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23.1 On 27 January 2001, the Iraqi Ministry of Trade issued its wheat tender for phase IX of the Oil-for-Food Programme.[1] This Tender invited offers in euro or any other acceptable European currency for the supply of wheat at a price expressed in the following terms:
10-Price
CIF F.O.T to silo to all Governerates of Iraq
Cost of discharg at Umm Quser and land transport will be equivalent to USD (25) per metric ton to be paid for each shipment in any exchangeable currency to the water transport company before arrival of the vessel to Umm Qaser port. for more details contact Iraqi Maritmes in Basrah (Iraqi State Co. for Water Transport-Basrah)[2]
23.2 Clause 10 of the Tender also provided an option to deliver the cargo via ports other than Umm Qasr. Although no cost of discharge or inland transport was specified for those other options, the price for those other options was still expressed to be 'CIF Free on Truck all Governorates of Iraq via' those other ports and entry points, so as to include an inland transportation component.
23.3 The Tender did not mention any obligation to pay a 10 per cent fee (or a 10 per cent after-sales-service fee).
23.4 Between 31 January and 2 February 2001, Mr Hogan and Mr Borlase travelled to Iraq where they met with the Director General of IGB, Mr Abdul-Rahman.
During this visit, they negotiated the sale of one million tonnes of wheat to IGB. This was concluded as a purchase under phase IX of the Oil-for-Food Programme.
23.5 On 31 January 2001, Mr Hogan sent an email to Mr Alvares (AWB Treasury) in preparation for his negotiations with IGB.[3] He advised Mr Alvares that AWB was offering to sell wheat to Iraq and that IGB was looking to convert the price into Deutschmarks or euro.[4] Mr Hogan advised Mr Alvares that he would be putting the offer to IGB on 1 February 2001, open until 8 February 2001, although he foreshadowed that the contract could be concluded on 1 February 2001.
In his email, Mr Hogan noted that:
Total contract price will be amd [deleted] USD PMT-which UN will pay 100% in EURO or DM-however, there will be 2 USD payments by AWB(I) upon Bill of Lading.
1. USD 25 transport fee
2. USD [deleted] or USD [deleted] Freight payable to AWB Chartering on BOL-rate changes on vsl size.
…
It will take 70-80 days from Bill of Lading to UN payment to AWB-so April 1st load-would not receive funds for 80 days. We will rcv full funds ($[deleted]-$[deleted]) from UN in EURO or DM.
I will offer in USD only, with option to convert upon confirmation of contract-in which case we will need to call you and get rate and then give buyer opp to confirm.[5]
23.6 Mr Alvares replied to Mr Hogan by email that day indicating that AWB Treasury was ready to assist.[6] He reminded Mr Hogan that in relation to the preceding contracts 'we had to make a payment of freight in DM (deutsche marks)'[7] and sought clarification as to whether on this occasion payments would be in US dollars as Mr Hogan had suggested in his email.[8]
In fact, under the earlier contract[9], it was the inland transportation fees (and not ocean freight) that was paid in Deutschmarks.
23.7 On 2 February 2001, AWB concluded the sale which was split into two contracts. These became contracts A0552 and A0553, each for 500,000 tonnes on similar terms. The only differences were in the specification of wheat to be shipped, and the price. The price was negotiated in US dollars. Once agreement had been reached, that price was converted to Deutschmarks at the then prevailing exchange rate. An inland transportation fee was payable by AWB in respect of shipments made under both contracts. There was a slight difference in the amount of that fee: for shipments made under contract A0552 it was US$44.80 per tonne, and US$45.00 per tonne under contract A0553. Both amounts included the additional 10 per cent after-sales-service fee on the free in truck (FIT) value of the contract that had been introduced for the first time with contract A0430 in November 2000.
23.8 The inland transportation fee payable was payable in two instalments similar to the arrangement in contract A0430. The first instalment was to be US$14 per tonne paid prior to the arrival of the shipment at Umm Qasr with the balance to be paid within a week of AWB's receipt of the proceeds of the sale from the UN escrow account.
23.9 By two facsimiles addressed to the Mr Abdul-Rahman dated 2 February 2001, Mr Hogan confirmed the terms of these two contracts.[10]
The facsimile for contract A0552 was in the following terms:
AWB is pleased to confirm the sale of Australian Wheat to Iraq.
Please note the following specific terms as agreed;
1. AWB will pay USD 14.00 PMT in equivalent agreed currency for partial payment of transport fee prior to the vessel arriving in Umm Qaser. Balance of USD30.80 PMT will be paid as final payment of transport fee within 1 week of receipt of UN payment being received by Sellers. Total transport fee payable is USD 44.80 PMT in equivalent agreed currency.
2. Contract to be converted into agreed currency on the 5th of February 2001.
Once again, thank you for this business and we will send a short form contract to you from Australia, detailing the agreed currency and contract numbers.[11]
Mr Hogan's facsimile for contract A0553 was in identical terms, save that the transport fee payable was US$45.00 per tonne and the balance of the fee payable as a second instalment was US$31.00 per tonne.[12]
23.10 Each of these two facsimiles was accompanied by a document setting out the terms of the contract to which it related.[13] Apart from the description of the quality of the wheat and the price, each of these documents was in identical terms
Neither of these accompanying documents contained any reference to the obligation upon AWB to pay either the 'cost of discharge at Umm Quser and land transport' referred to in clause 10 of the wheat tender or inland transportation fees. Nor did these documents contain any reference to the amount of those costs or fees. The only reference to the inland transportation fees payable by AWB was in Mr Hogan's covering facsimiles.
There was no reference in the documents to the additional 10 per cent after-sales-service fee payable by AWB. There was no express reference to this 10 per cent fee in either of Mr Hogan's covering facsimiles, although the amount of the inland transportation fees referred to in each of his facsimiles did include that 10 per cent fee.
23.11 On 4 February 2001, Mr Hogan sent an email to Mr Alvares (with a copy to Mr Lister) headed 'Iraq-Currency conversion' advising of the concluded sale to the IGB.[14] Mr Hogan stated:
AWB(I) will need to pay approx-USD[deleted] to AWB Chartering on BOL (I assume we transfer this in BOL). Also AWB(I) will pay part of inland transport fee within 15 days of BOL-this is USD14.00 PMT, paid in equivalent currency (i.e) DM. Balance of inland transport fee will be paid when we receive the full 100% payment from United Nations-i.e. USD30.80 and USD31.00 respectively for each contract-this will be paid in currency (i.e. DM).[15]
23.12 On 5 February 2001, Mr Borlase circulated an email within AWB headed 'Iraq Sale 2nd Feb 2001' and purportedly setting out the pricing and benchmarking information for the sale to IGB.[16] Although the prices listed in his email were said to be the 'CIF FIT (Free in Truck)' prices, they were not the same as the sale prices recorded in the annexure to Mr Hogan's facsimile to IGB of 2 February 2001. The prices quoted by Mr Borlase did not include allowance for the 10 per cent fee that had to be paid in addition to but as part of the inland transportation fee. Further, Mr Borlase gave the 'Trucking Fee' component of the sale price US$25.00 per tonne. He did not include within that component the additional 10 per cent fee payable by AWB which was incorporated into the amount of the inland transportation fee referred to in Mr Hogan's facsimile to the IGB of 2 February 2001.
23.13 The same approach was taken by Mr Lister when he drew up his notes in relation to the administration of contract A0552. He referred to a trucking figure of US$25.00 per tonne and then to a separate figure of US$19.80 per tonne representing 10 per cent of the contract price, which contract price included the US$25.00 per tonne trucking fee.
23.14 Two observations can be made about the treatment of the 10 per cent disclosed by Messrs Borlase and Lister. Mr Borlase did not include within the trucking fee recorded in this email any reference to the 10 per cent. This is consistent with his later expressed view that the imposition of the 10 per cent fee 'is a mechanism to extract more dollars from the escrow account'.[17] It is an acknowledgement by AWB that the 10 per cent was not part of the trucking fee, albeit that it was being collected via the same mechanism of payment. Thus it was appreciated within AWB that the 10 per cent was an impost by the Iraqis and not a payment in any way related to trucking or the inland transportation of the wheat. The second observation is that the 10 per cent was calculated by reference to a contract price which included the US$25.00 per tonne trucking fee. Thus the 10 per cent was calculated on the total contract price and therefore included 10 per cent of the trucking fee, that is, US$2.50 per tonne. Whatever else may be said about the total 10 per cent calculation that component of it which relates to 10 per cent of the trucking fee could in no way have been understood to itself be an additional trucking fee.
23.15 Mr Borlase's email concluded:
We haven't allowed for any margin made by AWB Treasure on the foreign exchange trading on the trucking fee, which has the ability to improve the benchmark.[18]
23.16 Mr Stott sent an email to Mr Goodacre and Mr Lindberg later that same day advising them of this sale.[19] Mr Stott's email also referred to a 'trucking fee' of US$25 per tonne, but made no mention of the additional 10 per cent fee that would be payable by AWB. Mr Stott's email referred to the same prices set out in Mr Borlase's email.[20]
Mr Stott concluded his email:
Overall, this is a tremendous result. From an individual Account Manager benchmarking perspective, it is slightly below the C&F premium target, however this demonstrates that we are working to challenging stretch targets. Given our conservative demurrage costings incorporated in the contract there is upside potential to add additional pool wealth subject to first class contract execution.[21]
The exhibited copy of the email bears a manuscript note from Mr Lindberg to Mr Hogan congratulating him on a job well done.
23.17 Mr Stott was aware of the imposition of the 10 per cent fee by the Iraqis. He had approved its inclusion in November 2000 and for this one million tonne sale. His exclusion of any reference to it in his email to Messrs Goodacre and Lindberg advising of the sale and the benchmarking is further evidence that he and AWB were aware that the 10 per cent fee was not related to trucking.
23.18 On the way back to Amman, Mr Hogan asked Mr Borlase to prepare a trip report. Mr Hogan discussed with Mr Borlase the matters that should be covered in the report.[22] Upon his return to the Cairo office, Mr Borlase prepared a draft report which he sent by email to Mr Hogan on 6 February 2001 for his comment.[23]
Mr Borlase's email had a full trip report attached.[24] It reported that the FOB price given for each contract was:
based on USD25.00 trucking fee.[25]
It made no mention of the 10 per cent fee or its inclusion either as part of the inland transportation fee payable by AWB or the contract price.
23.19 On 7 February 2001, Mr Borlase circulated his trip report by email to various employees within AWB and to three email groups 'AWB-International-all', 'AWB-International-New York' and 'Intl Marketing'.[26] The email commenced:
All,
Please find below a brief summary of Dominic Hogan and Darryl Borlase's Trip to Iraq from Jan 31st - Feb 2nd.
If you would like the detailed version then please read the attached file. Dominic is currently travelling and will be in a position to discuss all aspects upon his return to Australia next week.
