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16.1 On 4 January 2000, Mr Almstrom, the Director Chief of the Contracts Processing Section of the Office of the Iraqi Programme sent a note to Mr Sevan, the Executive Director of the OIP, headed 'Irregularity in Iraqi contracting'.[867]
16.2 In his note, Mr Almstrom reported to Mr Sevan that on 21 December 1999 he had received:
… a query from Mr Berne Saunders at the Canadian permanent mission pertaining to a contract between the [Iraqi] Ministry of Trade and the Canadian Wheat Board in which the seller is required to deposit $700,000 in a Jordanian bank account, allegedly to cover 'transport costs in Iraq for 141 MT of wheat.'[868]
16.3 Mr Berne Saunders was a Lieutenant Colonel stationed at the Canadian permanent mission to the United Nations. The reference in Mr Almstrom's note to transport costs for '141 MT' of wheat was a typographical error and should have read transport costs of '$14 per MT' of wheat.[869]
16.4 Mr Almstrom reported that he had advised Lt Col Saunders:
that all payments for procurement by the Government of Iraq under the 'oil for food' programme were to be made to the United Nations Iraq Account in New York. Were the contract to pass through the Canadian government and be submitted to OIP, we would therefore return it for amendment to payment terms.[870]
16.5 Mr Almstrom provided a copy of this note to Ms Johnston on 4 January 2000 and asked her to investigate Lt Col Saunder's query.[871]
16.6 Ms Johnston was engaged by the OIP in its Contracts Processing and Monitoring Division on secondment from British Customs.[872] She was employed in the as Chief Customs Expert, having previously acted as Deputy Chief Customs Expert from July to November 1999.[873] The customs experts were responsible for reviewing contracts submitted under the Oil-for-Food Programme for 'price, value and conformity with the resolutions and guidelines of the 661 Committee'.[874]
16.7 On 13 January 2000 Ms Johnston telephoned Lt Col Saunders and discussed with him the query he had raised with Mr Almstrom.
Lt Col Saunders told Ms Johnston that, in the course of negotiating a contract for the supply of wheat to Iraq, the Canadian Wheat Board had been requested to remit US$14 per tonne to a bank account in Jordan to cover inland transportation costs.[875] Lt Col Saunders informed Ms Johnston that 'the grain board of Iraq has indicated that similar arrangements were made with the Australian Wheat Board in relation to a recent large contract and with various suppliers from Thailand'.[876] Ms Johnston advised Lt Col Saunders that a payment such as that sought would not fit within the Oil-for-Food Programme and suggested alternative measures such as delivery to Umm Qasr at a lower cost per tonne.[877] According to Ms Johnston, Lt Col Saunders advised her that the Government of Iraq had stated that the bank account details into which the funds were to be paid would not be made available before the contract was signed. Further, it was evident from her conversation with Lt Col Saunders that, unhappy with the Canadian Wheat Board response concerning inland transportation fees, the Government of Iraq had refused to finalise the contract.[878]
16.8 In her evidence before this Inquiry Ms Johnston said it was at about this time that she was informed or learned that 'the designated transportation was affiliated with the son of Saddam Hussein'.[879] There is no note from Ms Johnston recording either this affiliation or the source of her belief or understanding in this regard. There is also no reference either to the trucking company (in particular by name) or to the alleged affiliation between that company and a son of Saddam Hussein in the memorandum that Ms Johnston sent to Mr Almstrom following her conversation with Lt Col Saunders or Ms Moules.[880] Nevertheless Ms Johnston's evidence that she believed there was this affiliation at this time is corroborated by the account of her conversation with Ms Moules on 13 January 2000 that appears in Ms Moules' cable of that date.[881]
16.9 How Ms Johnston came to be informed or otherwise learn of this supposed affiliation is unclear. Ms Johnston could not now recall whether Lt Col Saunders provided her with this information or whether he had provided her with the name of the trucking company and she (or other employees from within her section of the Contracts Processing and Monitoring Division) did their own research and discovered this supposed connection.[882]
16.10 Despite Ms Johnston's evidence as to her belief at that time, there is nothing in the material before this Inquiry, including the material produced by the United Nations, which establishes or otherwise supports the existence of any alleged affiliation between the 'designated transportation' or otherwise unnamed trucking company and any of the sons of Saddam Hussein.
16.11 Following her conversation with Lt Col Saunders, Ms Johnston asked a member of her staff to obtain the most recent AWB contract.[883] She was subsequently provided with the AWB short-form contract for contract OC4988[884], which had recently been approved by the UN 661 Committee on 5 January 2000.[885] Upon her review, this contract appeared to Ms Johnston to be standard for an AWB contract. She found no evidence of any irregular activity in this contract.[886]
16.12 The contract Ms Johnston reviewed was AWB contract A4821 dated 14 October 1999.[887] It was approved by the United Nations as a contract under phase IV of the Oil-for-Food Programme[888] and so was one in respect of which no inland transportation fee was payable.[889] The short-form copy of the contract that Ms Johnston reviewed thus did not have the clause providing for the payment of a 'discharge cost' to 'nominated Maritime Agents in Iraq' that appeared in AWB contract A4822 also dated 14 October 1999[890], which had been approved by the United Nations on 22 November 1999[891], and in the three earlier phase VI contracts dated 14 July 1999.[892]
16.13 Following her review of the AWB contract on 13 January 2000[893] Ms Johnston telephoned Ms Moules from the Australian permanent mission to the United Nations. Ms Moules was posted at the Australian mission between January 1999 and January 2002, initially as First Secretary and subsequently as Counsellor[894], and during that time had primary responsibility within the mission for the Oil-for-Food Programme.[895]
16.14 According to Ms Johnston, she informed Ms Moules that she wished to draw the Australian mission's attention to information received about possible irregularities in the way AWB may have received payment for wheat supplied to Iraq under the Oil-for-Food Programme. Ms Johnston then recounted to Ms Moules the substance of Lt Col Saunder's query, although without identifying the mission from which that query had emanated.[896]
At the conclusion of her conversation with Ms Moules, Ms Johnston asked Ms Moules to make some discrete, high-level inquiries at AWB 'to ensure that the AWB is not inadvertently involved in any payment scheme which might be in breach of the Iraq sanctions regime'.[897]
16.15 Ms Johnston said that she clearly recalled her thought processes in advance of her conversation with Ms Moules. She considered the reputation of AWB, and the Australian Government, and the fact that the allegation involved hearsay backed by no tangible evidence. She therefore decided that her inquiry of the Australian mission should be handled as delicately as possible and that it was not appropriate to request information in written form as this might be deemed to be accusatory in nature. However, Ms Johnston realised the importance of providing Ms Moules with all the details she had so that the Australian Government could conduct a reasonable and specific inquiry.[898]
16.16 Ms Johnston insisted that she referred to 'inland transport' in her conversation with Ms Moules.[899]
16.17 In contrast, Ms Moules insisted that no one she dealt with from the United Nations, including Ms Johnston, referred to trucking fees or referred to a Jordanian or any other trucking company.[900]
16.18 Following her conversations with Lt Col Saunders and Ms Moules, Ms Johnston reported the outcome of her inquiries to Mr Almstrom on 13 January 2000 in a note headed 'Irregularity in Iraqi contracting'.[901]
Ms Johnston reported that she had confirmed to Lt Col Saunders '… that money should not be paid to a Government of Iraq bank account in Jordan for transport costs of wheat within Iraq'[902] and:
I have spoken to Ms Bronte Moules at the Australian permanent mission. Without indicating my source, I have asked her to enquire, discreetly, at a senior level, within the Australian Grain Board if any financial arrangements have been made outside the BNP Iraq account with the Government of Iraq.[903]
16.19 Ms Johnston made no note at the time of her conversation with Ms Moules. Her recollection of having referred to 'inland transport' was unassisted. Ms Moules' cable to DFAT in Canberra was contemporaneous with her conversation with Ms Johnston.[904] It contained no reference to 'inland transport', although it did contain all of the other information Ms Johnston believed she had told Ms Moules.[905] There is no reason why Ms Moules would have deliberately left such a reference out of her cable.
16.20 In her email reporting on her conversation with Ms Moules, Ms Johnston did not refer to having spoken in terms of 'inland transport' with Ms Moules; rather she referred to 'any financial arrangements have been made outside the BNP Iraq account'.[906]
16.21 In these circumstances it is more likely that Ms Johnston did not refer to 'inland transport' in her conversation with Ms Moules.
16.22 As a consequence of Ms Johnston's inquiry, Ms Moules sent a cable to the Department of Foreign Affairs in Canberra on 13 January 2000:
We were contacted today by the Office of the Iraq Program (OIP) (Johnston, chief, Contracts Processing Section), who wished to draw to our attention information they had received about possible irregularities in the way the Australian Wheat Board may have received payment for wheat supplies to Iraq under the Oil-for-Food Program.[907]
Ms Moules reported that she had been informed by Ms Johnston:
… that the OIP had been contacted by a mission in New York (Johnston could not reveal which country the mission represents, due to commercial confidentiality), advising that its national wheat board, when recently negotiating a contract with the Iraqi Grain Board under the Oil-for-Food Program had been asked to agree to a payment system whereby USD14.00 per metric tonne of wheat would be paid 'outside the oil-for-Food Program'. The supplier was to have been provided with the details of a bank account outside Iraq-in Jordan-into which the additional money was to be paid. While the OIP does not have precise details, they understand the arrangement was to have been for the wheat supplier to be paid using funds from the UN's Iraq account, but at a slightly inflated price. The supplier would then-in a highly irregular move-pay a return percentage of the value of the contract, in USD, to the non-Iraqi account. In short, it appears to be a system designed to generate illegal revenue in USD. The OIP believes the company involved in the scheme is owned by the son of Saddam Hussein.
