Australian Government Attorney-General's Department - UN Oil For Food Inquiry - Chapter 19 - October 2000: a visit to Iraq and subsequent events

19 October 2000: a visit to Iraq and subsequent events

19.1 In October 2000 Mr Stott and Mr Hogan travelled to the Middle East to meet with a number of AWB's major customers. As part of the trip they visited Baghdad, meeting with the Minister of Trade and representatives of the Iraqi Grain Board on 14 October.

Discussions during the visit

19.2 Mr Hogan and Mr Stott each prepared a report of their visit to Iraq. On 21 October 2000 Mr Hogan sent an email to Mr Stott, attaching his draft report. [1791] His email said, 'You will need to add the bits I missed when I was out of the room'. [1792] Mr Stott's draft report, headed 'Mission report', is incomplete. It identifies one of the purposes of the visit as to 'Explore mechanisms with the IGB in order improve contract execution'. [1793]

A complete version of Mr Stott's report was not produced to the Inquiry. Internal correspondence indicates that Mr Stott edited and distributed a version of Mr Hogan's trip report rather than his own.

19.3 Mr Hogan's draft report identified four objectives behind the visit to Iraq. The first was to:

Examine the existing constraints and contract inefficiencies of supplying wheat to Iraq under the Oil for Food system, with an aim of introducing more commercial terms, such as:

(i) Discharge rates

(ii) Payment procedures

(iii) Final weight and quality.[1794]

The other objectives were to negotiate a new contract for the supply of wheat early the following year, to reinforce AWB's position in relation to the Russian trade, and to discuss training and technical requirements for 2001.[1795]

Delays in the discharge of wheat at Umm Qasr

19.4 Amongst the topics discussed with the IGB and the Minister for Trade during this visit was the rate of discharge of wheat from the vessels at Umm Qasr and AWB's concerns in that regard.[1796] Mr Hogan wrote:

Discussions and Outcomes:

(i) Discharge rates:

AWB Limited expressed concerns regarding the below average discharge rates at Umm Qaser. Mr. Yousif gave AWB an undertaking in July that Iraq would increase the discharge rate to a minimum of 20,000 tonnes per day.

AWB figures show that the rates have been around 11,000-12,000 tonnes for August/September and as at the 10th of October, the rate had dropped to 7,000 tpd.

The discharge rate for Friday the 13th October was 17,000 tonnes, utilizing only 2 berths and silo berth. Whilst this is an excellent result in comparison to previous rates, we will need to see a more consistent discharge performance before we are satisfied that things are on the improve at Umm Qaser.

Mr. Yousif advised that the slow discharge was a concern for all parties and that Iraq were currently doing everything possible to rectify this situation. Mr. Yousif met with the Minister for transport 10 days ago (4th October) to discuss the problem, as wheat discharge berths had been taken from IGB and made available for other commodities (i.e. Sugar/Steel construction material). It was mentioned that there had been a lack of sugar in Iraq, hence the priority.

IGB and Ministry of Transport are now meeting every 15 days to constantly review the situation in Umm Qaser.

IGB has signed an agreement with Ministry of Transport that berths (1,2 and 4) will achieve a minimum discharge rate of 3,500 tonnes per day.

(Minister of Trade advised that he had met with Minister of transport and he had been assured that all problems with discharge at Umm Qaser will be rectified in 10 days time-24th October).

…

Bobcats:

Bobcats have not yet been used and are waiting upon custom clearance. These machines arrived in early September, and IGB advised that they should be cleared within a few days.

Vegans:

4 x 150 tphr. Vegan machines are currently at the port of Aqabba (Jordan) and should be received at Umm Qaser within 10 days. These machines will increase the efficiency at the port.

IGB have also ordered a further 26 machines under the MOU. 8 of these will be placed on the silo berth and the remaining will be utilized on berths 1, 2, 4.[1797]

19.5 Mr Hogan's report recorded the outcome of discussions about testing cargo for Escherichia coli and fumigating vessels where the test results show that fumigation was required. The time taken for this testing and fumigation had been identified as the cause of delays in the discharge of AWB's vessels. During their discussions with the IGB, Mr Stott and Mr Hogan were told that testing of the wheat cargoes would continue to be carried out at the berth in Iraq-not in Australia or at the pilot station at Umm Qasr, as AWB preferred.

19.6 It appears from Mr Hogan's report that the delays that were being experienced in the discharge of wheat from AWB's vessels at Umm Qasr and that were the subject of the discussions Mr Stott and Mr Hogan were involved in during their visit were the result of:

the Iraqis' introduction earlier that year of the testing of wheat shipments on their arrival at Umm Qasr, after the vessel had berthed and before the shipment was allowed to be discharged from the vessel [1798]
the time taken to complete the testing, to obtain the results of the tests and to fumigate the cargo when necessary. During this time the vessel would remain at the berth, unable to discharge its cargo and thus also preventing other vessels from berthing and discharging their cargoes [1799]
the inability of the equipment at the berths in Umm Qasr to discharge cargo at the agreed or desired rate. It was hoped this would be remedied by using the bobcats recently supplied by AWB and the 'Vegan' vacuvators. [1800]

19.7 Mr Hogan also referred in his draft report to a claim by AWB's protective agent that a lack of trucks had reduced the rates of discharge and to the rejection of that claim by the Iraqis when it was put to them. Mr Hogan wrote:

Trucking:

AWB's agent reported that discharge had been reduced due to a lack of transports to remove the wheat. IGB advised that to their knowledge there was no transportation issue.

Action:

Require agent at Umm Qaser to provide more detailed information on the discharge operations.

