed by our delegation from the IS≠ IS/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 programme.

He attached a note to Mr Long:

Haven't mentioned anything from our side (eg. Tigris etc) yet since it is in our interests to prolong this process as long as possible.94

Later, no doubt after consulting Mr Long, he sent the email to IGB as in the draft but adding at the end:

An option might be to offset this amount against moneys outstanding to Tigris Petroleum and we would appreciate your view on this.95

31.372 On 16 September 2002, Mr Long sent a memorandum to CRRC members which read:

AWB has agreed to pay IGB USD6 per tonne on approximately 300 000 mt under contract No. A1111/A1112 on settlement for the 'iron filings' quality issues amounting to some USDl.Sm. AWB raised the possibility of settlement of this quality claim by AWB paying Tigris on settlement of the Iraqi debt by Tigris. UN Regulations prohibit direct payments of funds to Iraq whilst Iraq is under UN sanctions.96

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Mr Lindberg saw this memorandum.

31.373 There was no response from Iraq until Mr Hogan and Mr Whitwell went there

in late October 2002.

On 31 October 2002 Mr Hogan emailed Mr Whitwell. His email stated in relation to a meeting with IGB on 28 October:

Suggested following proposal:

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) ...

He reported on his meeting with the Minister:

Vessel rejection claims as per original agreement to be paid through inland transport payment system against next contracts *Phase 13.

Mr Hogan's evidence regarding this was:

I can't recall specifically that I would have seen a brief from the

Lindberg/Long/Flugge/Cracknell trip, but obviously that the minister has said, and we've said: 'No, we want to offset it against the debt', and he said 'No. Its going to go as per the original agreement with Long, Lindberg and Flugge'.97

This makes plain that the Minister regarded there as having been an 'original agreement' that the method of payment was through the inland transport system. The only issue was method of payment, and the Minister was asserting an agreement had been reached regarding that matter.

31.374 On 7 November 2002 Mr Whitwell sent an email to Mr Lindberg and others

which Mr Lindberg saw. It set out 'Key Outcomes' of the October visit. It noted

Iron powder rebate (USD6 pmt) is separate from other debt issues. The Minister has asked for repayment through the inland transport mechanism.

This is at variance with Mr Hogan's email of 31 October which recorded the Minister's requirement, as distinct from request, for the method to be 'as per original agreement.'

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.'98 I accept Mr Lindberg's evidence that he did not read the attached trip report.

Report of the Oil-for-Food Inquiry 255

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 recover 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 controls, 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 be 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.

31.375 However, in Mr Whitwell's memorandum of 7 February 2003, he wrote:

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."

Whilst this is Mr Whitwell's memorandum, it went through many iterations in discussion with Mr Long. And when it was finalised, Mr Long signed it as 'recommended'. It is improbable that Mr Long would have agreed to a memorandum to his superior, Mr Geary, which contained such a serious error. The subject of the memorandum was whether payment to Iraq of US$2 million via the inland transport mechanism was legal, carried corporate reputational risks, was likely to be discovered, and was contrary to sanctions. The document itself recommended that Mr Lindberg be consulted, and in any event Mr Long must have realised that Mr Geary would be likely to discuss it with Mr Lindberg. To include in it a statement that Mr Long witnessed an

agreement between his Managing Director and the Iraqi Minister, if that statement was not true, would be extremely unlikely.

31.376 There are only three possibilities. First, that Mr Long made a mistake. That is improbable as this memorandum was developed by Mr Whitwell in

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consultation with Mr Long over about two months. Second, that Mr Long was affixing responsibility, wrongly, to Mr Lindberg for the method of payment which carried the risks for AWB addressed in the memorandum. This also is improbable because the accuracy of the statement in the memorandum could

be readily continued not only with Mr Lindberg but also with Mr Flugge and Mr Cracknell. The third alternative is that the memorandum records the truth. That is the most probable.

31.377 On the material before me, a conclusion which is available is that Mr Lindberg did discuss with the Minister the means of paying the compensation to Iraq and it was agreed that would be by use of the inland transport mechanism. On Mr Lindberg's own evidence he had learnt the day before the meetings on the trip to Baghdad from Mr Long or Mr Flugge that AWB paid a fee fixed by AWB to a particular trucking company which AWB was required by IGB to use. The agreement reached was that it was through that mechanism that the compensation was to be paid. Later, AWB and in particular Mr Long sought to depart from that agreement 'for corporate governance' reasons, but the Iraqi Minister held AWB to the agreement reached. Faced with this dilemma Mr Long required the problem and risks to be clearly enunciated. Advice was sought from DFAT who clearly advised that such a payment was not permitted. External legal advice was obtained which likewise said such payments were contrary to sanctions. Internal legal advice was obtained which suggested a method of hiding such payment from detection. Mr Long and Mr Geary both recommended and approved the methodology in the memorandum, but Mr Geary wanted Mr Lindberg's imprimatur for he would be involved in the proposed solution which was to involve Mr Lindberg telling Mr Downer of the payments.

31.378 On 10 February 2003 Mr Geary prepared a file note to Mr Lindberg.100 It stated:

This is a sensitive issue as you can understand.

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.

Mr Geary said he signed Mr Whitwell's memorandum as 'approved' and forwarded it with his accompanying memorandum to Mr Lindberg's office.

31.379 No memorandum signed by Mr Geary was produced to the Inquiry. Mr Lindberg said he did not 'recall' seeing the document. No document bearing Mr Lindberg's initials was produced. Mr Geary said he did not have any later

Report of the Oil-for-Food Inquiry 257

conversation with Mr Lindberg as his memorandum contemplated. It is probable Mr Geary's memorandum with Mr Whitwell's attached was sent to Mr Lindberg's office,101 but the evidence does not support a finding that Mr Lindberg received, saw it or read it.

31.380 The issue I must resolve is whether I should reach the available conclusion mentioned. After considerable deliberation I have come to the view that I should not. Each of Mr Lindberg and Mr Long deny any such agreement was made. I assessed Mr Lindberg to be a witness of truth, placed in very difficult circumstances. Due weight is to be given to his insistent denial of such an agreement. The likelihood of others who attended the meeting in August 2002 being available or advancing evidence that such an agreement was made is remote. There is no contemporaneous note which records such an agreement. The evidence in support of such an agreement hinges upon Mr Whitwell's recording of Mr Long confirming the making of such an agreement, and Mr Long's signing of that memorandum. That memorandum was written six months after the meeting. Whilst I found Mr Long's responses regarding the critical passage in the memorandum unsatisfactory, on balance I do not think the existence of that memorandum is sufficient to support a finding, against Mr Lindberg, that he did make such an agreement. It is also to be borne in mind that apart from the meeting in August 2002, Mr Lindberg played no part whatsoever in relation to the negotiation of contracts A1670 and A1680, the drawing up of the terms of those contracts or their submission to DFAT or the United Nations.

31.381 I turn now to allegations that Mr Lindberg knew of the 'loading up' of contracts A1670 and A1680 to recover the Tigris debt.

31.382 Mr Lindberg's evidence was that prior to arriving in Baghdad in August 2002 he received a briefing regarding Tigris. He was told that in 1995-96 BHP had provided to Iraq a US$5 million shipment of wheat. He had a general understanding that BHP had assigned its rights to Tigris.102 At some time he learnt that Tigris had been 'helpful in lobbying the Iraqis for the restoration of our wheat contracts',103 and that AWB was assisting in the recovery of the debt. He received a copy of Mr Long's memorandum of 16 September 2002 which addressed the Tigris issues and requested advice from AWB legal regarding whether AWB was authorised to negotiate with IGB regarding settlement of the debt. That memorandum said nothing about any 'loading up' of AWB contracts. Mr Lindberg signed a letter dated 20 September 2002 to the Iraqi Minister for Trade seeking confirmation of Iraq's debt to Australia's wheat growers of US$500 million, and also referred to the Iraqi's acknowledgement of the Tigris debt of US$8.8 million.

258 Report of the Oil-for-Food Inquiry

31.383 Mr Lindberg acknowledged that he had read the summary of the October Iraq meetings contained in Mr Whitwell's email of 7 November 2002, but not the attached trip report. It was not his practice to read trip reports. There is no evidence to suggest that Mr Lindberg did read the trip report. The summary report stated:104

Tigris' debt has cabinet approval for repayments *final amount to be agreed during the next month by Tigris/Iraqis and the mechanism for repayment to be agreed during the next visit.105

It made no mention of any 'loading up' of AWB contracts to recover the debt.

31.384 On 4 December 2002, Mr Whitwell sent Mr Lindberg and many others an email advising of details of the sale of 1 million tonnes. It made no reference to any loading up of the contracts to recover the Tigris debt.

31.385 On 12 December, 2002, the contracts were signed.

31.386 In the witness box Mr Lindberg was shown a memorandum dated 11 December 2002 addressed to 'Senior Management' which stated:

After being approached by Tigris Petroleum AWB have agreed to allow the new contract to be a conduit for a repayment of USDS,375,000 owed to Tigris by IGB. IGB have agreed to this as a method of repaying the debt incurred for a cargo of wheat in 1996.106

Mr Whitwell's evidence was the memorandum went no further than Mr Long, although I am satisfied Mr Geary knew of it. There is no evidence Mr Lindberg saw it.

31.387 Mr Lindberg's evidence was that:

This Tigris matter was first raised in 2002, various options were considered. I wasn't privy to how it was finally done, but the payment was made and

subsequently, on review that I requested, it became clear that that was how it occurred.107 [by loading up]

I accept that evidence.

31.388 There is no evidence that Mr Lindberg was involved in any way in the negotiation of contracts A1670 and A1680, or the loading up of those contracts or approved of such loading up, or their submission to DFAT or the United Nations.

I find that Mr Lindberg has no accessorial liability for any offence which AWB might have committed in relation to the deception of DFAT or the United Nations regarding contracts for shipments of wheat to Iraq.

Report of the Oil-for-Food Inquiry 259

31.389 Counsel Assisting have submitted that Mr Lindberg might have committed an

offence against s 1309 of the Corporations Act 2001 in that in December 2004 he furnished or authorised or permitted the furnishing of information to directors of AWB and AWBI in relation to the Tigris transaction which was false or misleading. It was said to be so because:

(i) the information provided included information that Tigris had assisted AWB in recovering threatened wheat sales to Iraq, when in fact it had not done so

(ii) in consideration of that assistance AWB had assisted Tigris to recover its debt, when that was not the reason it had done so

(iii) Mr Lindberg did not tell the Boards that the agreement AWB had executed with Tigris and under which it had paid it approximately US$7 million, was a sham agreement because it falsely portrayed that the payment was a service fee when in truth no service had been provided by Tigris and the money was payment of a collected debt

(iv) Mr Lindberg failed to tell the Boards the manner in which AWB had recovered the Tigris debt, namely by 'loading up' the contract price, and had thus deceived DFAT and the United Nations

(v) Mr Lindberg failed to inform the Boards that legal advice obtained included legal advice from junior counsel which suggested the law had been breached, and the advice from senior counsel was qualified in certain aspects.

31.390 According to the directors they were told that AWB had recovered a debt for

Tigris and thus earned a commission, and that legal advice had been obtained and there had been compliance with all necessary laws. What else they were told is not clear. Mr Lindberg's evidence was that:

I told the board what I have told this Commission, and that is that we assisted Tigris to recover a debt, that I had been informed that Tigris had been helpful in assisting us achieve wheat sales in the market, we were going to receive a fee for

the recover of the money, it would be paid to the pool, and the agreement was struck in this form.108

He could not recall whether he told the board that the debt had been

recovered by inflating the price of wheat but believed he had. Mr Cooper was uncertain if Mr Lindberg had spoken of loading up wheat contracts to recover the debt but believed Mr Lindberg had told the board 'AWB had collected the debt through its contracts', but didn't go into any detail about what those contracts were or the mechanism.109 When giving further evidence more than

a month later, Mr Cooper's evidence was that after Mr Lindberg said the debt

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had been collected by AWB one of the directors asked: 'was the money collected through the payments for our contracts?' to which Mr Lindberg assented by gesture or words.

31.391 Regarding the other bases of possible breach, Mr Lindberg submitted that he had relied on senior legal advice in addressing the Tigris issue, and had done no more or less than convey his understanding of the substance of that advice. He had relied upon AWB's General Counsel, Mr Cooper, to address the legal issues and had assumed not only that what Mr Cooper told him of the substance of advice received from Senior Counsel was correct, but also he had assumed that the Tigris agreement as drawn would accord with the true circumstances. It was submitted:

Mr Lindberg was entitled to expect that the lawyers would create a document that was lawful and accurately set out the nature and terms of the agreement. Mr Lindberg was entitled to assume that when he was told that the advice of Senior

Counsel was that the Tigris transaction did not breach any law and that UN sanctions were not breached, that the document that articulated the agreement did not itself cause a breach of law.

31.392 I agree with that submission. Mr Lindberg is not a lawyer. He had directed there be an inquiry into the Tigris transaction, known as Project Water. He knew external lawyers had been engaged in an investigation of the matters for some time. He was told by Mr Cooper that there had been a chronological review of the facts, that such facts had been documented and signed off by the relevant AWB business managers, Messrs Stott, Long and Whitwell, that the chronology recorded that Tigris had been of assistance to AWB in sourcing its wheat market in Iraq in 2002, and he was told that two senior counsel had advised that the transaction did not breach the law or sanctions. Further on 10 November 2004, Mr Cooper gave Mr Lindberg advice when he was considering whether he should approve or sign off the Tigris transaction. Mr

Cooper wrote to Mr Lindberg and Ms Scales:

To assist you in making this decision, I refer you to the factual chronology which records that assistance from Tigris Petroleum in 2002 substantially contributed to AWBI saving its wheat market with IGB after it was threatened to be cut in half, because of Australia's political support of the US against Iraq. In return for this assistance from Tigris Petroleum, AWBI agreed to assist in recovering the debt owed by IGB to Tigris Petroleum. My view is that this transaction did assist AWBI in securing the Iraqi grain market.110

Mr Lindberg was entitled to act on that advice. There is nothing to suggest that Mr Lindberg informed the board otherwise than in accordance with the advice given to him on which he was entitled to, and did, rely. He assumed the Tigris agreement was a proper agreement recording the true

arrangements, which did not breach the law.

Report of the Oil-for-Food Inquiry 261

31.393 On the material before me, there is no basis for any finding that Mr Lindberg

might have breached s. 1309 Corporations Act 2001. I make no such finding. Nor is there any basis for finding contravention of ss 180, 181 and 182 of the Corporations Act 2001. For reasons given elsewhere, s. 1307 of the Corporations Act 2001, and ss 194 and 195 of the Crimes Act 1958 (Vic) have no application.

Conclusion

31.394 Mr Lindberg has resigned as Managing Director of AWB. In so doing he has

accepted responsibility for events which happened during his stewardship. As he said in evidence, speaking of the payments to Iraq via Alia:

It would appear that it was set up before I arrived by former employees and it continued under my stewardship, and it shouldn't have.111

31.395 That was a correct statement.

31.396 Mr Lindberg was not well served by some of those who reported to him, and

on whom he relied. He has paid a very considerable price in reputational and no doubt monetary terms. I wish to make clear that on the material before me he has not been guilty of any criminal conduct.

Mr Long

31.397 It has been submitted that Mr Long might have accessorial liability, and might

have breached ss 180,181,182 and 184 of the Corporations Act 2001.

31.398 Mr Long was appointed General Manager, International Sales and Marketing

in November 2001, succeeding Mr Stott. He reported to Mr Goodacre and subsequently Mr Geary. Mr Long was never a member of the Executive Leadership Group.

31.399 Counsel Assisting submitted that Mr Long might have attached to him

accessorial liability in respect of offences against s. 135.1(7) and s.136.1 Criminal Code and s. 82 of the Criminal Act 1958 (Vic) in relation to offences which AWB might have committed in relation to contracts A0784, A0785, A llll, A1112, A1441, A1670 and A1680 being contracts entered into or executed between November 2001 and March 2003.

31.400 The Permissions to Export in respect of contracts A0784 and A0785 were

granted between 13 November 2001 and 15 March 2002 (17 shipments), although the contracts were entered into and United Nations approval was obtained before Mr Long became General Manager in November 2001. The remaining contracts were signed, and submitted for approval of the United Nations through DFAT whilst Mr Long was General Manager.

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31.401 Counsel Assisting contended that Mr Long was aware in 2001 or 2002 of the true arrangements between AWB and IGB, and in particular was aware that AWB had agreed to pay inland transport fees to Iraq via Alia. They contended that Mr Long was aware that such fees were not related to any true obligation to discharge or transport wheat within Iraq, and that the payment of such fees had not been approved by DFAT or the United Nations. Each factor relied upon in support of the contentions of Counsel Assisting was challenged by Mr Long in submissions.

31.402 Mr Long's position was that, prior to taking up the position of General Manager, IS&M, he was aware of the Oil-for-Food programme, that it was run by the United Nations, and that applications to export had to be made to the United Nations through government.112 Upon taking up his appointment he asked whether AWB's contracts were acceptable to DFAT. He was told by Mr Stott that he had written to DFAT, and showed Mr Long a copy of his letter and the reply. That satisfied Mr Long that the contracts had been 'checked by government.'113

I reject the evidence of satisfaction by Mr Long. The letter Mr Stott showed him was that of 30 October 2000 and the reply from DFAT of 2 November 2000. Those letters did not address in any way the question whether AWB's contracts were 'acceptable to' or 'checked by' DFAT. If Mr Long read those letters, as he said he did, he must have known that.

31.403 Mr Long also said he had learnt from colleagues that Alia was a Jordanian trucking company that provided trucking services in Iraq, and he had no reason to doubt that.114 He learnt this prior to November 2001.115

31.404 Mr Long knew of the terms of AWB contracts which provided for a price quoted 'GIF FOT to silo all governorates of Iraq via Umm Qasr port.' He said he did not know if there was a written contract between AWB and Alia to effect such delivery, but thought there was a 'contract by conduct'116 because grain was delivered away from the port when vessels were unloaded. He had seen many trucks at the port of Umm Qasr endorsed with Arabic writing. However in his statement he said that 'when I became responsible for IS&M, I noted there was no official contract in place.'117

31.405 Shortly after Mr Long assumed the position of General Manager IS&M, Mr Hogan agreed with IGB contracts A llll and A1112 for 1 million tonnes. Mr Hogan sent an email to Mr Lindberg copied amongst others to Mr Long. The email analysed the price received and showed as an ingredient item in the price 'inland transport ¨55.17', or ¨55.40. There was later dispute between AWB and IGB about confirmation of the prices in those contracts in the course of which Mr Hogan suggested a compromise solution not just for those

Report of the Oil-for-Food Inquiry 263

contracts but for future contracts. The proposals advanced by AWB were, first, IGB guarantee a rate of discharge at Umm Qasr with demurrage and despatch to be settled after each shipment 'by an adjustment to the final inland transport payment', and second, IGB accept the additional war risk premium to be for IGB's account, with the premium to 'be settled by an adjustment to the final inland transport payment.'118 It is unlikely Mr Hogan would have made such proposals affecting future contracts without consulting with his manager, Mr Long. Each proposal indicated an understanding that the 'inland transport payments' system involved payments to IGB and thus to an Iraqi entity. The matter was not then resolved and Mr Long became involved in the correspondence. On 4 January 2002, he wrote to Mr Yousif, the Director General of IGB, stating that *ä have personally reviewed the file' and confirmed the arrangements previously made. Accepting what Mr Long wrote, he must have been aware of the size of the 'inland transport payment' of more than ¨55 per tonne, of the fact that that sum was included in the price of the wheat, and of the proposals to resolve the dispute by making adjustments to the 'final inland transport payments' which necessarily meant it was not a true fee for trucking services provided by Alia, the Jordanian company. Mr Long on 18 January 2002 confirmed to the

Chairman, Mr Flugge, that the sale had been finalised as originally agreed. As Mr Long was aware of at least the long-form contract provisions, he must have known that that contract submitted to DFAT and the United Nations did not reflect the true arrangements between AWB and IGB, and in particular

that the contract did not inform DFAT or the United Nations that included in the price of wheat was the sum of ¨55 which was to be paid to Alia as part of a payments system that AWB knew was capable of adjustment, not with Alia but with IGB.

31.406 In June 2002, Mr Long and Mr Hogan visited Iraq. Mr Long led negotiations

which resulted in a further contract for 500,000 tonnes. The contract included an 'inland transportation fee' of US$47.75 per tonne, which sum included the 10% surcharge. It is not credible that Mr Long did not understand the

constituent elements in the price he negotiated, or the manner in which AWB conducted its trade with Iraq. Plainly he did know of the contract conditions submitted to DFAT and the United Nations. Mr Long's evidence was that prior to the negotiations he asked Mr Hogan how AWB 'priced the Iraqi business',119 and was told by Mr Hogan that 'there was an inland trucking fee that was determined by the IGB once we had negotiated the GIF price.'120 He explained 'the trucking price was determined by adding 10% to the GIF price and adding that to the base trucking fee.'121 Mr Long said he asked Mr Hogan if 'this was approved by the UN to which he said, yes',122 although in oral evidence he could not recall whether Mr Hogan had told him the UN had approved the 10% charge, or that the Iraqis had told Mr Hogan the UN had

264 Report of the Oil-for-Food Inquiry

approved the 10% charge.123 Mr Long knew from the course of the negotiations in Iraq which he conducted, that the Iraqis required both the payment of a fixed sum for trucking plus a further sum equivalent to 10% of the contract price. He thought the arrangement strange but did not raise it with the Iraqis.124 The reason he asked Mr Hogan whether the transport fee was UN approved was because of concern arising from the 'unusual calculation7.125 He said he subsequently asked for some 'follow up7 on the UN approval issue, and received on 1 July 2002 an email from Mr Hogan.126 That email was not a follow up to any request by Mr Long. Rather it was a

response by Mr Hogan to Mr For an, AWB's Government Relations Manager, concerning a Reserve Bank decision regarding Iraq and Libya. It was a response to an article noted by Mr Foran in a Canberra journal. It was copied to Messrs Molan, Long and Aucher and read:

Subject: Re: Iraq & Libya Reserve Bank Decision

- Sanctions do not allow FX trade with Iraq.

- all payment processes for Inland Transport are UN approved.

- Libya *payment is via principles in Cyprus127

Whilst the document is supportive of the view that Mr Hogan was of the belief, that 'payment processes for Inland Transport are UN approved', although he had expressed the view in the trip report of February 2001 that the 10% surcharge was a means of extracting funds from the escrow account for remission to Iraq, I doubt that Mr Long placed any reliance on this email

prior to giving evidence. His evidence was tentative: it 'probably gave me the necessary comfort to proceed in the direction I was proceeding.'128 I do not doubt Mr Long would have proceeded with the 500,000 tonne contract, and future contracts without the assurances in the letter or, indeed, from Mr Hogan.

31.407 Mr Long was so concerned about this 'quite extraordinary7 calculation of a

'transport fee7 that, after his return from Iraq he explained the method of calculation on a whiteboard to Mr Geary. He did so because it was such an unusual calculation that he wanted to make sure the '48.60 was a reasonable number to pay when benchmarked against other'129 transport costs in Australia. He wanted to be able to 'justify' it.

31.408 Mr Geary thought the whole process of benchmarking the fee was

'ridiculous',130 as it plainly was. No sensible businessman could contemplate calculating a 'transportation fee' by adding to a fixed price for transport an additional 10% of the contract price. I do not doubt that Mr Long knew the

Report of the Oil-for-Food Inquiry 265

10% was not a cost related to transport in Iraq. I reject Mr Long's evidence that:

I was alerting Mr Geary to the unusual calculation and letting him know my logic as to why I wasn't taking it any further, because it seemed a reasonable figure.131

In reality, Mr Long was letting his superior know that AWB was involved in paying amounts to Alia which had no relationship to trucking costs. Mr Long said:

I was aware that I'd inherited a system where there was a very unusual

calculation for inland transport. I attempted to justify it to myself, I attempted to justify it to my senior manager, and it was included in the contract price. The full contract details pertaining to GIF free in truck all governorates of Iraq was not hidden to DFAT, was not hidden to the UN. When I put all those matters together,

Mr Agius, that's what gave me the level of comfort to proceed on the basis that I did.132

The first part of the statement is true. Whilst attempting to justify the unusual payment, Mr Long knew it could not be justified as a transport cost or fee. The second part of the statement is not true for he knew of the terms of the

contracts, and knew that the extraordinary fee that he was seeking to explain and justify, was not disclosed or apparent to a reader of the AWB contracts, and thus not apparent to DFAT or the United Nations.

31.409 On 16 August 2002, Mr Long was part of the AWB delegation, including Mr

Flugge and Mr Lindberg, which visited Iraq to resolve the iron filings quality claim. Members of the delegation received a four page brief which contained the statement:

AWB also pays a fee, covered under sales contract, to the Ministry of Transport covering inland transport fees and discharge costs.133

Mr Long said he checked the brief for accuracy, later qualifying that evidence to say he checked it to ensure it 'accorded with the objectives of the trip and the background to the market'.134 Thus Mr Long was told that the fee, the calculation of which was 'unusual', and which he had sought to justify to himself and to Mr Geary, was stated to be a fee payable to the Ministry of Transport in Iraq. If Mr Long did not already know that the fee paid to Alia was in truth a payment to Iraq, and I am satisfied that he did, he then knew that to be the case because the trip brief from AWB told him so.

It was agreed by the delegation that AWB would pay the IGB and thus Iraq US$6.00 per tonne as compensation for contaminated wheat. The total payment was apparently US$2 million.

266 Report of the Oil-for-Food Inquiry

31.410 On 16 September 2002, Mr Long sent a memorandum to the CRRC Committee Members, AWB Legal, AWB Government Relations and the Pool.135 It addressed recovery of the Tigris debt as well as concerns regarding the debt of some US$500 million owed by Iraq to Australian wheat growers. Mr Long wrote, in terms:

UN Regulations prohibit direct payment of funds to Iraq whilst Iraq is under UN sanctions.136

Mr Long thus knew that the payments of 'inland transport fees' including the 10% surcharge, which had so troubled him in June and July, and which he had been told in August were payments to the Ministry of Transport in Iraq, were prohibited by United Nations sanctions. He did nothing to stop such payments being made. He also knew the US$2 million iron filings compensation could not be paid to Iraq.

31.411 In late October 2002, Messrs Hogan and Whitwell went to Baghdad to discuss the Tigris debt and the iron filings compensation payment. A note prior to the trip stated:

Due to the inability to make payments direct to IGB because of the longstanding UN sanctions, we will propose that these amounts [the US$2 million] will be paid to BHP to offset the Tigris debt owed by IGB to BHP dating back to January 1996.137

31.412 After the trip, Messrs Hogan and Whitwell reported to many including Mr Long that they had discussed 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.138

Later on 7 November 2002, Mr Whitwell emailed many, including Mr Long, to advise that the Minister in Iraq had asked for payment of the USD2 million compensation through the 'inland transport mechanism'.139

Mr Long knew that payments through the 'inland transport mechanism' were payments to Iraq and prohibited by UN sanctions.

31.413 Between 19 and 21 November 2002, Mr Long and Mr Whitwell travelled to Baghdad to discuss a further sale of wheat, the Tigris debt repayment, and the iron filings compensation payment. Mr Long asked the IGB whether, 'for corporate governance reasons', the iron filings compensation could be offset

Report of the Oil-for-Food Inquiry 267

against the Tigris debt, or paid by AWB providing equipment to Iraq.140 The 'corporate governance reasons' were that Mr Long and AWB knew that to pay money to Iraq was prohibited by United Nations sanctions. The request was rejected by the Iraqi Minister who insisted it be paid to Iraq through the 'inland transport mechanism.'

Further, during the visit Mr Long agreed that the debt to Tigris of US$8,375 million would be recovered by AWB for payment to Tigris by inflating the price of wheat under the next contract, although the contract was not concluded whilst in Iraq.

31.414 A contract for 1 million tonnes was concluded on 2 December 2002. Mr Long

acknowledged that he knew the Tigris debt was to be added to the otherwise agreed contract price.141 The price was inflated by US$8,375 per tonne to Mr Long's knowledge. Mr Long received the email of 12 December 2002 showing the price breakdown. To obtain approval for such contracts, necessarily neither DFAT nor the United Nations could be told that the wheat price included a factor for debt recovery. I reject Mr Long's evidence that he did not intend to deceive anybody in relation to the two contracts A1670 and A1680. Mr Long signed the long-form contracts.

31.415 The long-form contracts contained clause 9F which in terms required any quality claims to be repaid into the escrow account.142 Nonetheless AWB, to Mr Long's knowledge, had agreed to pay to Iraq the US$2 million by adding to the 'inland transportation fee' the sum of approximately US$2 per tonne, and paying that sum to Alia knowing it was a payment to Iraq. That

agreement was not reflected in the contracts Mr Long signed as he well knew.

31.416 Between December 2002 and February 2003 Mr Long discussed with Mr

Whitwell a memorandum he requested Mr Whitwell to prepare regarding the iron filings rebate payment and the Tigris Petroleum fee. The memorandum ultimately dated 7 February 2002, was 'recommended' by Mr Long, and

'approved' by Mr Geary before being forwarded to Mr Lindberg's office. It recorded the agreement AWB had reached, through Mr Long and Whitwell, with IGB to inflate contracts A1670 and A1680 to recover the Tigris debt of US$8,375 million. It recorded that AWB, again through Mr Long and Whitwell, had endeavoured to have IGB agree to offset the US$2 million iron filings compensation against that debt, but had been unsuccessful due to the Iraqi Minister insisting that the compensation be paid through the inland transport system, as the Minister believed was agreed with Mr Lindberg in August 2002. It records that these matters raise 'corporate governance' issues because 'direct payment to a company with links to the Iraqi regime may be construed to be in contravention of the UN Sanctions.'143 The company with links to the Iraqi regime was Alia. It stated, after quoting UN resolution 661,

268 Report of the Oil-for-Food Inquiry

that '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 IGB',144 referring to the proposal to pay US$2 million to IGB through the inland transport system. It recorded so called 'legal opinion' by which the payments of the US$2 million might be hidden from discovery.145 It recorded the advice of DFAT that the US$2 million should be deducted from the price of future sales to Iraq or paid to the United Nations escrow account. It adverted to the fact the payments 'would not be well received by the UN OIP office and that there was reasonable chance of them finding out.'146

It acknowledges that failure to pay Iraq the US$2 million could have 'serious implications for the execution of the new contracts'147 with Iraq, and accordingly Mr Long recommended proceeding with the payments to Iraq known to be in breach of sanctions but only on the Managing Director informing the Australian Government immediately prior to shipment.

31.417 Mr Long knew that none of the above agreements were known to the Australian Government, or the United Nations and that such arrangements were not disclosed in contracts A1670 and A1680, which Mr Long had signed. He did not advise DFAT or the United Nations of the inflation of contracts A1670 and A1680, or of the intention to repay the iron filings compensation through the inland transport mechanism.

31.418 Whilst General Manager, IS&M, Mr Long authorised payments to Alia.

31.419 On the evidence before me I am satisfied that from at least January 2002 Mr Long was aware of the true arrangements between AWB and IGB, was aware that payments to Alia were in fact payments to the IGB and Iraq, was aware that payments to Iraq were prohibited by United Nations sanctions, and was aware that the contracts executed by AWB with the IGB and submitted to DFAT for the obtaining of United Nations approval did not reflect the true arrangements between AWB and IGB.