…
This email retained the reference to the FOB price being based on a US$25 per tonne trucking fee and contained no reference to the additional 10 per cent fee.
23.20 Mr Borlase's trip report[27], contained the following passage under the heading 'Contract negotiations':
Trucking Fee/Services Fee -The trucking fee is now USD25.00 pmt all governates of Iraq with a 10% service fee on the entire FIT value of the contract. We believe the increase in trucking fee and addition of the service charge is a mechanism of extracting more dollars from the escrow account. AWB have agreed to remit the trucking fee in a foreign currency other than US Dollars (most likely in DM) in 2 instalments. The first instalment (USD14.00) will be paid prior to the vessels arrival in Umm Qasr and the second one within one week of receiving payment from BNP in New York. We managed to avoid full payment upon BOL, which is what IGB wanted therefore in essence we would be financing their trucking fee for 80 days. Please note this gives AWB Treasury an opportunity to make a margin on the foreign exchange hedge consequently any margin will assist our business costs.[28] [emphasis added]
23.21 Mr Borlase gave evidence that he understood the 10 per cent component to be a 'service fee'.[29] However, he said it was not discussed in the negotiations in February 2001, and the purpose of the fee was not described to him.[30] His suspicions regarding the legitimacy of trucking fees were raised at that time as a result of the steep increase in the trucking fees, and the request by IGB that the fees be paid up front.[31]
23.22 Mr Hogan's evidence, however, was that during this trip Mr Abdul-Rahman mentioned that the service fee would be used for other purposes, such as building infrastructure.[32] Mr Hogan said it was Mr Abdul-Rahman's statement which 'triggered' his concern that the 10 per cent fee was not a 'legitimate' transport cost, and that it was a way of 'siphoning' money to Iraq.[33]
23.23 When he returned to Melbourne, Mr Hogan raised his concerns regarding the inland transport fee with Mr Stott. He advised Mr Stott that he was concerned that the money for the inland transport fee was going directly to Iraq.[34] Mr Hogan's evidence was that Mr Stott dismissed his concerns immediately. Mr Stott said that Mr Hogan had no direct proof that this was occurring and that he was only making assumptions. Mr Stott told him to continue executing the business as per usual.[35]
Mr Stott accepted that Mr Hogan came to him with these concerns upon his return from Iraq[36], but denied that he had immediately dismissed those concerns without further explanation.[37] Mr Stott said he had rejected Mr Hogan's suggestion on the basis that AWB had 'thoroughly' investigated the propriety of the trucking fees in the last three months of 2000.[38] He was concerned by the fact that the issue had been raised again after he had satisfied himself that there was 'nothing inappropriate happening with the trucking fees.'[39]
23.24 I accept Mr Hogan's evidence about Mr Stott's response. The tests which Mr Stott said he performed[40] were irrelevant to a consideration of the appropriateness of the fees, particularly where the increase was in part attributable to a new 'service fee' which Mr Abdul-Rahman had said would be used for purposes unrelated to inland trucking. Mr Stott was questioned about this:
Q: How does any inquiry that you conducted in October, any information that you found out in October, in any way bear upon the legitimacy of the introduction of a 10 per cent service fee?
A: I made inquiries of the Iraqis. I made inquiries of DFAT.
Q: About a 10 per cent service fee?
A: No, about using trucking companies.
Q: How does that in any way bear upon the introduction of a 10 per cent service fee?
A: The calculation of the freight of the trucking component included a 10 per cent addition of full value of the contract to the trucking component, and that's what became the trucking fee.
Q: How does anything that you discovered in October bear upon the legitimacy of the introduction of a 10 per cent service fee?
A: The service fee-a service fee was not-I did not understand this to be a service fee. I understood this-[41]
23.25 Mr Stott's evidence is not supported by the terms of his draft statement, prepared by Minter Ellison on 12 September 2004.[42] In paragraph 10.2 the following appears:
I do not recall that there was any other internal discussion triggered by the comment in this report [of February 2001] concerning the inland transport fees being a way to extract a further 10% from the UN escrow account. I do not recall discussing this issue with Dom [Hogan] or Darryl [Borlase] or them coming to me to discuss it.
Mr Stott could not recall preparing the statement with solicitors from Minter Ellison[43] or being the source of the information recorded in the statement.[44] However, it is clear that Mr Stott supplied the instructions for the statement. The information recorded in it is too detailed to have been produced other than by solicitors interviewing Mr Stott, and at length. Further, the statement is consistent with what appears in Mr Quennell's notes of the interview he conducted with Mr Stott in approximately April 2004.[45]
23.26 Mr Geary received Messrs Hogan and Borlase's February 2001 trip report by email; he forwarded it to Mr Owen[46] on 8 February 2001, with a request that Mr Owen look at the correspondence and advise him how much money was being lost 'due to slow payment from the UN.'[47] Mr Geary's evidence was that he read the document but did not understand the passage regarding the service fee.[48] I do not accept that evidence. The phrase '[w]e believe the increase in trucking fee and addition of the service charge is a mechanism of extracting more dollars from the escrow account' is not capable of misinterpretation.
23.27 The February 2001 trip report was widely circulated within AWB.[49] It can therefore be concluded that, from February 2001, it was widely known within AWB that:
23.28 The amount of the inland transportation fee payable under each of these contracts was subsequently increased by US$1 per tonne. There was a commensurate increase of US$1 per tonne in the price payable by IGB under each contract.
23.29 Initially AWB resisted this increase when it was first proposed by IGB. In a facsimile to the IGB dated 6 February 2001, Mr Hogan wrote:
I make reference to the Grain Board of Iraq's request via Miss Moona on 5th Feb 2001 that we increase the service fee on the two contracts negotiated on 2nd Feb 2001 by USD1.00 per metric tonne.
Unfortunately we are not in a position to do this as we have lodged the contract with our treasure department on Saturday 3rd Feb upon our departure from Iraq. In addition to this the extra USD1.00 adds to our borrowing costs to fund this transaction. It is our preference to leave these two contracts as negotiated on 2nd Feb 2001, however upon our next visit to Iraq we can discuss it as an agenda item.
Whilst we appreciate your circumstances I trust you understand our position on this occasion.[50]
23.30 On 7 February 2001, IGB sent a facsimile to AWB clarifying certain aspects of the recent sale[51] including in relation to the proposed increase in the inland transportation fee:
5. One dollar has been added to the price per metric ton to cover extra inland charges to be $26 instead of $25.
6. Total amount of each order in USD to be converted to the Currency agreed upon including extra one dollar PMT as stated above ….[52]
The facsimile then set out the increased price in US dollars at which the wheat was to be sold under each contract including the additional US$1 per tonne.
23.31 Mr Borlase responded on 8 February 2001. He advised that AWB was not in a position to agree to the US$1 per tonne increase and repeated the reasons given by Mr Hogan in his facsimile of 6 February 2001.[53]
23.32 Despite its initial objection, AWB eventually agreed to this increase. On 12 February 2001, Mr Hogan sent an email to Mr Alvares (with a copy to Mr Borlase) headed 'Iraq Contract':
Doug,
To confirm our discussion this morning:
Iraq have requested transport fee to be altered to USD26.00 PMT. As this does not affect AWB costings, as contract price will be increased, I will agree to do this with IGB.[54]
23.33 On 13 February 2001, IGB sent a telex to AWB headed 'Australian wheat contracts, Phase 9' which read:
Re to yr ddt 8/2/2001, and confirm our email ddt 11/2/2000 as we inform you that according to the instruction issued on 3/2/2001 that one dollar has to be added to the price per metric ton to cover extra inland charges to be 26/dollar instead of 25/dollar and this instruction included all companies which we will contractesd with on phase -9-
… pls confirm.[55]
23.34 On the evening of 13 February 2001, the exchange rate was fixed for the conversion of the US dollar price into Deutschmarks.
On 14 February 2001, Mr Hogan sent a facsimile to Mr Abdul-Rahman confirming the exchange rate that had been achieved in relation to these two contracts and the resultant price in Deutschmarks for each of these contracts.[56] He also noted that otherwise:
All other terms and conditions as per our confirmation dated 2nd February 2001.[57]
Mr Hogan concluded:
Mr Yousif you may note that the DEM rate closed at 2.1270 and AWB completed placing orders at a rate of DEM 2.1130 However even though the market firmed above the rate we indicated to IGB, we were able to complete the total currency hedge at a rate better than quoted. This has saved the Grain Board of Iraq approximately USD110,000 over the total contract.
AWB is please to be able to provide this type of service and we hope it goes a long way into strengthening our relationship, and building the confidence between AWB and IGB, which your Excellency believed had deteriorated over recent times. I hope this displays to your Excellency that we are committed to your market and looking for ways to build on our long history and strive to meet your requirements.[58]
23.35 On 14 February 2001, Mr Alvares sent an email to Mr Hogan (copied to Mr Borlase) setting the details of the foreign currency exchanges that had been agreed to for the purposes of these contracts.[59]
For your information when payment for Inland Transport Fee of DM 14.00 per tonne is required to be made (i.e. 15 days after BOL date). A request will have to be made to Treasury Division as and when required. Treasury Div will thereafter do a Currency Swap i.e. Buy DM in the Spot market (to pay the Inland Transport Co.) and Sell the DM forward to the date, when funds are expected from United Nations i.e. 70/80 days later. The cost of funding or doing this swap will be also recorded in Quantum under the YAAA2 strategy (above FX deals also in same strategy).[60]
Thus, inland transportation fees payable in Deutschmarks were to be funded from Deutschmarks purchased with US dollars under a currency exchange or swap.
23.36 On 23 May 2001, Mr Hogan sent an email to IGB asking:
Could you please confirm for our records the inland transport fees payable for the contracts signed on the 2nd of February 2001.
Contract A0552-DM29.48 1st Payment-Balance DM66.97
Contract A0553-DM29.48 1st Payment-Balance DM67.39
DM exchange rate is 2.1060.[61]
23.37 A short-form contract was prepared within AWB for each of contracts A0552[62] and A0553.[63] Both short-form contracts were dated 2 February 2001 and signed on behalf of AWB by Mr Hogan. Both contracts were substantially in the same terms as AWB's last contract with the IGB, namely contract A0430.[64] The price was described in each contract as a 'CIF Free in Truck' price and the shipment clause provided for the cargo to be discharged 'Free into Truck to all silos within all Governorates of Iraq'.
Neither of these short-form contracts referred to AWB's obligation to pay either the inland transportation fees, or additional 10 per cent after-sales-service fee, or to the amount of those fees. Neither short-form contract made plain that the amount of the inland transportation fee payable included the additional 10 per cent after-sales-service fee.
