11.1 As discussed in Chapter 1, the Oil-for-Food Programme was established under UN Security Council Resolution 986 and administered by the United Nations. It was established as a temporary measure to alleviate the Iraqi population's hardship until such time as Iraq fully complied with the UN Security Council resolutions imposed on it as a consequence of and following the first Gulf War.[208]
11.2 The Oil-for-Food Programme and the resolution under which it was established, permitted Iraq to export a certain value of oil every six months and to purchase from the proceeds of the sale of that oil humanitarian goods such as wheat, rice, milk powder, medical supplies, soaps, detergents, and other essential civilian supplies.
11.3 The procedures established for the operation of the Programme required that the United Nations-in particular, the 661 Committee-approve all contracts for the supply of humanitarian goods and services to Iraq.[209]
11.4 The Australian Wheat Board and its successor AWB Limited were the single largest provider of humanitarian goods to Iraq under the Oil-for-Food Programme.[210] The first Australian Wheat Board contract under the Programme was negotiated in 1996. Between 1997 and 2003 the Australian Wheat Board and AWB participated in all 13 phases of the Programme.[211]
11.5 In its final report, dated 27 October 2005, the Independent Inquiry Committee into the United Nations Oil-for-Food Programme found that during the period of their participation in the Oil-for-Food Programme the Australian Wheat Board and AWB sold a total of 6.8 million tonnes of wheat to Iraq and received over $2.3 billion in payments from the UN escrow account.[212] In an AWB briefing note to the Wheat Export Authority, dated 14 November 2005, it was stated that during nearly seven years of the Oil-for-Food Programme, the Australian Wheat Board and AWB supplied nearly 12 million tonnes of wheat over 41 contracts and 285 shipments.[213]
11.6 In its final report the IIC stated that during the Oil-for-Food Programme the former regime in Iraq had received 'illicit income' by way of payments made to it under the Programme.
11.7 The IIC found that the regime had received this income in two ways. The first was through the imposition of surcharges on its sale of oil under the Oil-for-Food Programme.[214] The second and largest source of illicit income came from what the IIC termed:
'kickbacks' paid by companies that [Iraq] selected to receive contracts for humanitarian goods under the Programme. These payments to the Iraqi regime were disguised by various subterfuges and were not reported to the United Nations by Iraq or the participating contractors.[215]
11.8 Evidence available to the IIC indicated that the former regime in Iraq had derived more than US$1.5 billion in income from the payment of such 'kickbacks' in relation to humanitarian contracts.[216]
11.9 The IIC investigated AWB and reported:
In total, AWB paid a total of over $221.7 million in side payments for what it termed inland transportation fees. This corresponds to more than fourteen percent of the illicit funds collected by the Iraqi regime under its kickback schemes.[217]
11.10 Figure 12.1 in Appendix 12 reproduces the IIC final report schedule showing its calculation of payments made by AWB.
11.11 In its final report the IIC identified two sources of the alleged 'kickbacks'-inland transportation fees and after-sales-service fees.
11.12 Inland transportation fees were first required to be paid on shipments made under contracts entered into as part of phase VI of the Oil-for-Food Programme:
The kickback policy emerged only over time as the Programme extended for a longer period and involved larger amounts than anticipated. The policy began in mid-1999 from Iraq's efforts to recoup purported costs it incurred to transport goods to inland destinations after their arrival by sea at the Persian Gulf port of Umm Qasr. Rather than seeking approval from the United Nations for compensation of such costs from the Programme's escrow account, Iraq simply required humanitarian contractors to make such payments directly to Iraqi-controlled bank accounts or to front companies outside Iraq that, in turn, forwarded the payments to the Government of Iraq. Not only were these side payments not authorized under the Programme, but it was an easy matter for Iraq to impose 'inland transportation' fees that far exceeded its actual transportation costs.[218]
11.13 An obligation to pay inland transportation fees was first imposed on AWB under contracts it concluded in July 1999 under phase VI. The circumstances in which AWB agreed to pay and subsequently paid these fees are discussed in Chapter 13. Initially, the fee imposed was US$12 per tonne. AWB first paid this in November 1999. It continued paying such fees until the incursion into Iraq by coalition forces in March 2003, in respect of all AWB shipments of wheat in bulk to Iraq under contracts concluded as part of phases VI to XIII of the Oil-for-Food Programme. The amount of the inland transportation fee payable increased during this period, from US$12 per tonne in July 1999 to US$15 per tonne during 2000 and US$29 per tonne by December 2002.
