How was AWB enmeshed in Iraq's oil-for-food scandal?

Years after Australia's monopoly wheat exporter got caught up in the scandal over the UN's oil-for-food program in Iraq, two former senior AWB officials are facing a 10-week civil trial over the accusations.

How was AWB enmeshed in Iraq's oil-for-food scandal?

How was AWB enmeshed in Iraq's oil-for-food scandal?

In the early 2000s, AWB became embroiled in a kickbacks for wheat scandal with the government of former Iraqi dictator Suddam Hussein.


The revelations brought down a lucrative monopoly and saw a sitting prime minister front a high level inquiry for the first time in almost a quarter of a century.


At the height of its dealings with the government of Suddam Hussein, AWB controlled more than 80 per cent of Iraq's wheat market.


It conducted its business through a United Nations escrow account under the auspices of the UN's oil-for-food humanitarian program.


But the lucrative deals came undone after coalition forces - including Australia - invaded Iraq in 2003.


Soon after, the UN launched an inquiry into the oil-for-food program and in 2005 found almost half the companies operating under the program - including AWB - paid kickbacks to secure Iraqi business.


In Australia, this prompted the Cole Inquiry, headed by former NSW Supreme Court judge Terence Cole.


The investigation heard that between 1999 and 2004, AWB had systematically funnelled around (AU) $300 million in illicit fees to Saddam Hussein's regime to secure lucrative wheat contracts.


The Cole Inquiry found AWB's bribes were directed to Baghdad through a Jordanian front company, Alia, disguised as trucking fees, and were paid out of inflated prices claimed for the wheat from UN-held accounts.


It heard these payments and commissions were in contravention of UN Security Council sanctions against Iraq, imposed after its 1991 invastion of Kuwait.


At the time, the Labor Party leapt on the scandal, seeing in it the potential to attack what it saw at least as poor government oversight and accountability, and at worst, possible connivance in pursuing Australian trade advantage at any cost.


Labor suggested that because government departments and ministers regulate and supervise wheat exports, the government must have known of the payments before they were revealed by the United Nations.


But the then-Foreign Minister, Alexander Downer, indicated it would be the Labor Party, not the Howard government, that would be embarrassed after Mr Cole's report was handed down.


"And there is certainly going to be humble pie eaten somewhere. There is going to be a big meal of humble pie eaten by somebody at some time after this report comes down."


But Labor's foreign affairs spokesman at the time, Kevin Rudd, claimed one piece of evidence to the inquiry proved Mr Downer misled a US inquiry into the scandal in July 2004.


"In the past Mr Downer has said this that you can't trust all these earlier warnings about what the AWB was up to, because they came from Americans and Canadians and they had a conflict of commercial interest with the AWB. Mr Downer, this is from an Australian government official speaking to government officials about exactly what the AWB was up to."


Others agreed, including a former senior Australian Secret Intelligence Service officer, Warren Reed.


He described it as unthinkable that reports about possible bribes were not passed on to ministers.


"This is a major export, wheat - particularly to that country at that time. This is not just any company operating overseas. And in that total environment, and particularly with oil-for-food under a humanitarian banner, it is inconceivable that a micro-managing Prime Minister and his other ministers would not be carefully attuned to eveything that was happening there."


Terence Cole's report found possible criminal and corporations law breaches by eleven former AWB executives and one other businessman.


He also found that AWB deceived the UN and the Australian government to protect its lucrative wheat contracts under the oil-for-food program.


But Mr Cole cleared government ministers and public servants of any knowledge of the payments.


Then-Prime Minister John Howard welcomed what he called Mr Cole's exoneration of his government.


"What happened here if you read the report is that from the very beginning according to the commissioner, AWB set out to deliberately mislead and deceive. There was an elaborate pattern of deception."


And AWB Chairman Brendan Stewart said the company accepted responsibility.


"The board deeply regrets the damage done to the company. The board accepts accountability for the actions of management, and the culture at AWB during the Oil-for-Food program. At the end of the day, the board ultimately accepts responsibility for what happened, and is committed to making significant changes to ensure it never happens again."


Now, almost a decade after the Cole Inquiry, former AWB chairman Trevor Flugge and the former group general manager trading, Peter Anthony Geary, are facing trial on charges of dereliction of duty in the kickbacks scandal.


Mr Flugge has denied helping negotiate the sweeteners to the Suddam Hussein regime and has welcomed the chance to clear his name.


The corporate regulator Australian Security and Investment Commission began a civil case against Mr Flugge in 2007, but froze the case while it pursued criminal charges.


These were then discontinued in 2010, but now ASIC wants to prove Mr Flugge was aware - or at least should have been aware - that AWB was violating UN Security Council resolutions.


Meanwhile, ASIC alleges Mr Geary personally authorised six payments to Jordanian front company Alia totalling around (AU) $31 million between March 2002 and February 2003.


ASIC won two civil cases in 2013 against former managing director Andrew Lindberg, who paid a penalty of $100,000, and former chief financial officer Paul Ingleby, who paid a penalty of $40,000.


The civil trial of Mr Flugge and Mr Geary is expected to last 10 weeks.


6 min read
Published 13 October 2015 at 1:08pm