31.420 If, as I have found:

" AWB might have committed offences against sections 135.1(7) and 136.1 of the Criminal Code and s. 82 of the Crimes Act 1958 (Vic) in respect of contracts numbered A llll, A1112, A1141, A1670 and A1680

" Mr Long knew all of the essential facts that constituted AWB's possible commission of those offences, namely that:

(1) AWB submitted to DFAT and thus to the United Nations the above contracts for approval for payment from the escrow account, which contracts did not truly reflect the agreements reached between AWB

Report of the Oil-for-Food Inquiry 269

and IGB in some or all of the ways referred to in my findings concerning AWB referred to above

and

(2) At all relevant times AWB concealed from DFAT and the UN that the contracts did not truly reflect the agreements reached between AWB and IGB with the intention of deceiving DFAT and the UN and thereby dishonestly influencing the actions of DFAT and the UN or otherwise obtaining a benefit relating to or arising from participation in the Oil-for-Food Programme

and

(3) DFAT, unaware of the matters referred to above, forwarded to the UN the relevant contracts and associated documents for approval for payment from the escrow account, and subsequently granted permissions to export the wheat sold under the contracts under the Customs (Prohibited Exports) Regulations 1958

and

(4) The UN, unaware of the matters referred to above, approved the contracts for payment from the escrow account under the Oil-for- Food Programme:

and

" Mr Long engaged in conduct that aided, abetted, counselled or procured the offences that AWB might have committed in respect of these contracts, namely by:

(1) Mr Long, as General Manager, International Sales and Marketing from November 2001 onwards authorising AWB's entry into the contracts knowing that the agreements with the IGB included the payment of the fees, that the written contracts did not reveal the agreement relating to the fees and that the payment of the fees was at all times to be concealed from DFAT and the UN

(2) signing the long-form Tigris contracts

(3) engaging in discussions and negotiations with IGB and the Iraqi Minister for Trade in relation to the trucking fees and the contracts and leading the contract negotiations in relation to contract A1141

(4) authorising payments to Alia

270 Report of the Oil-for-Food Inquiry

(5) being involved in negotiations in relation to Tigris contracts A1670 and A1680 and internal AWB discussions/correspondence authorising the inflation of the contracts and making an agreement to repay the iron filings compensation of US$2,016 million to Iraq through the inland transport payment mechanism

and

" Mr Long intended that his conduct would in some way aid, abet, counsel or procure AWB to deceive DFAT and the UN and thereby dishonestly influence the actions of DFAT or otherwise obtain a benefit relating to or arising from participation in the Oil-for-Food Programme

or

" in the case of the offence under s. 82 of the Crimes Act 1958 (Vic), Mr Long was a manager and connived in or consented to the conduct of AWB that might have constituted an offence under that section

then, in my view, Mr Long might have aided, abetted, counselled or procured the offences that AWB might have committed against ss 135.1(7) and 136.1 of the Criminal Code and s. 82 of the Crimes Act 1958 (Vic) and therefore might have committed offences against these sections by reason of s. 11.2 of the Criminal Code and ss 84 and 323 of the Crimes Act 1958 (Vic) respectively.

As I have already indicated, AWB's deception of DFAT and the United Nations, the payment of money to Iraq in known contravention of the United Nations sanctions and the concealment of those payments are serious matters. The aiding and abetting of this conduct by officers and employees of AWB is equally serious.

I recommend that this matter be referred to the Task Force for consideration of whether proceedings under sections 135.1(7) and section 136.1 of the Criminal Code and s. 82 of the Crimes Act 1958 be instituted against Mr Long.

31.421 If, as I have found, Mr Long, in the period from about November 2001 to March 2003, used his position or exercised his powers as an officer or (in the case of s. 184(2) of the Corporations Act 2001 ) as an employee of AWB:

" to cause, authorise or permit AWB to enter into arrangements with IGB relating to the sale of wheat, which arrangements he knew included:

- AWB's agreement to include in the wheat price a fee so that the fee was paid from the escrow account to AWB

Report of the Oil-for-Food Inquiry 271

- AWB's agreement to pay such fee to Iraq or an Iraqi entity

- the submission of written contracts to DFAT, and thus to the United Nations, for approval for payment from the escrow account under the Oil-for-Food Programme, which did not fully and accurately disclose, or disclose at all, AWB's agreement to pay the fee to Iraq or an Iraqi entity or the inclusion of the fee in the wheat price

- that the fee would be initially paid to Alia to disguise the fact that the fee was ultimately paid to Iraq or an Iraqi entity in contravention of the UN sanctions

- the concealment of the above facts from DFAT and the United

Nations

and

" to cause, authorise or permit AWB to make payments to Alia in

circumstances where the payments were ostensibly for discharge and transportation services performed for AWB by Alia in respect of wheat sold by AWB to IGB, but where he knew:

- there was no contract between AWB and Alia in relation to the

provision of any discharge and transportation services for which the fees were properly payable

- IGB had the obligation to discharge the wheat at Umm Qasr, and transport it to all governorates of Iraq

- Alia performed no discharge or transportation services for AWB in respect of wheat sold by AWB to IGB

- Alia was a mere conduit and the fees were paid on to Iraq or an Iraqi entity in contravention of the UN sanctions

- the above facts were concealed from DFAT or the United Nations

and

" in the case of contracts A1670 and A1680, to cause, authorise or permit AWB to enter into arrangements with IGB relating to the sale of wheat, which arrangements he knew included:

- that the price included the sum of US$8,375 per tonne not related to the price of wheat but being the amount of an alleged debt to Tigris that IGB had agreed with AWB would be recovered from the United

272 Report of the Oil-for-Food Inquiry

Nations escrow account for payment by AWB to Tigris (the US$8,375 per tonne also included a sum of US$500,000 (equivalent to US$0.50 per tonne) to be retained by AWB as its commission for recovering the Tigris debt)

- the relevant written contracts between AWB and IGB that were submitted to DFAT and thus to the United Nations did not disclose that this sum was included in the price and this fact was otherwise concealed from DFAT and the United Nations

then, in my view:

" Mr Long might have been either reckless, or intentionally dishonest, and might have failed to exercise his powers or discharge his duties either in good faith in the best interests of AWB or for a proper purpose and therefore might have committed an offence against s. 184(1) of the Corporations Act 2001

" Mr Long might have dishonestly used his position and been reckless as to whether the use of his position may have resulted in Iraq or an Iraqi entity directly or indirectly gaining an advantage (and, in the case of contracts A1670 and A1680, reckless as to whether the use of his position may have resulted in Tigris directly or indirectly gaining an advantage) and

therefore might have committed an offence against s. 184(2) of the Corporations Act 2001

" Mr Long might have failed to exercise his powers and discharge his duties in the best interests of AWB and for a proper purpose and might have improperly used his position to gain an advantage for Iraq (or in the case of contracts A1670 and A1680, Tigris) and therefore might have contravened ss 181 and 182 of the Corporations Act 2001

" Mr Long might have failed to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were an officer of a corporation in AWB's circumstances and occupied the office held by, and had the same responsibilities within the corporation, as Mr Long and therefore might have contravened s. 180 of the Corporations Act 2001.

31.422 In the case of section 180, even if Mr Long did not know all or any of the

matters referred to above in relation to the payments to Alia that he authorised, in my view having regard to the size of the payments authorised by him and the fact that there was no written contract between AWB and Alia pursuant to which the payments were properly made, and if, as I have found, Mr Long nevertheless failed to satisfy himself that the payments were

Report of the Oil-for-Food Inquiry 273

properly and lawfully payable to Alia, then in my view he therefore might have failed in any event to exercise his powers and discharge his duties with the required degree of care and diligence and therefore might have contravened s. 180 of the Corporations Act 2001.

31.423 It is a serious matter for an officer of a public corporation such as AWB to authorise the corporation to enter into agreements in breach of statutory duties that the officer owes to the corporation, particularly where the officer acts intentionally, dishonestly or recklessly in breach of those duties.

31.424 I recommend that this matter be referred to the Task Force for consideration of whether proceedings under s. 184 of the Corporations Act 2001 be instituted against Mr Long.

31.425 Sections 180, 181 and 182 of the Corporations Act 2001 are civil penalty provisions. ASIC is the responsible entity for seeking relief in respect of alleged contraventions of civil penalty provisions. I recommend that this matter be referred to ASIC for consideration, in consultation with the Task Force, of whether proceedings under ss 180, 181 and 182 of the Corporations Act 2001 be instituted against Mr Long.

Ms Lyons

31.426 It was submitted that Ms Lyons might have committed an offence of aiding or abetting AWB in breach of s. 195 of the Crimes Act 1958 (Vic), and might have committed an offence against s. 1307 of the Corporations Act 2001.

31.427 For reasons given elsewhere, I am not satisfied that AWB might have committed any offence against s. 195 of the Crimes Act 1958 (Vic). Accordingly, no question of aiding or abetting can arise. Also for reasons given elsewhere, I am not satisfied that Ms Lyons or anyone else at AWB committed an offence against s. 1307 of the Corporations Act 2001 in relation to the agreement with Tigris.

31.428 I make no adverse findings against Ms Lyons.

Mr Officer

31.429 It was submitted that Mr Officer might have accessorial liability and might have committed an offence against s. 184 of the Corporations Act 2001, and contravened ss 180,181,182 of the same Act.

31.430 Mr Officer was General Manager of the International Sales and Marketing Division until June 2000. In that capacity he was responsible for all AWB

274 Report of the Oil-for-Food Inquiry

international activity including sales, marketing, market development, chartering, shipping and global trading. He was a member of the Executive team.

31.431 I am satisfied Mr Officer was fully aware of the true arrangements between

IGB and AWB. Mr Officer in his submissions did not dispute the factual circumstances which I have recounted in the narrative chapters. His submissions acknowledge that Mr Officer:

Knew of the requirement that AWB pay the inland transport fees and that AWB's contract had to be amended to allow for payment of the fees by increasing the contract price. He also knew that the payment of the contract price was [out of] the escrow account controlled by the United Nations and that transport fees would be remitted to a party nominated by the IGB either directly or via an intermediary.148

31.432 Mr Officer's initial evidence to the Inquiry in confidential session was not

truthful. Nonetheless I am satisfied that in later evidence he did give truthful evidence that accorded with the documentary material. His evidence has been the subject of attack by Counsel for various witnesses, particularly Mr Flugge, and I have had regard to those submissions.

31.433 Mr Officer submitted that he had no authority to accept or act on the Iraqi

demands of June 1999, change the AWB contract to accommodate those demands, or cause AWB to contract on the required terms. He submitted, against his interest, that he sought and obtained authority to make contractual changes and did so with the 'express authority' of his superiors, including Mr Rogers.149

31.434 Mr Officer contended that he was not an active participant in the Iraq wheat

trade, although he was responsible for those who were, his role being 'supervisory'.150 He submitted that the 'effective source of the supervision and authorisation of the actions of Messrs Hogan, Emons, Watson and others was

the Chairman of the Board of Directors, Mr Flugge.'151 Notwithstanding this, Mr Officer accepted he played a role and knew of the discussions about effecting a means of payment. However, he sought to paint his role as that of a communicator of information or instructions between those at the operational level and the Chairman or Managing Director. I do not accept that characterisation. Mr Officer was the General Manager of International Sales and Marketing, fully aware of the true arrangements, with authority to reject the proposed contractual arrangements and with the knowledge of the consequences of so doing for the Iraqi trade. I do accept however the probability that he kept both the General Manager and Chairman informed of

the Iraqi developments and had their encouragement and approval to proceed.

Report of the Oil-for-Food Inquiry 275

31.435 Regarding contracts A4653, A4654 and A4655, Mr Officer contended that

because the contracts disclosed a 'discharge' cost of US$12 per tonne payable to an Iraqi entity neither the United Nations nor DFAT were misled. Each failed to notice the provisions. DFAT relied on UN examination as it exercised only a 'post box' function.

31.436 I have addressed the issues of the misleading of the United Nations and

DFAT when addressing the submissions of AWB. Mr Officer knew that the contracts submitted to both DFAT and the United Nations did not reflect the true agreement made with IGB, or the responsibilities arising from the agreement. He authorised, in the sense of not stopping, Messrs Hogan, Emons and Borlase to enter into contracts, informed Mr Rogers and Mr Flugge of the arrangements, obtained their authority to agree to the payment of the fee to Iraq and amend AWB's standard contracts to accommodate that change, and approved of the payment of the fee through shipowners and Ronly to disguise its payment.

31.437 Regarding contract A4822, Mr Officer argued his absence of responsibility on

the submission that, whatever his knowledge at the time, he played no part in any deception arising from the non-disclosure of the true arrangement. He acknowledged AWB's responsibility to advise DFAT and the United Nations,152 but said he played no part in its failure to do so. I reject that contention. In his role as General Manager International Sales and Marketing Manager, it was his responsibility to ensure that contractual documents truly reflected the agreements reached both for AWB's own purposes and for the purpose of enabling AWB to obtain the United Nations' and DFAT's approval to export to Iraq and approval from the United Nations to be paid from the escrow account. The contracts, including A4822, did not reflect the true agreements reached as Mr Officer knew yet he allowed them to be forwarded to DFAT and the United Nations.

31.438 A similar submission was addressed regarding contracts A4970, A4971 and

A4972. These contracts were agreed in January 2000 whilst Mr Officer was on leave. Thus he was not party to contracts on the given terms except in so far as his conduct in agreeing to the general arrangements made with Iraq in 1999

flowed through to this contract. For the reasons previously given, Mr Officer was a participant in establishing a contractual structure which he knew did not reflect the true arrangements with Iraq, and knew that the documents submitted to DFAT and the United Nations did not reflect the true

arrangements reached. He knew that the general arrangements so made would apply to the future contracts although tonnages and prices would vary in the future. He knew that the obligation to pay a fee to Iraq, the absence of

obligation on AWB to arrange discharge and inland transportation, and the fact the fee would be paid to the nominee of the IGB would continue for

276 Report of the Oil-for-Food Inquiry

future contracts and would not be disclosed to DFAT or the United Nations either by the contract or otherwise. He omitted to correct contracts to reflect the true agreement reached, and did nothing to prevent the contracts not reflecting the true arrangements from being forwarded to DFAT or the United Nations. He knew and approved of arrangements to pay fees to the Iraqi nominated account through the intermediaries of shipowners and Ronly, and informed Mr Rogers of those arrangements. And he signed an application form for payment of monies to Alia. In my view he did participate and was knowingly involved in the deception of DFAT and the United Nations.

31.439 If, as I have found:

" AWB might have committed offences against sections 29D, 29A and 29B of the Crimes Act 1914 and section 82 of the Crimes Act 1958 (Vic) in respect of contracts numbered A4653, A4654, A4655, A4822, A4970, A4971 and A4972

and

" Mr Officer knew all of the essential facts that constituted AWB's possible commission of those offences, namely that:

(1) AWB submitted to DFAT and thus to the United Nations the above contracts for approval for payment from the escrow account, which contracts did not truly reflect the agreements reached between AWB and IGB in some or all of the ways referred to in my findings concerning AWB referred to above

and

(2) At all relevant times AWB concealed from DFAT and the UN that the contracts did not truly reflect the agreements reached between AWB and IGB with the intention of deceiving DFAT and the UN and thereby dishonestly influencing the actions of DFAT and the UN or otherwise obtaining a benefit relating to or arising from participation in the Oil-for-Food Programme

and

(3) DFAT, unaware of the matters referred to above, forwarded to the UN the relevant contracts and associated documents for approval for payment from the escrow account, and subsequently granted permissions to export the wheat sold under the contracts under the

Customs (Prohibited Exports) Regulations 1958

Report of the Oil-for-Food Inquiry 277

and

(4) The UN, unaware of the matters referred to above, approved the contracts for payment from the escrow account under the Oil-for- Food Programme

and

" Mr Officer engaged in conduct that aided, abetted, counselled or procured the offences that AWB might have committed in respect of these contracts, namely by:

(1) expressly or impliedly authorising Messrs Hogan, Emons and Borlase to engage in the said conduct on behalf of AWB

(2) keeping Mr Rogers informed of AWB's relationship and

arrangements with IGB from July 1999 (when the above fee was first imposed) and in obtaining the authority of Mr Rogers or Mr Flugge to the imposition of the above fee as a term of AWB's contract with IGB in July 1999

(3) in participating in discussions concerning and in approving the proposal for the payment of inland transportation fees through the conduit of shipowners

(4) informing Mr Rogers about the proposal to use Ronly as a conduit for payment of the above fee

(5) signing as the requesting party an application for the payment of US$453,600 to Alia on account of the inland transportation fee (which request was submitted to and authorised by Mr Laskie)

and

" Mr Officer intended that his conduct would in some way aid, abet,

counsel or procure AWB to deceive DFAT and the UN and thereby dishonestly influence the actions of DFAT or otherwise obtain a benefit relating to or arising from participation in the Oil-for-Food Programme

or

" In the case of the offence under section 82 of the Crimes Act 1958 (Vic), Mr Officer was a manager and connived in or consented to the conduct of AWB that might have constituted an offence under that section

278 Report of the Oil-for-Food Inquiry

then, in my view, Mr Officer might have aided, abetted, counselled or procured the offences that AWB might have committed against sections 29D, 29A and 29B of the Crimes Act 1914 and section 82 of the Crimes Act 1958 (Vic) and therefore might have committed offences against these sections by reason of section 5 of the Crimes Act 1914, and sections 323 and 84 of the Crimes Act 1958 (Vic) respectively.

In relation to the suggested contraventions of ss 180, 181 and 182 of the Corporations Act 2001, 1 note that any proceedings against Mr Officer based on any possible contravention of these sections would be time barred by s. 1317K of the Corporations Act 2001. That time bar does not, however, apply to the offences under s. 184.

31.440 If, as I have found, Mr Officer, in the period from about June 1999 to 9 June

2000, used his position or exercised his powers as an officer or (in the case of s 184(2) of the Corporations Act 2001) as an employee of AWB:

" to cause, authorise or permit AWB to enter into arrangements with IGB relating to the sale of wheat which arrangements he knew included:

- AWB's agreement to include in the wheat price a fee so that the fee was paid from the escrow account to AWB

- AWB's agreement to pay such fee to Iraq or an Iraqi entity

- the submission of written contracts to DFAT, and thus to the United Nations, for approval for payment from the escrow account under the Oil-for-Food Programme, which did not fully and accurately disclose, or disclose at all, AWB's agreement to pay the fee to Iraq or an Iraqi entity or the inclusion of the fee in the wheat price

- that the fee would be initially paid to Alia (or to Alia via other third parties) to disguise the fact that the fee was ultimately paid to Iraq or an Iraqi entity in contravention of the UN sanctions

- the concealment of the above facts from DFAT and the United

Nations

" to cause, authorise or permit AWB to make payments to Alia in

circumstances where the payments were ostensibly for discharge and transportation services performed for AWB by Alia in respect of wheat sold by AWB to IGB, but where he knew:

Report of the Oil-for-Food Inquiry 279

- there was no contract between AWB and Alia in relation to the

provision of any discharge and transportation services for which the fees were properly payable

- IGB had the obligation to discharge the wheat at Umm Qasr, and transport it to all governorates of Iraq

- Alia performed no discharge or transportation services for AWB in respect of wheat sold by AWB to IGB

- Alia was a mere conduit and the fees were paid on to Iraq or an Iraqi entity in contravention of the UN sanctions

- the above facts were concealed from DFAT or the United Nations

then, in my view:

" Mr Officer might have been either reckless, or intentionally dishonest, and might have failed to exercise his powers or discharge his duties either in good faith in the best interests of AWB or for a proper purpose and therefore might have committed an offence against s 184(1) of the Corporations Act 2001

" Mr Officer might have dishonestly used his position and been reckless as to whether the use of his position may have resulted in Iraq or an Iraqi entity directly or indirectly gaining an advantage and therefore might have committed an offence against s 184(2) of the Corporations Act 2001.

31.441 It is a serious matter for an officer of a public corporation such as AWB to authorise the corporation to enter into agreements in breach of statutory duties that the officer owes to the corporation, particularly where the officer acts intentionally, dishonestly or recklessly in breach of those duties.

31.442 I recommend that this matter be referred to the Task Force for consideration of whether proceedings under section 184 of the Corporations Act 2001 be instituted against Mr Officer.

Ms Peavey

31.443 Counsel Assisting submitted that Ms Peavey might have committed an offence against s. 1307 of the Corporations Act 2001 in that she participated in the creation of the Tigris agreement said to be a 'book7 within s. 1307.

31.444 For the reasons given elsewhere, s. 1307 of the Corporations Act 2001 has no application to the Tigris agreement.

280 Report of the Oil-for-Food Inquiry

31.445 I make no adverse findings against Ms Peavey.

Mr Quennell

31.446 Counsel Assisting submitted that Mr Quennell might have committed an offence against s. 1307 of the Corporations Act 2001 in that he participated in the creation of the Tigris agreement said to be a 'book' within s. 1307.

31.447 For reasons given elsewhere, s. 1307 of the Corporations Act 2001 has no application to the Tigris agreement.

31.448 I make no adverse findings against Mr Quennell.

Mr Rogers

31.449 It was submitted that Mr Rogers might have accessorial liability, and might have breached s. 184 of the Corporations Act 2001, and contravened ss 180,181 and 182 of the same Act.

31.450 Mr Rogers was Chief Executive Officer at the time AWB agreed to pay inland transportation fees to Iraq, at the time AWB agreed to pay fees to Alia as a means of disguising the fees so paid, and at the time arrangements were made to use shipowners and Ronly to further disguise such payments.

31.451 It is undoubted that Messrs Emons, Hogan, Watson and Officer knew of the agreement and arrangements put in place to make the payments indirectly to Iraq. Mr Officer reported to the Managing Director, Mr Rogers.

31.452 Mr Rogers had no recollection:

(a) of being involved in any discussion regarding any land freight or transportation issues153

(b) of any specific meetings with Mr Officer or Mr Emons about land transport fees in Iraq154

(c) of discussion between Mr Hogan and Mr Daoud in Baghdad in October 1999 about how the US$12 per tonne fee could be paid155

(d) any distinction between a contract disclosing a US dollar payment, and the mechanism for such payment, being drawn to his attention.156

Report of the Oil-for-Food Inquiry 281

31.453 In addition, Mr Rogers gave evidence that:

(a) he gave no consideration to any distinction between a contract which disclosed a liability to pay a US dollar sum and the mechanism for such payment157

(b) he was aware that a transport fee or discharge cost was included in the contract158

(c) he was not aware any such fee was going to Iraq159

(d) he was not aware the fee was to be paid to a transport company registered in Jordan160

(e) he was not aware, whilst he was Managing Director, that such payments were made to a Jordanian company161

(f) he was not aware that Ronly was used as a conduit for payment to the Jordan company.162

31.454 There is, however, evidence which points in a different direction:

(a) Mr Rogers gave evidence:

I would have thought I would have had discussions with Mr Officer and Mr Emons, if there was a change, but I can't remember the context of those discussions We had discussions on Middle East business on a regular basis, on all aspects.163

There is no apparent reason why Messrs Officer and Emons would have kept from Mr Rogers the difficulties emerging from the contractual changes and the methods of overcoming those difficulties.

(b) Mr Rogers was the Managing Director. Mr Officer reported to him. What was imposed by Iraq in June 1999 was a requirement rendering the contractual arrangements in Iraq unique for AWB for they purported to oblige AWB to accept responsibility for discharge and transportation beyond the discharge port. Mr Officer gave evidence that he did not have authority to agree to that contractual change without the approval of Mr Rogers as Managing Director or the Chairman. He also gave evidence that he believed he told Mr Rogers of the general proposal to use

intermediaries to pay the transport fee costs demanded by Iraq,164 and Mr Rogers raised no objection. He said he kept Mr Rogers informed in a general way about the relationship with IGB and how the Middle East desk was dealing with IGB's requests. He said:

282 Report of the Oil-for-Food Inquiry

Although I cannot recall any specific conversation, I have no doubt that Murray was aware of the IGB requirement to pay transport fees, that AWB's standard contract had to be changed to allow for payment of these fees by increasing the contract price, that the contract price (including the uplift for transport fees) be paid by the UN (from the escrow account) to AWB and that AWB would then remit those fees to a party nominated by the IGB either directly or via an intermediary. This was because we all within AWB, that is the middle East Desk and those Executive Team members with whom I spoke, including Murray Rogers, Paul Ingelby and others who attended the regular Executive Team meetings, were aware that the payment of those fees was the price of doing business in Iraq.165

(c) Mr Officer gave evidence that:

In contrast, I had more general discussions with Murray Rogers. However, without their support and authority, the contractual changes could not occur. In a matter of this significance, I did not have the authority to act on my own initiative, to either respond to or accept the IGB request or to put in train any necessary changes to the contract terms and conditions. For me and the Middle East Desk to act on this request, we required the authority from both Trevor Flugge and Murray Rogers. Without their authority, the contract changes could not occur. Although I cannot recall the precise discussions, both Mark (as he told me) and I told Trevor and Murray that the fee had been imposed by the IGB and that we had no choice as if we did not pay, wheat sales would be lost to our competitors. The consequence of rejecting the IGB proposal was that AWB would potentially not be asked to tender for IGB contracts, that substantial tonnages of Australian wheat would either be sold

at substantially lower prices or would remain unsold, the Australian farmers would suffer significant financial hardship and AWB's competitors would move in to markets traditionally developed by AWB for its farmers. At no

stage did either Trevor or Murray disagree with the contractual changes or the payment of the trucking fees that had been proposed and they

understood these reasons.166

It is inherently probable that such a major contractual change would be discussed with and authorised by the Managing Director.

(d) Mr Emons gave evidence that:

39. The IGB's position raised a number of concerns for all of us. One concern was where these payments we were required to make under the contracts, would end up. Another was that AWB Limited would be paying American dollars to a representative of the Iraq Government and this might result in the US Treasury freezing the funds. Yet another was that AWB Limited had no control over the movements of the trucks and weighing at the end point of a trip. 40

40. I spoke to each of Messrs Officer, Rogers and Flugge about the

contract.167

Report of the Oil-for-Food Inquiry 283

This is consistent with the evidence of Mr Officer, as one would reasonably expect. There is no evidence to the contrary from Mr Rogers, merely an absence of recollection.

(e) Mr Rogers was present at the meeting in Baghdad between Mr Hogan and Mr Daoud, as was Mr Flugge, at which the payment of US$12 per tonne fee was discussed. Mr Daoud told those present that the fee had been imposed by the President of Iraq, and ships would not be unloaded unless the fee was paid in advance. Each of Mr Rogers or Mr Flugge said they paid no attention to the conversation between Mr Daoud and Mr Hogan. It would be open to a tribunal of fact to reject that evidence. One would have thought it likely that the Chairman and Managing Director would listen to a discussion between an AWB executive and IGB about new contractual terms, particularly if the tribunal of fact accepted the evidence that they had previously been consulted about the contractual changes and the reason for them.

(f) Mr Officer believed he told Mr Rogers about the proposal to use Ronly to pay the transport fee and Mr Rogers raised no objection.168 Mr Rogers had no recollection of that, but if, as Mr Rogers accepted, there were regular discussions regarding Middle East business it would be open for a tribunal of fact to accept that such discussions took place. If they did, one would have expected there to have been discussion as to why using an intermediary was necessary.

(g) Mr Rogers knew, at least from July 1999 that it was contrary to United Nations sanctions for AWB to pay money directly or indirectly to any Iraqi instrumentality or corporation. That being so, if the evidence of Messrs Officer and Emons is accepted, Mr Rogers must have known of the impermissibility of the payments being required to be made under the contracts with the IGB. Particularly is that so, if the evidence is accepted that he was told of the use of Ronly to hide such payments.

31.455 A strong attack was mounted on the credit of Mr Officer and Mr Emons. I have had regard to that attack and the matters said to support it.

31.456 On the material before me I find that Mr Rogers was aware that from July 1999 that AWB had agreed to include in the price for wheat a fee to be

recovered from the United Nations escrow account and paid to an account nominated by Iraq. Mr Rogers agreed to and approved of the change in contractual terms to facilitate such payments. As Managing Director, he would not have done so without understanding both the reasons for such changes and the consequences of them. He was present when the payment of the US dollar fee was discussed as being a requirement imposed by the

284 Report of the Oil-for-Food Inquiry

President of Iraq as a precondition to unloading vessels. He must have appreciated AWB's trade with Iraq hinged on agreeing to pay the fee as required by Iraq. He knew that payment of fees directly or indirectly to Iraq

was contrary to United Nations sanction and must have known that if the fee was required to be paid by the President of Iraq, it was a fee going to Iraq. He later was told of and approved the use of Ronly. He must have known that was an attempt to disguise the payment of the fee. The only reason to disguise the fee was because it was known to be contrary to sanctions. It necessarily follows that Mr Rogers knew that the United Nations and DFAT were not being informed of the true arrangements for the making of a payment back to Iraq. Mr Rogers engaged in that conduct because he knew that not to do so would result in AWB losing its Iraq market.

31.457 Whilst I find that Mr Rogers had that knowledge in 1999 and 2000 whilst he was at AWB, I am satisfied that his memory has now failed him in relation to those events. He did not intentionally set out to mislead this Inquiry, nor was he intentionally untruthful.

31.458 If, as I have found:

" AWB might have committed offences against sections 29D, 29A and 29B of the Crimes Act 1914 and section 82 of the Crimes Act 1958 (Vic) in respect of contracts numbered A4653, A4654, A4655, A4822, A4970, A4971, A4972

" Mr Rogers knew all of the essential facts that constituted AWB's possible commission of those offences, namely that:

(1) AWB submitted to DFAT and thus to the United Nations the above contracts for approval for payment from the escrow account, which contracts did not truly reflect the agreements reached between AWB and IGB in some or all of the ways referred to in my findings concerning AWB

and

(2) At all relevant times AWB concealed from DFAT and the UN that the contracts did not truly reflect the agreements reached between AWB and IGB with the intention of deceiving DFAT and the UN and thereby dishonestly influencing the actions of DFAT and the UN or otherwise obtaining a benefit relating to or arising from participation in the Oil-for-Food Programme

and

Report of the Oil-for-Food Inquiry 285

1

(3) DFAT, unaware of the matters referred to above, forwarded to the UN the relevant contracts and associated documents for approval for payment from the escrow account, and subsequently granted permissions to export the wheat sold under the contracts under the Customs (Prohibited Exports) Regulations 1958

and

(4) The UN, unaware of the matters referred to above, approved the contracts for payment from the escrow account under the Oil-for- Food Programme

and

" Mr Rogers engaged in conduct that aided, abetted, counselled or procured the offences that AWB might have committed in respect of these contracts, namely by:

(1) Expressly or impliedly authorising, as CEO, AWB to enter into the contracts involving the payment of a fee to Iraq

(2) Permitting AWB to enter into these contracts in circumstances where he had authority to stop it doing so

(3) Expressly or impliedly authorising AWB to enter into arrangements with Ronly to make the payments

and

" Mr Rogers intended that his conduct would in some way aid, abet,

counsel or procure AWB to deceive DFAT and the UN and thereby dishonestly influence the actions of DFAT or otherwise obtain a benefit relating to or arising from participation in the Oil-for-Food Programme

or

" In the case of offences under section 82 of the Crimes Act 1958 (Vic), Mr Rogers was a director and connived in or consented to the conduct of AWB that might have constituted an offence under that section

then, in my view, Mr Rogers might have aided, abetted, counselled or procured the offences that AWB might have committed against sections 29D, 29A and 29B of the Crimes Act 1914 and section 82 of the Crimes Act 1958 (Vic) and therefore might have committed offences against these sections by reason of section 5 of the Crimes Act 1914, and sections 323 and 84 of the Crimes Act

1958 (Vic) respectively.

