 Chapter 30 |
 Contents |
 Chapter 32 |
31.1 Counsel Assisting have submitted that the findings I have made of factual circumstances should be considered against certain Commonwealth, State and Territory legislation in order to determine whether there might have been the commission of an offence. Appendix 26 is an analysis prepared by Counsel Assisting of possibly applicable laws required to be considered. I first address those statutes which in my view have no application.
Division 70 Criminal Code: Bribery of Foreign Officials
Section 176 (2) of the Crimes Act 1958 (Vic)
For the reasons advanced in Appendix 26, these offences have no application to the facts as found.
Confiscation Act 1997 (Vic) s. 122 and s. 123 prior to 1 January 2004
Crimes Act 1958 (Vic) s. 194 and s. 195 after 1 January 2004
31.2 If AWB dishonestly obtained a financial advantage contrary to s. 82 of the Crimes Act 1958 (Vic) for itself or Tigris in recovering from the United Nations escrow account the Tigris debt, the question arises whether it might have committed an offence against s. 194 or 195 of the Crimes Act 1958 (Vic) after 1 January 2004, or s. 122 or s. 123 of the Confiscation Act 1997 (Vic) prior to that date.
31.3 Each offence requires either that the person knew that the property being dealt with was the proceeds of crime or was reckless as to whether or not it was the proceeds of crime.
31.4 There is no evidence that AWB or its officers knew that the recovered funds were the proceeds of crime. AWB and its officers sought advice regarding whether it was legally entitled to pay such monies to Tigris. Seeking such advice, as distinct from the quality or advice itself, negates any concept of recklessness or negligence in AWB or its officers regarding whether such funds were the proceeds of crime.
31.5 Accordingly I am satisfied that there is no basis for any finding that AWB might have breached s. 194 or s. 195 of the Crimes Act 1958 (Vic), or s. 122 or s. 123 of the Confiscation Act 1997 (Vic). Nor am I satisfied, in the light of my finding that there is insufficient evidence that AWB knew or was reckless or negligent about whether the money was the proceeds of crime, that this is a matter that it would be appropriate to refer to appropriate authorities for consideration of whether proceedings should be instituted.
31.6 Regarding Tigris and its officers, there is no evidence before me sufficient to establish the mental element of any breach of s. 194 or 195 Crimes Act 1958 (Vic) or s. 122 or s. 123 Confiscation Act 1997 (Vic).
31.7 The Member for Mitcham in the Parliament of Victoria, Mr Robinson MP, by letter dated 31 January 2006 sought that the Inquiry consider whether the material before the Inquiry might constitute a breach by AWB of the provisions of Part 5.3 of the Criminal Code relating to terrorism. Counsel Assisting placed available relevant material before me and advanced submissions on the issue.
31.8 It was submitted the material before me was not sufficient to support an allegation that AWB might have committed an offence against s. 102.6 of funding a terrorist organisation.[392] I agree with that submission. The reasons why that is so are set out in Appendix 26.
31.9 However, Counsel Assisting submitted that the material before me was sufficient to support a finding that AWB might have committed an offence against s. 103.1 of the Criminal Code, namely, that AWB intentionally provided funds to Iraq and was reckless as to whether the funds would be used to facilitate or engage in a terrorist act.
31.10 Section 103.1 as it stood between 6 July 2002 and 29 May 2003 provided:
(1) A person commits an offence if:
(a) the person provides or collects funds
(b) the person is reckless as to whether the funds will be used to facilitate or engage in a terrorist act.
31.11 AWB submitted that the material before me was insufficient to support a finding that there might have been the commission of such an offence, or any basis upon which any such offence should be referred to a relevant agency. It submitted:
(a) there was inadequate evidence on which to do so
(b) the trucking fees and after-sales-service fees were in the nature of an excise or tax imposed by a sovereign government as a fee due upon the importation of goods and thus such payment could not be characterised as funds 'provided' under s. 103.1[393]
(c) the Iraqi Government did not fall within the statutory definition of 'terrorist organisation'[394]
(d) no 'terrorist act' with which the payment must be connected, had been identified. Amendments to s. 103 made in 2005 meant a prosecutor must identify the 'terrorist act'.[395]
(e) the evidence at best established that some portion of the funds paid by AWB to Iraq were paid to the 'Ministry of Finance', or the Iraqi consolidated revenue. The evidence did not establish how that Ministry used such funds.[396]
31.12 The evidence before me does establish that AWB paid money indirectly to the Government of Iraq through one of its instrumentalities. It also establishes that it intended to make those payments to Iraq. It establishes that the payments were made because they were regarded as necessary if AWB was to retain its market in Iraq.
31.13 There is evidence before the Inquiry from which a tribunal of fact might find that the acts of the Iraqi Government prior to 2002 might fall within the definition of 'terrorist act' as that expression was defined in the legislation commencing on 6 July 2002 and thereafter. It would be for a tribunal of fact to determine what inferences, if any, should be drawn from that circumstance regarding the possibility or probability of the government of Iraq again engaging in such acts, in so far as such inferences of fact might be regarded as relevant.
31.14 The evidence before me does not establish that AWB gave any consideration to:
(i) the use to which payments made to Iraq might be put
(ii) whether funds paid to Iraq might be used for purposes which might fall within the meaning of 'terrorist act'
(iii) the character, nature or objectives of the former Iraqi Government
(iv) whether the former Iraqi regime might be regarded as a 'terrorist organisation'
(v) reasons why payments to Iraq were prohibited, or reasons for the United Nations sanctions.
31.15 The terms of s. 103.1 are extremely wide. The section does not restrict its scope by specifying any characteristic that the person to whom funds are provided must have to attract the operation of the section. It need not be a terrorist organisation as defined. Reading paragraphs (a) and (b) together seems to import some unspecified relationship between the provision of funds and a terrorist act, and require a finding of recklessness on the part of the provider of funds in relation to the possible or probable use of the provided funds to attract the section. That a mental element of intention is required is clear because of s. 5.2(1) of the Code, but the extent to which the intention to make the payment is to be judged against the background of an unspecified relationship between the making of the payment and the terrorist act is not so clear.
31.16 Section 5.4(2) of the Code provides:
(2) A persons is reckless with respect to a result if:
(a) he or she is aware of a substantial risk that the result will occur
and
(b) having regard to the circumstances known to him or her, it is unjustifiable to take the risk.
The 'result' contemplated in s. 103.1 is that funds provided might be used to facilitate or engage in a terrorist act.
31.17 There is no direct evidence before me that AWB was aware of any risk, let alone a substantial risk, that the funds it provided to Iraq might be so used. Nor am I prepared to draw any inference that AWB was aware of a risk on the basis of the material before me relating to the public notoriety of acts of the Iraqi Government prior to 2002. It is to be noted that s. 5.2(a) refers to the person being 'aware'; it does not refer to 'ought reasonably to have been aware'.
There being no evidence that AWB was aware of a substantial risk that funds it provided to Iraq might be used to facilitate or engage in a terrorist act, no question can arise whether it was unjustifiable for AWB to take such risk.
31.18 Accordingly, the material before me does not support a finding that AWB might have breached s. 103.1 of the Criminal Code.
31.19 I addressed these regulations in Chapter 2. For the reasons there given, the only regulation having any possible application is Regulation 5 as in force prior to 10 March 2002. Reference may also be made to the discussion in Appendix 26.
31.20 I addressed these regulations in Chapter 2. For the reasons given in Appendix 26 no question of any breach of these regulations arise.
31.21 Counsel Assisting contended that ss. 180, 181, 182 and 184 of the Corporations Act 2001, concerning the duties of directors and officers of a corporation, and ss. 1307 and 1309 might be applicable. Those sections are addressed in Appendix 26.
31.22 I am of the view that s. 1307 has no application to the Tigris agreement, the only document said to have been falsified contrary to the section.
31.23 Counsel Assisting have submitted that various persons might have committed an offence against s. 1307 of the Corporations Act 2001, in that the agreement referred to as the Tigris agreement does not truthfully record the actual agreement between AWB and Tigris Petroleum Limited, and thus there has been a falsification of a 'book effecting or relating to affairs of the company'.
31.24 'Books' are defined, subject to contrary intention, in the dictionary found in section 9 of the Act to include:
(a) a register; and
(b) any other record of information;
(c) financial reports or financial records, however compiled, recorded or stored; and
(d) a document;
but does not include an index or recording made under Subdivision D of Division 5 of Part 6.5
Clearly enough the Tigris agreement is a document within that definition.
31.25 Section 1307 appears in Chapter 9 of the Act addressing miscellaneous matters. Part 9.3 addresses books. It contains eight sections being sections 1300 to 1307 inclusive. In my view it is apparent from a consideration of those sections that the 'books' referred to in those sections are books which are required to be kept under the provisions of the Corporations Act 2001. That appears from a consideration of s. 1300 (1) which addresses inspection of books that are 'by this Act required to be available for inspection'; s. 1301 (1) which permits the location on computers of 'matters this Act requires to be contained in a book'; s. 1302 (1) which addresses the location of registers 'required by section 271 to be kept by a company'; s. 1305 (1) which addresses admissibility of books in evidence kept by a body corporate 'under a requirement of this Act'; and s. 1306 (1) which addresses the form and evidentiary value of books 'required by this Act to be kept or prepared'. It is falsification of such books to which section 1307 refers.
31.26 The Tigris agreement is not a document which AWB is required to maintain under any provision of the Corporations Act 2001. Accordingly, in my view, section 1307 has no application to that agreement.
31.27 There remains to consider whether AWB, Rhine Ruhr, Alkaloids of Australia, BHP, Tigris or persons or companies associated with them might have committed offences of the following categories:
- Crimes Act 1914 ss 29D, 29A, 29B prior to 24 May 2001
- Criminal Code ss 135.1(7) and 136
- Crimes Act 1958 (Vic) s. 82.
It is also necessary to consider whether any officers or employees of AWB might have committed offences against ss 184 and 1309 of the Corporations Act 2001, or civil contraventions of ss 180, 181 and 182 of the Corporations Act 2001.
Findings in relation to Alkaloids of Australia and Rhine Ruhr are dealt with in Chapters 32 and 33 respectively.
