28.4 Mr Whitwell's evidence was that Mr Hockey was putting together a series of dot points which were AWB's understanding of the situation at that point of time.[1507] He could not recall the source of the rumour.[1508] He agreed that the second dot point, 'we did it as requested by UN' was not a 'particularly accurate point'.[1509]

28.5 On 4 May 2003, Mr Hockey sent a further email to Mr Whitwell entitled 'Jordanian a/c mark II'. The email read:

Once we finalise this, pls send back to me and I will top and tail it as a briefing note for Embassy/dfat officials.

Darryl

It is thus apparent that Mr Hockey was marshalling material for the purpose of briefing government officials to assist them in understanding AWB's position, as well as to assist both them and AWB to respond to inquiries.

28.6 Mr Whitwell responded to Mr Hockey's email the following day with 'some small changes'.[1511] He copied his response to Mr Hogan for comment. Mr Whitwell incorporated his changes into Mr Hockey's dot points as follows:

28.7 Mr Hockey's evidence was:

As he [Mr Whitwell] was very busy at the time I wrote down a number of points explained to me by Mr Whitwell then read them back to him to check if I had noted them correctly. He acknowledged that I had done so. He asked me to send him a copy of these for his records once I had typed them and provided them as backgrounding to the media desk to assist them in formulating responses to potential media enquiries. These points were later further refined by Mr Whitwell and Mr Hogan.[1513]

28.8 It is probable Mr Hogan did not read the emails as he was absent from AWB at the time they were sent.[1514]

June 2003: the US Wheat Associates allegations

28.9 On 3 June 2003, the President of the US Wheat Associates, Mr Tracy, wrote to Mr Powell, the then US Secretary of State. The letter read:

The recent announcement on the renegotiating of contracts under the Iraq Oil-For-Food (OFF) program raises several important issues for the United States. We are particularly concerned as to whether old wheat contracts with the Australian Wheat Board (AWB) are or have been included in this exercise.

The U.S is providing most of the funding for the WFP feeding effort, so possible price gouging for Australian wheat-regardless of whether it's through OFF or WFP-is appalling. We certainly support all efforts to see that the Iraqis do not go hungry, but there is no reason for the U.S. to pony up funding if the Australians continue to overcharge for such a basic commodity. The U.S. must require open bidding and complete transparency in the process

We urge that you direct your staff involved in WFP and OFF contract approvals to be alert to these issues and to inform themselves on the going prices for these commodities.[1515]

This letter and similar statements were published in the US and Australian press.[1516]

28.10 On 4 June 2003, Mr Hockey sent an email to Ms Freeman and Mr Walker, amongst others, and copied to Messrs Whitwell, Long, McBride (AWB's Media Manager) and Trewin (AWB's Corporate Affairs Manager). Mr Walker was a DFAT officer working with the Iraq Task Force. Ms Freeman was a Counsellor with the Australian Embassy in Washington. The email read:

Fran

A contact in DC has advised the following:

'US Wheat Associates are pursuing you guys … they have got the pricing information on AWB Limited's contracts over the past two years with Iraq-they are saying that it was 30 pct above the market price. USW is firing off a letter to the State Department-requesting an inquiry on this - etc, etc, etc - '

…

Just for the record, yes it has always been a lucrative market and we have always been upfront about that.

Couple of interesting points:

our contracts are all independently approved by the UN

our contracts include extensive financial risk management as a result of payment after delivery and authentication; allowances for significant shipping delay; poor unloading facilities …; all sorts of other financial and execution risks

…

our contracts include costs for distribution to all governates of Iraq. [1517]

28.11 On 6 June 2003, AWB responded to the US Wheat Associates allegations in a media release:

Allegations by US lobby group, the US Wheat Associates, that AWB has illegally paid money to Saddam Hussein's family were described as baseless and outrageous today by AWB Limited Managing Director, Andrew Lindberg.

The accusations were made in a letter from the US Wheat Associates to the US Secretary of State, Colin Powell, which alleged Australian wheat was being sold to Iraq at inflated prices, and that money had been underhandedly paid to the Hussein family.

'These comments are absurd, with no foundation, and are an insult to Australian wheat farmers and damaging to our reputation,' Mr Lindberg said. 'We are currently investigating our legal options,' Mr Lindberg said.

'We are calling for the US Wheat Associates to retract their comments, and have had discussions with the Australian Federal Government who have also expressed their concern at the accusations.

'The US Wheat Associates themselves have admitted they have no proof of this ever occurring, so these comments seem to be an act of desperation on their behalf.

'All our contracts have been approved and executed through the United Nations' Oil-For-Food program, and have been totally transparent and above board,' Mr Lindberg said.

Mr Lindberg said AWB had been supplying wheat to Iraq for more than 50 years, and had earned its market share based on a high quality product, strong customer relationships, and a high level of service.

'We are more than happy to compete with US wheat in a free market on a level playing field, but that will mean the US will have to match their rhetoric and only allow unsubsidised wheat to be marketed,' Mr Lindberg said.

Mr Lindberg said the prices AWB negotiated with Iraq were commercially confidential. However, the price not only includes delivery to Umm Qasr, but also insurance, on-ground distribution to all governates of Iraq and ongoing technical support.

'The US Wheat Associates obviously have no understanding of the current Iraqi market,' Mr Lindberg said.

'We have existing contracts with Iraq which were struck on commercial grounds prior to the recent hostilities, and we certainly believe that it is fair and reasonable that these contracts be honoured,' Mr Lindberg said. [1518]

28.12 That day, Mr Walker sent a cable to Washington regarding the allegations. The cable stated:

We are very concerned at egregious allegations made by US Wheat Associates against AWB Ltd that the latter paid bribes to the Saddam regime in exchange for wheat export contracts under the Oil-for-Food Program. Grateful Ambassador raise this matter at a senior level with the US Administration, noting our concern that AWB Ltd's international reputation could be damaged by the unfounded claims, and reiterating our expectation that Australian and US wheat exporters will compete fairly on an open Iraqi market. Grateful you also clarify the status of any US plans to reactivate export enhancement programs for Iraq. [1519]

28.13 The cable requested the then Ambassador (Ambassador Thawley) to make 'appropriate representations' drawing on 'talking points' provided. Some of those talking points included:

28.14 Ambassador Thawley responded to Mr Walker's cable by cable dated 6 June 2003[1521], confirming that he had conveyed Australia's concerns about the allegations made by the US Wheat Associates.

28.15 On 10 June 2003, Mr Cooper attended a meeting of senior managers familiar with the inland transport arrangements to consider the US Wheat Associates letter. Mr Cooper's evidence was that Messrs Lindberg, Stott and Whitwell were present at the meeting.[1522] Mr Cooper's notes of the meeting record discussions occurring within senior management of AWB of matters which pointed to AWB's breach of sanctions.[1523] These included:

28.16 On 12 June 2003, Mr Lindberg wrote to Mr Tracy in response to 'a number of potentially very damaging statements' which Mr Tracy and other representatives of the US Wheat Associates had made. This letter read:

All contracts entered into between AWB and the Iraqi Grains Board were made and executed in accordance with the United Nations (UN) sanctioned Oil-For-Food Programme. Each and every contract for the supply of wheat by AWB under the Oil-For-Food Programme has been examined by the UN Office of the Iraq Programme to determine its conformity with the provisions of Security Council Resolution 1284 (1999) and all related procedures and guidelines. In particular, the price and value of the wheat shipped under each contract has been considered and found by the UN to be reasonable and acceptable. [1526]

28.17 Mr Lindberg requested that US Wheat Associates immediately publish 'a detailed unreserved retraction and apology' for the statements made. Mr Hockey forwarded a copy of this letter to Mr Walker.[1527] Mr Walker subsequently provided a copy of the letter to Ms Armstrong and Mr Quinn (at DFAT).[1528] A copy was also faxed to Mr Baxter (who was also stationed at the Australian Embassy in Washington).[1529] Mr Hockey also sent a copy to Ms Freeman.[1530] Mr Lindberg's letter said nothing about the matters which had been canvassed by senior management of AWB two days earlier.

Captain Puckett's memorandum

28.18 On 12 June 2003, Mr Long sent an email to Messrs Stott, Ingleby, Hockey, Johnson, Geary, Lindberg, Whitwell, Johnstone, Jones and Lynch and Ms Scales enclosing a 'Memorandum of Instruction' from Captain Blake Puckett dated 10 June 2003. At the commencement of his email Mr Long wrote:

Please don't let DFAT know you know … I will tell them and ask them to tell you [1531]

28.19 The memorandum was addressed to Ministry Advisors and the subject matter was 'Processing Oil for Food (OFF) Contracts'. The memorandum stated:

As you know we have been working with OCPA ministry liaisons, the UN and Ministry representative to process these OFF program contracts. We are asking you to work with your ministry and the appropriate UN agency to do the following.