23.38 Export Sales Notes were also prepared within AWB in respect of both of these contracts.[65] These also contained no reference to AWB's obligation to pay the inland transportation fees, or additional 10 per cent after-sales-service fee, or to the amount of those fees. Nor did they refer to the inclusion of these fees as components of the price at which the wheat was sold. Both Export Sales Notes recorded that these contracts were booked by Mr Hogan and authorised by Mr Gibbons (an employee in AWB's marketing division).[66]
23.39 There was however a record made by Mr Lister of the trucking charge, the additional 10 per cent fee payable by AWB, the US$1 per tonne increase in the trucking charge and their inclusion as a component of the price that AWB was to be paid under these contracts on Mr Lister's file cover for each of these two contracts.[67]
23.40 Long form contracts were prepared by IGB for each of contracts A0552 and A0553.[68] Both long-form contracts were in the same form as the long-form contracts that had been prepared by IGB in respect of its earlier purchases from the AWB under the Oil-for-Food Programme. Neither long-form contract contained any reference to the inland transportation fees, to the 10 per cent additional fee, to its inclusion within the inland transportation fee, to AWB's obligation to pay either fee, to the amount of either of those fees or to the inclusion of these fees as components of the price at which the wheat was sold under these contracts.
23.41 On 27 February 2001, Mr Hogan sent a facsimile to Ms Courtney at DFAT enclosing a copy of the short-form and long-form contracts for each of contracts A0552 and A0553, together with a duly completed application for United Nations approval of both contracts.[69]
These documents were in turn faxed by Ms Watson (DFAT) to Ms Moules at the Australian mission to the United Nations for submission to the United Nations.[70]
It appears that before submitting the applications to the United Nations, the Australian mission prepared fresh applications forms for each of these contracts based on the information contained in the forms submitted by AWB to DFAT.[71]
23.42 On 15 March 2001, United Nations approvals (dated 13 March 2001) were issued in respect of each of these contracts.[72] A copy of each of these approvals was sent by Ms Holliday from the Australian mission to Mr Snowball in AWB's US office under cover of a facsimile dated 23 March 2001.[73] A copy of these approvals was also sent by facsimile by Ms Watson (DFAT) to Mr Lister on 27 March 2001.[74]
23.43 On 2 March 2001, the Secretary-General of the United Nations published a report on the Oil-for-Food Programme.[75] This was said to be a comprehensive report to the Security Council on the progress of the Programme, since the last report submitted by the Secretary-General to the Council in November 2000.
23.44 On 9 March 2001, Ms Moules sent a cable to DFAT in Canberra in which she listed the key points of interest from the Secretary-General's report.[76] She also reported that the Security Council had discussed the Secretary-General's report in a closed session the previous day (8 March 2001) and set out the Australian mission's understanding of what had been discussed on that occasion.[77] A copy of the speaking note used by the Executive Director of the Iraq Programme for the purposes of those discussions was faxed by Ms Moules to DFAT in Canberra.[78] Ms Moules also reported on subsequent discussions that she had had with the Norwegian mission about the matters discussed with the Security Council.
23.45 One of the topics that had arisen in the course of these discussions was allegations that Iraq had been demanding kickbacks and illegal commissions on contracts for the provision of humanitarian supplies under the Oil-for-Food Programme. Ms Moules reported:
- the UK and U.S. laid the blame for the shortcomings in the operation of the program on the Iraqi regime. The U.S. said it was obvious the Government of Iraq did not support the Oil-for-Food Program and wanted it to fail. The UK said Iraq needed to order more supplies, pump more oil, stop manipulating the program, and stop blackmailing companies by demanding surcharges.
- Concerning the issue of surcharges, in addition to Iraq's attempt to add surcharges to oil prices (O.UN10270) Iraq has, according to UN officials, begun demanding kickbacks and illegal commission on contracts for humanitarian supplies. we asked the Norwegian mission (whose PR chairs the Sanctions Committee) if and how the committee intended to address this issue. Norway said that although 'everybody knows about the kickbacks', given the lack of hard evidence (clearly surcharges are not reflected in any of the documentation processed by the UN) it was difficult to address the issue directly. However Norway was considering having a committee letter circulated containing a general reminder to all member states of the illegality of companies paying surcharges to Iraqi purchasers[79]
23.46 Of the proposal to circulate a committee letter referred to in the cable, Ms Moules gave the following evidence:
Q: Ms Moules, can you confirm that although your cable refers to Norway considering having a committee letter circulated containing a general reminder, your letter states that that letter was in fact never circulated?
A: That's my understanding, that it was never circulated, and I remained in quite close touch in the Norwegian Mission and other Security Council members about these issues, so I am sure I would have known if the letter had ever been sent.[80]
23.47 On 23 March 2001, Mr Rowland, a Chartering Officer with AWB[81], sent an email to Mr Snowball (in AWB's US office) raising a query regarding the introduction of a levy of 50 cents per tonne to be paid in cash to Port Agents prior to the discharge of a vessel:
Tim we have recvd the foll msg from Iraq State Port Agents whom hve introduced a levy of USD 0.50 cents p/mt to be paid in cash to them prior to a vessel being able to take berth and discharge. This charge has only just been introduced and the Iraqi's are making it retrospective to the 11/3/01.
All vessel's that call Iraq have been paying USD 1500.00 in cash to the Iraqi port state agents for normal port agency but this charge is a cargo based charge in addition to the USD 1500.00 per vessel.
Dom is of the opinion that this charge contravenes the UN sanctions on Iraq as nobody is meant to be able to transfer US Dollars into or out of Iraq without UN approval. [emphasis added]
Can you please confirm this is correct and that this charge is in effect illegal under the current sanctions.
Foll is excerpt of msg recvd from Iraqi Port Agents re this charge.
QTE
FM: ISCWT Basrah
RE: Agency fees at Umm Qasr port
In order to cover agencies expenses and services for vsls calling Umm Qasr port flwg amount to be paid as from 11/3/2001
1-USD of 50 (fifty cent) per m/t or cbm which is greater
2-USD 10 (ten) per container 20 or 40 and car
above amount to cover agencey expenses as well as tally clarks
3-USD 1500 for each call to cover communication and transportation and all other services mentioned in para (1) and (2) above if vsl not paid a/m amount then will not be allowed to enter and berth Umm Qasr.
Also the vsl's not paid a/m charges they have to paid same imdtly and since 11/3/2001 pls confirm.
Best rgds.
ISCWT-Basrah[82]
23.48 Following receipt of Mr Rowland's email, Mr Snowball spoke by telephone with Ms Moules at the Australian mission. [83] This was late on the evening of 23 March 2000. [84]
Manuscript notes appearing on a copy of a facsimile from Mr Snowball to Ms Moules dated 22 March 2001 (and inquiring whether contracts A0552 and A0553 had yet been approved by the United Nations) appear to be Ms Moules' notes of her conversation with Mr Snowball. [85]
23.49 Following his conversation with Ms Moules, Mr Snowball responded to Mr Rowland's email in an email dated 26 March 2001:
As we discussed on Friday, Bronte Moules from the Australian Mission to the UN will be following this up directly with the UN on Monday. Bronte had heard of a similar USD/mt charge that Iraq has been trying to place on other bulk imports. Bronte seemed to think that the current USD1500 flat fee for normal port agency fees does not violate current sanctions procedures, but the USD0.50/mt would.
I will let you know as soon as possible. [86]
23.50 On 26 March 2001, Ms Moules followed up the matters raised by Mr Snowball with both the Chief Customs Officer from the Office of the Iraqi Programme (Ms Johnston) and Mr Stenseng from the Norwegian mission to the United Nations (in his capacity as Chairman of the Iraq Sanctions (661) Committee). [87]
Following her conversation with Ms Johnston and Mr Stenseng, Ms Moules telephoned Mr Snowball on 26 March 2001 to convey to him the preliminary information that she had received from the OIP and Norwegian mission. She also included a report of that conversation with Mr Snowball in her cable of 26 March 2001 to DFAT (Canberra). [88]
Ms Moules recalled advising Mr Snowball that she understood the United Nations' legal opinion about the issue of port fees to be that port fees were not inconsistent with the sanctions regime, provided the fees were for a 'reasonable' amount and that they were paid in Iraqi dinars and not US dollars. She also recalled advising Mr Snowball, based on her discussions with the OIP and the Norwegian mission, that the 661 Committee was aware of the port fees issue and was looking into the matter further but that it would take some time for a response. [89]
23.51 Mr Snowball made a note of the conversation that he had with Ms Moules on 26 March 2001. [90] A copy of this note is reproduced as Figure 21.1 in Appendix 21. According to Mr Snowball's note, he was informed by Ms Moules that:
Iraq can charge port fees (not a sanctions issue) but can only pay in Iraq (dinars) currency → technically in breach of sanctions, but sanctions committee have been aware[91]
Beneath that entry there was an arrow in Mr Snowball's note leading to an entry which read:
Was a recent case where it was tried to include it in contract and sanctions committee rejected it.[92]
Mr Snowball's note also recorded:
- putting contracts on hold if large amounts of money being handed over.
Any USD to Iraq gov't is a definite No.
- But sympathy for the situation and sanctions committee will look at it-could take 1-2 weeks.
- Just got the new 1.0 mmt approval
→ will DFAT Canberra know. [93] [emphasis added]
The last two lines referred to Ms Moules' advice that the mission had just received the United Nations approval of contracts A0552 and A0553 dated 2 February 2001.
23.52 Mr Snowball had no recollection of this conversation beyond what was in his note. [94] He agreed that the substance of what he was told by Ms Moules was while port fees were not necessarily inconsistent with the sanctions regime that was on the proviso that they were in a reasonable amount. [95]
He gave the following additional evidence:
Q: She also said to you in this conversation, did she not, Mr Snowball, that the sanctions committee were aware of the issue of port fees?
A: Yes. It appears that way, 'But sanctions committee have been aware'.
Q: And that they were looking into that matter further?
A: Well, I think they were going to look into this matter that I raised here further. It says 'And the sanctions committee will look at it. Could take 1-2 weeks'.
Q: And did she also say, 'Don't expect a quick response'?
A: Yes-well, she said 'Could take 1-2 weeks' is what I have written here.
Q: And in early April 2001, on or about 9 or 10 April, you had a further conversation with Ms Moules about this topic of port fees, did you not?
A: I don't recall having a conversation.
Q: May I suggest to you that you told Ms Moules on that occasion that the vessels in question had been allowed to discharge their cargoes without payment of the US 50 cents per tonne fee?
A: I don't recall that, but if you have some evidence there, I am happy to have a look.
Q: And you also said, did you, that a further attempt may be made to impose that fee in the future-do you remember that?
A: I don't recall any of that, sir, I'm sorry.
Q: And that Ms Moules told you again that the port fees could only be paid in Iraqi currency?