3. The OIP told us that the country of the wheat board concerned, having drawn the matter to the UN's attention and ascertained that such forms of payment were not permissible under the Oil-for-Food Program, had declined the Iraqi request and was, as a consequence, penalised by Iraq-i.e. the country concerned failed to secure contracts apparently because of its refusal to become involved in the kickback scheme. The country in question told the OIP that, when it declined the Iraqi request, the Iraqi Grain Board had indicated that 'other companies'-the AWB and one other country were specifically mentioned-had concluded contracts similar to the one which had been requested of this country.
4. The OIP noted it had no way of judging the accuracy or otherwise of the claims the Iraqi Grain Board is alleged to have made about the AWB. However, given the highly irregular nature of the transactions cited, and the possibility of a company's agreeing to a payment system and being unaware of its irregularity, the OIP asked if Australia could make some discreet, high level inquiries to ensure that the AWB is not inadvertently involved in any payment scheme which might be in breach of the Iraq sanctions regime.[908]
16.23 On 18 January 2000, Mr Bowker sent a cable to Ms Moules responding to her cable of 13 January 2000.[909] His response to Ms Moules was twofold. First, he advised that DFAT in Canberra would follow up her inquiry 'in discussions with AWB when a suitable opportunity arises'.[910]
Second, Mr Bowker responded to the substance of the query. He wrote:
2. At this stage, we think it unlikely that AWB would be involved knowingly in any form of payment in breach of the sanctions regime. We had reason last month to discuss AWB strategy regarding Iraq at senior level (Nigel Officer, General Manager, Global Sales and Marketing). We were told that while competition in the Iraq market was growing, and AWB had concerns about the effect on their long-term dealings with the Iraq Grains Authority of the imminent retirement of a key contact, AWB was confident its overall position would remain strong. It was fully aware of, and respected, Australian Government obligations and UN Security Council sensitivities and would act accordingly.
3. For your information, AWB confirmed our understanding that it had been approached by an international oil trader seeking AWB's assistance in gaining access to Iraqi oil. AWB advised it had not rejected the idea, but had taken the position that any such arrangements would only be considered by AWB after sanctions were lifted.[911]
16.24 Mr Bowker's statement that he thought it unlikely that AWB would be knowingly involved in any form of payment in breach of the sanctions regime was not based on any particular inquiry that he or any one else at DFAT had made of AWB in specific response to Ms Moules' cable of 13 January 2000. Rather it was based upon:
16.25 Mr Bowker elaborated upon the first of these three factors during his evidence before the Inquiry. He said that in responding to Ms Moules' cable he took account of his understanding, based on his own extensive experience of commerce in the Middle East:
16.26 He had taken account of there being no evidence at that time of systematic corruption in Iraq involving wheat (as opposed to certain other Middle East countries). Nor had there been any suggestion that AWB was prepared to go down the path of corruption or was under pressure to go down that path.[920]
16.27 Mr Bowker's evidence was that, in the course of his meeting with Mr Officer in December 1999, he had extensive discussions with senior officers of AWB 'about their market strategy in regard to Iraq'.[921] His recollection was that Messrs Officer, Emons and McConville were present at the meeting[922], although his discussions were primarily with Mr Officer. In the course of that meeting neither Mr Officer nor any one else from AWB alerted Mr Bowker to 'any concerns on their part about the sustainability of their market position'. They did mention some concerns about the imminent retirement of a senior official with whom they had long dealings.[923] They also mentioned that there was increasing competition in the market. But essentially the discussion addressed AWB's strategy.[924] According to Mr Bowker 'there was no basis from their comments to me for me to assume or believe that they were facing any unusual or different circumstances in the market.'[925] During that meeting, Mr Officer did not discuss with Mr Bowker or seek Mr Bowker's (or DFAT's) advice:
about internal or inland transport, or trucking, or payments for inland transport or trucking under the Oil-for-Food Program. There was no discussion about the use of Jordanian trucking companies. There was no mention of a company called Alia.[926]
16.28 Although Mr Officer did recall attending a meeting with Mr Bowker and his colleagues from DFAT in December 1999, to the best of Mr Officer's recollection, this was a general discussion with respect to AWB's activities in the Middle East.[927] That accords with Mr Bowker's recollection of what was discussed.
16.29 Mr Officer confirmed that in his discussions with Mr Bowker he did not refer to the inland transportation or trucking fee, did not raise with Mr Bowker any issue about the payment of that fee and did not inform Mr Bowker of any concerns that he had about the payment of that fee.[928] He agreed that the trucking fee was not something that he really wanted to draw to the attention of DFAT, although he said that AWB did not go out of its way not to draw it to the attention of DFAT.[929]
16.30 Mr Bowker's evidence was that at the time he received the cable from the Australian mission he had (given the factors identified earlier) 'no reason to anticipate, or to believe it likely, that this allegation was going to be found to have substance'.[930] The allegation was being made by an unnamed party, contained essentially hearsay, and the connection of AWB to the allegation rested upon a claim by the Iraqis to this unnamed complainant that AWB had been a willing participant to the scheme the Iraqis were proposing. The allegation was, in the mind of Mr Bowker, hearsay upon hearsay and therefore in his opinion a far from established accusation.[931] Furthermore, according to the report that he had received from Ms Moules, the Office of the Iraq Programme had said that it had no means of judging the accuracy of the claim and allowed for the possibility that AWB, if it was engaged in such activity, may have been doing so without being aware of the irregularity of the payments process.[932] These were further factors that shaped Mr Bowker's initial response to Ms Moules' cable.[933]
16.31 About one week after his cable of 18 January 2000, Mr Bowker did raise the detail of Ms Johnston's query about AWB in a telephone conversation with Mr McConville.[934]
16.32 Mr McConville was AWB's Manager, Government Relations. He had been employed in that position since July 1998 and remained in that role until April 2000 when he was appointed General Manager, Corporate Affairs.[935] As Manager, Government Relations, Mr McConville was responsible for developing and maintaining relationships with all levels of government, including State and Federal governments in Australia, overseas governments including the United States and Canada, and international organisations such as the World Trade Organisation.[936] He reported to Ms Joanne Martin, who was the then head of Corporate Affairs.
16.33 Mr Bowker said that when he raised Ms Johnston's query with Mr McConville, his response was immediate and emphatic.[937] Mr McConville said, 'This is bullshit'.[938]
16.34 Mr Bowker's evidence was that Mr McConville:
…went on to further emphatically deny the allegations. He indicated that AWB would continue to uphold its responsibilities towards the Australian government in regard to Iraq.[939]
16.35 Mr McConville could not recall the specific details of the complaint or how he became aware of it. He also had no specific recollection of how he responded to the complaint.[940] However, Mr McConville did say that:
my natural response to such a complaint would have been that it was normal manoeuvring and competitive behaviour on the part of Canada and that I would have rejected it as such.[941]
This is consistent with Mr Bowker's evidence of Mr McConville's response.
16.36 Mr Bowker understood Mr McConville to be a 'senior officer responsible for dealings with the government', and that in his conversations with Mr McConville he found him to be frank and well informed. Accordingly, he was prepared to accept advice that Mr McConville gave him.[942] This was notwithstanding that Mr McConville's response was immediate and without the benefit of investigation. It was also notwithstanding that Mr McConville was not involved in the negotiation or administration of the wheat contracts themselves[943] and thus would not have had personal knowledge of the subject matter of the query which Ms Moules had passed on for investigation. Mr Bowker said that he seriously believed that Mr McConville could provide an adequate response to his query.[944] He specifically asked Mr McConville to respond to the allegation that payments were being made, and even quoted the $14 a tonne payment into a bank account in Jordan.[945]
16.37 Mr Bowker said that he was not surprised or taken aback by the fact that Mr McConville provided an immediate response. The answer that Mr McConville gave was in accord with the reputation for integrity of AWB, its briefing of Mr Bowker in December 1999 and the situation which Mr Bowker believed historically to apply to Australian wheat exports to Iraq.[946]
16.38 Mr Bowker rejected the suggestion put to him in cross examination by counsel for AWB that he had asked Mr McConville about the allegations raised by Ms Moules' cable knowing that he would get the response that he did, and did not call Mr Officer because he knew that he might get a response which was unpalatable.[947]
There is no credible basis on which it might be suggested that Mr Officer, who was at that time aware of the subject matter of the query and of the payment of the inland transportation fee, would have been forthcoming of those details had the query been put to him by Mr Bowker. This is borne out by Mr Officer's initial evidence before this Inquiry when he was less than frank concerning his knowledge regarding payment of inland transport fees.[948]
16.39 Mr Bowker was satisfied on the basis of his discussion with Mr McConville, coming in the aftermath of his earlier discussion with Mr Officer the previous December, that the issue need go no further.[949]
16.40 There is no evidence that, at the time he spoke with Mr Bowker, Mr McConville was aware or had been informed of the imposition of the inland transportation fee, its payment by AWB, to whom it was paid, the methods by which it had been paid up until that time, or the discussions that had taken place within AWB as to the method of its payment. Mr McConville had not seen any of the AWB contracts with IGB.[950] Although Mr Emons suggested during his examination that the issue of the inland transportation fee and what was happening with Iraq was discussed with Mr McConville and his immediate superior, Ms Martin[951], he did not say when this occurred. Nor did he identify a particular meeting at which this discussion took place. He referred only to 'broad discussions across the entire organisation'. Mr Emons conceded he had 'no specific recollection' of speaking to the people in the government relations department; but asserted that he 'would have done so'.[952] Mr McConville had no recollection of participating in any such discussion[953], although did not deny that discussions about this matter ever occurred.[954] Despite Mr Emons' assertion of what he says he would have done, the totality of the evidence is not sufficient to find that any such discussion took place with Mr McConville prior to his conversation with Mr Bowker in January 2000.