31.28 AWB did not deny its corporate criminal responsibility for the acts of its executives. Nor did it address the acts or culpability of its officers as addressed in submissions of Counsel Assisting. Indeed it made no submissions of substance on the facts and evidence which emerged during the Inquiry. It reserved its position simply stating:
In parts E to K we respond to the allegations that AWB was in breach of Australian laws. In so doing we will refrain from addressing the culpability of officers and employees even though in many instances Counsel Assisting have submitted that the companies are primarily liable for their conduct. This is not to say that should the need arise in the future, in a different context, the companies will not contend that there are circumstances which negate any primary liability.[397]
31.29 I have considered the matter of corporate responsibility in accordance with the principles enunciated in Appendix 26.
31.30 During the period July 1999 to March 2003, AWB lodged twenty Notification forms and contracts with DFAT as follows:
(a) contracts A4653, A4654 and A4655 lodged with DFAT on 3 August 1999
(b) contract A4822 lodged with DFAT on 29 October 1999
(c) contracts A4970, A4971 and A4972 lodged with DFAT on 2 February 2000
(d) contracts A0265, A0266 and A0267 lodged with DFAT on 14 August 2000
(e) contract A0430 lodged with DFAT on 2 November 2000
(f) contracts A0552 and A0553 lodged with DFAT on 27 February 2001
(g) contracts A0784 and A0785 lodged with DFAT on 27 June 2001
(h) contracts A1111 and A1112 lodged with DFAT on 22 January 2002
(i) contract A1441 lodged with DFAT on 24 July 2002
(j) contracts A1670 and A1680 lodged with DFAT on 23 December 2002.
31.31 DFAT certified all of the Notification forms relating to these contracts and submitted the forms and the copy contracts provided to it by AWB to the United Nations. All of the contracts were approved for payment from the escrow account by the United Nations 661 Committee. In due course, permission was given by delegates of the Minister for Foreign Affairs to export the wheat the subject of these contracts.
31.32 Throughout the period during which DFAT considered contracts sent to it by AWB, liaised with the United Nations in relation to those contracts and caused permissions to export to be issued, AWB concealed from DFAT, and ultimately the United Nations, material information concerning the arrangements it had with IGB in relation to the sale and export of the wheat the subject of these contracts. In general terms, the material information that AWB concealed was that the arrangements it had with IGB were materially different from the contractual terms that were disclosed in the Notification forms and contracts that it lodged with DFAT. The arrangements not clearly and accurately disclosed (in the case of the first four contracts) or disclosed at all (in the case of all later contracts) included that AWB had agreed to pay substantial fees in United States dollars (and later in deutschmarks or Euros) to Iraq or an Iraqi entity, ostensibly in relation to the discharge and transportation of the wheat in Iraq, that the amount of the fees to be paid by AWB was added to the contract price, and therefore would ultimately be paid out of the United Nations controlled escrow account. The extent of the differences between the disclosed and non-disclosed arrangements, and the amount of the fees that AWB agreed to, and did, pay to Iraq, differed between the various contracts. The first four contracts (A4653, A4654, A4655 and A4822) contained a clause referring to the payment of a 'discharge cost' to 'Maritime Agents in Iraq', but this did not clearly and accurately record the actual arrangements. In relation to contracts A1670 and A1680, the arrangements concealed from DFAT and the United Nations also included: first, that the contract price had been inflated, with the agreement of IGB, to facilitate the repayment of a debt supposedly owed by IGB to Tigris; and second, that AWB and IGB had entered into a collateral arrangement relating to the payment of compensation to IGB for alleged contamination of earlier shipments contrary to the UN sanctions in a way designed to circumvent the sanctions.
31.33 The concealment by AWB of this material information from DFAT and the United Nations was intentional and dishonest. It was known by senior officers of AWB who had actual or de facto responsibility for AWB's trade with Iraq and whose knowledge and intentions accordingly can and should be attributed to AWB. Senior officers of AWB knew that AWB's arrangements included the making of substantial payments indirectly to Iraq and that, with the exception of contracts A4653, A4654, A4655 and A4822 the Notification forms and contractual documents made no reference to the arrangements in relation to these payments. Although contracts A4653, A4654, A4655 and A4822 did include a clause referring to payment of a 'discharge cost', this clause did not fully or accurately reveal the actual arrangements between AWB and IGB in relation to the payments. Senior officers of AWB also knew about the inflation of the contract price in contracts A1670 and A1680 for the purpose of recovering the Tigris debt, and the collateral arrangements relating to the payment of compensation to IGB, and that the documents submitted to DFAT did not reveal these matters.
31.34 At no time did anyone at AWB ever disclose this material information to DFAT. Nor did DFAT or relevant Ministers of the Commonwealth discover the information from any other source during the period that the Oil-for-Food Programme was on foot.
31.35 The reason for the dishonest concealment from DFAT and the United Nations was that senior management at AWB wanted to retain its substantial wheat trade with Iraq and were therefore disposed to meet the IGB's demands for the payment of these fees. Senior officers of AWB knew, however, that the arrangements which it agreed with IGB and pursuant to which it paid the inland transportation fees and after-sales-service fees, breached, or circumvented the UN sanctions. AWB also knew that if it disclosed these arrangements to DFAT, which would in turn have led to disclosure to the United Nations, the likelihood was that the arrangements would not be approved. The chosen solution to this dilemma was to conceal the true nature of its arrangements with IGB from DFAT and the United Nations. By the time contracts A1670 and A1680 were entered into in December 2002, it was known that the by then well established inland transportation fee mechanism was a mechanism that could be readily used to pay foreign currency to Iraq in circumvention of the sanctions and without the knowledge of the United Nations and DFAT, and that it was possible to extract funds from the escrow account (in the case of these contracts, to facilitate the repayment of the Tigris debt) by inflating the contract price, again without disclosing this fact to DFAT or the United Nations.
31.36 During late 1999 and 2000, AWB also entered into contracts with foreign grain traders in relation to wheat that was to be shipped to Iraq from Australia. These contracts included:
(a) contracts A4906, A4907 and A4908, concluded in December 1999
(b) contracts A4993, A0662 and A0101, concluded in February, March and April 2000.
31.37 AWB did not seek the approval of the United Nations 661 Committee for any of these contracts. It was not necessary for AWB to do so. Such approval was sought by the Russian Federation on behalf of Russian based grain trading companies. It was accordingly not necessary for AWB to submit any of these contracts to DFAT. AWB did, however, seek and obtain permission to export the wheat the subject of these contracts from the Minister for Foreign Affairs. When it sought this permission, it concealed from DFAT that under the arrangements for the sale and shipment of this wheat, AWB had agreed to, and would, pay fees to an Iraqi entity through third parties, purportedly on account of inland transportation of the wheat. Again, the concealment of these undoubtedly material facts from DFAT and the Minister was intentional and dishonest.
31.38 The differences between the provision in the tender form, the short-form contract, the long-form contract and the true arrangement made with IGB is set out in schedule form in Appendix 28.
31.39 The possible offences that might have been committed by AWB arising from its deception of DFAT are offences under sections 29A, 29B and 29D of the Crimes Act (in the case of conduct occurring before 24 May 2001), and sections 135.1(7) and 136.1 of the Criminal Code (in the case of conduct occurring after 24 May 2001). The offences that might have been committed by AWB arising from its deception of the United Nations are offences under section 82 of the Crimes Act 1958 (Vic). The elements of these offences are addressed in Appendix 26. The application of these offences to the facts is addressed after the individual contracts, or groups of contracts, have been considered.
Before dealing with the specific groups of contracts entered into by AWB, I will deal with submissions made by AWB that deal in a global way with whether AWB might have committed any of these offences relating to deception of DFAT and the United Nations.
31.40 AWB and others submitted it was not the function of this Inquiry to consider whether there might be a defence to a charge of deceiving the Commonwealth by determining whether the Commonwealth knew of the subject matter of the alleged deceit.[398]
31.41 I reject that submission. If I was satisfied that the Commonwealth knew of the subject on which it was alleged to have been deceived, I would find that a charge alleging deceit could not be maintained, and would not find that there ' might' have been the commission of such an offence.
31.42 AWB also submitted that there should be no referral to a prosecutorial authority because the submission of Counsel Assisting that the evidence established that the Commonwealth did not know of the true circumstances regarding AWB's contracts, should be rejected. It contended it should be rejected because:
(a) DFAT witnesses were unreliable and lacked credibility
(b) DFAT had been required to produce only limited material because of the alleged narrow scope of notices served upon it
(c) DFAT did not rely on any AWB forms given to it: it acted only as a 'post box'
(d) regarding permission to export applications, AWB was under no duty at all. It merely had to apply for permission to export. The only duty was imposed upon the Minister or delegate to be satisfied of compliance with international obligations.[399]
31.43 Regarding (a), I did not detect such lack of credibility or unreliability as would deter me from referring a matter which depended on the evidence of DFAT or Commonwealth witnesses.
Regarding (b), I reject the submission that notices served on DFAT or the Commonwealth were other than wide-ranging. Three notices were served on DFAT and a further eighteen on the departments of the Commonwealth. AWB sought to demonstrate a failure by the Commonwealth to produce documents to the Inquiry by annexing to its submissions 12 pages of documents AWB and a member of parliament had obtained through a Freedom of Information application. All of these documents were produced to the Inquiry in response to notices, and included in the Inquiry's database. They were not tendered because they are irrelevant.
Regarding (c), there was material before the Inquiry which I accept that senior officers of DFAT would not have permitted contracts to be forwarded to the United Nations if they knew or suspected that the contracts did not comply with United Nations sanctions. The so called 'post box' approach arose against a background of the perceived reliability and supposed integrity of AWB, an approach based upon a long history of dealings between AWB and DFAT. Had AWB advised DFAT of its true arrangement with Iraq and the IGB, and advised DFAT of information that was known to be material to the decision to grant permission to export there could be little doubt DFAT would have refused to forward the contracts to the United Nations or declined to grant permission to export, under r. 13CA of the Customs (Prohibited Exports) Regulations.
Regarding (d), AWB had a duty of honesty. If it wished to obtain the benefit of an export permit, it was obliged to act honestly in seeking that permission. That involved being truthful about the terms of the contracts pursuant to which it sought to export.
31.44 AWB also submitted that, as officers of DFAT and the Minister's delegate relied upon the consent of the United Nations in granting the permission to export under the Customs regulations, 'the conduct of AWB was irrelevant when informing that part of the process.'[400] I reject that submission. Obtaining approval for payment from the escrow account from the United Nations was of no value at all without the approval to export. The two matters are inextricably linked as both AWB and DFAT well knew. They were part of a continuum. Deception in the first part of the process continued to the second part.