A: Again, I don't recall, but that-Iraqi currency has been in my diary note here anyway, so that might well be the case. [96]
23.53 On 26 March 2001, Ms Wensley, Australia's Ambassador and Permanent Representative to the United Nations, wrote to the Chairman of the United Nations Security Council Committee seeking advice regarding the imposition of the port fee. Her letter read:
Based on discussions between the Australian Mission and the Office of the Iraq Program, and between the Australian Mission and your Mission, our understanding is that while payment of port fees is not inconsistent with the sanctions regime, payment of such fees in US dollars would constitute a breach of sanctions. Our understanding is also that procurement of Iraqi dinars with which to pay such fees presents significant practical problems.
In light of the above, I would be grateful for your guidance on how the Australian Mission should advise AWB Ltd to proceed. [97]
23.54 In a cable headed 'UN: Iraq-AWB exports' that Ms Moules sent to DFAT in Canberra on 26 March 2001, she reported on her conversation with Mr Snowball and the inquiries that the Australian mission had subsequently made in response to the matters Mr Snowball raised. Her cable stated:
AWB Ltd has been advised by the Iraq state port agents that it cannot discharge its wheat shipments currently in Iraq until it pays a port fee of U.S. 50 cents per tonne direct to the port agents. AWB has sought the Australian mission's advice on how to proceed. The preliminary advice from the UN and from the Chairman of the IRAQ Sanctions Committee is that, while port fees are not necessarily inconsistent with the sanctions regime, payments can only be made in Iraqi dinars. The Sanctions Committee is aware this presents significant practical difficulties, and is looking into the matter.
AWB (USA) Ltd (Snowball) contacted us on the evening of 23 March to seek our advice about the payment of port fees in Iraq. In relation to its latest shipments of wheat under the Oil-for-Food Program, AWB has been advised by the Iraq state port agents that it cannot discharge its vessels until a port fee of U.S. 50 cents per tonne is paid in cash to the port agents. The Iraq state port agents have told AWB that the port fees will be applied retrospectively back to 11 March 2001, and to all future shipments.
2. AWB Ltd asked us if we could clarify whether these port fees were permissible under the sanctions regime. They also noted their concern that, if applied, the port fees would amount to considerable sums given the quantities of wheat AWB exports to Iraq (as you know, the two most recent contracts for which AWB has received UN approval to export to Iraq cover, in total, one million tonnes of wheat).
3. We discussed this matter with the UN Office of the Iraq program (OIP) (Johnston, Chief Customs Expert) and the Norwegian mission, (Stenseng) in its capacity as Chairman of the Iraq Sanctions (661) Committee, on 26 March.
4. OIP said it could not give us a full answer. OIP had on occasion sought a legal opinion on the issue of fees paid in Iraq in association with discharge and transportation of humanitarian suppplies within Iraq. The UN'S legal opinion had been that such fees were not inconsistent with the sanctions regime provided they were a 'reasonable' amount and provided they were paid in Iraqi dinars, not/not U.S. dollars. OIP accepted that this presented significant practical difficulties, given the difficulty of purchasing Iraqi dinars outside Iraq. Moreover, even if dinars were purchased within Iraq, this would need to be done through the Central Bank of Iraq and would most likely be paid for in U.S. dollars (i.e. either, way U.S. dollars would end up being paid to an Iraqi agency).
5. OIP confirmed that the Iraq Sanctions Committee was giving increased attention to the issue of commissions and kickbacks. As noted in O.UN10630 there are indications that, in addition to its attempts to add surcharges to oil prices (O.UN10207) Iraq has in recent months begun demanding kickbacks and illegal commissions on contracts for humanitarian supplies. Norway, in its capacity as chair of the Sanctions Committee, together with the UK and U.S., is working on possible means to address this issue, one such possibility being for the Committee to agree formally that no payments of any sort can be made to any Iraqi authority or agency (though the likelihood of any agreement on this in the short term appears slim-see below).
6. OIP volunteered that payments to the Iraqi port authorities had probably been going on since the start of the Oil-for-Food Program. In most cases port fees would be agreed at the outset between the supplier and purchaser-as opposed to AWB'S current case, where the fees appear to have been introduced well after the conclusion of the contract-and are mostly subsumed in the contract. That said, if a contract explicitly listed a port fee payment per metric tonne in U.S. dollars, either in the contract or in an annex to it, the 661 Committee would most likely put the contract application on hold. That is, if the port fee were to be paid separately in U.S. dollars, rather than being factored into the price of the goods, for which the payment is channelled through the escrow account, this would not be acceptable.
7. OIP recommended we write to the Chairman of the Sanctions Committee to seek formal advice on the matter, given that OIP itself could not give an authoriative response. We have today written to the Chairman of the Sanctions Committee, as well as discussing the matter with the Norwegian mission.
8. Information provided to us by the Norwegian mission was consistent with that of OIP. Norway confirmed that the only definitive advice which could be given to suppliers at this stage was that port fees can only be paid in Iraqi dinars. Norway was well aware this was 'not a practical solution' (though mentioned that it was possible, if impractical, to purchase Iraqi dinars in Jordan). Norway confirmed that it, together with the UK and U.S., was looking at ways to address the issue, but confirmed that getting any agreement from the Sanctions Committee on this matter would take 'some time'. (As previously reported, the Iraq Sanctions Committee is by far the most politicised and difficult of all the Security Council Sanctions Committees). Norway noted that, from a national point of view, it well understood the problem, having received many inquiries and complaints about it from Norwegian companies.
9. We conveyed the preliminary information provided by OIP and the Norwegian mission to AWB (USA) Ltd (Snowball) today, emphasising that, for the moment, the only advice we could provide was that port fees could only be paid in Iraqi dinars. Snowball mentioned that the master of vessels carrying AWB shipments to Iraq had, until now, been paying USD 1,500 per shipment direct to the port agents as port fees, and asked if this too would be inconsistent with sanctions. We reiterated the advice that port fees should only by paid in dinars. AWB said that, pending any further advice from the Sanctions Committee-which, AWB is aware, could take some time-they might take up the matter directly with their Iraqi contacts since, even if there were an easy means to make payments in dinars, AWB considered the U.S. 50 cents per tonne port fee too high. We noted that the negotiation of the amount of port fees was a matter for the supplier and purchaser.
Comment
10. We will report further once we receive a formal reply to our letter to the Sanctions Committee Chairman. It seems unlikely however that there will be any quick, simple solution to this problem. Iraq's attempts to impose, apparently without warning, new fees in association with AWB exports in a manner inconsistent with the sanctions regime could be part of a broader effort by IRAQ to complicate the operation of the Oil-for-Food Program. Placing potential obstacles in the way of the delivery of basic humanitarian supplies such as wheat hits a significant pressure point in the program, since clearly no one-neither OIP nor the Sanctions Committee nor the supplier-wants to be seen to be holding up the delivery of such supplies. That said, until further advice is received from OIP, the only advice we can provide to AWB is that payments of port fees can only be made in dinars. [98] [emphasis added]
23.55 Ms Moules did not have a copy of the legal opinion referred to in her cable. It was not available at the time she sent the cable. She believed that it dealt with fees associated to the discharge and transportation of humanitarian supplies within Iraq. [99]
23.56 There is a manuscript endorsement appearing on the copy of Ms Moules' cable produced by DFAT to this Inquiry which reads:
LC
Thanks. Indicates that AWB Ltd has behaved appropriately through this period.
ZA[100]
The note was written by Ms Armstrong to Mr Crews. Ms Armstrong was employed by DFAT in Canberra at the time [101] , as was Mr Crews, although it is more likely that this annotation was made during DFAT's examination of documents during 2003. The note reflects an acknowledgement by DFAT of AWB's apparent understanding of the sanctions regime and of its apparent appropriate behaviour. This is to be contrasted with AWB's treatment of the inland transportation fee which, although nearly 100 times the quantum of the proposed port charge, was never raised with the Australian Government or the United Nations.
23.57 Ms Moules was asked whether the allegations referred to in the cable especially at paragraphs 4 and 5 were ever taken by her to refer to AWB. Her evidence was as follows:
Q: … did you at any time believe that the information in paragraphs 4 and 5 related to AWB?
A: No. The general information being provided by the OIP-no, I didn't believe -
Q: Did you relate that at all to the possibility that AWB was paying transport fees to the Iraqis outside the Oil-for-Food Program?
A: No, I didn't.
Q: Did you initiate any inquiries through DFAT in Canberra as to whether or not AWB Limited was paying any such fees?
A: No, I didn't.
…
Q: Did you have an expectation at the time that you passed this on that DFAT in Canberra would investigate the issue as to whether or not AWB Limited was paying kickbacks or illegal commissions on its contracts with the IGB?
A: No, I don't believe I did. In the absence of any evidence to suggest that might be the case with regard to the AWB, I don't think I had that expectation.
Q: When you discussed the matter with the UN Office of the Iraq Program, as we see in paragraph 3, you discussed it with Felicity Johnston, the chief customs expert?
A: That's correct.
Q: And the Norwegian Mission?
A: That's correct.
Q: Now, this is the same Johnston that had spoken to you and had communicated with you a year earlier about the Canada complaint? [102]
A: That's correct.
Q: Did she, in the course of the discussions that you refer to in paragraphs 3, 4 or 5, ever indicate to you that AWB was associated with the payment of any kickbacks or illegal commissions?
A: No, she gave no indication to that effect.
Q: Did she give you any indication that she was relating the information that we see in paragraphs 4 and 5 to AWB Limited?
A: No, she didn't.
Q: Or to any Australian company?
A: No, not to any Australian company. If anything, she seemed to welcome the fact that we were making these inquiries on behalf of the AWB-that we were bringing the matter to their attention and pushing the matter with the sanctions committee.[103]
23.58 On 27 March 2001, Mr Snowball sent an email to Mr Rowland which outlined the advice he had received from Ms Moules the preceding day:
Mark
Bronte Moules came back to me today with the following:
Iraq has the ability to charge port fees, but payment of these fees need to be in Iraq currency. Any payments in USD to Iraq are breaching sanctions. The USD1500 the vessel has been paying on past shipments is therefore technically in breach of sanctions. The sanctions committee has actually been aware that these types of payments have been happening but have been turning a blind eye if the amounts are not excessive. If the USD amounts are quite large, there has been cases where the sanctions committee has put contracts on hold, even if the amounts are included in the actual contract. The only way around this is to pay in Iraq currency, not USD, but this is obviously quite difficult.
The sanctions committee are aware of the problem we have with the USD0.50/mt charge and they have promised to look into it. This would be expected to take 1-2 weeks.[104] [emphasis added]
23.59 Ms Moules did not recall ever telling Mr Snowball any words to the effect that 'the sanctions committee has actually been aware that these types of payments have been happening but have been turning a blind eye if the amounts were not excessive'. [105] There is no reference to those words, or Mr Snowball having been informed in those terms, in Mr Snowball's note of his telephone conversation with Ms Moules.