16.41 There is no evidence that, following his conversation with Mr Bowker, Mr McConville made any inquiry of any one within AWB in respect of the matters raised by Mr Bowker. Whilst Mr McConville said that he would have made an inquiry of Mr Officer or Mr Emons[955], he had no recollection of doing so.[956] Mr Officer had no recollection of Mr McConville having contacted him or discussed with him the queries raised by Mr Bowker.[957] Mr Emons gave no evidence of any inquiry having been made of him by Mr McConville of the matters raised by Mr Bowker. Despite Mr McConville's statement as to what he would have done, the evidence is not sufficient to support a finding that any inquiry was in fact made by him. But even if Mr McConville had made such an inquiry of Mr Emons or Mr Officer, there is no evidence of what it revealed or what if anything Mr McConville was told. There is no suggestion from Mr McConville that he conveyed to Mr Bowker or any one else at DFAT any further information in relation to the allegation, let alone informed Mr Bowker, or any one else at DFAT at that time that AWB was paying inland transportation fees in respect of its shipments to Iraq or the method by which those payments were being made.
16.42 Mr Bowker did not report the result of his inquiry of Mr McConville to Ms Moules[958], or the Australian mission to the United Nations, prior to Ms Moules' cable of 10 March 2000.[959] Mr Bowker did not communicate to anybody in DFAT, or at the Australian mission, the substance of Mr McConville's reply.[960] When pressed on this point, Mr Bowker's evidence was:
My memory on this is somewhat weak. I cannot specify any particular advice that I conveyed to any other person or to New York following my conversation with Mr McConville. Its conceivable that I talked to colleagues about it, but I cannot recall doing so.[961]
16.43 No cable has been produced by DFAT from Mr Bowker or any one else at DFAT to Ms Moules or the Australian mission reporting Mr McConville's comments.
16.44 Mr McConville's response to Mr Bowker's inquiry did inform Mr Bowker's subsequent advice to 'New York' in his follow up cable dated 22 March 2000[962], especially the final sentence referring to AWB's dismissal of that allegation. This was the first advice of AWB's denial that he sent to the Australian mission.[963]
16.45 The evidence of Ms Johnston was that Ms Moules telephoned her, within a month of their earlier telephone conversation, in response to the issues that Ms Johnston had raised on 13 January 2000.[964] According to Ms Johnston in that conversation:
Ms Moules stated that inquiries had been made at the highest level and AWB had 'categorically denied' making any payments outside the escrow account.[965]
Ms Johnston did not recall whether Ms Moules had said that DFAT (Canberra) was following up the query or that she would provide more information to Ms Johnston.[966]
16.46 Ms Moules said that she advised Ms Johnston that the matter was being followed up.[967] She recalled passing on to Ms Johnston the information that she had received from Canberra to the effect that AWB had denied the allegations.[968] Ms Moules could not recall when it was that she had relayed this information to Ms Johnston.[969]
Ms Moules did say that she could not recall Mr Bowker getting back to her with the result of any further enquiry he had made, as foreshadowed in his cable of 18 January 2000.[970]
16.47 At the time that Ms Johnston said that Ms Moules reported back to her:
- first, that he would follow up the query raised by Ms Moules 'in discussions with AWB when a suitable opportunity arises'
- second, to otherwise dismiss as 'unlikely' any knowing involvement on the part of AWB in any form of payment in breach of the sanctions regime based in part on his discussions of 'AWB strategy regarding Iraq' at 'senior level' with Mr Officer the preceding month, and in part based on his belief as to the honesty and integrity of AWB and its officers.
- he had spoken with Mr McConville or of the result of that conversation
- he had followed up the allegations with AWB as he had offered to do in his cable of 18 January 2000 or the results of his efforts in that regard
- he had made 'high level inquiries' of AWB specifically in relation to the allegations raised by Mr Johnston as Ms Moules had requested, or the results of those inquiries.
16.48 If Ms Moules reported back to Ms Johnston in the terms that Ms Johnston contended and when Ms Johnston said she did, it would appear, on the material before this Inquiry, that the only basis for Ms Moules having done so was Mr Bowker's initial response in his cable of 18 January 2000.
16.49 However, against that suggestion, it can be said that Ms Moules would have had no interest in denying such a claim on AWB's behalf without having heard of the results of any inquiries that her cable of 13 January 2000 sought to generate. This is especially bearing in mind that Mr Bowker's initial response to Ms Moules did not purport to pass on any denial by or on behalf of AWB of the allegations that Ms Moules asked to be investigated. One of two situations must have pertained: either Ms Moules was informed of the denial that had been made by Mr McConville and passed it on to Ms Johnston before 10 March 2000, or Ms Johnston's evidence concerning the timing of her conversation with Ms Moules concerning AWB's denial of the allegation was not an accurate estimate. It is not necessary to resolve this issue. Nevertheless, it seems likely that at some time after he had spoken with Mr McConville, Mr Bowker passed onto Ms Moules the results of his conversation with Mr McConville and that at some time after 10 March 2000, Ms Moules passed on AWB's denial to Ms Johnston.
16.50 On 7 February 2000, Mr Almstrom sent a note to Mr Farid Zarif in which he wrote:
As a result of a query from a potential supplier, we learned that aside from contracts we see, the Ministry of Trade may be requiring payments, into a bank in Jordan, for transport fees from entry point to destination further in Iraq.
Any hard currency payments, other than into the escrow account, are of course contrary to resolution 661, so we may have stumbled across a case of sanctions evasion.
I have looked at an Australian wheat contract, and it seems to refer to (but not to include) some other agreement. Felicity is looking into this.
Felicity is also surveying our wheat contracts to see if we might have overlooked an inappropriate payment arrangement as foodstuffs, being standard and priority contracts, tend to get processed quickly.[971]
Mr Zarif was in the Contracts, Processing and Monitoring Division of the OIP[972] and was the supervisor of Ms Johnston.[973]
16.51 In February 2000, Ms Johnston undertook a survey of AWB wheat contracts to see if an inappropriate payment arrangement might have been missed.[974] She looked at one AWB short-form contract dated October 1999 for 25,000 tonnes with United Nations approval no. OC4988 (namely AWB contract A4821).[975] This was the same contract that she had earlier looked at prior to her conversation with Ms Moules on 13 January 2000.[976] Ms Johnston said, in undertaking this survey in February 2000, she also looked at AWB contract A4822 (United Nations approval no. 600744). This was a phase VI contract which contained the clause about a 'discharge cost' of US$12 per tonne to be paid to a 'nominated maritime agency in Iraq'.[977] This contract also referred to 'standard terms and conditions' which 'implied that additional conditions were attached to the contract but not included in the paper supplied to the UN'.[978] Ms Johnston was unable to recall whether she reviewed any other contracts at that time and if so what those contracts may have been.[979]
16.52 In early March 2000, Ms Johnston attended a routine meeting with Mr Alistair Nicholas[980] who was at that time the Australian Trade Commissioner in Washington DC.[981] Ms Johnston had reviewed both contracts A4821 and A4822 before meeting with Mr Nicholas.
16.53 Ms Johnston informally raised two issues with Mr Nicholas. The first was the concerns that she had earlier communicated to Ms Moules in January 2000. Ms Johnston advised Mr Nicholas that there were still outstanding concerns in regard to those matters.[982]
The second arose out of Ms Johnston's review of the AWB contracts in February 2000, in the course of which she had noticed that the standard short-form contract used by AWB and IGB contained a clause which implied additional conditions were attached to the contract, which were not included in the copy of the contract submitted to the United Nations.[983] That clause was in the following terms:
All other terms and conditions as per AWB Limited and Grain Board of Iraq standard terms and conditions for Australian wheat of which the parties admit they have knowledge and notice, to apply to this contract where not inconsistent with the above.[984]
Ms Johnston referred Mr Nicholas to this clause and asked for a copy of these standard terms and conditions.[985] She said at the time she made this request she provided Mr Nicholas with a copy of the short-form contract A4822 that contained this clause.[986]
16.54 Ms Johnston said that although she had already received the categorical denial from AWB through Ms Moules some time after their conversation on 13 January 2000, she was still concerned that something might be amiss. She therefore decided to raise both the original allegation and her query concerning the standard terms and conditions of AWB's contracts with Mr Nicholas.