Guaranteed Discharge Rate:

AWB is working with the Minister to improve the discharge rate at the port of Umm Qaser, with a view to fixing the discharge rate to …[1801]

19.8 There is no reference in Mr Stott's draft 'Mission report' to the delays AWB had experienced in the discharge of its vessels, the reduced rates of discharge, or the cause of those reduced rates of discharge and consequent delays. There was also no reference to the claim by AWB's protective agent that the reduced rates of discharge were due to a lack of trucks; nor was there mention of the Iraqis' rejection of that claim.

19.9 There is nothing to indicate that either Mr Stott or Mr Hogan travelled to the port of Umm Qasr during their visit and observed or otherwise were able to conclude for themselves[1802] that the low rates of discharge experienced by the AWB vessels were caused by a lack of trucks or transport to remove the cargo from the wharf. There is also no reference in Mr Hogan's report to either Mr Hogan or Mr Stott making that observation or reaching that conclusion independently of the claim by AWB's local protective agent. Mr Stott's draft 'Mission report' is silent on the subject. The only foundation for such a claim was the report by AWB's protective agent, which the Iraqis rejected.

19.10 AWB's response to the Iraqis' rejection of this claim that the delays were the result of a lack of transport was to require its protective agent at Umm Qasr to provide more detailed information to AWB about the discharge operations. The agent provide some information about slow discharge as a result of a lack of trucks during the first two weeks of November 2000. [1803]

There is, however, no material indicating that any such information was provided to AWB prior to Mr Stott's 30 October 2000 letter to the Department of Foreign Affairs and Trade. [1804] Although Mr Stott gave evidence that the matter was subsequently resolved and more trucks started to appear [1805], he said this was not until after DFAT's letter of 2 November 2000[1806] and before AWB visited Iraq again.

19.11 Mr Stott gave evidence about the content of his report:

The issue that had occurred following our October meeting was that-the main reason that was recorded, I believe, in the trip report, Dom's and my trip report, the issue that was identified in that was the slow discharge was caused by a lack of trucks at discharge port. So I wanted to get more trucks down at discharge port to increase our level of discharge and therefore reduce the demurrage bills at discharge port.[1807]

That evidence is not supported by a reading of Mr Hogan's report. There is no mention in Mr Stott's draft 'Mission report' of a lack of trucks causing delays in the discharge of the vessels.

Despatch and demurrage

19.12 During the visit there was also discussion about the possible implementation of a despatch and demurrage arrangement between AWB and the IGB. This followed on from the proposal Mr Hogan had put before Mr Bowker of DFAT in early August 2000 and in relation to which DFAT had shortly thereafter provided an informal advice.[1808]

The proposal involved the reintroduction of liability for despatch and demurrage as between AWB and the IGB, with AWB to hold an account for the benefit of Iraq. As Mr Hogan put it in his facsimile to Mr Bowker:

AWB Limited would like to reintroduce despatch and demurrage into the Iraq contract. Any despatch earned by Iraq could be held in an account controlled by AWB Limited, and these funds could be utilised annually to supply grain handling equipment and technical training.[1809]

This proposal arose in the context of the delays in discharge that were being experienced at that time and the liability for demurrage that AWB was incurring as a result. This was a significant concern at the time[1810], and the proposal was advanced as a means of resolving the difficulty.

19.13 Both Mr Stott and Mr Hogan gave evidence of the discussions that occurred on this topic during their visit. Their recollections differed.

19.14 Mr Hogan's evidence was that he attended a meeting with Mr Stott and the Iraqi Minister of Trade on 14 October 2000, and at that meeting the Minister agreed to AWB maintaining a despatch and demurrage account in Australia. [1811] The following were part of Mr Hogan's notes of his meeting[1812]:

Min-Performance Bond, Despatch/Dem: NOT APPROVED BY UN[1813]

and

Min-Yes on despatch/Demurrage A/C in Australia[1814]

Mr Hogan and Mr Stott attended a second meeting later that day. According to Mr Hogan, they were advised at that meeting that the Iraqis wanted demurrage and despatch paid through the inland transportation fee. [1815] In this regard, Mr Hogan's note records:

(Despatch/Demurrage)

- wants despatch paid to shipping company in Jordan …

- 2 Shipping companies in Jordan can receive funds:

* (ALIA Shipping Company) (1)

Water T/Port Company (2)[1816]

The last three lines of this note are also reflected in the draft report of the visit. [1817]

Mr Hogan's evidence was that he and Mr Stott discussed with the Minister a proposal to make the trucking fee flexible, so that when demurrage was incurred it could be recovered by paying a reduced trucking fee and when despatch was earned the trucking fee could be increased. [1818] Mr Hogan acknowledged that it was implicit in this proposal that the trucking companies would be used as conduits for the payment of despatch and demurrage to Iraq. [1819]

19.15 Mr Stott, in contrast, could not recall whether any discussion about AWB maintaining an account in Australia took place at the first meeting. [1820] Although he and Mr Hogan had discussed a despatch and demurrage arrangement with the IGB [1821], he could not remember the substance of the discussion [1822] other than that he had proposed that the system that had been used in the early 1990s be reintroduced. In this regard, he agreed that the early 1990s system was that 'if despatch was earned by the Iraqis or if the Iraqis had to pay demurrage, then that could be quantified and reflected in UN-approved technical assistance by AWB'. [1823]

Mr Stott's evidence was that no agreement was reached with the Minister to reinstitute that system because the Minister told him it was impossible under the Oil-for-Food Programme. [1824] He said he could not recall any other agreement on the matter being reached. [1825]

In relation to the second meeting, Mr Stott denied being told that the trucking companies-mentioned in the trip report and in Mr Hogan's note-could receive funds on account of despatch. [1826] His evidence was to the following effect:

No such conversation took place in his presence. [1827]
At no time did Mr Hogan inform him of any such conversation, although he would have expected Mr Hogan to relay information of that kind to him. [1828]
He recalled the subject of trucking companies being raised during lunch. [1829]
He could not recall how that subject came up. [1830]

19.16 Mr Hogan's notes were contemporaneous. He had no reason to prepare anything other than an accurate record. The notes corroborate his evidence and not Mr Stott's. To the extent that Mr Stott's evidence conflicts with that of Mr Hogan, Mr Hogan's evidence is preferred.