Mr Snowball's explanation for this was:
If you want my interpretation of my diary note, I don't think turning a blind eye is out of line with what's written in this file note here in my diary note. It is basically saying that they are not worried about small amounts of money. If they are large amounts, then they have a concern. [106]
23.60 Ms Moules was not told by the United Nations that it was turning a blind eye to payments. Rather she was told that the United Nations was aware of the problem. It is likely that Mr Snowball misunderstood what it was that Ms Moules had said. In any event, the significant matter was that Mr Snowball acknowledged that large amounts of money in US dollars would give the United Nations a concern and could lead to contracts being put on hold.
It is apparent that the fact that AWB had raised this matter with the Australian mission provided the OIP and DFAT with some comfort that AWB was not itself acting in breach of sanctions.
23.61 On 27 March 2001, Mr Hogan sent an email to Miss Moona (IGB) requesting the IGB's urgent assistance in removing the port fee:
As discussed we are very concerned with the USD0.50 fee recently imposed on vessels at the port of Umm Qaser.
Whilst we understand that this fee has been imposed by the port agents under the Ministry of Transport, we urgently request your assistance to remove this fee and continue to discharge AWB vessels.
As you are aware AWB cannot make such a payment as it contravenes the sanctions, which does not allow a direct payment to Iraq.
…
Also as per all our contracts, any dues or taxes imposed or to be imposed upon a vessels or its cargo are for the buyers account. [107]
In his email, Mr Hogan noted that AWB vessels were incurring substantial demurrage as they were not allowed to discharge, that this was a serious situation as AWB had increased its shipping program from Australia 'due to Umm Qaser becoming more efficient over the last 3 months' [108] , and that it was now disappointing that it had vessels waiting at the pilot station with no way of allowing them to discharge. Mr Hogan noted that this was a major set back in AWB's shipping program and unless a solution could be found very quickly AWB would have to slow down the loading from Australia.
Finally, Mr Hogan concluded his email:
Please urgently raise this issue with the Minister, as we are unable to pay this fee.
Please respond urgently and commence discharging our vessels so we can continue with the shipping program. [109]
23.62 That day Mr Wall, a Chartering Officer within AWB Chartering, sent a telex to ISCWT copied to Alia (as well as to Messrs. Rowland, Hogan and Jones within ABWL) advising:
With regards to the additional port expenses you are now demanding from vessels discharging Umm Qasr.
We have taken advice, and confirm that AWB is unable to place you in funds for the additional cost you demand, as they fall outside the United Nations terms and conditions for the shipment of wheat to Iraq. [110]
23.63 On 28 March 2001, Mr Wall sent a further telex to Alia's representative in Basrah, Mr Krikor. [111] Although the purpose of the telex was to confirm AWB's agreement to the use of two mobile cranes in the discharge of an AWB vessel then at the berth, Mr Wall also inquired:
In the meantime, any commet from local authorities to our tlx of 27-Mar-01, regarding the additional USD.50 per mt/cm of cargo. Pls advise. [112]
23.64 Mr Hogan sent a further email to Miss Moona on 29 March 2001 requesting her urgent advice regarding the status of the removal of the port fee:
Can you please advise urgently what the status of the removal of the discharge fee at Umm Qasr.
As you are now fully aware, AWB Limited will not pay this fee and I hope this does not disrupt our discharge program.
Also can you please advise why our vessels that are waiting at the Pilot station are not moving onto the free berths ? [113]
23.65 On 30 March 2001, Mr Lees, who had recently taken up a position under Mr Hogan's authority at the Marketing Desk[114], sent an email to the 'Market Info' email group entitled 'Middle East Magic'.[115] The email provided an update on the status of the Middle East markets, including Iraq. In respect of Iraq, Mr Lees reported:
Vessels continue to discharge without paying USD0.50 port fee. IGB state that it is not within their control. AWB refuse to pay as per UN and Contract terms
Continue to request IGB to confirm no disruption to AWB vessels.[116] [emphasis added]
23.66 On 1 April 2001, Mr Borlase spoke by telephone to Mr Miles, then Second Secretary at the Australian Embassy in Amman, Jordan. During that conversation they discussed the Iraqi demand for the payment of port charges.[117]
23.67 On 2 April 2001, Mr Miles sent an email to Mr Borlase, in which he wrote:
On the subject of the port charges (I understand 50 cents a tonne) that the Iraqis are asking for, as I said I will be heading to Iraq next week. As discussed, I am prepared to raise the issue with the Min of Trade if you would like (depending, of course, on atmospherics). Tackling it from the sanctions perspective could be counter productive, so if I was to raise it then I would merely state that such financial considerations should have been included in the contract, not introduced at a latter date and that, in any case, the additional costs have implications for the commercial viability of the trade. I would leave it pretty much at that, other than to note our concerns and that the AWB may follow it up with them.
I would be grateful if you could give me some b/g and flesh out a couple of talking points for me. Let me know if I am on the right track and whether there are any other points you would like me to raise.[118]
23.68 Mr Borlase responded to Mr Miles' email the same day:
You are correct in your analysis of the USD0.50 charge. If you have an opening to ask the question than you can sound them out. Understand the political nature of such a question so leave it to your discretion on how the discussions are going.
FYI we have contacted UN on the issue and they have indicated it is not within UN sanctions so effectively we can't pay the charge . Would be interested to know if other origins have been levied with the same charge. We assume it is another method of claiming more dollars from eskrew account.[119] [emphasis added]
23.69 In evidence, Mr Borlase said that the only 'other method of claiming more dollars from the escrow account'[120] that he was aware of at the time of this email was the method that had been referred to in the trip report provided by Mr Hogan and himself on 20 February, 2001 in which he had said of the trucking fee:
The trucking fee is now USD25.00 pmt all Governates of Iraq with a 10% service fee on the entire FIT value of the contract. We believe the increase in trucking fee and addition of the service charge is a mechanism of extracting more dollars from the escrow account.[121]
In relation to his use of the word 'another' in his email to Mr Miles, Mr Borlase said he had no recollection of ever having had a discussion with Mr Miles about the 10 per cent service fee, or it being a mechanism for extracting more dollars from the escrow account.[122]
23.70 For his part, Mr Miles explained what he took Mr Borlase's comment about 'another method' to be:
In regards to Mr Borlase's statement that he assumed 'it is another method of claiming more dollars from the escrow account', I assumed that Mr Borlase was referring to well publicised attempts by Iraq to seek access to the escrow account, As stated in my statutory declaration dated 19 March 2006 at paragraph 1.1[123], Iraq did not consider the UN imposed sanctions regime was legal under international law and considered it had the right to access funds held in the escrow account. As the subsequent cable from the Australian Mission in New York makes clear, in particular paragraph 3 of cable UN: l0798 (DFT.0001.0193- DFT.0001.0195), it was widely known that Iraq had sought to access escrow funds by demanding fees and commissions in association with the export of oil and the import of humanitarian supplies. I presumed that Mr Borlase was referring to those attempts by Iraq.[124]
Mr Miles forwarded his email and Mr Borlase's response to Mr Russell, the then Australian Ambassador to Jordan for his information.[125] Mr Miles did not meet with Ministry of Trade officials during his visit to Iraq in April 2001.[126]
23.71 On 2 April 2001, the ISCWT sent a telex to AWB asking it to instruct the masters of three named vessels to pay both US$1,500 and a fee of US$0.50 per tonne in order to avoid unnecessary delays in the berthing or discharge of the vessels.[127]
23.72 On 3 April 2001, Mr Hogan sent an email to Mr Abdul-Rahman at IGB on this topic:
Dear Mr Yousif,
I have received advice this evening that the MV [ deleted ] will not be allowed to sail from Umm Qaser unless the owners pay the USD0.50 pmt.
As we have clearly explained, AWB will not pay this cost.
AWB will not pay any taxes or dues on the vessel or cargo at the discharge port. This is a standard term on all AWB Contracts.
Regardless of the above, we have also received advice from the United Nations that direct payments to Iraq are not permitted under the sanctions.
Once again I strongly urge the Grain Board to do everything possible to remove this fee so that we can continue with the shipping program.
Please refer to our note last week.[128] [emphasis added]
Mr Hogan then set out in his email his previous message to Miss Moona of 27 March 2001.
23.73 The following day, 4 April 2001, Mr Hogan sent a facsimile to Mr Al Absi at Alia. It was headed 'Transport Fees', and asked for details of Alia's Deutschmark account. In his facsimile, Mr Hogan noted
Port fees of USD0.50 pmt will no be paid by AWB.[129]
Mr Al Absi responded that day requesting Mr Hogan to settle the port fees issue with IGB:
Regarding (0.50USD/MT) port fees, kindly inform the IGB (Iraqi Grain Board) that it will not be paid, because we are afraid that they might prohibit your vessels from entering the ports of Iraq; therefore we urge you to settle the this matter with them, & kindly inform us.[130]
23.74 On 5 April 2001, Mr Hogan sent an email to IGB re-sending his earlier email of 3 April 2001 and asking:
Could you please respond to this urgent email.[131]
Mr Abdul-Rahman replied later that day:
Pls be advised that our recend contracts specifications donot include any additional charges of discharge fees. So there is no need for payment a.m total amount.[132]
23.75 On the same day the ISCWT sent a telex to AWB regarding an AWB vessel that had arrived at Umm Qasr and which was waiting to discharge her cargo. The telex asked that in order to avoid unnecessary delays AWB instruct the Master to pay the ISCWT:
1. USD of 50 (fifty cent) per mt or cbm which is greater abov amount to cover agences expensec as well as tally clarks,
2 USD 1500 for each call to cover communcations/transportation/audit etc.[133]
Later that day, the ISCWT sent a similar request in relation to another vessel chartered by AWB, which had arrived at Umm Qasr ready to discharge wheat for IGB.[134]
23.76 Mr Wall (AWB Chartering) responded to the second of these telexes from the ISCWT on 6 April 2001.[135] His reply was copied to Alia. Mr Wall wrote:
As previously advised, with regards to the addtional port expenses you are now demanding from vessels discharging Umm Qasr.
We have taken advice, and confirm that AWB is unable to place you in funds for the additional cost you demand, as they fall outside the United Nations terms and conditions for the shipment of wheat to Iraq.