16.55 Mr Nicholas' evidence of his meeting with Ms Johnston broadly coincided with the evidence of Ms Johnston. According to Mr Nicholas, Ms Johnston had said that a third country had raised concerns about 'irregularities' in AWB's contracts that implied the existence of 'parallel contracts' that had not been submitted to the OIP. She requested that AWB be asked to submit other contracts that may exist since a clause in the existing contracts referred to the possible existence of parallel contracts. Ms Johnston emphasised that it was imperative that the complaint made by the third country that AWB had agreed to the irregular payment terms required by the Grain Board be put to rest.[987]
16.56 Ms Johnston's recollection of events was revived a day before she made her statement to this Inquiry[988] when she saw a copy of the short form of contract A4822 in the 'Irregularities File' which she had maintained at the United Nations.[989] There was nothing in this file in the way of a file note to assist her in her recollection of the meeting with Mr Nicholas, other than a copy of this short-form contract.[990]
16.57 Mr Nicholas did not accept that Ms Johnston had specifically referred to 'discharge costs' during their meeting. This did not accord with his recollection and, significantly, he had not referred to this when he composed his cable on 11 March 2000 dealing with his meeting with Ms Johnston and what followed thereafter. In this cable, Mr Nicholas referred to 'irregularities in AWB contract' as being a matter of concern, rather than 'discharge costs'.[991]
16.58 Mr Nicholas' evidence is to be preferred to that of Ms Johnston. His evidence is supported by his cable.[992] It is also consistent with Ms Moules' evidence that, when she spoke to Mr Nicholas after his meeting with Messrs Flugge, McConville and Snowball in Washington DC, he made no mention of discharge costs or trucking.[993]
On the other hand, Ms Johnston was reliant upon her recollection alone. When Ms Johnston reported the course of her investigation to Lt Col Saunders in January 2000, she had said that she had asked Ms Moules 'to enquire, discreetly, at a senior level, within the Australian Grain Board if any financial arrangements have been made outside the BNP Iraq account with the Government of Iraq'.[994] There was no reference then to 'inland transport' or 'discharge costs'.
16.59 This is in keeping with Ms Johnston being non-specific in referring to the terms of the inquiry she had made of Ms Moules. It is also consistent with her doing the same when speaking to Mr Nicholas on the occasion that she met with him. It is unlikely that she would have given Mr Nicholas more information about the matter than she gave Ms Moules; if anything one would have expected Ms Johnston not to have been as forthcoming with Mr Nicholas as she was with Ms Moules. This was acknowledged by Ms Johnston:
Q: Would you agree with me, Ms Johnston, that your discussion with Mr Nicholas was less detailed in relation to the third-country complaint than your discussion with Ms Moules had been?
A: I believe it was somewhat less detailed, yes.[995]
16.60 It follows that Mr Nicholas was not aware of any issue concerning 'discharge costs' or inland transportation costs or trucking as a consequence of his meeting with Ms Johnston and when he subsequently met with Messrs Flugge, McConville and Snowball.
16.61 On 9 March 2000, Mr Nicholas met with Messrs Flugge, McConville and Snowball in Washington DC.[996] The planned meeting with Mr Nicholas was to be a courtesy call by Mr Flugge.[997] It had already been arranged by the time of Mr Nicholas' meeting with Ms Johnston.
16.62 In the course of his meeting with Messrs Flugge, McConville and Snowball, Mr Nicholas raised Ms Johnston's concerns with them.[998] Mr Snowball said that the discussion was principally between Mr Nicholas and Mr Flugge.[999] Mr Nicholas told the three representatives from AWB that in the previous week he had met with Ms Johnston from the United Nation's Office of Iraq Programme (OIP) in New York, and that she had told him that she had raised concerns about irregularities in AWB contracts with the Australian mission in New York, and that she still did not have an answer.[1000] He also told them that a third country had concerns that AWB was making irregular payments as required by the Iraqi Grain Board, and that the OIP had requested it be provided with a copy of any parallel contracts between AWB and IGB.[1001]
16.63 Mr Nicholas was assured by the AWB representatives that there were no irregularities in AWB's dealings with Iraq.[1002] He stressed that it was necessary for AWB to provide copies of any contracts in order to ease the concerns of the OIP.[1003] Mr Snowball expressed the view that all clauses in the contract were standard and that it was not necessary to supply OIP with any additional information.[1004] However, after Mr Nicholas had explained to the AWB delegation the possible consequences of not providing this information, in particular that failure to provide the additional information to the OIP could result in a formal complaint and jeopardize future AWB sales under the Oil-for-Food Programme, Mr Flugge and Mr McConville said that the matter would be taken seriously and a full response would be forthcoming for the United Nations.[1005]
16.64 I accept Mr Nicholas' version of what was said during his meeting with Messrs Flugge, McConville and Snowball. It is supported by his cable to Austrade the next day.[1006] It is therefore reliable and to be preferred to the evidence of Messrs Flugge and McConville who admitted to poor recollections of this meeting.[1007] Mr Snowball's evidence was that his subsequent email of 15 March 2000 to Mr Emons[1008] was a pretty accurate account of what occurred.[1009] However, to the extent that Mr Snowball's account is inconsistent with Mr Nicholas' version, it should not be accepted. Reasons are given later in this chapter.
16.65 Following this meeting, Mr Nicholas spoke with Ms Moules. The substance of their conversation was recorded by Ms Moules in a cable to DFAT Canberra dated 10 March 2000:
Our REFTEL reported on information which the office of the Iraq Program (OIP) drew to the mission's attention earlier this year concerning possible irregularities in the way the AWB may have received payment for wheat supplied to Iraq under the Oil-for-Food program. You will recall that the possible irregularity had been drawn to OIP's attention by a third country (whose identity the OIP was not at liberty to reveal), the third country claiming to have been told by the Iraqi Grain Board that the AWB had concluded contracts involving irregular payment methods. We noted your response (REFTEL).
2. Austrade Commissioner in Washington (Nicholas) has advised that in a routine meeting with the OIP late last week, the OIP (Johnston, Chief, Contracts Processing Section) again raised the matter. Johnston noted that the third country which claims it has failed to secure contracts with the Iraqi Grain Board on the grounds that it is not prepared to enter into contracts involving irregular payment methods (methods which, it claims, the AWB has been involved in) remained concerned about the matter.
3. Johnston mentioned to Nicholas an additional point which the OIP had not previously raised with the Mission. The customs area of OIP had recently noticed that the standard contract used by the AWB and the Iraqi Grain Board contained a paragraph which implied additional conditions were attached to the contract, but not included in the paper submitted to the UN. The relevant paragraph is the one at the end of the one-page standard contract used by the AWB/Iraqi Grain Board and reads as follows: 'All other terms and conditions as per AWB Limited and Grain Board of Iraq standard terms and conditions for Australian wheat of which the parties admit they have knowledge and notice, to apply to this contract where not inconsistent with the above'.
4. While the 'standard terms and conditions' are doubtless just that (i.e. 'standard'), Johnston asked Nicholas if it would be possible to obtain a copy of the 'standard terms and conditions' as, strictly speaking, this was required for the UN's customs clearance process (although it had not previously been picked up by the OIP). We followed-up separately with Johnston on this point, who confirmed that, irrespective of the third country issue, the OIP having now noticed this paragraph in the AWB/Iraqi Grain Board contract, is legally obliged to clarify it.
5. Nicholas had a meeting on 9 March with visiting AWB Ltd Chairman (Fluge) and AWB Ltd New York office vice chairman (Snowball) (the meeting having been arranged prior to Austrade's meeting with OIP). At the 9 March meeting, Nicholas took the opportunity to advise the AWB of the information which OIP had drawn to his attention. AWB said this was not an issue, but undertook to consult with their headquarters and provide a response. Based on discussions we subsequently had with Nicholas and AWB's New York Office, we understand AWB's preference is that follow-up discussions be pursued with DFAT, but with Austrade kept in the loop.
6. While all indications from the AWB are, as expected, that the concerns of the OIP and the third country have no basis, until we are able to provide a formal reassurance of this, there will remain a question mark over the matter from the point of view of both the OIP and the third country referred to above. The fact that the OIP has recently picked up what they see as a potentially anomalous element of the AWB/Iraqi Grain Board contract confirms that a formal response (from UNNY to OIP) including a copy of the 'standard terms and conditions', will be needed to clarify the matter.
7. If for any reason it is not possible to provide a copy of the 'standard terms and conditions', we/AWB would still need to provide some assurance to the OIP as to their contents (i.e. something more than the reference in the paragraph in question to conditions applying 'where not inconsistent with the above'), though we assume that for legal reasons we would need to be cautious about any undertaking to provide assurances concerning business contracts.
8. Please note that Nicholas is reporting separately to Austrade Canberra on his meetings with OIP and AWB, noting the understanding regarding follow-up discussions as referred to in para 5 above.[1010]
16.66 The following day, 11 March 2000, Mr Nicholas sent a cable to Austrade in Canberra, and Ms Penny Wensley at the Australian mission to the United Nations, reporting on his meetings with both Ms Johnston and the representatives from AWB.[1011] The purpose of this cable was:
… to alert Austrade Deputy Managing Director Langhorne of the situation. Although the matter is being handled by the Mission to the UN and DFAT in Australia, the Deputy Managing Director may see fit to advise the Minister for Trade.[1012]
There is no evidence suggesting the matter was referred to the Minister for Trade.
