28.4 Mr Whitwell's evidence was that Mr Hockey was putting together a series of dot points which were AWB's understanding of the situation at that point of time.[1507] He could not recall the source of the rumour.[1508] He agreed that the second dot point, 'we did it as requested by UN' was not a 'particularly accurate point'.[1509]

28.5 On 4 May 2003, Mr Hockey sent a further email to Mr Whitwell entitled 'Jordanian a/c mark II'. The email read:

Once we finalise this, pls send back to me and I will top and tail it as a briefing note for Embassy/dfat officials.

Darryl

It is thus apparent that Mr Hockey was marshalling material for the purpose of briefing government officials to assist them in understanding AWB's position, as well as to assist both them and AWB to respond to inquiries.

28.6 Mr Whitwell responded to Mr Hockey's email the following day with 'some small changes'.[1511] He copied his response to Mr Hogan for comment. Mr Whitwell incorporated his changes into Mr Hockey's dot points as follows:

28.7 Mr Hockey's evidence was:

As he [Mr Whitwell] was very busy at the time I wrote down a number of points explained to me by Mr Whitwell then read them back to him to check if I had noted them correctly. He acknowledged that I had done so. He asked me to send him a copy of these for his records once I had typed them and provided them as backgrounding to the media desk to assist them in formulating responses to potential media enquiries. These points were later further refined by Mr Whitwell and Mr Hogan.[1513]

28.8 It is probable Mr Hogan did not read the emails as he was absent from AWB at the time they were sent.[1514]

June 2003: the US Wheat Associates allegations

28.9 On 3 June 2003, the President of the US Wheat Associates, Mr Tracy, wrote to Mr Powell, the then US Secretary of State. The letter read:

The recent announcement on the renegotiating of contracts under the Iraq Oil-For-Food (OFF) program raises several important issues for the United States. We are particularly concerned as to whether old wheat contracts with the Australian Wheat Board (AWB) are or have been included in this exercise.

The U.S is providing most of the funding for the WFP feeding effort, so possible price gouging for Australian wheat-regardless of whether it's through OFF or WFP-is appalling. We certainly support all efforts to see that the Iraqis do not go hungry, but there is no reason for the U.S. to pony up funding if the Australians continue to overcharge for such a basic commodity. The U.S. must require open bidding and complete transparency in the process

We urge that you direct your staff involved in WFP and OFF contract approvals to be alert to these issues and to inform themselves on the going prices for these commodities.[1515]

This letter and similar statements were published in the US and Australian press.[1516]

28.10 On 4 June 2003, Mr Hockey sent an email to Ms Freeman and Mr Walker, amongst others, and copied to Messrs Whitwell, Long, McBride (AWB's Media Manager) and Trewin (AWB's Corporate Affairs Manager). Mr Walker was a DFAT officer working with the Iraq Task Force. Ms Freeman was a Counsellor with the Australian Embassy in Washington. The email read:

Fran

A contact in DC has advised the following:

'US Wheat Associates are pursuing you guys … they have got the pricing information on AWB Limited's contracts over the past two years with Iraq-they are saying that it was 30 pct above the market price. USW is firing off a letter to the State Department-requesting an inquiry on this - etc, etc, etc - '

…

Just for the record, yes it has always been a lucrative market and we have always been upfront about that.

Couple of interesting points:

our contracts are all independently approved by the UN

our contracts include extensive financial risk management as a result of payment after delivery and authentication; allowances for significant shipping delay; poor unloading facilities …; all sorts of other financial and execution risks

…

our contracts include costs for distribution to all governates of Iraq. [1517]

28.11 On 6 June 2003, AWB responded to the US Wheat Associates allegations in a media release:

Allegations by US lobby group, the US Wheat Associates, that AWB has illegally paid money to Saddam Hussein's family were described as baseless and outrageous today by AWB Limited Managing Director, Andrew Lindberg.

The accusations were made in a letter from the US Wheat Associates to the US Secretary of State, Colin Powell, which alleged Australian wheat was being sold to Iraq at inflated prices, and that money had been underhandedly paid to the Hussein family.

'These comments are absurd, with no foundation, and are an insult to Australian wheat farmers and damaging to our reputation,' Mr Lindberg said. 'We are currently investigating our legal options,' Mr Lindberg said.

'We are calling for the US Wheat Associates to retract their comments, and have had discussions with the Australian Federal Government who have also expressed their concern at the accusations.

'The US Wheat Associates themselves have admitted they have no proof of this ever occurring, so these comments seem to be an act of desperation on their behalf.