11.14 The second source of humanitarian kickbacks identified was a 10 per cent surcharge, or fee, also called an 'after-sales-service' fee:
By mid-2000, Iraq instituted yet a broader policy to impose generally a ten percent kickback requirement on all humanitarian contractors-including contractors shipping goods by land as well as contractors shipping to Umm Qasr. This broader policy was in addition to the requirement for contractors to pay inland transport fees. Iraq dubbed its more general kickback requirement as an 'after sales service' fee. After-sales-service provisions often were incorporated into contracts as a basis to inflate prices and permit contractors to recover from the United Nations escrow account amounts they had paid secretly to Iraq in the form of kickbacks. Contractors ordinarily made these payments before their goods were permitted to enter Iraq. For ease of reference, this form of kickback is referred throughout [this report] as an after-sales-service fee, although Iraq often collected a ten percent fee without labelling it an 'after-sales-service' fee or without inserting an after-sales-service provision in the applicable contract.[219]
11.15 This 10 per cent after-sales-service fee was first imposed on AWB in relation to the contract it concluded with the Iraqi Grain Board in November 2000 (contract A0430). This was as part of phase VIII of the Oil-for-Food Programme. The circumstances in which AWB came to agree to the payment of this additional fee are recounted in Chapter 21. AWB first paid the fee in April 2001, shortly after its first shipment of wheat to Iraq under contract A0430. The fee was thereafter paid in respect of all shipments of wheat to Iraq following contract A0430 and until the coalition incursion into Iraq in March 2003.
11.16 From the time it was first imposed until March 2003, the 10 per cent after-sales-service fee was incorporated in and treated (in particular, by AWB and the AWB Pool) as part of the inland transportation fee payable in respect of each shipment. This was done by adding the 10 per cent fee to the trucking fee the IGB designated (usually in its wheat tender) as being payable in respect of contracts concluded under each phase and describing and treating the resultant total as the total of the 'inland transportation fees' payable in respect of each shipment made under that contract. During the period in which the 10 per cent after-sales-service fee was imposed, neither AWB nor the AWB Pool differentiated between
and
11.17 The IIC found that the inland transportation fees-including the additional 10 per cent after-sales-service fee where applicable-were paid in four ways and ultimately found their way to the regime then in power in Iraq.[221] One of these four ways was 'by bank transfer to accounts held by front companies in Jordan or the United Arab Emirates'.[222]
11.18 The front companies were described as companies that were controlled covertly or owned in part by the Government of Iraq.[223] The IIC found that, because large volumes of cash were difficult and dangerous to transport and suppliers were hesitant about making bank transfers directly to Iraqi authorities, payments through front companies became the preferred method for many suppliers.[224] Further:
When the Iraqi regime introduced the illicit inland transportation scheme, Alia and Amman Shipping, both based in Amman, Jordan, were two of the most frequently used front companies. These companies posed as legitimate providers of transportation services from the port of Umm Qasr, but in practice provided only limited services at port and otherwise functioned as little more than conduits for the payment of transportation fees to ISCWT [the Iraqi State Company for Water Transport]. In exchange, the companies received a small percentage of the fees they channelled to the regime.[225]
The reference in the passage quoted to 'Alia' is a reference to Alia for Transportation and General Trade, a company incorporated in Jordan in 1994 and 49 per cent owned by or on behalf of the Iraq Ministry of Transport.[226]
11.19 All inland transportation fees-including the additional 10 per cent after-sales-service fee where applicable-payable in respect of shipments of wheat to Iraq under the Oil-for-Food Programme between July 1999 and the incursion into Iraq in March 2003 were paid by AWB and the AWB Pool to Alia either directly or indirectly.
11.20 The IIC found that the Iraqi regime did not expect the suppliers of humanitarian goods themselves to bear these inland transportation fees and the additional 10 per cent after-sales-service fees when imposed.[227] Rather, Iraq incorporated these fees in the contract price of the humanitarian goods it purchased. The contract containing the revised contract price was then submitted to the UN 661 Committee for approval under the Oil-for-Food Programme and for funding from the moneys held in the escrow account. The cost of the inland transportation fees and 10 per cent after-sales-service fees paid by the supplier in respect of shipments made under contracts approved by the United Nations was thereby recovered by the supplier from the UN escrow account as part of the proceeds of sale for goods shipped and in addition to the amount that would have otherwise been paid for the goods on a CIF free out basis.[228] In effect, the inland transportation fees and after-sales-service fees were thereby paid from the funds accumulated in the UN escrow account from the sale of oil under the Oil-for-Food Programme.[229]
11.21 Through this means[230] the Iraqi regime was able to obtain access to funds from the escrow account, which it was then able to use for its own purposes-including purposes other than the purchase of humanitarian goods.
11.22 Moreover, because each phase of the Oil-for-Food Programme provided for only limited funds to be made available via the escrow account for the purchase of humanitarian goods, withdrawal of funds from the escrow account on account of the inland transportation fees and after-sales-service fees (through their addition to the price of humanitarian goods purchased) had the effect of reducing the total amount available in the escrow account during each phase for the purchase of humanitarian goods and services for the benefit of the people of Iraq.
11.23 From 1999 AWB supplied wheat to Iraq under the Oil-for-Food Programme in two ways:
11.24 Between July 1999 and the incursion into Iraq in March 2003 AWB entered into 21 contracts with the IGB for the supply of wheat in bulk to Iraq under the Oil-for-Food Programme. Of these, 20 contracts were concluded under phases VI to XIII and in respect of these inland transportation fees were payable by AWB. Although inland transportation fees were not payable in respect of the other contract AWB concluded with the IGB during this period[235], AWB in fact paid inland transportation fees for the single shipment made under that contract.[236]
11.25 So far as AWB was concerned, it was only the contracts for the sale of wheat that AWB concluded with the IGB directly that were the subject of comment in the IIC's final report. Nevertheless, AWB had also agreed to pay, and did in fact pay, inland transportation fees in respect of the wheat it shipped to Iraq under contracts it concluded with the grain traders. Furthermore, the inland transportation fees paid by AWB, and through it the AWB Pool, in respect of its shipments under these contracts were of the same order and were paid in the same manner as the inland transportation fees it paid in respect of its contracts entered into with the IGB directly.