16.67 The cable commenced with a summary in the following terms:
Trade Commissioner Washington met with Australian Wheat Board representatives who were visiting Washington on other business to advise them of UN concerns about suspected irregularities in AWB contracts with Iraq under the Oil for Food Program. Trade Commissioner is concerned that AWB do not understand the seriousness nor the urgency of the matter. It may be necessary to advise the minister of the situation.[1013]
As to his discussions with Ms Johnston, Mr Nicholas reported:
2. I met with Office of the Iraq Program (OIP) (Johnston, Chief Contracts Processing Section) in New York last week. Johnston advised that OIP had informally raised concerns about irregularities in AWB contracts with the Australian Mission to the UN in January however, Johnston said she had received an insufficient response to enable her to close the matter (refer cables 0.UN8311 of 13 January and 0.CE987696 of 18 January.) Johnston said there were continuing concerns by the Mission of a third country that the AWB had agreed to the irregular payment terms required by the Grain Board of Iraqi (GBI). She said that it was conceivable that the AWB had entered into irregular terms 'unknowingly'. Johnston referred to a clause in AWB contracts with the GBI that implied there was a separate contract in place and of which the OIP had not been made aware.
3. Johnston asked whether we (Austrade) could follow up with the AWB and obtain a copy of any 'parallel' contracts for the perusal of the OIP. Johnston emphasised that it was imperative that this matter be 'put to rest' before the mission of the third country makes a formal complaint against the AWB.[1014]
Mr Nicholas then reported on his discussions with the representatives of AWB:
5. AWB assured us there were no irregularities in their dealings with Iraq, but I emphasised that AWB needed to provided copies of any other contracts in order to ease the concerns of the OIP. Snowball expressed the view that all clauses in the contract were standard and that it was not necessary to provide additional information to the OIP.
6. After the possible consequences of not providing OIP with the requested information was explained, McConville and Flugie expressed the view that this would be taken seriously by AWB and that a full response would be forthcoming for the UN.
7. I advised AWB that it could respond to the OIP either via Austrade Washington or via DFAT and our mission to the UN.[1015]
He concluded his cable:
8. This matter has been discussed by Mission and Austrade Washington and we have agreed to keep each informed of developments.
9. Austrade Washington is concerned to ensure that the AWB follow through and provide OIP copies of any other contracts in place with the Grain Board of Iraq and that the Trade Minister is advised of the situation if necessary.[1016]
16.68 It follows that after their meeting with Mr Nicholas, Messrs Flugge, McConville and Snowball were aware that:
16.69 Mr Nicholas' evidence was that he did not refer to inland transport or trucking fees during his meeting with Messrs Flugge, McConville and Snowball on 9 March 2000.[1017] I accept that evidence.
Neither Mr Flugge nor Mr McConville gave evidence to the contrary.[1018] Mr Nicholas' account is supported first by his evidence that Ms Johnston did not refer to inland transportation or trucking fees during his conversation with her, and second by the absence of any reference to inland transportation or trucking fees in his cable of 11 March 2000.[1019] The copy of the contract that he was given by Ms Johnston[1020] did not refer to a 'trucking fee' or to 'trucking' or 'inland transportation'.[1021]
16.70 In both his email of 15 March 2000[1022] and his evidence of his meeting with Mr Nicholas[1023], Mr Snowball sought to attribute the references to 'discharge' and 'trucking' to Mr Nicholas. Mr Snowball's evidence was that Mr Nicholas intimated during their meeting that the United Nations was concerned that the standard terms and conditions some how related to 'discharge' or 'trucking' and that this was the extent of the inquiry that he understood Mr Nicholas to be making.[1024] I reject this evidence and Mr Snowball's attribution of the use of these words to Mr Nicholas.
16.71 Two notes in Mr Snowball's notebook indicate that, prior to his meeting with Mr Nicholas on 9 March 2000, he was not only aware that AWB was paying a trucking fee to a Jordanian trucking company but also that Canada had raised a query with the United Nations about trucking fees.[1025]
16.72 The first note is of a conversation that Mr Snowball had with Mayo Schmidt of the Saskatchewan Wheat Pool (Canada) in early March 2000, in which he had been told by Mr Schmidt that the Canadian Government had disrupted or delayed a Canadian Wheat Board sale because of the trucking payment.[1026] The note, which appeared at an angle towards the foot of the page, read:
Can Govt disrupted/delayed
a CWB sale-because of trucking payment[1027]
Mr Snowball's evidence was that he telephoned Mr Schmidt at the request of Mr Officer and discussed various things with Mr Schmidt about shipment delays. During that conversation, Mr Schmidt mentioned:
… something to do with delay of a-disruption or delay of Canadian Wheat Board sale.
Q: Because of a trucking payment ?
A: Yes.[1028]
As a result of this conversation, Mr Snowball had become aware, prior to his meeting with Austrade, that there had been some questions from the Canadian Government about trucking and payments for trucking.[1029]
After receiving Counsel Assisting's submissions, Mr Snowball's solicitors provided further documents which became Exhibit 1442. They were said to show that the handbook note was made after rather than before the meeting of 9 March 2000. The documents suggest a conversation with Mr Mayo after 9 March but it is not at all clear it was the same conversation recorded in the handwritten notes.
16.73 There was on the same page of Mr Snowball's notebook and immediately beneath this note another entry that referred to 'Can Grain Comm'.[1030] This was a reference to the Canadian Grain Commission.[1031] This entry contained references to 'Insp. in Canada' and '[obscured] test authority'.[1032] According to Mr Snowball, this was a note about the e-coli problem and vessels having been rejected at the discharge port for this reason.[1033]
This problem was also referred to in another of Mr Snowball's notes in his notebook.[1034] This was a note of another conversation that Mr Snowball had had. The note read:
Can-vessels rejected at Umm Qasr rejected for E-coli
- asked about trucking fee
- AWB pays the Jordan trucking co.[1035]
16.74 Mr Snowball had no recollection of this conversation but said (in his supplementary statement) that he believed that the information contained in his note came from Ms Moules.[1036] In his oral evidence he was less firm. He said:
I would expect that the diary note would have been the result of a conversation with the Mission to the UN, but I don't know that for sure.[1037]
16.75 Ms Moules had no recollection of a conversation with Mr Snowball that raised the subject of the trucking fee and AWB paying the Jordan trucking company. She conceded that it was a matter of possibility but said that it was not consistent with her recollection.[1038] Ms Moules' evidence was that the issue of any third party complaint was something that Mr Snowball discussed with her only after his meeting with Mr Nicholas.[1039]
16.76 It is unlikely that the information in this second note came from Ms Moules because at that time Ms Moules was not aware that AWB paid a Jordanian trucking company and was not aware of the significance of a trucking fee. She had not been given this information by Ms Johnston and Ms Johnston did not in any event have information that AWB paid a trucking fee to a Jordanian trucking company. Mr Snowball's evidence of a belief[1040] that the information contained in this note came from Ms Moules can not be accepted.
The information is likely to have come from Mr Emons in a conversation that Mr Snowball had with Mr Emons in relation to the manner of payment of the trucking fee.[1041] The conversation was some time in either late February or early March 2000 and prior to Mr Snowball's meeting with Mr Nicholas in Washington on 9 March 2000.
16.77 The presence of the phrase 'discharge/trucking' in Mr Snowball's email of 15 March 2000 was not because Mr Nicholas used those terms during his meeting with the representatives of AWB on 9 March 2000. Rather, its presence in that email reflected Mr Snowball's association of the discharge costs referred to in the early AWB contracts[1042] to the trucking fee[1043] that AWB was then paying and Mr Snowball's understanding that the inquiry that Mr Nicholas had conveyed to AWB in the meeting of 9 March 2000 related to AWB's payment of that trucking fee.
16.78 Following their meeting with Mr Nicholas, it was agreed between Messrs Flugge, Snowball and McConville that Mr Snowball would telephone the Australian mission to the United Nations and let Ms Moules know exactly what had occurred at the meeting.[1044] It was desired to confirm precisely what the United Nations was asking for. It was agreed that Mr Snowball would also telephone and inform Mr Emons.[1045]
16.79 Mr Snowball telephoned Ms Moules and informed her that AWB had been approached by Mr Nicholas, that Mr Nicholas had met with the Chairman of AWB, Mr Flugge, in Washington, and that Mr Nicholas had presented certain information at that meeting. Mr Snowball asked Ms Moules to speak with Mr Nicholas to make sure that she had a full understanding of what Mr Nicholas needed and the background to the issue, and to follow it up.[1046]
16.80 Ms Moules subsequently confirmed to Mr Snowball that the United Nations was asking for information on the contract clause 'All other terms and conditions as per AWB Limited and Grain Board of Iraq standard terms and conditions'.[1047]
16.81 Mr Snowball reported on his conversation with Ms Moules in his email of 15 March 2000 below.[1048] Mr Snowball also spoke by telephone with Mr Emons.[1049]
16.82 Following his conversation with Mr Snowball, on 15 March 2000 Mr Emons sent a facsimile to IGB to the attention of Mr Abdul-Rahman.[1050] It was headed 'UN enquirey concerning trucking fee' and read:
We wish to advise that the office of AWB Ltd in New York has been approached by the Customs office of the United Nations who are questioning the payments by AWB to the Jordanian trucking company.