'All our contracts have been approved and executed through the United Nations' Oil-For-Food program, and have been totally transparent and above board,' Mr Lindberg said.

Mr Lindberg said AWB had been supplying wheat to Iraq for more than 50 years, and had earned its market share based on a high quality product, strong customer relationships, and a high level of service.

'We are more than happy to compete with US wheat in a free market on a level playing field, but that will mean the US will have to match their rhetoric and only allow unsubsidised wheat to be marketed,' Mr Lindberg said.

Mr Lindberg said the prices AWB negotiated with Iraq were commercially confidential. However, the price not only includes delivery to Umm Qasr, but also insurance, on-ground distribution to all governates of Iraq and ongoing technical support.

'The US Wheat Associates obviously have no understanding of the current Iraqi market,' Mr Lindberg said.

'We have existing contracts with Iraq which were struck on commercial grounds prior to the recent hostilities, and we certainly believe that it is fair and reasonable that these contracts be honoured,' Mr Lindberg said. [1518]

28.12 That day, Mr Walker sent a cable to Washington regarding the allegations. The cable stated:

We are very concerned at egregious allegations made by US Wheat Associates against AWB Ltd that the latter paid bribes to the Saddam regime in exchange for wheat export contracts under the Oil-for-Food Program. Grateful Ambassador raise this matter at a senior level with the US Administration, noting our concern that AWB Ltd's international reputation could be damaged by the unfounded claims, and reiterating our expectation that Australian and US wheat exporters will compete fairly on an open Iraqi market. Grateful you also clarify the status of any US plans to reactivate export enhancement programs for Iraq. [1519]

28.13 The cable requested the then Ambassador (Ambassador Thawley) to make 'appropriate representations' drawing on 'talking points' provided. Some of those talking points included:

28.14 Ambassador Thawley responded to Mr Walker's cable by cable dated 6 June 2003[1521], confirming that he had conveyed Australia's concerns about the allegations made by the US Wheat Associates.

28.15 On 10 June 2003, Mr Cooper attended a meeting of senior managers familiar with the inland transport arrangements to consider the US Wheat Associates letter. Mr Cooper's evidence was that Messrs Lindberg, Stott and Whitwell were present at the meeting.[1522] Mr Cooper's notes of the meeting record discussions occurring within senior management of AWB of matters which pointed to AWB's breach of sanctions.[1523] These included:

28.16 On 12 June 2003, Mr Lindberg wrote to Mr Tracy in response to 'a number of potentially very damaging statements' which Mr Tracy and other representatives of the US Wheat Associates had made. This letter read:

All contracts entered into between AWB and the Iraqi Grains Board were made and executed in accordance with the United Nations (UN) sanctioned Oil-For-Food Programme. Each and every contract for the supply of wheat by AWB under the Oil-For-Food Programme has been examined by the UN Office of the Iraq Programme to determine its conformity with the provisions of Security Council Resolution 1284 (1999) and all related procedures and guidelines. In particular, the price and value of the wheat shipped under each contract has been considered and found by the UN to be reasonable and acceptable. [1526]

28.17 Mr Lindberg requested that US Wheat Associates immediately publish 'a detailed unreserved retraction and apology' for the statements made. Mr Hockey forwarded a copy of this letter to Mr Walker.[1527] Mr Walker subsequently provided a copy of the letter to Ms Armstrong and Mr Quinn (at DFAT).[1528] A copy was also faxed to Mr Baxter (who was also stationed at the Australian Embassy in Washington).[1529] Mr Hockey also sent a copy to Ms Freeman.[1530] Mr Lindberg's letter said nothing about the matters which had been canvassed by senior management of AWB two days earlier.

Captain Puckett's memorandum

28.18 On 12 June 2003, Mr Long sent an email to Messrs Stott, Ingleby, Hockey, Johnson, Geary, Lindberg, Whitwell, Johnstone, Jones and Lynch and Ms Scales enclosing a 'Memorandum of Instruction' from Captain Blake Puckett dated 10 June 2003. At the commencement of his email Mr Long wrote:

Please don't let DFAT know you know … I will tell them and ask them to tell you [1531]

28.19 The memorandum was addressed to Ministry Advisors and the subject matter was 'Processing Oil for Food (OFF) Contracts'. The memorandum stated:

As you know we have been working with OCPA ministry liaisons, the UN and Ministry representative to process these OFF program contracts. We are asking you to work with your ministry and the appropriate UN agency to do the following.