286 Report of the Oil-for-Food Inquiry

In relation to the submissions that Mr Rogers might have committed offences or contravened sections 180,181,182 and 184 of the Corporations Act 2001, any proceedings relating to contravention of the civil penalty provisions in sections 180, 181 and 182 would be effectively time barred by s 1317K of the Corporations Act. This time bar does not, however, apply to offences under s 184 of the Act.

If, as I have found, Mr Rogers, in the period from about June 1999 to April 2000, used his position or exercised his powers as an officer of AWB:

" to cause, authorise or permit AWB to enter into arrangements with IGB relating to the sale of wheat, which arrangements he knew included:

- AWB's agreement to include in the wheat price a fee so that the fee was paid from the escrow account to AWB

- AWB's agreement to pay such fee to Iraq or an Iraqi entity

- the submission of written contracts to DFAT, and thus to the United Nations, for approval for payment from the escrow account under the Oil-for-Food Programme, which did not fully and accurately disclose, or disclose at all, AWB's agreement to pay the fee to Iraq or an Iraqi entity or the inclusion of the fee in the wheat price

that the fee would be initially paid to Alia (or to Alia via other third parties) to disguise the fact that the fee was ultimately paid to Iraq or an Iraqi entity in contravention of the UN sanctions

- the concealment of the above facts from DFAT and the United

Nations

then, in my view:

" Mr Rogers might have been either reckless, or intentionally dishonest, and might have failed to exercise his powers or discharge his duties either in good faith in the best interests of AWB or for a proper purpose and therefore might have committed an offence against s 184(1) of the Corporations Act 2001

" Mr Rogers might have dishonestly used his position and been reckless as to whether the use of his position may have resulted in Iraq or an Iraqi entity directly or indirectly gaining an advantage and therefore might have committed an offence against s 184(2) of the Corporations Act 2001

Report of the Oil-for-Food Inquiry 287

I recommend that this matter be referred to the Task Force for consideration of whether proceedings under section 184 of the Corporations Act 2001 be instituted against Mr Rogers.

Ms Scales

31.459 It was submitted Ms Scales might have accessorial liability and might have breached ss 180,181,182,1307 and 1309 of the Corporations Act 2001 and s 149 of the Criminal Code.

31.460 Ms Scales was Pricing Manager from March 1999 to June 2000, Pool Manager from June 2000 to March 2001 and General Manager of AWBI from April 2001.

31.461 I found Ms Scales to be a frank and truthful witness.

31.462 Ms Scales knew of United Nations sanctions from at least 1999 and knew that sanctions restricted payments of monies to Iraq without United Nations approval. She knew that AWB contracts required United Nations approval to ship wheat to Iraq, and knew that AWB was paid from the escrow account. She played no part in AWB reaching agreement with the IGB on wheat contracts, and was not involved in or concerned with the drafting or execution of the contracts, or their submission to the United Nations through DFAT for approval. She was not involved in any way in dealing with DFAT. Her belief was that all AWB contracts were approved by the United Nations.

31.463 She did not recall when she first learnt of Alia. She said that from mid to late 2000 when she was Pool Manager, she knew that it was 'a trucking company that we needed to use as part of the contracts with the IGB. Alia Transport was the transport counterparty responsible for trucking into Iraq. In view of the significant demurrage issue we needed to improve the discharge rates of vessels at Umm Qasr. Trucks aided discharge of vessels so it seemed logical to me to use Alia if Alia could assist with the demurrage issue.'169

Her understanding was that:

the IGB determined the trucking company as the IGB knew the destination for delivery and volume of internal wheat movements. The IGB instructed AWB to use the trucking company and this was done. AWB paid the trucking company for their services.170

Ms Scales said she became aware of the 10% after-sales-service fee in either 1999 or 2000. She did not understand what it was for but understood it was approved by the United Nations.171 She had no knowledge of the use of Ronly

288 Report of the Oil-for-Food Inquiry

'as a 3rd party in the payment of trucking fees' whilst it was being so used but learnt of it after the practice ceased.172

31.464 Ms Scales' main interest through the whole period was the interest of the pool

and its wheat growers, and in particular in ensuring the maximisation of their returns.

31.465 Ms Scales acknowledges that she received emails which indicated, if read, that

money being paid on account of inland transport was actually being paid to IGB.173 Mr Hogan's emails of 24 and 25 June 1999 were both addressed to Ms Scales and many others. She acknowledged it was likely she read it and paragraph 10 carried an implication monies on account of trucking were to go back to Iraq. However, as Pricing Manager, that matter was not the focus of her interest and she could not recall reacting to that information. It did not occur to her to ask why the monies were being sought to be paid indirectly.174

A similar position applied to the email of 25 June 1999. The content did not attract her attention although she acknowledged that she likely read the email.175 I accept that evidence.

31.466 On 10 July 2000, Mr Jones emailed Mr Geary and Ms Scales attaching an 'Iraq

brief June 2000'.176 That brief outlined the United Nations sanctions and Oil- for-Food programme, and highlighted issues AWB had with its trade with Iraq. Issues highlighted were time delays in UN payments, tonnage shortfall at disport, and 'demurrage and discharge'.177 It noted that contracts with IGB

did not have a demurrage/dispatch clause. In the summary of issues it noted that the 'current mechanism of payment [of the trucking fee] is via transport company/s in Jordan.'178 Ms Scales had no recall of receiving Mr Jones' email which raised issues which she thought should have been addressed by International Sales and Marketing, rather than the Pool. She said she would possible have read the brief. The point of relevance for this Inquiry is the last dot point of a summary on the sixth and final page of the document which read:

Mechanism for payment for trucking fee. In existing contracts the fee is $15.00 per tonne. IGB have indicated the fee will be reduced to $14.00 for future business. Current mechanism of payment is via transport company/s in Jordan.179

Ms Scales accepted that 'on the face of it' the quoted passage inferred that transport fees were actually being paid to IGB.180 It does not appear that inference was drawn by Ms Scales at the time if she read the dot point.

31.467 Ms Scales received the email from Mr Hogan dated 2 November 2000

advising of the sale of 300,000 tonnes with the notation, in addition to the stated trucking fee of US$25:

Report of the Oil-for-Food Inquiry 289

** 10% will be added to px and included into trucking fee *i.e. IGB will confirm USD and T/Fee will be USD44.50 ... this has been approved by UN (as per

IGB *I will get this in writing).181

On the evidence, at that time Ms Scales believed the trucking fee had been approved by the United Nations and this reinforced her view.182 She approved payments to Alia on that basis.

31.468 Ms Scales also authorised payments under contracts A0552, A0553, A0784, A0785 but there is no evidence to suggest that Ms Scales received any information to change her view that payments of trucking fees were approved by the United Nations.

31.469 During the currency of contract A llll and A1112, Ms Scales received two emails which Mr Hogan sent to Messrs Ingleby and Goodacre.183 It was copied by Mr Hogan to Ms Scales and others. It addressed the holding back of inland transport payments until the IGB put in place a letter of credit. It spoke of withholding of the 'second payments from the IGB/184 This made clear that there was knowledge within AWB that payments for trucking fees were payments to Iraq. However, Ms Scales said that implication did not register with her: rather she addressed the issue of AWB applying commercial 'leverage' to IGB to put in place the letter of credit.1851 accept that explanation of Ms Scales' perception. The emails thus did not attach to her knowledge that payments to Alia were payments to IGB, nor did it change her view that trucking payments were approved by the United Nations.

31.470 Ms Scales was on leave from 10 to 20 September 2002. During that time Mr Long's memorandum of 16 September 2002 was forwarded to her. After her return she wrote on a copy of it 'file Iraq box'.186 The memorandum sought legal review in relation to both the Tigris debt recovery and the iron filings compensation payments. The matter was to be addressed at a CRRC meeting on 19 September 2002 which Ms Scales did not attend. Ms Scales had no recollection of receiving, reading or discussing the document with anyone although she accepted she must have received it because of the note she made on it.

31.471 There is no evidence that Ms Scales played any part in giving approval to proceed with either loading up contracts A1670 and A1680 to recover the Tigris debt or to agreeing to payment of the iron filings compensation to IGB via the inland transport mechanism. She played no part in negotiating those contracts nor did she see the written contracts submitted to DFAT.

31.472 Ms Scales accepted that she was forwarded, as part of the executive, Mr Whitwell's email dated 6 November 2002 reporting on his discussion with the Iraqis in October regarding proposals to recover the Tigris debt, possibly

290 Report of the Oil-for-Food Inquiry

offset the iron filings compensation and the Minister's desire to keep the two matters separate. Although she had no recollection of reading it she accepted she may have 'skimmed it'.187 Her evidence was that she was not interested in mechanisms for payment, or any suggestion of loading up contracts, her focus being on the interests of the pool and its returns.188 She regarded the

mechanics of contracts being a matter for the experts in the International Sales and Marketing division.189

31.473 Ms Scales also received Mr Whitwell's email of 7 November 2002 reporting on the same trip to Iraq which noted that the Iraqi Minister had asked for payment of the iron filings compensation payment through the inland transport mechanism, and that the Tigris debt had been approved for repayment with the amount of the debt and the mechanism for repayments to be agreed later that month. She had no recollection of reading it but said that if she had it would not have 'rung any warning bells' because she assumed all contracts would be UN approved.190

31.474 I am satisfied that Ms Scales 'skimmed' or read those two emails. However, if

approached from the background belief that whatever was ultimately agreed would require UN approval, and absent knowledge of the fact that in the past the true arrangements between AWB and IGB had not been disclosed to the

UN such that Ms Scales believed that whatever arrangements were finally reached by the personnel in IS&M with the IGB would be disclosed to the United Nations when approval was sought, the emails do not attach to Ms

Scales knowledge that AWB had or intended to act contrary to United Nations sanctions. Nor are they evidence that she intended that AWB would deceive DFAT or the United Nations. That she held the beliefs she said she held is

established by her conduct when, much later in July 2004, she learnt that the details of the Tigris transactions had not been disclosed to the United Nations. Immediately she thought AWB may have been acting contrary to United Nations resolutions and in breach of the Oil-for-Food programme and required that AWB obtain legal advice before any steps were taken to pay the monies collected to Tigris.

31.475 Ms Scales was married on 30 November 2002 and thereafter was absent on her

honeymoon for some period. She played no part in the agreements that became A1670 and A1680, or the submission of those contracts to DFAT and the United Nations in December 2002.

31.476 On 12 December 2002, Mr Edmonds-Wilson emailed Ms Scales and others

with details of contracts A1670 and A1680. It was noted as being sent to a 'reduced list due to the nature of the Tigris Petroleum issue.'191 It disclosed the break-up of the price and showed the 'Inland Transport' fee as US$51.15. It noted:

Report of the Oil-for-Food Inquiry 291

* Tigris debt.

As part of the contract agreement, AWB will recover the Tigris debt (outstanding since 1996) on behalf of Tigris Petroleum (11508,375,000/ lmillion mt. For the service, AWB are deducting USD500,000 (i.e. AWB will pay Tigris Petroleum USD7,875,000 on a pro rata basis as vessels are being shipped).192

Ms Scales had no recollection of reading an email bearing the 'reduced list' notation which made her think she had not read this email. She

acknowledged it likely she had read an email about the 1 million tonnes sale. If she had, she said her interest would have been in the 'net FOB' value as that was the critical figure for the pool.193

31.477 At some time after her return from leave on 14 February 2003, Ms Scales

received the 7 February 2003 memorandum from Mr Whitwell which had been 'recommended' by Mr Long and 'approved' by Mr Geary, and she read it. Although the memorandum noted the recovery of the Tigris debt by inflating the contracts, the endeavours to offset the iron filings compensation, and the US$500,000 fee, the real subject of the memorandum was the proposal to proceed as required by the Iraqi Minister to pay the iron filings

compensation back through the inland transport mechanism, legal advice obtained regarding that course, and risks associated with it.

31.478 Ms Scales' evidence was that she assumed the contract including the US$8,375

million in the price would be information of which 'the UN would have been informed and we would have got approval from the United Nations',194 although she did not turn her mind to the mechanics of how that would appear in the contract, she never having seen contracts which were submitted to the United Nations.

31.479 Regarding the repayment of the iron filings compensation, her position was:

'The international sales and marketing group were putting up a proposal. I understood it was supported by legal advice and its actions and

recommendations, sir, that they were recommending. It didn't strike me as something I was concerned about',195 and that such proposals needed to be approved by management.196

31.480 I accept Ms Scales' evidence. The manner of payment of the iron filings compensation was a matter for International Sales and Marketing and AWB management. That matter was not relevant to her belief that, so far as the inflation of the contracts A1670 and A1680 was concerned, the contracts would be submitted to the United Nations for approval and the increased price component would, in some way, be disclosed.

292 Report of the Oil-for-Food Inquiry

31.481 In July 2004, Ms Scales learnt for the first time that contracts A1670 and A1680 submitted to the United Nations were 'silent on Tigris'.197 She learnt this from Mr Johnson when asking about execution of those contracts. On learning the contracts did not 'itemize the Tigris component of the contracts' she was concerned and surprised.198 Her evidence in this respect was reinforced by later discovered notes she had taken of what she was told by Mr Johnson. Her notes record:

1GB instructed to inflate sales [contracts] 1670, 1680 by US$7 to repay cargo to Tigris199

and later:

The issue is can this be seen as AWB taking money or facilitating ($$) from IGB outside OFF?200

and later:

AWBI has received $$IGB/UN OFF programme it inflated by US$7.00/mt

Now AWBI needs to pay Tigris $7/mt ** agreement.201

She suggested a meeting with Mr Lindberg, Mr Long, Mr Geary, Mr Johnson and Mr Cooper.202

She required that senior legal advice be obtained before any monies were paid out to Tigris, and only authorised such payment on the basis of that advice.

31.482 Ms Scales has no accessorial liability for any offence which AWB might have committed in relation to deceiving DFAT or the United Nations. Further, at all times Ms Scales believed that payments to Alia were payments made pursuant to contracts which were approved by the United Nations.

31.483 Section 1307 has no application to matters concerning Ms Scales. She has not offended against ss 180, 181, 182 or 1309 of the Corporations Act 2001, nor has she been guilty of any obstruction contrary to s 149 of the Criminal Code.

31.484 I make no adverse findings against Ms Scales.

Mr Snowball

31.485 It was submitted that Mr Snowball might have accessorial liability.

31.486 From September 1998 until September 2001, Mr Snowball was the manager of AWB's United States office situated in New York until August 2000 and thereafter in Portland, Oregon. From October 2001 he was appointed Manager Trading (non-Australian grains) based in Melbourne. .

Report of the Oil-for-Food Inquiry 293

31.487 Any possible accessorial liability of Mr Snowball depends upon two

contentions advanced by Counsel Assisting:

(a) that Mr Snowball was aware from June 1999 of the true contractual arrangements made between AWB and IGB flowing from his involvement in email correspondence, in particular Mr Hogan's email of 24 and 25 June 1999, and knowledge that those two arrangements were not

disclosed to DFAT or the United Nations in the contracts submitted to them

(b) Mr Snowball participated in the meeting of 9 March 2000 with Mr Nicholas, Mr Flugge and Mr McConville. He was aware of the nature of the Canadian complaint, namely, that enquiries were being made whether AWB was making trucking fee payments to Iraq outside the Oil-for-Food Programme in breach of sanctions, yet, being aware of the true arrangements, he assisted AWB in concealment of the true arrangements by not disclosing them to DFAT or the United Nations.

31.488 The allegations relate only to contracts A4653, A4654 and A4655 dated 14 July

1999 lodged with DFAT on 3 August 1999, A4821, and A4822 dated 14 October 1999 lodged on 29 October 1999, and A0430 dated 2 November 2000 lodged on the same date.

31.489 I am not satisfied that the evidence before me establishes either contention; or

that Mr Snowball engaged in any deception in which AWB might have engaged.

31.490 Undoubtedly Mr Snowball received Mr Hogan's emails of 24 and 25 June

1999, and knew that AWB was seeking to find a method of accommodating IGB's requirements which involved making a payment to Iraq. He also must have known, because he was aware that contracts with Iraq were lodged with DFAT for submission to the United Nations for approval, that a method of accommodating those requirements had been found. However there is no material before me which established that Mr Snowball knew what that method was at the time contracts A4653, A4654 and A4655 were lodged on 14 July 1999, or contract A4821 and A4822 were lodged on 29 October 1999. There is no material which established that he knew that the contracts then lodged did not reflect the true arrangements reached with the IGB. Mr Snowball took no active part in approving of, or lodging, those contracts.

31.491 I am satisfied that by 9 March 2000, Mr Snowball knew, probably through Mr

Emons, that the matter which Mr Nicholas raised at the meeting of 9 March 2000, related to the questioning of payments for 'trucking/ discharge' costs by AWB to Iraq. He referred to that matter in his email of 15 March 2000 to Mr

294 Report of the Oil-for-Food Inquiry

Emons. He also knew that if that issue was investigated, AWB might encounter difficulties with the United Nations, and in its trade with Iraq. However, knowledge alone is not sufficient to attract accessorial liability.

31.492 Regarding contract A0430 whilst Mr Snowball knew that there was added into the contract price a 'service fee' of 10%, he had also been informed that the fee had been approved by the United Nations. It had not, and Mr

Snowball took no steps to check whether what he was told by Mr Hogan was correct regarding United Nations approval. However, apart from obtaining the knowledge referred to he took no part in relation to the agreement with IGB regarding A0430, its terms, or its lodgement with DFAT and the United Nations. I am satisfied that Mr Snowball did not participate in relation to any

deception in which AWB might have participated regarding A0430.

31.493 I make no adverse findings against Mr Snowball.

Mr Stott

31.494 It was submitted that Mr Stott might have accessorial liability, and might have committed an offence against s. 184 of the Corporations Act 2001, and contravened ss 180,181 and 182 of the same Act.

31.495 Mr Stott was employed by the Australian Wheat Board from 1983 to 1996. From 1998 to 1996 he was in charge of the Middle East, Europe and Africa desk. In 1996 he left the Australian Wheat Board and became Manager International Business Development with BHP Petroleum Limited. In July 2000 he became the General Manager International Sales Marketing at AWB.

31.496 Mr Stott's first submission was that I should disqualify myself from making any 'findings or recommendations in respect of Mr Charles Stott'.203 The basis for the submission was that there was an apprehension of bias against Mr Stott. It was said to be grounded upon a series of matters:

(a) allowing 'Stott to be portrayed as uncooperative and as a liar'204

(b) 'allowing Counsel Assisting to ridicule Stott' and failing to restrain laughter in the gallery related to his evidence205

(c) allowing Counsel Assisting to 'proceed with lines of questioning that have been formulated on inaccurate and/or incomplete factual bases'206

(d) questioning Mr Stott's characterisation of the 1996 grain shipment as a 'donation' (Mr Stott having partaken in endeavours to recover the cost of the 'donation' with interest)207

Report of the Oil-for-Food Inquiry 295

(e) attitude towards which facsimile Mr Stott settled208

(f) attitude towards whether a signed or unsigned facsimile was sent to DFAT209

(g) attitude towards Mr Stott's evidence of a conversation with Mr Drake- Brockman210

(h) differential treatment towards Mr Hogan compared to Mr Stott, it being asserted Mr Hogan was a liar211

(i) differential treatment towards Mr Watson compared to Mr Stott, it being asserted Mr Watson was a liar212 .

(j) general approach to Mr Stott.213

31.497 I have read the references said to support the submissions. They do not do so. I reject the application. In my view, no reasonable bystander could form the view that I would not bring an impartial and unprejudiced mind to the matters upon which I am called to report. The submission quite

misunderstands the nature of the inquiry undertaken by a Royal Commission. But putting that to one side, a reading of the material on which the application is based, when read in context and with knowledge of the issues as they progressively emerged, could not, in my view, give rise reasonably to any disquiet.

31.498 The matters referred to in the application are all matters which it is legitimate for Counsel for Mr Stott to raise in relation to substantive findings Mr Stott may wish to resist or may wish me to make. However they do not sustain a finding of apprehended bias.

31.499 In paragraph 1.6 of the submissions, Mr Stott's Counsel appears to go further. It was put:

The Commissioner's bias has been demonstrated by his conduct towards Stott.214

That appears to be an allegation of actual bias, as distinct from apprehended bias. If that was the intended submission, I reject it. There is no basis for such a submission.

31.500 It is telling that between April and September 2006 when the Inquiry was not sitting but Counsel for Mr Stott were, so they told me, 'working almost exclusively on this case',215 no application was made to the Federal Court for an order that I be disqualified, or in some fashion prohibited from making any findings or recommendations regarding Mr Stott. That is what should have occurred if Mr Stott wished to assert either actual or apprehended bias.

296 Report of the Oil-for-Food Inquiry

31.501 Mr Stott's second submission was that the Letters Patent do not permit me to make findings regarding Mr Stott because:

... Stott's employment at AWB between 1983 and approximately 1996 does not fall within the terms of reference. In particular, the terms of reference do not extend to any decision, action, conduct, payment or writing of Stott during his employment at AWB in this initial period in relation to the shipment of wheat to the Grain Board of Iraq in 1995/1996. This shipment occurred prior to the adoption and implementation of the Oil-for-Food Programme.216

I reject that submission.

31.502 Next, it was submitted that:

Stott's employment at BHP likewise does not fall within the terms of reference. By the time Stott commenced employment with BHP:

(a) the payment mechanism had been negotiated, agreed and approved by DFAT; and

(b) the wheat had already been shipped.217

I reject that submission.

31.503 At all material times Mr Stott was a person associated with either AWB or *í*ó*°*°. I do not interpret the terms of reference as being restrictive of the time during which the activities of a person who is associated with either AWB or BHPP may be investigated and reported upon.

31.504 Mr Stott submitted that the evidence established, and it should be found that whilst he was General Manager International Sales and Marketing, he believed the trucking fees were 'in truth for the purposes of moving the wheat to all governorates of Iraq and that such trucking fees were UN approved.'218

The submissions did not address whether Mr Stott knew:

(a) that the fees were being paid to Alia, although the references to Ronly paying monies to Alia make plain that he did have that knowledge

(b) that the monies in truth were being paid back to Iraq, although his 'tests' were aimed at determining whether they were

(c) that sanctions prohibited such payment to Iraq, although it was submitted that no one explained to Mr Stott the resolutions or their effect.

31.505 Mr Stott submitted that he had been told by 'staff including Lister, Hogan, Hughes and Watson, that the trucking fees had been approved by the UN.'219 He accepted that Watson gave evidence to the effect that he told Mr Stott in

Report of the Oil-for-Food Inquiry 297

July 2000 of the 'mechanisms in place that AWB had come up with to make the trucking payments' but said Mr Watson should not be believed.220

31.506 He contended that support for the view that he believed the trucking fees had

been approved by the United Nations was found in the following

circumstances:

(a) he ceased the use of Ronly: he would not have done so if he had believed fees had to be paid through a circuitous route to avoid detection221

(b) he called in Arthur Andersen to examine the workings of the International Sales and Marketing desk: he would not have had trucking fees investigated, with other matters, if he 'knew the payment of the trucking fee was not UN approved'222

(c) that he carried out at least four tests to determine if the trucking payments were indeed being used for trucking, namely:

(i) advising the Iraqis he was going to write to DFAT about Alia:223 (as they did not object he presumed the fees were UN approved)

(ii) paying monies direct to Alia and relying on Australian and international intelligence agencies whom he assumed would track such payments to advise AWB if the payments were going to Iraq224 (as intelligence agencies did not inform AWB that the monies were going to Iraq, Mr Stott assumed the monies must have been used for trucking)

(iii) proposing to the Iraqi Minister that a method of resolving an impasse with Russian traders regarding price would be for Iraq to forego the trucking fees225 (if Iraq did not agree Mr Stott assumed that was because the fees were truly required for trucking costs)

(iv) attempting to speak to Mr Daoud about trucking fees226(but, unfortunately, Mr Daoud died before he could do so).

(d) the correspondence of October/November 2000 with DFAT. This correspondence addressed 'incentivising the trucking companies to get more trucks to Umm Qasr' and nothing more.227

31.507 Regarding the February 2001 trip report of Mr Borlase and Mr Hogan which

was circulated within AWB including to Mr Stott and which reported the view of Mr Hogan and Mr Borlase that the increased trucking fee and the 10% surcharge was a way of Iraq extracting US dollars from the escrow account,

298 Report of the Oil-for-Food Inquiry

Mr Stott accepted he received the report and had a discussion about the issue with Mr Hogan.228 In submissions Mr Stott's position was that:

(a) Mr Hogan had previously advised the payments were UN approved

(b) Mr Stott had done his four 'tests' to satisfy himself that the money was being used to pay for trucking

(c) he 'asked Hogan for evidence to back up what he was saying' but none was produced.229

Although not explicitly stated the implied submission was that I should not accept Mr Hogan's evidence that Mr Stott dismissed Mr Hogan's view out of hand. I decline to do so. Irrespective of that, presumably Mr Stott's position is that, unpersuaded by Mr Hogan's view because of lack of evidence, he remained persuaded by Mr Hogan's prior view that the fees were UN approved, reinforced by Mr Stott's four 'tests'. Further, it was submitted, the report did not attach to Mr Stott 'knowledge in 2001 that the fees were not UN approved and that the money was not being used for the purpose of shifting wheat around Iraq.'230

31.508 This places Mr Stott in a curious position. He submitted that 'Hogan's

evidence on this issue should not be acted upon unless corroborated by independent evidence. Such evidence does not exist.'231 The 'issue' was Mr Hogan's view upon whether the trucking payments and 10% surcharge were UN approved. Mr Stott says Mr Hogan told him they were, and Mr Stott, believing Mr Hogan's uncorroborated statement, had no knowledge that the payments were not UN approved, but when Mr Hogan changed his mind, and said he believed they were not for good reasons, because that was also uncorroborated, Mr Hogan should not be believed, so that Mr Stott could retain his prior view of approval by the United Nations of the payments. Mr Stott's submission must be rejected: he cannot accept or reject Mr Hogan's credit to suit the accumulating evidence, and the difficulties that creates for his position.

31.509 On any view, the four or six so called 'tests' of Mr Stott are odd. If the true

objective of Mr Stott was to determine if the large sums of money which Mr Stott knew were being paid to Alia were approved by the United Nations and DFAT, that simple issue could have been resolved by writing to DFAT,

explaining in the letter the quantum of trucking fees being paid which were not detectable in the contracts submitted to DFAT and the United Nations, explaining that the fees had been previously paid through shipowners, Ronly

or Tse Yu Hong Metal Ltd, but now were paid to Alia in Jordan directly, and asking if such payments were approved. The only reason not to do so is a fear

Report of the Oil-for-Food Inquiry 299

that advising DFAT and the United Nations of the trucking fee payments to Alia would result in AWB being told that such payments were not permissible as being in breach of sanctions. On any view of the evidence, Mr Stott knew the payments to Alia were in truth payments to Iraq: Mr Stott's own 'tests' involved him in gauging the reaction of IGB or Iraq to proposals related to trucking fees supposedly being paid to a Jordanian trucking company. And Mr Stott discussed outstanding trucking fees with IGB in Baghdad in October 2000: there would be no basis for doing so if Alia was arranging and effecting the trucking. Of course, writing to DFAT in this way would make plain to DFAT that the contracts being submitted did not reflect the true arrangements with IGB.

He, or Mr Hogan with his knowledge and approval, wrote to DFAT on other issues concerning United Nations approval in August and October 2000, but not about whether the payments to Alia were approved.

31.510 If the purpose of the 'tests' was to determine whether the monies were really

being used for trucking, the first thing one would expect an experienced executive to do would be to call for the contract with the trucking company, and the second, to contact the trucking company and ask why the trucking

costs had increased so substantially, and after the 10% impost by IGB in November 2000, ask both IGB and the trucking company what that was for, and how it related to trucking. Mr Stott did neither. The only sensible explanation for those omissions is that he knew that the funds were going to Iraq, and had not been approved by the United Nations.

31.511 It is equally odd that in his letter of 30 October 2000 to DFAT, Mr Stott, in

addressing a proposal to 'incentivise' trucking companies operating at Umm Qasr, did not indicate that AWB had been using a Jordanian trucking company, Alia, since October 1999 to perform inland trucking services required under its contracts with IGB. An executive seeking to 'incentivise' its

existing contract with a trucking company would ask for the existing contract to see what changes were required. No DFAT or United Nations approval was required to deal with Jordanian companies. Or if Mr Stott believed that because the Jordanian trucking companies were operating in Iraq, such approval was required, and it was being sought from or through DFAT, one would expect that to be set out in the letter seeking approval. Yet none of that was done. The reason is because Mr Stott knew that the trucking fees were being paid to Iraq through Alia, and that such fees had not been approved by DFAT or the United Nations.

31.512 I do not accept Mr Stott's contention that whilst he was General Manager

International Sales and Marketing he believed the trucking fees were 'in truth for the purposes of moving the wheat to all governates of Iraq and that such

300 Report of the Oil-for-Food Inquiry

trucking fees were UN approved/232 I am satisfied that he knew such fees were not UN approved, were being paid by AWB to Iraq via Alia, and were not being used, at least in major part, for transportation of wheat. He also

knew that the true arrangements between AWB and Iraq were not reflected in the contracts submitted by AWB to DFAT for forwarding for approval by the UN.

31.513 Appendix 18 is an analysis of some aspects of the evidence of Mr Stott prepared by Counsel Assisting. I have made some slight amendments to it. I agree generally with that analysis.

31.514 It was submitted on Mr Stott's behalf that 'there was no evidence anywhere of anyone explaining to Stott what the UN resolutions were and what, if any, was the effect of those resolutions on AWB's dealings with Iraq.'233 Mr Stott knew of the resolutions and their effect.234

31.515 In the appendix, Counsel Assisting put, in relation to Mr Stott's letter of 30 October 2000 to DFAT:

Mr Stott's motive to write to DFAT was a desire to create what he called a 'paper trail' which would protect AWB in the event that the contracts with Iraq came under scrutiny.

Mr Stott submitted that proposition was 'absurd' and 'sheer nonsense'.235 In fact, Mr Whitwell sought to rely upon the correspondence as evidence that AWB had informed DFAT of arrangements between AWB and IGB.236

31.516 Mr Stott was interviewed by AWB's lawyers in 2004. They prepared a draft statement which was never signed. It is detailed and obviously reflects generally what Mr Stott told those solicitors. In part, it supports some matters which Mr Stott advanced to this Inquiry. However it also addresses Mr Stott's knowledge regarding trucking arrangements, and his intention in writing to DFAT. It states:

My understanding of the difficulty that Iraq faced was that it could not get access to foreign resources whilst the sanctions were imposed and the logical way to fund transport was to have it paid by the supplier. Most of the cost was borne by Iraq's neighbours and it had to be paid in hard currency and the only way it could get this was through UN agency.237

This makes clear Mr Stott understood that the trucking arrangements made between AWB and IGB were a means of extracting hard currency from the escrow account, for the purpose of funding trucking.