19.17 These discussions are important for several reasons. First, they reveal AWB's preparedness to entertain arrangements it knew, from the advice it had earlier received from DFAT, would probably contravene the UN sanctions. Notwithstanding that advice, received less than two months earlier, Mr Stott and Mr Hogan entertained a scheme that provided for an account that might pass funds to the Iraqi Government if despatch were earned.

19.18 Second, consideration of a proposal to adjust the inland transportation fee as a means of paying despatch and demurrage between AWB and the IGB betrays a recognition on the part of Mr Stott and Mr Hogan that the inland transportation fee was not a genuine fee for transportation services-in particular, provided by the recipient of the fee, Alia-and was in truth a fee payable to Iraq.

The proposal also carried with it recognition that the inland transportation fee could be used as a mechanism for settling other liabilities and claims as between AWB and the IGB arising out of the contracts between them. For example, Mr Hogan was to later suggest the possibility of the IGB paying the additional war risk premiums AWB was facing through a reduction in the amount of the inland transportation fee payable by AWB. [1831] In January 2002, in the face of an attempt by the IGB to renegotiate the price of a recently concluded contract, Mr Hogan again proposed agreement to a guaranteed rate of discharge, with despatch and demurrage payable and to be settled at the completion of the shipment 'by an adjustment to the final inland transport payment'. [1832]

19.19 Third, the proposal was again to feature in the thinking of at least Mr Hogan, if not also Mr Stott, shortly after their return to Australia from this visit to Iraq, in the context of Mr Stott's 30 October 2000 letter to DFAT.

Other meetings

19.31 In October 2000 Mr Stott and Mr Hogan had travelled to Iraq via Jordan. Whilst in Jordan-both prior to entering Iraq and again after they had left Iraq following their meetings with the IGB and the Minister-Mr Stott and Mr Hogan met with Mr Twisk, Second Secretary (Policy) at the Australian Embassy, Jordan. The discussions that took place with Mr Twisk before Mr Stott and Mr Hogan entered Iraq in October 2000 concerned the current state of affairs in Iraq. [1856]

19.32 Mr Hogan met with the Trade Minister, Mr Vaile, in Egypt shortly after this visit to Iraq. [1857]

19.33 On neither occasion was there any discussion of the inland transportation fee or its method of payment. [1858] The conversations Mr Stott and Mr Hogan had with Mr Twisk and Mr Vaile did not go to the detail of the contractual relationships between AWB and the IGB or whether they entailed an obligation to pay a trucking fee or inland transportation fee. [1859]

Events following Mr Stott's and Mr Hogan's trip to Iraq

Mr Stott's concern

19.34 According to Mr Stott, during their October visit to Iraq he had asked Mr Hogan what he knew about the trucking arrangements. Mr Hogan replied that he did not know anything, that these arrangements had been put in place by Mr Emons and Mr Watson, that he (Mr Hogan) understood they had the full support of the AWB Board, and that they had been approved by the United Nations. [1860]

Despite Mr Hogan's response, Mr Stott's evidence was that following his trip to Iraq with Mr Hogan he had developed a concern that the Iraqis might be benefiting from the trucking fees [1861] and had expressed his concern to Mr Goodacre and Mr Hogan. [1862] According to Mr Stott, in light of this concern he performed a number of tests to ascertain whether the Iraqis were benefiting from the trucking fee and whether Alia was a trucking company. [1863] On the strength of the tests, Mr Stott said he satisfied himself that the Iraqis were not benefiting from the trucking fees.

One of the tests Mr Stott said he performed and that, according to him, provided some support for a belief that the Iraqis were not benefiting from the trucking fees was his exchange of correspondence with the Iraqi Minister of Trade shortly after his return from Iraq, this correspondence being about the Russian trade. [1864]

Each of Mr Stott's various tests is examined in Appendix 18. For the reasons set out there, I reject Mr Stott's evidence that he performed these tests and that on the basis of their results he concluded in late 2000 that the Iraqis were not benefiting from the trucking fee-including the increases introduced with contract A0430-and that the trucking fee was a genuine fee for the cost of inland transportation of wheat within Iraq.

A letter to the Iraqi Minister of Trade

19.35 On 18 October 2000 Mr Stott sent to Mr Hogan in Cairo an email with the draft of a letter he wished to send to the Iraqi Minister of Trade. [1865] The draft letter referred to AWB's inability to conclude a sale of wheat at the price the IGB had sought at their recent meetings in Iraq but suggested:

Your Excellency, we might be able to find a solution, if the IGB were prepared forgo some, or, all of the trucking costs, the traders involved lower substantially their commission expectations (given they have caused the problem on this occasion they should do it for nothing) and, or, we adjust the contract quality i.e. supply ASW [Australian Standard White] rather than Hard. [1866]

Mr Hogan responded on 19 October 2000, making some changes to the draft. In Mr Hogan's amended draft, the paragraph read, 'Your Excellency, we might be able to find a solution, if the IGB were prepared remove the trucking fee, or, we adjust the contract quality (i.e.) supply ASW rather than Hard'. [1867]

On 20 October 2000 Mr Stott sent the letter to the Minister by facsimile. [1868] The letter was in essentially the same terms as the draft, as changed by Mr Hogan.