With regards to the USD 1500 per vessel, this is remitted via Messrs Alia Transport, please be guided accordingly.[136] [emphasis added]
23.77 On 10 April 2001, Ms Moules sent a cable to DFAT in Canberra headed 'UN: Iraq-AWB Ltd Exports'.[137] The summary in Ms Moules' cable read:
AWB (USA) Ltd has informed us that their shipments to Iraq which were facing delays as a result of demands by Iraqi port agents for port fees have now been allowed to discharge their cargo without insistence on payment of the port fees. It is not clear whether future AWB Ltd shipments to Iraq will be subject to requests for port fees. The Sanctions Committee Chairman is keen to find a way to enable reasonable port fees to be paid in a manner consistent with relevant scrs. Pending agreement in the Sanctions Committee on a new procedure (which does not appear likely in the short term) the current requirement that any port fees must be paid in Iraqi dinars applies.[138]
In her cable Ms Moules reported advice that she had received from AWB that the two shipments that were not being allowed to berth until port fees were paid had been allowed to berth and discharge their cargo without the insistence of payment of the port fees. However Ms Moules was told that it was not clear to AWB whether the port fees would be applied to future shipments and that AWB therefore intended to discuss this issue with IGB. Ms Moules reported that she reiterated the advice from the sanctions committee that port fees could only be paid in Iraqi dinars and not in US dollars.
23.78 Ms Moules set out in some detail a report of her further discussions with the Norwegian mission (in its capacity as chair of the sanctions committee). Ms Moules noted:
3. Norway told us, however, that it was not optimistic this issue would be resolved quickly or easily, notwithstanding the fact that Norway itself, and other Committee Members (in particular the UK) are keen to find way to enable reasonable port fees to be paid in a manner consistent with relevant scrs. The difficulty is that the issue of port fees is linked to wider concerns about circumvention of the sanctions regime, based inter alia on anecdotal and in some cases hard evidence of Iraqi purchasers and agents demanding fees and commissions in association with the export of oil and the import of humanitarian supplies, in contravention of the sanctions regime …
4. Against this backdrop, the Norwegian mission told us that preliminary discussion of the issue of port fees saw Russia and France arguing that consideration should be given to allowing port fees to be paid directly to port agents in U.S. dollars, with the U.S. and UK arguing against this (they maintain that all funds should be controlled under the UN escrow account). The UK'S preliminary view is that all such fees should be included in contracts and processed through the escrow account, and has prepared a non-paper to this effect (though NB. the non-paper is confined at this stage to port fees in association with oil lifting). Copy of non-paper by fax to Canberra for information.[139]
Ms Moules concluded her cable:
Comment
6. The current environment of increased scrutiny of the operation of the Oil-for-Food Program and heightened awareness of attempts by Iraq and by some suppliers to circumvent the sanctions regime underlines the importance of AWB adhering closely to the current regulations concerning the payment of port fees. It is not yet clear whether AWB will be placed under further pressure by Iraqi agents to pay port fees in a manner inconsistent with sanctions, and AWB New York has said it will stay in touch with us if needed regarding forthcoming shipments. Iraq's interest in keeping port fees outside the Oil-for-Food Program appears self evident from the Iraqi delegation's approach to us, though we would note that there was no suggestion in the casual nature of Iraq's approach that the issue of port fees is being linked to AWB'S securing of future wheat contracts.[140]
23.79 On 17 April 2001, Mr Wall sent a further telex to the ISCWT in response to its telex of 16 April 2001 again requesting payment of port fees of US$0.50 per tonne, advising:
Dear Sir, as previously advised, AWB is unable to remit funds.
1. As you well know, it is impossible for AWB (or any other organisation) to remit US dollars to Iraq.
2. If, some how AWB did remit the US dollars you request, AWB would be in contravention of the UN sanctions against Iraq.
On this basis, you are requested to ensure that vessels are berthed, in turn of arrival and cleared to sail, without any hinderance from ISCWT. Pls confirm.[141] [emphasis added]
23.80 On 18 April 2001, Alia's agent in Basrah, Mr Krikor, sent an email to Mr Wall advising that cargo in two holds of a recently arrived AWB vessel had been found to be infested by insects. The cargo was, as a result, undergoing fumigation which was affecting the discharge operation of the other holds. Mr Wall circulated this email within AWB commenting:
Dear All, following received from Alia. Just wondering if the Iraqis just trying to bring some pressure to bear over their push for the additional port costs ? The timing is perfect.[142]
23.81 On 19 April 2001, the ISCWT sent a further telex to AWB.[143] Although the telex was headed 'ISCWT-US 20 cent per tonne' the contents referred to the issue of the ISCWT's requests for payment of the US$0.50 per tonne port fees. The telex stated:
You have to pay the amount through Alia Co. If not possible you can pay it in cash in Umm Qasr Bank in Iraqi-dinars. And this expences just like all expences taking in the other ports all over the world.[144] [emphasis added]
23.82 On 23 April 2001, Mr Wall emailed Messrs Hogan and Lees attaching a further telex received from the ISCWT.[145] The telex referred in its heading to five AWB vessels either then at Umm Qasr to discharge cargo or having recently sailed from the port. It again requested payment of the additional port charges in respect of each of these vessels:
Ref our previous tlxs with you last one 2005 at 19/04/2001 regret you have still not paid fund despite our confirmation. Pls be informed that effected 11/3/2001 and according to our established regulation about paying our reuniration to cover agency expenses as well as tally clarks charges corresponding to trriffas circulated for you about fifty cent per mt inaddition to USD 1500 of communications, transportation … etc which considered nothing in comparing with other ports.
Kindly you're requested to pay the rqrd charges similarly all other vsls calling Umm Qasr otherwise, we're unresponsible for any delays in berthing/discharge in future and this amount will be on yr debit basis.
B. regards
ISCWT Basrah[146]
In forwarding this email onto Messrs Hogan and Lees, Mr Wall asked that they take the issue up with the IGB again for resolution 'as understood it had previously been settled'.[147]
23.83 On 27 April 2001, AWB Chartering received a copy of a telex that the Master of a vessel under charter to AWB had received a telex from the ISCWT requesting:
Pls coordinate with AWB for payment addl charges of USD 0.50 pmt in order avoid unnecessary delays berthing.[148]
23.84 Ms Gatto (AWB Chartering), forwarded a copy of that telex to Messrs. Hogan, Lees and Edmonds-Wilson.[149] Mr Lees responded in an email to Ms Gatto that day advising:
Dom has advised that this issue has been resolved with the Grains Board of Iraq and agreement reached that the 50 cents/mt will not be paid by the AWB. Our understanding is that our vessels have been berthing and discharging in the last month as per normal and expect this situation to continue for future vessels.
Please respond to [ the ship's brokers ] accordingly.[150]
23.85 On 30 April 2001, Mr Abdul-Rahman sent an email to Mr Hogan repeating his earlier advice of 5 April 2001:
Pls be advised that our recend contracts specifications donot include any additional charges of discharge fees. So there is no need for payment a.m total amount.[151]
23.86 In May 2001, Messrs Hogan, Jones and Rowland travelled to the Middle East, including Iraq.
Prior to their departure, Mr Hogan sent an email to Mr Abdul-Rahman entitled: 'Meeting in Baghdad-Monday 8th May' setting out their itinerary and a list of issues they wished to discuss:
We will be in Baghdad for 3 days and as mentioned we would also like to travel to Umm Qasr (possibly on the Tuesday).
I am sure that there are many issues that you wish to raise and I think that within the three days, we should be able to have fruitful and productive discussions.
As a lead up to our discussions, we would like to discuss the following issues:
1. Discharge at Umm Qasr
- testing procedures
- Berths available
- Balance of contracts to be shipped
2. Vessel Rejections-MV [deleted]
3. Technical Assistance and equipment
4. Crane Hire
5. Demurrage/Despatch accounts
6. Tigris Petroleum
7. Possible to supply Australian Rice and Pulses.
8. Future Business[152]
23.87 The reference to 'Tigris Petroleum' was a reference to AWB's agreement to assist in the recovery of the 'Tigris debt', that is the cost of the wheat that had been shipped to Iraq on board the Ikan Sepat in 1995 and which had been paid for by BHP Petroleum Limited.[153] This had previously been raised by Mr Hogan with IGB during his visits to Iraq in October 2000 and February 2001.[154] Following his return to Australia after the February 2001 visit, Mr Hogan sent an email to Mr Abdul-Rahman advising that AWB intended to visit Baghdad again in May and that the Tigris debt could be discussed during that visit. However, he also suggested that Mr Lindberg and Mr Stott may be in Cairo earlier in March and that a meeting might be arranged then.[155] Mr Abdul-Rahman responded by asking Mr Hogan to specify a 'convenient time to visit Baghdad for discussing all issues in Baghdad with yr representative and representative of Tigris Petroleum Co.'[156] The first opportunity for that discussion was May 2001. That discussion and the steps subsequently taken to recover the Tigris debt are addressed in Chapter 27.
23.88 A note in Mr Hogan's June 2001 diary[157] contained an identical list of issues to that set out in his email of 8 May 2001, together with four additional items, namely
A further note made by Mr Hogan in his diary entitled 'IGB/Minister: Issues to Raise' was in similar terms.[162]
23.89 On the day of their arrival in Jordan, Messrs Hogan, Jones and Rowland met with Mr Miles at the Australian Embassy in Amman. This was a courtesy meeting to advise Mr Miles of their trip to Baghdad.[163]
That evening they met with Mr Al Absi, the Chairman of Alia, for dinner in Jordan. There were also one or two other senior executives from Alia or one of their associated companies at the dinner.[164] Mr Hogan could not recall the discussions had over dinner.[165] Mr Rowland could not recall any substantive business discussion at the dinner[166], and Mr Jones' evidence was that there was only social conversation during dinner.[167]
On 6 May 2001, Mr Hogan sent a short email to Mr Stott confirming that he had met with Alia.[168]
23.90 From Jordan, Messrs Hogan, Jones and Rowland travelled to Baghdad where they met with Mr Abdul-Rahman, Miss Moona and Dr Obeidi from IGB. They also met with the Minister of Trade, Mohammed Mehdi Saleh.[169]
23.91 Following these meetings, they flew to Umm Qasr where they visited the port. They were accompanied by Alia's representative in Basrah, Mr Krikor. Whilst in Umm Qasr, they also met with Cotecna, the United Nations appointed inspection agents.[170]
During the trip, Mr Hogan made a note about how the transport arrangements were made[171] The relevant portion of the note is reproduced below. A full copy of the note is reproduced as Figure 21.2 in Appendix 21.
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23.92 Mr Hogan's evidence about his understanding of the transport arrangements as set out in his note was:
75% of the trucks were from the Iraqi Ministry of Trade. My understanding was that the IGB controlled those trucks. I do not know who controlled the other 25% of the trucks but was told that Alia had no influence on the trucks. I had made these enquiries as to how the transport arrangements worked because AWB was concerned about the excessive demurrage costs and delays at the port. I believe that this was the first time that I became aware that Alia had no influence over the trucking arrangements.[172]
Mr Hogan expanded upon this evidence:
A: … AWB pay money to Alia Transport, they take a percentage or a Commission. I have written across over there 'No influence on trucks', which means Alia has no influence on the trucks. They confirm a receipt to the Iraqi State Company for Water Transport-
The Commissioner: That's receipt of the money?