…

II. Identify which contracts have a kickback or surcharge (often 10%). We need to know what percentage kickback or 'after sales service fee' was involved under the 'Extra Fees' category. Your Ministry is likely aware of the charge so please work with them to identify and indicate on the matrix. [1532]

Later that same day, Mr Long sent a copy of the memorandum to a number of AusAid and DFAT officers requesting DFAT to 'please advise AWB'.[1533]

28.20 One of the recipients was Ms Armstrong, who was then with the Iraq Task Force. Upon receiving Mr Long's email, Ms Armstrong took several steps. First, she sent a copy of the email to Mr Whitwell.[1534] Second, she instructed Mr Walker to advise the Baghdad post and the Australian mission to the United Nations that DFAT should make strong representations on behalf of AWB in relation to the reprioritisation of the remaining Oil-for-Food contracts. Third, she instructed Mr Walker to contact DFAT's post in Baghdad to request that someone at the post speak with Captain Puckett about the reprioritisation process and the issue of kickbacks or surcharges, and inform Captain Puckett that AWB had strongly refuted any suggestion that it had been involved in kickbacks.[1535]

28.21 Mr Whitwell responded to Ms Armstrong in an email dated 13 June 2003 copied to Messrs Hockey, Geary and Stott.[1536] He addressed the status of contracts A1670 and A1680. He did not address the comment made by Captain Puckett set out above, nor the issue of 'kickbacks' or 'after-sales-services fees'. Mr Whitwell forwarded the email he sent to Ms Armstrong to Messrs Hockey and Long asking if they had anything to add.[1537] Mr Long responded that evening requesting Mr Whitwell to 'keep me off the airwaves on this stuff pls'.[1538]

28.22 On 23 June 2003, Ms Venamore, then Deputy Head of Mission at the Australian Embassy in Baghdad, sent a cable to Canberra reporting on a briefing given by Captain Puckett regarding the CPA's approach to its obligations under UNSCR 1483. Ms Venamore reported:

4. The CPA was going through a process with Ministries to assess all oil-for-food contracts to ascertain whether they remained a priority. This included approved and funded contracts. (this process is intended to weed out contracts for unnecessary goods or services procured by the regime.) The CPA document outlining this process was forwarded to Canberra (ITF) by Long, Trade Ministry Adviser, last week. Puckett said funds freed up by the removal of approved and funded contracts would not be reallocated under OFF but would go to the development fund.

5. Every contract since phase 9 included a kickback to the regime from between ten and nineteen percent. The CPA was advising Ministries to tell companies with contracts that the 'after sales service fee', which was usually to be deposited in offshore banks would be remitted to them. [1539]

AWB's internal investigation: 'Project Rose '

The instigation of 'Project Rose '

28.23 Following the publication of the US Wheat Associates allegations, Mr Lindberg requested Mr Cooper to investigate the allegations in the letter and provide legal advice on them to the Executive Leadership Group.[1540] The resulting inquiry later became known within AWB as 'Project Rose'.[1541]

28.24 Mr Cooper was responsible for the management of Project Rose from its commencement until late July 2004 when Mr Hargreaves, Stakeholder Relations Manager, was given management responsibility for it by Mr Lindberg.[1542] Following the announcement of this Inquiry, Project Rose was renamed 'Project Lilac' and Ms Gillingham took over responsibility.[1543]

28.25 Mr Cooper retained Mr Quennell, then of Blake Dawson Waldron, to conduct the review.[1544] He instructed Mr Quennell to conduct a factual review designed to gather together all AWB documents which would disclose relevant facts.[1545] After undertaking the factual review, Mr Quennell was to advise AWB on the legal consequences of the facts which had been found.[1546]

28.26 Mr Quennell did not receive a written brief in June 2003. He was given 'an open ended instruction to … come into the company and undertake this review and report back on his findings from time to time'.[1547] He was given a copy of the US Wheat Associates letter of 12 June 2003, and was directed to all the sources of information he would need to access. Those sources included electronic records of AWB and the names of persons he would need to interview.[1548]

28.27 In June 2003, Mr Quennell and his staff commenced compiling documents and information in relation to all of the AWB contracts dealing with the Oil-for-Food Programme and the inland trucking component of those contracts.[1549]

28.28 From time to time Mr Cooper and Mr Quennell provided briefings to members of the Executive Leadership Group and the AWB and AWBI Boards regarding Project Rose.[1550]

28.29 The first of these briefings was on 12 June 2003 when Mr Quennell gave a presentation to the Executive Leadership Group. Mr Quennell's presentation was both verbal and in hard copy form. The presentation identified a number of factual and legal issues requiring further investigation and legal analysis.[1551]

28.30 Under the heading 'Legal Considerations' Mr Quennell's presentation informed the ELG of the following:

It is an offence for a person including a corporation to provide a benefit to another person with the intention of influencing a foreign public official in the exercise of the official's public duties as a foreign public official in order to (i) obtain or retain business or (ii) obtain or retain a business advantage that is not legitimately due to the recipient or intended recipient of the business advantage.