19.36 AWB's request that the 'trucking fee' be removed reflected a recognition that imposition of that fee and determination of its amount were a matter within the control of the IGB and thus the Iraqis, and not, for example, Alia, to whom the fee was payable by AWB. It was implicit that the amount paid by way of that 'trucking fee' would ultimately find its way to Iraq. It is apparent that Mr Stott was aware the 'trucking fee' was not related to any true cost of transport, for otherwise it could not have been removed.

19.37 As noted, Mr Stott's evidence was that he sent this facsimile to the Minister in order to test his concern that the trucking fee paid by AWB might have been going to the Iraqis. According to Mr Stott, if the Minister had responded by saying he was prepared to forgo the trucking fees, Mr Stott would have been satisfied that the Minister was actually controlling the trucking fees and they may not be trucking fees. [1869] If, however, the Minister replied that the IGB could not do that, he would be satisfied that they were trucking fees and needed to be paid. [1870]

Mr Stott said the IGB replied, advising that it could not forgo the trucking fee. [1871] Mr Stott said he then rang Mr Abdul-Rahman to ask why the IGB could not agree to a reduction in the fee and Mr Abdul-Rahman replied, 'Well, how else are we going to be able to move the grain around if we don't have the foreign exchange to pay for the trucking fees?' [1872] Mr Stott said these replies represented another indication against his concern that the trucking fees were being paid to Iraq.

19.38 I reject Mr Stott's evidence. Mr Stott's request reflected a recognition that the trucking fees were for the benefit of the Iraqis. He did not write the letter as a 'test' of any alleged concern in this regard: it was a genuine commercial proposal, put as a means of allowing AWB to sell wheat to the Russian traders at a price that would still allow those traders to meet their contracts with the IGB and make a profit. This proposal was made at the same time as AWB was suggesting another genuine commercial alternative-that is, substituting a different quality of wheat. It was open to the IGB to accept one or other of the alternatives proposed without commenting on the trucking fees. I also reject Mr Stott's evidence that he relied on the IGB's rejection of AWB's proposed alternative as an indication that the Iraqis were not receiving or benefiting from a trucking fee and that he sent the facsimile for that purpose.

19.39 On 25 October 2000 the IGB sent an email to Mr Stott, thanking him for his letter to the Minister and asking that he inform the IGB of the lowest price at which AWB could supply 300,000 tonnes of wheat directly to the IGB. [1873] The email called for two offers, each for a different specification of wheat. It concluded:

Prices for above two offers should includ inland transport charges equil to US$(25) per metric ton and payment will be effected either in euro or any ecceptable european currency.

Pls confirm by monday 30/10/2000. [1874]

19.40 On 30 October 2000 Mr Hogan sent a facsimile to the IGB, setting out the terms of an offer from AWB in response to the invitation in the IGB's email. [1875] This eventually resulted in contract A0430.

A letter from Mr Flugge to the Australian Minister for Trade

19.41 During the visit of Mr Stott and Mr Hogan to Iraq in October 2000 the Iraqi Minister of Trade had asked that AWB pass on a message from the Government of Iraq to the Australian Government, highlighting Iraq's concern at the absence of official dialogue between the two countries, especially given the amount of trade Iraq concluded with Australia. It was reported during this visit that Australia was Iraq's fifth-largest source of imports. [1876]

19.42 On 20 October 2000 Mr Flugge sent a letter to the Australian Minister for Trade, Mr Vaile. [1877] In the letter Mr Flugge passed on to Mr Vaile Iraq's concern. He also noted the importance of Iraq to Australia's wheat exports, expressed AWB's concern that the Iraqi perception 'was likely to seriously affect our wheat trade to this very important market', and asked that the Australian Government 'give consideration to taking steps to engage with the Iraqi Government'. [1878]

A report to the Board: 'Iraq update October 2000'

19.43 As noted, on 21 October 2000 Mr Hogan sent an email to Mr Stott, attaching his draft report of their trip [1879] and inviting Mr Stott to add to the report. Between 21 and 22 October Mr Stott edited Mr Hogan's draft report. He shortened it from nine pages to two, deleting much of the detail included by Mr Hogan.

19.44 On 22 October 2000 Mr Stott emailed the report to Mr Goodacre and copied it to Mr Hogan. His email read , 'If you are happy with the attached report I will forward it to Andrew [Lindberg]'. [1880]

He called the report 'Iraq update October 2000'. [1881] A copy is reproduced as Figure 19.1 in Appendix 19. This was the first of two versions of this update that were produced to this Inquiry by AWB.

The first version of the 'Iraq update October 2000' report

19.45 The first version of 'Iraq update October 2000' recorded that the backlog of vessels waiting to discharge at Umm Qasr had been cleared and that, as a result of careful management of the shipping program, demurrage bills had been substantially reduced. Nevertheless, it also recorded that there remained 'ongoing issues', particularly in relation to the rate of discharge of cargo from AWB's vessels, which was said to be 'still below expectations'. The last item under the heading 'Ongoing issues' was 'Even with careful management of the shipping program vessels continue to incur demurrage caused by 3-4 day quality testing and 5-day fumigation time if insects are found'. [1882]

Under the heading 'Solutions' the recent visit to Baghdad and the objectives behind that visit were identified in the following terms:

Visited Baghdad Oct. 2000 and held discussions with the Grain Board of Iraq and Iraqi Minister of Supply. The purpose of the mission was to explore mechanisms for improving contractual performance including:

1. Discharge performance … [1883]

19.46 After reporting on the outcome of the discussions in Iraq in relation to quality 'testing' and 'fumigation' of the cargo, the questions of 'trucking' and the pursuit of a guaranteed rate of discharge were described in this first version of the October 2000 update in the following terms, consistent with what had also been written by Mr Hogan in his trip report [1884]:

Trucking

AWB's shipping agents reported that discharge had been reduced due to a lack of trucks. The minister and IGB refute that [there] is a shortage of trucks.