I should also add that, even if I accepted AWB's submission that the evidence did not establish that the Commonwealth did not know of the true circumstances regarding AWB's contracts, this would not be an answer to possible offences under s. 135.1(7) of the Criminal Code. To make out an offence under s. 135.1(7) it is necessary only to prove that the person did something with the intention of dishonestly influencing a Commonwealth public official in the exercise of the official's duties. It is not necessary to prove that the official was in fact deceived, or that he or she would necessarily have acted differently if not deceived.
31.45 AWB and others submitted, based on its analysis of the IIC September report, that:
(a) The 661 Committee therefore acquiesced in the payment of 'internal transport costs to transportation companies that may have links to the Government of Iraq'. The alternative might have been to see the OFF Programme collapse[401]
and thus:
(b) It is not open to me to 'conclude that the payment of inland transport fees to transportation companies with links to the Government of Iraq were not authorised'[402]
and further:
(c) the OIP and the 661 Committee treated contract provisions calling for inland transportation terms as acceptable, provided that the amounts at issue were reasonable[403]
and finally:
(d) 'during 2001 the 661 Committee (and, in particular, the OIP, which was responsible for contract approval) was well aware that:
1. a fee equal to 10% of the total contract value of any goods shipped to Umm Qasr was payable prior to discharge of any cargo at Umm Qasr
2. that fee was payable either to Alia or the ISCWT
3. other fees, levies and charges were imposed on humanitarian suppliers by Iraq yet no stop was placed on any contracts.
51. As AWB's contracts all involved shipments to Umm Qasr, it logically follows that it must have been obvious to the OIP that each AWB contract that it approved would necessarily have included an amount to cover these payments. Even if AWB had expressly disclosed that its contracts contained inland transportation and after-sales service fees, it would not have been telling the OIP anything that it must already have been known (sic) or at least suspected.
52. In those circumstances, it is impossible to maintain that AWB misled the United Nations in any relevant respect.'[404]
31.46 AWB also submitted that the fact that the United Nations approved four AWB contracts which showed a price term 'CIF Free in Truck to Silo at All Governates' and specified a 'discharge cost' of US$12.00 pmt 'properly gave AWB cause to believe that these payments were approved'.[405]
31.47 These submissions ignore the facts.
31.48 First, AWB denied to the United Nations and the Commonwealth that it was making payments to Iraq outside the Oil-for-Food Programme.
Second, AWB knew that the fee it was paying to Alia was not for the provision of transport services. It knew the fee was a payment to Iraq.
Third, AWB knew it was not responsible for transportation within Iraq. AWB knew it had no contract with Alia to provide transport services. It was obliged to pay a fee.
Fourth, AWB went to extraordinary lengths to hide the payment of the fee to Alia. It did so by using shipowners to pay the fee and by interposing Ronly and Tse Yu Hong Metal Limited. These subterfuges were undertaken because AWB knew that the fees were not approved by the United Nations. If AWB believed the payments were approved by the United Nations, it would have paid the monies direct to the Iraqi entity nominated in each tender.
Fifth, AWB knew that its contracts submitted to the United Nations did not reflect the true agreements it had with Iraq. The true agreements reflected the Iraqi tenders which specified a fee to be paid to Iraq by way of 'transportation fee' and 'after-sales-service fee'. The contracts did not. The reason the contracts did not show the 'transportation fee' was because AWB knew such fees were not approved by the United Nations, were not for transportation, from November 2000 included a 10% contract value factor bearing no relationship to transport, and were to be paid to Iraq contrary to sanctions.
Sixth, the proposition in paragraph 51 amounts to a contention that, the United Nations having imposed sanctions to prevent payments to Iraq, if told that such payments in breach of sanctions were to be made to Iraq, would have approved contracts which so stated. There is no material to support that proposition and it is contrary to Ms Johnston's evidence. Common sense suggests the contrary proposition.
Further, including an element of debt recovery within a price for wheat as AWB did in the Tigris transaction but submitting the contract as though the stated price related only to the wheat price and legitimate wheat costs was plainly to mislead the United Nations.
31.49 I find that AWB did mislead the United Nations.
31.50 An alternative argument was advanced.[406] Even if it was accepted that the United Nations was deceived by the conduct of AWB, there should not be a recommendation to refer a possible breach of Australian law to a prosecuting authority because such prosecuting authority would face insurmountable difficulties in mounting proceedings against AWB because the 'political' nature of the United Nations, and its operations through its committees would mean it could not be established that the United Nations had been misled.
31.51 No doubt any prosecuting authority to whom a possible offence may be referred will consider difficulties of proof in determining whether proceedings should be commenced. Difficulties of proof are not a bar to a referral unless I am satisfied they are insurmountable. I do not regard as insurmountable the establishment in an Australian court the proposition that the United Nations would have rejected for approval a contract which disclosed payments contrary to United Nations sanctions, or the issue whether the United Nations was deceived.
31.52 It was also submitted by AWB that:
Because the [UN] Resolutions do not impose obligations on non-political entities, such as AWB, it would be difficult to contend that AWB had a legal duty to inform the UN (or even DFAT) about anything. The UN (and the Minister under Reg 13CA) were bound by a political compact to achieve the agreed outcome. The political objective does not become law unless translated expressly in a rule of domestic law. It was not.[407]
I reject that submission. A body such as AWB, seeking approval from the United Nations for a contract so that it may be paid from a fund controlled by the United Nations, has a legal duty of honesty in making its application. That negates the right of a company, such as AWB, to deceive or defraud the United Nations in making its application.
31.53 These contracts and the arrangements between AWB and IGB relating to the payment of inland transportation fees in respect of these contracts are considered in Chapter 13. Mr Emons was primarily responsible for the negotiation of these contracts.
31.54 The short-form contracts prepared within AWB for each of contracts A4653, A4654, and A4655 were signed by Mr Emons and contained the following clause:
The cargo will be discharged Free into Truck to all silos within all Governates of Iraq at the average rate of 3,000 metric tons per weather working day of 24 consecutive hours. The discharge cost will be a maximum of USD 12.00 and shall be paid by Sellers to the nominated Maritime Agents in Iraq. This clause is subject to UN approval of the Iraq distribution plan.
The price of the wheat sold under the contracts was also expressed in the short-form contracts as being on 'C.I.F. Free in Truck' Terms.
31.55 The IGB long-form version of these contracts expressed the price as being on terms 'CIF F.O.T TO SILO AT ALL GOVERNATE OF IRAQ VIA UMM QUSER PORT' but made no reference to any requirement to pay a 'discharge cost,' or of any payment to maritime agents in Iraq.
31.56 The UN Notification forms for these contracts contained details of the price per tonne in the contracts and referred to the fact that the wheat was to be shipped to Umm Qasr by bulk carrier. They made no reference to a discharge cost.
31.57 The IGB long-form contracts were forwarded to DFAT between 27 July 1999 and 29 July 1999. The short-form contracts signed by Mr Emons were sent to DFAT by Mr Borlase on 3 August 1999.
31.58 DFAT certified the Notification forms on 3 August 1999 and sent the documents to the United Nations 661 Committee. On 13 August 1999, the United Nations advised that the contracts were eligible for payment under the Oil-for-Food Programme. The approval notices were subsequently sent by DFAT to AWB. Between 7 October 1999 and 8 March 2001 Mr Lister sought and obtained on behalf of AWB permissions to export to Iraq the wheat sold under these approved contracts.
31.59 None of the documents sent by AWB to DFAT accurately stated the true contractual arrangements between AWB and IGB in relation to the supply of the wheat the subject of these contracts. Nor did AWB otherwise advise DFAT, or through it the United Nations, at any time during the period between 27 July 1999 (when the contracts were first forwarded to DFAT) and 8 March 2000 (when the last permission to export referable to these contracts was signed by a delegate of the Minister for Foreign Affairs) of the true contractual arrangements between it and IGB. The true contractual arrangements were:
(a) AWB was not responsible for delivering the wheat 'free in truck' or 'FOT' to 'all silos within all Governates of Iraq,' contrary to the appearance created by the terms of its written contracts. AWB was responsible only for shipping the goods to Umm Qasr (that is, the true terms were CIF free out Umm Qasr); the IGB remained responsible for the discharge of the wheat and its inland transportation within Iraq and delivery to silos in all governates in Iraq.
(b) AWB was obliged to pay a fixed fee of US$12.00 per tonne (described variously as a 'trucking' or 'inland transportation fee'). At the time the contracts were entered into, there was no final agreement between AWB and IGB as to how the fee would be paid, but it was understood that it would be paid at the direction of IGB to an Iraqi entity or bank account nominated by IGB and that it would be paid indirectly, via third parties, to avoid any scrutiny of the payments by DFAT or the United Nations and because the UN sanctions prevented the payment of foreign currency to an Iraqi entity.
(c) The fee of US$12.00 was to be added to what was otherwise the CIF price for the goods so that AWB's payment of the fee was funded from the UN controlled escrow account.
(d) The fee that AWB was obliged to pay at IGB's direction was not, as represented by the clause included in its short-form contracts, a variable cost (to a 'maximum' of $US12) related to the discharge of vessels at Umm Qasr at the specified rate and payable to the maritime agents responsible for the discharge of the vessels on AWB's behalf, but rather:
(i) was unrelated to any contractual obligation that AWB had with IGB (or any other person or entity) to discharge, truck or transport the wheat beyond the ships rail at Umm Qasr
(ii) was a fixed fee payable at the direction of IGB irrespective of the actual costs of discharge of the vessels that shipped the wheat to Umm Qasr
(iii) was imposed by the IGB and payable to an Iraqi entity or account nominated by IGB.
31.60 In short, the true contractual arrangement between AWB and IGB in relation to these contracts was the supply of wheat on terms CIF free out Umm Qasr, as it had been in the past, with the only additional obligation being one upon AWB to pay a fee of US$12.00 per tonne to an Iraqi entity or account nominated by IGB. The fee was added to what was in effect the CIF price, though there was no breakdown of the price specified in the contract. The result was that AWB effectively recovered an amount equivalent to the fee from the escrow account when it was paid for the wheat. In his evidence before the Inquiry, Mr Hogan agreed that this was the substance of the agreement between AWB and IGB.