11.26 Between July 1999 and the incursion into Iraq in March 2003 AWB entered into six contracts with grain traders for the supply of wheat to Iraq. Of these, five were contracts concluded under phases VI and VII, and inland transportation fees were both payable and paid by AWB. The sixth was a contract for the shipment under phase V of the Programme.[237] Although no inland transportation fees were payable in this instance, AWB in fact paid inland transportation fees in respect of the single shipment made under that contract.[238]
11.27 Between November 1999 and March 2003 AWB paid in excess of US$224 million in inland transportation fees, including the 10 per cent after-sales-service fee (where that fee was imposed), in respect of 28 contracts concluded under the Oil-for-Food Programme.[239]
11.28 Table 13.1 in Appendix 13 lists each of AWB's contracts for the supply of wheat to Iraq during the Programme in respect of which inland transportation fees (including the additional 10 per cent after-sales-service fee where it was also imposed) were paid, showing, for each contract:
11.29 Figure 13.1 in Appendix 13 shows, for those contracts AWB concluded between July 1999 and December 2002 under phases VI to XIII, the amount of the inland transportation fees[240] payable per tonne and the increase in the amount of that fee. Figure 13.2 in Appendix 13 shows, for each contract, the amount of the inland transportation fee payable by AWB as a percentage of the 'CIF free out' price that would otherwise have been payable for wheat sold under that contract, as well as the increase in those percentages between July 1999 and December 2002.
11.30 Figure 13.3 in Appendix 13 shows the amount of inland transportation fees paid per tonne and the increase in those fees, as prepared by AWB's solicitors, Blake Dawson Waldron, for their brief to Mr Tracey QC as part of the investigations carried out under Project Rose.[241]
11.31 Figure 13.4 in Appendix 13 summarises the inland transportation fees paid in respect of the AWB contracts under the Oil-for-Food Programme, as recorded in spreadsheets prepared by Ferrier Hodgson Forensics[242] on instruction from AWB and based on a review of AWB's transactional records. The circumstances in which these spreadsheets came to be prepared are discussed in Chapter 26.
11.32 The steps involved in the negotiation and subsequent fulfilment of an AWB contract for the sale of wheat to Iraq during the Oil-for-Food Programme[243]-in particular, during phases VI and following, from July 1999 to March 2003-were as follows.
11.33 Wheat tenders were issued by the Iraqi Ministry of Trade and the IGB for the supply of wheat to Iraq under the Oil-for-Food Programme for each phase of the Programme.
11.34 Importantly for present purposes, from phase VI of the Programme these tenders contained two significant changes to the terms of the proposed contracts for the purchase of wheat by the IGB:
11.35 This obligation on AWB to pay the cost of discharge and transport in an amount set by the IGB was a feature of each of AWB's contracts with the IGB under phases VI and following. That cost has been variously described as an 'inland transportation fee' and a 'trucking fee'. AWB treated it as a cost of transportation of the wheat and thus as an expense of the sale of that wheat.[245] With the exception of the first four of AWB's short-form contracts under phase VI, the written contracts between AWB and the IGB made no reference to the obligation to pay a set amount for discharge and transport.
11.36 Following the IGB's issue of its wheat tender, AWB would commence negotiations with the IGB for a contract for the supply of wheat under that phase of the Programme. These negotiations were generally conducted by Mr Emons and later Mr Hogan, although not in all instances.
11.37 Initially there was some resistance by AWB to the changes proposed by the phase VI wheat tender.[246] However, eventually AWB came to accept the changes and the IGB's amended terms, concluding in July 1999 a significant sale that resulted in three contracts on the amended terms.[247] There was little, if any, discussion thereafter in the course of negotiations between AWB and the IGB as to the terms on which any concluded sale would be made. All of AWB's subsequent contracts with the IGB until March 2003 were on those amended terms.
11.38 The most significant aspect of AWB's negotiations with the IGB of a contract for the sale of wheat was negotiation of the price at which the wheat was to be sold.
11.39 From phase VI onwards, AWB and the IGB would negotiate a CIF free out price for the sale of the wheat. Once a mutually acceptable price had been agreed, the IGB inland transportation fee and, from November 2000, the additional 10 per cent after-sales-service fee would be added to that price in order to give the final contract price.
11.40 In this way the amount of the inland transportation and after-sales-service fees AWB paid was offset by the recovery of a commensurate amount from the UN-controlled escrow account as part of the proceeds of the sale of that wheat. As a result, the imposition by the IGB of both the inland transportation fee and the 10 per cent after-sales-service fee did not directly affect either the CIF price for which the wheat was sold or the amount from which AWB calculated its profit on the sale. It was in this sense that AWB employees described these fees as 'revenue neutral'.
11.41 It was through the inclusion of these fees in the price of the wheat that the amount of the fees was recovered from the UN escrow account. To the extent that the fees were paid directly or indirectly to Iraq or an Iraqi entity, Iraq thereby obtained the benefit of the monies held in the escrow account. Iraq was able to access monies from the escrow account for use other than in purchasing humanitarian supplies.