Guaranteed Discharge Rate

AWB is working with the Minister to improve the discharge rate at the port of Umm Qaser, with a view to obtaining a guaranteed discharge rate of 3000 tpd. [1885]

The proposed increase in the trucking fee in phase IX was also noted in this first version of the October 2000 update, again in essentially the same terms as recorded in Mr Hogan's trip report:

Phase 9

Iraq will be increasing the trucking fee to USD 35.00 for shipments to Umm Qasr and 5% of contract price for other ports.

Phase 9 negotiations will take place in late December or early January. [1886]

19.47 The following morning (23 October 2000) Mr Stott sent a further email to Mr Goodacre, inquiring, 'Will this do the boss on Iraq?' [1887] Accompanying that email was a further copy of the document entitled 'Iraq update October 2000' in the same terms as the draft that accompanied Mr Stott's email to Mr Goodacre the preceding day. [1888]

The second version of the 'Iraq update October 2000' report

19.48 Later on 23 October 2000 Mr Stott sent to Messrs Goodacre, Geary, Lindberg and Beaumont an email headed 'Iraq update for board meeting'. [1889] That email was accompanied by a single-page document entitled 'Iraq update October 2000'. [1890] This document was in terms materially different from the document of the same name that Mr Stott had sent to Mr Goodacre and Mr Hogan the previous day. [1891] A copy of this second version of the 'Iraq update October 2000' is reproduced as Figure 19.2 in Appendix 19.

19.49 The first two sections of this second version of the October 2000 update (dealing with 'Progress to date' and 'Ongoing issues') remained unchanged from the first version of the update distributed the previous day. Within those sections, the document continued to report that the backlog of vessels waiting to discharge at Umm Qasr had been cleared, that the shipping program was being carefully managed and that, as a result, demurrage bills had been reduced substantially. This second version of the October 2000 update also reported as an 'ongoing issue' that the rate of discharge was 'still below expectations' and in this regard that 'Even with careful management of the shipping program vessels continue to incur demurrage caused by 3-4 day quality testing and 5-day fumigation time if insects are found'. [1892]

However, the remainder of this second version of the October 2000 update-being that part of the document dealing with the recent visit to Iraq and its outcome-had been condensed from the earlier first version and was in different terms.

There was no longer any specific report on the outcome of discussions about testing and fumigation. The report from AWB's agent that the rate of discharge had been reduced by a lack of trucks had also been deleted, as had the report that the Iraqis had refuted such a claim when it was put to them by AWB during their discussions in October. Importantly, there was no longer any mention of the Iraqis' proposed increase in the trucking fees from phase IX or any reference to the inland transportation fees or their imposition at all.

19.50 Instead, this part of the second version of the October 2000 update read as follows:

Actions

Visited Baghdad Oct. 2000 and held discussions with Grain Board of Iraq and Iraqi Minister of Supply. The purpose of the mission was to explore mechanisms for improving contractual performance including:

Discharge performance, AWB is working with the Minister to improve the discharge rate with a view to obtaining a guaranteed discharge rate of 3000 tpd. The solution identified will need to be discussed with DFAT to ensure that it is acceptable to the UN. Subject to it being acceptable it is expected that Iraq will then look to implement measures to reduce the amount of time vessels spend at discharge port … [1893]

The document does not reveal what the 'solution' proposed to be discussed with the Department of Foreign Affairs and Trade was.

19.51 On 23 October 2000 Mr Stott forwarded to Mr Ingleby a copy of his email to Messrs Goodacre, Geary, Lindberg and Beaumont, together with the second version of the October 2000 update. [1894]

19.52 On 25 October 2000 a meeting of the Board of Directors of AWB was held. The minutes of that meeting contain no record of any report or update on Iraq having been discussed. [1895] The minutes contain no record of any report having been presented to the Board in the terms of either version of the October 2000 update.

AWB's inquiries about the amount of the inland transportation fees owing

19.53 As noted, amongst the topics Mr Stott and Mr Hogan had discussed with the IGB during their trip to Iraq in October 2000 had been claims by the IGB that there were payments of inland transportation fees outstanding in relation to a number of completed shipments. [1896] During these discussions the IGB had provided to Mr Stott and Mr Hogan a list of vessels in respect of which it was claimed that only 90 per cent of the inland transportation fees payable for the shipments carried on those vessels had been paid to Alia. [1897]

19.54 It is significant that both the complaint that payments of the inland transportation fees were still outstanding and the list of those outstanding payments were being raised at that time by the IGB and not by Alia, to whom the payments were being made. This was another indication of the receipt in Iraq of the inland transportation fees paid by AWB to Alia and Iraq's interest in those payments. Mr Stott and Mr Hogan must have known that the payments made did not represent true trucking fees.

19.55 On his return to Melbourne, Mr Stott investigated whether there were any payments outstanding.

On 23 October 2000 he sent an email to Mr Watson [1898] (copied to Messrs Hogan, Goodacre and Beaumont and Ms Scales) in which he wrote:

During our recent visit to Baghdad (full report to follow later this week) the IGB presented AWB with a list of vessels that have only had 90% of trucking fee paid. The total tonnage that IGB claim has only been paid 90% is 998,423 = USD11.98 million (@ USD12) = USD1.198 outstanding. This figure is based on trucking fee of USD12.00 per tonne (which needs to be verified against all contracts). I understand that this procedure was put in place to handle shortage claims at discharge port. Would be grateful if you would confirm that is consistent with you understanding and also would appreciate a full itemised list of the names of vessels and the quantum that remains to be paid. Please also advise who in your group manages the payment of trucking costs to ensure that the appropriate amounts are remitted?