The Iraq business is a very clean business with AWB. Upon my return to AWB I was surprised and wondered why Ronly was involved in the payment of the inland transport fees. I had concerns about the payment of the inland transport

Report of the Oil-for-Food Inquiry 301

I

fees but when I subsequently went to Baghdad shortly after my return to AWB [when?] and had a meeting with the IGB, I discussed the trucking fees with them. We were told in our meeting that all contractors were paying trucking fees. I had this subsequently independently confirmed by a Thai rice importer that I knew was importing rice into Iraq at that time and I was reassured that all companies were now responsible for and paying similar charges for inland transport services. I was also keen to ensure that a 'paper trail' and approval from the Australia Government existed.238

This makes clear Mr Stott understood the 'trucking fees' were going to Iraq, not Alia. It also supports entirely the submissions of Counsel Assisting regarding the reason for the letter to DFAT of 30 October 2000, which Mr Stott

submitted were 'absurd' and 'sheer nonsense':

Whilst I took it as read that the existing trucking arrangements were okay, my purpose in raising this issue with DFAT was that I wanted to have a paper trail and I talked quite openly about my concern about the lack of one at that time within AWB. I wanted DFAT's written confirmation concerning the arrangements to ensure that the incentive arrangement with Alia was okay to ensure there was sufficient trucks at disport. Flowever, I also did not want to open a 'Pandora's Box'. The 'noise' at the time was that Trevor Flugge, who was a 'hands on' Chairman, had personally approved the inland transport arrangement. I also thought at the time that there was a question mark over Michael Watson.239

This reinforces the correctness of Counsel Assisting's submissions. It also explains why Mr Stott's letter to DFAT was less than frank: he understood Mr Flugge had approved the arrangements for payment of monies to Iraq through trucking fees and did not want to disturb the Iraqi trade, yet he wanted to create a 'paper trail' in case AWB's arrangements for payment of trucking fees were scrutinised.

I always understood from discussions with IGB (or the practice or operation of the contract??) that it did the reconciliation with Alia. I did not have any direct discussions with Alia concerning the payment of their fees, payment delays or instances of non-payment. I understood that any issues concerning the contractual relationship and payment of fees was discussed directly between IGB and Alia. I understood that Alia had a contractual relationship with the IGB and we were instructed to make payments to Alia as their nominated company. The only issue that I ( confirm) raised directly with Alia was a truck shortage.240

Again this confirms Mr Stott's knowledge that the so called trucking fees were in fact payments to Iraq with AWB having no contractual relationship with Alia for it to do any transportation for AWB of wheat shipped to Iraq.

31.517 If, as I have found:

" AWB might have committed offences against sections 29D, 29A and 29B of the Crimes Act 1914 and sections 135.1(7) and 136.1 of the Criminal Code and section 82 of the Crimes Act 1958 (Vic) in respect of contracts

302 Report of the Oil-for-Food Inquiry

numbered A0265, A0266, A0267, A0430, A0552, A0553, A0784, A0785, A llll and A1112 (between about June 2000 and November/December 2001)

" Mr Stott knew all of the essential facts that constituted AWB's possible commission of those offences, namely that:

(1) AWB submitted to DFAT and thus to the United Nations the above contracts for approval for payment from the escrow account, which contracts did not truly reflect the agreements reached between AWB and IGB in some or all of the ways referred to in my findings

concerning AWB referred to above

and

(2) At all relevant times AWB concealed from DFAT and the UN that the contracts did not truly reflect the agreements reached between AWB and IGB with the intention of deceiving DFAT and the UN and thereby dishonestly influencing the actions of DFAT and the UN or otherwise obtaining a benefit relating to or arising from participation in the Oil-for-Food Programme

and

(3) DFAT, unaware of the matters referred to above, forwarded to the UN the relevant contracts and associated documents for approval for payment from the escrow account, and subsequently granted permissions to export the wheat sold under the contracts under the Customs (Prohibited Exports) Regulations 1958

and

(4) The UN, unaware of the matters referred to above, approved the contracts for payment from the escrow account under the Oil-for- Food Programme

and

" Mr Stott engaged in conduct that aided, abetted, counselled or procured the offences that AWB might have committed in respect of these contracts, namely by:

(1) Mr Stott, as General Manager International Sales and Marketing from July 2000 to late 2001, authorised AWB's entry into the contracts knowing that the agreements with IGB included the payment of the

Report of the Oil-for-Food Inquiry 303

I

fees, that the written contracts did not reveal the agreement relating to the fees and that the payment of the fees was at all times to be

concealed from DFAT and the UN

(2) signing contracts A0265, A0266, A0267

(3) discussing and negotiating the trucking fees and the contracts with IGB and the Iraqi Minister for Trade

(4) authorising payments to Alia

and

" Mr Stott intended that his conduct would in some way aid, abet, counsel or procure AWB to deceive DFAT and the UN and thereby dishonestly influence the actions of DFAT or otherwise obtain a benefit relating to or arising from participation in the Oil-for-Food Programme

or

" In the case of the offence under section 82 of the Crimes Act 1958 (Vic), Mr Stott was a 'manager' within the meaning of s 84 of the Crimes Act and connived in or consented to the conduct of AWB that might have constituted an offence under that section

then, in my view, Mr Stott might have aided, abetted, counselled or procured the offences that AWB might have committed against sections 29D, 29A and 29B of the Crimes Act 1914 and sections 135.1(7) and 136.1 of the Criminal Code and section 82 of the Crimes Act 1958 (Vic) and therefore might have committed offences against these sections by reason of section 5 of the Crimes Act 1914, section 11.2 of the Criminal Code and sections 323 and 84 of the

Crimes Act 1958 (Vic) respectively.

As I have already indicated, AWB's deception of DFAT and the United Nations, the payment of money to Iraq in known contravention of the United Nations sanctions and the concealment of those payments are serious matters. The aiding and abetting of this conduct by officers and employees of AWB is equally serious.

I recommend that this matter be referred to the Task Force for consideration of whether proceedings under sections 29D, 29A and 29B of the Crimes Act 1914 and sections 135.1(7) and section 136.1 of the Criminal Code and section 82 of the Crimes Act 1958 be instituted against Mr Stott.

304 Report of the Oil-for-Food Inquiry

31.518 If, as I have found, Mr Stott, in the period from about July 2000 to

November/ December 2001, used his position or exercised his powers as an officer or (in the case of s 184(2) of the Corporations Act 2001) as an employee of AWB:

" to cause, authorise or permit AWB to enter into arrangements with IGB relating to the sale of wheat, which arrangements he knew included:

- AWB's agreement to include in the wheat price a fee so that the fee was paid from the escrow account to AWB

- AWB's agreement to pay such fee to Iraq or an Iraqi entity

- the submission of written contracts to DFAT, and thus to the United Nations, for approval for payment from the escrow account under the Oil-for-Food Programme, which did not fully and accurately disclose, or disclose at all, AWB's agreement to pay the fee to Iraq or an Iraqi entity or the inclusion of the fee in the wheat price

- that the fee would be initially paid to Alia to disguise the fact that the fee was ultimately paid to Iraq or an Iraqi entity in contravention of the UN sanctions (and that in the past it had been paid through third parties * shipowners and Ronly to distance AWB further from the payments)

- the concealment of the above facts from DFAT and the United

Nations

and

" to cause, authorise or permit AWB to make payments to Alia in

circumstances where the payments were ostensibly for discharge and transportation services performed for AWB by Alia in respect of wheat sold by AWB to IGB, but where he knew:

- there was no contract between AWB and Alia in relation to the

provision of any discharge and transportation services for which the fees were properly payable

- IGB had the obligation to discharge the wheat at Umm Qasr, and transport it to all governorates of Iraq

- Alia performed no discharge or transportation services for AWB in respect of wheat sold by AWB to IGB

Report of the Oil-for-Food Inquiry 305

I

- Alia was a mere conduit and the fees were paid on to Iraq or an Iraqi entity in contravention of the UN sanctions

- the above facts were concealed from DFAT or the United Nations

then, in my view:

" Mr Stott might have been either reckless, or intentionally dishonest, and might have failed to exercise his powers or discharge his duties either in good faith in the best interests of AWB or for a proper purpose and therefore might have committed an offence against s 184(1) of the Corporations Act 2001

" Mr Stott might have dishonestly used his position and been reckless as to whether the use of his position may have resulted in Iraq or an Iraqi entity directly or indirectly gaining an advantage and therefore might have committed an offence against s 184(2) of the Corporations Act 2001

" Mr Stott might have failed to exercise his powers and discharge his duties in the best interests of AWB and for a proper purpose and might have improperly used his position to gain an advantage for Iraq and therefore might have contravened sections 181 and 182 of the Corporations Act 2001

" Mr Stott might have failed to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were an officer of a corporation in AWB's circumstances and occupied the office held by, and had the same responsibilities within the corporation, as Mr Stott and therefore might have contravened s 180 of the Corporations Act 2001.

In the case of section 180, even if Mr Stott did not know all or any of the matters referred to above in relation to the payments to Alia that he authorised, in my view, having regard to the size of the payments authorised by him and the fact that there was no written contract between AWB and Alia pursuant to which the payments were properly made, and if, as I have found, Mr Stott nevertheless failed to satisfy himself that the payments were properly

and lawfully payable to Alia, then in my view Mr Stott therefore might have failed in any event to exercise his powers and discharge his duties with the required degree of care and diligence and therefore might have contravened

section 180 of the Corporations Act 2001.

It is a serious matter for an officer of a public corporation such as AWB to authorise the corporation to enter into agreements in breach of statutory duties that the officer owes to the corporation, particularly where the officer acts intentionally, dishonestly or recklessly in breach of those duties.

306 Report of the Oil-for-Food Inquiry

I recommend that this matter be referred to the Task Force for consideration of whether proceedings under section 184 of the Corporations Act 2001 be instituted against Mr Stott.

Sections 180z 181 and 182 of the Corporations Act 2001 are civil penalty provisions. ASIC is the responsible entity for seeking relief in respect of alleged contraventions of civil penalty provisions. I recommend that this matter be referred to ASIC, in consultation with the Task Force, for

consideration of whether proceedings under sections 180, 181 and 182 of the Corporations Act 2001 (Cth) be instituted against Mr Stott.

I note that section 1317K of the Corporations Act 2001 imposes a six year limitation period for the commencement of proceedings arising from contraventions of civil penalty provisions. Accordingly, the referral to ASIC should only be in relation to the conduct of Mr Stott that occurred from 2001

onwards.

Mr Watson

31.519 It was submitted that Mr Watson might have accessorial liability, and might

have committed an offence against s. 184 of the Corporations Act 2001, and contravened ss. 180,181 and 182 of the same Act.

31.520 Mr Watson was the Manager of AWB Chartering between December 1996 and

November 2000 when he resigned from AWB.

31.521 Mr Watson did not dispute in final submissions any factual matters set out in

submissions of Counsel Assisting. He submitted that he had not committed, or intended to commit any offence. He also raised s. 1317K of the Corporations Act 2001 as a time bar to any proceedings against him under the Corporation Act. Section 1317K does not operate as a bar to criminal proceedings under s. 184 of the Corporations Act 2001.

31.522 Mr Watson admitted that:

" he knew the inland transportation fee was to be received by an Iraqi organisation

" he discussed means of payment of that fee with others within AWB, so that payments would not be obvious to the United Nations

" he discussed the disguising of such payments with others within AWB from June 1999 onwards

Report of the Oil-for-Food Inquiry 307

" one of the ways to disguise payments discussed within AWB and later used by AWB was to use the owners of the ships used to carry the wheat to Iraq (including Ronly) to make the payments for AWB.

31.523 Mr Watson was aware of United Nations sanctions, and that they prevented payments to Iraqi entities without United Nations approval, and thus knew AWB could not make payments direct to Iraq because of the sanctions. He knew the payment of inland transport fees had not been approved by the United Nations.

31.524 Mr Watson arranged for shipowners and Ronly through Tse Yu Hong Metal Ltd to make payments to Alia on behalf of AWB so as to disguise the making of such payments and hide them from the United Nations. He knew payments so made to Alia contravened United Nations sanctions.

31.525 Mr Watson knew the true arrangements were not disclosed in AWB's contracts submitted to the United Nations for approval through DFAT.

31.526 If, as I have found:

" AWB might have committed offences against sections 29D, 29A and 29B of the Crimes Act 1914 and section 82 of the Crimes Act 1958 (Vic) in respect of contracts numbered A4653, A4654, A4655, A4822, A4970, A4971, A4972, A0265, A0266 and A0267

and

" Mr Watson knew all of the essential facts that constituted AWB's possible commission of those offences, namely that:

(1) AWB submitted to DFAT and thus to the United Nations the above contracts for approval for payment from the escrow account, which contracts did not truly reflect the agreements reached between AWB and IGB in some or all of the ways referred to in my findings concerning AWB referred to above

and

(2) At all relevant times AWB concealed from DFAT and the UN that the contracts did not truly reflect the agreements reached between AWB and IGB with the intention of deceiving DFAT and the UN and thereby dishonestly influencing the actions of DFAT and the UN or otherwise obtaining a benefit relating to or arising from participation in the Oil-for-Food Programme

308 Report of the Oil-for-Food Inquiry

and

(3) DFAT, unaware of the matters referred to above, forwarded to the UN the relevant contracts and associated documents for approval for payment from the escrow account, and subsequently granted permissions to export the wheat sold under the contracts under the Customs (Prohibited Exports) Regulations 1958

and

(4) The UN, unaware of the matters referred to above, approved the contracts for payment from the escrow account under the Oil-for- Food Programme

and

" Mr Watson engaged in conduct that aided, abetted, counselled or procured the offences that AWB might have committed in respect of these contracts, namely by:

(1) arranging with others, including Mr Emons, Mr Owen, Mr Lister and Mr Hogan to create and implement systems giving effect to the true contract with IGB, including systems designed to disguise or conceal from DFAT and the UN that a payment was being made to Iraq or to an Iraqi entity

(2) corresponding and meeting with Ronly so as to set up the scheme whereby Ronly became a conduit for payments to Iraq

(3) approving payments to Alia and shipping companies for contracts A4653, A4654, A4655, A4822, A4970, A4971 and A4972

and

" Mr Watson intended that his conduct would in some way aid, abet,

counsel or procure AWB to deceive DFAT and the UN and thereby dishonestly influence the actions of DFAT or otherwise obtain a benefit relating to or arising from participation in the Oil-for-Food Programme

or

" in the case of the offence under section 82 of the Crimes Act 1958 (Vic), Mr Watson was a manager and connived in or consented to the conduct of AWB that might have constituted an offence under that section

Report of the Oil-for-Food Inquiry 309

I

then, in my view, Mr Watson might have aided, abetted, counselled or procured the offences that AWB might have committed against sections 29D, 29A and 29B of the Crimes Act 1914 and section 82 of the Crimes Act 1958 (Vic) and therefore might have committed offences against these sections by reason of section 5 of the Crimes Act 1914, and sections 323 and 84 of the Crimes Act 1958 (Vic) respectively.

31.527 If, as I have found, Mr Watson, in the period from July 1999 to November

2000, used his position or exercised his powers as an officer or (in the case of s 184(2) of the Corporations Act 2001 ) as an employee of AWB:

" to cause, authorise or permit AWB to make payments (directly or

indirectly) to Alia in circumstances where the payments were ostensibly for discharge and transportation services performed for AWB by Alia in respect of wheat sold by AWB to IGB, but where he knew:

- there was no contract between AWB and Alia in relation to the

provision of any discharge and transportation services for which the fees were properly payable

- IGB had the obligation to discharge the wheat at Umm Qasr, and transport it to all governorates of Iraq

- Alia performed no discharge or transportation services for AWB in respect of wheat sold by AWB to IGB

- Alia was a mere conduit and the fees were paid on to Iraq or an Iraqi entity in contravention of the UN sanctions

- the above facts were concealed from DFAT or the United Nations

then, in my view:

" Mr Watson might have been either reckless, or intentionally dishonest, and might have failed to exercise his powers or discharge his duties either in good faith in the best interests of AWB or for a proper purpose and therefore might have committed an offence against s 184(1) of the

Corporations Act 2001

" Mr Watson might have dishonestly used his position and been reckless as to whether the use of his position may have resulted in Iraq or an Iraqi entity directly or indirectly gaining an advantage and therefore might have committed an offence against s 184(2) of the Corporations Act 2001

310 Report of the Oil-for-Food Inquiry

It is a serious matter for an officer of a public corporation such as AWB to authorise the corporation to enter into agreements in breach of statutory duties that the officer owes to the corporation, particularly where the officer acts intentionally, dishonestly or recklessly in breach of those duties.

I recommend that this matter be referred to the Task Force for consideration of whether proceedings under section 184 of the Corporations Act 2001 be instituted against Mr Watson.

I note that any possible proceedings against Mr Watson for contravention of the civil penalty provisions in sections 180,181 and 182 of the Corporations Act 2001 are time barred by reason of section 1317K. Accordingly, I have not considered whether Mr Watson might have contravened any of those sections.

Mr Whitwell

31.528 It was submitted that Mr Whitwell might have accessorial liability, and might

have breached ss 180,181,182 and 184 of the Corporations Act 2001.

31.529 Mr Whitwell commenced employment with AWB in July 2002 as a Marketing

Manager. In October 2002 he replaced Mr Hogan as Account Manager for Iraq. He travelled to Iraq in October 2002 with Mr Hogan, and in November 2002 with Mr Long. He was junior to each at the time of those trips.

Mr Whitwell was an experienced commodity trader but not in wheat, and not with Iraq or under the Oil-for-Food programme.

31.530 When Mr Whitwell joined AWB he had access to an Iraq Market profile which

he used to inform himself.

That profile stated:

Contracts are concluded with the IGB on a free in truck basis delivered to all governorates of Iraq. The Inland Transport fees (and all discharge fees) are included in the inland transport fee. Inland Transport fees are paid via Alia Transport Company in Jordan, who then pay the Ministry of Transport in Iraq. These fees are approved by the UN.241

Mr Whitwell believed that information and thus thought the inland transport fees included in the contract price had been approved by the United Nations.242

He believed that payments were being made to Alia to fulfil AWB's obligations to transport grain in Iraq. He said:

...I was coming in, I was reading this and it didn't exercise my mind how the system worked, it was just *it was in the brief, it was transparent that we were using Alia as the trucking company, and I didn't really go into it any more than

Report of the Oil-for-Food Inquiry 311

I

that. It was UN approved and the system was working and we were distributing the wheat to the silos. As a state of mind at the time, that's all I can really

remember.243

and later:

... I thought we had a responsibility, because if we didn't pay for the inland transportation, then we wouldn't fulfil our contractual obligation.

Q: I just want to break that down a little. There was a contract which provided for free in truck all governorates of Iraq.

A: Yes, sir.

Q: If one read that in isolation from anything else that one knew, that would imply, would it not, that AWB had a contractual responsibility to ensure that the wheat went to all governorates of Iraq?

A: Yes, sir.

Q: That was your understanding?

A: Yes, sir.

Q: Then there was the mechanism by which the wheat would get from Umm Qasr to all governorates in Iraq. What was your understanding as to who had the legal responsibility to move the wheat from Umm Qasr to all governorates of Iraq *not to pay for it, but to actually move it?

A: AWB had the contractual obligation to ensure that it was moved to all governorates of Iraq.

Q: What was your understanding as to how it was that AWB acquitted that responsibility or obligation?

A: My understanding was that we had contracted Alia to provide that service to us.244

31.531 There is no evidence that anyone within AWB informed him to the contrary between July 2002 and December 2002.

31.532 When contracts A1670 and A1680 were signed and submitted to DFAT and the United Nations, he maintained that belief. There was no evidence that Mr Hogan informed him of the views he had formed following his trip to Iraq in February 2001 after the implementation of the 10% surcharge, or expressed in the trip report prepared by Mr Borlase.

31.533 In October 2002, he accompanied Mr Hogan to Iraq. By that time discussions were well advanced between AWB, Tigris and IGB regarding repayment of the Tigris debt. Mr Long and Mr Davidson Kelly had agreed upon AWB receiving a fee of US$500,000. AWB had also agreed to pay IGB approximately

312 Report of the Oil-for-Food Inquiry

US$2 million as compensation for iron filings contamination. Before Mr Hogan and Mr Whitwell left for Iraq to discuss these matters, a note was prepared within AWB which stated:

Due to the inability to make payments direct to IGB because of the longstanding UN sanctions, we will propose that these amounts will be paid to BHP to offset the Tigris debt owed by IGB to BHP dating back to January 1996.245

There is nothing to suggest this was a decision made by Mr Whitwell: obviously the strategy was decided by somebody more senior.

31.534 The negotiations in Iraq in October were led by Mr Hogan as the senior member. Mr Whitwell prepared the trip report which noted:

Iron powder rebate (USD6 pmt) is separate from other debt issues. The minister has asked for repayment through the inland transport mechanism.

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.246

31.535 The trip report was circulated to 18 executives within AWB all more senior to Mr Whitwell. It produced no reaction of concern. I agree with the submission of counsel for Mr Whitwell that the report recorded:

steps taken towards the implementation of a previously decided and approved mechanism by which AWB had already agreed to assist Tigris to recover the debt from Iraq.247

That is confirmed by Mr Hogan s evidence that the concept of loading up the contract came from discussions he had in Melbourne with Mr Long prior to the trip.248

31.536 On 17 November 2002, Mr Davidson Kelly wrote to Mr Whitwell enclosing a copy of a letter he had written to Mr Yousif advising of a proposal he had put to the Iraqi Minister for Trade setting out terms for repayment of the Tigris debt. He proposed 'a surcharge would be agreed with the AWB, in relation to forthcoming contracts for the supply of Australian grain' with the 'loan' being repaid over the period of the contract.249

31.537 Shortly after receipt of that letter, Mr Whitwell travelled to Iraq as junior to Mr Long to discuss the proposed new sale of wheat, and the Tigris debt, and payment of the iron filings compensation to Iraq. It was Mr Long who asked the Minister to consider 'for corporate governance reasons'250 whether the payment of the iron filings compensation could be offset against the Tigris debt, or paid by provision of equipment. It was also Mr Long who agreed

Report of the Oil-for-Food. Inquiry 313

with the Minister that the Tigris debt would be recovered by an 'uplift' in the contract price of wheat under the new contracts. Mr Whitwell played no part in the making of those agreements.

31.538 No sale was concluded on that trip, but the mechanism for the recovery of the Tigris debt was. On return to Australia Mr Whitwell continued negotiations and concluded the sale of 4 December 2002. Mr Whitwell noted that the inland transport fee remained to be agreed. Later, on 9 December 2002, Mr Whitwell emailed Mr Abdul Rahman alternative proposals for calculating the amount to be paid in excess of the already agreed price depending upon whether the iron filings compensation was offset against the Tigris debt or not. AWB was still pressing for the offset. Although Mr Whitwell outlined the alternatives it is clear that he was simply implementing the agreement reached by Mr Long with the Minister to recover the Tigris debt by inflating the contracts, and again seeking to achieve AWB's preferred solution for paying the iron filings compensation by offsetting it against the Tigris debt. I do not doubt Mr Whitwell, who had been at AWB a little more than four months, was acting under Mr Long's direction.

31.539 Once the sale was agreed Mr Long required Mr Whitwell to draft a

memorandum to inform senior management of issues concerning the sale. He did so in a memorandum dated 11 December 2002 which, although not circulated, was discussed with Mr Long and it seems Mr Geary. It formed the basis of the document which in its final form became Mr Whitwell's memorandum of 7 February 2003. The memorandum was developed in consultation with Mr Long and AWB lawyers. That document was not circulated to senior managers until it was in a form satisfactory to Mr Long,

for he recommended its contents, and until the legal advice that AWB's internal lawyers provided to Mr Whitwell was incorporated in it. Although Mr Whitwell was the draftsman of the document, the content was the agreements reached by Mr Long, AWB's lawyers' views, and input from

public relations and AWBI. It contains no original content or proposals of Mr Whitwell.

31.540 There is no evidence that Mr Whitwell prepared AWB's short-form contract. They were signed by Mr Hogan. Mr Long signed the long-form contracts prepared by IGB. None of the contracts contained reference to the Tigris debt 'uplift'. Nor did they refer to the agreement to pay an additional US$2 per tonne 'trucking fee' to pay the iron filings compensation. There is no evidence that Mr Whitwell saw the contracts as signed or submitted to DFAT and the United Nations, or that he had any part in submitting the documents.

31.541 Whilst the events I have recounted undoubtedly impose upon Mr Whitwell knowledge of the collection of the Tigris debt by inflating the contract price,

314 Report of the Oil-for-Food. Inquiry

and of the proposals agreed with the Iraqi Minister to pay the iron filings compensation by adding to the inland transport payments, Mr Whitwell's role in those arrangements was that of draftsman, recorder of events and

distributor of information for consideration of his superiors.

31.542 I am not satisfied that he 'participated' in any deception of DFAT or the United Nations that might have occurred by AWB. He bears no accessorial or other liability for the events which occurred. Mr Whitwell has not breached ss 180,181,182 or 184 of the Corporations Act 2001.

31.543 I make no adverse findings against Mr Whitwell.

Tigris: Mr Davidson Kelly

31.544 Mr Davidson Kelly is the President of Tigris Petroleum Limited, a Gibraltan company. His acts are thus the acts of that company. There is no point in my considering whether Tigris Petroleum Limited might have committed any offence against Commonwealth, State or Territory laws because Tigris Petroleum Limited is a Gibraltan company and it has no presence or assets in Australia. However a different position exists with Mr Davidson Kelly, a British citizen.

31.545 Despite repeated invitations to do so, Mr Davidson Kelly declined to give evidence to the Inquiry or to provide it with a statement. Although provided with the submissions of Counsel Assisting, he declined to provide any submissions in reply.

31.546 Counsel Assisting submitted that it should be found that Mr Davidson Kelly might have conspired with AWB and others to commit, or counselled or procured the commission of, offences against s. 82 of the Crimes Act 1958 (Vic).

31.547 The evidence established that:

(a) In 1995-96, Mr Davidson Kelly knew that the shipment of wheat to Iraq was a gift from BHPP.

(b) Nonetheless, he thereafter through his company Tigris, the beneficial ownership of which lies with his family, persuaded IGB and Iraq to repay the cost of the shipment of wheat being US$5 million plus interest from IGB. He did not tell the Iraqis the shipment was a gift.

(c) He persuaded AWB to assist him and Tigris in that pursuit, and agreed to pay AWB a fee of US$500,000 for so doing.

Report of the Oil-for-Food Inquiry 315

(d) Having obtained an assignment from BHPP of the so called 'debt' with BHPP retaining a 25% interest in any recovery, having persuaded the Iraqis to pay to AWB the 'debt', and knowing the 'debt' had been

recovered by AWB, he persuaded BHPP to assign to him the remaining 25% interest in the so called 'debt'. He did not tell BHPP the whole sum had been recovered by AWB and payment to Tigris was imminent.

(e) He evolved the scheme to recover the 'debt' by 'loading up' the price of wheat to be recovered from the escrow account by AWB under contracts A1670 and A1680. He agreed upon this mechanism to deceive the United Nations with the Iraqis and AWB. Money set aside for humanitarian purposes for Iraqis was thus used to enrich Mr Davidson Kelly and his family, through Tigris.

(f) AWB having recovered the 'debt' by inflating wheat prices, he then was party to falsifying the basis upon which AWB was to pay the sum to Tigris.

(g) Mr Davidson Kelly or his family, through Tigris, have thus held since December 2004, some US$7.1million which in truth belongs to Iraq as it was gifted to Iraq by BHPP in 1995-96.

31.548 On the evidence before me Mr Davidson Kelly is a thoroughly disreputable man with no commercial morality. The question I must decide is whether he might have committed an offence of conspiring with AWB or aiding and abetting AWB in the commission of an offence against s. 82 of the Crimes Act

1958 (Vic) in relation to the deception of the United Nations in relation to the loading up of wheat prices in contracts A1670 and A1680. I am of the view that he might have committed such offences.

31.549 In Chapter 27 I have examine the circumstances surrounding AWB's recovery of the Tigris debt from the UN escrow account as part of the proceeds of the sale of wheat under contracts A1670 and A1680, through the inflation of the price of the wheat sold under those contracts and the concealment of that arrangement from the United Nations. One of the persons who assisted in the recovery of the Tigris debt through these arrangements was Mr Davidson Kelly, the then president of Tigris and sole director and company secretary of Tigris Australia.

I have found that AWB, by its conduct, might have committed an offence against s 82 of the Crimes Act 1958 (Vic).

In those circumstances, the question arises whether Mr Davidson Kelly, by his participation in the establishment of the above arrangements and the recovery of the Tigris debt as part of the price of the wheat sold under contracts A1670

316 Report of the Oil-for-Food Inquiry

and A1680 by means of those arrangements, might have aided and abetted AWB in its contravention of section 82.

If, as I have found, that:

" AWB might have committed an offence against s 82 of the Crimes Act 1958 (Vic) in respect of its contracts A1670 and A1680 by reason of its agreement with IGB and Tigris for the recovery of the Tigris debt from the UN escrow account through the inflation of the price of the wheat sold under those contracts and its failure to disclose to and concealment from the United Nations of this arrangement

" Mr Davidson Kelly knew of all of the essential facts that constituted AWB's possible commission of that offence, namely that:

- AWB submitted to the United Nations, contracts A1670 and A1680 for approval for payment from the UN escrow account

- those contracts (and associated documents) did not truly reflect the agreement reached between AWB and the IGB, in that they did not disclose that:

(1) the price of the wheat stated in the contracts had been inflated by US$8,375 per tonne

(2) this additional amount had been added to the price of the wheat for the purposes of effecting (from the proceeds of sale of the wheat sold under those contracts) the repayment of an alleged debt to Tigris

(3) this additional amount was unrelated to the price of the wheat sold by AWB which AWB and IGB had negotiated and agreed upon

(4) IGB had agreed with AWB that the Tigris debt would be

recovered from the United Nations escrow account in this manner

(5) AWB had agreed with Tigris (and IGB) that it would pay the Tigris debt to Tigris from the proceeds it received from the proceeds of the sale of the wheat sold under these contracts, once collected

(6) it had been agreed as between Tigris and AWB that AWB would retain US$500,000 from the additional US$8,375 per tonne, as its commission for assisting in the recovery of the Tigris debt.

Report of the Oil-for-Food Inquiry 317

- AWB did not otherwise disclose to and concealed from the United Nations the above facts and arrangement

- AWB thereby misrepresented to the United Nations the material terms of its contracts A1670 and A1680 and deceived the United Nations as to those contracts and their terms

- AWB did so dishonestly

- the United Nations, unaware of the matters referred to above and of the true facts and arrangements, approved contracts A1670 and A1680 for payment from the UN escrow account

- as a consequence of its deception of the United Nations, AWB

obtained a financial advantage for itself251 and Tigris252

" Mr Davidson Kelly engaged in conduct that aided, abetted, counselled and procured the offence that AWB might have committed against s. 82 in respect of contracts A1670 and A1680, namely by:

- approaching AWB and seeking its assistance in the recovery of the Tigris debt through the imposition of a surcharge upon (and thereby the inflation of) the price of wheat sold under a contract or contracts with IGB

- encouraging AWB to include in its negotiations with the Iraqis (IGB) the recovery of the Tigris debt in this manner

- on behalf of Tigris, negotiating and agreeing with AWB for Tigris to pay to AWB US$500,000 from the monies recovered as part of the Tigris debt in return for AWB's agreement to collect the Tigris debt in this manner

- approaching and negotiating with the Iraqis for the purposes of obtaining their agreement to the repayment of the Tigris debt through the inflation of the price of wheat purchased from AWB.

" Mr Davidson Kelly intended that his conduct would in some way aid, abet, counsel or procure AWB to deceive the United Nations and for AWB and Tigris to thereby obtain a financial advantage as a result of that deception

then, in my opinion, Mr Davidson Kelly might have aided, abetted, counselled or procured the offences that AWB might have committed against s. 82 of the Crimes Act 1958 (Vic) in respect of the inflation of the price of the

318 Report of the Oil-for-Food Inquiry

wheat sold under contracts A1670 and A1680 and thereby might have himself committed an offence against that section by reason of section 325 of the Crimes Act 1958 (Vic).