31.61 The contractual arrangements were not, as represented in the documents lodged with DFAT, that AWB was contractually obliged to discharge and deliver the wheat internally in Iraq to nominated silos in different governorates. Nor was AWB's contractual obligation, as a fair reading of the clause in the short-form contract would suggest, to pay to nominated maritime agents in Iraq the cost of actually discharging the vessels, capped at US$12.00 per tonne, such services being performed on AWB's behalf because it was contractually obliged to discharge the wheat. The actual arrangement negotiated between AWB and IGB was that IGB would advise AWB of the account into which it was to pay the US$12.00 per tonne fee, not that it would advise AWB of the maritime agents that were responsible for discharging the wheat. The Iraqi wheat tender for phase VI also specified that the payment was to be made to the 'Land Transport Co', most likely a reference to the Iraqi State Company for Land Transport or possibly the Iraqi State Company for Water Transport. Unlike the wheat tender, the clause in the short-form contract did not make it explicit that the payment was required to be made to Iraq or an Iraqi entity, still less the ISCWT or the Land Transport Co. A maritime agent in Iraq is not necessarily an Iraqi entity, although as a practical matter it seems likely it would have been at that time. Nor did the clause in the short-form contract make it explicit that the specified contract price was arrived at by adding the amount of the fee payable by AWB to an Iraqi entity to the negotiated CIF wheat price in circumstances where the fee did not relate to a contractual obligation and was effectively payable to the buyer or at its direction.
31.62 For the reasons given below, it should be inferred that the clause was drafted in the way it was to make it appear to be a normal commercial clause which one would expect to see in a contract that recorded that AWB was responsible for the cost of discharge and transport to all governates in Iraq. It was drafted in a way designed to obscure or conceal the real arrangements between AWB and IGB.
31.63 It was known to senior officers of AWB who were responsible for the Iraq trade and for the documentation of AWB's contract with IGB and the submission of these documents to DFAT, including Messrs Officer, Emons, Hogan, Watson, and Lister, that AWB's true contractual arrangement with IGB was not to discharge and deliver the wheat within Iraq, and to pay maritime agents in relation to discharge and transport, but was simply to pay a US dollar fee or impost demanded by IGB and payable, at IGB's direction, to an Iraqi entity. It was known that the requirement to pay the fee was simply a mechanism by which Iraq could extract foreign currency from the escrow account. The following matters support that conclusion.
31.64 IGB ultimately advised AWB that the account into which it should pay the fees was an account maintained in Jordan by Alia. Because they knew that the fee was payable to Iraq, it follows that Messrs Officer, Emons, Hogan, Borlase, Watson and Owen must also have known that Alia did not perform trucking or transport services in relation to the wheat shipped by AWB to Umm Qasr. It merely operated the account into which the fees were to be paid. It was, in other words, merely a conduit for the payment of the inland transportation fees. But even payment to Alia was considered by these officers to be too direct and an insufficient disguise of the true nature of the payments. When circumstances required AWB to make the fee payment for the first shipment of wheat under these contracts in November 1999 direct to Alia, Mr Emons advised Mr Watson in an email that this was a 'little too direct' and that he had been assured by the Director General of IGB that it was a 'one off.'
31.65 Mr Watson was tasked with further disguising and distancing AWB from the payments by using shipping companies that carried the wheat to Iraq as a conduit for the payment of these fees by AWB to Alia. Mr Watson entered into arrangements with several shipping companies whereby AWB would pay to them not only the cost of sea freight, but also the so-called inland transportation or trucking fee, which the shipping companies would then pay on to Alia. Messrs Officer, Emons, Hogan Borlase, Watson and Owen knew that those shipping companies that agreed to assist AWB in receiving and paying these fees were mere conduits, designed to disguise the payments of these fees to Iraq by AWB. Mr Watson also subsequently arranged for the interposition of Ronly Holdings Limited, via its nominee, the Liechtenstein registered company Tse Yu Hong Metal Limited, between the shipowners and AWB, and for Ronly and its nominee to receive the inland transportation fees from AWB and pay them on to Alia in the manner described in detail in Chapter 18. There was no genuine commercial reason for using the shipowners and Ronly in this way, or for interposing Tse Yu Hong Metal Limited into its existing contracts with shipowners, and paying them a fee for the 'service' provided by them. The only possible reason for the use of the shipping companies, Ronly and its nominee Tse Yu Hong Metal Limited in this way, was as a conduit so as to disguise and distance AWB from the payments so that it was not apparent that AWB was paying the US$12.00 per tonne fee to Iraq. The only rational reason for seeking to disguise the payments in this manner was because it was known by those within AWB responsible for the Iraq trade that the payments were contrary to the UN sanctions and had not been approved by the United Nations. In an email to Mr Bali of Ronly dated 7 March 2000, Mr Emons told Mr Bali that the reason AWB paid the trucking fees through the shipping companies, and wanted Ronly to assist, was to 'disguise the fee' because 'under UN/Australia policy no payment can be made directly to Iraq' and 'to divorce clearly from the FOB price any connection with a shipping/logistics charge should the contracts come under scrutiny.' To similar effect, Mr Bali of Ronly explained in a letter that Ronly became involved in making the payments because in early 2000 AWB became concerned whether payments it was making for inland trucking in Iraq, were in breach of UN sanctions and so approached Ronly to 'front' the payments.[408]
31.66 In their evidence to the Inquiry, Mr Hogan and Mr Emons claimed that the payments were disguised not because of a concern to conceal them from the United Nations, but because payment of the fees in US dollars was not possible as a result of the embargo imposed by the United States Government that effectively prevented any payments in US dollars being made to Iraq. It may be accepted that it was recognised at the time by officers at AWB, perhaps including Messrs Emons and Hogan, that the US embargo prevented direct payments of US dollars to Iraq. It does not follow, however, that the steps that were taken to disguise the payments were taken only or principally to circumvent the US embargo. The practical problems created by the US embargo could easily have been resolved by AWB paying the fees into the Jordanian Bank account of Alia. Such payments were not prevented by the US embargo. But the additional steps taken by AWB to use shipping companies to make the payments and to interpose Ronly and its nominee into existing contracts with shipowners in the manner described sought to disguise the payments further and to further distance AWB from even the payments to Alia. Circumvention of the US embargo did not require such steps. These additional steps can only be explained by a recognition both that direct payments of US dollars to Iraq could not be made as a result of the US embargo, and that any payments that found their way to Iraq involved a contravention or circumvention of the UN sanctions. That is why Mr Hogan advised Mr Emons, Mr Snowball and others that 'discretion' was required when implementing the payments: because AWB did not want to be the one waving the 'red flag' in front of the United Nations in relation to the payment for fear of losing the Iraqi wheat trade. Mr Emons agreed in evidence that he knew both that the payments were outside the UN sanctions and that direct payments of US dollars to Iraq could not be made through the US Treasury. Mr Emons' email to Mr Bali of Ronly on 7 March 2000, referred to above, demonstrated that AWB's concern with direct payments to Iraq arose from 'UN/Australian policy', not the US embargo.
31.67 I reject any suggestion that the steps taken to disguise the transaction were taken only to avoid the problems in making the payments created by the US embargo. It is also difficult to see how anyone could seriously entertain the belief that the United Nations had approved contractual arrangements that included the making of payments that were prevented by the US embargo. If that belief was genuinely held, one would imagine that the logical step for AWB to take would have been to approach DFAT or the United Nations for advice concerning how to make the payments. That, of course, was not a step that was ever taken by AWB or anyone employed by AWB. On the contrary, AWB assiduously denied the payment of such fees when raised with them. Alternatively, AWB could have approached IGB and suggested that the fee be paid in some other foreign currency, such as Deutschemarks, as occurred in relation to later payments. When fees under later contracts were paid in Deutschemarks and Euros, the payment nevertheless continued to be made via Alia. Mr Hogan was unable to offer a plausible explanation for why this was so if the only concern was the US embargo.
31.68 It follows that, despite the reference in the short-form contracts to the payment of a 'discharge cost' of US$12.00 to 'the nominated maritime agents in Iraq,' senior officers of AWB who were primarily responsible for the Iraq trade, including Messrs Officer, Emons, Watson, and Hogan, knew that DFAT and the United Nations did not know, and the United Nations had not approved, AWB paying a fee of US$12.00 per tonne to an Iraqi entity as part of its contractual arrangements with IGB. At the highest, the United Nations had approved no more than the payment of a genuine variable discharge cost payable to an entity that had actually performed the service of discharging the wheat.
31.69 Knowledge of the introduction of the arrangements relating to the payment of fees to the Iraqis was not limited to those directly responsible for the Iraq trade. It also extended to the then Chairman, Mr Flugge AO, Chief Executive Officer, Mr Rogers AM and the Chief Financial Officer, Mr Ingleby. The overriding conclusion to be drawn from the evidence is that AWB's trade with Iraq was sufficiently important, and the imposition of the fee sufficiently significant, that Messrs Rogers and Flugge were consulted. Their response was that AWB should do whatever was necessary to retain the Iraq trade. By implication this included concealing facts from DFAT and the United Nations.
31.70 In relation to Mr Flugge, the evidence before the Inquiry supports the finding that from as early as June 1999, and in any event by October 1999, Mr Flugge knew that the arrangements between AWB and IGB included the payment by AWB of a US$12.00 per tonne fee, that the fee was included in the contract price, that the fee was to be paid ultimately to an Iraqi entity, that because payments in US dollars were not possible as a result of the sanctions, a method had to be found to make the payments and that Ronly had offered to be a conduit for the payments. The following matters support that finding:
I had a discussion with Trevor Flugge last week to discuss some of the finer points of the trucking fees. He is happy for us to carry on in fact he is determined that we should be accommodating to the Iraqi's so that our business does not come under threat from our US or CWB friends.[409]
31.71 The evidence also supports a finding that by October 1999 Mr Rogers was aware of the imposition of the fee by IGB, that the fee was to be paid to an Iraqi entity, that the payment of the fee was not permitted under the sanctions and that, as a result, AWB was proposing to pay the fee via various intermediaries. The matters supporting this finding include, in short:
31.72 In relation to Mr Ingleby, the evidence before the Inquiry supports the conclusion that he was part of the group of senior officers who considered and authorised the arrangements with Ronly. Each of Messrs Emons, Officer and Watson gave evidence to the effect that Mr Ingleby was involved in the discussions concerning the arrangements with Ronly and that he approved the mechanism for paying the fees. Mr Emons' evidence was that upon his return from the International Grains Conference in June 1999, he had a meeting with Mr Officer and Mr Ingleby about Ronly's offer to assist AWB in making the payments. During the meeting, Mr Officer told Mr Ingleby that AWB had to pay the trucking fee to the Iraqi maritime agent and that it was proposed to pay Ronly and the shipping companies to 'save our [AWB's] involvement.' No part of the proposed arrangements was kept secret from Mr Ingleby during the discussions. Mr Ingleby said that he was 'comfortable' with the arrangements. Mr Officer's evidence confirmed Mr Emons' recollection of the discussions following the International Grains Conference. Mr Officer claimed that Mr Ingleby and Mr Rogers 'were aware that the payment of these fees was the price for doing business in Iraq.' Mr Watson also gave evidence of a meeting with Mr Officer and Mr Ingleby in June 1999 in relation to the proposed 'mechanics' of making the payments via third parties. The evidence of Messrs Emons, Officer and Watson is supported by the following evidence.