…

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. [1532]

Later that same day, Mr Long sent a copy of the memorandum to a number of AusAid and DFAT officers requesting DFAT to 'please advise AWB'.[1533]

28.20 One of the recipients was Ms Armstrong, who was then with the Iraq Task Force. Upon receiving Mr Long's email, Ms Armstrong took several steps. First, she sent a copy of the email to Mr Whitwell.[1534] Second, she instructed Mr Walker to advise the Baghdad post and the Australian mission to the United Nations that DFAT should make strong representations on behalf of AWB in relation to the reprioritisation of the remaining Oil-for-Food contracts. Third, she instructed Mr Walker to contact DFAT's post in Baghdad to request that someone at the post speak with Captain Puckett about the reprioritisation process and the issue of kickbacks or surcharges, and inform Captain Puckett that AWB had strongly refuted any suggestion that it had been involved in kickbacks.[1535]

28.21 Mr Whitwell responded to Ms Armstrong in an email dated 13 June 2003 copied to Messrs Hockey, Geary and Stott.[1536] He addressed the status of contracts A1670 and A1680. He did not address the comment made by Captain Puckett set out above, nor the issue of 'kickbacks' or 'after-sales-services fees'. Mr Whitwell forwarded the email he sent to Ms Armstrong to Messrs Hockey and Long asking if they had anything to add.[1537] Mr Long responded that evening requesting Mr Whitwell to 'keep me off the airwaves on this stuff pls'.[1538]

28.22 On 23 June 2003, Ms Venamore, then Deputy Head of Mission at the Australian Embassy in Baghdad, sent a cable to Canberra reporting on a briefing given by Captain Puckett regarding the CPA's approach to its obligations under UNSCR 1483. Ms Venamore reported:

4. The CPA was going through a process with Ministries to assess all oil-for-food contracts to ascertain whether they remained a priority. This included approved and funded contracts. (this process is intended to weed out contracts for unnecessary goods or services procured by the regime.) The CPA document outlining this process was forwarded to Canberra (ITF) by Long, Trade Ministry Adviser, last week. Puckett said funds freed up by the removal of approved and funded contracts would not be reallocated under OFF but would go to the development fund.

5. Every contract since phase 9 included a kickback to the regime from between ten and nineteen percent. The CPA was advising Ministries to tell companies with contracts that the 'after sales service fee', which was usually to be deposited in offshore banks would be remitted to them. [1539]

AWB's internal investigation: 'Project Rose '

The instigation of 'Project Rose '

28.23 Following the publication of the US Wheat Associates allegations, Mr Lindberg requested Mr Cooper to investigate the allegations in the letter and provide legal advice on them to the Executive Leadership Group.[1540] The resulting inquiry later became known within AWB as 'Project Rose'.[1541]

28.24 Mr Cooper was responsible for the management of Project Rose from its commencement until late July 2004 when Mr Hargreaves, Stakeholder Relations Manager, was given management responsibility for it by Mr Lindberg.[1542] Following the announcement of this Inquiry, Project Rose was renamed 'Project Lilac' and Ms Gillingham took over responsibility.[1543]

28.25 Mr Cooper retained Mr Quennell, then of Blake Dawson Waldron, to conduct the review.[1544] He instructed Mr Quennell to conduct a factual review designed to gather together all AWB documents which would disclose relevant facts.[1545] After undertaking the factual review, Mr Quennell was to advise AWB on the legal consequences of the facts which had been found.[1546]

28.26 Mr Quennell did not receive a written brief in June 2003. He was given 'an open ended instruction to … come into the company and undertake this review and report back on his findings from time to time'.[1547] He was given a copy of the US Wheat Associates letter of 12 June 2003, and was directed to all the sources of information he would need to access. Those sources included electronic records of AWB and the names of persons he would need to interview.[1548]

28.27 In June 2003, Mr Quennell and his staff commenced compiling documents and information in relation to all of the AWB contracts dealing with the Oil-for-Food Programme and the inland trucking component of those contracts.[1549]

28.28 From time to time Mr Cooper and Mr Quennell provided briefings to members of the Executive Leadership Group and the AWB and AWBI Boards regarding Project Rose.[1550]

28.29 The first of these briefings was on 12 June 2003 when Mr Quennell gave a presentation to the Executive Leadership Group. Mr Quennell's presentation was both verbal and in hard copy form. The presentation identified a number of factual and legal issues requiring further investigation and legal analysis.[1551]

28.30 Under the heading 'Legal Considerations' Mr Quennell's presentation informed the ELG of the following:

It is an offence for a person including a corporation to provide a benefit to another person with the intention of influencing a foreign public official in the exercise of the official's public duties as a foreign public official in order to (i) obtain or retain business or (ii) obtain or retain a business advantage that is not legitimately due to the recipient or intended recipient of the business advantage.

All States shall not make available to the Government of Iraq or to any commercial, industrial or public utility undertaking in Iraq any funds or any other financial or economic resources and shall prevent … persons … from making available to that Government any funds or resources and from remitting any other funds to persons or bodies within Iraq except payments exclusively for [humanitarian purposes].

28.31 On 15 August 2003, Mr Quennell provided to Mr Cooper and Ms Fullarton-Healey (AWB Acting General Counsel) a draft advice entitled 'Wheat Exports to Iraq-Trucking fees'.[1553] In his draft advice, Mr Quennell made the following comments about the 'trucking fee':

The documents which we have examined do not indicate whether the 'trucking fees' paid by AWB to Alia can be regarded as a genuine payment for the provision of inland freight services actually provided by Alia. We have not seen any contract between AWB and Alia. We have seen no evidence to indicate whether or not the trucks used to transport wheat after its discharge at Umm Qasr were provided by Alia. We have seen no explanation as to how the 'trucking fee' was calculated or the basis upon which the 'trucking fee' was subsequently increased. [1554]

Mr Quennell then set out extracts of emails which demonstrated that concern had been expressed within AWB on a number of occasions as to the validity or otherwise of the 'trucking fee'. He also noted that the documents which he had examined did not disclose whether, and to what extent, AWB employees had discussed the 'trucking fee' issue with persons at the United Nations.

28.32 Mr Quennell then considered whether the payment of trucking costs to a Jordanian company constituted an offence under Commonwealth or Victorian legislation and whether such payment was contrary to any UN treaty. His advice was:

In our view:

Mr Quennell advised that his research had given rise to a number of further issues which were unlikely to be resolved without interviewing relevant AWB employees.[1556]

28.33 On reviewing the draft advice, Mr Cooper requested Mr Quennell to continue his investigation.[1557] Mr Quennell's initial review occurred during the period June to December 2003.[1558] In March and April 2004 Mr Quennell and members of the AWB Legal Division, including Ms Peavey and Mr Cooper, interviewed the following AWB employees and produced to each of them relevant documents from Mr Quennell's investigation for them to consider and answer questions: Messrs Lister, Owen, Jones, Aucher, Tyas, Rowland, Borlase, Snowball, Stott, Geary and Flugge and Ms Gatto and Ms Scales.[1559] Mr Quennell and Ms Peavey took notes of these interviews[1560] and Mr Quennell also produced a typed summary of the interviews conducted with Messrs Owen, Lister, Jones, Aucher, Tyas and Rowland and Ms Gatto.[1561]

The US Wheat Associates allegations revisited

28.34 On 22 October 2003 Ms Preiss forwarded to Mr Quinn a letter which was, at the time, 'circulating the Hill for signatures'.[1562] Mr Preiss was stationed at the Australian Embassy in Washington DC. Mr Quinn was with the Iraq Task Force. The letter, dated 22 October 2003, stated:

Dear Mr. President:

We read with interest a news report today that indicates that in January of this year, Saddam Hussein's government agreed to buy Australia wheat from the Australian Wheat Board (AWB) at a price nearly double the price of comparable U.S. wheat. This matter concerns us greatly.

The high prices, the news article states, '…would appear to support charges that AWB was involved in kickbacks to Hussein or his family before the war and raises questions about prices the Iraqis have been paying for Australian wheat under the United Nations' Oil for Food programme since the U.S.-led coalition provisional government took over.'[1563]

The letter was forwarded to Mr Whitwell by Ms Armstrong on 24 October 2003.[1564]

28.35 The article referred to in this letter was published in the CongressDaily on 22 October 2003.[1565] The article stated:

Iraq Paid Well For Australian Wheat

In January 2003, the government of former Iraqi President Saddam Hussein contracted to pay the Australian Wheat Board almost twice as much per metric ton for wheat as the United States' price, according to contract documents obtained by CongressDaily. At a time when U.S. export wheat prices were approximately $151 per metric ton, Hussein's government agreed to pay the AWB 280 euros, at a time when a euro was worth about $1.

According to the contracts, the price the Hussein government paid in January was higher than the price it had paid in July 2002, even though wheat prices in the United States had fallen and the Hussein government had threatened to cut AWB purchases due to the Australian government's support of the United States as war neared.

The high prices would appear to support charges that the AWB was involved in kickbacks to Hussein or his family before the war and raise questions about the prices the Iraqis have been paying for Australian wheat under the United Nations' Oil for Food program since the U.S.-led coalition provisional government took over.

Peter McBride, an AWB spokesman, said in a telephone interview late Tuesday that compared to other wheat contracts the prices 'may seem a bit high,' but they included 'demurrage, shrinkage and a reflection of market conditions at the time' and inland transport from the port of Umm Qasr to 'all the mills around Iraq.'

McBride added, 'All these contracts had the approval of the [United Nations],' although U.N. officials have said that they did not get involved in the price negotiations between the Iraqi government and its suppliers.

Australia was a partner with the United States in the war, and Trevor Flugge, a former AWB chairman, jointly leads the coalition's agricultural effort in Iraqi with Dan Amstutz, an American. Last month, the AWB said the provisional Iraqi government had agreed to buy 800,000 metric tons of wheat under a remaining Oil for Food contract.

The contracts were made between the government of Iraq and AWB Ltd under the Oil for Food program, but the prices of the wheat sold have not been released.