It is a serious matter to mislead the United Nations to agree to provide payment for wheat on a false basis and to agree to make payments to Iraq in known contravention of United Nations sanctions. This is especially where the body concerned (the United Nations) is an international body, where those payments are to be made from funds earmarked by that body for humanitarian purchases *as the UN escrow account was *and where the United Nations was mislead by means which were intended and had the effect of circumventing international sanctions that otherwise precluded the use of those funds for the repayment of a prior debt (such as the alleged Tigris debt), being international sanctions that Australia was a party to and that had been supported by the Australian government. It is also a serious matter to counsel and procure and participate in such conduct and to thereby aid and abet, such conduct by AWB.

I recommend that this matter be referred to the Task Force for consideration whether proceedings under section 82 of the Crimes Act 1958 (Vic) (and by reason of section 325 of the Crimes Act 1958 (Vic)) should be instituted against Mr Davidson Kelly in respect of his aforesaid conduct.

31.550 For the same reasons I am of the view that Mr Davidson Kelly might have conspired with AWB and others to commit an offence against s. 82 of the Crimes Act 1958 (Vic).

The Banking (Foreign Exchange) Regulations

31.551 The elements of the possible offences created by a combination of these provisions are set out and addressed in Appendix 26. In general terms, the conduct that is the focus of the possible offences under these regulations is the buying, selling or otherwise dealing in foreign currency both in Australia and outside Australia. The issue that arises is whether those transactions took place in circumstances where they amount to a contravention of r. 5, because they were not authorised by the Reserve Bank of Australia.

31.552 In the case of AWB, the relevant circumstance that might have resulted in any of its foreign currency transactions not being authorised by the Reserve Bank are that those transactions related to payments to the Government of Iraq, its agencies or its nationals. From November 1999 to March 2003, AWB made over 120 payments in US dollars, deutschmarks and Euros to shipowners, Ronly (via its nominee Tse Yu Flong Metal Limited) for payment to Alia, and

Report of the Oil-for-Food Inquiry 319

to Alia directly, ostensibly for inland transportation or 'trucking' fees. A list of those payments can be found in Table 23.1 of Appendix 23. In relation to all of these payments, the shipowners, Ronly, Tse Yu Hong Metal and Alia were mere conduits and the funds were paid on to Iraq or an Iraqi entity. It follows that any relevant foreign currency dealing relating to these payments was a dealing relating (indirectly) to a payment to the Government of Iraq, its agencies or its nationals

31.553 As has been noted previously, r. 5 was amended effective from 11 March 2002 and therefore the question whether AWB might have committed offences arising from a contravention of that regulation must be considered in two distinct periods: namely in relation to payments made prior to 10 March 2002 and those payments made on or after 11 March 2002.

AWB foreign currency dealings prior to 11 March 2002

31.554 In general terms, the effect of r. 5 and the various authorities issued by the Reserve Bank of Australia for the purpose of that regulation was that persons were prohibited from buying or selling foreign currency in Australia, and residents of Australia were prohibited from buying or selling foreign currency outside Australia, where the buying or selling of foreign currency related, relevantly, to payments to the government of Iraq, its agencies or its nationals.

31.555 Between November 1999 (when AWB first paid inland transportation fees in relation to its contracts with Iraq) up until March 2003 (and the incursion into Iraq) AWB arranged for the payment of inland transportation fees (including the 10% 'after-sales-service' fees imposed from November 2000) in three different ways:

(a) during the period up to about April 2001, inland transportation fees were paid by AWB in US dollars out of bank accounts maintained by AWB in New York.

(b) between April 2001 and November 2001, AWB paid inland transportation fees in deutschmarks, by transfer of funds from a deutschmark account maintained by AWB in Sydney. Associated with at least some of these payments, there were foreign currency exchanges, in particular from US dollars to deutschemarks, for the purposes of obtaining the funds to make the payments and associated with foreign currency hedges for the purposes of the underlying sale.

(c) After about November 2001, AWB paid the fees in Euros from a euro account maintained by AWB with an Australian bank in Sydney.

320 Report of the Oil-for-Food Inquiry

31.556 All of these payments were made to Alia, either directly or indirectly via Ronly and its nominee Tse Yu Hong Limited and other shipowners. Either way, the payment to Alia was an indirect payment to the Government of Iraq or an agency of the Government of Iraq, within the terms and contemplation of the variation to the Reserve Bank authority of April 1991.

Payments of inland transportation fees in US dollars

31.557 The payments made in US dollars out of the New York bank account did not involve the buying or selling of foreign currency by AWB. AWB received US dollars into this account in the ordinary course of its business and retained some of those funds in that account to pay its US dollar expenses (including inland transportation fees). When AWB paid inland transportation fees in US dollars drawn from this account, those payments involved no purchase or sale of foreign currency.

31.558 Whilst these transactions may have amounted to dealings in foreign currency outside Australia by an Australian resident, and were related to payments to Iraq, they nonetheless did not amount to a contravention of r. 5. That is because these payments did not involve buying or selling of foreign currency, and therefore fell within the terms of the 21 June 1984 exemption to r. 5 and did not fall within the 5 April 1991 variation. As a result, r. 5 had no

application to such transactions. As was noted in Chapter 26, the June 1984 exemption was not varied or limited in any way in either 1990 or April 1991 so as to remove from the ambit of the exemption dealings relating to payments to the Government of Iraq, its agencies or its nationals, but not involving the buying or selling of foreign currency.

31.559 It follows that these payments were not prohibited by r. 5 and do not amount to a contravention of that regulation. In those circumstances, AWB has committed no offence in otherwise dealing with foreign currency in making these payments.

Payments of inland transportation fees in Deutschmark and euros

31.560 The inland transportation fees that AWB paid in deutschmarks and Euros from April 2001 were made differently from the earlier US dollar payments.

31.561 These payments were made from Australia, and not from a bank account overseas. The evidence discussed in Chapter 20 discloses that in relation to a number of contracts in respect of which inland transportation payments were made after April 2001, AWB converted US dollars (or possibly Australian dollars) into deutschmarks or Euros, by way of foreign currency swaps and as part of its hedging of the contracts in respect of which the payments were being made, and deposited the proceeds into its deutschemark and euro bank

Report of the Oil-for-Food Inquiry 321

accounts in Australia. Some of the deutschemarks and Euros AWB received as part of those currency swaps were in turn used to pay inland transportation fees to Alia.

31.562 These purchases of foreign currency did not fall within the 21 June 1984 exemption and were therefore subject to the application of r. 5. Moreover, because these purchases of foreign currency related to payments made indirectly to the Government of Iraq or an agency of Iraq (through Alia):

" they fell within the 5 April 1991 variation to the general authority

" as such AWB was unable to rely upon the general authority of July 1990 as authorising those foreign currency transactions

" AWB had no specific prior approval of the Reserve Bank of Australia for these transactions

" it follows that in the circumstances purchases of foreign currency might have contravened r. 5.

As previously noted, a contravention of r. 5 is an offence under r.42 of the Banking (Foreign Exchange) Regulations.

31.563 Accordingly, if, as I have found, certain payments of inland transportation fees made by AWB in deutschemark and Euros between April 2001 and 10 March 2002:

(a) involved the buying or selling of foreign currency (namely US dollars, deutschemarks and Euros) from an authorised dealer in Australia, or the buying or selling of foreign currency by AWB being a resident outside Australia

(b) related to payments to the Government of Iraq, its agencies or its nationals (namely the payment of inland transportation fees via Alia)

(c) such buying and selling fell outside of the general authority issued by the Reserve Bank for the purposes of r. 5(1) of 1 July 1990 (and were not otherwise within the exemption of 21 June 1984)

(d) were not specifically or otherwise approved by the Reserve Bank of Australia

then AWB might have committed an offence or offences against r. 42 of the Banking (Foreign Exchange) Regulations in relation to those transactions.

322 Report of the Oil-for-Food Inquiry

31.564 On the other hand, if and to the extent that AWB paid inland transportation fees in deutschemark and Euros from balances held in its deutschemark and euro accounts which reflect funds that had been received in those currencies, and which were not paid acquired as a purchase of foreign currency, then those payments of inland transportation fees may not have been made in contravention of r. 5. That is because such transactions do not involve buying and selling foreign currency and therefore fall within the 21 June 1984 exemption and do not fall within the 5 April 1991 variation.

31.565 An identification of the particular foreign currency transactions and payments of inland transportation fees which may have contravened these provisions would require a detailed analysis of the financial records of AWB or banking records; a much closer analysis than was warranted by this Inquiry. This is especially having regard to its terms of reference, which require a consideration of whether these provisions might have been contravened by AWB. It is therefore not proposed to identify the specific payments of inland transportation fees in respect of which there were purchases of foreign currency in potential contravention of these regulations. Suffice to say, the evidence before the Inquiry discloses that there were a number of such transactions and payments and that these were not isolated instances. There is sufficient evidence to merit further investigation.

AWB foreign currency dealings after 11 March 2002

31.566 As discussed elsewhere in this report in my view failure to comply with a direction issued by the Reserve Bank after 11 March 2002 does not constitute an offence against the Banking (Foreign Exchange) Regulations. That is because the regulations do not make non compliance with such directions an offence.

Regulations 6 and 42

31.567 So far as the application of r. 6 to remittances of foreign currency prior to 10 March 2002 is concerned, as noted in Appendix 26, in relation to the payments of inland transportation fees made by AWB prior to 11 March 2002, most, if not all of those payments involving foreign currency that might amount to a contravention of r. 5 (because for instance the payment involved the buying or selling of foreign currency in contravention of the variation to the general authority of April 1991 or was from foreign currency that had been purchased in contravention of that variation) are also likely to amount to a contravention of r. 6 (because the transaction then entailed the transfer of that foreign currency out of Australia).

Report of the Oil-for-Food Inquiry 323

31.568 It follows that the findings I have made in the context of r. 5 and if the transactions in respect of which those findings were made also involved the transfer of that foreign currency from Australia, AWB might also have committed offences under r. 6 and r. 42 of the Banking (Foreign Exchange) Regulations.

Regulations 8 and 42

31.569 There is no evidence that AWB made any payment in Australia contrary to the variation of the r. 8 direction made on 5 April 1991 in relation to the payment of inland transportation fees in circumstances that might thereby amount to a contravention of r. 8 of the Banking (Foreign Exchange) Regulations.

31.570 I recommend that the question of AWB's foreign currency dealings prior to 10 March 2002 be referred to the Task Force for consideration whether proceedings for breach of regulations 5 and 6 Banking (Foreign Exchange) Regulations be instituted against AWB.

Taxation offences

31.571 It is beyond the technical and resource capacity of this Inquiry to conduct a detailed investigation of the tax treatment by AWB of the payments made by AWB to Iraq via Alia, the payment to Tigris and the characterisation of the payments. I do not know whether either the tax treatment of these payments by AWB or associated companies and its agreement to pay the iron filings compensation has been appropriate and in accordance with the taxation legislation or whether any offences against revenue statutes might have been committed.

31.572 Accordingly, I make no findings in that regard but draw to the attention of the Commissioner of Taxation the fact that this matter has not been the subject of Inquiry by me.

324 Report of the Oil-for-Food Inquiry

Notes

1 Counsel Assisting submissions Ch 26 para. 26.170-26.178 2 AWB submissions para. H2. 3 AWB submissions para. H4. 4 AWB submissions para. H6 5 AWB submissions H7. 6 AWB submissions para. A10. 7 AWB submissions para. G2. 8 AWB submissions para. G5-8 9 AWB submissions para. G14. 10 AWB submissions para. F10. 11 AWB submissions para. F12. 12 AWB submissions para. F13. 13 AWB submissions para. F50-52. 14 AWB submissions para. Fll. 15 AWB submissions para. F58, 73. 16 AWB submissions para. F72. 17 Ex 1259, AWB.0462.0022. 18 Ex 127, AWB.0138.0349. 19 Ex 1364, HDD.0014.1454. 20 Ex 230, WST.0007.0014, para. 37. 21 Ex 96, AWB.0006.0001, para. 34-40. 22 T 1964.26-27. 23 T 6053.22-30.

24 T 2598. 23 T 2589.1-2. 26 T 3358.7-28. 27 Ex 194, AWB.0129.0167. 28 Ex 26, AWB.0129.0171 at 0172. 29 T 708.27, 711.14, 713.40, 715.31, 719.22-35, 726.36. 39 T 2864.21-23. 31 Ex 341, AWB.0270.0013. 32 Ex 1445, AWB.0057.0209_R at 0210_R; Ex 1446, AWB.0056.0243_R at 0244_R. 33 Ex 1452, AWB.0057.0192JR at 0193_R. 34 Ex 381, AWB.0084.0046_R at 0049_R. 35 Ex 1377, AWB.0277.0026. 36 T 7282. 37 T 3237.

38 Ex 1544, AWB.9001.0115 at 0119. 39 Ex 1321, AWB.9002.0041. 49 Ex 452, WST.0001.0183_R at 0191_R, paras 61-63. 41 Ex 452, WST.0001.0183_R at 0192_R, para. 68. 42 Ex 452, WST.0001,0183_R at 0193_R, para. 69. 43 T 3575.16-23; Although Mr Flugge later said that, whilst chairman, he never became aware that one could not make payments to Iraq or Iraqi entities under UN sanctions (T 3576.32-35), he reverted to his earlier answer at T 3578.3-25 and again said that it was reliable to say that payments could not be made to an Iraqi entity or to Iraq under sanctions, unless the payments were approved by the United Nations. 44 T 2321.1-5. 45 Ex 142, WST.0005.0001 at 0015, para. 15. 46 Ex 121, MAE.0002.0091. 47 Ex 127, AWB.0138.0349. 48 Ex 127, AWB.0138.0349. 49 Ex 1364, HDD.0014.1454, INQ.0025.0004.

Report of the Oil-for-Food Inquiry 325

50 Ex 1423, MAE.0006.0002_R at 0002_R-0004_R, paras 4-10; Ex 791, WST.0037.0001 at 0007, paras 39-40.

51 Ex 1364, HDD.0014.1454.

52 Ex 1259, AWB.0462.0022. 53 Ex 1334, AWB.0468.0012 at 0012-0014. 5* Ex 1431, WST.0016.0002 at 0025, para. 121. ss T 1305.44. 56 Ex 55, WST.0001.0101 and Ex 80C, WST.0001.0123. 57 Compare Ex 55, WST.0001.0101 at 0119, paras 11.4-11.8 with T1309 and following. 58 Ex 57, AWB.5095.0281. 59 Ex 995, AWB.0420.0154JR at 0159_R. ´*ø Ex 70, AWB.5105.0253 at 0255. 61 Submissions of Mr Geary para. 102. 62 T 1180.35-6. 63 Ex 194, AWB.0129.0167. M Ex 194, AWB.0129.0167. 65 Ex 26, AWB.0129.0171 at 0172. 66 T 1964.10-27. 67 T 1964.26-27. 68 T 6053.22-23. 69 T 6053.27-30. 70 Ex 420, WST.0012.0001_R at 0019_R -0020_R, paras 9.2 and 9.6. 71 Ex 420, WST.0012.0001_R at 0012_R-0013_R, paras 7.8-7.9. 72 Ex 420, WST.0012.0001_R at 0012_R-0013_R, para. 7.9. 73 Ex 420, WST.0012.0001_R at 0013_R, para. 7.10. 74 Ex 420, WST.0012.0001_R at 0014_R-0015_R, para. 7.18. 75 Ex 1447, AWB.0058.0414_R; Ex 1448, AWB.0058.0415_R; Ex 1449, AWB.0058.0416_R. 76 Ex 214, AWB.5073.0125_R. 77 Ex 212, MAE.0002.0038_R at 0039_R. 78 Ex 103, AWB.5035.0341_R at 0343_R. 79 Ex 103, AWB.5035.0341_R at 0343_R. so Ex 407, AWB.0137.0370_R. si Ex 1462, AWB.5044.0261_R. 82 Ex 381, AWB.0084.0046_R. 83 There is no evidence that Mr Hogan caused, authorised or permitted AWB to enter into contracts A4906, A4907 and A4908 (Russian contracts), A4970, A4971, A4972 (entered into in February 2000), A4993, A0662 and A0267 (Russian contracts) and A0265, A0266 and A0267 (entered into in July 2000) - when these contracts were entered into, Mr Hogan was in AWB's Cairo office) 84 Ex 18, WST.001.0032, para. 3. ss Ex 18, WST.001.0034, para. 13. 86 Submissions of Mr Lindberg para. 180 87 Submissions of Mr Lindberg para. 188 ss Ex 1236, AWB.0176.0053. 89T1640.33-T1641.il 90 Ex 21, WST. 0002.1067, para. 33. 91 656.40-657.15. 92 Ex 75, WST.0001.0098, T 1669.18; T2691.31. 93 Ex 957, AWB.0140.0022. 94 Ex 301, AWB.0129.0101. 95 Ex 263, AWB. 0129.0104. 96 Ex 23, AWB.0129.0116. 97 T 2139.8. 98 T 690.28; T691.9. 99 Ex 32, AWB.0188.0047. 100 Ex 42, EXH 0001.0038.

326 Report of the Oil-for-Food Inquiry

itn Ex 1282, AWB. 9000.0023, T 259, T 7260.26-33. 102 *Æ’ 679. 103 *« 679.

*Ø*ø* T 969.13-16. 105 Ex 25, WST.0002.0079. 106 AWB.0129.0199. 107 T 704.5. toe *« 813. io9 x 3 2 3 8.

no Ex 1377, AWB.9001.0375_R at 0376_R. in T 7641. in Ex 75, WST.0001.0088 at 0090, para. 8 H3 Ex 75, WST.0001.0088 at 0090, para. 9. iM Ex 75, WST.0001.0088 at 0090, para.10. ns T 1587.2-5. n6 Ex 76, WST.0004.0063 at 0085, para. 68. n7 Ex 76, WST.0004.0063 at 0084, para. 68. ns Ex 1377, AWB.0093.0262_R. ns Ex 75, WST.0001.0088 at 0093, para. 19. 120 Ex 75, WST.0001.0088 at 0093, para. 19. 121 Ex 75, WST.0001.0088 at 0094, para. 19. 122 Ex 75, WST.0001.0088 at 0094, para. 19. ns x 1790.38. i24 x 1789.25. ns x 1789.31-9 126 Ex 90, AWB.5051.0092. 127 Ex 90, AWB.5051.0092. us x 1791.32-3. i29 *Æ’ 1814.8-9 iso *Æ’ 1307.32. 131 T 1814.33-5. 132 X 1816.12-21. 133 Ex 1236, AWB.0176.0053_R at 0055_R. is* *Æ’ 1644. 135 Ex 23, AWB.0129.0116. 136 Ex 23, AWB.0129.0116. 137 Ex 195, AWB.0191.0013_R.

138 Ex 26, AWB.0129.0171. 139 Ex 194, AWB.0126.0167. no Ex 1242, WST.0004.0028_R. 141 T 1648.28-38. 142 See, for example, Ex 1467, AWB.0062.0244_R at 0248_R. 143 Ex 32, AWB.0188.0047. 144 Ex 32, AWB.0188.0047 at 0048. ns Ex 1290, AWB.8001.0020 at 0021. 146 Ex 32, AWB.0188.0047 at 0048.

147 Ex 32, AWB.0188.0047 at 0049. 148 Submissions of Mr Officer para. 13. 149 Submissions of Mr Officer para. 14-16.

150 Submissions of Mr Officer para. 22.

151 Submissions of Mr Officer para. 25. 152 Submissions of Mr Officer para. 41-43.

153 Ex 8, WST.0001.0252_R at 0265_R, para. 35. is* Ex 418, WST.0011.0002, para. 4.

Report of the Oil-for-Food Inquiry 327

155 *§ 3266.27-31; *§ 554.28-30. *ê56 *§3271-*§ 3272.3. is? *« 3271.22-30. *ê58 *Æ’ 3272.35-41. *ê59 *« 3272.43-45. iso *« 3272.47-*§ 3273.2. *ê6*ê *§ 3273.4-15. 162 *« 3273.17-22.

163 *§ 578.17-18. *ê64 *ï*« 230, WST.0007.0014_R at 0020_R, para. 33. 165 Ex 230, WST.0007.0014_R at 0020JR-0021_R, para. 33. 166 Ex 230, WST.0007.0014_R at 0022_R, para. 37. 167 Ex 96, AWB.0006.0001 at 0006, paras 39-40. 168 Ex 230, WST.0007.0014_R at 0020JR, para. 33. 169 Ex 338, WST.0001.0154 at 0160, para. 28. 170 Ex 339, WST.0004.0176 at 0177, para. 9.

171 Ex 339, WST.0004.0176 at 0179, para. 14. 172 Ex 339, WST.0004.0176 at 0182, para. 28. 173 *« 2928.14 174 *« 2929-30. 175 *« 2930-31. 176 Ex 57, AWB.5095.0281; Ex 1378, AWB.5033.0325_R. 177 Ex 1378, AWB.5033.0325JR at 0328_R-0329_R. 178 Ex 1378, AWB.5033.0325_R at 0330_R. 179 Ex 1378, AWB.5033.0325_R at 0330_R. iso *« 2936.18. 181 Ex 1233, AWB.0144.0221JR. 182 *Æ’ 2941.1-12.

183 Ex 78, AWB.5050.0016.

is* Ex 78, AWBA.5050.0016 at 0017. 185 *« 2941.46-T 2942.3 186X2848.22. 187 *« 2849.13.

188 *« 2851-2852.

189X2851.40-2852.8. i90 Ex 339, WST.0004.0176 at 0180, para. 18. *π*ø*Ø Ex 340, AWB.0147.0092JR. 192 Ex 340, AWB.0147.0092JR at 0093JR. 193 T 2860.5.

194 T 2864.21-23. 195 T 2868.24-28. 196 X 2869.14. 197 Ex 339, WST.0004.0176 at 0181, paras 23-24. 198 Ex 339, WST.0004.176 at 0181, para. 24.

199 Ex 341, AWB.0270.0013JR. 200 Ex 341, AWB.0270.0013JR. 201 Ex 341, AWB.0270.0013JR. 202 Ex 341, AWB.0270.0013JR. 203 Submissions of Mr Stott para. 1.1. 204 Submissions of Mr Stott para. 1.7. 205 Submissions of Mr Stott paras 1.7 and 1.12. 206 Submissions of Mr Stott para. 1.10.

207 Submissions of Mr Stott para. 1.19. 208 Submissions of Mr Stott para. 1.21.

328 Report of the Oil-for-Food Inquiry

209 Submissions of Mr Stott para. 1.30 210 Submissions of Mr Stott para. 1.35. 211 Submissions of Mr Stott para. 1.53. 212 Submissions of Mr Stott para. 1.72. 213 Submissions of Mr Stott para. 1.85. 214 Submissions of Mr Stott para. 1.6. 215 Application on behalf of Charles Stott for extension of time to respond to submissions of Counsel Assisting, 6 October 2006. 216 Submissions of Mr Stott para. 2.5. 217 Submissions of Mr Stott para. 2.8. 218 Submissions of Mr Stott para. 3.2. 219 Submissions of Mr Stott para. 3.8. 220 Submissions of Mr Stott paras 3.10,3.13. 221 Submissions of Mr Stott para. 3.21. 222 Submissions of Mr Stott para. 3.28. 223 Submissions of Mr Stott para. 3.33. 224 Submissions of Mr Stott para. 3.33. 225 Submissions of Mr Stott para. 3.33. 226 Submissions of Mr Stott para. 3.33. 227 Submissions of Mr Stott para. 3.47. 228 Submissions of Mr Stott para. 3.60. 229 Submissions of Mr Stott para. 3.61. 230 Submissions of Mr Stott para. 3.62. 231 Submissions of Mr Stott para. 3.53. 232 Submissions of Mr Stott para. 3.2 233 Submissions of Mr Stott para. 3.64. 234 Ex 147, AWB.0141.0450; Ex 1048, WST.0047.0001 at 0001-0002, paras 5-8. 235 Submissions of Mr Stott paras 4.33-34. 238 Ex 600, DFT.0013.0003 at 0006, para. 21. 237 Ex 1337, AWB.9001.0212 at 0214-0215, para. 6.5. 238 Ex 1337, AWB.9001.0212 at 0215, para. 6.7 239 Ex 1337, AWB.9001.0212 at 0217, para. 7.4 240 Ex 1337, AWB.9001.0212 at 0219-0220, para. 13.1. 241 Ex 1400, AWB.0264.0001JR at 0010_R. 242 T 2681.42. 243 T 2681.40-47. 244 T 2682.12-41. 243 Ex 195, AWB.0191.0013JR. 248 Ex 25, WST.0002.0079JR. 247 Submissions of Mr Whitwell, para. 162. 248 T 2137.20. 249 Ex 277, AWB.0104.0294 at 0295. 250 Ex 1242, WST.0004.0028; T 2700. 251 Namely US$500,000 for its assistance in the recovery of the Tigris debt through its assistance in the inflation of the price of contracts A1670 and A1680. 252 Namely, the recovery of the Tigris debt from the UN escrow account.

Report of the Oil-for-Food Inquiry 329

32 Findings: Alkaloids of Australia Pty Ltd

Statement of facts

32.1 Alkaloids of Australia Pty Limited (ACN 010 675 4391) is a private company based in Kingaroy, Queensland; its principal business is producing a pharmaceutical product called hyoscin-N-butyl bromide (hyoscine). Hyoscine, which is sometimes known as scopolamine, is extracted from a native Australian plant called Duboisia. It is an antispasmodic and is used to relieve the symptoms of muscle spasm caused by food poisoning and stomach upsets.2 Most of Alkaloids' sales of hyoscine are to overseas markets.3

32.2 The directors of Alkaloids are, and at all material times were, members of the Crumpton family (Colin Crumpton, Glyn Crumpton and Olga Crumpton) and Mr Gregory Bowling. The Crumptons and Mr Bowling ran the processing and production side of Alkaloids' business and had little, if anything, to do with sales and marketing.4

Agency agreement: Mr Joyce and Pioneer Pistachio

32.3 From the commencement of its business in the late 1980s, all marketing and sales of Alkaloids' products have been handled by an agent. From May 2000 Australian Pioneer Pistachio Company Pty Limited (Pioneer Pistachio) was retained as Alkaloids' agent.5 The business of Pioneer Pistachio, at least insofar as it involved its agency for Alkaloids, was conducted primarily by one of its directors, Mr Joyce.6 During 2000 and 2001 Pioneer Pistachio also employed Mr Ward.7 Mr Ward assisted Mr Joyce in relation to the sales and marketing of hyoscine on behalf of Alkaloids.8 Whilst Mr Joyce was never an employee of Alkaloids, in correspondence and other documentation he was generally referred to as Alkaloids' Commercial/Export Manager.9 When conducting business on behalf of Alkaloids, Mr Joyce used Alkaloids' letterhead and stationery, rather than the letterhead of Pioneer Pistachio.

32.4 The directors of Alkaloids had no direct involvement with the contract to supply hyoscine to Iraq that is mentioned in the Independent Inquiry Committee's final report. Mr John Crumpton's evidence was that, whilst the directors were kept generally informed by Mr Joyce about the retainer of an overseas agent by Pioneer Pistachio on behalf of Alkaloids, the progress of the

Report of the Oil-for-Food Inquiry 331

negotiations, the contract, the United Nations approval of the contract, other dealings concerning the supply of the goods, the remittance of the funds and the payment of commissions, they were not involved in the detail or the day- to-day dealings regarding these matters.10 Mr Joyce's evidence was to similar effect.11

32.5 The agency agreement of May 2000 between Alkaloids and Pioneer Pistachio was not reduced to writing.12 Its terms included that Pioneer Pistachio be paid a commission of 2 per cent on all sales of Alkaloids' product and receive a marketing fee of $9,500 per month.13

The agent for sales to Iraq: Mr Shimoon

32.6 In mid-2000 Messrs Joyce and Ward, as a result of reviewing some

correspondence files, became aware of a Canada-based Iraqi national named Albert Shimoon. The correspondence suggested that Alkaloids' previous agent had corresponded with Mr Shimoon (and his company A-S

International Enterprises) in relation to possible tenders to supply hyoscine to Iraq under the Oil-for Food Programme.14 Mr Joyce and Mr Ward followed up this lead, and on 13 October 2000 Mr Joyce had a telephone conversation with Mr Shimoon about the potential for doing business in Iraq.15

32.7 During the telephone conversation Mr Shimoon told Mr Joyce that he was well connected in Iraq, that he was friends with many of the decision makers in Iraq, including the Director General of Health, and that he would be able to get Alkaloids business in Iraq.16 He offered to assist Alkaloids to tender for the supply of hyoscine under phase IX of the Oil-for-Food Programme. Whilst he took a number of Mr Shimoon's claims 'with a large grain of salt', Mr Joyce decided to pursue the opportunity to export to Iraq and to retain Mr Shimoon as an agent for sales to Iraq.17 It was not unusual for Pioneer Pistachio to retain the services of overseas agents on behalf of Alkaloids to facilitate overseas sales.18

32.8 Mr Joyce did not recall discussing Mr Shimoon's commission with him on 13 October 2000. However, correspondence received within days of the conversation indicated that Mr Shimoon wanted to be paid 16 per cent commission on sales.19 This rate of commission was significantly higher than commission Alkaloids paid to other overseas agents, which was typically around 5 per cent.20 Alkaloids rarely agreed to pay commission to overseas agents that exceeded 15 per cent.21

332 Report of the Oil-for-Food Inquiry

The tender for supply under phase IX of the Oil-for-Food Programme

32.9 Mr Shimoon assisted Alkaloids in registering with the Iraqi State Company

for Manufacturing of Drugs and Medical Appliances (the State Company), and preparing a tender to the State Company22 in accordance with its conditions and requirements of supply.23 One of the State Company's terms and conditions of supply (condition 27) was that negotiations were to be

conducted between buyer and seller directly.24 No agent or third party was permitted. Although the commercial arrangement between Alkaloids and Mr Shimoon was one of agency, a document prepared at the request of Mr Shimoon and signed by Mr Joyce was a letter advising that Mr Shimoon was the commercial manager for Alkaloids.25 This was to satisfy condition 27.26 Mr Joyce was prepared to acquiesce in this misrepresentation of Mr Shimoon's position to 'get the deal done'27 and because he felt that the consequences to Alkaloids were minor.28 Mr Joyce did not inform the directors of Alkaloids of this letter.29

32.10 With the assistance of Mr Shimoon, Mr Joyce drafted a tender for the supply

of 1 tonne of hyoscine to the State Company. Whilst preparing the tender, on 22 January 2001 Mr Joyce had a telephone conversation with Mr Shimoon during which they discussed the proposed price and Mr Shimoon's commission.30 Mr Joyce asked Mr Shimoon to reduce his commission so that he could offer the hyoscine at a competitive price, to which Mr Shimoon replied, 'My expenses don't allow that. I have expenses *I have to pay the people *it's about 8% of the total'.31

32.11 Mr Joyce said this sort of 'argy-bargy' was usual when negotiating the price

for product being sold through a commission agent.32 He understood 'the people' to have included 'sundry expenses' that Mr Shimoon had in Iraq.33 He did not query Mr Shimoon about who 'the people' to whom he had to pay the 8 per cent were.34 During the negotiations Mr Shimoon frequently referred to people who were part of the decision-making process with whom he had to deal; however, with the exception of his initial conversation with Mr Joyce

when he referred to the Director General of Health, Mr Shimoon never specified who the people were.35 Mr Joyce said it did not cross his mind that Mr Shimoon may have been referring to the need to make improper payments to people to secure the contract.36

32.12 On 24 January 2001 Mr Joyce confirmed in writing to Mr Shimoon that his rate

of commission was 15 per cent.37 Mr Joyce agreed this was a higher commission than he would normally expect to pay an agent; however, 'the circumstances of a very difficult market seemed to warrant the higher percentage'.38

Report of the Oil-for-Food Inquiry 333

32.13 Also on 24 January 2001 Mr Joyce signed a tender to supply 1 tonne of

hyoscine to the State Company at ¨865 per kilogram.39 The terms of supply included 'CIF, net AIR CIF Samara'. This meant that Alkaloids was responsible for (and the price included) freight and insurance to Samara, which is a town in central Iraq.