We are very concerned to learn from the UN that the Canadian Government has taken action within the United Nations to discover the manner of AWB payments.
We ask your assistance in this matter and would ask that no information of a confidential nature is released.
We will be seeking your understanding on this matter when AWB visit's Iraq in April.
We thank you in anticipation.[1051]
Mr Snowball never saw this facsimile, however he agreed that Mr Emons was passing on information that he had provided.[1052]
16.83 The IGB responded the same day by telex headed 'U.N. Equirey concerning trucking fee':
We received with tks yr fax ddt 15. March 2000 and we are pls to inform you that the necessary action already have been taken regarding the matter.[1053]
16.84 Although Mr Emons' facsimile to IGB was headed 'UN enquirey concerning trucking fee', neither Mr Bowker nor Mr Nicholas[1054] expressly referred to the inland transportation fee or trucking fee in their discussions with representatives of AWB. Even though the particular aspect of the wheat contracts that had prompted the United Nations' inquiries of the Australian mission and Austrade had not been expressly made known to the representatives of AWB by either Mr Bowker or Mr Nicholas, it is clear from Mr Emons' facsimile that those representatives (and certainly both Mr Emons and Mr Snowball after his conversation with Mr Emons in late February 2000) were well aware of what had lead to the inquiries that had been made of AWB and the gravamen of the issue at the heart of those inquiries. Yet in none of AWB's subsequent dealings with DFAT in response to these inquiries was any disclosure or reference made to the inland transportation fees or trucking fees or to their payment by AWB.
16.85 On 15 March 2000, Mr Snowball sent an email to Mr Emons[1055], reporting on his discussions with both Mr Nicholas and Ms Moules. It was not received in Melbourne until early the following morning 16 March 2000, after Mr Emons had sent his facsimile of 15 March 2000 to the IGB. Mr Snowball wrote:
Following on from my discussion with you last week, here is a recap of what happened and the follow up:
1. Alistair Nicholas, Austrade asked to meet with us in WDC (Trevor, Andrew McC, myself)
2. Alistair had visited the UN in NY the week before. A UN official had asked him for clarification of the following wording in our short form contract with the grain Board of Iraq
'All other terms and conditions as per AWB Limited and Grain Board of Iraq Standard Terms and Conditions …'
Alistair mentioned that some[one] at the UN was asking him quietly/informerly about payments AWB was making to Iraq for discharge/trucking. Alistair suggested to us that the request for information on the above contract clause was linked to this discharge/trucking payment issue.
3. We played down the issue and said we would look at the UN request.
4. I called the Aust Mission to the UN and asked Bronte Moules to speak to UN to make sure UN had actually requested some information. I also asked Bronte to call Alistair.
5. Bronte confirmed that the UN were asking for information on the contract clause above. She has put this request through to DFAT in Canberra and DFAT will contact you. If all the UN wants is some understanding on standard terms and conditions in AWB contract then I think we have nothing to worry about. We should ensure that we do provide something to DFAT when they contact you.
I deal solely with Bronte on UN/Iraq, and see no role for Austrade. Alistair is always trying participate … I think Bronte is the better option for us anyway. We do not want Alistair sticking his nose into our Iraq business and causing us problems. If this was a big issue he should have picked up the phone straight after his visit to the UN to tell me rather than waste our Chairman's time in Washington!![1056] [emphasis added]
16.86 It is apparent from Mr Snowball's use of the phrase 'discharge/trucking' in this email that he related the discharge fee referred to in the early AWB contracts to the trucking fee that AWB was paying[1057], and that he related the inquiry that Mr Nicholas made to AWB's payment of a trucking fee.[1058]
16.87 Mr Snowball said that when he wrote in this email:
We played down the issue……If all the UN wants is some understanding on standard terms and conditions in AWB contract then I think we have nothing to worry about
he did not know whether what he had in mind was the United Nations finding out about the manner in which AWB made the payments of the trucking fee. [1059] I do not doubt that it was.
On this issue generally he also said:
I've covered it in my email in terms of I was taken by surprise by what seemed to be in Alistair's mind a big issue, and when I've looked at what he's provided me and the follow-up discussion with Bronte Moules, it didn't appear to me to be as if there was a problem that we needed to be worrying about. That's all I can recollect from what I've written there.[1060]
16.88 This evidence does not explain the reference to 'We played down the issue' and, 'If all the UN wants is some understanding on standard terms and conditions in AWB contract then I think we have nothing to worry about' in this email. The email describes playing down the issue as something that occurred during the meeting yet the explanation, such as it is, for the use of the phrase relates to matters that occurred after the meeting. The issue to be played down was the significance of the United Nations' inquiry concerning the discharge fee, which the AWB representatives at the meeting understood to be related to the payment of a trucking fee or inland transportation cost.
16.89 Mr Snowball said that the reason he wrote 'nothing to worry about' in his email to Mr Emons was that he was trying to protect the commercial position of AWB against some stiff competition from major competitors such as Canada and the United States of America.[1061] In respect of the words 'we played down the issue' at paragraph 3 of his email to Mr Emons, Mr Snowball said:
Although I have written 'we played it down', it would have been Trevor who set the tone of AWB's response to Alistair in the meeting. I know that I was surprised by Alistair suggesting that there was potentially some problem with AWB's sales to Iraq and it was unusual for Austrade to be informing AWB of this rather than the Australian Mission in the UN informing AWB.[1062]
16.90 When asked whether it was the Chairman who 'played down the issue', Mr Snowball said:
I don't recall everything that went on in the meeting, sir, but from what I can recall and what I've written here, I suggest that the meeting was run by Alistair and Trevor. I don't believe I would have participated much in the meeting at all. I've recapped what happened in the meeting and I suggest I've got a feeling that Trevor gave a low-key response to the suggestion from Alistair and I've used the term 'played down' here.[1063]
16.91 Mr Flugge could not recall the meeting with Mr Nicholas. When questioned about Mr Snowball's evidence that he controlled the meeting, Mr Flugge said:
Well, the problem I have, Mr Agius, is that I don't actually recall the meeting or even-I can't even think about what Mr Alistair Nicholas looks like. I had never met him before and I have never seen him since, so it is extremely difficult to recall that.
If it was an Austrade representative, and having read the email that Mr Snowball has sent, clearly, again, as we talked about before, there probably would have been a briefing at least before we went into this meeting, and I'm assuming that Mr Snowball had actually set the meeting up, because I certainly don't recall setting the meeting up. Clearly he wanted to see me and obviously made comments.
Now, he would have been talking about things that I really have very little detailed knowledge of. I had not seen Iraqi contracts or the way that was dealt with. It is not an area that I would have had detailed knowledge of. And so I guess I would have simply said, 'Look, we will take that on board.' And I couldn't have entered into discussion on it. So that's-it is not a recollection of a meeting, Mr Agius, it is trying to assume how that meeting may or may not have played out according to the answer or the email that Snowball has given. But that's as much as I can add on that.[1064]
16.92 When questioned as to whether he 'played down the issue', Mr Flugge said:
… So quite clearly, in terms of the context and trying to imagine how I would have played that at that time, and depending also on what Mr Snowball would have briefed me initially about the meeting or the individual, you know, I may have just simply said, 'Look, we'll take it on board, we're not here'-I couldn't discuss the details of those documents. I had never seen Iraqi contracts, I certainly wouldn't have been in a position to explain what was going on or what wasn't going on …
Q: Why would you play down what Mr Nicholas of Austrade had told you?
A: I don't necessarily think-I don't agree that it would have necessarily been played down. Had I-if I had a recollection of the meeting, I could probably try and give you the context, but it is extremely difficult to hypothesise on why we would have anything-I never wrote the email. They are Mr Snowball's words, not mine.[1065]
16.93 When read together, Mr Nicholas' and Mr Flugge's evidence suggests that Mr Snowball played a much greater role in the meeting with Mr Nicholas than Mr Snowball contended. Mr Snowball was aware of the complaint prior to the meeting, he had the discussion with Mr Emons in late February (recorded in the note in his notebook) in which both 'trucking fees' and payment to a 'Jordanian trucking company' were mentioned, and his email to Mr Emons following the meeting with Mr Nicholas discloses a greater level of knowledge about the complaint than he maintained. I accept Mr Nicholas' evidence regarding the meeting which is consistent with his and Ms Moules' contemporaneous cables.
16.94 When asked about Mr Snowball's email, Mr Emons' evidence was:
Q: … It is the next sentence that I want to ask you about:
If all the UN wants is some understanding on standard terms and conditions in AWB contracts then I think we have nothing to worry about.
That seems to imply that there was something to worry about, Mr Emons?
A: You are correct. What he was implying there is that if the contract terms just listed the quality specifications, conditions, et cetera, it wouldn't be an issue, but if there was a mention of the trucking discharge fee, then there would be an issue.
Q: Something to worry about?
A: Something to worry about.
