Aid to the Enemy: the Wheat Board Scandal
BEFORE the inquiry into what may be this nation's biggest international scandal began this week, Australia's monopoly wheat exporter repeatedly claimed it never knowingly paid a bribe to the corrupt regime of Saddam Hussein.
"We were duped," AWB said over and again in its press releases. "We acted in good faith. We feel deceived."
Yes, it admitted, perhaps the $290 million in fees it paid to a Jordanian trucking company under the UN-funded oil-for-food humanitarian program ended up with Saddam when he was Iraqi president, but how was it expected to know? It thought the fees were for transport.
During the past five days, before the special federal inquiry headed by former judge and royal commissioner Terence Cole QC, those statements have been demolished by John Agius QC, the terrifyingly effective senior counsel assisting the inquiry.
Agius has produced a blizzard of documentary evidence that suggests that many people at the listed AWB, formerly the Australian Wheat Board when it was in government hands, including those at "very senior levels" knew exactly where the money was going, and went to great lengths to hide it from the UN.
When the company's managing director, Andrew Lindberg, who spent what must have felt like four agonisingly long days in the witness box - tried to deny it, Agius looked him right in the eye and said: "It's ridiculous to suggest that you did not know, Mr Lindberg. Are you a complete fool?"
The question yet to be answered is: did AWB hide the truth from the Howard Government? Both Foreign Minister Alexander Downer and Trade Minister Mark Vaile met AWB executives many times in the lead-up to the Iraq War, which began in March 2003. Both have denied prior knowledge of what is proving to be the biggest trade scandal Australia has faced, one that has the potential to seriously damage its international reputation for good corporate governance and accountability.
AWB had to submit its Iraq contracts with the Department of Foreign Affairs and Trade for approval, and they had to be stamped by officials at Australia's mission to the UN in New York, before they would be approved by officials of the UN's oil-for-food program. DFAT officials in Canberra and New York were warned about allegations of corruption as far back as 2000 but conducted only cursory investigations.
Also, as the inquiry widens to take in such companies as the mining giant BHP Billiton and AWB's wheat dealings in Pakistan, Indonesia and elsewhere, it has the potential to reveal the murky underbelly of international trade, proving what many people have always believed: that doing business with corrupt regimes overseas means paying bribes and kickbacks, or missing out altogether.
The UN oil-for-food program was set up in 1996, after Saddam complained that his people were starving, under the sanctions that had been put in place after the Gulf War. Under its terms, Iraq could sell oil, but the money would go into a special UN escrow account.
Iraq could then apply to the UN for permission to buy food and medicine and the UN would pay the bills from the oil money.
By 1999, Saddam had found a way to corrupt the program. He told his ministers to add a secret "after-sales service fee" and, sometimes, a "trucking fee" to all the UN contracts. So, if Australia had $100,000 worth of wheat to sell, it would have to inflate the price, to $120,000 or $130,000. AWB would submit the contract to the UN and get paid from the escrow account. It would keep the $100,000 for the wheat, and "kick back" the extra money to Iraq.
Saddam's regime gained access to hundreds of millions of dollars, some of which went on palaces or Arabian racehorses for Saddam's son, Uday, or to the families of Palestinian suicide bombers, who blew up buses and restaurants in Israel.
Some also went on weapons, such as machine guns for the Iraqi National Guard, who would soon be shooting at Australian troops. None of these obvious possibilities seemed to trouble AWB, however.
On the contrary, its senior executives seemed most concerned about how to make the kickbacks, without the UN finding out about it. In one memo entered into evidence at the Cole inquiry, employees tossed around different "brilliant" ideas. They considered opening an account with a "friendly" bank in Jordan - they suggested ANZ - and putting the money there, so Iraq could take it out again. Or else, they said, just buy "a very large suitcase". In the end, they decided to pay the money to a Jordanian trucking company called Alia, which would pass it on to Iraq, after taking a small commission. Once this process was in place, business between Australia and Iraq boomed.
From 1999 until the Iraq war in 2003, AWB sold more than $US1.5 billion worth of wheat to Iraq. As Lindberg told the Cole inquiry, the contracts were "treasured".
The only problem was the "trucking fees" and the "after sales service fees" kept growing, until AWB found itself having to inflate the price of its contracts not by 10 per cent but by up to 30 per cent. It wasn't until 2002 that things began to unravel.
The US, still reeling from the September 11 terrorist attacks, decided to launch a pre-emptive strike on Iraq, fearing it was developing weapons of mass destruction. British Prime Minister Tony Blair joined the coalition of the willing, as did John Howard.