11.42 Under the terms of the contracts for sale concluded with the IGB in the period from 1999 until December 2002, the seller of the wheat was AWB, which sold the wheat as agent for AWB (International) Limited.[248]
11.43 Once a mutually acceptable price had been agreed and a sale thus concluded, there was usually an exchange of facsimiles, telexes or emails between AWB and the IGB, confirming that a sale had been concluded and possibly the terms of that sale. At the very least, this exchange would confirm the price that had been agreed; it would often also confirm the amount of the inland transportation fees payable in respect of shipments made under that contract.
During this period it was also not uncommon for a sale of the large tonnage of wheat by AWB to be split into more than one contract.[249]
11.44 Once the price had been agreed and the sale concluded, two contracts were prepared to document the sale. One was prepared by AWB; the other was prepared by the IGB; both were sent to the United Nations for approval.
11.45 Once a sale had been concluded, the details would be passed on to Mr Lister in the Contracts Administration Department of AWB. He and his staff would prepare an 'export sales note', recording details of the sale, including the names of the persons who had booked and authorised the sales.
They would also prepare a contract for signature on behalf of AWB and the IGB. This was a single-page document that set out only the most salient terms of the sale, such as the price, the quantity and grade of wheat sold, the range of dates for delivery, the destination, and the method of payment. It incorporated the AWB and the IGB standard terms and conditions where these were not inconsistent with the express terms of the contract.
11.46 Once the short-form contract had been prepared, it would be provided to the International Sales and Marketing Division for checking and execution on behalf of AWB. Once executed, a copy of the short-form contract was then forwarded to the IGB for its execution.
11.47 Consistent with the terms of the IGB wheat tender issued for phase VI and following, the short-form contract prepared within AWB for each of the sales:
On their face, the terms of the short-form contracts prepared by AWB for these phases were consistent with there being an obligation on AWB to discharge and deliver the wheat to the silos within all the governorates of Iraq. For the reasons set out in later chapters, and despite the foregoing references and the appearance created by these terms of its short-form contracts, AWB in truth had no contractual obligation to discharge and deliver the wheat within Iraq, and the true terms of its agreement with the IGB were for the sale of the wheat CIF free out (as had been the practice before July 1999 and before phase VI), together with an additional obligation to pay the inland transportation fees and, after November 2000, after-sales-service fees set by the IGB to the IGB-nominated account or recipient.
11.48 The first four short-form contracts prepared within AWB for sales under phase VI also contained in the shipment clause a provision that referred to a 'discharge cost' of 'a maximum of USD 12.00' that was payable by the seller (AWB) 'to the nominated Maritime Agents in Iraq'. This term was said to have been intended to reflect the 'cost of discharge at Umm Quser and land transport' referred to in the IGB wheat tender from phase VI onwards.
Significantly, this provision was deleted from the short-form contracts prepared within AWB for its subsequent sales to the IGB under phases VII and following, commencing with the three contracts AWB concluded with the IGB in January 2000.[250] The circumstances in which this deletion occurred and the significance of the deletion-in particular, when compared with the retention of a similar provision in the contracts AWB concluded both before and after that date with certain grain traders for the delivery of wheat to Iraq-are examined in Chapter 15.
11.49 Appendix 14 is a list of AWB's contracts for the sale of wheat to Iraq between July 1999 and December 2002, identifying by whom the AWB short-form contracts were signed and by whom they were booked and authorised.
11.50 The IGB prepared its own contract for each of the sales made by AWB to it during these phases of the Oil-for-Food Programme. This document was several pages long and is referred to in the following chapters as the 'long-form contract'. A copy of the long-form contract, signed on behalf of the IGB, was provided to AWB.
Some provisions of the IGB long-form contract (such as price and the quality of the wheat) were substantially the same as in the short-form contract, but the long-form contract contained a number of additional terms.
11.51 The price of the wheat was expressed in the long-form contracts to be 'CIF F.O.T. to silo at all governorate of Iraq via Umm Quser port' or some slight variation thereof, consistent with specification of the price in the IGB wheat tenders from phase VI onwards.
However, no version of the IGB long-form contract for any of the purchases made from phase VI onwards contained any clause or provision referring expressly to the obligation on the seller (AWB) to pay the inland transportation fees or the additional 10 per cent after-sales-service fees for contracts concluded after November 2000. Nor did the long-form contract (or the AWB short-form contract, for that matter) make clear that the inland transportation fees and additional 10 per cent after-sales-service fees for contracts concluded after November 2000 were included in the contract price.
11.52 Following AWB's conclusion of a contract, it was necessary to obtain from the UN 661 Committee approval for the sale; otherwise, payment from the escrow account would be denied.
11.53 The application for this approval was formally lodged by the Australian mission to the United Nations, using a form entitled 'Notification or request to ship goods to Iraq'. When submitted to the United Nations, the form was accompanied by a copy of both the AWB short-form contract and the IGB long-form contract for that sale. The notification form and the supporting documentation were generally provided by AWB to the Department of Foreign Affairs and Trade in Australia, which in turn passed them on to the Australian mission for submission to the United Nations. The Australian mission would notify AWB when the United Nations had approved its contracts. This was generally done through DFAT in Australia.