The wheat industry source who provided the contracts to CongressDaily said he obtained them from a U.S. government official. The Oil for Food program has continued, but is scheduled to expire Nov. 21.

The contracts listed officials of the Australian mission to the United Nations in New York as a contact, but an Australian mission official said late Wednesday that the mission had only delivered the contracts to the United Nations.

'No one in the Australian government had a role in the negotiations on the contracts,' the official said.

According to a contract submitted by the Australian Mission to the United Nations' Office of the Iraqi Program on July 24, 2002, the Grain Board of Iraq had agreed to pay 237.550 euros per metric ton for 525,000 metric tons of wheat at a total cost of 124.7 million euros.

The contract specified that the wheat would not be genetically modified - a point Flugge has raised as a reason under international law that the coalition cannot bring genetically modified foods into Iraq. A second contract submitted by the Australian mission to the U.N.'s Iraq program office last Jan. 9 said the Iraqi Grain Board had agreed to pay 280.370 euros per metric ton for 525,000 metric tons of wheat with the same specifications at a total cost of nearly 147.2 million euros.

U.S. Wheat Associates President Alan Tracy said that even if the price included an international shipping cost of about $20 per ton, war insurance of $10 per ton and inland shipping of perhaps another $20 per ton, the 280 euros price left room for speculation on what happened to the extra money.

'The contracts appear to confirm that the AWB played along with Saddam's corrupt regime,' Tracy said. 'The question is whether the renegotiated contracts are at current market prices or are they still inflated? Unfortunately, there's still no competitive bidding or transparency in this process - and given the billions of U.S. dollars going to Iraq, that is a real concern.'

But McBride said of those comments: 'That's absolutely absurd. Mr. Tracy is clutching at straws.'

President Bush was scheduled to arrive in Australia today for a visit with Prime Minister John Howard and a free trade agreement with Australia is expected to be one of the topics. By Jerry Hagstrom [1566]

28.36 The 22 October 2003, CongressDaily article was the subject of a cable from Mr Francis, in Australia's Washington embassy, to DFAT Canberra.[1567]

28.37 Allegations made in the CongressDaily article of 22 October 2003 were repeated in an article published in the CongressDaily on 23 October 2003.[1568] Ms Armstrong forwarded a copy of the 23 October 2003 article to Mr Whitwell by email.[1569]

28.38 On 22 October 2003 Ms Freeman sent Mr Quinn an unsigned copy of a letter from the Charge d'affaires at Australia's Washington embassy, Mr Baxter, to US Senator Baucus.[1570] The letter stated (in part):

Dear Senator

You may be aware of allegations in a report in the 22 October edition of Congress Daily that the price received for a sale of Australian wheat to Iraq in January 2003 under the UN Oil for Food Program implied complicity between the Australian firm AWB Ltd and Saddam Hussein's regime.

I wish to reject such allegations completely.

…

The allegation made in the article that AWB Ltd made illicit payments to Saddam's regime is reprehensible.[1571]

28.39 On 22 October 2003 Ms Freeman sent a cable from Australia's Washington embassy to DFAT Canberra. The subject of the cable was the allegations being made against AWB in the letter addressed to the President of the United States, Mr Bush, which was 'circulating the Hill for signatures', as well as the 22 October 2003 article published in the CongressDaily.[1572] The embassy requested that:

2. …Canberra move quickly to contact AWB Ltd encouraging them to make a formal public statement explicitly rejecting and rebutting allegations in the letter and the Congress Daily article.[1573]

…

5. Post has drawn on previous talking points provided from Canberra rejecting these claims made previously by US Wheat Associates President, Alan Tracy. [1574]

28.40 On 23 October 2003, Mr Baxter and Mr Davies (both in Washington) sent a cable to DFAT Canberra.[1575] The cable reported that the letter to President Bush, which had been circulated within Congress on 22 October 2003, was initiated by Senate Minority Leader Daschle.[1576] The cable stated:

2. Charge met Daschle staff late on 23 October. Drawing on existing talking points we strenuously rebutted the allegation that the price received by AWB for wheat to Iraq in any way implied that kickbacks were paid to the Saddam regime. Such an allegation was without foundation and utterly reprehensible. [1577]

28.41 On 23 October 2003, a cable was sent from DFAT Canberra to Australia's embassy in Washington. The cable reported:

AWB Limited management does not support a further public announcement on the part of the company. To do so would, in their assessment, only further inflame the issue and generate unwanted Australian publicity. AWB Limited stands on its statement of 6 June 2003 that the claims are 'baseless and outrageous'[1578]

28.42 The cable also included a number of talking points which, it was suggested, could be incorporated into letters to members of Congress in order to 'dissuade them from adding their support' to the 'UWA's campaign'.[1579] Some of those talking points were that:

28.43 In October 2003, Ms Armstrong spoke with Mr Whitwell about the renegotiation of contracts A1670 and A1680.[1581] Ms Armstrong's evidence was that Mr Whitwell said words to the effect:

The renegotiation has been through the WFP and the UN and has been accepted by Lee Schatz of the CPA. The price has only been reduced by a very nominal amount. The WFP renegotiations focused on the freight component of the two AWB contracts that were being renegotiated. The WFP believed the price of wheat was acceptable but was querying the freight component and said that it was concerned that the freight component may be disguising kickbacks. We rejected these claims as spurious and fought hard against them. There were no kickbacks.

The freight costs for the contracts were high because they covered the delivery of wheat all over Iraq and reflected the greater inland distribution costs. The FOB price was US$151 while the delivered price to every town in Iraq was Euros 280. The prices also take into account risks and demurrage. Ship discharges are often delayed by up to six weeks and often take 28 days.

As an example of how expensive it is to do business in the Middle East and the sort of prices that need to be charged, you should look at an article in March 2001 where the US Wheat Associates refer to complaints from growers about USAID selling wheat for $408 per tonne in Afghanistan. US Wheat Associates responded by pointing to the high costs of transport and insurance.

We strongly refute the US Wheat Associates claims that AWB had paid kickbacks. The figures have now been publicly cleared by the CPA. [1582]

28.44 Towards the end of October 2003 Ms Armstrong spoke to Mr Whitwell about the allegations made by the US Wheat Associates. Ms Armstrong's evidence was that Mr Whitwell said words to the effect:

The allegations by the US Wheat Associates that AWB had charged Iraq twice the price of US wheat are preposterous. AWB had to charge risk premiums and freight premiums. We are not prepared to pass these costs on to the Australian wheat grower.

We refused to agree to a blanket 10 per cent reduction in the contract price. We argued strongly that we had not paid any kickbacks-and this was accepted by the CPA.[1583]

Ms Armstrong gave further evidence about this conversation in the following terms:

After Mr Whitwell said the words the effect of which I set out in that paragraph, he said words to the effect of, 'We only had to agree to a nominal reduction. We agreed to it but very reluctantly.' This subject was of interest to me as I understood from having read Captain Puckett's memorandum that reductions of 10 per cent might reflect the view of the CPA and WFP that a contract had, upon investigation, included kickbacks or the like. I took the view that a reduction of significantly less than 10 per cent would be consistent with Mr Whitwell's advice that the CPA had accepted that AWB 'had not paid any kickbacks'. I therefore said words to the effect of, 'How much is nominal?' He replied in words to the effect of, 'I don't want to divulge it.' I said words to the effect of, 'Was it five per cent?' He replied in words to the effect of, 'Much less than that.' I said words to the effect of, 'Was it two per cent, or one per cent?' He replied in words to the effect of, 'Around there.' I accepted this, and took the view that such a result was consistent with Mr Whitwell's advice that the CPA had accepted AWB's position that it 'had not paid any kickbacks'. [1584]

28.45 Mr Whitwell's evidence was that he did not believe that he said 'we only had to agree to a nominal reduction. We agreed to it but very reluctantly' to Ms Armstrong.[1585] His evidence was:

The only thing that I can suggest which might assist is that there may be a misunderstanding in what Ms Armstrong asked me and the answer that I gave her, which is in relation to what effect the renegotiations had on the final FOB price of our contract, which is-the FOB price of the contract is that part which goes back to the growers, so it is our essential price to defend, and after the renegotiations, because of some FX differences, because of some active management and some cost management, we had managed to get to a stage where worst-case budget the FOB price, even after the 10 per cent reductions, was only 1 or 2 per cent different from where it had been prior to the negotiations. So I can only think that that was the situation. And that was our outcome that we were very focused on.[1586]

Mr Whitwell accepted that it would not have been accurate to say to Ms Armstrong that AWB had only agreed to a nominal reduction because AWB had accepted the 10 per cent reduction.[1587]

28.46 On 31 October 2003, Ms Armstrong forwarded to Mr Long, by email, a copy of the US Wheat Associates Wheat Letter of 30 October 2003 which included an article entitled 'AWB-Iraq Contract Prices Confirmed'. The Wheat Letter of 30 October 2003 stated:

AWB-IRAQ CONTRACT PRICES CONFIRMED

Jerry Hagstrom, a reporter for the highly respected Congress Daily and AgDayta news service, broke a story last week about some amazing prices in Australian wheat contracts with Iraq. U.S. Wheat Associates has also obtained copies of those contracts, and can confirm that Hussein's government agreed to pay about $297 per metric ton for wheat in December 2002, when the U.S. price for comparable wheat was approximately $151 per ton FOB.