31.73 It is entirely plausible that Mr Ingleby would have been consulted about the arrangements in relation to the payment of the trucking fees and the mechanism adopted to pay them. As previously discussed, these arrangements were considered and authorised at the highest level of management by Messrs Flugge and Rogers. They involved a major change to AWB's arrangements with IGB and, of particular significance as far as Mr Ingleby was concerned, the need to make large payments in an unusual context.
31.74 Once it is accepted that Mr Ingleby was made aware of and approved the arrangements for use of third parties to make the payments, including using Ronly, it should be inferred that he knew that the primary purpose of those arrangements was to disguise and distance AWB from the payments because it was recognised that they were not permitted by the sanctions and had not been approved by the United Nations. There was no sensible commercial purpose to interpose third parties. He must accordingly have recognised that the payments involved a deception of the United Nations and most likely DFAT. As Chief Financial Officer and head of AWB's Treasury, Mr Ingleby was ultimately responsible for making the payments. Mr Ingleby had authority to put a stop to the payments. He did not do so. He approved the involvement of Ronly and either expressly or impliedly authorised the payment of the fees to Iraq. By approving the arrangements with Ronly, he assisted in the concealment of AWB's arrangements in relation to the payment of the fees. It should also be observed that Mr Ingleby expressly authorised significant payments to Alia in relation to later contracts.
31.75 The evidence before the Inquiry suggests that both DFAT and the United Nations overlooked, or at least did not appreciate the significance of, the reference in the short-form contracts to the payment of the 'discharge cost.' Nobody at DFAT appeared to notice the clause or appreciated its meaning or significance when the short from contracts were sent to DFAT. The inclusion of the discharge cost clause did not cause DFAT to query whether the arrangements were, or may have been, in breach of the sanctions and did not stop it from transmitting the contracts to the UN for approval. The long-form contracts were initially forwarded to Ms Brodtman at DFAT on 27 July 1999. Subsequently, copies of the short-form contracts were sent to DFAT and Ms Brodtman forwarded them to Ms Moules at the Australian mission to the United Nations. Ms Brodtman's evidence was that she was not aware of any requirement by the IGB or the Iraqi Government that AWB pay money, directly or indirectly, to it ostensibly in relation to trucking or transportation. Ms Moules' evidence was to the same effect. She had no recollection of any issue being raised about clauses concerning the payment of discharge costs at the UN mission during the relevant period. As for the United Nations, the Customs Expert who reviewed these contracts was Ms Johnston. Her evidence was that she overlooked and did not appreciate the significance of the discharge cost clause.
31.76 A number of points may be made about the fact that both DFAT and the UN appear to have overlooked or failed to appreciate the significance of the 'discharge cost' clause. As has already been observed, the discharge cost clause did not clearly, fully or accurately disclose the true nature of the fee payable and the arrangements actually in place between AWB and IGB in relation to it. The clause misleadingly described the fee as a 'discharge cost', connoting that it was a payment referable to the actual cost of discharging the cargo incurred at the port by maritime agents in Iraq. Whilst the clause did record that a payment was to be made in US dollars to maritime agent in Iraq, it did not make it clear that the agent was an Iraqi entity. No reference was made to transportation, or inland transportation. In reality, the fee was not related to either-it was just a fee payable to Iraq. Nor was it made explicit in the contract that the cost had been added to the negotiated wheat price so that it was, in effect, to be met from funds extracted from the escrow account in circumstances where AWB had no obligation to provide the service to which it was said to relate. Whilst the reference in the clause to payments in US dollars being made to agents 'in Iraq' should have alerted a careful reader of the clause to its potential significance, the apparent failure of DFAT and the United Nations 661 Committee to pick this up may have been due to the innocuous and unclear way in which the clause was worded. It is less likely that the clause would have been overlooked if it had clearly, fully and accurately disclosed the true nature of the fee payable by AWB and the actual arrangements between AWB and IGB in relation to its payment.
31.77 I am satisfied that if the true nature of the arrangements had been disclosed to officers of DFAT, they would have acted differently, both in relation to the documents AWB submitted to them, and in relation to the issuing of permissions to export. The only reasonable inference to be drawn from the evidence before the Inquiry is that DFAT officers would not have simply certified the Notification forms and contract documents if they had been fully apprised of the facts. A number of matters support this inference. First, as discussed in Chapters 12 and 27, DFAT's responses to the proposals put forward by AWB and BHP in 1995 and 1996, which involved, at one stage, the suggestion that documents that did not fully disclose the proposed transaction would be sent to the United Nations, was emphatic. Senior officers of DFAT, and ultimately the Minister for Foreign Affairs, made it plain that DFAT would not compromise its reputation with the UN for 'frankness and transparency' by failing to ensure that applications put forward fully complied with UN resolutions and that DFAT 'could not collude in presenting deliberately incomplete documentation.' There is no reason to suppose a different approach would have been taken by DFAT between mid 1999 and March 2003. Second, the evidence of more senior DFAT officers who dealt with AWB's contracts was that they would not have put forward an application for approval of a contract if they had any concerns about any aspect of it, or if they knew that an aspect of the transaction was inconsistent with the sanctions regime. The evidence of other DFAT officers was that if the documentation raised any concerns about whether the transaction complied with the sanctions, they would have referred the matter to more senior officers. Third, it is, in these circumstances, difficult to accept that DFAT officers would have permitted documents to go to the UN which they knew did not fully and accurately document the arrangements in place between AWB and the IGB-particularly when those arrangements involved an indirect payment to Iraq in breach of the sanctions. It was implicit in DFAT's published procedures that it would not send contract documentation to the UN if it appeared that the transaction breached the sanctions. There is no evidence to suggest why DFAT officers would not have followed these procedures had they been fully apprised of the facts in relation to AWB's arrangements with IGB.
31.78 The conclusion that DFAT would have acted differently had AWB disclosed the true nature of its arrangements with IGB is not affected by the fact that, in general terms, DFAT officers largely regarded their roles as being akin to a 'post box' and that, for the most part, they did not scrutinise in any detailed way the terms of AWB's contracts. Whilst the DFAT officers may have seen themselves as having a limited role in relation to scrutinising the contracts, nevertheless they did give some consideration to the contracts. The evidence before the Inquiry is that if DFAT officers had picked up anything that was unusual or obviously outside the terms of the Programme, they would have referred the matter to a more senior officer or officers. By omitting any clear and accurate reference to the transportation arrangements, AWB effectively deprived DFAT of the opportunity to properly scrutinise and consider the legality of the arrangements actually in place between AWB and the IGB. A proper disclosure of the transportation fee arrangements in the contracts would have been so obvious it is difficult to accept that it would not have been picked up by DFAT, even if it was only performing a 'post-box' function.
31.79 The clearest indication both that DFAT and the United Nations did not know that AWB's contractual arrangements with IGB included paying a US$12.00 fee to Iraq, and that senior officers of AWB knew that DFAT and the United Nations did not know this, came in January and March 2000 when the Canadian complaint was raised with AWB. By early 2000, mid March at the latest, senior officers of AWB, including Messrs Flugge, Snowball and Emons, knew that the United Nations, via DFAT, had been informally investigating an allegation by Canada that AWB had agreed with IGB to make irregular payments outside the terms of the Oil-for-Food Programme. They also knew that these queries related to the 'discharge/trucking payment issue.' During their meeting with Mr Nicholas of Austrade on 9 March 2000, when the Canadian complaint was raised with AWB for the second time, Messrs Flugge and Snowball deliberately 'played down the issue.' In email exchanges following the meeting, Messrs Snowball and Emons made it clear that they believed that if the United Nations query could not be satisfied by deflecting attention towards an issue that had also arisen in relation to AWB's standard terms and conditions, AWB had something to 'worry about.' Mr Emons subsequently wrote to IGB and requested that it ensure that 'no information of a confidential nature' was released in relation to 'the manner of AWB payments' to the Jordanian trucking company.
31.80 Mr Emons' evidence was that the Canadian complaint raised concerns amongst senior management at AWB about future sales to Iraq and that the 'entire organisation,' including Messrs Flugge and Rogers, wanted to find a way to avoid attracting the attention of the United Nations.
31.81 There can be no doubt that if these senior officers of AWB genuinely believed that the United Nations and DFAT knew of, and approved, the arrangements that AWB had entered into with IGB in relation to the payment of fees of US$12.00 per tonne, they would simply have confirmed to DFAT that AWB was paying these trucking fees and indicated that that they believed that, by approving the July contracts, the United Nations had approved the making of these payments. Instead, they denied that AWB was making any payments outside the Programme, deflected attention from the issue and told IGB not to disclose any information about the payments. They also sought to disguise the payments and distance AWB from them by interposing shipowners and Ronly between AWB and Alia. The evidence before the Inquiry suggests that Messrs Flugge, Officer, Emons and Watson met with Mr Bali of Ronly at the beginning of 2000 and sought Ronly's assistance because of concerns that the inland trucking payments were in breach of the UN sanctions. An available inference is that the approach to Ronly was a response to the Canadian complaint.
31.82 The letter that Mr Emons drafted for Mr Flugge to sign in early April 2000 clearly demonstrates that the attitude of senior officers of AWB was that AWB would continue to pay the trucking fees to Iraq, as had been agreed, despite the fact that they knew that the Canadian government had raised with the United Nations the issue whether such payments were contrary to the sanctions.