Iraq's trade minister, Mohammed Mehdi Saleh - who would soon become the Six of Hearts in America's pack of Most Wanted Iraqis playing cards - lashed out, saying he would punish Australia by cutting an existing order for one million tonnes of Australian wheat by half. Furthermore, he said a shipload of Australian wheat already at Umm Qasr was contaminated with iron filings and wouldn't be unloaded. AWB was horrified.
It was lucrative deals such as those in Iraq that had them earning massive bonuses. A team of executives - including Lindberg, the former chairman Trevor Flugge and international sales manager Michael Long - flew immediately to Iraq to meet the trade minister.
He spoke fluent English, so there can be no question that his demands were misunderstood. Saleh said he expected the Australians to pay a $US2 million fee to "clean" the contaminated wheat.
Lindberg told the Cole inquiry that he never accepted that the wheat was contaminated. However, after being asked about it 12 times by Agius, he admitted that he agreed to pay the money, by secretly inflating future contracts, before submitting them to the UN. "We had to, we had to, we had no option," he said.
It is not clear whether the money was for Saleh - who would later be captured by US forces and imprisoned in Iraq - or for Saddam's regime.
Lindberg flew back to Australia for a meeting with Vaile, who congratulated the team for their success, in saving Australia's wheat deals. When reporters asked how he'd done it, Lindberg, straight-faced said the Iraqi minister had agreed to buy more Australian wheat, even as Australia was preparing to go to war with Iraq, "out of respect for Australian farmers".
Privately, his executives were discussing the deal in memos, including one dated February 7, 2003 (just weeks before the Iraq war) in which it was suggested that Lindberg should tell the Australian Government about the terms "at the appropriate time".
"The timing of such a disclosure is important," the memo said, noting that "this is unlikely to happen until after a war with Iraq."
Another memo was even blunter: it said Downer must be told. Downer and Vaile have strenuously denied any knowledge of the kickback program, and Lindberg said he never discussed it with them.
However, on the first day of the Cole inquiry on Monday, former AWB chairman Murray Rogers said three times that AWB executives had discussed earlier Iraq deals with Canberra and that "any" changes to the contract terms - such as the sudden addition of an expensive transport fee - would have gone to DFAT for approval.
"I have a vivid - a vague - recollection that that [the first of the transport fees, which were added to the contracts in 1999] was discussed with DFAT in Canberra before we proceeded," Rogers said.
There was more to come. The mining giant, BHP Billiton, was dragged into evidence on the second day. According to documents, AWB cooked up a deal to help a Melbourne-based company called Tigris Petroleum recover an old debt from Iraq that it had inherited from BHP.
Tigris is registered in Gibraltar but was set up by former BHP employees and last year, it entered into a deal with BHP Billiton, to seek oil deals in Iraq. Tigris promised to pay AWB $500,000 if it helped recover the $8 million debt from Iraq. Once again, AWB agreed to secretly inflate the wheat contracts and pass the extra money it received from the UN back to Tigris.
At a meeting of senior AWB executives on May 6, 2003 - just two months after US, British and Australian troops invaded Iraq - there was a clear suggestion that bribes would need to be paid to "a number of influential people" to keep the Tigris money flowing. But when Lindberg was asked about this, he couldn't remember a thing.
Agius read him a memo that said: "A number of influential people will need to start receiving funds?" but Lindberg said he didn't know what it meant.
"It's a code, isn't it?" Agius said.
At this point, commissioner Cole interjected: "It's not a very subtle code." Agius added: "Are you the only one in the room who doesn't know what it means, Mr Lindberg?"
He replied: "I don't know what's meant by that."
"Have a wild stab," Agius said. Lindberg insisted: "I just don't know."
In other damning evidence, AWB executives were recorded, in memos and emails, saying such things as "we have to keep the lid on this" and to make sure deals were structured so "it was not apparent that the funds were going to Iraq".
Agius suggested there was a "culture" at AWB of "the end justifies the means".
"What does it speak of the culture, that not only were they [senior executives, who helped cook up the deals] prepared to share their plans with you, their managing director?" he said.
"I don't know," said Lindberg.
"Does it not suggest that they were not expecting any retribution, or any negative comment, to flow from their suggestions?"
"I don't know," he said.
"None of them has suggested that there is no point in proceeding with this because the chief executive officer would never contemplate it."
"I don't know."
Given the scale of the scandal, Prime Minister Howard desperately doesn't want his Government to get caught up in it.
He has personally denied any knowledge of the shameful deals and insists that neither he, nor his ministers, nor any officials from DFAT knew what AWB was doing.
When Paul Volcker, chief investigator at the UN, released a report last October that named AWB as the largest single supplier of illicit funds to Saddam's corrupt regime, Howard said that AWB executives - most of whom have some farming background and get around in Akubras and RM Williams boots - had always seemed "a very straight up and down group of people".