Q: So if the UN inquiry could be satisfied by providing the standard terms and conditions, then there would be nothing to worry about because there was nothing in the standard terms and conditions which related to trucking fees or the payment of money to Alia or to Iraq or anybody?
A: Correct.
Q: But if the UN inquiry could not be so satisfied, then there would be something to worry about?
A: Correct.
Q: And that's the way in which you understood it?
A: That's correct.
Q: And, in effect, that's what you were being told to keep in mind if and when you were contacted by DFAT?
A: That's right.[1066]
16.95 That evidence should be accepted. At the conclusion of this email, Mr Snowball indicated that he expected DFAT to be in contact with Mr Emons. Clearly Mr Snowball left Mr Emons to deal with DFAT on the basis of Mr Emons' understanding of what he, Mr Snowball, had written. Each had an understanding that there was something to worry about if the United Nations' inquiry was not limited to the standard terms and conditions. This is the effect of Mr Emons' evidence and it is against his interest. It is also consistent with the ordinary and natural way of reading Mr Snowball's email. There is no warrant to depart from this approach.
16.96 After Mr Emons' receipt of this email, there was a discussion at AWB about it. Included in the discussion were Messrs Emons, Officer and McConville.[1067]
16.97 From the above analysis the following conclusions are drawn:
16.98 Although he was not a participant in the discussions concerning the IIC's query, either initially or when raised again by Mr Nicholas, Mr Watson was nevertheless aware of these inquiries and the Canadian complaint, albeit in general terms.[1068]
Mr Watson's evidence was that he had been told about these inquiries (complaints) by either Mr Officer or Mr Emons.[1069] The issue was discussed in management group meetings, although only in general terms.[1070] He had been told that the Canadians were trying to find out how the trucking fees were being paid[1071]-in particular how these payments were structured, because they could not make these payments and were being kept out of doing business in Iraq as a result.[1072] As a result, Mr Officer had stressed to Mr Watson that this was one of the reasons why AWB had to ensure confidentiality.[1073] He was not however informed of how the inquiry was being dealt with within AWB[1074] or in the context of DFAT and the United Nations[1075], and did not put his mind to it any further as he was concerned about his shipping program.[1076]
16.99 On 17 March 2000, Mr Bowker sent a cable to the Australian mission to the United Nations in response to Ms Moule's cable of 10 March 2000[1077] advising:
The Office of Iraq Program (OIP) concerns will be addressed with AWB next week. Initial contacts have confirmed advice already provided by AWB General Manager Americas (C.UN8555 paragraph 5).[1078]
Mr Bowker subsequently spoke with Mr McConville and raised with him the additional query concerning AWB's standard terms and conditions that had been raised in Ms Moules' cable of 10 March 2000. Mr McConville advised that AWB was happy to provide a copy.[1079]
16.100 Mr Bowker did not recall there being any discussion about payments into Jordanian accounts or trucking[1080], although he had some recollection of Mr McConville saying something like 'our competitors, probably Canada, are throwing mud at us because that is how competition between wheat traders works'.[1081] Mr McConville had no recollection of this conversation.[1082]
Mr Bowker's evidence was that he did not recall that 'trucking' was part of the initial discussion in January 2000 and he believed that the inquiry in March about standard terms and conditions was something arising from an allegation about inflated payments generally being recycled to the Iraqis. He did not have a specific recollection that it was with regard to trucking.[1083] Mr Bowker had no other source of information as to the nature of the complaint other than what he read in Ms Moules' cables.[1084] Mr Bowker did not have any suspicion regarding whether the alleged payment of US$14 a tonne was related to inland trucking.[1085]
16.101 On 22 March 2000, following his discussion with Mr McConville, Mr Bowker sent a further cable to the Australian mission:
Start Summary
AWB (McConville, Government Relations) advise that the mention in the standard contract used by AWB and the Iraqi Grain Board of 'standard terms and conditions' is simply a reference to a long-standing MOU between AWB and the Iraqi Grain Board on which its standard contract is based. AWB is happy to provide a copy of the MOU to the Office of the Iraq Program to avoid any misperceptions
End Summary
Grateful if post would follow up with AWB office in New York and provide a copy of the relevant document to the Office of the Iraq Program. AWB suspect, but cannot prove, that the allegations of irregularities on its part-which AWB dismisses-are being promoted by its Canadian competitors.[1086]
16.102 On 30 March 2000, Mr McConville spoke with Mr Emons. Mr McConville had no recollection of what was said on that occasion.[1087] He said:
but it certainly follows a logical course of action that I would have taken, and that is if we received an inquiry, I would have gone to the desk, asked for the relevant information, put that in a form to go back to DFAT, or whomever was making the inquiry, check that those who provided the information-in this case Mark Emons-were comfortable with the form of words I used and then provide that information as appropriate.[1088]
16.103 The following day, Mr McConville sent an email to Mr Emons headed 'Standard Terms and Conditions' in which he asked:
can you give me some words to address the para in the standard terms and conditions that refers to demurrage/discharge as discussed yesterday.[1089]
16.104 Mr McConville also sent a facsimile to Mr Snowball in AWB's US office enclosing a copy of the:
Australian Wheat Board
Australian Wheat Contract
(Fixed Price)
Standard Contracts Terms and Conditions
Australian Wheat Board
and
Grain Board of Iraq.[1090]
The facsimile read:
Tim
Spoken with Canberra-they are OK with waiting for Mark's O.K.
Message was if he is OK, could you then deliver copy of Terms & Conditions to our UN Mission.[1091]
16.105 On 3 April 2000, Mr Emons replied to Mr McConville's email of 31 March 2000:
The Standard Terms and conditions apply except as and when these are in contradiction to UN policy to trade with Iraq. This is pertinent to the clauses covering Despatch/Demurrage and the cross referencing clause guaranteeing a minimum discharge rate. As the UN contract specifically excludes such contractual conditions then the terms and conditions quoted are superseded. The relevance now of these terms and conditions may appear relatively minor however both parties have elected to maintain said agreement until there is a change in trading circumstances whence an update will take place. The IGB have continued to place importance on particular terms such as the age of ships not greater than 15 years.
As a side note we have asked the IGB to begin a review of these terms in expectation of some change in the UN sanctions policy.
Trust this meets your needs.[1092]
16.106 Later that same morning, after receiving Mr Emons' email, Mr McConville sent an email to Mr Snowball:
Tim
Further to my fax of the standard terms and conditions, we can now provide to the UN-Mark has reviewed. In forwarding to them you should include words to the effect of Mark's note below which addressed the last para on the first page re demurrage/despatch.[1093]
16.107 Mr Snowball in turn sent a facsimile to Ms Moules that day enclosing a copy of the AWB Standard Terms and Conditions that he had received from Mr McConville.[1094] Mr Snowball wrote:
Please find attached the standard terms and conditions between Australian Wheat Board and Grain Board of Iraq as requested by UN.
The Standard Terms and conditions apply except as and when these are in contradiction to UN policy to trade with Iraq. This is pertinent to the clauses covering Demurrage/Despatch and the cross referencing clause guaranteeing a minimum discharge rate. As the UN contract specifically excludes such contractual conditions then the terms and conditions quoted are superseded. For your information, the relevance now of these terms and conditions may appear relatively minor however both parties have elected to maintain said agreement until there is a change in trading circumstances whence an update will take place. The IGB has continued to place importance on particular terms such as the age of ships not greater than 15 years.
Please call if you have any questions.[1095]
16.108 Whilst these exchanges were taking place, on 1 April 2000, Mr Watson sent a facsimile to Alia confirming the inland transportation fees payable for shipments under the next phase of the Oil-for-Food Programme:
Ref: Australia Wheat, Inland Trucking, Iraq, Phase 7
For sake of good order, I would confirm that we have been informed that the trucking fee will be USD15 p/mt for this phase and will be effected for vessels sailing ex Australia from 1st April 2000,
As per the previous phase, these costs will be remitted to your nominated account upon sailing of the vessels from Australia.
Please advise any change to your banking details enabling funds to be remitted.
Once again, we would take this opportunity to thank you for your cooperation and look forward to working with you on this phase of the above contract.[1096]
16.109 Despite the characterisation by Mr Snowball of the query that had been passed on by Mr Nicholas as one concerning the inland transportation fees that AWB was being asked to pay, there was no disclosure by AWB, to DFAT, Austrade or the United Nations, of the existence of that fee or the arrangements for its payment.