11.54 Table 15.1 in Appendix 15 lists details of the submission to DFAT for UN approval of AWB contracts concluded between July 1999 and December 2002.
11.55 Part of the advice received upon notification of UN approval of a contract was confirmation that the approved contract was eligible for payment from the funds held in the UN-controlled escrow account.
11.56 The terms of AWB's contracts with the IGB throughout all phases provided for payment by an irrevocable and non-transferable letter of credit in favour of AWB, opened by the Central Bank of Iraq on behalf of the IGB and drawn on the bank holding the UN escrow account.[251] AWB would not commence shipping the wheat to Iraq until the letter of credit had been established. Once the letter of credit was established, it was not necessary for AWB to complete all the shipments under a contract before it received the proceeds of the sale. Once established, the letter of credit was able to be drawn down on by AWB on a shipment-by-shipment basis. Payment was only made in respect of a shipment under the letter of credit following completion of the discharge of the wheat from the ship at Umm Qasr. The amount paid to AWB was based on the tonnage of wheat discharged from the vessel at Umm Qasr, as certified by Cotecna Inspection SA, surveyors appointed by the United Nations for that purpose.
11.57 Despite the terms in which the contract price was expressed AWB was paid for the wheat it sold to the IGB under phases VI and following upon discharge of each shipment at Umm Qasr not after delivery to silos. It did not have to wait for the wheat to be delivered to the silos in all governorates within Iraq. Nor was it paid by reference to the amount of wheat delivered to the silos: it was paid against the quantity of wheat discharged at Umm Qasr. This was no different from the position that had existed prior to phase VI and the amendments that had been introduced during the phase, when AWB sold wheat to the IGB on a CIF free out basis. The letters of credit established for the initial phase VI contracts contemplated that among the documents AWB would be required to produce in order to obtain payment under the letter of credit were trucking documents evidencing delivery of the wheat to the silos within Iraq. Mr Lister, however, successfully negotiated with the IGB and the Central Bank of Iraq to eliminate that requirement, so as to allow payment to be made following discharge from the vessel and to record the sale for the purposes of the letter of credit only as a CIF sale, consistent with the true nature of AWB's agreement with the IGB. This renegotiation of the letter of credit by Mr Lister is examined in more detail in Chapter 13.
11.58 Only once the letter of credit had been established would AWB plan for the shipment of the wheat. Since AWB's sales of wheat to the IGB during phase VI and following were on a CIF basis, AWB would arrange for the carriage of the wheat to Iraq. AWB did not itself own any ships, so it had to charter ships to carry the wheat to Iraq. The cost of that carriage formed part of AWB's costs of the shipment that were factored into the price it was willing to accept for the wheat.
11.59 The carriage of the wheat to Iraq was arranged through AWB's chartering division. That division would charter vessels in the name of AWB or AWB (Australia) Limited; AWB Chartering would also be responsible for payment of the ocean freight to the owner of the carrying vessel.
11.60 Between July 1999 and March 2003 AWB Chartering generally chartered vessels under contracts of affreightment with a number of shipping companies, for the carriage of specified quantities of wheat that AWB was to deliver under the terms of its contracts with the IGB. These contracts of affreightment were generally on voyage charter terms-in particular, on the Auswheat Charterparty form.
AWB Chartering would in turn invoice the AWB Pool 'freight' for the carriage of the wheat to Iraq on the ships it had chartered. The AWB Pool was liable to pay this 'freight' under a series of agreements or contracts of affreightment that AWB Chartering concluded with the AWB Pool for this purpose. The amount of the freight the AWB Pool was liable to pay to AWB Chartering for any one shipment was not necessarily the same as the ocean freight AWB Chartering was liable to pay to the owner of the vessel it had chartered to carry the wheat. To the extent that the AWB Pool had agreed freight at a rate that was greater than the amount AWB Chartering paid, AWB Chartering made a profit on the shipment. Conversely, to the extent that the ocean freight paid by AWB Chartering for any shipment exceeded the freight it recovered from the Pool under the terms of its agreement with the Pool, AWB Chartering made a loss.
Under the terms of its contracts of affreightment with shipowners, AWB Chartering was also generally entitled to retain a specified rate of 'address commission', or 'adcom'.
11.61 When inland transportation fees were first payable by AWB they were paid by AWB Chartering in the first instance. These payments were made both directly to the nominated Jordanian trucking company, Alia, and indirectly to Alia via the shipowners whose vessels were used to carry the wheat to Iraq. These arrangements-and, in particular, the use of shipowners as a conduit for the payment of these fees-are examined in more detail in Chapter 18. When these inland transportation fees were paid by AWB Chartering, it would in turn obtain reimbursement for the cost of the fees from the AWB Pool. This would be done in one of two ways. In relation to some of the early shipments, AWB Chartering invoiced the AWB Pool for the amount of the inland transportation fee paid by it in respect of each of those shipments. Subsequently, AWB Chartering factored the cost of the inland transportation fees into the freight it invoiced the AWB Pool for each shipment, such that the amount of freight paid by the AWB Pool to AWB Chartering would be sufficient to cover both the ocean freight payable by AWB Chartering to the owner or disponent owner of the vessel employed to carry the wheat and the inland transportation fees payable for that shipment. These arrangements are also discussed in more detail in Chapter 18.