The IGB wants this settled quickly, therefore, would be grateful if information can be provided latest by Wednesday 23 Oct. [1899]

19.56 Mr Watson replied on 24 October 2000:

According to our records, all trucking fee with exception of USD 324,790 (paid yesterday) has been paid in full.

For your guidance trucking fees ranged from USD 12-15 p/mt dependent upon contracts.

if you can provide a list of the vessels that IGB advise they have not bee paid, this can be checked, guidance, all trucking fees paid to IGB nominated trucking agent in Jordon and therefore would suggest that we simply advise IGB of the above and have them check with their trucking company [1900]

Mr Stott responded to Mr Watson later that day:

This appears to be inconsistent with our discussion yesterday when you confirmed that you knew that trucking fees were only paid to 90%. When Dom [Hogan] returns tomorrow we will provide you with a full list of the vessels that the IGB claim have only been paid to 90%. We will be then be able to cross check this with your records and hopefully establish what has happened to the missing 10%. [1901]

Mr Watson in turn responded to Mr Stott the same day:

There is no inconsistancy, 10pct balances have been paid once AWB received payments, which is done on a running basis, as stated this am, our records show no outstanding due as all payments made with the exception of a balance payment made yesterday

I will be interested to see the list from the IGB as to what vessels they believe outstanding, as would suggest this is more of a matter between IGB and their nominated trucking company to where the payments of trucking fees have been made and not from an AWB view [1902]

19.57 On 25 October 2000 Mr Hogan sent an email to Mr Watson, further to Mr Watson's exchanges with Mr Stott, in which Mr Hogan wrote:

Further to C.S [Charles Stott] note-can you please provide an update on the 90% and 10% payment of trucking fee.

Attached is a list of vessels which IGB claim have only been paid 90%.

Can you confirm amounts paid by AWB against each vessel and who we paid-i.e. trucking Co. directly or via Ronly accounts.

Also how are we able to check that final balance 10% is paid?

Do AWB pay 100% up front (or 90%) and 10% balance? [1903]

Mr Hogan forwarded a copy of his email to Ms Scales and Messrs Goodacre, Beaumont and Stott. [1904]

Mr Stott in turn passed a copy of Mr Hogan's email on to Mr Tuohy [1905], a manager in the Business Fraud and Investigation Services Division of Arthur Andersen. Arthur Andersen had been retained at that time by AWB-in particular, by Mr Stott and Mr Goodacre-to conduct a high-level review of the International Sales and Marketing Division with a view to ascertaining whether staff had behaved inappropriately. Mr Stott also forwarded to Mr Tuohy a copy of Mr Stott's first email to Mr Watson of 23 October 2000 [1906] and Mr Watson's reply to Mr Stott. [1907]

19.58 On 26 October 2000 Mr Watson replied to Mr Hogan's email of 25 October 2000:

thanks for the list of vessels, that IGB claiming not received the balance of 10pct trucking fees

Having checked our records, can advise that 100 pct of trucking fees for all vessels have been paid to IGB's nominated trucking company

Trucking company has also confirmed they have received 100 pct trucking fees and have paid IGB

From the list of vessels presented (22)

AWB involved in the payment of 10 vessels
Ronly 4
Various shipowners 8

All payments made directly to Trucking Co.

It appears that IGB internal structure is in strife following the death of Zuhair as clearly their accounting system seems to have broken down. Interestingly this matter only raised, since majority of vessels concerned completed 1st half of the year, when Zuhair still alive and this matter not raised by IGB during the various delegations to IGB over the past 12 months.

Any event suggest that reply be sent to IGB advising them to contact their trucking company. I have asked trucking company send us fax to confirm no outstandings and once received, suggest also pass fax to IGB accordingly. [1908] [emphasis added]

The emphasised words again make plain that AWB knew the inland transportation fees paid by AWB to Alia were in turn being remitted by Alia to the IGB and thus Iraq. It was widely known within AWB that these fees were paid to the IGB.

Mr Stott also forwarded a copy of this email to Mr Tuohy.

19.59 On 27 October 2000 Mr Hogan sent to Mr Watson an email headed 'Iraq outstanding'. It read:

Tks for the note and this is fine,

Have asked David to complete spreadsheet so I can get some hard numbers back to buyer. [1909]

The reference to 'buyer' is a reference to the IGB, which raised the matter in the first place.

19.60 On 30 October 2000 Mr Watson emailed Mr Hogan in relation to the alleged outstanding trucking fees:

Thanks, have also asked trucking company to let us know, if any outstandings according to their records.

They have initially come back with a list which indicates USD 523,864 outstanding, this before recent payment by AWB of USD 324,790 which effected last week, of which USD 161,728 directly relates to USD 523,864-therefore according to Trucking list supposed outstanding at this time being USD 362,136

From this amount of USD 362,136 AWB records show settled in full

We currently working through the balance of ships to verify when the the final payments made to advise trucking company re-check their accounts.

Clearly IGB figure of some USD 1.198 m outstanding is incorrect as this does not compare with their own trucking figures and perhaps indicates that the system between trucking company/IGB is not accurate.

Confident will demonstrate that 100 pct due amounts have been settled.

I would suggest that you should advise IGB to check with their nominate trucking company. [1910] [emphasis added]

Again, this email is consistent only with knowledge within AWB that funds paid to Alia were in truth a payment to the IGB and thus Iraq.