31.83 Despite the knowledge that the contracts submitted to DFAT, and ultimately the United Nations, did not reveal the true arrangements between AWB and IGB, and did not clearly reveal the fact that as part of the arrangements AWB was paying fees in US dollars to Iraq, senior officers of AWB failed to reveal to DFAT the true arrangements and in particular the true arrangements in relation to the payment of the fee. Indeed, they took steps to conceal these arrangements from DFAT, both by ensuring that the payments in fact made pursuant to the arrangements were concealed and by denying, when the matter was raised with them in the context of the Canadian complaint, that AWB had entered into any arrangements involving payments to Iraq via accounts in Jordan. It may readily be inferred that this concealment was both intentional and dishonest. The evidence before the Inquiry supports the inference that AWB, through its senior officers, knew that if they disclosed to DFAT that AWB's arrangements were different to those set out in the contractual documents, or that they included a requirement that AWB pay substantial fees in US dollars to Iraq, DFAT would not have certified the documents and transmitted them to the UN, or would at the very least have drawn these matters to the attention of the UN. The result would be either that its contracts would not have been submitted to the United Nations at all (because DFAT would not have certified and sent the documents and the UN procedures required that contracts be submitted by member states) or the UN would have put the contracts on hold. It was for this reason that the fees and the payments were disguised in the first place. It was for this reason that AWB's payment of the fees was not disclosed to DFAT even when the payment of such fees was specifically raised with senior officers of AWB in the context of the Canadian complaint. It was for this reason that AWB never requested DFAT's advice whether the payment of the fees contravened the sanctions regime.
31.84 In summary, I make the following findings in relation to contracts A4653, A4654 and A4655:
(a) Senior officers of AWB, whose knowledge and intentions may be attributed or imputed to AWB, knew that the arrangements between AWB and IGB in relation to the supply of the wheat the subject of these contracts included that AWB would supply the wheat to Iraq on terms CIF Free Out Umm Qasr, but would pay a fixed fee of US$12.00 per tonne, to an Iraqi entity at the direction of IGB. The payment was to be made indirectly because of the sanctions. The amount of the fee was to be added to the contract price and in this way recouped by AWB from the UN controlled escrow account.
(b) The same officers knew that the contractual documents that AWB supplied to DFAT for transmission to the United Nations did not disclose the true arrangements in relation to the payment of the fee of US$12.00 per tonne. Both the short and long-form contracts incorrectly recorded that the wheat was supplied on terms that required AWB to deliver the wheat to silos in all governates of Iraq. The long-form contract made no reference to AWB's obligation to pay the inland transportation fee. The short-form contract recorded that the terms included the payment of a 'discharge cost to a maximum of USD12.00 to the nominated Maritime Agents in Iraq.' However, this clause did not fully or accurately disclose the true arrangement in relation to the payment of that US$12.00 fee. It falsely represented that the payment was related to a contractual obligation that AWB had to discharge the wheat, that the amount of the payment was variable according to the actual cost of discharge and that it was payable to an entity responsible for supplying the discharge service. It did not expressly reveal that the payment was in fact a fee payable to an IGB nominated Iraqi entity in US dollars.
(c) The same officers knew that the payment of a US$12.00 fee to an Iraqi entity contravened the UN sanctions and that the United Nations had not approved the making of such a payment. For this reason, steps were taken to ensure that the payments were not made directly to Iraq, but were disguised, as payments to shipping companies, or payments to Alia, or both, ostensibly for transport services provided by Alia. Senior AWB officers were a party to, or knew of the steps to disguise the payments, and why they were necessary.
(d) Throughout the period that officers of DFAT and the United Nations were responsible for making decisions or taking action relevant to these contracts, namely the period from July 1999 (when the contracts and UN Notification form were lodged with DFAT) to March 2000 (when the last permission to export wheat the subject of these contracts was issued), AWB, through its senior officers, concealed from DFAT the fact that its arrangements with IGB were materially different to those recorded in the contracts and the UN Notification forms referable to them and that the arrangements included payments by AWB indirectly to Iraq in contravention of the sanctions.
(e) The concealment of those facts was intentional and dishonest. It was known that the facts were material to the decisions and actions to be taken by the DFAT officers and in due course the United Nations. The facts were concealed notwithstanding that it was known that these facts were material to the actions and decisions taken by DFAT and the United Nations. Indeed, they were concealed because it was known that the likely effect of disclosure would have been that the contractual arrangements, involving as they did the payment of substantial fees to Iraq, would not have been sent to the United Nations or approved by it.
31.85 The senior officers of AWB who were involved in, or knew about and authorised, the negotiation of the arrangements with IGB, the drafting and submission of the contracts to DFAT and the concealment of information relating to the arrangements were:
(a) Mr Hogan, who, together with Mr Emons, was responsible for negotiating the contracts, reporting back to senior officers in relation to the imposition of the US$12.00 fee and making suggestions and recommendations about how the payment of the fee could be disguised.
(b) Mr Emons, who negotiated the contract and was responsible for dealing with the IGB in relation to the payment arrangements, which were designed to disguise the true nature of the payments, and who knew of the steps taken to hide the fee by using shipowners to make the fee payments.
(c) Mr Watson, who was the officer primarily responsible for establishing the mechanisms by which the payments were disguised by the interposition of shipowners. Mr Watson knew that the reason for disguising the payments was to conceal this fact from DFAT and the United Nations.
(d) Mr Lister who was head of the Contract Administration Department. Mr Lister knew the precise terms of the short-form contracts that were submitted to DFAT. The action he took to change the terms of the letters of credit demonstrates that he knew that, despite the terms of the contracts, AWB did not deliver or transport the wheat within Iraq. Mr Lister was also primarily responsible for applying for permission to export each shipment under these contracts on behalf of AWB.
(e) Mr Officer, who was senior to and supervised Messrs Hogan and Emons and was a party to much of the internal correspondence and discussion about how the fees could be paid in the light of the restrictions created by the UN sanctions. His actions amounted to express or implied authorisation of the actions of Messrs Hogan and Emons.
(f) Mr Rogers was made aware by Mr Officer of the nature of the arrangements with IGB in relation to the payment of the fees and the mechanisms proposed for the payment of the fees. He participated in the meeting with the Director General of the IGB in October 1999 during which the fees were discussed. His actions amounted to the authorisation of the arrangements in relation to the fees.
(g) Mr Flugge, like Mr Rogers, was made aware of the arrangements in relation to the fees and participated in the meeting with the Director General of the IGB in October 1999. His actions amounted to the authorisation of the arrangements. His attitude was that Mr Emons should do whatever was necessary to retain the Iraq trade.
(h) Mr Ingleby, who as Chief Financial Officer approved the arrangements for use of third parties, including Ronly, that were designed to disguise and distance AWB from the payment of the fees. It is open to conclude that his actions amounted to an express or implied authorisation of the payments and their concealment.
31.86 These officers occupied positions within AWB such that their knowledge and intentions can be imputed or attributed to AWB. At the time, Mr Flugge was the Chairman, Mr Rogers was Chief Executive Officer, Mr Officer was General Manager, Global Sales and Marketing, Mr Emons was the Regional Manager, Middle East and Africa, Mr Hogan was an Account Manager for Iraq based in AWB's Cairo office, Mr Watson was the Chartering Manager of AWB Chartering, Mr Lister headed AWB's Contract Administration Department and Mr Ingleby was Chief Financial Officer. Collectively, these officers had actual or de facto delegated responsibility for all aspects of AWB's trade with Iraq, including negotiations, entry into contracts and dealings with DFAT in relation to the Oil-for-Food Programme.
31.87 Other senior officers of AWB were copied into correspondence that revealed that AWB's arrangements with IGB included paying a fee and that the payment of the fee was disguised, but were not in positions that made them responsible for negotiating or causing AWB to enter into the arrangements, or dealing with DFAT in relation to the arrangements, or otherwise authorising or approving such actions. Included in this category of officers is Mr Geary, who at the time was Pool Manager, Mr Owen, who at the time was National Trade Finance Manager, and Ms Scales who at the relevant time was Pricing Manager.
31.88 The evidence before the Inquiry also indicates that more junior AWB officers who carried out duties in relation to wheat sales to Iraq were also aware of the true nature of AWB's arrangements with IGB and were aware that those arrangements were not, and were not to be, revealed to DFAT. At the time of these contracts, and until January 2001 when he was transferred to AWB's Cairo office, Mr Borlase was a marketing executive within the International Sales and Marketing Division whose principal duties were to provide general administrative assistance to the Regional Manager and Account Managers, including Mr Emons. Mr Borlase was copied into correspondence that revealed that the fees were to be paid to an Iraqi entity and that AWB had taken steps to disguise the payments by paying them surreptitiously, through shipowners and Ronly. Mr Borlase is recorded as having authorised contracts A4653, A4654 and A4655 and was responsible for forwarding them to DFAT. As discussed below, Mr Borlase was also directly involved in negotiating later contracts with Russian grain traders that revealed the true nature of the so-called transport fees. He was involved in the decision to remove the US$12.00 discharge clause from later short-form contracts. Mr Borlase was a relatively junior officer, with little authority, who performed administrative tasks under direction of his superiors. Whilst I am satisfied of his knowledge of the nature of the payments and the way they were disguised, his junior position and the fact that he acted under direction means that his acts are not to be regarded as the acts of AWB.
31.89 The circumstances relating to contract A4822 are addressed in Chapter 14. It was entered into on 11 October 1999. Copies of the short and long-form contracts were sent by Mr Borlase to DFAT on 29 October 1999. The short-form contracts were signed by Mr Emons. Permission to export wheat referable to this contract was sought by Mr Lister on behalf of AWB and granted by delegates of the Minister between 16 March 2000 and 16 April 2000.
31.90 In most respects, the arrangements between AWB and IGB in relation to this contract and the way in which it was documented and presented to DFAT were exactly the same as contracts A4653, A4654 and A4655. Like those contracts, the arrangements in place between AWB and IGB included that AWB would be responsible for transporting the wheat to Umm Qasr (that is, the terms were CIF Free Out Umm Qasr) and IGB was responsible for discharge and transportation of the wheat within Iraq. AWB was, however, obliged to pay a fee of US$12.00 per tonne to Iraq and the fee payable was added to what would otherwise have been the negotiated CIF price of the wheat.
31.91 As was the case with contracts A4653, A4654 and A4655, the short-form and long-form contracts and the Notification form referable to this contract that were lodged with DFAT did not reveal the true arrangements between AWB and IGB. The long-form contract made no reference to the payment of a US$12.00 fee and the short-form contract contained a clause referring to the payment of a 'discharge cost' in the same terms as the clause in each of contracts A4653, A4654 and A4655.
31.92 The evidence concerning the knowledge of senior AWB officers in relation to the true arrangements between AWB and IGB in relation to this contract, and the fact that these true arrangements were concealed from DFAT and the United Nations has been discussed in the context of contracts A4653, A4654 and A5655. There is, however further evidence relating to the concealment of the true arrangements that relates to the period relevant to this contract and the shipments made under it.