11.62 Before each shipment was able to leave Australia, it was necessary for AWB to obtain from the Department of Foreign Affairs and Trade a permission to export in respect of that shipment, pursuant to r. 13CA of the Customs (Prohibited Exports) Regulations. The permission was issued by an officer of DFAT, as the delegate of the Minister for Foreign Affairs.
11.63 It was invariably Mr Lister who made the application for permission to export a shipment to Iraq. It was made by facsimile sent to DFAT. The application would generally identify the name of the vessel on which the wheat was to be carried to Iraq[252], the estimated time of the arrival of the vessel in Australia and its estimated time of arrival in Iraq, the quantity of wheat expected to be loaded, the contract under which the shipment was made, the buyer's reference, and the UN approval number. The basis on which the Minister's delegate would issue a permission to export is examined in Chapter 12.
11.64 Details of the applications for permission to export made by AWB in relation to its shipments of wheat to Iraq during phase VI and following are provided in Table 15.2 in Appendix 15.
11.65 Before wheat can be shipped from Australia, it is necessary to declare details of the shipment to the Australian Customs Service. This was done electronically in a 'Details of Customs declaration'.[253] This generates an export clearance number, or ECN, for the shipment. Upon entry of these details into the Customs information technology system, EXIT, there is placed within the system a 'red line' hold on the export of wheat until Customs is provided with proof that permission to export has been granted under r. 13CA.
Once AWB had received from DFAT the permission to export in respect of a shipment of wheat, it would provide a copy of that permission to Customs.[254] Once the permission to export had been sighted by Customs, the embargo on the particular shipment was lifted and the shipment was cleared and approved for export. Accordingly, it was not possible to export a shipment of wheat from Australia without first applying for and obtaining from DFAT a permission to export under r. 13CA.
11.66 Under the terms of the contracts of affreightment and voyage charterparties AWB Chartering concluded for the carriage of wheat to Iraq, demurrage was generally payable by AWB to the owner or disponent owner of the vessel at an agreed daily rate in respect of any delays in the berthing and discharge of the wheat from the vessel in Iraq. However, under the terms of AWB's contracts for the sale of the wheat with the IGB, no demurrage (or despatch) was payable as between AWB and the IGB, including in relation to delays at the discharge port. This was because payment of both demurrage and despatch was prevented by UN sanctions.
11.67 In 2000 and 2001 AWB experienced delays in the discharge of wheat at Umm Qasr for various reasons. These delays, their cause and their significance are examined in Chapters 17, 19, 20 and 23.
11.68 As a consequence of the delays, AWB Chartering incurred significant demurrage to the owners and disponent owners of the vessels it had chartered to carry the wheat to Iraq. It was unable to recover these costs from the IGB, both under the terms of its contracts with the IGB and by reason of the UN sanctions. This led to discussions between AWB and the IGB in 2000 and again in 2001 about the possibility of demurrage and despatch being paid as between AWB and the IGB in relation to these shipments and the means by which that might be done. These discussions are also examined in Chapters 17, 19, 20 and 23.
11.69 During this time, there were also discussions within AWB as to who should bear this demurrage-whether it was an expense that should be borne by AWB Chartering or the AWB Pool or both.
11.70 Following the discharge of each shipment of wheat at Umm Qasr, surveyors appointed by the United Nations would inspect the shipment. Between July 1999 and March 2003 these inspections were carried out by Cotecna Inspection S.A.
11.71 Cotecna's role was to inspect and certify the shipment-in particular, to confirm the delivery of the goods contracted for and, in the case of AWB shipments, to certify the tonnage of wheat discharged. This was known as 'authentication'. Cotecna's notification of the amount discharged was sent to the UN Treasury. It was against this notification-and, in particular, the tonnage of wheat specified in it-that AWB was paid by the letter of credit drawn down on the escrow account.
11.72 Following the discharge of each shipment, AWB, through its bankers, would present to BNP in New York the documents relevant to that shipment of the type called for by the letter of credit. If the documents were in order, and authentication had been received, AWB would be paid for that shipment from the monies held in the UN escrow account.
11.73 The evidence of Mr Ingleby was that the proceeds of sale payable under the letters of credit were paid into the US dollar account maintained by AWB with the Bank of New York, in New York.[255] In relation to the later contracts that were payable in Deutschmarks and euros, his evidence was that the proceeds of those sales were paid in Deutschmarks and euros respectively into Deutschmark and euro accounts held by AWB[256] with the Commonwealth Bank of Australia in Sydney, after BNP had instructed BNP Paris to pay those amounts into those accounts.[257]
11.74 In addition to its contracts with the IGB, AWB shipped wheat to Iraq during phases VI and VII pursuant to contracts for the sale of wheat that AWB entered into with certain grain traders. This was so that the traders could fulfil contracts they[258] had entered into with the IGB for delivery of wheat to Iraq.
11.75 The steps involved in the fulfilment of these contracts were similar to those associated with AWB's contracts with the IGB directly. Briefly, they were as follows.
Upon AWB concluding a sale to the grain trader, a written contract was prepared, setting out the terms of the sale. Unlike AWB's contracts with the IGB, the contracts with the grain traders were each contained in a single document signed by both parties.