In addition to asking USW for our views on the contracts, Hagstrom went to the AWB and to the Australian Mission to the UN (which was listed as the official contact) for their perspectives. The Mission spokesperson said, according to Hagstrom, that they only delivered the contracts and had no role in the negotiations. The AWB spokesperson, not surprisingly, offered no numbers but tried to justify the prices by generalizing about incidental costs that normally go into wheat contracts.

USW is not convinced. 'Even if the price included an international shipping cost, war insurance and inland shipping, there's still a big gap between these prices and any credible listing of costs,' USW president Alan Tracy states. 'It's troubling that the AWB refuses to explain why Iraq would agree to such exorbitant prices - with millions of dollars unaccounted for - after initially threatening to halve their purchases' because Australia announced they were joining the U.S. military coalition.

Australian Trade Minister Mark Vaile tried to deflect the questions about the contracts, telling an Australian television reporter that the contracts were 'closely scrutinized by the United Nations. Go to the UN. It has been endorsed by the Coalition Provisional Authority, which is headed up by Americans.' U.N. officials told Hagstrom, however, that they did not supervise the price negotiations in the Oil for Food Program, that their job was to certify that Iraqi was buying food and medicine allowed under the program. And, incidentally, the Coalition Provisional Authority wasn't in existence when the AWB and the government of Saddam Hussein signed the contracts.

Remaining wheat contracts with Iraq, which were initially negotiated under the Oil For Food program, were recently renegotiated. 'The question is whether the renegotiated contracts are at current market prices or are they still inflated?' Tracy asked. 'Unfortunately, there's still no competitive bidding or transparency in this process - and given the billions of U.S. dollars going to Iraq, that is a real concern.'

But USW is primarily concerned about the future, Tracy says. 'When the thug was in charge, you had to play by the thug's rules. But it's a new day for Iraq, and we ought to at least be able to prevail upon our own government to make sure that a fair and open competitive system is established so that U.S. wheat has an equal chance to participate in that market.' [1588]

28.47 On 31 October 2003, Mr Long replied to Ms Armstrong's email of the same date. He stated:

Thanks Zena

Still think it best to keep quiet and not fuel the fire. We have refuted all these claims before.

Rgs
Michael [1589]

Mr Long also forwarded Ms Armstrong's email to Mr Whitwell with a similar message:

Chris

Still think that we keep quiet and not fuel the fire. Pls chat with Michael T and his team to make sure we are all on the same page. [1590]

28.48 On 31 October 2003, Ms Freeman sent a cable to Canberra outlining the 'numerous representations to the Administration, Congressional Members and the American wheat industry' that had been made by the Embassy 'to rebut and refute allegations made by US Wheat Associates President Alan Tracy'.[1591]

28.49 The Wheat Export Authority (WEA), through its Senior Manager Performance Monitoring, Mr Charman, became aware of the allegations in the press concerning 'kickbacks' by AWB to Iraq.[1592]

28.50 On 31 October 2003, Mr Sheridan (Performance Manager, AWB National Pool) forwarded to the WEA a briefing note entitled 'USWA allegations about AWB wheat contracts to Iraq'.[1593] The note refuted the allegations of 'kickback' payments and described the allegations as 'ludicrous' and 'absolutely untrue'. It noted a formal complaint had been made to the US Secretary of State, and that all contracts 'including pricing aspects' had the sanction of the United Nations.[1594]

28.51 On 1 November 2003, Mr Baxter wrote to Ms Armstrong by email.[1595] He referred to the US Wheat Associates 'Wheat Letter' of 30 October and asked whether it was known if prices quoted as having been paid for AWB's December 2002 wheat shipment with Hussein's government were accurate.[1596]

28.52 On 3 November 2003, Ms Armstrong replied to Mr Baxter's email of 1 November 2003. The email stated:

AWB Ltd has confirmed that they do not want to pass across details of the costs of the contracts. They don't want to get into a slanging match with USWA over the costs-not, they say, because they have anything to hide but because USWA isn't particularly interested in the facts.

…

The AWB had to renegotiate the costs [of contracts A1670 and A1680] with the WFP after the reprioritization. The WFP said it would take off 10 per cent but AWB refused saying these were bona fide costs that directly arose from the costs associated with transportation, insurance etc NOT a kickback. I don't have details of the final price that was agreed but I understand that WFP, after threatening to ditch the contracts, finally agreed with AWB's costings, less around one per cent that AWB capitulated to with extreme reluctance. [1597]

Ms Armstrong's email set out her understanding of the position based on what she had been told by Mr Whitwell.[1598]

The Wheat Export Authority: issues for examination

28.53 On 11 February 2004, the WEA Board decided that an important issue for examination in its 2004 report was an 'analysis of AWBI policies and procedures in regard to its relationship and conduct in the Iraq market'.[1599] This was noted by the WEA secretariat as an item required to be followed up.[1600]

28.54 During February and March 2004, WEA requested from AWBI:

28.55 On 19 March 2004, AWBI provided its 'Guidelines on Business Conduct', and a booklet on its corporate ethics. In response to WEA's request to provide a summary of all contracts with Iraq and their execution and payment status and an update to the Brief note on Iraq previously provided in April 2003, AWBI provided information on the then current contracts, A1670 and A1680.[1602] It also provided a schedule of Iraq shipments for the period October 2003 - February 2004.[1603] AWBI did not disclose the Tigris dealings or inland transport arrangements in the material provided to the WEA.

The commencement of the IIC investigation

28.56 On 18 March 2004, Ms Armstrong spoke to Mr Whitwell about AWB contracts under the Oil-for-Food Programme. Ms Armstrong's evidence was that Mr Whitwell said words to the effect:

AWB entered into a number of contracts with the Iraqi Grains Board. Because of the way in which the UN OFF program was set up, the Iraqis required the contracts to include inland transport and AWB was instructed to use a Jordanian trucking company. The prices were loaded up in the freight costs and insurance and risk premiums. The UN paid the contract.

The cost of freight and associated insurance charges and risk premiums were high and this is why the extra costs were high. Monopolies were charging what they liked-it was not exactly an open bidding system.

AWB paid the Jordanian trucking company. The Jordanian trucking company might have made payments to the Iraqis of their own volition.

AWB advised DFAT of the arrangement with the Jordanian trucking company in 2000. [1604]

28.57 Mr Whitwell said that he did not believe that he said the words 'AWB paid the Jordanian trucking company. The Jordanian trucking company might have made payments to the Iraqis of their own volition' to Ms Armstrong.[1605] He said that his belief in March 2004 was that AWB had paid Alia for inland transport, and Alia paid the Iraq Ministry of Transport for the inland transport and that it was UN approved.[1606] If Mr Whitwell's evidence were to be accepted, it meant that he knew in March 2004 that Alia had not been providing trucking services during the Oil-for-Food Programme, but was a conduit for payments to the Iraq Ministry of Transport. In contrast, AWB maintained in correspondence with the IIC that it was not until October 2005 that it became aware that Alia had not provided trucking services, and was a conduit for money to Iraq.

28.58 Following her conversation with Mr Whitwell, Ms Armstrong prepared a Ministerial Submission regarding the UN's imminent announcement of an investigation into allegations of corruption in the Oil-for-Food Programme for the Ministers for Foreign Affairs and Trade, Mr Downer and Mr Vaile.

The submission included:

4. While AWB Ltd is not included in an Iraqi Ministry of Oil list of companies and individuals alleged to have profited from the OFF program, as the largest single OFF supplier it is unlikely to escape scrutiny. The investigation may look particularly closely at contracts issued from OFF Phase 8 (1998), identified by the CPA as the phase when the so-called 10 per cent kickback was introduced. At that time AWB was still under government purview. AWB Ltd has strenuously denied US Wheat Associates' allegations that it paid kickbacks to the regime, advising that the relatively high prices for OFF-contracted wheat reflected the costs of insurance, on-the-ground distribution and technical support not just the cost of acquiring and shipping the grain. The Iraqi Grains Board delegation currently in Australia has advised that AWB Ltd has acted with propriety at all times in Iraq. The company concedes however that the Jordanian company handling local transport might, of its own volition, have provided kickbacks to the regime. Given the gravity of the allegations we have suggested to AWB Ltd that they may wish to provide more formal advice on their position to the Government. AWB Ltd is bound by the Commonwealth Criminal Code which contains offences relating to bribery and corruption by Australian companies and their officials overseas.[1607]

The submission also made the following recommendations:

That you:

28.59 On 29 March 2004, Mr Long sent an email to Mr Trewin, copied to Messrs Thomas, Geary, Whitwell and others, in the following terms:

Kofi Anan has instigated an investigation into the alleged fraud surrounding the OFF program.

DFAT have forwarded correspondence in this regard and attached a letter from Bremer instructing Interim Ministers and Senior Advisers within CPA to seize all records in this regard pending further investigation.

The note lists all companies to date that have been highlighted as being involved.

No Australian company is listed. No Jordanian company that AWB has dealt with in relation to the OFF Program/inland transport is listed.

Zena (DFAT) held private discussions with Nazar (Head of IGB delegation) who reiterated to her that according to his knowledge, AWB acted with utmost integrity during this period.

Zena has 'off the record' suggested we take a proactive approach in AL writing to Downer assuring him that there is nothing to be concerned about.