A: Yes, to say-and there is later correspondence, or there is correspondence always back to the AWB saying 'The ISWT hasn't received funds'. So they confirmed that receipt. I think we have also seen that they had a certain time period they had to confirm or transfer that money. They then, the ISWT, write a letter-or I would assume they would telex or notify the State Overland Company. And the State Overland company would say, 'Money is in place, start the distribution plan and start moving the grain'. Or they would-they would organise the transports. The ISWT would, from my understanding, give the permission for us to put the vessel on the berth. I have written next to it '75% trade trucks', which-sorry, it is going back six years, but it-or five years. It seems to me to think that 75 per cent of the trucks were owned by or controlled by the Grain Board of Iraq. That's my understanding there. So that-from that point there, we've pretty much found out how the actual transport system-the coordination of the transports works and operates.
Q: This would then have confirmed to you your earlier suspicions that the money that was being paid, albeit the 10 per cent or the US$25 transport trucking fee, was finding its way to the Iraqis.
A: I never had a doubt-well, the money was always going into Iraq, whether it was $12, $14 or $15.
Q: But here we have a note with your evidence that Alia was simply taking a commission?
A: Correct-acting as the conduit for the mechanism to get the payments into Iraq because of frozen accounts, et cetera, as we raised right from the start. So that confirms that system. My issue was with the 10 per cent-the loading. I always was of the belief that there was a true transport cost in Iraq. You have to move grain somehow, and this is the mechanism of how this was working.
Q: But now what was confirmed to you was that all of the money was going to the ISCWT?
A: It was all going through, apart from taking the commission off the top there.
Q: Did you ever have confirmed to you as to what proportion, if any, of the money was being retained and applied only to transport, and what proportion of the money was available for the Iraqis to spend on anything else?
A: No, but it was my, I think, interpretation that the 10 per cent, after the-what they call this after sales service fee was introduced, it seemed to be my thinking well, that service fee is being used-what we called the siphoning of the escrow account, was what they were using for this-you know, to build the silos, to build Umm Qasr, to do up the Grain Board office and paint some things, and using the money for those type of things.
Q: What we have since learnt, and what was demonstrated in some documents from the Iraqis that were tendered during the course of Mr Long's evidence, is that by far the greater proportion of the money that was being received via the trucking fee was finding its way to the Ministry of Finance. You never had any information to that effect?
A: No. No, none whatsoever.
…
Q: Can you recall whether you discussed this part of what you were told together, after the meeting?
A: No, I don't recall discussing any of these notes following that. I think-sorry, but I think it was knowledge that AWB to Alia to ISWT-the Iraqi state water-that was probably already known, that that system was in there. This was the first time I think I had ever heard of the State Overland Company.
Q: So what you are telling us is that really this information didn't come as news to you; it wasn't that newsworthy, given that it accorded with your own belief?
A: The system-probably the-we seemed, I think-I thought that Alia did have some influence on the trucks, or the ability-I think we did put some correspondence to them or met with them to get more trucks, and maybe we thought they had some ability to influence that, but, you know, it's-I always believed that Alia would use the infrastructure in place by the Grain Board of Iraq. They would use their trucks and their rail systems, et cetera. They wouldn't bring in their own major fleet of transports to-when one was existing within Iraq.
Q: For you, that was a matter of common sense, was it?
A: Yes. Why-the Grain Board of Iraq had-they had been moving food from 19-well, let's go from the oil-for-food deal, but they had been moving products since 1996 through until 1999, and the same amount-2.8 million to 3 million tonnes per year-around, under the distribution plan through all governorates, et cetera, of Iraq.
Q: Using their own trucks?
A: Using their own infrastructure. They used rail and truck. Then they change it and they put an inland transport fee, $12 per tonne, which I understood was to ease off inflation and problems internally with the company, and so that that cost would then be covered from the escrow account. Why would a company then subcontract that out to an Alia transport? They are not going to put a thousand Iraqi trucks in the shed and Alia bring in their own fleet and say, 'All right, we will put the rail in'-you know-'the docks as well, we will put those up and use those'. Of course they were going to use the Grain Board of Iraq. It just doesn't make any other common sense to do that. They may have used some of their own trucks out of Aqaba and places like that, which weren't-they are in Jordan and Tartous, which is in Syria, or Lebanon, or whatever. But in Umm Qasr that was all-the Grain Board had the trucks there.[173]
23.93 Mr Hogan said that he could not remember exactly how he had obtained the information in his note but he believed that it was as a result of a discussion with Alia's agent in Umm Qasr.[174] As to dissemination of the material recorded in his notes Mr Hogan's evidence was:
Q: When you returned, did you tell anybody of the discussion that you had had in Iraq which was reflected in your diary note depicting the flow of money from the AWB to Alia, Alia taking a commission, not having a say in relation to the trucks and passing the money on to the ISCWT?
A: No, I don't recall having a discussion with anyone regarding that.[175]
Mr Hogan had not told anyone about this because he believed it was not contentious.
23.94 On 10 May 2001, Mr Hogan sent an email addressed to the 'Market Info' email group reporting on the outcomes of his recent discussions in Iraq.[176] The email was also copied to Mr Johnson (AWB Pool) and Mr Edmonds-Wilson.
The same day Mr Jones forwarded Mr Hogan's email to AWB employees in the Chartering division, noting that 'Dom's note sums up the situation'.[177]
In relation to the testing of cargoes, Mr Hogan reported in his email of 10 May 2001 developments expected to save AWB demurrage:
Testing: Vessel testing to take place at Berth #3 (saves 3-4 days)-big win-estimated on current program of USD700,000-USD900,000
Lab to be built at Umm Qasr-saves 2 days.[178] [emphasis in original]
23.95 Mr Hogan noted the following matters as having been discussed with the Minister.
Msgs to Aus Gov-wants AWB to Lobby.
Wants more media in OZ promoting our trade and relationship
Looking for more support from AWB
Was disappointed he had not seen our Chairman for some time
Big issue is 'after sales service'
Requested performance bond 10% for splitting inland t/port fees.
Wants AWB to be fully involved ($) for Lab at Umm Qasr
Advised Australia is #7 out of 75 in trade list with Iraq
Wants representation at Trade Fair (1st Nov)[179]
23.96 Mr Hogan's evidence was that the Iraqis did not have enough equipment and wanted AWB to donate some. The reference to 'after sales service' in his report was to the supply of grain equipment such as bobcats, bunker equipment and grain testing equipment. His evidence was that he thought a sum of $0.50 per metric tonne was later introduced into the contracts to allow for the additional cost of equipment to be donated.[180]
Each of Mr Jones and Mr Rowland agreed with Mr Hogan's recollection of matters concerning the 'after sales service'. Mr Jones said that the 'service' was accommodated by an extra US$0.50 per tonne added to the overall contract price.[181] Mr Rowland believed that the figure of US$0.50 per tonne was decided upon by the International Sales and Marketing team after the meeting. He could not recall the figure being discussed with the Minister.[182]
Mr Hogan's report also noted:
Crane Hire: Should not be paid by AWB-covered under in-land transport costs[183]
This is consistent with Mr Hogan's stated belief that the inland transportation fee was being paid to Iraq. At the suggestion of Alia's agent in Basrah, AWB had agreed to the use of mobile cranes to assist in speeding up the discharge of wheat from its ships and to pay for the costs of these cranes itself.
23.97 In late May 2001, one of AWB's shipments was rejected at Umm Qasr due to the alleged presence of urea residues around the vessel holds.
Attempts by AWB to reach a compromise with IGB were unsuccessful. Arrangements were made for Mr Hogan and Mr Cracknell, a Senior Wheat Quality Consultant, to travel to Iraq in early June 2001 to resolve the dispute.[184]
23.98 Upon their arrival in Baghdad, Messrs Hogan and Cracknell met with Dr Obeidy and some other IGB administrative staff, including Miss Moona. IGB produced samples of wheat that showed crystals of a substance in the wheat. They told Messrs Hogan and Cracknell they were concerned that the entire cargo might be contaminated.[185]
Mr Cracknell suggested that the cargo could be discharged and inspected on a truck by truck basis and that if any particular truckload was contaminated then the grain could be dumped. The Minister thought this a good idea and suggested that Dr Obeidy go to Umm Qasr to supervise the discharge of the wheat.[186]
The wheat was ultimately unloaded at Umm Qasr. About 2,000 tonnes was rejected.[187]
23.99 Following their discussions regarding the alleged contamination, Mr Hogan negotiated with Mr Abdul-Rahman a contract for the sale to IGB of a further one million tonnes of wheat. This was concluded as a sale under phase IX of the Oil-for-Food Programme.
The sale was completed in Baghdad on 6 June 2001. The sale was split into two contracts, namely contract A0784 and A0785. Each contract was for 500,000 tonnes. The sale was confirmed in a facsimile from Mr Hogan to IGB dated 7 June 2001[188], which set out the relevant terms There were slight differences between these two contracts in relation to the quality of the wheat sold and price. Otherwise the terms of the two contracts were essentially the same. Although the price for which the wheat was sold was initially negotiated in US dollars, it was subsequently converted into and expressed in euros.
23.100 An inland transportation fee was payable by AWB under each of the contracts comprising this sale.
The amount of the inland transportation fee differed slightly between each contract. For shipments under contract A0784, a fee of US$46.70 or €55.17 per tonne was payable by AWB[189], and under contract A0785, the fee payable was US$46.90 or €55.40 per tonne.[190]
The inland transportation fee payable under each contract included an allowance of US$0.50 per tonne for port fees.[191]
Under both contracts, the inland transportation fee was '100% payable before vessel discharge'.[192]
23.101 This was a significant departure from the arrangement that AWB had negotiated with IGB in relation to shipments under contracts A0430, A0552 and A0553, where the inland transportation fees were payable in two instalments, with the second and by far greater instalment not being payable until after the cargo had been discharged and AWB had received the proceeds of sale from the United Nations escrow account.
Under the revised arrangement where the inland transportation fee was payable in full in advance, the AWB Pool would pay for each shipment under these two contracts, approximately US$2.335 million of inland transportation fees some time after the vessels had loaded and prior to their discharge in Umm Qasr. It would then have to wait up to approximately 50 days before receiving payment for that shipment under the letter of credit drawn upon the United Nations escrow account and thereby reimbursement of the inland transportation fee.[193]
23.102 On 7 June 2001, Mr Hogan circulated an email to the 'Market Info' email group advising of this sale.[194] This included reference to the inland transportation fees[195] of US$46.90 per tonne and US$46.70 per tonne payable in respect of shipments under each contract, including within those fees 'US$0.50 per tonne port fees'.
23.103 On 8 June 2001, Mr Lees circulated an email to the 'Market Info' email group, Mr Alvares (AWB Treasury) and Mr Morriss confirming details of the sale, including the inland transport fees and the inclusion within that fee of the US$0.50 per tonne port fee.