19.61 Mr Watson forwarded a copy of that email to Mr Beaumont, the then Group General Manager of AWB and the person to whom Mr Watson and AWB Chartering reported. Mr Beaumont was on the tier of management immediately below Mr Lindberg. [1911]

19.62 The payment of US$324,790.68 was made on 24 October 2000. [1912] It represented payment of the 10 per cent balance of the US$12 per tonne inland transportation fees payable on six shipments made by AWB between February and March 2000.

19.63 On 9 November 2000 Mr Cowan sent Mr Hogan (and copied to Mr Watson) an email headed 'Iraq outstanding':

Here is your file for the trucking fees …

It shows who was paid, and the payment dates, and CONFIRMS THAT ALL PAYMENTS HAVE BEEN MADE IN FULL BY AWB CHARTERING

Can I suggest a couple of reasons for any suggested shortfall

a) Chartering paid the final 10% on several ships on the 23rd October value $324,790 Where we were waiting for confirmation that the grain payment had been settled.

b) Alia had not recognised our settlement of 10% balances value $265,084 sent to them on 12th May

c) Perhaps there is some confusion, on when the rates changed from $12 per tonne to $15 per tonne. The change was implemented for shipments leaving Australia early April. I confirm that for each payment that chartering made has been 'back to back' with the values invoice to the pool.

d) The obvious one … we can't confirm ….., is whether the intermediate parties paid in full to Alia, or whether Alia has paid in full to IGB. [1913] [emphasis added]

The emphasised passage is consistent only with knowledge that inland transportation fees paid by AWB to Alia were on-paid by Alia to Iraq.

19.64 The payment of US$265,084 made on 12 May 2000 and referred to in Mr Cowan's email was payment of the 10 per cent balance of the inland transportation fees payable in respect of five shipments made in February 2000 by AWB under its contracts A4654 and A4655 with the IGB. [1914]

Negotiation of a further contract for the sale of wheat

19.65 On 25 October 2000 Mr Stott received an email from the IGB, inviting AWB to provide the lowest price at which it could supply directly to the IGB a specified number of tonnes as per IGB specification. The price to be quoted was to include an inland transportation fee of US$25 per tonne, with payment to be effected in euros or some other acceptable European currency. [1915] The inclusion of a fee in that amount represented a significant increase from both the amount of the inland transportation fees (of US$12 and US$15 per tonne) that had been payable under AWB's earlier contracts with the IGB and the US$14 per tonne fee that had been referred to during the discussions with the IGB and the Minister in Iraq earlier in October 2000. No reason for this increase was advanced by the IGB. Mr Stott forwarded a copy of this email to Ms Scales [1916] and Mr Geary.

19.66 On 2 November 2000 negotiations between AWB and the IGB culminated in the conclusion of a further contract for the sale of this quantity of wheat to the IGB. What became contract A0430 was the first contract in which the 10 per cent after-sales-service fee was imposed by the Iraqis and incorporated in the inland transportation fee payable in respect of wheat shipped under the contract. With the conclusion of contract A0430, not only had the inland transportation component of that fee risen from US$14 per tonne [1917] to US$25 per tonne: an additional US$19.50 per tonne had also been added to that fee as the 10 per cent after-sales-service fee. These two amounts [1918] were combined to produce a total inland transportation fee of US$44.50 per tonne payable by AWB and included in the price quoted by AWB. Although the 10 per cent after-sales-service fee was plainly unrelated to any transportation fee, it was treated by AWB as part of the inland transportation fee, payable under that contract and paid to Alia. This was done in the knowledge that payments to Alia were in truth payments to Iraq. The treatment of the 10 per cent surcharge or after-sales-service fee as a 'trucking fee' was a device to disguise that surcharge and its true nature.

19.67 Negotiation of contract A0430 and the circumstances in which the additional 10 per cent after-sales-service fee came to be imposed by the Iraqis as an element of that contract (and subsequent ones) are discussed in Chapter 21.

Notes

[1791] Ex 995, AWB.0420.0187; Ex 173, AWB.0084.0037_R.

[1792] Ex 995, AWB.0420.0187.

[1793] Ex 1008, AWB.5121.0024_R.

[1794] Ex 173, AWB.0084.0037_R.

[1795] Ex 173, AWB.0084.0037_R.

[1796] Ex 173, AWB.0084.0037_R.

[1797] Ex 173, AWB.0084.0037_R.

[1798] Ex 173, AWB.0084.0037_R at 0039_R.

[1799] Ex 173, AWB.0084.0037_R at 0039_R.

[1800] Ex 173, AWB.0084.0037_R at 0038_R and 0040_R.

[1801] Ex 173, AWB.0084.0037_R at 0039_R.

[1802] Independently of any report by AWB's protective agent.

[1803] Ex 1528, AWB.0089.0184_R; Ex 1527, AWB.0089.0172_R.

[1804] Ex 581, AWB.0106.0111. (This letter and the circumstances in which it came to be sent are discussed in Chapter 20.)

[1805] T 2636.37-43.

[1806] Ex 658, AWB.0390.0010.

[1807] T 2612.23-31.

[1808] See Chapter 17.

[1809] Ex 149, AWB.0106.0092 at 0093.

[1810] T 7160.28; T 7019.17-T 7020.17, T 7045.02-22.

[1811] T 7023.17-T 7024.37.

[1812] Ex 1034, AWB.0185.0306; Ex 156, AWB.0185.0308.

[1813] Ex 1034, AWB.0185.0306.

[1814] Ex 1034, AWB.0185.0306.

[1815] T 7019.41; T 7027.25-40.

[1816] Ex 156, AWB.0185.0308.

[1817] Ex 173, AWB.0084.0037_R at 0045_R; T 7157.18.

[1818] T 7019.41; T 7027.25-40.

[1819] T 7019.41-T 7020.12.

[1820] T 7153.34-47.

[1821] T 7150.15-21.