We need to hit on the following:

28.60 On 30 March 2004, Mr Trewin sent a draft letter to Mr Long for comment. The draft read:

… You would be aware that AWB was responsible for coordinating and financing inland transport costs in Iraq through a Jordanian trucking company that was sanctioned under the program. This cost, as well as other embedded costs of conducting business with Iraq, including shrinkage and demurrage, was incorporated into the overall price submitted and approved under the program. [1610]

28.61 Ms Armstrong's ministerial submission was noted by Mr Downer on 30 March 2004 and by Mr Vaile in April 2004.[1611] Mr Downer noted the following under the word 'action':

This worries me, how were AWB prices set and who set them? I want to know about this. [1612]

28.62 Mr Downer did not receive a satisfactory response to the query he noted on the Ministerial Submission. His evidence was:

A: The advice I've been given by the Department is that the response had come from AWB Limited; that is, the 10 June letter.

Q: One doesn't necessarily have to be experienced in government to know that if a minister writes something in such definitive terms, 'I want to know about this', one would expect normally that the minister's staff would make sure that he does, or she does in that case. Do you know what was done in response to your request that you wanted to know that information beyond the receipt of the letter from AWB?

A: No, I don't.[1613]

28.63 On 1 April 2004, Mr Long sent a copy of the draft letter to Mr Downer to Ms Armstrong for her comments.[1614] Mr Long had made some changes to the draft which now read:

Given the sensitive nature of the market and the rules of the OFF program, AWB maintained a close and effective dialogue with the Department of Foreign Affairs and Trade (DFAT). All contracts were passed through the good offices of DFAT for on forwarding to the United Nations as required under UN guidelines.

…

Inland transport costs paid to a Jordanian trucking company were a visible and essential part of the contract. UN regulations stipulated the wheat must be delivered to all Iraq Governorates. The Iraq Brains [sic] Board (IGB) nominated the preferred trucking supplier and the rate to apply. It was AWB's view that the rates charged seemed reasonable in the context of an Australian benchmark. In the circumstances, AWB did not have access to a range of transport suppliers.[1615]

28.64 Another undated version of the draft letter read:

Given the unique nature of the market and the rules of the OFF program, AWB maintained a close and effective dialogue with the Department of Foreign Affairs and Trade (DFAT). AWB actions were procedural according to the process outlined under the Security Council Resolution 986. All contracts were passed through the good offices of DFAT for on forwarding to the United Nations as required under UN guidelines.

…

Inland transport costs paid to a Jordanian trucking company were a visible and essential part of the contract. UN regulations stipulated the wheat must be delivered to all Iraq governorates. The Iraq Grains Board (IGB) nominated the preferred trucking supplier and the rate to apply. The distribution program was agreed between the IGB and the UN as per the resolution. AWB was effectively at the mercy of a monopoly inland transport supplier, a situation sanctioned by the U.N.[1616]

28.65 Ms Armstrong's recollection regarding the draft letter was that she told Mr Long that in her view the draft misrepresented DFAT's role in the Oil-for-Food process. She suggested that he amend it.[1617]

28.66 On 6 April 2004, Ms Armstrong had a conversation with Mr Long regarding AWB's contracts under the Oil-for-Food Programme in the context of the UN inquiry.[1618] Ms Armstrong's evidence was that Mr Long told her:

The trucking company would not do anything until it received payment. We had to pay before final UN authentication came in. The Letter of Credit could come through as late as 21 to 25 days after unloading.

We sent remittances to Alia Transport to Jordanian Bank account. We knew the Jordanian company. It was a legitimate trucking company. The Iraqis handled the negotiations of the freight rates with Alia and advised AWB how much the fee was and the freight rate. It was that rate that went into the contract. [1619]

28.67 On 21 April 2004, United Nations Secretary-General Kofi Annan announced the formation of an independent panel to conduct an inquiry into allegations of impropriety in the administration and management of the Iraq Oil-for-Food Programme.

Notification to the Boards of AWB's internal investigation

28.68 On 6 May 2004, Mr Cooper sent a memorandum on behalf of Mr Lindberg to the AWB Limited and AWBI directors notifying them of AWB's investigation of its Oil for Food contracts with Iraq.[1620] The memorandum stated:

Introduction

Media speculation regarding AWB's contracts with Iraq under the Oil for Food Program is increasing and is expected to intensify over the coming months.

Attached is a report from ABC national rural radio news today that KPMG has been appointed to investigate claims that AWB overpriced the wheat sold to the Iraqi Grains Board (see transcript from ABC news below).

Action already undertaken

Last year we commenced a detailed review of the facts surrounding AWB's Oil For Food Contracts with Iraq. This has involved reviewing over 30,000 emails, many files and interviewing AWB management. The process has been led by Chris Quennell, Trade & Transport lawyer with Blake Dawson Waldron, Melbourne.

A report on the factual findings will be tabled with AWB management tomorrow and I will be in a position to brief you next week.

We anticipated this enquiry over 12 months ago and put in place this process to establish the facts and to manage AWB's risk. The enquiry has been rigorous and very detailed. Although substantially complete, the enquiry will take a further few weeks to fully complete.[1621]

28.69 Mr Cooper's evidence was that there was no such 'report on the factual findings', but that the documents that recorded the findings included:

the first board presentation on 25 May, briefs to senior counsel and all the attached documents, and Quennell kept a folder of core documents himself, which were used for interviewing witnesses and for briefing AWB management. [1622]

28.70 The same day, Mr Cooper briefed the Chairman, Mr Stewart, on Project Rose. Mr Cooper explained the work the Project Rose team had performed and the results. Mr Stewart asked his assistant to make notes of the meeting.[1623] Those notes indicate that:

Project Rose continues

12 May 2004: memorandum of instructions to Senior Counsel

28.71 On 12 May 2004, Mr Quennell, on Mr Cooper's instructions, briefed Mr Tracey QC on Project Rose. Mr Quennell provided Mr Tracey QC with a memorandum of instructions[1624], together with an accompanying volume of documents.[1625]

28.72 Mr Tracey QC was requested to advise upon:

… whether AWB may have

28.73 The memorandum of instructions set out the procedures for the provision of humanitarian supplies to Iraq and the UN contract approval procedure. It then went on to note that, prior to July 1999, AWB's contracts with IGB were concluded on a CIF free out Umm Qasr basis. It set out the inclusion in the IGB's wheat tender dated June 1999 of the following clause:

10-PRICE

CIF free on truck to silo at all Governarate (sic). Cost of discharge at Umm Qaser and land transport will be USD 12 per metric ton to be paid to the land transport co. For more details contact Iraqi Maritin (sic) in Basrah. [1627]

28.74 It then summarised the history of the introduction of the trucking fee into the three contracts A4653, A4654 and A4655 concluded on 14 July 1999 and contract A4822 concluded on 14 October 1999.

28.75 It noted the inclusion in the short-form contract A4653 of the following clause:

SHIPMENT: … The cargo will be discharged Free in to Truck to all silos within all Governates of Iraq at the average rate of … The discharge cost will be a maximum of US$12.00 and shall be paid by sellers to the nominated Maritime Agents in Iraq. This clause is subject to UN approval of the Iraq distribution plan.

PRICE: The CIF, Free in Truck price per tonne of 1,000 kilos is … UNITED Stews of America dollars is as follows [deleted for confidentiality].

and specifically noted that:

The 'discharge cost' of US$12 per m.t. was added to the sale price of the wheat. There is no specific reference to 'land transport'. [1628]

28.76 The memorandum continued:

Subsequent contracts between AWB and IGB (eg A4970, A4971 and A4972 dated 20 January 2000) … continued to include a provision to the effect that the discharge costs would be a maximum amount (eg US$15 per m.t.) and was to be paid by the sellers to the nominated maritime agents in Iraq, the clause being 'subject to UN approval of the Iraq distribution plan'. However, the signed contracts (eg A4970, A4971 and A4972) as submitted to the UN … did not include the above provision. Instead, the shipment clause made no reference to the 'discharge costs' and merely stated

The cargo will be discharged free into truck to all silos within all Governates of Iraq at the average rate of 3000 m.t. per day. [Emphasis in original][1629]

28.77 The instructions noted that all AWB contracts submitted to the United Nations from January 2000 made no specific reference to a payment of a discharge cost or a trucking fee and stated:

The trucking fee was increased from time to time, eg contract A1441 dated 23 June 2002 was for a total of [deleted] CIF Free in Truck to all Governates Iraq with a trucking fee of US$47.45 per m.t.[1630]

28.78 In respect of the mechanism for payment of the trucking fee, the memorandum stated that:

The trucking fee in respect of contracts A4653, A4564, A4655 and A4822 was paid directly by AWB to a Jordanian company, Alia for Transportation and Trade ('Alia').

In relation to subsequent contracts, payment of the trucking fee was for a time effected by whichever shipping company had undertaken to provide the ocean carriage of the particular shipment. However as appears from an email from Charles Stott … on 25 July 2000 … the procedure was then changed so that AWB remitted the funds direct to Alia.[1631]

It made no mention of the suspicions which were current in AWB at that time that Alia was part owned by the Iraqi Ministry of Trade.

28.79 The memorandum then set out the substance of Mr Stott's letter of 30 October 2000 to Ms Coutney (at DFAT)[1632] and of Ms Drake-Brockman's reply of 2 November 2000[1633], noting that:

…as at 30 October 2000 the arrangements for the payment of the trucking fee had already been in place for approximately 8 months. [1634]

28.80 Mr Tracey QC was then instructed:

The documents which instructing solicitors have examined do not indicate whether the trucking fees paid by AWB to Alia can be regarded as a genuine payment for the provision of inland freight services actually provided by Alia. We have not seen any contract between AWB and Alia. We have seen no evidence to indicate whether or not the trucks used to transport wheat after its discharge at Umm Qasr were provided by Alia. We have seen no explanation as to how the trucking fee was calculated or the basis upon which the trucking fee was subsequently increased. The trucking fee does not appear to have been calculated with regard to the differing distances between Umm Qasr and the various Governorates … [1635]

He was then referred to some internal AWB emails in which the trucking fee was discussed.