"I can't, on my knowledge and understanding of the people involved, imagine for a moment that they would have knowingly been involved in anything improper," Howard said.
Downer also expressed support for the company, as did Vaile. Time and again, they also claimed: "The UN approved all the contracts."
And they said: "AWB and the Government co-operated fully with the UN inquiry."
In fact, AWB did not provide the UN with all of its files, emails, contracts and documents.
Messages of support from the Government have this week been very difficult to find.
AWB will struggle to recover from the scandal. Certainly, Lindberg will be under pressure to resign.
The Labor Opposition says the Government is also - at the very least - guilty of "culpable negligence". Labor trade and foreign affairs spokesman Kevin Rudd wants to know why nobody at DFAT ever questioned why the value of contracts was skyrocketing, even as world wheat prices were falling.
In 2000, Canada's wheat farmers complained to the UN that when they tried to do a deal with Iraq, they were told they would have to pay an "after sales service fee" just as Australia was doing.
Canada's mission to the UN bought this to DFAT's attention. The head of Middle East Section, Robert Bowker, called AWB to ask if it were true, but AWB denied it. Bowker passed this message back to the UN, via Australia's mission.
Rudd was entirely correct when he described this as a woeful performance, when so much - Australia's international reputation, for one - was at stake.
However, emails from DFAT show the department trying to steer AWB toward honest business practices.
In 2002, government officials told AWB to offer Iraq cheaper wheat, in exchange for the load that was "contaminated".
Agius noted that AWB's decision to inflate the contracts instead was "completely at odds" with advice provided by DFAT, and that AWB's senior executives urged Lindberg not to tell "the Australian government, or Minister Downer, or DFAT" what they had done until after the contracts were locked in.
"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," the memo said.
Throughout the scandal, there have been lessons in how to manage a crisis. When BHP was named, it put out a short statement, saying it was "extremely concerned" and "working hard to clarify the facts as soon as possible". Moreover, it was committed to the "highest standards of ethical conduct".
AWB, by comparison, released Lindberg's confidential witness statements to the Australian Stock Exchange, before being forced to withdraw it, after being scolded by Cole.
By a rough count, Lindberg has said "I don't know" or "I don't recall" more than 200 times in four days, until he was reprimanded, like a child, by the senior counsel.
As for Australia's wheat farmers, many are watching from home, angry and dismayed. They are appalled that, under the so-called "single desk" policy (under which all Australian wheat is pooled and sold by AWB, rather than by trading houses and other private companies) they have no choice but to continue delivering their grain to AWB to sell on the international market.
Those farmers who longed for an end to this monopoly, so they could sell their own wheat, to whatever mills, in whatever countries they choose, see an opportunity to put an end to the arrangement.
Rick Wilson of Western Grain Growers said: "This is more than a bribery. It's massively damaged the reputation of the Australian wheat industry. And yet we are told we must deal with these people."
Wilson has long been opposed to the "single desk" and thinks now might be time to open the market. " When the Government took the extraordinary step of conferring monopoly powers for the export of Australian wheat on a publicly listed company, AWB Ltd, it created a monster," he said.
Australian Grain Exporters Association's Phil Hughes, who also opposes the single desk, said the scandal was "damaging to Australia's reputation as a whole".
"It looks like the AWB is in a lot of trouble," he said. "What we'd like to see is a system that is opened up to credible exporters, so we don't fall into a hole like this again."
Grazier Peter Howard, of Ozepulse, has a long, bitter history with AWB. This week, he took time away from his own business, to watch the scandal unfold in Sydney.
In the late '80s, Howard exported durham wheat from Australia to Turkey and Morocco but, when AWB Ltd was formed, he lost most of his business. He now exports chickpeas and fava bean into India and Bangladesh.
"I admit I want the AWB gone," he said. "I'm sure there are many nations that will not want to deal with that company but who do want to buy Australian wheat."
One such country might be Iraq. For years, it was one of Australia's best customers, but it hasn't bought Australian wheat for months, and the former deputy prime minister, Ahmed Chalabi, told The Weekend Australian before the recent Iraqi elections that he wouldn't be buying any more until AWB Ltd agreed to pay compensation for funding Saddam's regime.
Late yesterday, Lindberg, who has been managing director since April 2000, was still trying to defend his conduct by claiming he was very busy, didn't pay attention to detail, and that he actually knew very little about the company he manages.
Agius sighed, and said: "I don't want to paint you as a person who was standing in your office looking out whilst the AWB burned, Mr Lindberg, but did you not take a personal interest in these matters."
Lindberg shrugged, and replied: "I had a million things to deal with."