31.93 Contract A4822 was negotiated together with, and entered into at the same time as, contract A4821. Contract A4821 was treated as a contract under phase IV of the Programme and was therefore not subject to IGB's requirement to pay the US$12.00 fee. The contract was expressed to be on CIF Free Out terms. The CIF Free Out price in contract A4821 was exactly US$12.00 per tonne less than the CIF Free in Truck price in contract A4822-thus demonstrating that the fee payable under contract A4822 was simply added to the negotiated CIF Free Out price. Despite there being no contractual or other obligation to pay fees in respect of wheat shipped under contract A4821, AWB paid US$12.00 per tonne to Tse Yu Hong Metal Limited for payment on to Alia.
31.94 The terms of other contracts entered into by AWB at about the same time as A4822 are also illustrative of the true arrangements between AWB and IGB. In particular, AWB entered into contracts to sell wheat to two grain trading companies in December 1999. AWB entered into these contracts to enable the grain traders to fill contracts that they had earlier concluded with IGB. Despite the fact that the grain was to be shipped to Iraq, because the grain traders had contracted with IGB, it was their grain trader's contracts with IGB that were ultimately submitted to the United Nations for approval. AWB's contracts were not submitted to DFAT because it was unnecessary for AWB to obtain United Nations approval in respect of these contracts. The clear inference is that the contracts were drafted with knowledge that they would not be seen by DFAT or the United Nations. It is of considerable significance that the contracts entered into by AWB with the grain traders included the following clause:
This price includes a fee of USD12.00 per tonne to be paid directly by Sellers to Grain Board of Iraq advised account, for each shipment at latest 3 days prior to the arrival of each shipment.
31.95 This clause is to be contrasted with the clause in the near contemporaneous AWB contracts that were submitted to DFAT, including contracts A4653, A4654, A5655 and A4822. It is to be noted that it is explicitly stated in the clause that the contract price includes the payment of US$12.00 per tonne and that the payment is described as a fee. It is not described as a 'discharge cost' to a maximum of US$12.00. It is also stated that the money is to be paid to 'Grain Board of Iraq advised account', as opposed to the 'nominated Maritime Agents in Iraq.' There is also no reference to the clause being subject to UN approval of the Iraq distribution plan.
31.96 In short, the clause in AWB's contracts with the grain traders accurately described the true arrangements in place relating to the payment of the US$12.00 fee. There is no explanation as to why these arrangements, and particularly the US$12.00 per tonne fee, were not accurately described in the AWB short from contract A4822. The only reasonable inference is that AWB's contracts with the grain traders accurately recorded the arrangements because there was no requirement to disclose it to DFAT or the United Nations. On the other hand, the clause in the contracts that were to be submitted to DFAT and the United Nations was drafted in such a way as to misrepresent the true nature of the arrangements.
31.97 The actual payments of the fees referable to A4821 and A4822 contracts were made to Alia through the Liechtenstein registered nominee of Ronly Holdings Limited, Tse Yu Hong Metal Limited. Alia in turn transferred the fees to Iraq. It was known to all officers at AWB who were involved with the Iraq trade and the fee payments that Ronly and its nominee performed no service relating to the transport of the wheat. The only service they provided was as a conduit in relation to the payments, for which service AWB remunerated Ronly. The only rationale for the convoluted payment mechanism was to disguise the payments and distance AWB from what was recognised by senior officers of AWB to be payments that contravened the sanctions. Mr Emons' email to Mr Bali of Ronly on 7 March 2000 makes this clear.
31.98 Further, correspondence during the period referable to this contract and the shipments made under it clearly indicated that AWB was aware that the United Nations did not know that AWB's arrangements with IGB included the payment of fees to Iraq. In a fax to IGB on 7 April 2000, Mr Emons wrote that 'you [IGB] will be aware of the restrictions that the UN has placed on such payments …we can discuss with the UN as to the appropriate method for paying the trucking fee.' As discussed below, Mr Emons' evidence was that the purpose of this letter was to threaten IGB with disclosure to the UN of the trucking fee 'system.' It is implicit in this that the United Nations was ignorant of, and certainly had not approved, the payment of the fees to Iraq, as AWB knew.
31.99 I made the same findings as I made in relation to contracts A4653, A4654 and A4655 in relation to contract A4822, namely:
(a) Senior officers of AWB knew that the arrangements between AWB and IGB in relation to the supply of the wheat the subject of contract A4822 included that AWB was to supply the wheat to Iraq on terms CIF Free Out Umm Qasr, but pay a fixed fee of US$12.00 per tonne, to an Iraqi entity at the direction of IGB.
(b) Senior officers also knew that the contractual documents that AWB supplied to DFAT for transmission to the United Nations did not disclose the true arrangements in relation to the payment of the fee of US$12.00 per tonne. The clause that recorded AWB's obligation to pay a 'discharge cost' to a maximum of US$12.00 did not fully or accurately record the arrangements.
(c) The same officers knew that the payment of a US$12.00 fee to an Iraqi entity contravened the sanctions and that the United Nations had not approved the making of such a payment. For this reason the payments were disguised.
(d) Throughout the period that officers of DFAT and the United Nations were responsible for making decisions or taking action relevant to this contract, namely October 1999 and April 2000, AWB, through its senior officers, concealed from DFAT the fact that its arrangements with IGB were materially different to those recorded in the contract and the UN Notification forms referable to them, and that the arrangements included payments by AWB indirectly to Iraq in contravention of the sanctions.
(e) The concealment of those facts was intentional and dishonest and intended to influence the actions of DFAT and the UN in relation to the contract and shipments made under it.
31.100 The officers who were involved in, or knew about and authorised, the negotiation of this contract and the associated arrangements with IGB, the drafting and submission of the contracts to DFAT and the concealment of information relating to the arrangements were the same as those involved in contracts A4653, A4654 and A4655, namely Messrs Rogers, Flugge, Ingleby, Officer, Emons, Hogan, Watson, and Lister.
31.101 In December 1999, AWB concluded contracts with foreign grain trading companies in relation to the supply of wheat to Iraq. The grain traders entered into these contracts in order to fulfil contracts that the Russian companies had with IGB. Because AWB's contracts were not with IGB, it was not necessary for AWB to seek approval from the United Nations under the Oil-for-Food Programme. Such approval was sought by the Russian companies through the mission of the country in which they were based, namely the Russian Federation. Accordingly AWB did not submit these contracts to DFAT. However, because the wheat the subject of these contracts was shipped from Australia, it was necessary for AWB to obtain permission to export under the Customs (Prohibited Exports) Regulations.
31.102 AWB entered into contract A4908 with Commodity Specialists Company (CSC) on 2 December 1999. It was negotiated and authorised by Mr Borlase under the supervision of Mr Emons. The written contract was signed by Mr Emons. As indicated above, the contract included the following clause:
6. PRICES
USD [deleted] per tonne CIF FOT to silo at all governates of Iraq via Umm Qasr port.
This price includes a fee of USD 12.00 per tonne to be paid directly by Sellers to Grain Board of Iraq advised account, for each shipment at latest 3 days prior to the arrival of each shipment.
31.103 As previously indicated, it is of significance that this clause makes it clear that the payment of US$12.00 was:
(a) a fee
(b) payable directly to an account nominated by IGB
(c) included in the specified price per tonne.
31.104 The fee was not said to be for 'discharge' or 'transportation.'
31.105 In short, this clause more accurately described the true nature of the arrangements between AWB and IGB than did the clause that referred to the payment of the 'discharge cost' in contracts A4653, A4654, A4655 and A4822. It can have been no mere coincidence that the contracts that did not go to DFAT and the United Nations clearly and accurately described the nature of the arrangements concerning the payment of the fee, whereas contracts that did go to DFAT and the United Nations did not.
31.106 Despite the fact that this clause referred to the price being on terms CIF FOT to silos in all governates, it is clear that AWB did not regard itself as contractually bound to discharge and deliver the goods within Iraq. AWB had made no arrangements with any company for the transport of the wheat the subject of these contracts to silos throughout Iraq. The fact that AWB did not regard itself as contractually obliged to deliver the goods is also apparent from correspondence between Mr Lister of AWB and CSC in which Mr Lister requested that the letter of credit be amended by deleting any reference to delivery to silos in all governorates and inserting instead clauses that made it clear that the price and destination were described as CIF Umm Qasr. As Mr Lister put it in a telex to CSC: 'what happens to the goods after that [arrival and discharge] is strictly beyond our/your control and as such should not impinge on L/C requirements.' Mr Emons was aware of, and involved in, Mr Lister's efforts to have the letter of credit amended.
31.107 Consistent with clause 6 of the contract, AWB Chartering paid fees of US$12.00 per tonne in respect of the two shipments of wheat under this contract. AWB paid these fees despite the fact that it had no contractual obligation to transport or deliver the wheat to silos in Iraq. The fees in respect of the first shipment were paid to Alia and the fees in respect of the second shipment were paid to Tse Yu Hong Metal Limited for payment on to Alia. It follows that Alia's account in Jordan was the IGB 'advised account.' The only purpose of the interposition of Tse Yu Hong Metal Limited was to 'disguise the fee.'
31.108 Mr Lister, on behalf of AWB, applied for and obtained approval from a delegate of the Minister to export wheat the subject of contract A4908 on 22 and 23 February 2000 (in respect of the first shipment under the contract) and 24 March 2000 (in respect of the second shipment). In seeking permission to export this wheat, AWB provided DFAT with copies of United Nations approvals that had been obtained by the Russian Federation on behalf of a Russian based grain trader associated with CSC. AWB did not provide DFAT with a copy of its contract with CSC, or otherwise advise it that the contractual arrangements it had with CSC included a requirement that it pay substantial fees direct to IGB.
31.109 The criterion for the grant of permission to export under the Customs (Prohibited Exports) Regulations is that the Minister be satisfied that the export would not infringe Australia's international obligations. For the reasons given above, by the time that permission to export was sought in relation to the shipments under contract A4908, senior officers of AWB knew that AWB had agreed to, and would pay fees of US$12.00 per tonne to Iraq before the shipments were discharged in Iraq, that the payment of these fees was indirectly a payment to Iraq and as such a breach of UN sanctions, and that the making of these payments had not been approved by the United Nations. They must, therefore, have known that the fact that AWB had agreed to, and would, pay these fees before the shipments were discharged in Iraq was a fact material to DFAT's consideration of whether the export of this wheat would infringe Australia's international obligations and whether permission to export should be granted. They must therefore have known that they were obliged to disclose this to DFAT. Yet there is no suggestion that this information was disclosed to DFAT. Indeed, as already indicated, the payments that were to be made to IGB under the terms of this contract were disguised as payments to Tse Yu Hong Metal Limited and Alia because it was known that DFAT and the United Nations did not know about the payments. Tse Yu Hong Metal and Alia were interposed to distance AWB from the payments to avoid detection of the fact that the payments contravened or circumvented the UN sanctions.