28.81 The memorandum contained no reference to the after-sales-service fee of 10 per cent, to the ownership of Alia, to the negotiation of contracts A1670 and A1680 to include an uplift in price to cover the Tigris debt, or the proposed payment via the trucking fee of the iron filings compensation of US$6 per tonne.

28.82 Mr Tracey QC gave oral advice in conference with Mr Cooper and Mr Quennell on 25 May 2004.[1636] Mr Quennell's notes of that conference record the following:

RT

If trucking was a legitimate service-don't see breach of resolution.

AWB people clearly had concerns about it.

But on the documents I can't see anything wrong with it.

JC

Prices 'marvellous'

We would have to sell elsewhere-

$50 discount per ton.

CQ

Trucking fees-no evidence of trucks.

RT

(1) no evidence of any breach of the UN Resolution or of Australian Domestic Law.

[illegible] 'underlying [illegible]'

were there trucks

re'ship between Alia and Government officials

why did UN express concern?

Why did we keep paying the trucking fees after UN expressed concern.[1637]

That oral advice was summarised in a PowerPoint presentation given at a joint information session of the Boards on 25 May 2004, the content of which is set out immediately below. The oral advice was confirmed much later in a memorandum of advice dated 12 August 2005.[1638]

25 May 2004: joint information session

28.83 On 25 May 2004, Mr Cooper and Mr Quennell gave a briefing to a joint information session attended by the Directors of AWB Limited and AWBI. The minutes of the AWB Limited Board meeting held on 26 May 2004 summarised the briefing as follows:

Project Rose

The Board noted it had received a briefing on Project Rose (attended also by directors of AWB (International) Limited) on Tuesday 25 May 2004 and had also received a memorandum on this matter from the Managing Director on 6 May 2004. Project Rose is the code-name for the AWB Group's internal investigation of AWB's wheat exports to Iraq and AWB's involvement in the United Nations Oil for Food Program (OFF) in regard to which allegations of impropriety had been made in the public arena.

The briefing session was addressed by Mr Jim Cooper, General Counsel, and Mr Chris Quennell, trade and transport lawyer of Blake Dawson Waldron. (The Board noted that a copy of the briefing presentation would be filed with the Board papers).

The Board noted the following with regard to the Project Rose briefing:

28.84 The PowerPoint presentation given at the briefing recorded:

…

AWB's internal process

Have taken a 'factual snapshot' by review of:

14 IS&M ring binders

100 chartering files

30,000+ AWB emails for 1999 & 2000

Interview of AWB personnel

Audit of documents held by AWB (USA)

Summary of findings

Contracts prior to July 1999-no grounds for concern

June 1999-AWB notified by Grain Board of Iraq ('GBI') that payment of inland transportation fee necessary for future contracts

Contracts from July 1999 to December 2002:

Contracts included payment of 'trucking fee' payable to Jordanian company (Alia) nominated by GBI

Same trucking fee payable under each contract regardless of destination of cargo (ie distance transported)

Trucking fee increased from time to time for no apparent reason

Summary of findings (cont.)

All AWB contracts were approved by the Office of the Iraq Program at the UN ('OIP')

No evidence of any AWB knowledge that money paid to Alia was onpaid to Iraqi regime

No evidence of payment of funds by AWB to any other person in relation to OFF shipments

No evidence of payment of funds to any AWB employee by any other person in relation to OFF shipments

Legal advice

Richard Tracey QC has been briefed and advised in conference today:

RT is maintaining a watching brief and can advise at short notice if the matter develops further (eg by commencement of some form of inquiry)

OIP approval procedure

All AWB contracts were reviewed by OIP at the UN

For each AWB contract the OIP issued a report confirming that the price and value had been examined in accordance with its standing instructions and appeared reasonable and acceptable (or words to that effect)

…

GBI tender-June 1999

GBI invitation to tender received mid June 1999

New price provision:

'CIF free on truck to silo at all Governates. Cost of discharge at Umm Qasr and land transport will be US$12 per m.t. to be paid to the land transport co. For more details contact Iraqi Maritime in Basrah'.

AWB ultimately agreed to pay land transport costs to Alia.

Contracts A4653, 4654 and 4655… and Contract A4822 …

Sale on Free in Truck basis at US$155 per tonne

Shipment terms

'The cargo will be discharged free into truck to all silos within all Governates of Iraq at the average rate of 3000mt … day… the discharge cost will be a maximum of US$12.00 and shall be paid by the Sellers to the nominated Maritime agents in Iraq. This clause is subject to the UN approval of the Iraq distribution plan.

These contracts were submitted to the OIP at the UN and approval was given

Subsequent contracts

Since January 2000, all AWB contracts submitted to the UN have included the words

'the cargo will be discharged free into truck to all silos within all Governates of Iraq at the average rate of …tons… per day …'

ie without specific reference to discharge costs or inland transportation component

The fee paid by AWB for inland transport has varied from initial cost of US$12/t to a maximum of US$47.75/t. Immediately after the war cost dropped to US$25/t and is now at US$35/t (affected by recent security risks)

AWB position

Every AWB wheat contract under OFF program has required specific approval of UN OIP

OIP was obliged under Security Council Guidelines to determine whether price of goods is reasonable

The price of every AWB shipment to Iraq under OFF program has been declared 'reasonable and acceptable' (or words to that effect)

AWB's price was high because it factored in contingencies for demurrage costs, war risk premium, interest costs due to delay in processing of payments by UN/BNP, rejection, shrinkage, currency exposure, and after sales service

AWB continues to use Alia both as its vessel agents in Umm Qasr and in relation to 100% of all inland transportation requirements. [1640] [Emphasis added]

28.85 While the presentation noted that AWB continued to use Alia 'in relation to 100% of all inland transportation requirements', it did not mention that it was only after the incursion into Iraq in March 2003 that AWB was actually required to make arrangements for the movement of wheat, and only then negotiated a contract with Alia for the carriage of wheat.

28.86 Similarly, while it noted that AWB's price was high because it incorporated 'after-sales service', it did not mention that 10 per cent of the value of each contract, including the trucking component, was unilaterally imposed by IGB, and paid by AWB via Alia, for all contracts from 2 November 2000. It also did not mention that after 2 November 2000, a portion of the amount paid to Alia represented a 10 per cent surcharge unilaterally imposed by the Iraqi government, in addition to a fee nominally for trucking.

28.87 The presentation stated that there was no evidence of any AWB knowledge that money paid to Alia was onpaid to the Iraqi regime. Prior to giving the presentation, Mr Cooper had conducted an internet search on Alia, from which he had found that:

28.88 Further, Mr Cooper was aware at that time of emails dating from June to November of 1999 which made it clear that AWB staff knew that the Iraqi regime was the ultimate recipient of monies paid to Alia.

28.89 Mr Al-Khawam's family was based in Iraq and owned 51 per cent of Alia. While it is not clear whether Mr Cooper knew this at 25 May 2004, he clearly knew it by 28 July 2004, when he incorporated it into his PowerPoint presentation for the next presentation to the board.

28.90 When he first attended before the Inquiry on 22 and 23 February 2006, Mr Cooper gave evidence that he learned sometime before the Board was briefed in May 2004 that Alia was 49 per cent owned by an Iraq instrumentality, and that the Board was advised of this at a presentation in May 2004.[1642]

28.91 However Mr Cooper resiled from this evidence in his third statement to the Inquiry.[1643] At paragraph 29 of that statement, he said:

Issue 15 [in a letter from the Inquiry to Mr Cooper's solicitor requesting a further statement] concerns a briefing to the Boards in May 2004 regarding the part ownership of Alia by an Iraqi instrumentality. As a result of this issue being raised I have further reviewed my files since I first gave evidence to this Inquiry, I am not in a position to say the JIS of the Boards was informed at the presentation on 25 May 2004 that 49% of Alia was owned by an Iraqi instrumentality…

I am not able to recall when the Board was briefed in relation to the ownership of Alia, however I can say that whatever was learnt about the payment of the inland trucking fees as a result of the investigation was passed on to the Boards and therefore I expect the Boards were informed at some time after we were informed of that fact. From late July 2004, the AWB executives, including Lindberg, were aware of this fact.[1644]

28.92 Mr Cooper gave evidence on 28 March 2006 that he recalled speaking to the Board about Alia at the first board presentation (in May 2004):

… the last bullet point was information that I had obtained before the first board presentation by conducting an Internet search on Alia, and I do recall at the first board presentation [in May 2004] talking about Alia to the board members. I told them I had done a Google search and I remember some of them remarking they didn't know what that was, and I told them that it was a search engine on the Internet and that I had seen information on Alia, about them being a Jordanian-based company, they were involved in transport, they were currently bidding for the tender to operate the new domestic Iraqi airline, and the last piece of information at the bottom was historic information about the Al-Khawam family.