[1822] T 7151.17-31; T 7160.19.

[1823] T 7152.18-21.

[1824] T 7154.32.

[1825] T 7154.35-37; T 7160.17.

[1826] T 7157.29-31.

[1827] T 7158.44-T 7159.27.

[1828] T 7159.25-31.

[1829] T 7159.41-T 7160.04.

[1830] T 7160.6-7.

[1831] See Chapter 23.

[1832] See Chapter 23.

[1833] Ex 173, AWB.0084.0037_R at 0040_R.

[1834] T 2043.34-35.

[1835] See above.

[1836] Ex 995, AWB.0420.0201.

[1837] Ex 173, AWB.0084.0037_R at 0043_R.

[1838] Ex 173, AWB.0084.0037_R at 0044_R.

[1839] Ex 215, AWB.0069.0073_R at 0075_R.

[1840] Namely US$12 to US$15 per tonne.

[1841] Namely US$14 per tonne.

[1842] Ex 173, AWB.0084.0037_R at 0044_R.

[1843] Ex 173, AWB.0084.0037_R at 0045_R.

[1844] Ex 173, AWB.0084.0037_R at 0044_R.

[1845] T 2043.43.

[1846] Ex 156, AWB.0185.0308.

[1847] See above and also Chapter 21.

[1848] Ex 173, AWB.0084.0037_R at 0045_R.

[1849] Ex 156, AWB.0185.0308; See also T 2045.31-T 2046.32.

[1850] T 2046.29-32.

[1851] T 2633.39-45.

[1852] T 2634.1-6.

[1853] Ex 198, WST.0001.0137 at 0145, para. 29.

[1854] Ex 220, AWB.0102.0185_R; Ex 211, AWB.0106.0104, AWB.0129.0070.

[1855] Ex 274, BHP.0004.0082.

[1856] T 2040.08-9; T 2040.34-38.

[1857] T 2040.42-43.

[1858] T 2040.24-29.

[1859] T 2041.07-13.

[1860] T 2289.37-42.

[1861] T 2288.36; T 2289.1-6.

[1862] T 2289.9; T 2290.21.

[1863] T 2290.23-25. See Appendix 18 for an analysis of these tests.

[1864] T 2292.20-29.

[1865] Ex 1009, AWB.5009.0370.

[1866] Ex 1009, AWB.5009.0370.

[1867] Ex 157, AWB.5042.0232_R.

[1868] Ex 158, AWB.0146.0206.

[1869] T 2292.34-8.

[1870] T 2292.38-40.

[1871] T 2292.44-5.

[1872] T 2292.47 - T 2293.2.

[1873] Ex 1376, AWB.5004.0175.

[1874] Ex 1376, AWB.5004.0175.

[1875] Ex 1462, AWB.0137.0327_R; see also Chapter 21.

[1876] Ex 173, AWB.0084.0037_R at 0045_R; see also Mr Stott's draft 'Mission report'-Ex 1008, AWB.5121.0024_R.

[1877] Ex 542, DFT.0003.0191-0192.

[1878] Ex 542, DFT.0003.0191-0192.

[1879] Ex 995, AWB.0420.0187; Ex 173, AWB.0084.0037_R-0045_R.

[1880] Ex 1000, AWB.5009.0373.

[1881] Ex 1001, AWB.5009.0374-0375.

[1882] Ex 1001, AWB.5009.0374 at 0374.

[1883] Ex 1001, AWB.5009.0374 at 0374.

[1884] Ex 173, AWB.0084.0037_R at 0039_R.

[1885] Ex 1001, AWB.5009.0374 at 0375.

[1886] Ex 1001, AWB.5009.0374 at 0375.

[1887] Ex 1002, AWB.5009.0376.

[1888] Ex 1002, AWB.5009.0377-0378.

[1889] Ex 1003, AWB.5001.0101.

[1890] Ex 1004, AWB.5001.0102.

[1891] Ex 1001, AWB.5009.0374-0375.

[1892] Ex 1004, AWB.5001.0102.

[1893] Ex 1004, AWB.5001.0102.

[1894] Ex 1005, AWB.5009.0379-0380.

[1895] Ex 1006, AWB.0285.0228-0234.

[1896] Ex 142, WST.0005.0001 at 0024, para. 86(2).

[1897] Ex 142, WST.0005.0001 at 0024, para. 86(2).

[1898] Ex 444, AWB.5009.0381.

[1899] Ex 444, AWB.5009.0381.

[1900] Ex 445, AWB.5009.0382.

[1901] Ex 445, AWB.5009.0382.

[1902] Ex 446, AWB.5004.0174.

[1903] Ex 732, AWB.0158.0126.

[1904] Ex 732, AWB.0158.0126.

[1905] Ex 732, AWB.0158.0126.

[1906] Ex 298, AWB.5009.0394.

[1907] Ex 733, AWB.5009.0391.

[1908] Ex 299, AWB.5010.0009.

[1909] Ex 447, AWB.5044.0265.

[1910] Ex 450, AWB.5079.0348.

[1911] Ex 450, AWB.5079.0348.

[1912] Ex 1376, MFW.0001.0006_R; Ex 1288, AWB.0089.0244_R.

[1913] Ex 447, AWB.5044.0265.

[1914] Ex 1448, AWB.0163.0068_R.

[1915] Ex 351, AWB.5009.0387.

[1916] Ms Scales gave evidence that she did not query this price increase (T 2940.25). Nor did she inquire into the increase in the trucking fee to US$44.50, of which she was informed by Mr Hogan's email dated 2 November 2000 (Ex 384, SNO.0001.0067_R).

[1917] Which had been referred to during the October visit.

[1918] The US$25 inland transport fee and US$19.50 after-sales-service fee.