32.14 Mr Joyce sent the tender documents to Mr Shimoon for lodgment with the Iraqis. Fie was uncertain whether he also sent copies directly to the State Company40 but, given that 'the contract was written at a higher price than the tender price, I can only assume that the tender documents did not reach [the State Company], at least, not in the form in which they were despatched to

[Mr Shimoon]'.41 He expected that Mr Shimoon would provide the tender documents to the State Company and would submit, on behalf of Alkaloids, an offer to sell 1,000 kilograms of hyoscine at ¨865 per kilogram.42 He agreed that the likelihood was that Mr Shimoon did provide the tender documents to the State Company.43 He did not expect or authorise Mr Shimoon to put an offer to the State Company at a higher price.44

32.15 On 30 January 2001 Mr Joyce had a telephone conversation with Mr Shimoon. His note of the conversation included the following:

'X' still working with him on non hyoscine product. Has to pay $$ up front to the Director. 'X' has paid 2/3rds of this Shimoon. For AA Albert paying from his own pocket as he trusts u *He does not trust *é.45

32.16 Confidentiality orders were made in relation to the names of the persons referred to in this note.46 The reference to 'X' is a reference to a company to whom Alkaloids had previously supplied a related product (hyoscine hydrobromide) and for whom Shimoon had acted as agent in relation to supplying goods to Iraq.47 *é was the principal of that company.

32.17 Mr Joyce had no particular recollection of this conversation, but, since he wrote the words in his day book, he believed Mr Shimoon must have said them to him.48 Mr Shimoon had referred in an earlier conversation to his friendship with the Iraqi Director General of Health. It was not, however, clear to Mr Joyce that Mr Shimoon was saying in this conversation that the Director General of Health required '$$ up front'.49 He had no recollection of asking Mr Shimoon what he meant in this conversation or to whom he was referring when he spoke of the 'director' or why he had to pay money upfront to the director.50 His evidence was that he did not turn his mind to whether

the payments had something to do with bribery or corruption:

Q: Did it cross you mind when he said those words to you, 'he has to pay money or dollars upfront to the director' what he was suggesting was the making of some illicit payment or bribe.

334 Report of the Oil-for-Food Inquiry

A: Its probable that during all of this, whether in this particular conversation or some other time, the possibility of payments being made to various people was always a possibility. There was never any explicit statement of it, whether these statements were illicit payments or payments to facilitate business I don't know. I have no knowledge of such payments. He never told me about such payments.

Q: Would not the making of that statement to you that Mr Shimoon 'has to pay

money or dollars upfront to the director' start ringing alarm bells in your head about bribery or corruption?

A: Not alarm bells, no.

The Commissioner: Because it's expected in this area of the world?

A: I think, Commissioner, that western businessmen, and myself included, almost have a common stand of (sic) belief that in the Middle East those types of

payments are common. I sometimes think that the major reason for that is that it's a view promulgated by agents in the Middle East so that we western businessmen will pay them higher commissions in justification of their higher commissions and

what they claim to be those types of payments as expenses. I don't have any direct knowledge of it at all, but it's certainly, I think, common wisdom in western

business circles that those types of payments in those Middle East countries are common, and I guess I have those same prejudices.

Q: Or beliefs?

A: Or beliefs, yes.

Q: That's fairly clearly what this note is referring to, isn't it?

A: It's a claim by Shimoon to that effect, yes. Whether it actually happens or not I don't know. But it's certainly Shimoon's claim, yes.51

32.18 Mr Joyce denied he was shutting his eyes to whether bribery was involved.52 He agreed, however, that what Mr Shimoon was probably talking about was that, unlike 'X', whom he did not trust, he trusted Mr Joyce and so he was not requiring Mr Joyce to pay in advance the money that he, Mr Shimoon, was paying to the director upfront.53 It is difficult to see how Mr Shimoon's statement could be construed as being anything other than a reference to a bribe or some other form of improper payment to an Iraqi official.

Agreement to pay Mr Shimoon 'overprice' commission

32.19 Over the following months there were further discussions and

correspondence between Messrs Joyce, Ward and Shimoon about Mr Shimoon's rate of commission. Whilst neither Mr Joyce nor Mr Ward had any recollection of these conversations, correspondence in May 2001 suggests that Mr Shimoon wanted to increase his commission to 20 per cent. This was resisted by Mr Ward.54 Mr Shimoon advised that he could not 'do it for less than 17.5 per cent' because of the expense involved in him travelling to Iraq

Report of the Oil-for-Food Inquiry 335

and Jordan.55 Ultimately, on 29 May 2001, Mr Ward confirmed in writing that Mr Shimoon would receive a commission of 17.5 per cent.56

32.20 The correspondence recording the terms of Mr Shimoon's agency makes no reference to Mr Shimoon asking for, or Mr Joyce or Mr Ward offering to pay, anything greater than this percentage commission. However, Mr Joyce's evidence was that at some time between 29 May 2001 (the date of Mr Ward's letter confirming Mr Shimoon's commission of 17.5 per cent) and 19 July 2001

(the date the contract between Alkaloids and the State Company was signed)57 Mr Joyce agreed with Mr Shimoon that, in addition to his percentage commission, he would be entitled, if the contract were fulfilled, to any amount received under the contract above the tender price of ¨865 per kilogram.58

32.21 Mr Joyce had no precise recollection of when he entered into this agreement or of the circumstances in which he agreed to this 'overprice' commission, although he thought that the overprice commission was a form of

compromise because Mr Ward had been unwilling to agree to commission above 17.5 per cent.59 He said that such arrangements were not uncommon in Alkaloids' business.60

32.22 The agreement to pay Mr Shimoon overprice commission was not recorded contemporaneously or confirmed in writing61, notwithstanding that it was a consistent requirement of Mr Shimoon that his commission arrangements be confirmed in writing.62 Most of the other discussions and agreements concerning commission to be paid to Mr Shimoon were recorded or confirmed in writing. Nor is there any note of this agreement in Mr Joyce's day books63, notwithstanding that Mr Joyce endeavoured to record in his day books any matters of particular significance or substance in relation to his dealings with overseas agents.64 Mr Ward had no recollection of any conversation with Mr Shimoon about paying overprice commission and no recollection of Alkaloids entering into such a commission arrangement, although he had a vague recollection that Alkaloids may have entered into such an arrangement with an agent in Bangladesh.65

The contract

32.23 On 19 July 2001 a contract was entered into between the State Company and Alkaloids.66 The contract, signed by Mr Shimoon on behalf of Alkaloids67, was for the supply of 1,000 kilograms of hyoscine at a price CIF Samara of ¨955. This price is slightly more than ¨865 plus 10 per cent.

32.24 Mr Joyce was not aware how the contract price was arrived at. He was told by Mr Ward about the contract price on 20 July 2001 and was surprised at the amount of the overprice * ¨90 per kilogram.68

336 Report of the Oil-for-Food. Inquiry

32.25 Mr Joyce agreed that the likelihood was that Mr Shimoon had put to the State

Company Alkaloids' offer to sell at ¨865 per kilogram, but for some reason the State Company was prepared to pay 10 per cent more than the price Alkaloids was prepared to accept.69 Despite the incongruity of this situation, Mr Joyce never asked Mr Shimoon about the circumstances that led to the State Company being prepared to pay the higher price:

Q: Did you ever ask Mr Shimoon what were the circumstances that led the

company to be prepared to pay 10% more than you have offered or indicated that you would be willing to accept?

A: When we discovered that this had happened, in May 2001, I assumed it was

because Shimoon had gained himself an overprice, and I never thought of any of the other possibilities that you have mentioned and which, with the eyes of 2006, are perhaps obvious. But in 2001 it *that just didn't occur to me at all. I hadn't had

the benefit of Volcker or of this inquiry in May 2001.70

32.26 When he set the tender price Mr Joyce pitched the offer at about the market

price of ¨865 for hyoscine.71 In evidence, Mr Joyce offered the following explanation for how the State Company agreed to pay 10 per cent more than his understanding of the market price:

Q: Are you able to offer an explanation as to how that could have come about?

A: When I say there is a market price for hyoscine, it is not a commodity listed on any commodity exchange. You can't go to Chicago's exchange and get a price. There are only a few sellers of this product in the world; there are only a few

buyers. It is not uncommon for the achievable prices to vary by as much as $50, $60 a kilo for the same product to different customers. Certainly a margin of 90 euros is very, very high, but in fact it is just within the parameters of what is

possible in the price ranges that are achievable for the price variations in hyoscine.

So it did not occur to me to pursue Shimoon as to why he got that figure or how

he got that figure.72

32.27 Mr Joyce said the contract price was within the range of market prices then

being obtained for hyoscine.73 The United Nations also reported that the contract price appeared to be 'reasonable and acceptable'.74

Approval by the United Nations and permission to export

32.28 Mr Joyce had some familiarity with the Oil-for-Food Programme and the procedures required to export to Iraq. He was aware that there were economic sanctions preventing unrestricted trade with Iraq75, that the contract had to be approved for payment by the United Nations76 and that permission to export was required from the Australian Government.77 At some stage either he or Mr Ward obtained, possibly from the Department of Foreign Affairs and Trade's website, a copy of DFAT's publication entitled Exporting to Iraq.78 This publication spelt out the requirements and procedures necessary to obtain

Report of the Oil-for-Food Inquiry 337

both UN approval for the payment of the contract and permission to export under s. 13CA of the Customs (Prohibited Exports) Regulations. He believed he would have read this document to familiarise himself with the procedure required to obtain permission to export.79 He understood that everything to do with the approval process went through DFAT.80 He was also aware that the goods would be paid for out of funds held by the United Nations on behalf of Iraq.81

32.29 A UN 'Notification or request to ship goods to Iraq' form82 was prepared either by Mr Joyce or under his supervision and forwarded to the United Nations via DFAT and the Australian mission to the United Nations.83 The form contained details of the contract between Alkaloids and the State Company, including the contract price of ¨955,000. A copy of the contract was also provided to DFAT.84 The notification was registered with the United Nations on 15 August 2001.

32.30 Alkaloids encountered difficulties in securing UN approval of payment for the contract. The application was put on hold as a result of actions by the permanent mission of the United States, which had concerns about how the material would be used.85 Representations were made by Mr Joyce on behalf of Alkaloids to the then Minister for Agriculture86, DFAT87, and the Australian mission.88 DFAT and the Australian mission in turn made representations to the United Nations in support of Alkaloids' application. The hold was ultimately lifted in November 2001.89 Alkaloids then encountered a further problem in that, whilst the contract was approved by the United Nations90, the United Nations advised in December 2001 that no funds remained available in the health sector of phase IX to pay for the goods.91 Finally, on 17 May 2002, the contract was approved and found to be eligible for payment under the Oil-for-Food Programme.92

32.31 Mr Joyce understood from his dealings with DFAT that, once the United Nations had approved payment of the contract, a domestic permission to export the goods was automatic. The DFAT officer with whom Mr Joyce primarily dealt was Mr Cuddihy. In an email dated 23 May 2002 that referred to the UN approval, Mr Cuddihy wrote:

Once you have shipping details organised, let me know the quantity you will be sending and well send you an export permit (it is not necessary to send the whole order in one consignment, but the export permit will need to state the amount of

each consignment). We've tried to match UN turn-around times on these permits, but the best we can manage is a 3 to 4 hour delay (or overnight for requests received after mid-afternoon).93

32.32 A permission to export under the Customs (Prohibited Exports) Regulations was signed by a delegate of the Minister for Foreign Affairs on 20 June 2002.94

338 Report of the Oil-for-Food Inquiry

Shipment to Iraq: the hold-up at Trebil and the guarantee

32.33 The terms of the contract required that Alkaloids be responsible for trucking

the goods from the airport in Amman to Samara in Iraq. This was an unusual contract term for Alkaloids. Its typical contract term for exports was either FOB, where title and risk in the goods passed to the buyer upon loading of

goods aboard the vessel or aeroplane95, or 'CIF airport', where Alkaloids assumed the cost of insurance and air freight to the airport in the importer's country.96 Mr Shimoon advised Mr Joyce that contract terms requiring

delivery of goods into Iraq by land were common. This was confirmed by other people spoken to by Mr Joyce, including Austrade.97

32.34 Mr Joyce arranged for the transportation of the goods to Iraq. The goods were

air freighted to Amman in Jordan and trucked across the Jordanian-Iraqi border at Trebil. The freight forwarder retained by Alkaloids was Flellmann Worldwide Logistics, Alkaloids' regular freight forwarder.98 Hellmann

arranged for the air freight to Amman and retained a local agent, Gezairi Transport, to truck the goods from Amman airport to Samara via Trebil.99

32.35 Notations on the transportation documentation indicate that the goods

arrived at the border at Trebil on 18 July 2002100 and were inspected by Cotecna on behalf of the United Nations on 20 July 2002.101

32.36 When the shipment arrived at the Trebil border crossing a difficulty arose. On

20 July 2002 Hellmann's agent in Jordan sent to Mr Joyce and Hellmann an email that stated:

Top urgent

Shpt arrived Trebil border on Friday 19/7.

Now waiting to rev entry permission from Ministry of Health Baghdad. Please inf shpt to rush matter with their rep in Baghdad to avoid more delay at border.

I think they have to pay the 10%.

Truck detention per day USD 50 started from today.102

32.37 Mr Joyce recalled receiving this email and accepted that he must have read

the reference to 10 per cent.103 When he read the email he was most concerned to learn of this hold-up because entry permission by the Iraqi Ministry was not a condition of the contract or a requirement of the letter of credit.104 Despite his concerns, he did not make any inquiries about the apparent requirement to pay 10 per cent.105

32.38 He forwarded the email to Mr Shimoon and requested him to 'gain the

necessary approvals from the Ministry of Health'.106 He also telephoned Mr

Report of the Oil-for-Food Inquiry 339

Shimoon. Mr Shimoon reassured him that everything was under control and that 'it's just a glitch. Someone's stuffed up'.107 Mr Shimoon did not say anything about paying, or promising to pay, anyone a percentage (of 10 per

cent or any other amount) of the value of the contract in order to resolve the difficulty. Nor did Mr Joyce ask him about this.

32.39 Mr Joyce replied to the email. He advised Hellmann's agent that Alkaloids' 'Iraqi agent, Albert Shimoon, will contact both you and the Ministry of Health to solve the problem'.108 ,

32.40 On 22 July 2002 Mr Joyce sent to Hellmann's Jordanian agent a further email that stated:

I understand from Mr Shimoon that you are taking the necessary documents from Amman to Trebil for the MoH [Ministry of Health] approval. This should have been completed yesterday or early today. Mr Shimoon understands that the truck

should proceed to Samara today.109

32.41 The agent replied to Mr Joyce's email in the following terms:

Yes we rcvd guarrantee extention from bank and same sent with taxi driver to border. Hope this dcts accepted. Shall advise developments today.110

32.42 The 'guarantee extension' referred to in the agent's email apparently resolved the impasse at the border because on 24 July 2002 the agent emailed Mr Joyce advising that the trucks had left the border the previous night.111

32.43 A note in Mr Joyce's day book records a conversation he had with Mr

Shimoon on about 7 September 2001 *that is, shortly after the notification form and contract had been lodged with the United Nations via DFAT but before final approval by the United Nations and the granting of permission to export. The note includes the following:

Albert

LC90 opening to Iraqis guaranteeing the

¨90 through RAFADIN BA N K -no one11?

The note also referred to a number of figures, one of them ¨1800.

32.44 Mr Joyce's evidence was that he did not recall having a discussion with Mr Shimoon about requesting or requiring a guarantee to pay the Iraqis ¨90.113 He had no recollection that a guarantee was provided in the course of the transaction.114 In his statement to the Inquiry, Mr Joyce said his day book note, 'read with 2006 eyes, may well be a mention of a guarantee that

[Mr Shimoon] had given to the Iraqi government to pay to it an amount of

340 Report of the Oil-for-Food Inquiry

¨90/kg'.115 He claimed, however, that he 'never understood at that time from anything [Mr Shimoon] had said to me that [Mr Shimoon] was suggesting that an amount of ¨90 a kg was to be paid to the Iraqi government or that [Mr Shimoon] had guaranteed such a payment to them'.116

32.45 Mr Joyce agreed that the email exchange between himself, Mr Shimoon and the Jordanian agent between 20 and 24 July 2002 suggested that the document causing delay at the border was a guarantee extension from the bank117 and that this married with his day book note of the conversation with Mr Shimoon on 7 September 2001.118 He claimed, however, that he never saw the guarantee or asked Mr Shimoon for a copy of it.119 When he saw the emails from the Jordanian agent he did not understand what the guarantee extension from the bank was and was more focused on the fact that the documents had been accepted and the goods allowed to pass.120 He had never asked Mr Shimoon about the guarantee.121

32.46 The goods were delivered to Samara on 22 July 2002.

Payment and commissions

32.47 Mr Joyce received the UN notification of delivery of goods (a requirement of the letter of credit) on 29 July 2001. The documents required by the letter of credit were lodged with Alkaloids' bank, the Commonwealth Bank. Alkaloids' banker was directed to split the proceeds of the letter of credit

( ¨955,000) and pay the proceeds into two accounts * ¨243,175 to an account in Jordan and the balance (less charges) to Alkaloids' account in Australia.122 The Jordanian bank account was that nominated by Mr Shimoon as his account.123 The amount transferred to Mr Shimoon's account represented 17.5 per cent of the tender price of ¨865,000 plus ¨90,000 (being the 'overprice' * the difference between the tender price of ¨865,000 and the contract price of ¨955,000) plus ¨1,800.124

32.48 Mr Joyce was unable to explain what the additional ¨1,800 payment to Mr Shimoon was for125, although he agreed in evidence that it was possible that this was the additional expense in establishing a guarantee at the Rafidain Bank.126

32.49 Mr Joyce prepared a 'summary of sale' report to report on the sale to his principal.127 This report recorded that the 'overseas' commission paid on the sale (that is, the commission paid to Mr Shimoon) was A$437,758.80 and the commission paid in Australia on the sale (that is, the commission received by Mr Joyce) was A$25,628.26. Mr Joyce's commission of A$25,628.26 was 2 per cent of the net price after Mr Shimoon's commission has been deducted.128

Report of the Oil-for-Food Inquiry 341

This was unusual because Mr Joyce's commission was usually calculated on the gross sale price.129

32.50 Mr Joyce furnished a tax invoice to Alkaloids in relation to the commission payable to him.130 Bank records produced to the Inquiry record the receipt by Alkaloids of the proceeds of the letter of credit (less Mr Shimoon's commission) and the receipt by Mr Joyce of his commission.

Tenders under other phases of the Oil-for-Food Programme

32.51 Mr Joyce, with assistance from Mr Shimoon, caused tenders to be submitted to the State Company during other phases of the Oil-for-Food Programme.

32.52 A tender during phase X was lodged through Mr Shimoon in July 2001 but was unsuccessful.

32.53 A tender during phase XI was lodged through Mr Shimoon in January 2002 but was also unsuccessful.

32.54 A tender during phase XII was lodged through Mr Shimoon in January 2003. Mr Shimoon advised Mr Joyce that the competition was tendering at about ¨850 and that if Alkaloids submitted a tender at about that price, it might be successful.131 Accordingly, Mr Joyce, on behalf of Alkaloids, prepared and

submitted a tender for the supply of 500 kilograms of hyoscine at ¨848 per kilogram.132

32.55 Alkaloids was awarded the contract under phase XII at a contract price of ¨935.133 That price was apparently 10 per cent more than the price offered in the tender. Mr Joyce gave the following evidence in relation to the phase XII tender and contract:

Q: This follows an almost remarkably similar pattern that was established in relation to the phase IX tender and contract; does it not?

A: Yes, it is when you sit here and look at it all today, but try looking at them

18 months apart and see whether you recognise the significance of them then, because that's what the difference * the difference between those two events is 18 months; it is in fact nearly two years.

Q: The pattern to which I refer is that the contract price is tendered for and the

contract is awarded at a price almost exactly 10 per cent higher than the tender price; right?

A: Yes, it is.

342 Report of the Oil-for-Food Inquiry

Q: May we take it from that answer that you don't recollect ever asking Mr

Shimoon how he had achieved the remarkable feat of, yet again, getting 10 percent more than the contract price that had been put in the tender?

A: I certainly don't recollect doing that at all.134

32.56 A note in Mr Joyce's day book records that he had a conversation with Mr Shimoon about this tender and was advised that the tender had been accepted by the Iraqis at a price of ¨850.135 Mr Joyce did not recall being advised by Mr Shimoon that the contract had been awarded at ¨850 or that there had been added to the price an additional 10 per cent.136

32.57 The phase XII contact was not executed because of the intervention of military action in March 2003.

Mr Joyce's responses to questions from the Independent Inquiry Committee

32.58 In February 2005 Mr Joyce was contacted by investigators from the Independent Inquiry Committee. In an email to the investigators dated 2 February 2005, he stated:

The trader who arranged the deal and who assisted through almost two years of negotiations and difficulties created by the USA after the contract was awarded, was A-S International, Canada. We paid commission in Euros to A-S International.

At no time did we make any payment to any person or party in Iraq. At no time

were we requested to make, nor did we make, any payment as an inducement for the awarding or execution of this contract by any party or person.137

32.59 The investigators replied to Mr Joyce's email, asking some further questions. One was whether Mr Joyce ever received a fax, email or letter from A-S International, Hellmann or any other party involved in the transaction stating that the goods would not be allowed into Iraq unless he could produce a receipt to show that he had paid a service fee of 10 per cent.138 Mr Joyce did not reply to this email. His explanation for not replying was that it would have required him to disclose confidential commercial information.139

Mr Shimoon

32.60 At about the time he was corresponding with the IIC investigators, Mr Joyce contacted Mr Shimoon. Mr Joyce informed Mr Shimoon he had been approached by the IIC investigators to provide information. Mr Shimoon responded in the following terms:

I must tell you that the information about the payment of commission to me is my information. I don't want you releasing that information to the UN and I give you

Report of the Oil-for-Food Inquiry 343

no authority to release it. Have you told them that I was the agent? If you haven't, I do not want you to.140

32.61 When this Inquiry was established, Mr Joyce kept Mr Shimoon apprised of developments, including details of the Letters Patent and various media articles.141 He advised Mr Shimoon about the Inquiry's website.

32.62 On 19 January 2006 the Inquiry wrote to Mr Shimoon and sought his assistance in relation to its investigations. Mr Shimoon was requested to make himself available for an interview by telephone regarding his knowledge of the Alkaloids contract and his dealings with the Iraqi Government on behalf of Alkaloids.142

32.63 On 26 January 2006 Mr Shimoon contacted Mr Joyce about the Inquiry's request that he make himself available for an interview. On advice from his solicitor, Mr Joyce told Mr Shimoon that he was unable to discuss the events surrounding the 'Iraqi transaction' with Mr Shimoon until after he had given his evidence.143 In an email Mr Joyce sent to Mr Shimoon after that conversation, Mr Joyce encouraged Mr Shimoon to provide all assistance to the Inquiry.144

32.64 The Inquiry wrote again to Mr Shimoon on 6 February and 23 February 2006. The letter of 6 February enclosed a list of questions for Mr Shimoon and requested a written reply. On 23 February 2006 the Inquiry received an email from a solicitor in Ottawa, Canada, who represented Mr Shimoon. The solicitor advised that he had advised Mr Shimoon it would not be appropriate for Mr Shimoon to respond to the Inquiry's request for information. The advice was based on the solicitor's 'understanding' that Mr Shimoon had not been given notice that certain evidence would be put before the Inquiry and that Mr Shimoon had not participated with legal representation in the Inquiry.

32.65 The solicitor's understanding that Mr Shimoon had not been given notice about evidence does not sit well with Mr Joyce's evidence that he had provided Mr Shimoon with details of the Inquiry's website, from which Mr Shimoon could have obtained notice of the dates certain witnesses, including Mr Joyce, were expected to give evidence. At the time Mr Shimoon received the Inquiry's request for assistance, no witness had given evidence relating in any way to the Alkaloids transaction. This was pointed out to Mr Shimoon by Mr Joyce.145 Mr Shimoon had also been given the Inquiry's terms of reference and could have appeared with legal representation at an early stage had he so desired.

344 Report of the Oil-for-Food Inquiry

Denials of any wrongdoing by Mr Joyce

32.66 Mr Joyce's evidence was that neither he nor to his knowledge anyone else on Alkaloids' behalf ever paid any money to any Iraqi government official. He claimed that Mr Shimoon never told him that he was required to pay 10 per cent of the contract price * or any other amount * to the Iraqi Government. In his statement tendered to the Inquiry, Mr Joyce stated:

Apart from the single payment of ¨243,175 in August 2002, neither I nor

[Alkaloids] nor anyone on its behalf paid [Mr Shimoon] any money. No money in any form, has been paid to [Mr Shimoon] or to anyone else at his request or

direction for the purpose of paying that money to someone called the Director whether for himself or as an agent of the Iraqi government for any purpose

whatsoever. Moreover [Mr Shimoon] has never sought payment of any money either to himself or anyone else other than the payment to which he was entitled and which was paid in August 2002.

No money in any form, has been paid to [Mr Shimoon] or to anyone else at his

request or direction for the purpose of paying a fee or alleged tax levied by the Iraqi government called an 'after sales service charge' or given any other name.

[Mr Shimoon] never asked me for money to pay such a fee.146

and

I never at any time discussed with any other person (and, in particular, without limiting the generality of this statement, with [Mr Shimoon]) the payment of any money or of a benefit to an official of the Iraqi government or anyone on behalf of such an official in connection with the transactions undertaken by Alkaloids under the UN Oil-for-Food programme. At no time did [Mr Shimoon] ever ask me for money or other benefit to make a payment to him which was said to be a

payment for a third party (whether the government of Iraq or anyone else); nor did he ask me to make a payment to a third party (whether the government of

Iraq or anyone else).147

and

I have no idea how AS [Shimoon] spent the commission paid to him by AOA for

effecting the contract with the Iraqi government under the oil-for-food

programme. If any part of it was paid to an Iraqi government official, or in breach of the economic sanctions imposed against Iraq, neither I nor AOA knew anything about such a payment and we did not countenance or encourage or cause the

making of such a payment. AS never suggested to me that any part of the

commission was to be, or had in fact been, paid to an Iraqi official.148

Report of the Oil-for-Food Inquiry 345

Issues and findings

32.67 The issues of fact requiring determination are:

" whether, as part of the contract by Alkaloids to supply hyoscine to the State Company in Iraq, a sum equal to 10 per cent of the contract price was paid to Iraqi authorities as an 'after-sales-service' fee or otherwise

" if a sum equal to 10 per cent of the contract price was paid to Iraqi

authorities, whether Mr Joyce knew that the payment was to be made and knew that the contract price had been inflated by 10 per cent to take into account this payment.

Payment of the after-sales-service fee

32.68 There is a significant body of evidence from which it may be inferred that the contract price was inflated by 10 per cent from the original tender price of ¨865 to provide for the payment of a 10 per cent after-sales-service fee. The following evidence supports the finding that such a fee was paid:

" Mr Shimoon told Mr Joyce he had to pay 'the people' 8 per cent of the

contract price. He later said he had to pay the 'director' in advance. It is to be inferred that the 'director' was the Iraqi Director General of Health.

" The contract price agreed between Iraq and Mr Shimoon was

approximately 10 per cent higher than the tender price. Since the tender price approximated the market value, the only sensible explanation for the additional 10 per cent was that it was a sum paid to Iraq by Mr

Shimoon. It is now established that Iraq imposed a surcharge, or after≠ sales-service fee, on all imported goods from August 2000.

" The Alkaloids goods were delayed at the Iraqi border until 'they pay the 10%'. This impasse was resolved by Mr Shimoon sending documentation to the border authorities evidencing a 'guarantee extension'. Mr Shimoon discussed with Mr Joyce the need for a facility 'guaranteeing the ¨90', being approximately 10 per cent of the sale price per kilogram. It is now known that in some instances Iraq permitted some exporters to provide a

guarantee of payment of the surcharge, rather than make a pre-payment of the surcharge prior to delivery of goods.

" The goods were delivered to Iraq, and Alkaloids did not make the 10 per cent surcharge payment. The only inference available is that such sum was paid by Mr Shimoon from his original or overprice commission.

346 Report of the Oil-for-Food Inquiry

Mr Joyce's knowledge

32.69 Mr Joyce presented as a truthful and credible witness. He gave evidence and responded to questioning in a frank and forthright manner, without any apparent obfuscation. He cooperated fully with the Inquiry by producing all relevant documents to the Inquiry in a timely fashion and by providing detailed statements. He denied knowledge of any improper payments to Iraq in connection with the contract.

32.70 The evidence does not support a finding that Mr Joyce knew that the contract price was inflated to incorporate a 10 per cent after-sales-service fee or that such a fee was paid to the Iraqi Government or any Iraqi official. There is no evidence that Mr Shimoon ever told Mr Joyce of the need to pay a 10 per cent after-sales-service fee or that such a fee was required to be built into the contract price. The circumstantial evidence is insufficient to support an inference of Mr Joyce having knowledge of the incorporation of payment of such a fee. It is equally open to infer from the evidence that it was only Mr Shimoon who was involved in the relevant dealings with the Iraqi authorities in relation to the payment of the after-sales-service fee and that he did not fully disclose the true nature of the payments to Mr Joyce or the true reason for the inflation of the contract price.

32.71 The evidence demonstrates that, as a condition of obtaining the contract for the sale of hyoscine to Iraq, there was included in the contract price a surcharge of approximately 10 per cent. Such a sum was paid to Iraq or its instrumentalities or officials by Mr Shimoon. The inflation of price, and the payment of the sum, were arranged by Mr Shimoon. The evidence does not support a finding that Mr Joyce had knowledge of the payment of the surcharge to Iraq.

Conclusion

32.72 There is no basis for any adverse finding against Alkaloids, its directors or Mr Joyce.

32.73 None of the acts of Mr Shimoon occurred in Australia. There is no other jurisdictional nexus that would permit Mr Shimoon to be charged with any breach of a law of the Commonwealth, a State or Territory. Accordingly, I make no findings as to whether any such breach might have occurred.

32.74 The evidence does not establish that Alkaloids of Australia, its directors or Mr Joyce might have breached any Commonwealth, State or Territory law by Alkaloids exporting hyoscine to Iraq during the Oil-for-Food Programme.

Report of the Oil-for-Food Inquiry 347

32.75 Absent evidence that Alkaloids, through Mr Joyce, knew that the contract price included a 10 per cent fee to be paid by Mr Shimoon to Iraq, no issue arises concerning any possible deception of DFAT or the United Nations by submitting either a notification form for approval for payment from the escrow account or application to export goods. Whilst it can now be seen that the inflated contract was due to a 10 per cent payment to Iraq, at the time the contract price was executed and forwarded to DFAT for transmission to the United Nations, and at the time the permission to export was obtained, the inflated price could reasonably have been attributed to Mr Shimoon having negotiated a high price to earn for himself an overprice commission. I am satisfied that neither Alkaloids nor Mr Joyce paid, agreed to pay or intended to pay any 10 per cent fee to Iraq.