I believe I knew that information before the May board meeting … [1645]

28.93 The Directors' evidence about what they learnt about Alia in May 2004 was varied. Mr Martin said that he learnt that some AWB contracts with the IGB involved the use of a company known as Alia but he could not recall when he was first told of an allegation that Alia was partly owned by Iraq.[1646]

28.94 Mr Starr said that he recalled having been told prior to 28 July 2004 that Alia was a family owned company and that it had interests in other businesses. He was not told that Alia had any connection with Iraq or that the family which owned Alia had any connection with Iraq.[1647]

28.95 Mr Polson said that he first learned that AWB contracts with IGB involved the use of a company known as Alia at the May 2004 briefing, however he could not recall having been told of the shareholdings or ownership of Alia until after the publication of the Volcker report in October 2005.[1648]

28.96 Mr McClelland said that he first learned that contracts between AWB and IGB involved the use of Alia at the May 2004 briefing but he did not learn of the allegation that Alia was partly owned by Iraq until September 2005.[1649]

28.97 It is clear that Alia was raised at the joint information session held on 25 May 2004. At the meeting the structure and shareholding of Alia was discussed.[1650] There is insufficient evidence however to find that the Boards were told in May 2004 or July 2004 that Alia was 49 per cent owned by an Iraqi instrumentality.

3 June 2004: a further memorandum of instructions

28.98 On 3 June 2004, Mr Quennell provided a further memorandum of instructions to Mr Tracey QC regarding Project Rose. In that memorandum, Mr Quennell noted:

In their previous instructions to Counsel, instructing solicitors noted that they had seen no explanation as to how the trucking fee was calculated or the basis on which the trucking fee was subsequently increased. Although it remains the case that the original method of calculation of the trucking fee is unknown, instructing solicitors have now ascertained the basis of calculation of the increase as applied to AWB's contracts after 2 November 2000, commencing with Contract No. A0430.[1651]

The instructions also noted:

The original trucking cost under that contract (No. A0430) was US$25 per m.t. However, an additional 10% (of US$[deleted]) was then added to the price per m.t. by way of an addition to the trucking fee. The total price then became US$[deleted] per m.t. and the trucking fee was increased to US$44.50 (US$25.00 + US$19.50 per m.t.).[1652]

28.99 Mr Quennell referred Mr Tracey QC to an email from Mr Hogan to Mr Morison (then General Manager Trading) and others dated 2 November 2000 entitled 'Iraq-confirmed sale'.[1653] The memorandum also enclosed a graph which showed the trucking fee payable per metric tonne for each contract. Mr Quennell noted:

The reason for the sharp reduction in the trucking fee payable in respect of contracts 1680 and 1670 is that these contracts were executed after the fall of the Iraqi regime and a reduction of the price for those contracts was agreed by AWB.[1654]

28.100 The memorandum made no mention of the uplift in the price of those two contracts to recoup the Tigris debt, or the proposed payment via the trucking fee of the iron filings compensation of US$6 per tonne. Nor was it noted that the reason for the reduction in the contract price for those two contracts was an across the board directive from the CPA to remove the surcharge, usually of 10 per cent, levied upon all contracts under the Oil-for-Food Programme since phase IX.

28.101 Mr Tracey QC was requested on the basis of the further information provided:

To advise whether his previous advice to the effect that there is:

remains unchanged.[1655]

28.102 This request for advice generated a series of emails between Mr Tracey QC and Mr Quennell.[1656] On 4 June 2004, Mr Tracey QC requested by email the following information from Mr Quennell:

1. whether the details contained in the Hogan memo were translated into contracts which were subsequently seen by the UN committee;

2. whether there was any commercial justification for the increase; and

3. why the IGB (or its successor) agreed to a reduction after the fall of the Iraqi regime and, in particular, whether there was an commercial justification for the reduction.[1657]

28.103 Mr Quennell responded to Mr Tracey QC on 7 June 2004, in the following terms:

Dear Richard,

In the circumstances please advise on the above basis. [1658]

June 2004: Mr Tracey QC's advice

28.104 On 8 June 2004 Mr Tracey QC advised by email:

Dear Chris

In the absence of commercial justification for the introduction, increases and decreases in the trucking fee and the lack of specific approval for the fee and its quantum by the UN there is reason to suspect that the fee (or part of it) was used as a kick-back to the IGB or persons associated with it. Whether the money was so used can only be determined by an investigation of the finances of the Jordanian trucking company which was the recipient of the trucking fees.

A further reason for suspecting the efficacy of the fee is Hogan's assertion that UN approval for its payment had been obtained. If this was not the case then a question arises as to why the assertion was made. Was it a deliberate attempt to mislead AWB management or did he make an honest mistake?

None of this establishes that AWB or any of its employees is guilty of any offence or of breaching UN resolutions. What it does suggest is the need for further enquiries (if this is possible) to determine all the facts surrounding the payment of the trucking fee and, in particular, whether any part of it found its way to the IGB or any Iraqi officials.

Regards,

Richard Tracey[1659]

28.105 Mr Quennell's evidence was that he discussed Mr Tracey QC's email with Cooper shortly after receipt of it.[1660] It is not known whether the AWB Board was informed of the considerable reservations and doubts expressed by Mr Tracey QC. There is no apparent reason why they would not have been so informed. Mr Cooper gave evidence that the Board was briefed about Project Rose on at least 16 occasions between May 2004 and November 2005.[1661]

28.106 In particular, there is no reason to think that in the many briefings given to the Boards of AWB Limited and AWBI on Project Rose, the legal advisers would not have informed the Boards of what those conducting Project Rose knew. Indeed, Mr Cooper's evidence was:

I can say that whatever was learnt about the payment of the inland trucking fees as a result of the investigations was passed on to the Boards. [1662]

It follows that from some time shortly after June 2004, probably July 2004, the Boards of AWB Limited and AWBI were aware that an additional fee equivalent to 10 per cent of the contract price had been included in the contract price, and added to the trucking fee, and that there was no known commercial reason for this fee to which AWB had agreed. Further, that such additional fee had been agreed to and paid by AWB from at least contract A0430 (November 2000).

10 June 2004: letter to Mr Downer

28.107 The draft letter to Mr Downer referred to in paragraphs 28.63 and 28.64, was further amended by Mr Quennell and then Mr Cooper on 3 June 2004. Mr Cooper advised Mr Trewin by email:

The letter was amended by Chris Quennell of Blake Dawson Waldron and then by me. I approve its sending from a legal perspective.

If you amend the letter any further, could you please send it to me for final checking, otherwise it is ready for signing by Andrew and sending to Downer. [1663]

28.108 The letter was signed by Mr Lindberg and sent to Mr Downer on 10 June 2004.[1664] It was in different terms to the drafts previously prepared. It read:

Given the unique nature of the market and the rules of the OFF program, AWB maintained a close and effective dialogue with the Department of Foreign Affairs and Trade (DFAT). All AWB's contracts were passed through the good offices of DFAT for on forwarding to the United Nations (UN) as required under UN guidelines and particularly UN Security Council Resolution 986.

…

Wheat was delivered to Iraq by AWB for distribution to all governorates of Iraq in accordance with the Distribution Plan for the relevant Phase of the OFF program as approved by the UN. This was reflected in the terms of each AWB wheat sale contract approved by the UN, which provided for the cargo to be discharged 'Free into Truck to all silos within all governorates of Iraq'. The Iraq Grains Board (IGB) nominated the preferred trucking supplier and the rate to apply.[1665]

28.109 This letter did not advise Mr Downer of the reservations expressed by Mr Tracey QC, or of the fact then known to AWB that from November 2000 AWB had been paying an unexplained additional fee of 10 per cent of the contract value to Alia as a supposed trucking fee.

28.110 Mr Downer responded to Mr Lindberg's letter on 25 June 2004. Mr Downer welcomed Mr Lindberg's assurances that 'AWB acted with integrity in its dealings with the Oil-for-Food program, and complied with the relevant UN-mandated procedures as set out in UN Security Council Resolution 986'.[1666]

PSI investigation

28.111 In late June 2004, AWB was informed of the commencement of an investigation by the United States Senate Permanent Subcommittee on Investigations (PSI) into the Oil-for-Food Programme.[1667]

28.112 On 30 June 2004, AWB's US lawyers, Piper Rudnick, met with PSI staff in Washington DC. Following this meeting AWB received a telephone briefing from Piper Rudnick about the nature of the PSI's proposed investigation.[1668]

28.113 On 2 July 2004, Mr Cooper provided a briefing paper to Mr Lindberg regarding Project Rose. In that briefing paper Mr Cooper noted:

AWB internally commenced review of issues and documentation in June 2003 and this finished late May 2004 when we reported to the AWBL and AWBI Boards on the issues. We have located all relevant documents from AWB's Portland, Cairo and Melbourne offices and built a chronology. Richard Tracey QC has advised that he can see no breach of Australian law.[1669]

Mr Cooper then went on to inform Mr Lindberg about the PSI investigation.