16.110 On 5 April 2000, Ms Moules sent a facsimile to Ms Johnston enclosing a copy of:
the Standard Contract Terms and Conditions between the Australian Wheat Board and the Grain Board of Iraq.[1097]
She advised:
Please note that AWB Ltd has advised that the standard terms and conditions apply except as and when these are in contradiction to UN policy on trade with Iraq. This is pertinent to the clauses covering Demurrage/Despatch and the cross referencing clause guaranteeing a minimum discharge rate. As the UN contract specifically excludes such contractual conditions, the terms and conditions which follow are superseded in these respects.[1098]
16.111 On 5 April 2000, Ms Moules sent a cable to DFAT in Canberra advising:
Further to REFTELS AWB Ltd (New York office) has now provided to the Mission a copy of the Standard Terms and Conditions used by the AWB and Iraqi Grain Board. As agreed by AWB Ltd, we provided a copy of the standard terms and conditions to the Office of the Iraq Program (OIP) on 5 April. OIP has confirmed that this clarifies the matter and removes and grounds for misperception.[1099]
16.112 After receiving Ms Moules' fax, Ms Johnston considered there were no other avenues left for her to explore the Canadian complaint without diplomatic incident. She thought it was not possible to refer an unsubstantiated allegation to the 661 Committee, and AWB had responded to her inquiries via the Australian mission with categorical denials and plausible explanations. Ms Johnston therefore considered she had no option but to accept the conclusions reached by 'Australian officials'.[1100]
16.113 Ms Johnston said she would have continued to have had concerns regarding the standard terms and conditions had the covering letter from the Australian mission not stated that the discharge/demurrage terms referred to in the standard terms did not apply since they were not permitted under the United Nations Security Council regulations.[1101] Ms Johnston did not thereafter take any further action regarding this matter in connection with AWB.[1102]
However, she did instruct the Customs Experts within the OIP to pay particular attention to any unusual payment arrangements and to refer any irregular cases directly to her.[1103]
16.114 Ms Johnston's evidence was to the effect that she had read the covering explanation from AWB concerning the standard terms and conditions to mean that the clause in contract A4822 that she had earlier examined and which referred to a payment of a discharge cost of US$12.00 per tonne did not apply.[1104] As she was assured the 'demurrage/dispatch' clause did not apply because of UN sanctions, she assumed the 'discharge cost of up to US$12.00' did not apply where it appeared in contract A4822.[1105] She formed the view that the US$12.00 per tonne fee was therefore not being paid as it was inconsistent with United Nations sanctions.[1106]
16.115 Her view was erroneous. The explanation had not indicated that the 'discharge fee' was not being paid. 'Discharge Costs' are not related to any damages payable by way of 'demurrage/despatch' for delayed loading or unloading. Discharge costs normally relate to the cost of discharge, though here the nominated discharge fee in US dollars in truth related to the cost of inland transportation. Significantly, the standard terms and conditions were silent in respect of any trucking fee or inland transportation fee. The short-form contract had not referred to a trucking fee or transportation fee. There was nothing in the documents provided to Ms Johnston which indicated that the 'discharge fee' was not being paid.
16.116 The United Nations ceased investigation of the Canadian complaint because Ms Johnston believed that, as payment of a 'discharge fee' in US dollars to an Iraqi maritime agent would be contrary to the United Nations' sanctions, such payments were not being made notwithstanding the contractual provision in contract A4822 requiring such payment. She held that belief because AWB, through the Australian mission, had advised that 'standard terms and conditions apply except as and when these are in contradiction to UN policy on trade with Iraq'. However the 'standard terms and conditions' said nothing at all about discharge, trucking fees or inland transportation fees.
16.117 On 6 April 2000, Ms Johnston sent a facsimile to Lt Col Saunders in which she advised:
Further to our earlier conversation please see attached the correspondence from the Australian mission.
Thank you for raising the matter of irregularities in Iraqi wheat contracts. We have raised our vigilance in this area.
Please do not hesitate to contact me if I can be of any further assistance.[1107]
Accompanying that facsimile was a copy of the facsimile that Ms Johnston had received from the Australian mission dated 5 April 2000 together with Mr Snowball's fax of 3 April 2000 and the AWB Standard Terms and Conditions.[1108]
16.118 On 6 April 2000, Mr Snowball sent an email to Mr Emons (with a copy to Mr McConville) reporting[1109]:
I sent the contract standard terms and conditions via Aust Mission to the UN. The UN has now confirmed that everything in the contract is fine and there is no issue.[1110]
16.119 By April 2000, the OIP had heard 'another rumour of potential kickbacks within the system'.[1111] As further clues began to emerge concerning the manipulation of the Oil-for-Food Programme by the Government of Iraq, Ms Johnston began to maintain a file concerning potential irregularities.[1112] This became known as the 'Irregularities File'. Ms Johnston instructed Customs Experts to bring any case of irregularities to her attention. She handled follow up inquiries concerning any irregular payment issues and added the information to the Irregularities File.[1113]
16.120 By October 2001, Ms Johnston considered that she had sufficient tangible evidence to warrant presentation of a report concerning potential kick-backs.[1114] She drafted a 'Note for the File' entitled 'Potential Illicit Payments to the Government of Iraq'. This note, which is referred to in the IIC final report as 'the Johnston Note'[1115], outlined the cases from her Irregularities File.[1116] The note detailed each case where there was tangible evidence that kick-backs might be occurring.[1117]
16.121 According to the IIC final report, Ms Johnston's purpose in drafting the Johnston Note was to summarise compelling evidence that an illicit payments scheme existed, and present the information to her supervisor, Mr Zarif, and to Mr Sevan, to encourage action by the Secretariat. The IIC final report found that a copy of the Note had been provided to both Mr Zarif and Mr Sevan. It was never provided to the 661 Committee.[1118]
16.122 Ms Johnston did not include the Canadian complaint regarding AWB in the Johnston Note. As there was no evidence in support of the Canadian complaint, Ms Johnston felt that including any unsupported material would jeopardise potential action in connection with the Note.[1119]
[867] Ex 546, UNO.0006.00030.
[868] Ex 546, UNO.0006.00030.
[869] T 6722.30-38.
[870] Ex 546, UNO.0006.00030.
[871] Ex 965, WST.0032.0001_R at 0002_R, para. 12.
[872] Ex 965, WST.0032.0001_R, para. 2.
[873] Ex 965, WST.0032.0001_R, para. 3.
[874] Ex 965, WST.0032.0001_R, para. 8.
[875] Ex 965, WST.0032.0001_R at 0002_R, para. 14.
[876] Ex 547, UNO.0006.0037.
[877] Ex 965, WST.0032.0001_R at 0002_R, para. 14.
[878] Ex 965, WST.0032.0001_R at 0002_R, para. 14.
[879] Ex 965, WST.0032.0001_R at 0002_R, para. 14.
[880] Ex 547, UNO.0006.0037-see below.
[881] Ex 456, DFT.0001.0179, para. 2-see below.
[882] Ex 965, WST.0032.0001_R at 0002_R, para. 14.
[883] T 6723.41.
[884] OC4988 is the United Nations' approval number that was given to the contract after it had been approved by the 661 Committee.
[885] Ex 1211, UNO.1211.0291.
[886] Ex 965, WST.0032.0001_R at 0002_R-0003_R, para. 14.
[887] Ex 542, DFT.0002.0053; see also Ex 729 at AWB.0058.0128.
[888] Ex 1450, AWB.0058.0152.
[889] The inland transportation fee was only imposed from phase VI of the Oil-for-Food Programme (see Chapter 13). Although no inland transport fee was payable in respect of this contract, such a fee was in fact paid by AWB in respect of the one shipment made under this contract.
[890] Ex 542, DFT.0006.0153; see also Ex 729, AWB.0058.0075.
[891] Ex 729, AWB.0058.0061; Ex 1211, UNO.0003.3627 at 3627-3629.
[892] Contracts A4653 (Ex 1211, UNO.0003.3323), A4654 (Ex 1211, UNO.0003.3411) and A4655 (Ex 1211, UNO.0003.3533).
[893] Ex 965, WST.0032.0001_R at 0003_R, para. 15.
[894] Ex 543, DFT.0013.0225, para. 2.
[895] Ex 543, DFT.0013.0225, para. 5.
[896] Ex 965, WST. 0032.0001_R at 0003_R, para. 17(d).
[897] Ex 965, WST. 0032.0001_R at 0004_R, para. 17(i).
[898] Ex 965, WST. 0032.0001_R at 0003_R, para. 16.
[899] T 6736.12-17; although in her statement, Ms Johnston does not say that she spoke of 'inland transportation' with Ms Moules: Ex 965, WST.0032.0001_R at 0003_R, para. 17(d).
[900] T 4480.43 - T 4481.17; T 4521.39-41.
[901] Ex 547, UNO.0006.0037.
[902] Ex 547, UNO.0006.0037.
[903] Ex 547, UNO.0006.0037. Ms Moules agreed that she had been asked by Ms Johnston to make discrete high level inquiries of AWB (T 4476.28); see also Ms Moules' cable: Ex 456, DFT.0001.0179 at 0180, para. 4.
[904] Ex 456, DFT.0001.0179.
[905] T 6736.34-37.
[906] Ex 547, UNO.0006.0037.
[907] Ex 456, DFT.0001.0179.
[908] Ex 456, DFT.0001.0179-0180.
[909] Ex 457, DFT.0001.0177.
[910] Ex 457, DFT.0001.0177.
[911] Ex 457, DFT.0001.0177.
[912] Ex 565, DFT.0013.0057, para. 6; see also T 4580.14-T 4581.22.
[913] T 4580.14 - T 4581.22.
[914] Ex 565, DFT.0013.0057, para. 6; T 4581.13.
[915] T 4581.42-44.
[916] T 4580.14.
[917] T 4580.36-41.
[918] T 4580.46 - T 4581.3.
[919] T 4580.28-31.
[920] T 4581.18-22.
[921] T 4581.24-26.
[922] T 4624.36. Neither Mr McConville nor Mr Emons gave any evidence as to whether they were present at this December meeting or what was then said. Mr M
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