348 Report of the Oil-for-Food Inquiry

Notes

1 ASIC records also disclose the existence of another company with the same name but incorporated in New South Wales and with a different registration number: ACN 003 267 589. The existence of this other company is referred to in Ex 66, AOA.0007.0003 at 0003 para. 1. The other company had nothing to do with the contract to supply goods to Iraq: T 1351.38-42. 2 Ex 66, AOA.0007.0025 at 0028. 3 Ex 65, WST.0007.0118 at 0118, para. 2. 4 Ex 65, WST.0007.0118 at 0118, para. 4. 5 Ex 65, WST.0007.0118 at 0118, para. 3; Ex 66, AOA.0007.0003 at 0003 para. 1. 6 Companies associated with Mr Joyce (including Nut Trading Australia Pty Limited, Joe White Maltings Limited and Jorgenson Waring Foods) had previously acted as Alkaloids' agent (both in relation to peanuts and then hyoscine) in the period 1987 to about 2000: Ex 65, WST.0007.0118 at 0118, para. 3. 7 Ex 64, AOA.0008.0002, para. 2; Ex 66, AOA.0007.0003 at 0004, para. 5. s T 1354.35-40. 9 Ex 66, AOA.0007.0003 at 0003, para. 1. *º Ex 65, WST.0007.0118 at 0118-0119, paras 5-7.

11 Ex 66, AOA.0007.0003 at 0003 para. 1. 12 T 1353.22-25. 13 Ex 66, AOA.0007.0003 at 0003, para. 1. 14 Ex 69, AOA.0001.0714. is Ex 66, AOA.0007.0003 at 0007, para. 13; Ex 69, AOA.0001.0712-0713. 16 Ex 66, AOA.0007.0003 at 0007, para. 13; T 1360.34-39; Ex 69, AOA.0002.0085. 17 Ex 66, AOA.0007.0003 AT 0007, para. 13. iÆ Ex 66, AOA.0007.0003 at 0006, para. 11; Ex 64, AOA.0008.0002 at 0002, para. 6. Mr Joyce believed that the only case where Alkaloids sold direct to an overseas end-user was Malaysia; Ex 66, AOA.0007.0003 at 0006, paras 10 and 11; T 1356.40 - T 1357.9. 19 Ex 69, AOA.0001.0708. 20 T 1358.24-29; Ex 64, AOA.0008.0002 at 0002, para. 6. 21 T 1358.31-33. 22 Ex 69, AOA.0001.0697 at 0697-0698; Ex 66 AOA.0007.0003 at 0008-0009, para. 14.

23 Ex 69, AOA.0001.0767-0778. 24 AOA.0001.0697 at 0698.

25 Ex 69, AOA.0007.0049; see also Ex 69, AOA.0001.0613. 26 T 1372.32 - T 1373.24. 27 T 1387.15-22 28 T 1369.29-39. 29 T 1369.6-9. 30 T 1379.41-46. 31 Ex 66, AOA.0007.0003 at 0009-0010, para. 15. 32 Ex 66, AOA.0007.0003 at 0009-0010, para. 15. 33 Ex 66, AOA.0007.0003 at 0009-0010, para. 15. 34 T 1380.24-30. 35 T 1380.32-47. 36 T 1381.1-31. 37 Ex 69, AOA.0001.0667. 38 Ex 66, AOA.0007.0003 at 0009-0010, para. 15. 39 Ex 69, AOA.0001.0654. The tender also included an offer to supply a small quantity of Hyoscine

hydrobromide ASP23, BP98 (Scopolamine HBr) 40 T 1382.30-43; T 1384.39-T 1386.16. There are no documents suggesting that the tender documents were sent directly to the State company: T 1384.20-23. 41 Ex 66, AOA.0007.0003 at 0010-0011, para. 17. 42 T 1387.32 -T 1388.13. 43 T 1391.17-21.

Report of the Oil-for-Food. Inquiry 349

. 44 T 1388.15-26. 45 Ex 69, *ë*ü*ë.0002.0144; *§1395. 46 *§ 1396.6-17. 47 *ï*« 66, *ë*ü*ë.0007.0003 at 0007, para. 13. ´ *§ 1397.31-35. 49 *§ 1397.8-29. 50 *§ 1397.37-47. si *§1398. 52*§ 1398.45-*§ 1399.20. 53 *§ 1402.1-9. 54 *ï*« 69, *ë*ü*ë.0001.0632; *ë*ü*ë.0001.0630. 55 *ï*« 64, AOA.0008.0002 at 0003, para. 9; Ex 69, *ë*ü*ë.0001.0629. 56 Ex 69, *ë*ü*ë.0001.0627. 57 *§ 1407.7-35. ss *§ 1390.07-14. 59 *§ 1411.10-17. 60 *ï*« 66, AOA.0007.0003 at 0006, para. 11 and at 0012, para. 21; T 1410.8-15. si *§ 1414.13-T 1415.9. 62 T 1366.20-23. 63 Mr Joyce's evidence was that his day books are not a complete record of his daily activities: Ex 66, AOA.0007.0003 at 0004-0005, para. 5; T 1358.5-10. 64 T 1358.5-16. 65 Ex 64, AOA.0008.0002 at 0003, para. 10. 66 Ex 69, AOA.0001.0347-0353. 67 Mr Shimoon was authorised to sign all contract with the State Company on behalf of Alkaloids: Ex 69, AOA.0001.0617. 68 Ex 66, AOA.0007.0003 at 0012-0013, para. 23. 69 T 1391.17-21. 70 T1391.23-33. 74 T 1392.11-21. 72 T 1392.28-41. 73 Ex 66, AOA.0007.0003 at 0021, para. 46. 74 Ex 69, AOA.0001.0442. 75 T 1362.28-32. 76 T 1363.26-29. 77 T 1362.12-32.

78 Ex 69, AOA.0001.0732. 79 Ex 66, AOA.0007.0003 at 0008-0009, para. 14. so Ex 66, AOA.0007.0003 at 0015-0016, para. 29; T 1363.26-43; T 1425.1-9. 81 T 1372.23-30. 82 Ex 69, AOA.0001.0444.

83 T 1424.22-41. 84 T 1425.11-14. 85 Ex 69, AOA.0001.0494; AOA.0001.0326.

86 Ex 69, AOA.0001.0325. s7 Ex 69, AOA.0001.0323. ss Ex 69, AOA.0001.0326. 89 Ex 69, AOA.0001.0562; AOA.0001.0318. 90 Ex 69, AOA.0001.0437. 91 Ex 69, AOA.0001.0435; AOA.0001.0439. 92 Ex 69 AOA.0001.0147; AOA.0001.0421; AOA.0001.0423. 93 Ex 69, AOA.0001.0423. 94 Ex 69, AOA.0001.0146. 95 Ex 66, AOA.0007.0003 at 0016-0017, para. 31.

350 Report of the Oil-for-Food Inquiry

96 *§ 1371.4-30. 97 Ex 66, AOA.0007.0003 at 0016-0017, para. 31. 98 Ex 69, AOA.0001.0225; AOA.0001.0242. 99 Ex 69, AOA.0001.0175. i * Ex 69, AOA.0001.0150. mi Ex 69, AOA.0001.0142.

102 Ex 69, AOA.0001.0173; AOA.0001.0166 at 0168. 103 *Æ’ 1432.22-25. iª4 Ex 66, AOA.0007.0003 at 0018, para. 37. 105 *Æ’ 1431.35-T 1432.5.

106 Ex 69, AOA.0001.0173.

107 Ex 66, AOA.0007.0003 at 0018, para. 37.

108 Ex 69, AOA.0001.0166 at 0168.

109 Ex 69, AOA.0001.0166 at 0167.

no Ex 69, AOA.0001.0166 at 0167. in Ex 69, AOA.0001.0166 at 0166. 112 Ex 69, AOA.0002.0313.

113 x 1429.9-12.

U4T 1431.8-11. ns Ex 68, WST.0008.0001_R at 0005_R-0006_R, para. 9. no Ex 68, WST.0008.0001_R at 0005_R-0006_R, para. 9. 117 T 1434.25-28.

lie T 1434.30-34. no T 1434.25-41. 120X1434.41 -T 1435.4. 121T 1435.23-26.

122 Ex 69, AOA.0001.0208.

123 Ex 69, AOA.0001.0534.

124 Ex 69, AOA.0001.0159.

125 Ex 66, AOA.0007.0003 at 0019, para. 40.

126 11430.24 -T 1431.3. 127 Ex 69, AOA.0001.0125; Ex 65, WST.0007.0118 at 0119, para. 7.

128 Ex 67, WST.0007.0104 at 0104, para. 6. 129 x 1437.28-43.

13∞ Ex 67, WST.0007.0106 at 0107; Ex 67, WST.0007.0104. 131 x 1439.19-35; Ex 69, AOA.0002.0533. 132 Ex 69, AOA.0001.0860. 133 Ex 69, AOA.0001.0032 at 0034. 134 *Æ’ 1441.08-41.

135 Ex 69, AOA.0002.0554. 136 T 1443.16-19. 137 Ex 1395, AOA.0001.0005_R at 0006_R-0007_R. 138 Ex 1395, AOA.0001,0005_R at 0005_R. 139 x 1446.21-35.

1*0 Ex 68, WST.0008.0001JR at 0002_R, para. 4. 141 Ex 68, WST.0008.0001_R at 0003_R, para. 7; WST.0008.0016. 142 Ex 68, WST.0008.0029; WST.0008.0031. 143 Ex 68, WST.0008.0001_R at 0004_R-0005_R, para. 8. 144 Ex 68, WST.0008.0027 at 0028. 145 Ex 68, WST.0008.0027 at 0028. 146 Ex 66, AOA.0007.0003 at 0011, para. 18. 147 Ex 66, AOA.0007.0003 at 0020, para. 43. I4Æ Ex 66, AOA.0007.0003 at 0020-0021, para. 45.

Report of the Oil-for-Food Inquiry 351

33 Findings: Rhine Ruhr Pty Ltd

Statement of facts

Rhine Ruhr Pty Limited: business, officers and management

33.1 Rhine Ruhr Pty Limited1 is a company based in Melbourne, Victoria; its

principal business is the design and supply of removable vessel internals used in oil refineries, chemical plants, water treatment plants and gas processing facilities.2 About half of Rhine Ruhr's sales are export sales.3 The countries it exports to include Malaysia, Taiwan, Singapore, South Africa and the United Kingdom.4 Prior to 2001 it had not supplied any of its products to Iraq.5 During the period 2001 to 2002 Rhine Ruhr's annual turnover was about $3 million to $5 million.

33.2 The directors of Rhine Ruhr during the period of the Oil-for-Food programme were6:

" Mr Thurgood * appointed 3 February 1987

" Mr Bryden *appointed 9 November 2003

" Mr Tyzzer * appointed 25 June 2002

" Mr Calpin * appointed 30 September 1987 and resigned 16 November 2002

" Mr Von Schach *appointed 30 September 1987 and resigned

16 November 2002

" Mr Von Schwartzkoppen * appointed 30 September 1987 and resigned 16 November 2002

" Mr Gert Grobe * appointed 30 September 1987 and resigned 16 November 2002.

33.3 Mr Thurgood was one of the five founding directors and shareholders of Rhine Ruhr. The other four were Messrs Calpin, Von Schach, Von Schwartzkoppen and Grobe. Each of these four directors was at all times an

Report of the Oil-for-Food Inquiry 353

overseas resident. Each resigned from the Rhine Ruhr Board on 16 November 2002. None of them had any involvement in the day-to-day business of Rhine Ruhr in the period 2001 to 2003 and none had any involvement with the contract to supply goods to Iraq mentioned in the Independent Inquiry Committee's final report.7 The Rhine Ruhr directors did not have formal meetings but communicated informally via email and facsimile. Whilst Mr Thurgood may have sent the non-resident directors sales reports that included details of the Iraqi contract, there were no significant discussions between the directors about it. No board minutes referring to the contract were produced to the Inquiry.8

33.4 Prior to 25 June 2002 Mr Thurgood was the managing director of Rhine Ruhr9 and the only director who played any role in the day-to-day management of the company. During 2001 and 2002 Mr Thurgood resided overseas, primarily in Malaysia10, although he travelled regularly to Australia.11 On 25 June 2002 Mr Tyzzer was appointed a director and took over the role of managing director.

33.5 Prior to Mr Tyzzer's appointment in June 2002, Rhine Ruhr had no resident directors. Mr Bryden, a project manager and qualified engineer, was the most senior employee in the Melbourne office.12 He reported directly to Mr Thurgood.13 Mr Bryden's duties and responsibilities as project manager were in the areas of engineering, procurement and construction. Usually he had no involvement in contract negotiations prior to an order being booked.14 Mr Thurgood was responsible for contract negotiations.

33.6 Between October 1999 and 2003 Ms Nys was employed by Rhine Ruhr as the administration manager. Her duties and responsibilities included the handling of all accounts, purchasing, payroll and general administration.15 Despite Mr Bryden being the most senior employee in the Melbourne office, on most administration matters Ms Nys reported directly to Mr Thurgood in Malaysia.16 However, Rhine Ruhr's office was a small office, with between 10 and 12 employees, and accordingly Mr Bryden was generally aware of the main tasks Ms Nys was performing.17

Agency agreement with Mr Davies of Eastoft Hall Limited

33.7 In September 2000 Mr Thurgood received a telephone call from Mr Davies of Eastoft Hall Limited. Mr Davies is a resident of the United Kingdom, and Eastoft Hall is a company incorporated in the United Kingdom.18 At the time of the telephone conversation Mr Thurgood did not know Mr Davies, and Rhine Ruhr had not had any prior commercial dealings with him or Eastoft Hall.19 It is Mr Thurgood's belief that Mr Davies was referred to him by a

354 Report of the Oil-for-Food Inquiry

fellow director in two UK-incorporated companies * Distillation Alliance International Limited and Distall Limited.20

33.8 During their telephone conversation Mr Davies inquired of Mr Thurgood whether Rhine Ruhr would be interested in supplying goods to Iraq under the Oil-for-Food Programme. Mr Davies told Mr Thurgood he had experience in relation to the Iraqi market, that he represented a number of companies in that market, that he had a number of local contacts and connections in Iraq, and that he knew a good deal about the Oil-for-Food Programme and could assist Rhine Ruhr in relation to its operation.21 Mr Davies explained the proposed arrangements in Iraq to Mr Thurgood in the following terms:

His [Mr Davies'] local contact in Iraq would identify potential business

opportunities in Iraq and would request Tony Davies to seek a quote for the

supply of the relevant goods and services. Tony Davies would contact Rhine Ruhr Australia if he believed that the request would be relevant to Rhine Ruhr and we would prepare a quote and forward it to Tony Davies. He would arrange for the

quote to be presented in the format required by the Iraqi client and to be

submitted to the relevant authority before the deadline. The local contact in Iraq would be responsible for communicating with the Iraqi company and making any representations on behalf of Rhine Ruhr.22

33.9 Mr Thurgood told Mr Davies that Rhine Ruhr would be interested in

supplying to Iraq under the Oil-for-Food Programme and agreed to pay Eastoft Flail 10 per cent commission on any sales.23

33.10 The agreement between Rhine Ruhr and Eastoft Hall was not reduced to writing, although, at the request of Mr Davies, Mr Thurgood prepared and sent to Mr Davies a letter addressed to a company in Iraq called Emlood Elec. Mech. Contracting Co. Ltd.24 That letter confirmed the appointment of Emlood as Rhine Ruhr's sales agent in Iraq for 12 months. Mr Thurgood received no reply to the letter and had no contact at any time with Emlood or its managing director Mr Younis.25

33.11 It was common for Rhine Ruhr to retain agents in countries to which it exported or hoped to export its goods.26 It generally paid commission on sales to its agents of between 5 and 10 per cent.27 Its agency agreements were not always reduced to writing.28

The first Rhine Ruhr contract

33.12 The first contract to supply goods to Iraq that Rhine Ruhr entered into was eventually abandoned and not performed. Approval of the contract by the United Nations was never sought. Nor was permission to export under the Customs (Prohibited Export) Regulations ever applied for in respect of the goods the subject of this contract. It is nonetheless relevant to consider the

Report of the Oil-for-Food Inquiry 355

negotiation and execution of this contract because it set the stage for the contract that was ultimately performed.

33.13 In late April 2001 Mr Thurgood received by facsimile a request by Mr Davies

to quote for the supply of valve trays for a stabiliser tower for North Gas Company, an Iraqi company also called Northern Gas Industry and Northern Gas Industries.29 In response to this request, Mr Thurgood prepared a quote and sent it to Mr Davies on 26 May 2001.30 The quote was for the 'design, manufacture, corrosion protection, inspection, packaging and delivery FOB Melbourne' of equipment described as 'Valve Trays and Downcomers' and a 'Partial Draw-off Chimney Tray'. The price specified in the quotation was £32,500. Rhine Ruhr's usual terms of supply were either FOB31 or GIF.32 It was unusual for Rhine Ruhr's terms of supply to include the cost of transportation to the ultimate destination for the goods.33

33.14 The quotation also specified that Rhine Ruhr could offer installation,

supervision and inspection on site at rates to be agreed. It was standard for Rhine Ruhr's quotes to include this provision. Ordinarily, if the client requested provision of that service, the cost of the service would be agreed

and included in the resulting contract.34 In those circumstances the client would pay Rhine Ruhr for the provision of that service.35

33.15 In accordance with the arrangements agreed between Mr Thurgood and

Mr Davies, Mr Davies put the contents of Rhine Ruhr's quote into a tender document suitable for provision to the Iraqi authorities.36 The tender prepared by Mr Davies on behalf of Rhine Ruhr replicated the material terms of the quote prepared by Mr Thurgood. The only material change was that the terms of supply were specified as 'CIP Kirkuk', for which an additional £1,600 was added to the price. The final price was £34,100. CIP means that delivery of the goods to the named place of destination is at the seller's expense.37 In this case it meant that the contract price included carriage of the goods to Kirkuk, their final destination, at Rhine Ruhr's expense. Mr Davies explained to Mr Thurgood that £1,600 was a fair charge for delivering the goods.38

33.16 The only other change from the quotation prepared by Mr Thurgood was that

the tender made no reference to Rhine Ruhr's offer to provide installation, supervision and inspection at an additional cost to be agreed.39 The offer put to the Iraqi authorities was for the supply of goods and nothing else.40 Mr Davies sent Mr Thurgood a copy of the tender letter before it was submitted to the North Gas Company.41

33.17 On 21 June 2001 Mr Davies sent a facsimile to Mr Thurgood, advising that

Rhine Ruhr's tender had been successful and attaching a draft contract. Mr Davies advised:

356 Report of the Oil-for-Food Inquiry

The contract is for our quoted amount of £34100 (goods £32500 + CIP Kirkuk

£1600) enhanced by an Iraqi 'Engineering Services Fee' of 10%. This additional £3410 is required to be paid as the goods are dispatched (4 weeks before arrival on site) but you will receive L/C for the full contract amount to cover this

enhancement.42

33.18 This was the first occasion Mr Thurgood learnt that the contract price had

been increased, or 'enhanced', by 10 per cent to incorporate a fee.43 Mr Thurgood had not been involved in any prior discussions or negotiations about the contract price. When he received Mr Davies' facsimile, Mr Thurgood understood that Rhine Ruhr was obliged to pay the 10 per cent that had been added to the contract price back to someone44 *most likely the customer.45

33.19 The draft contract46 that was transmitted to Mr Thurgood with Mr Davies'

facsimile recorded that the parties to the contract were the Economics & Finance Department, Ministry of Oil, Baghdad (described as the 'client'), 'Distall (Rhine Ruhr Pty Limited) Australia' (described as the 'supplier') and

Northern Gas Industry (described as the 'end user'). The contract was for the supply, CIP Kirkuk, of the 'materials' specified in the contract at the contract price (described as the 'total value') of £37,510. The contract made no reference to the requirement for Rhine Ruhr to pay an 'engineering services fee' of 10 per cent of the contract price or to the fact that the specified contract price had been 'enhanced' by 10 per cent to cover the fee. It did, however, include a clause that provided that the client (the Ministry of Oil) undertook to pay all taxes and customs duties arising inside Iraq, whereas the supplier

(Rhine Ruhr) was to bear all other charges.

33.20 When he received the draft contract Mr Thurgood read it carefully47, although

he 'probably' did not turn his mind to the fact that the contract did not refer to Rhine Ruhr's obligation to pay the 'engineering fee'.48

33.21 Attached to the draft contract was a 'purchase order' that provided a detailed

description of the goods to be supplied under the contract and specified that the unit price of the goods was £37,510. Mr Thurgood agreed that the purchase order was incorrect and misleading because the deal that Rhine Ruhr had in fact struck was to supply the goods at a price of £34,100, not £37,510.49

Report of the Oil-for-Food Inquiry 357

33.22 Also included with Mr Davies' facsimile of 21 June 2001 was the following

document:50

miWI H I I ilV I WI f lllN

RRP.0005.0499

22/06Z2B01 00:10 44-1724-798959 c

FRCM : 0L-Wª´R-CC PHONE *ô*ü. 009641*ò069995 Har. 24 2001 06:11AM P7

NORTHERN ´AS INDUSTRY (NCI)

ATTN DIRECTOR UENBRAL / nm

SUBJECT: CONTRACT NO NCI W I Ji

DEAR SIRS,

WITH REFERENCE TO YOUR REQUEST REGARDING PAYMENT AGAINST ENGINEERING SERMCES,INSTALLATIONJiANDLlNC , VERIFICATION . INSPECTION ON SITE FOR K M ENQUIRY. WE HEREBY DECLARE OUR OBLIGATION TO PAV( 1410) POUNDS SAY(

iw w K. g g f a za a v a w t *∫ *º *≤*π*≤*π*≤ m.v? rfMw m o N t v> ,M

v >

YOURS f it h f u l l y

BRUCE THURGOOD

MANAOINO DIRECTOR

DISTALL(RHINERUHR -pty-limited) AUSTRALIA

33.23 This document appeared to Mr Thurgood to be a document from some other

contract that had been amended to apply to the Rhine Ruhr contract.51 The signature on the document above Mr Thurgood's name was not

Mr Thurgood's signature, but this was of no concern to Mr Thurgood when he perused the document.52 He expected and understood that Rhine Ruhr was being asked to sign this document or something like it and that if Rhine Ruhr

did not sign it someone would probably sign it on Rhine Ruhr's behalf. He also understood that it was a condition of the contract between Rhine Ruhr, the Iraqi Ministry of Oil and Northern Gas Industry that there be some

document like this one containing an undertaking by Rhine Ruhr to pay the additional £3,410.53

33.24 The document refers to a request from Northern Gas Industry for 'payment

against engineering services, installation, handling, verification, inspection on site for A/M enquiry'. Mr Thurgood never asked to see any such request. He

358 Report of the Oil-for-Food Inquiry

simply accepted the explanation for the fee contained in the document.54 He knew, however, that the contract was to supply goods only and that Rhine Ruhr was not obligated to install them.55 He explained his understanding of the nature of the fee in the following terms:

Q: What is being put here is that there should be an additional 10 per cent paid on top of the agreed contract price, including freight and insurance, described as an 'engineering services fee'?

A: That's correct.

Q: But your company was not providing any *

A: That's correct.

Q: *engineering services fee, and so there would be no basis for the price being inflated to include that sum?

A: Well, somebody has to undertake that work and it w as *I guess we accepted that if the customer was going to have to do it himself, possibly he needs to be

paid for it.

Q: But if the customer needs to be doing it himself, why do you have to include it in your price?

A: I guess, in this case, this was unusual *this was an unusual contract. We

accepted that this was the system for doing business with Iraq and I was led to

believe that this was known by everyone and this was accepted.

Q: The system, as you understood it, being that you include in your contract price a figure for a service which you are not going to provide?

A: That's correct.

Q: And then you pay that increased figure to the person who is purchasing your goods?

A: That's correct.56

33.25 Mr Thurgood also understood that whilst the fee would be paid by Rhine Ruhr to an Iraqi entity, the 10 per cent increase in the contract price that funded the payment of the fee was to be paid out of the UN-controlled escrow account established under the Oil-for-Food Programme. It was this that made the contract unusual.

Q: You have referred on a couple of occasions to the fact that this was an unusual contract. Why was it unusual?

A: Well, I guess the main thing which was unusual is that the customer, the

person buying the goods, was not the customer * was not the person who was

actually going to pay us, and this made it different.

Report of the Oil-for-Food Inquiry 359

A: So you understood at the time that when the contract fee was enhanced by 10 per cent, that enhanced price, the enhancement, was to be paid by the United Nations * you knew that at the time didn't you?

A: Yes.

Q: And you knew at the time that, insofar as Rhine Ruhr's commitment to pay the equivalent sum of 10 per cent out, that was not a figure that was to be paid to the United Nations was it?

A: No, it wasn't paid to the United Nations.

Q: And that's what was unusual about it, right?

A: Yes.57

33.26 The fact that the 'system' was that the fee was to be paid to the Iraqis out of the UN escrow account did not concern Mr Thurgood or cause him to check that this was properly disclosed and recorded in the contract

documentation.58 Nor did it concern Mr Thurgood that Rhine Ruhr was being paid for services that it had not agreed to provide and that it had no

contractual obligation to provide. Rhine Ruhr did not know what, if anything, was required of it in relation to the services.59

33.27 Mr Thurgood did not recall any conversation he had with Mr Davies about the 'engineering services fee' referred to in the 21 June 2001 facsimile, although he believed there would have been some discussion about it.60 Mr Thurgood's reply to Mr Davies' 21 June facsimile made no mention of the 'enhanced' contract price or the fee.61

33.28 Mr Thurgood claimed he gained the impression from Mr Davies that the 'system' that included the enhancement of the contract price and the payment of a fee was a normal part of doing business with the Iraqi Oil Ministry and that the United Nations was aware of the fee. He was, however, unable to say how or when he gained this impression.62 He never asked Mr Davies to confirm this in writing and never made any inquiries with the United Nations or the Department of Foreign Affairs and Trade to ascertain whether the impression he gained from Mr Davies was a correct impression.63 Mr Thurgood did not understand at the time that it was part of the system or process that the payment of the 10 per cent fee was not to be disclosed in the contract documentation.64

33.29 Mr Thurgood believed that, in accordance with his normal practice, he would have forwarded all of the relevant documents relating to the contract to

360 Report of the Oil-for-Food Inquiry

Mr Bryden.65 He did not recall having any discussion with Mr Bryden about the engineering services fee.66

33.30 Mr Bryden saw the draft contract and the documents received from Mr Davies and was aware of the fee. Mr Bryden's belief and understanding of the nature of the fee and the reason for the price 'enhancement' was broadly similar to Mr Thurgood's. He understood and believed that whilst Rhine Ruhr's contract was for the supply of goods only and did not involve installation, the fee somehow related to the cost of installing the goods and was to be paid out of the UN-controlled escrow account:

Q: I understand that. I still don't understand why you would pay somebody else additional moneys.

A: The equipment is only of use after it's installed. Somebody has to pay for

installing it. In the normal circumstances *remembering that this was coming from the United Nations, this appeared to be all above board. I mean, okay, it

doesn't necessarily look that way now, but at the time, an engineering services fee covering these items seemed perfectly reasonable.

Q: But an engineering service fee had absolutely nothing to do with your

company. Your company was to supply the goods.

A: Which had to be installed?

Q: Of course, by somebody else.

A: Yes.

Q: And you would expect whoever wanted to have them installed would pay for them to be installed?

A: But remembering that the money was all controlled by the United Nations.

Q: What does that have to do with you paying moneys to *

A: Well, this appeared to be the means where the money was coming for

installation. That was *

Q: So am I to understand that you are saying that you thought that by including

this 10 per cent, there could be derived from the United Nations-controlled funds moneys which interests in Iraq could use to pay for the cost of installation; is that what you're telling me?

A: That was my belief ...67

33.31 Mr Bryden read the contract and knew that it did not refer to Rhine Ruhr's obligation to pay a fee of 10 per cent of the contract amount and that it did not disclose that the specified contract price included not only the price that had been agreed between the parties for the supply of the goods but also an

Report of the Oil-for-Food Inquiry 361

additional 10 per cent to cover the payment of the fee. At the time he did nothing to ensure that these matters were properly documented because he was satisfied with the explanation of the fee contained in the Northern Gas Industry document that was included in Mr Davies' facsimile of 21 June 2001. The fee did not seem unusual to him, even though he had never encountered such an arrangement before.68

33.32 The first Rhine Ruhr contract with the Iraqis was never performed. Rhine Ruhr was informed that the vessel into which the equipment the subject of the contract was to be installed was condemned due to severe corrosion and as a result the entire vessel was to be replaced, not just the internals.69 Approval of payment for the contract was never sought from the United Nations, and no documents relating to this contract were ever sent to DFAT.

The second Rhine Ruhr contract

33.33 The proposals and negotiations relating to the second Rhine Ruhr contract overlapped in time with the proposal and discussions that occurred in relation to the first Rhine Ruhr contract.

33.34 On 19 May 2001 Rhine Ruhr received a facsimile from the North Gas Company, asking Rhine Ruhr70 to submit a tender for the supply of certain equipment.71 The facsimile does not refer to any request for the provision of engineering services or the payment of any fee for such services.

33.35 On 5 June 2001 Mr Thurgood responded to this request by sending Mr Davies a quotation for the supply of two sets of valve trays to the North Gas

Company. This quotation was similar in form and content to the quotation Mr Thurgood prepared for the first contract. The price for the 'design, manufacture, corrosion protection, inspection, packaging and delivery F.O.B. Melbourne' of the specified equipment was quoted as £123,500. In a separate facsimile to Mr Davies on the same date, Mr Thurgood confirmed that the price in the quotation included a 10 per cent commission payable to Eastoft Hall.72

33.36 Mr Davies prepared a tender to the North Gas Company based on

Mr Thurgood's quotation.73 This tender also bears the date 5 June 2001 and was submitted to the North Gas Company prior to the official deadline on 6 June 2001.74 As was the case with the first contract tender, the main

difference between Mr Thurgood's quotation and Mr Davies' tender was the change of the terms of supply from FOB Melbourne to GIF Kirkuk and the addition to the price of an amount to cover the transportation costs. In the case of the second contract, the addition to the price was £7,000. On 31 August 2001, a further or amended tender was lodged with the North Gas Company

362 Report of the Oil-for-Food Inquiry

by Mr Davies on behalf of Rhine Ruhr.75 It was in the same terms as the initial tender, but the price was reduced to £119,790 for the goods and £5,225 for the transportation to Kirkuk (a total supply price of £125,015).

33.37 Neither Mr Thurgood's quotation nor Mr Davies' tenders referred to the

provision of any services, or the obligation to pay a fee, or to the fact that the price would be increased to accommodate the payment of a fee. This was despite the fact that, according to Mr Thurgood, by the time of the preparation of this quotation and the tenders he had gained the impression from Mr Davies, as a result of the first contract, that it was an ordinary part of doing business with the Iraqi Ministry of Oil to pay an engineering services fee in respect of contracts for the supply of goods.76

33.38 On 20 October 2001 Mr Davies sent Mr Thurgood an email reporting on the

state of the negotiations with the North Gas Company in relation to the contract.77 Mr Bryden, though not an addressee, received and read a copy of the email.78 The email included the following particulars:

Original offer £123,500 LESS 10% discount = £111,150

We have reduced our commission to 8% to give a goods price of £111,150 less 2% extra discount from us = £108,900

Extra for delivery (based on 2 x 20 foot containers + 1% for insurance) + £4,750.

NEW OFFER Goods 108,900 + GIF 4,750 = £113,650.

For your information this price level is 0.5% below Sulzer on a like for like basis.