28.114 Following this briefing Mr Lindberg instructed Mr Cooper to establish a taskforce to respond to the investigation.[1670] Mr Cooper retained Mr Scott Chesterman of Minter Ellison to provide strategic litigation advice to AWB regarding the investigation.[1671]

28.115 Members of the taskforce established by Mr Cooper included AWB staff from the Stakeholders Relations Division, Legal Division and International Sales and Marketing Division; US lawyers Piper Rudnick, and AWB's external Australian lawyers. AWB's Australian lawyers included Mr Chesterman, Mr Quennell, Mr Tracey QC and Mr Stephen Donaghue of counsel.[1672]

28.116 The taskforce had its first meeting on 7 July 2004. After that the taskforce met weekly until late November 2004 and had approximately 20 meetings.[1673]

28.117 In July 2004, Mr Cooper and Mr Quennell met with lawyers from Piper Rudnick in London. At that meeting they received advice on the implications for AWB's operations of an Inquiry in the United States by the PSI. Piper Rudnick subsequently provided to AWB written legal advice on US law on these issues. AWB has claimed legal professional privilege over that advice.[1674] This claim was upheld.[1675]

28.118 On 19 July 2004, Mr Cooper met with Mr Hockey and Mr Whitwell. At that meeting Mr Cooper was advised that Alia was 49 per cent owned by the Iraqi Ministry of Transport.[1676]

28.119 Mr Whitwell gave evidence that in mid July 2004 he thought it was important that Project Rose staff were aware of the imposition of the 10 per cent after-sales-service fee, and how the 10 per cent was incorporated into the price of contracts for sale to Iraq. He approached Mr Long to discuss the matter. Mr Whitwell, together with at least Mr Long, briefed Mr Cooper about the pricing components of contracts for the sale of wheat to Iraq, including the addition of a 10 per cent surcharge to the total contract price.[1677] It is not clear whether this is the same meeting at which Mr Cooper was advised that Alia was 49 per cent owned by the Ministry of Transport. It is likely however that Mr Cooper was already aware of the addition of 10 per cent to the contracts, having been aware of the Project Rose memorandum to counsel of 3 June 2004 which singled it out for the attention of Mr Tracey QC.

28.120 On 26 July 2004, Mr Cooper gave an update on Project Rose to the Executive Leadership Group. Dr Fuller's handwritten notes record an agenda item 'Iraq-OFF' but they do not record what was said by Mr Cooper.[1678] Mr Cooper's notes of the meeting record, amongst other things:

Can't cooperate fully-too damaging

and

Limited cooperation-AL's preferred pos.[1679]

'AL' is a reference to Mr Lindberg.

These notes indicate that AWB had formed a view that it would limit the cooperation it afforded to investigating authorities out of fear that full coopration would reveal facts damaging to it.

28.121 On that same day, Mr Thomas, AWB's then General Manager, Corporate sent an email to Messrs Hargreaves and Trewin copied to Messrs Cooper and McKinlay reporting on the overview given by Mr Cooper to the Executive Leadership Group. The email read:

Peter/Matt,

Jim gave a good overview to the ELG on where things are up to regarding Rose. Discussion took place. AL and Jim will present to the Board on Wed.

In summary, the view is that we should take a 'passive cooperative approach'-i.e. assist where asked and provide appropriate responses-but not much upside in being actively cooperative.[1680]

Further meetings and briefings

27 July 2004: the Wheat Export Authority - AWBI Board-to-Board meeting

28.122 On 27 July 2004, the Boards of the WEA and AWBI met. At the meeting the Boards discussed the draft Performance Monitoring Review Report, the Growers Report, International visits by WEA, the 2004 Review and Report and Future Board to Board meetings.

28.123 The Boards discussed the status of the WEA's request that had been made in March 2004 for copies of AWB's Iraq contracts which had not been met.[1681] Because of concerns regarding confidentiality, it was proposed by AWBI senior management that the WEA attend AWBI's offices to sight the contracts and carry out their audit in house.[1682]

28.124 At this time, the AWBI Board was aware that AWB had been conducting an internal investigation into its Oil for Food contracts with Iraq since June 2003.[1683] The Board was also aware that Mr Tracey QC had been briefed to advise upon whether AWB may have contributed to a contravention by Australia of its obligations under UN Resolution 661 or contravened any Commonwealth or State legislation.[1684] The Board did not disclose this information to the WEA.

28 July 2004: a joint information session

28.125 On 27 July 2004, Mr Cooper sent a copy of the briefing he proposed to present to the Board on 28 July 2004 to Messrs Quennell and Chesterman requesting that any comments be provided by that afternoon.[1685] Mr Quennell responded to Mr Cooper's email in the following terms:

Jim,

One suggestion which was made at the last Board meeting was that we should conduct an investigation of Alia's structure, shareholding etc (I think the idea may have come from Chris Moffatt). The decision was subsequently taken (by management) not to go down that route.[1686]

28.126 AWB have claimed legal professional privilege over the remainder of Mr Quennell's email. This claim was upheld.[1687] Mr Cooper responded to Mr Quennell's email that evening stating, 'Chris-thanks-I have added a page on Alia into the slides'.[1688]

28.127 The page on Alia drafted by Mr Cooper formed the final page of a PowerPoint presentation entitled 'AWB; Project Rose AWB Limited Board Briefing 28 July 2004'. It read:

Alia for Transportation and General Trade Company

28.128 At the top of the page was a note in Mr Cooper's handwriting[1690], which read 'Remove from pack'.

28.129 Mr Cooper described the circumstances in which he came to write these words 'Remove from pack':

I had inserted this page the day before to address the board's request for further information on Alia, and it was a combination of information that I had found and had been given instructions on by the business people, and I printed that document out and took the presentation to Andrew Lindberg. Some time after I finished it, I have reconstructed from my email records that I finished this draft at about 5 o'clock in the afternoon on 27 July 2004, and it was presented-it was used the following day at the various board meetings, and I, sometime between completing it-I took it upstairs in hard copy form as I hadn't reviewed it with Andrew Lindberg at that stage, and as a non-member of the ELG and as someone presenting to the board I would always review such presentations with Andrew before they were presented.

And at that stage we had been working for the last - the previous seven weeks on the American investigation operated by the permanent subcommittee on investigations of the US Senate, and the presentation was mainly about that, but also included this page on Alia's background, which some of the board members had requested more detail on. I recall reviewing it in Andrew's office, the whole pack, and he was to present the next day to the AWB Limited board, which he subsequently did on his own, without my attendance, on just the PSI inquiry, and I was separately presenting the next day for about half an hour to both boards, at what is called a joint information session. When we got to this slide, Andrew just said 'Oh, yeah, take that one out', and I did. That's my handwriting at the top, and it is not my relaxed form of handwriting, it indicates to me that I have scribbled it while sitting at Andrew's desk.

So that page was taken out, but my understanding was that the slide pack was going to be used for two presentations the following day-my presentation to the joint information sessions and that Andrew was going to use it for his presentation to the board on the PSI inquiry. [1691]

28.130 As to why Mr Lindberg wanted the page taken out, Mr Cooper said:

There was no elaboration about it. My sense of why he wanted it taken out was that he thought it was too much detail.[1692]

28.131 Mr Cooper gave evidence that, in response to Mr Lindberg's direction, he did the following:

Well, I did as he said, but I always intended to address it at the joint information session the next day.[1693]

…

I had no instruction from Andrew not to tell the board about the 49%, and I left that meeting with him taking the slide-removing that slide from the pack, but I intended to tell the board about Alia and their percentage shareholding. [1694]

28.132 When asked whether he did tell the Boards about the 49 per cent ownership of Alia by an Iraqi instrumentality, Mr Cooper's evidence was equivocal. He said:

To the best of my recollection, I can't recall telling the board about that the next day, but I cannot recall not telling them. I have made inquiries of other people who were at that presentation, and none of those people have kept notes or could remember whether I addressed that issue, but I certainly have a recollection that I intended to present that issue, and I assume that we had imparted that information to the board.[1695]

28.133 In his second supplementary statement to this Inquiry, Mr Cooper wrote regarding the 28 July joint information session:

At that briefing the Board was informed of the following:

28.134 There is no other evidence before the Inquiry which would suggest that Mr Cooper advised the Boards at the joint information session of 28 July 2004 of AWB's knowledge on this point.

28.135 It was the evidence of several Directors that the page regarding Alia was not used during the presentation, nor were its contents discussed.[1697]

28.136 Dr Fuller's notes of the joint information session do not refer to Alia.[1698]

28.137 Mr Lindberg denied instructing Mr Cooper to remove the page from the presentation.[1699] His evidence was that Mr Cooper disclosed information about Alia's ownership at a presentation to either the Boards or the Executive Leadership Group in the second half of 2004.[1700]

28.138 The Minutes of the AWBI Board Meeting held on 27 July 2004 and those of the AWB Limited Board Meeting held on 28 July 2004 after the joint information session simply record that Directors of both Boards attended (or would attend) a joint information session including a presentation by Mr Cooper regarding 'Project Rose: Oil for Food Inquiry'.[1701]

28.139 The ownership of Alia was known to Mr Lindberg and Mr Cooper. The weight of evidence is that Mr Cooper did not tell the Boards at the joint information session of the structure and ownership of Alia. His evidence was no higher than that he assumed the information was imparted to the Boards.

28.140 On 6 August 2004 Ms Freeman[1702], met with Messrs Hargreaves, Long and Trewin in Melbourne. At that meeting Mr Hargreaves told Ms Freeman that AWB had been approached by PSI staff to provide information in relation to their contracts under the OFFP.[1703]

August 2004: Wheat Export Authority briefing paper

28.141 On 11 August 2004 Mr Sheridan provided the WEA with a briefing paper regarding AWB's involvement in the Oil-for-Food Programme.[1704] The paper was supplied to Mr Sheridan by Mr Hargreaves.[1705]

28.142 Amongst other things, the paper noted:

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

…

…

…

28.143 AWBI did not disclose in the briefing paper that the fact or amount and c