Under the terms of these contracts, AWB, as seller, had an obligation to pay the discharge and transportation costs (inland transportation fees) directly to the IGB-nominated account. This obligation was expressly stated in clause 6 of each of the contracts.
11.76 Although wheat shipped under each of these contracts was also shipped under the Oil-for-Food Programme, it was not necessary for AWB's contract with the grain trader to be submitted to the Department of Foreign Affairs and Trade or the United Nations for the approval of the 661 Committee. That was because UN approval had already been obtained by the grain trader[259] who had contracted to sell the wheat to the IGB (or, more accurately, the mission of the country of that company-in each instance here the Russian Federation). AWB was able to rely on that UN approval for its purposes in shipping the wheat to Iraq.
11.77 Under the terms of the contracts with the grain traders, AWB was paid for the wheat it sold to the grain trader by a letter of credit established by the grain trader in favour of AWB. The grain trader[260] in turn was paid for the wheat shipped under a letter of credit established by the Central Bank of Iraq on behalf of the IGB, drawn on the UN escrow account in the trader's favour.[261] The letter of credit established by the grain trader in favour of AWB was generally on back-to-back terms[262] with that established by the Central Bank of Iraq in favour of the trader. Whilst AWB was not paid for these shipments directly from the UN escrow account, as it was in relation to its sales to the IGB directly, it was nevertheless in effect paid under the letter of credit established in its favour from funds the grain trader received from the UN escrow account for that shipment.
11.78 AWB, through AWB Chartering, would arrange for the carriage of the wheat that was to be shipped under these contracts in the same way as the shipments made under AWB's contracts with the IGB; AWB would also invoice the AWB Pool for freight for that shipment in the manner already described. When the time came for the wheat to be shipped from Australia, AWB would apply for a permission to export the wheat under r. 13CA of the Customs (Prohibited Exports) Regulations, in the same way it would with the shipments it made under its contracts with the IGB directly.
11.79 It was also AWB Chartering that paid in the first instance the inland transportation fees payable in respect of each of the shipments made under these contracts with the grain traders, in the same way as those fees were paid for shipments under AWB's contracts with IGB directly. AWB Chartering was also reimbursed the cost of those fees from the AWB Pool, in the same way it was reimbursed when the shipment was under its contract with the IGB directly.
[208] Ex 972, AWB.0106.0020 at 0021.
[209] These procedures are addressed in detail in Chapter 1.
[210] Independent Inquiry Committee into the United Nations Oil-for-Food Programme, Manipulation of the Oil-for-Food Programme by the Iraqi Regime, (Paul A Volcker, Chairman), United Nations, New York, 27 October 2005, p. 311, Ex 13, UNO.0005.0001 at 0318.
[211] Volcker report, p. 311, Ex 13, UNO.0005.0001 at 0318.
[212] Volcker report, p. 311, Ex 13, UNO.0005.0001 at 0318.
[213] Ex 481, WEA.0001.0059.
[214] Volcker report, p. 2, Ex 13, UNO.0005.0001 at 0009.
[215] Volcker report, p. 4, Ex 13, UNO.0005.0001 at 0011.
[216] Volcker report, p. 4, Ex 13, UNO.0005.0001 at 0011.
[217] Volcker report, p. 314, Ex 13, UNO.0005.0001 at 0321.
[218] Volcker report, p. 5, Ex 13, UNO.0005.0001 at 0012.
[219] Volcker report, p. 5, Ex 13, UNO.0005.0001 at 0012.
[220] Except for some of Mr Lister's file covers, which did record the inland transportation component and 10% fee separately.
[221] Volcker report, p. 270, Ex 13, UNO.0005.0001 at 0277.
[222] Volcker report, p. 270, Ex 13, UNO.0005.0001 at 0277.
[223] Volcker report, p. 250, Ex 13, UNO.0005.0001 at 0257.
[224] Volcker report, p. 270, Ex 13, UNO.0005.0001 at 0277.
[225] Volcker report, pp. 270-271, Ex 13, UNO.0005.0001 at 0277-0278.
[226] Ex 141, WST.0007.0001 at para. 2.
[227] Volcker report, p. 269, Ex 13, UNO.0005.0001 at 0276.
[228] Volcker report, p. 269, Ex 13, UNO.0005.0001 at 0276.
[229] Volcker report, p. 269, Ex 13, UNO.0005.0001 at 0276.
[230] Namely, the requirement that the supplier pay these inland transportation fees and after-sales-service fees, which would then be reimbursed to the supplier from the escrow account through the addition of these fees to the price otherwise payable for the humanitarian goods being sold to Iraq.
[231] Savas Grain & Commodities Limited (Savas Grain) and Commodity Specialists Company (CSC).
[232] Or others they represented or with whom they had contracted.
[233] Or the person they represented or with whom they had contracted.