31.110 The circumstances surrounding contract A4906 were relevantly the same as contract A4908. It was entered into with Savas Grain & Commodities Ltd on 14 December 1999. It was negotiated and authorised by Mr Borlase and signed by Mr Emons. It contained a price clause in identical terms to the clause in contract A4908 considered above. AWB Chartering paid fees of $US 12.00 referable to the two shipments under this contract to Alia in two instalments in March 2000. Mr Lister sought and obtained permission for AWB to export the two shipments of wheat referable to this contract on 14 February 2000. In applying for permission, AWB sent DFAT a copy of the United Nations approval obtained by the Russian Federation on behalf of a Russian-based company associated with Savas Grain. AWB did not provide DFAT with a copy of its contract with Savas Grain or otherwise advise it that under its arrangements to supply the wheat it was obliged to pay fees of US$12.00 to IGB.
31.111 Contract A4907 was also with Savas Grain and was also entered into on 14 December 1999. A significant difference between A4906 and A4907 was that, because A4907 related to the supply of wheat under phase V of the Oil-for-Food Programme, Savas Grain advised AWB that no payment of US$12.00 was required. Accordingly the contract provided that the price was on terms 'CIF Free Out Umm Qasr port' and the price was exactly US$12.00 per tonne less than the price in A4906. Despite there being no contractual or other obligation to pay fees in respect of wheat shipped under this contract, AWB paid US$12.00 per tonne to Tse Yu Hong Metal Limited for payment on to Alia. In this respect it was similar to contract A4821 considered above.
31.112 The AWB officers who were directly involved in these contracts and the obtaining of permission to export the wheat the subject of them were Mr Emons, Mr Borlase and Mr Lister. Whilst the evidence before the Inquiry does not indicate that Messrs Rogers, Flugge, Ingleby and Officer were directly involved in these contracts, it is nevertheless clear that they had previously authorised contracts or arrangements that provided for the payment of fees to IGB or an Iraqi entity, and that they knew that these arrangements had not been, and could not be, disclosed to DFAT and the United Nations. It is unlikely that Messrs Borlase and Emons would have agreed to such an extraordinary clause in an AWB contract without approval from senior management. In these circumstances, it should be inferred that they either expressly or impliedly authorised or approved the payments to Iraq in relation to these contracts. Mr Watson was responsible for arranging the payment mechanism through Tse Yu Hong Metal and the fees were paid for by the Chartering Division that he headed.
31.113 The circumstances relating to these contracts are addressed in Chapter 15. They were entered into on 2 February 2000. Copies of the short and long-form contracts were sent by Mr Borlase to DFAT on 4 February 2000. The short from contracts were signed by Mr Emons. Permissions to export wheat referable to these contracts were sought by Mr Lister on behalf of AWB and granted by delegates of the Minister between 31 March 2000 and 4 September 2000.
31.114 These contracts were under phase VII of the Programme. The relevant Iraqi wheat tender for this phase included, in relation to price:
CIF Free on Truck to all silo to all governate of Iraq. Cost of discharge at Umm Qaser and land transport will be U.S.D. (14) per metric ton. To be paid to the Land Transport Co. For more details contact Iraqi Maritim in Basrah.
31.115 As was the case with the earlier contracts, it was apparent that to secure a contract under this tender, AWB would be required to pay a fee of US$14.00 to the 'Land Transport Co,' an Iraqi entity. Following negotiations between IGB and Mr Emons, IGB and AWB struck an agreement the effect of which was that AWB would pay IGB a fee of US$15.00 per tonne and that this fee would be included in the price. It is unclear why Mr Emons agreed to pay fees in excess at those identified in the tender. AWB drafted short-form contracts that contained a clause in substantially the same terms as the 'discharge cost' clause in the earlier contracts, except that the 'discharge cost' was specified as being a maximum of US$15.00. By the time that the short-form contracts came to be executed, however, this clause had been deleted from the contracts. The IGB prepared long-form contract also made no reference to the payment by AWB of a discharge cost, transport cost, or fee. Both forms of the contracts expressed the terms to be 'CIF Free on Truck to all silos within all governates of Iraq.' Neither forms of the contract revealed that the CIF Free on Truck price had included in it the fee payable by AWB to Iraq.
31.116 Thus, despite the terms of the agreement between AWB and IGB, the contracts that were submitted to DFAT and ultimately to the United Nations did not reveal in any way AWB's obligation to pay a fee, or that the fee had been included in the price, or that the fee was payable to an Iraqi entity. The contracts also recorded that the terms were CIF Free in Truck, thus suggesting that AWB's contractual obligations included discharge and delivery. In truth, however, nothing had changed from the position that existed in the earlier contracts. That is, AWB had no contractual obligation to discharge or transport the wheat to all governates, only an obligation to pay a fee to an Iraqi entity. AWB made no arrangements for either discharge or trucking within Iraq.
31.117 In short, the documents submitted to DFAT and the United Nations did not accurately reflect the arrangements in fact in place between AWB and IGB.
31.118 The only reasonable inference to be drawn from the deletion from the draft short-form contracts of any reference to the payment of a 'discharge cost' is that it was intended to conceal from DFAT and the United Nations AWB's agreement or obligation to pay the fee. These contracts were negotiated and finalised within weeks of the Canadian complaint having been raised with AWB. It was apparent to senior officers of AWB that both the United Nations and DFAT were looking into the very matter of payments of US$14.00 per metric tonne of wheat 'outside the Oil-for-Food Programme' to an account in Jordan. It must have been apparent to officers at AWB that the implication was that the United Nations considered such payments to be suspect. An available inference is that a decision was made at AWB to delete any reference in the short-form contract to the requirement to pay a discharge cost because this was more likely to be scrutinised by DFAT and the United Nations as a result of the Canadian complaint.
31.119 This was effectively conceded by Mr Officer in his evidence to the Inquiry. Mr Borlase, on the other hand, said that the change was made in compliance with instructions from Mr Emons to bring the terms of the short from contract into line with the long-form contract. Whilst he had no specific recollection of the circumstances in which the change was made, Mr Emons thought it may have been made because of a desire not to 'advertise the fact we were paying a fee'. I do not doubt that was the reason for the change.
31.120 There can be no question that the contracts that AWB submitted to DFAT did not record the true arrangements between AWB and IGB in relation to the supply of the wheat the subject of these contracts because:
(a) AWB was not contractually responsible for delivering the wheat free in truck to all governates.
(b) AWB was, as part of the agreement with IGB, obliged to pay a fee of US$15.00 per tonne to an Iraqi entity. This is not revealed in any way in the contracts.
(c) The fee payable by AWB to an Iraqi entity was added to, or included in, the contract price. This was not revealed in the contracts.
31.121 Nor could there be any doubt that these aspects of the actual arrangements between AWB and IGB were deliberately and dishonestly concealed from DFAT and the United Nations. Four things that occurred contemporaneously with these contracts and the permissions to export related to them make this clear. The first is the Canadian complaint, which included a denial by senior officers of AWB that its contracts involved the making of any payments to accounts in Jordan outside the terms of the Oil-for-Food Programme when clearly it was making payments to Alia at this time. Second, Messrs Flugge, Officer, Emons and Watson met with Mr Bali of Ronly in early 2000 to arrange for Ronly to act as a conduit in relation to the payment of the fees because of concerns that the fees breached the UN sanctions. Mr Emons' 7 March 2000 email to Ronly demonstrates that the intention of interposing Ronly was to disguise the fees. An available inference is that the approach to Ronly was motivated by the Canadian complaint.
31.122 Third, the letter that Mr Emons drafted for signature by Mr Flugge in early April 2000 makes it plain that AWB 'intended to remain committed to the terms of trade agreed between IGB and AWB' despite the Canadian complaint and AWB's knowledge that the payments were contrary to the sanctions. The fourth matter was a letter that Mr Emons sent to the Director General of IGB In on 7 April 2000 on the eve of his trip to Iraq with Mr Watson. In that letter, which was sent in the context of a suggestion that the Director General may not meet with the AWB delegation in Iraq, Mr Emons referred to the 'restrictions that the UN has placed on' the payment of the 'trucking fee' and threatened that if the Director General of IGB did not meet with the AWB delegation, AWB would 'discuss with the UN as to the appropriate method of paying for the trucking fee.' Mr Emons agreed in evidence that he was using the fact of illegality as a threat, the threat being that 'we would make the UN aware completely of the trucking arrangements for everybody.' The threat was credible only if Mr Emons knew the United Nations had not approved the fee payments. Mr Emons agreed that because the Director General agreed to meet with Messrs Emons and Watson, he never followed through on his threats to go to the UN about the trucking fee and the manner of payment.
31.123 As with the earlier contracts, AWB disguised and distanced itself from the payments to Iraq by the interposition of shipping companies, Ronly, Tse Yu Hong Metal Limited and Alia.
31.124 In summary, I make the following findings in relation to contracts A4970, A4971 and A4972:
(a) Senior officers of AWB knew that the arrangements between AWB and IGB in relation to the supply of the wheat the subject of contracts A4970, A4971 and A4972 included that AWB would supply the wheat to Iraq on terms CIF Free Out Umm Qasr, but would pay a fixed fee of US$15.00 per tonne, to an Iraqi entity via Alia.
(b) Senior officers also knew that the contractual documents that AWB supplied to DFAT for transmission to the United Nations did not disclose the true arrangements between AWB and IGB in relation to the supply of the wheat the subject of these contracts. They did not disclose AWB's obligation to pay the US$15.00 fee or that this fee had been incorporated in the contract price.
(c) The same officers knew that the payment of a US$15.00 fee to an Iraqi entity contravened the sanctions and that the United Nations had not approved the making of such a payment. For this reason the payments were disguised.
(d) Throughout the period that officers of DFAT and the United Nations were responsible for making decisions or taking action relevant to these contracts and the wheat shipments made under them, namely February 2000 to September 2000, AWB, through its senior officers, concealed from DFAT the fact that its arrangements with IGB were materially different to those recorded in the contracts and the UN Notification forms referable to them, and that the arrangements included payments by AWB indirectly to Iraq in contravention of the sanctions.
(e) The concealment of those facts was intentional and dishonest and intended to influence the actions of DFAT and the UN in relation to the contracts and shipments made under them.
31.125 The officers who