23.104 On 12 June 2001, Mr Hogan sent a report regarding his recently completed trip to Iraq to the 'Market Info' email group, copied to Messrs Owen, Aucher, Cracknell, Werner and McMullen.[196]
In relation to the inland transportation fees, Mr Hogan reported:
Performance Bond
Minister is under pressure over our split payments for Inland transport. Working on way, whereby we would pay one vessel in full and roll these funds. This will keep a security balance and no performance bond will be required.
New contract is 100% payment for inland transport before discharge.
*** The USD0.50 fee (which Umm Qasr Port tried to apply earlier this year) is now built into Inland transport fee.
Crane Hire
IGB have confirmed that the crane hire is included in inland transport fee and any request for cranes to be put through them.
Advised on way out of Iraq that despite requests for additional cranes to expedite discharge, none have been provided.
We need to continually pressure IGB to provide additional cranes and monitor this through Alia.[197]
23.105 Thus, the US$0.50 per tonne fee, which AWB had protested so frequently could not be paid to Iraq because of United Nations sanctions which prohibited payments of US dollars to Iraq, was included in the sum paid to Alia, as an 'inland transport fee'. In this way the sanctions were circumvented.
23.106 A short-form contract was prepared within AWB for each of contracts A0784[198] and A0785.[199] Both short-form contracts were dated 6 June 2001 and signed on behalf of AWB by Mr Hogan.
Both contracts were substantially in the same terms as AWB's preceding two contracts with IGB, namely contracts A0552 and A0553. The price was described in each contract as a 'CIF Free in Truck' price and the shipment clause provided for the cargo to be discharged 'Free into Truck to all silos within all Governorates of Iraq'.
Neither of these short-form contracts referred to AWB's obligation to pay the inland transportation fees, or additional 10 per cent after-sales-service fee in respect of shipments made under that contract, or to the amount of those fees. That was notwithstanding that Mr Hogan's facsimile to the IGB dated 7 June 2001 clearly stated the amount of the inland transportation fee payable under each contract. Neither of the short-form contracts for contracts A0784 or A0785 made plain that the amount of the inland transportation fee payable by AWB included the additional 10 per cent after-sales-service fee.
23.107 Export Sales Notes were also prepared within AWB in respect of both of these contracts.[200] They also did not contain any reference to AWB's obligation to pay the inland transportation fees, or additional 10 per cent after-sales-service fee, or to the amount of those fees. Nor did they refer to the inclusion of these fees as components of the price at which the wheat was sold under either contract. Both Export Sales Notes recorded that these contracts were booked by Mr Hogan and authorised by Mr Lees.
23.108 The trucking fee and the amount of that fee (in particular as a component of the price for which the wheat was sold under each contract) were recorded on the cover of each of Mr Lister's files for these two contracts.[201]
23.109 Long form contracts were prepared by IGB for each of contracts A0784[202] and A0785.[203] Both of these long-form contracts were in the same form as the long-form contracts that had been prepared by the IGB in respect of its earlier purchases from the AWB under the Oil-for-Food Programme. The price was described as a 'CIF F.O.T. to silo to all governerates of Iraq via Umm Quser port'. Neither long-form contract contained any reference to the inland transportation fees, 10 per cent additional fee, AWB's obligation to pay either fee, the amount of those fees, or the inclusion of these fees as components of the price at which the wheat was sold under either contract.
23.110 Applications were submitted on 27 June 2001 for United Nations approval of each of these two contracts.[204]
23.111 Approval for contract A0784 dated 17 July 2001 was issued by the United Nations on 31 July 2001.[205] Although the sale represented by both contracts A0784 and A0785 was initially concluded under phase IX of the Oil-for-Food Programme, due to a lack of available funds in the phase IX fund sector, the OIP in consultation with the Government of Iraq agreed to transfer contract A0784 from phase IX to phase X of the Oil-for-Food Programme.[206] The Australian mission to the United Nations was advised of this in a facsimile from the OIP dated 23 July 2001.[207]
A copy of the United Nations approval was sent by facsimile by the Australian mission to Mr Snowball (in AWB's US office) on 8 August 2001.[208] Mr Snowball in turn faxed a copy of the approval to Mr Lister later that day.[209]
23.112 In the meantime, on 24 July 2001, the OIP sent a facsimile to the Australian mission advising that contract A0785 had been deemed eligible for payment from the United Nations escrow account.[210] However this did not of itself constitute approval to ship the goods. That approval (dated 24 July 2001) was not forthcoming until 30 August 2001.[211] A copy of that approval was sent by facsimile by the Australian mission to Mr Snowball on 5 September 2001.[212] Mr Snowball in turn sent a copy by facsimile to Mr Lister in Melbourne.[213] AWB Contract A0785 was also transferred from phase IX to phase X of the Oil-for-Food Programme and the United Nations approval to that contract was given under phase X.
23.113 In August 2001, Messrs Hogan and Edmonds-Wilson travelled to Jordan and Iraq. The purpose of the trip was to resolve an issue that AWB had with IGB with respect to particular contracts including demurrage, and to discuss the possibility of new business.[214] They were accompanied by Mr Tillott, who was employed by AWB on a contract basis and was looking at improving grain testing and laboratories in Iraq. Mr Tillott spent the majority of his time at a grain silo and laboratory in Taji.[215]
23.114 Messrs Hogan and Edmonds-Wilson arrived in Amman, Jordan on 26 August 2001.[216] They visited Alia's offices, and there met with Mr Al Absi and Mr Obeidy (his assistant).
Following their meeting, Mr Hogan sent an email to Messrs Stott, Lees, Borlase, Johnson, Gomersall, Rowland, Jones and Edmonds-Wilson reporting on this meeting with Alia.[217] Mr Hogan reported that he had been told that Mr Al Absi had met the President Saddam Hussein the preceding Thursday and had raised with the President:
the issue about the delayed discharge at Umm Qasr and the lengthy delays of the vessels.
President was not pleased, as he had been receiving reports that all was in order.
President ordered all outstanding vessels to be discharged and situation to be fixed. (this instruction was issued on Thursday for immediate action-yet the port status at Umm Qasr had not changed by 25th August). IGB Port Director relocated from Baghdad to Umm Qasr (Othman said this was a demotion).
President commented that IRAQ would be viewed upon unfavourable by poor discharge at Umm Qasr.
Othman believed we would see a big change at Umm Qasr in next month.
Othman advised Jordanian Minister of Transport in Baghdad discussing utilising Aqaba (for more movements to Iraq).
Transport fees set at certain level due to using 50%/50% Iraqi and Jordanian trucks.
……
Alia offered to handle Aqaba movement for USD 0.50 pmt (I did not comment).
Alia would also check off transports in Iraq storage points.
Alia are going to suggest Aqaba as an option for the IGB (I will discuss with IGB the possibility).
Mr Hogan's evidence was that his reference to transport fees being set at a certain level due to use of Iraqi and Jordanian trucks was a reference to a proposal to use Aqaba, the Jordanian port, for the discharge of goods and their movement from there into Iraq.[218]
Whilst in Jordan, Mr Hogan and Mr Edmonds-Wilson also made a courtesy visit to Mr Miles at the Australian Embassy.[219]
23.115 On 27 August 2001, Mr Hogan and Mr Edmonds-Wilson drove to Iraq. The following day they met with the Director General of the IGB (Mr Abdul-Rahman), Ms Moona and Dr Obeidy.[220]
During the trip, Mr Hogan and Mr Edmonds-Wilson also visited a grain storage facility and a grain testing laboratory in Taji, Northern Baghdad. At this site, they met with Dr Kalid who was the IGB's Quality Manager.[221]
23.116 Mr Hogan and Mr Edmonds-Wilson had a further meeting with Mr Abdul-Rahman and Miss Moona on 30 August 2001, before travelling back to Amman and eventually returning to Australia.[222]
23.117 On 10 September 2001, Mr Hogan sent an email[223] to Messrs Ingleby and Goodacre[224], which was copied to Messrs Long[225], Lister, Johnson and Aucher and Ms Scales.[226] It concerned the loading of a vessel without a Letter of Credit being in place, and stated in part:
AWB can hold back 2nd payment inland Transport payments (USD16 million at Sept 30)-hence if by this date L/C is not on our counter, we withhold these second payments from the IGB.[227]
The clear implication from this passage was that the inland transport payments were ultimately to be paid to IGB. No one within AWB raised what Alia's response might be to not being paid.
23.118 On 13 September 2001, Mr Hogan copied to Ms Scales[228] and Mr Long[229] a second email on the subject. The third paragraph of that email stated:
AWB holding 2nd payments due to Iraq for Inland Transport= USD4.5 million. By 22nd September, this amount will be USD 8.864 million (which almost covers Anassa). Inland transport payments will be held until L/C is on our counters.[230]
Ms Scales, who received both these emails, accepted that the clear implication arising from her reading of them in the witness box was that the inland transport fee was to be paid to the IGB. However she said the import of the emails did not register with her at the time.[231]
23.119 On 25 September 2001, Mr Hogan sent an email to Mr Long, entitled 'Iraq Summary'.[232] That email forwarded a report Mr Hogan had received from Mr Johnstone (AWB's Chief Risk Officer). Under the heading 'Inland transport Fees', Mr Johnstone observed:
AWB is currently withholding 2nd Payment Inland transport fees for Iraq. This amount currently total USD6 million. By end of 26th September (after UN certificate for vessels completing 25th September), this will amount to USD8.864 million.
Mr Long's evidence was that, in September 2001, he did not understand these emails to mean that the payments were being received by IGB. He did not recall seeing the first two emails.[233] In relation to the email of 25 September 2001, he 'perhaps' did not pick up the nuance about Iraq or Alia.[234] I reject that evidence.
23.120 These emails make no sense at all if, in fact, the payments referred to were actually being passed to Alia for services rendered by it. Mr Long accepted that conclusion.[235]
23.121 On 30 October 2001, AWB Chartering received an email from Austral Chartering seeking AWB's comments on certain requests which Austral had received from the owner of a ship under charter to AWB.
The first request was:
1. When Charterer is going to pay inland transportation charge & 10% commission to ISCWT (Iraqi State Company for Water Transport). This full amount should be paid in advance before ship's arrival at Umm Qasr pilot station (ETA 4th Nov) for ship's berthing turn.
2. Who is charterer's agent or partner in Iraq who will coordinate with all concerned parties in Iraq including payment of above amount.[236]
This was another clear indication of the recipient of the inland transportation fees being Iraqi.
The final request was:
4. Agent insist that Tally fees to be paid to state agent as port regulation USD 0.5 PMT = TTL USD 24,472.50 BY US.
But governing C/P stipulated that no D/A at discharging port with exception of max disbursement paid by cash by master upto USD 2,000.[237]
Ms Gatto (AWB Char