[234] These contracts had been allocated by the IGB to the Russian Federation (or companies nominated by it) in return for Russia's support of the then Iraqi regime and its opposition to the UN sanctions. These contracts with the IGB were approved by the United Nations under applications lodged by the Russian Federation. AWB sold wheat to the grain traders in order that they or the third parties who had contracted with the IGB might in turn fulfil their obligations under their contract with the IGB. AWB's contracts with the grain traders were essentially on the same terms as the underlying contract with the IGB, including in relation to the obligation to pay inland transportation fees. However, AWB sold the wheat to the grain traders at a slightly lower price than that payable by the IGB. In this way, the grain traders or other third parties that had entered into contracts with the IGB were able to profit from the margin between the price paid by the IGB and the price payable to AWB. This profit was generally up to US$5 per tonne. The grain trader or other third party who had contracted with the IGB was paid for the wheat under a letter of credit established by the Central Bank of Iraq on behalf of the IGB, drawn upon the UN escrow account. AWB was paid by a letter of credit established by the grain trader and which was generally back to back with the letter of credit established by the IGB.
[235] Being contract A4821 (Ex 1211, UNO.1211.0293), which was concluded on 14 October 1999. Although this contract was concluded at the same time as contract A4822 (Ex 995, AWB.0420.0068_R) (which was a contract under phase VI of the Oil-for-Food Programme), it was nevertheless treated as a contract under phase IV of the Oil-for-Food Programme, in respect of which no inland transportation fees were payable.
[236] The wheat shipped under contract A4821 was shipped on the Pretty Lady along with the last shipment under AWB contract A4334 (Ex 947, AWB.0039.0020_R), which had been earlier concluded with the IGB under phase V of the Oil-for-Food Programme and in respect of which inland transportation fees were also not payable. Despite not being payable under either contract, inland transportation fees were paid in relation to both shipments on this vessel.
[237] Being contract A4907 (Ex 1452, AWB.0057.0204_R), which was concluded on 14 December 1999. Although this contract was concluded at the same time as contract A4908 (Ex 1446, AWB.0056.0243_R) (which was a contract under phase VI of the Oil-for-Food Programme), it was nevertheless treated as a contract under phase V of the Oil-for-Food Programme in respect of which on inland transportation fees were payable.
[238] Although no inland transportation fee was payable in respect of wheat shipped under this contract (because it was a phase V contract), AWB in fact paid inland transportation fees of US$12 per tonne in respect of the shipment made under this contract (that wheat having been shipped together with wheat shipped under contract A4822 (Ex 995, AWB.0420.0068_R), in respect of which inland transportation fees were payable).
[239] Twenty-six of the 28 contracts were concluded during phases VI to XII of the Oil-for-Food Programme. The 28th contract was the earlier phase V contract (A4334), in respect of which AWB paid inland transportation fees on the last shipment, although none were payable under that contract.
[240] Including the additional 10 per cent (after-sales-service) fee where applicable.
[241] Ex 995, AWB.0420.0390; this brief and the advice that AWB received is examined in more detail in Chapter 28.
[242] Ex 950, INQ.0017.0062.
[243] There is a description of these steps by AWB in a briefing paper it prepared for the Australian Government on 10 August 2004 (Ex 330, AWB.0269.0002-0004).
[244] Ex 1022, AWB.0058.0453_R at 0454_R (wheat tender for phase VI of the Oil-for-Food Programme).
[245] Including as a tax deductible expense.
[246] This is discussed in Chapter 13.
[247] Namely, contracts A4653 (Ex 1447, AWB.0058.0414_R), A4654 (Ex 1448, AWB.0058.0415_R) and A4655 (Ex 1449, AWB.0058.0416_R).
[248] See 1999 financial statements: Ex 1204, EXH.0002.0002 at 0024; see also Ex 504, AWB.0338.0150_R at 0163_R (advice of Sir Anthony Mason). Although it is said in this note that after November 2002 AWBI was the seller of the grain, as the holder of the authority to export wheat from Australia, both contracts A1670 and A1680, concluded in December 2002, were concluded in the name of AWB and not AWBI and AWB was expressly named in the contracts as the seller. In November 2003 AWB sought to amend the letter of credit for contract A1670 so as to refer to AWBI and not AWB as the beneficiary (Ex 1211, UNO.0003.1753), presumably on the basis that AWBI was the ultimate beneficiary of the sale. That request was denied, however, because AWB (not AWBI) was named as the exporter/seller in the contract and in documents lodged with the 661 Committee (Ex 1211, UNO.0003.1746 and UNO.0003.1736).
[249] For example, the first sale concluded as part of phase VI in July 1999 was split into three contracts.
[250] Contracts A4970 (Ex 1453, AWB.0059.0565_R), A4971 (Ex 1454, AWB.0059.0551_R) and A4972 (Ex 1455, AWB.0059.0542_R).
[251] Namely, BNP.
[252] In the copies of the documents referred to in these chapters and tendered in evidence, the name of the carrying vessel was generally deleted following a claim by AWB for commercial confidentiality in relation to that information.
[253] Ex 953, AWB.0042.0137.
[254] For example, Ex 953, ACS.0002.0011.
[255] Ex 787, WST.0027.0010 at 0011, para. 4.
[256] And later AWB Harvest Finance Limited.
[257] Ex 787, WST.0027.0010 at 0011, para. 6.
[258] Or others they represented or with whom they had contracted.
[259] Or others they represented or with whom they had contracted.
[260] Or its principal.
[261] This was in much the same way AWB was paid under its contracts with the IGB.
[262] Except as to price.