All States shall not make available to the Government of Iraq or to any commercial, industrial or public utility undertaking in Iraq any funds or any other financial or economic resources and shall prevent … persons … from making available to that Government any funds or resources and from remitting any other funds to persons or bodies within Iraq except payments exclusively for [humanitarian purposes].

28.31 On 15 August 2003, Mr Quennell provided to Mr Cooper and Ms Fullarton-Healey (AWB Acting General Counsel) a draft advice entitled 'Wheat Exports to Iraq-Trucking fees'.[1553] In his draft advice, Mr Quennell made the following comments about the 'trucking fee':

The documents which we have examined do not indicate whether the 'trucking fees' paid by AWB to Alia can be regarded as a genuine payment for the provision of inland freight services actually provided by Alia. We have not seen any contract between AWB and Alia. We have seen no evidence to indicate whether or not the trucks used to transport wheat after its discharge at Umm Qasr were provided by Alia. We have seen no explanation as to how the 'trucking fee' was calculated or the basis upon which the 'trucking fee' was subsequently increased. [1554]

Mr Quennell then set out extracts of emails which demonstrated that concern had been expressed within AWB on a number of occasions as to the validity or otherwise of the 'trucking fee'. He also noted that the documents which he had examined did not disclose whether, and to what extent, AWB employees had discussed the 'trucking fee' issue with persons at the United Nations.

28.32 Mr Quennell then considered whether the payment of trucking costs to a Jordanian company constituted an offence under Commonwealth or Victorian legislation and whether such payment was contrary to any UN treaty. His advice was:

In our view:

Mr Quennell advised that his research had given rise to a number of further issues which were unlikely to be resolved without interviewing relevant AWB employees.[1556]

28.33 On reviewing the draft advice, Mr Cooper requested Mr Quennell to continue his investigation.[1557] Mr Quennell's initial review occurred during the period June to December 2003.[1558] In March and April 2004 Mr Quennell and members of the AWB Legal Division, including Ms Peavey and Mr Cooper, interviewed the following AWB employees and produced to each of them relevant documents from Mr Quennell's investigation for them to consider and answer questions: Messrs Lister, Owen, Jones, Aucher, Tyas, Rowland, Borlase, Snowball, Stott, Geary and Flugge and Ms Gatto and Ms Scales.[1559] Mr Quennell and Ms Peavey took notes of these interviews[1560] and Mr Quennell also produced a typed summary of the interviews conducted with Messrs Owen, Lister, Jones, Aucher, Tyas and Rowland and Ms Gatto.[1561]

The US Wheat Associates allegations revisited

28.34 On 22 October 2003 Ms Preiss forwarded to Mr Quinn a letter which was, at the time, 'circulating the Hill for signatures'.[1562] Mr Preiss was stationed at the Australian Embassy in Washington DC. Mr Quinn was with the Iraq Task Force. The letter, dated 22 October 2003, stated:

Dear Mr. President:

We read with interest a news report today that indicates that in January of this year, Saddam Hussein's government agreed to buy Australia wheat from the Australian Wheat Board (AWB) at a price nearly double the price of comparable U.S. wheat. This matter concerns us greatly.

The high prices, the news article states, '…would appear to support charges that AWB was involved in kickbacks to Hussein or his family before the war and raises questions about prices the Iraqis have been paying for Australian wheat under the United Nations' Oil for Food programme since the U.S.-led coalition provisional government took over.'[1563]

The letter was forwarded to Mr Whitwell by Ms Armstrong on 24 October 2003.[1564]

28.35 The article referred to in this letter was published in the CongressDaily on 22 October 2003.[1565] The article stated:

Iraq Paid Well For Australian Wheat

In January 2003, the government of former Iraqi President Saddam Hussein contracted to pay the Australian Wheat Board almost twice as much per metric ton for wheat as the United States' price, according to contract documents obtained by CongressDaily. At a time when U.S. export wheat prices were approximately $151 per metric ton, Hussein's government agreed to pay the AWB 280 euros, at a time when a euro was worth about $1.

According to the contracts, the price the Hussein government paid in January was higher than the price it had paid in July 2002, even though wheat prices in the United States had fallen and the Hussein government had threatened to cut AWB purchases due to the Australian government's support of the United States as war neared.