Please confirm if you are happy for us to sign and stamp the contract on these

prices and if this is the case that we add, as before, the extra 10% 'Iraqi

Engineering Services Fee' to be covered by the enhanced L/ C.79

33.39 The reference to 'as before' in this email was a reference to the first contract

and Mr Davies' facsimile of 21 June 2001.80 Based on what they had seen in the context of the first contract, both Mr Thurgood81 and Mr Bryden82 understood this to mean that, whilst agreement had been struck to supply goods at the price of £113,650, the price was to be 'enhanced' by 10 per cent to provide for the payment of an 'Iraqi engineering services fee'. Rhine Ruhr would then be obliged to pay the same amount to an Iraqi entity. The 'enhanced' contract price would be paid for by letter of credit funded from the UN escrow account. As was the case with the first contract, Mr Thurgood could not remember any conversation he had with Mr Davies about the fee and did not see, or seek to see, any documentation from Mr Davies or the Iraqis concerning the obligation to pay this fee or the services to which the fee was supposedly referable.83

Report of the Oil-for-Food Inquiry 363

33.40 Mr Thurgood responded to Mr Davies' email by telephoning Mr Davies and

confirming that Rhine Ruhr authorised him to arrange for a contract to be signed on the basis set out in the email.84 Mr Thurgood prepared a sales order that recorded the price for the sale of the two valve trays as being £108,900. The freight price was recorded as £4,750. The total 'order value' was thus

£113,650 ($324,000).85 This was the actual price agreed between the parties for the supply of the goods, without the 10 per cent enhancement. The sales order also recorded that 8 per cent commission was payable to Eastoft Hall based on the sale price of £108,900.

33.41 On 25 October 2001 a contract between Rhine Ruhr, the Economics and

Finance Department of the Iraqi Ministry of Oil and the Northern Gas Industry was executed.86 This contract was in similar terms to the first Rhine Ruhr contract. It specified the contract price for the supply of the goods described in the purchase order annexed to the contract as £125,015 CIP Kirkuk. The clause of the contract dealing with the contract price was in the following terms:

3. Contract price

Contract price breakdown: (as applicable)

1.1 Supply of materials

1.2 Total contract price: (125,015) one hundred and fifty two thousand & fifteen Sterling pounds.87

33.42 The contract also included the following clause in relation to the payment of

taxes and duties:

10. Taxes and duties

The client shall be responsible for payment of taxes and custom duties arising inside Iraq. All other duties and charges shall be borne and paid by the

contractor.88

33.43 The contract purports to have been executed on behalf of Rhine Ruhr by

Mr Thurgood, but the signature above Mr Thurgood's name is not

Mr Thurgood's signature.89 Neither Mr Davies nor Eastoft Hall's 'local contact' were authorised to sign contracts under Mr Thurgood's name, although Mr Davies was authorised to sign contracts on behalf of Rhine

Ruhr.90

33.44 As was the case with the first contract, this contract was solely for the supply

of goods and made no reference to any obligation on Rhine Ruhr's behalf to

364 Report of the Oil-for-Food Inquiry

supply or pay for any services. Nor does it provide for the increase or 'enhancement' of the contract price for reasons associated with the payment of any fee.

33.45 The only document (apart from communications emanating from Mr Davies) that referred to any obligation on the part of Rhine Ruhr to pay any fee to the North Gas Company was the following document.91

MI N E, RUHR r U rn v ? *ì7 R A E S T R E E T N O R T H F l i Z m

V I C 3 0 6 6 A U S T R A L I A

r >\u

Rhine Ruhr Pty. Ltd. "vCN, 003 Z? 1770 317 Rie Street. P.O. B,-/ 1004, I∑ orth f.Uroy, Vidona. 3000. hvllraia. TtlcpiK,∑!". (03','HB2 1.30- idde> --'3) ª4K 1147

To∑. North Gas Company

* : r.4 . ∑%† -'∑'%†<∑∑ *

R H I N E R U H R PTY LTD 3 1 7 RAE S TR EET NORTH FI TZR OY V iC 3 G6 8 A U S TR A LI A :

object∑. Contract No. NGI llo/ll, ATT: Director General

DehLSili :

With reference to your request regarding r-ayment

pa-ment of(1136S starting pounds) say (eleven thousands three hundreds sixty sterHn^ pounds) as services by issuing bank guarantee to cover the. above amount efiei recept c. workable L/C. The payment of the bank gua< antes value to be within 30 days after actual , receipt of L/ C value,

For and behalf of Kliii e Rhur Pty Ltd.

Bruce Thurgood Maiis-jing director 18T" October 2001

; R H I N E R U H R P T Y L I D S & MD E S T R E E T * ù * ü * ú * ó F H Z R O Y V I C 3 0 5 9 A U S T R A L I A

33.46 The signature purporting to be Mr Thurgood's signature on this document is not his signature.92 Mr Thurgood had not seen this document before he was shown it by his lawyers in preparation for giving evidence to the Inquiry.93 Nor had Mr Bryden.94 This document was not amongst Rhine Ruhr's files that were produced to the Inquiry. It was produced to the Inquiry by the IIC. The

Report of the Oil-for-Food Inquiry 365

IIC advised the Inquiry that the document was obtained by it from the files retained by the Ministry of Oil.

33.47 The document refers to the provision of a bank guarantee by Rhine Ruhr to 'cover' the amount of £11,365, which is said to be an amount payable by Rhine Ruhr against 'engineering, services, installation, handling, verification, inspection on site for A/M enquiry'. Amongst the documents produced to the Inquiry by the IIC was a document obtained by the IIC from the Ministry of Oil95, together with an English translation96, that appears to record the provision by 'Rihine Rure' of a guarantee by the Rafidain Bank in Amman for £11,365.

Approval by United Nations and permission to export

33.48 Both Mr Thurgood97 and Mr Bryden98 knew that, for Rhine Ruhr to receive payment under any contract it entered into with an Iraqi entity, payment under the contract had to be approved by the United Nations under the Oil- for-Food Programme. They also knew that the procedures Rhine Ruhr was obliged to follow before it could export the goods included sending some documentation to DFAT."

33.49 Amongst the documents produced to the Inquiry by Rhine Ruhr was a printout from DFAT's website entitled Exporting to Iraq.100 This document was either provided to Ms Nys or she printed it herself from the DFAT website to ascertain what she had to do to get permission to export.101 It spelt out the requirements and procedures necessary to obtain both UN approval for the payment of the contract and permission to export from the Minister for Foreign Affairs under s. 13CA of the Customs (Prohibited Exports) Regulations.

33.50 On 3 November 2001 Mr Davies sent Mr Thurgood and Mr Bryden an email in which he stated, amongst other things:

Attached is the purchase order from North Gas Co relating to our quote C991. You will see that our Baghdad office has partly completed the form 986 which is

required by the United Nations. After the form has been amended to include the US tariff code for these items at point 4b it should then be sent to the Australian Foreign Trade Department for sending on to the Australian Mission to the United Nations in New York for presentation to the 661 (technical approval) committee.102

33.51 The reference in this email to the 'form 986' was a reference to the UN 'Notification or request to ship goods to Iraq' form. Lodgment of this form with the United Nations was the first step in obtaining approval for payment from the UN-controlled escrow account. It was apparent from the form itself

366 Report of the Oil-for-Food Inquiry

that it was to be lodged with the United Nations by the mission of the country of the exporting company.

33.52 Mr Thurgood said he did not open the attachment to the email. Instead, on 5 November 2001 he forwarded the email to Ms Nys, stating:

The attached documentation appears urgent.

Please print out and see what you can do to start the ball rolling on them before Richard returns.103

33.53 Ms Nys was the person at Rhine Ruhr who was primarily responsible for sending the relevant documentation to, and liaising with, DFAT. Mr Bryden assisted Ms Nys in completing the documentation.104 As the most senior employee in the Melbourne office of Rhine Ruhr, he was also responsible for checking the documents that were sent to DFAT and ultimately the United Nations.105 Ms Nys was not an engineer by training and had not been involved at all in the contract negotiations. Accordingly, when filling out the relevant forms she relied on information and documents provided to her by

others, including Mr Bryden.106

33.54 Ms Nys obtained the 'Notification or request to ship goods to Iraq' form from the internet and typed the contract details into the form from information given to her by Mr Bryden.107 The details in the form included details of the goods to be shipped (two sets of valve trays), the 'value' per item (£62,507.50) and the 'total value' of the goods to be shipped (£125,015). This information married up with the contract details. It did not reveal that the agreed price for the supply of the goods was in fact £113,650 (including freight), that the contract price of £125,015 included a 10 per cent 'enhancement' to accommodate the payment of an equivalent fee to an Iraqi entity, or that Rhine Ruhr had undertaken to pay such a fee.

33.55 Mr Bryden did not recall seeing the notification form before Ms Nys sent it to DFAT, although he expected that he would have.108 He would have seen that the value of the goods to be shipped was specified as £125,015, rather than £113,650.109 He was also aware that Ms Nys in due course forwarded a copy of the contract to DFAT.110 It did not cross his mind at the time that the figure supplied in the form should have been £113,650 or that there should have been some disclosure of the engineering services fee.111 He was unaware at the time that the fee had to be highlighted as a separate issue.112 Mr Thurgood did not see the notification form until late 2005.113

33.56 Ms Nys sent the notification form to DFAT under cover of a facsimile dated 13 November 2001.114 The person with whom Ms Nys dealt at DFAT was Mr Cuddihy, the Iraq Desk officer.115 At Mr Cuddihy's request Ms Nys sent

Report of the Oil-for-Food Inquiry 367

some additional documentation to DFAT, including catalogue and design notes concerning the relevant goods116 and the purchase order.117 None of these documents disclosed Rhine Ruhr's obligation to pay the fee or that the price had been 'enhanced' to facilitate the payment of the fee. On

21 November 2001 Mr Cuddihy advised Ms Nys that Rhine Ruhr's contract had been lodged with the United Nations the previous day.118

33.57 Mr Davies continued to liaise with Mr Thurgood, Mr Bryden and Ms Nys during the approval process. On 15 January 2002 he sent an email to each of them, advising that the UN 661 Committee had approved the contract.119 On the following day Mr Cuddihy advised Ms Nys that the United Nations had deemed the contract eligible for payment.120

33.58 In late January 2002 Rhine Ruhr received a copy of the UN communication advising that the contract was deemed eligible for payment.121 A permission to export under the Customs (Prohibited Exports) Regulations was signed by a delegate of the Minister for Foreign Affairs on 22 January 2002.122 Mr Bryden saw both the UN advice and the permission to export.123 He did not observe at the time that both documents approved payment for, or permitted the export of, the relevant goods and made no mention of services or the payment for services.124

Payment of the 'fee' to Mr Davies

33.59 On 10 July 2002 Mr Davies sent to Mr Bryden an email that included the following information and request:

Before the goods will be allowed to be shipped to Um Qasr we will have to

provide the shipping company with the official receipt for the 10% Iraqi

Government Fee added to this contract of UK£11,365. Can you ask Mardi if she needs an Eastoft Hall Ltd invoice to cover this cost and we will make the

arrangements as to where this money needs to be transferred so that we can

obtain the receipt.125

33.60 Mr Bryden replied to this email on 11 July 2002 and advised Mr Davies that Ms Nys would deal with Mr Davies directly in relation to the fee.126 He also forwarded Mr Davies' email to Ms Nys and asked her to 'sort this fee direct with Tony'.127

33.61 Ms Nys spoke to Mr Davies about payment of the fee. Mr Davies advised Ms Nys that the fee was separate to the commission that was payable to him and asked that the money for the fee be paid into his bank account. Ms Nys advised Mr Davies that she would need an invoice to be able to make the payment.128 On the same day Mr Davies emailed an invoice to Ms Nys and gave her details of Eastoft Hall's bank account in the United Kingdom.129 The

368 Report of the Oil-for-Food Inquiry

invoice was on Eastoft Hall's letterhead and included the following particulars:

Service Details Net Amount

Technical Service/Engineering fee in respect of 11,365.00 Contract N G I/10/12 Currency *ESterling130

33.62 Ms Nys sent an email to and spoke with Mr Bryden about the Eastoft Hall

invoice. She may also have spoken with Mr Thurgood.131 Mr Bryden instructed Ms Nys to pay the invoice and she then arranged for the transfer of funds to the bank account nominated by Mr Davies.132 Whilst Mr Bryden instructed Ms Nys to pay the invoice, Mr Thurgood was ultimately responsible for approving the payment, although he did not recall whether he saw the invoice at the time.133 On 24 July 2002 Rhine Ruhr purchased the required foreign currency from a foreign currency dealer and transferred the funds to Eastoft Hall in payment of the invoice.134

33.63 Despite the fact that the invoice represented that a 'Technical

Service/ Engineering fee' was payable to Eastoft Hall for services provided by it, Mr Bryden knew that the Eastoft Hall invoice related to the '10% Iraqi Government Fee' referred to in Mr Davies' email. He also believed that the fee referred to in the invoice was payable to Northern Gas Industry.135 Rhine Ruhr paid the fee to Eastoft Hall because it did not know how or where to pay

the fee, and Mr Davies had suggested that if Rhine Ruhr paid the money for the fee to him he would arrange to get it paid.136 Mr Bryden did not consider it unusual that the invoice was from Eastoft Hall for a 'Technical

Service/ Engineering fee', rather than from Northern Gas Industry, to whom the fee was to be ultimately paid.

Q: But Eastoft Hall w eren't providing any of those services. That's just a false invoice.

A: Well, I didn't see it as a false invoice then, and I would certainly say that today as well. We were providing that money *the company was providing that money in relation to the engineering services fee, which was ultimately flowing through to North Gas.

Q: What technical service engineering did Eastoft Hall provide you?

A: He was providing *he w as *the engineering services fee money was flowing through.

Q: I understand the concept of a conduit for money, and it may well be that

Eastoft Hall was a conduit for this money.

Report of the Oil-for-Food Inquiry 369

A: Yes.

Q: What I am putting to you is a different question. You have an invoice for

services.

A: Yes.

Q: The services are not for the conduit of money. The services are for 'technical service engineering' in respect of a contract. What technical services engineering did Eastoft Hall provide to you, to your company?

A: That invoice was effectively providing a receipt for the *an initial receipt for the money, because when that 11,000 left Rhine Ruhr, it was going into an Eastoft Hall account, and we w ouldn't pass money out without an invoice to pay.137

33.64 It did not concern Mr Bryden that Rhine Ruhr was paying this money to Eastoft Hall well in advance of the goods being shipped to Iraq and without knowing how or to whom it was to be paid.138 He knew that Rhine Ruhr had to make this payment before the goods could be shipped to Iraq and before Rhine Ruhr could be paid.139

33.65 Mr Thurgood also understood that the fee was ultimately going to be paid to the Iraqis and that Mr Davies and Eastoft Hall were a mere conduit.

Q: As I understand your evidence, Mr Thurgood, you understood at the time that this fee was to be paid to the end user in the contract *that's the North Gas

Industry company * is that right?

A: That was my understanding, yes.

Q: It would have been a fairly straightforward thing to have inquired of North Gas Company what account to pay that fee into, right?

A: I think normally that would have been the case, yes.

Q: You're an engineer, you know what a conduit is, do you not?

A: I suppose so. I don't know what you're getting at, but I know w hat a conduit is.

Q: That's what Mr Davies and Eastoft Hall was in relation to the payment of this fee; right?

A: Yes.

Q: It went into his account and then he paid it off, you understood, to NGI, North Gas Industry; right?

A: Yes.

Q: Did you follow up with Mr Davies as to whether he in fact did pay it to the

North Gas Industry?

370 Report of the Oil-for-Food Inquiry

A: Personally, no.140

Shipment to Umm Qasr: the delay in Jebel Ali and the receipt

33.66 Rhine Ruhr retained its usual freight forwarders, A Hartrodt Australia Pty Limited, to deliver the goods to Kirkuk via Umm Qasr.141 Hartrodt in turn arranged the sea freight from Melbourne to Umm Qasr through P&O Nedlloyd Limited.142 Ms Nys was primarily responsible for arranging the freight and liaising with Mr Davies and the freight forwarders about the shipment.

33.67 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.143 In late July and early August 2002 P&O Nedlloyd sent to Hartrodt a number of emails that contained information about the documentary requirements for shipping to Iraq. These emails were forwarded to Rhine Ruhr. In an email dated 23 July 2002 P&O Nedlloyd advised that the documentary requirement for movement of cargo into Iraqi destinations included proof of payment of a 10 per cent 'after-sales tax/ The email included the following:

... we need a proof of payment of the 10% aftersales tax levied on all shipments to Iraq moved under phase 8 onwards, fyi. this is paid directly by shipper to cnee [consignee]. 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. Any charges involved in returning cargo or any cost for the delay of the vessel in Iraq, will be for shippers account.144

33.68 Another email from P&O Nedlloyd to Hartrodt, dated 3 August 2002, a copy of which was sent to Ms Nys at Rhine Ruhr, included the following:

Please pay special attention to after sales charge/ confirmation.

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

OR

2) Letter from Alia transport who are authorised by consignee ISCWT 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 ISCWT confirming receipt of money.

Report of the Oil-for-Food Inquiry 371

If the above confirmations are not received in time the boxes will incur unnecessary line & port demurrage in Jebel Ali.145

33.69 Ms Nys discussed the matters referred to in these emails with Mr Davies. Shortly after receiving the P&O Nedlloyd email of 3 August 2002 Ms Nys received an email from Mr Davies in which he advised that this was 'standard procedure' and that he would liaise with P&O in Jebel Ali (in the United Arab Emirates) to ensure that there were no problems.146 On 3 September 2002 Mr Davies sent an email to Ms Nys in which he advised that the vessel would arrive in Jebel Ali on 5 September and that 'the 10% receipt has been transferred to the harbour master at Um Qasr port who has informed the agent of PONL [P&O Nedlloyd]'.147

33.70 Despite Mr Davies' efforts, the shipment did encounter problems in relation to proof of the payment of the 10 per cent fee.148 As indicated in its emails, P&O Nedlloyd shipped goods to Umm Qasr via Jebel Ali. On 4 and 5 September P&O Nedlloyd advised Hartrodt, and Hartrodt advised Ms Nys at Rhine Ruhr, that there was a delay at Jebel Ali because no receipt for the payment of the 10 per cent fee in respect of the shipment could be located. As a result, the consignment could not be released for on-forwarding to Umm Qasr.149

33.71 On 5 September 2002 Ms Nys advised Mr Davies of this problem by email and requested a copy of the receipt.150 This email was copied to Mr Thurgood. On the same day Mr Davies sent Ms Nys an email that included the following:

Our office in Baghdad, on client instructions, did not pay the money to the state company for internal transportation and have paid it to the clients bank account at A1 Rafidian bank, Amman Jordan Branch. They tell me that the client has issued the instructions to PONL and I have asked them for a copy receipt so that we can

send a copy to you and Mr Jivani at PONL in Jebil Ali.151

33.72 On the following day, Mr Davies sent an email to Hartrodt, copied to Ms Nys, in which he stated the following:

We are the agent for the Iraqi market for Rhine Ruhr as well as about 12 other companies from around the world.

We normally would be expected to have paid money deposited by Rhine Ruhr to the State Company for Internal Transportation in either Baghdad or Um Qasr but for some reason the commercial department at the end client, North Gas Co Kirkuk, have confused the issue by instructing our Baghdad office to keep the sales tax in the clients bank account in AMMAN and there was to be an internal receipt issued to the harbour master at Um Qasr to confirm the issue of the official receipt.

We have sent a man from Baghdad to Um Qasr to sort out the problem and to email a copy of the receipt us for onward transmission to you.

372 Report of the Oil-for-Food Inquiry

I will monitor over this weekend to ensure that the container can load on the next coaster.152

33.73 Mr Davies continued to monitor the situation. On 10 September he advised Ms Nys by email that Northern Gas Industry in Kirkuk had given instructions to the Ministry of Internal Transport in Um Qasr to re-send the necessary confirmation to P&O Nedlloyd.153 The confirmations must in due course have been sent and satisfied the relevant Iraqi authorities, because the shipment eventually arrived in Umm Qasr. Its delivery was certified by the UN independent inspection agent on 24 October 2002.154

33.74 As would be expected, Ms Nys kept both Mr Thurgood155 and Mr Bryden156 informed about the delay occasioned by the need to evidence the payment of the 10 per cent after-sales-service tax.

33.75 Mr Bryden saw and read the documents that came to Ms Nys from P&O Nedlloyd through Hartrodt.157 On a printout of one of the Hartrodt emails Mr Bryden wrote, 'We need to pay that 10% surcharge now to get the certificate prior to loading'.158 Despite the fact that the various emails refer to the 10 per cent payment as an 'after-sales-service charge', or 'tax', and Mr Bryden himself called it a 'surcharge', Mr Bryden maintained that the payment was the engineering services fee referred to in the initial communications received from Mr Davies.159 The different 'terminologies' did not concern him.160 The only thing that Mr Bryden considered unusual was Mr Davies' advice that he paid the money into an account in Jordan.161

33.76 Mr Bryden also maintained that he always believed the money was to be paid to Northern Gas Industry. This belief persisted despite Mr Davies' observation in one of his emails that the money would normally be expected to be paid to the State Company for Internal Transportation162 and despite the fact that it was apparent from the P&O Nedlloyd emails that all persons shipping goods into Iraq were required to pay a 10 per cent tax or charge.163 Mr Bryden never saw, or asked to see, the receipt that would have confirmed the entity to which the fee was paid.164

33.77 Whilst Mr Thurgood was aware that an issue arose in relation to the receipt for the payment of the 10 per cent fee, he relied on his staff and Mr Davies to deal with the problem. He did not recall receiving or reading any of the emails or speaking with Ms Nys about them.165 Like Mr Bryden, at the time he never saw, or attempted to obtain a copy of, the receipt and took no steps to ascertain exactly to whom the money was paid.166

33.78 Rhine Ruhr eventually obtained a copy of the receipt in December 2004 in the context of the investigation being conduced by the IIC.167 The receipt was in Arabic, but no attempt was made by either Mr Thurgood or Mr Bryden to

Report of the Oil-for-Food Inquiry 373

have the receipt translated. A translation of the receipt obtained by the Inquiry reveals that the funds were received into the account held by the Iraqi Ministry of Petroleum in the Rafidain Bank in Jordan.168

33.79 Rhine Ruhr received payment for the goods under the letter of credit drawn on the UN escrow account on 8 November 2002.169

Rhine Ruhr's responses to IIC questions

33.80 In late 2004 Rhine Ruhr was contacted by investigators from the IIC. Mr Tyzzer, who by this time was the managing director, was appointed to respond to and deal with the IIC investigators.170 Mr Tyzzer was selected as the contact point, even though he was the one director who had not had any involvement in the transactions that were to be investigated.171

33.81 Both Mr Thurgood and Mr Bryden were aware that Mr Tyzzer was

responding to questions asked by the IIC investigators. Both had discussions with Mr Tyzzer about the questions and the information to be provided.172 Mr Bryden provided information to Mr Tyzzer about the nature of the 10 per cent payment that appeared to be the focus of the IIC investigations.173 Mr Tyzzer had access to all the documents relating to the contract in Rhine Ruhr's possession.174

33.82 On 3 February 2005 Mr Tyzzer sent an email to the IIC investigators. He sent, or would have sent, a draft of this email to Mr Thurgood and Mr Bryden before sending it to the IIC.175 The final version of the email was copied to Messrs Thurgood, Bryden and Davies. After referring to the negotiation of the contract, the email included the following:

The final selling price came to UKP 113650. Tony Davies was made aware of the requirement of the additional 'Iraq sales tax' of 10% and this tax of UKP 11365 was requested to be an addition to our price and covered by the LC documentation in order for it to be seen by the U.N. as a reimbursable cost. As you are aware, we won the contract with the LC value being UKP 125015. No additional monies were

paid out or allocated for this contract.

As discussed with you, the only strange action that I'm aware of is when the 10% Iraqi tax payment was required we were instructed at the last moment to deposit the payment in the clients account (A1 Rafeedein bank), Amman branch, instead of the Baghdad branch. After the deposit, we were issued with the correct official receipt (a copy is enclosed) and we were allowed to proceed with shipping and delivery. As requested, I also enclose e-mails warning us regarding the correct documents and proof of payment of 10% Iraqi tax. These were received from our international shippers (Hartrodt) via PONL.176

374 Report of the Oil-for-Food Inquiry

33.83 On 4 February 2005 the IIC investigators responded to this email and asked Mr Tyzzer whether the issue of the 'Iraqi sales tax' was raised with Australian government officials or whether Rhine Ruhr ever received instructions to the effect that this was a normal requirement. Mr Tyzzer responded by email, copied to Messrs Thurgood, Bryden and Davies, in the following terms:

Once again I have looked through our correspondence. I have also discussed the project with our engineer who coordinated the manufacture and delivery. There was no questioning of the need for a 10% Iraqi tax to any Australian government official, and our people would not have raised this as an issue at the time. The contract was awarded with our requirement that this internal tax was not for our account. The order we received had the tax included in the total order value. The order came with the full blessing of the UN. Because of this we regarded payment as an obligation (similar to paying GST).

My previous email had attachments from PONL and our shippers. These documents freely discussed the absolute need for paying this charge, other wise the goods would not be delivered and penalties would be applied. These instructions appeared to be in the public domain and we considered this as

confirmation that this tax was a normal requirement. By forwarding this 10% payment and getting the receipt (attached to my first e-mail) our equipment was cleared by UN officials and quickly delivered to site, ie every thing worked as described by our shippers and agents.177

33.84 A number of the statements made by Mr Tyzzer in both these emails are inconsistent with much of the contemporaneous documentation and with what both Mr Bryden and Mr Thurgood claimed was their understanding and belief about the nature of the fee. The inconsistencies include:

" the description of the 10 per cent payment as a '10% Iraqi sales tax/ Both Mr Thurgood and Mr Bryden claimed they understood and believed that the payment was a fee relating to installation and engineering services * although Mr Bryden himself had described the fee as a 'surcharge'. The initial documentation received from Mr Davies, including Mr Davies' email of 20 October 2001 that Mr Tyzzer saw and used in formulating his responses to the IIC178, described the payment as an engineering services fee. None of the documents examined by Mr Tyzzer relating to the relevant contract describe the payment as a 'sales tax'179

" the assertion that the 'tax' was requested to be an addition to Rhine Ruhr's contract price 'in order for it to be seen by the UN as a

reimbursable cost'. To be 'seen' by the United Nations to be a

reimbursable cost, the payment would have to have been revealed in the documents submitted to the United Nations. None of the documents sent to DFAT or the United Nations revealed the existence of the payment or the fact that it had been built into the contract price

Report of the Oil-for-Food Inquiry 375

" the statement that the contract was awarded with Rhine Ruhr's

requirement that the 'internal tax' was not for Rhine Ruhr's account. It was not Rhine Ruhr's requirement that the 'tax' be added to the contract price. This had been imposed by the Iraqis.

33.85 Mr Tyzzer did not tell the IIC investigators that the 'engineer who

coordinated the manufacture and delivery', Mr Bryden, claimed he did not believe that the payment was a sales tax but was a fee relating to installation and engineering services (although Mr Bryden himself had described it as a 'surcharge').180 Nor did he give the IIC investigators copies of the documents that described the payment as an engineering services fee. Mr Tyzzer said nothing in the emails about the fact that Rhine Ruhr had received an invoice from Eastoft Hall for the payment of the fee, or that it had used Eastoft Hall as a conduit for the payment of the fee, or that Rhine Ruhr never knew precisely how or to whom the money had been paid.

33.86 Both of Mr Tyzzer's emails to the IIC investigators were copied to Messrs Thurgood, Bryden and Davies. Despite the fact that much of what Mr Tyzzer put in these emails was inconsistent with their understanding and beliefs, neither Mr Thurgood nor Mr Bryden told Mr Tyzzer that any of his

statements to the IIC were inaccurate or incorrect.181 Nor did Mr Tyzzer have any discussion with Mr Davies about the nature of the 10 per cent payment.182

Mr Davies

33.87 Mr Davies is a resident of the United Kingdom. He is still acting as Rhine Ruhr's agent, and Rhine Ruhr has active tenders in Iraq through Eastoft Hall.183 The Inquiry asked Mr Davies whether he was prepared to attend and give evidence before the Inquiry, a request he initially declined.184 A further request was made through Rhine Ruhr's solicitors following Mr Thurgood's evidence. Rhine Ruhr's solicitors subsequently advised the Inquiry that Mr Davies had again declined to attend and give evidence before the Inquiry.

Issues and findings

33.88 The issues of fact requiring determination are:

" whether, as part of Rhine Ruhr's contract to supply equipment to

Northern Gas Industry, a sum equal to 10 per cent of the contract price was paid to Iraqi authorities as an 'after-sales-service' fee or otherwise

" if a sum equal to 10 per cent of the contract price was paid to Iraqi

authorities, whether either or both Mr Thurgood and Mr Bryden knew the

376 Report of the Oil-for-Food Inquiry

nature of the payment and to whom it was paid and knew that the

contract price had been inflated by 10 per cent to take into account this payment

" whether, in their dealings with DFAT, and through DFAT the United Nations, Rhine Ruhr, Mr Thurgood or Mr Bryden made any false or misleading statement

" if Rhine Ruhr, Mr Thurgood or Mr Bryden did make any false or

misleading statement to DFAT or the United Nations, whether that statement was made knowingly, dishonestly or with the intention to deceive or defraud

" whether DFAT or the United Nations was misled or deceived by reason of any untrue representation by Rhine Ruhr or its officers and whether, as a result, Rhine Ruhr obtained a benefit or advantage.

I answer the first two questions and the last in the affirmative. In relation to the third, the statement that the Total price7 was £125,015 was factually wrong because it included a 10 per cent fee. The fourth question is answered in the negative.

33.89 There is also a question about whether the payment Rhine Ruhr arranged to be made to Iraq via Eastoft Hall complied with the Banking (Foreign Exchange) Regulations.

Payment of the 10 per cent fee

33.90 The evidence establishes that the contract price was inflated by 10 per cent to provide for the payment of a 10 per cent fee to an Iraqi entity. Mr Davies' correspondence establishes that an agreement was struck to supply the goods to Northern Gas Industry for £113,650 but that this price was 'enhanced7 in the contract (and the corresponding letter of credit) by 10 per cent to cover the payment of an 'Iraqi Engineering Services Fee'. The same arrangement had been entered into in connection with the first Rhine Ruhr contract. The contract between Rhine Ruhr, Northern Gas Industry and the Iraqi Ministry of Oil contained the 'enhanced' price of £125,015 but made no reference to the fact that the price had been enhanced by 10 per cent or that there was a corresponding obligation on the part of Rhine Ruhr to pay a fee.

33.91 The 10 per cent fee was paid by Rhine Ruhr purchasing the required foreign currency and transferring it to Eastoft Hall on the understanding that Eastoft Hall would use the funds to pay the fee. The money was ultimately paid into

Report of the Oil-for-Food Inquiry 377

an account held by the Ministry of Oil in the Rafidain Bank in Jordan on 12 September 2002.

The nature of the fee

33.92 Neither Mr Thurgood nor Mr Bryden disputed that the price for the supply of the equipment was increased to allow for the payment of the fee or that the fee was ultimately paid to an Iraqi entity. They claimed they understood that the fee related to installation or engineering services and at all times they believed it was paid to the Iraqi end user, Northern Gas Industry.185

33.93 I reject the notion that the 10 per cent fee related to services provided, or to be provided, in relation to the installation, verification or inspection of the equipment. The documents that so describe the fee were a mere cover designed to conceal the true nature of the payment, which was a fee paid to the Iraqi Government to enable it to acquire foreign currency in

circumvention of the UN sanctions re