The high prices would appear to support charges that the AWB was involved in kickbacks to Hussein or his family before the war and raise questions about the prices the Iraqis have been paying for Australian wheat under the United Nations' Oil for Food program since the U.S.-led coalition provisional government took over.

Peter McBride, an AWB spokesman, said in a telephone interview late Tuesday that compared to other wheat contracts the prices 'may seem a bit high,' but they included 'demurrage, shrinkage and a reflection of market conditions at the time' and inland transport from the port of Umm Qasr to 'all the mills around Iraq.'

McBride added, 'All these contracts had the approval of the [United Nations],' although U.N. officials have said that they did not get involved in the price negotiations between the Iraqi government and its suppliers.

Australia was a partner with the United States in the war, and Trevor Flugge, a former AWB chairman, jointly leads the coalition's agricultural effort in Iraqi with Dan Amstutz, an American. Last month, the AWB said the provisional Iraqi government had agreed to buy 800,000 metric tons of wheat under a remaining Oil for Food contract.

The contracts were made between the government of Iraq and AWB Ltd under the Oil for Food program, but the prices of the wheat sold have not been released.

The wheat industry source who provided the contracts to CongressDaily said he obtained them from a U.S. government official. The Oil for Food program has continued, but is scheduled to expire Nov. 21.

The contracts listed officials of the Australian mission to the United Nations in New York as a contact, but an Australian mission official said late Wednesday that the mission had only delivered the contracts to the United Nations.

'No one in the Australian government had a role in the negotiations on the contracts,' the official said.

According to a contract submitted by the Australian Mission to the United Nations' Office of the Iraqi Program on July 24, 2002, the Grain Board of Iraq had agreed to pay 237.550 euros per metric ton for 525,000 metric tons of wheat at a total cost of 124.7 million euros.

The contract specified that the wheat would not be genetically modified - a point Flugge has raised as a reason under international law that the coalition cannot bring genetically modified foods into Iraq. A second contract submitted by the Australian mission to the U.N.'s Iraq program office last Jan. 9 said the Iraqi Grain Board had agreed to pay 280.370 euros per metric ton for 525,000 metric tons of wheat with the same specifications at a total cost of nearly 147.2 million euros.

U.S. Wheat Associates President Alan Tracy said that even if the price included an international shipping cost of about $20 per ton, war insurance of $10 per ton and inland shipping of perhaps another $20 per ton, the 280 euros price left room for speculation on what happened to the extra money.

'The contracts appear to confirm that the AWB played along with Saddam's corrupt regime,' Tracy said. 'The question is whether the renegotiated contracts are at current market prices or are they still inflated? Unfortunately, there's still no competitive bidding or transparency in this process - and given the billions of U.S. dollars going to Iraq, that is a real concern.'

But McBride said of those comments: 'That's absolutely absurd. Mr. Tracy is clutching at straws.'

President Bush was scheduled to arrive in Australia today for a visit with Prime Minister John Howard and a free trade agreement with Australia is expected to be one of the topics. By Jerry Hagstrom [1566]

28.36 The 22 October 2003, CongressDaily article was the subject of a cable from Mr Francis, in Australia's Washington embassy, to DFAT Canberra.[1567]

28.37 Allegations made in the CongressDaily article of 22 October 2003 were repeated in an article published in the CongressDaily on 23 October 2003.[1568] Ms Armstrong forwarded a copy of the 23 October 2003 article to Mr Whitwell by email.[1569]

28.38 On 22 October 2003 Ms Freeman sent Mr Quinn an unsigned copy of a letter from the Charge d'affaires at Australia's Washington embassy, Mr Baxter, to US Senator Baucus.[1570] The letter stated (in part):

Dear Senator

You may be aware of allegations in a report in the 22 October edition of Congress Daily that the price received for a sale of Australian wheat to Iraq in January 2003 under the UN Oil for Food Program implied complicity between the Australian firm AWB Ltd and Saddam Hussein's regime.

I wish to reject such allegations completely.

…

The allegation made in the article that AWB Ltd made illicit payments to Saddam's regime is reprehensible.[1571]

28.39 On 22 October 2003 Ms Freeman sent a cable from Australia's Washington embassy to DFAT Canberra. The subject of the cable was the allegations being made against AWB in the letter addressed to the President of the United States, Mr Bush, which was 'circulating the Hill for signatures', as well as the 22 October 2003 article published in the CongressDaily.[1572] The embassy requested that:

2. …Canberra move quickly to contact AWB Ltd encouraging them to make a formal public statement explicitly rejecting and rebutting allegations in the letter and the Congress Daily article.[1573]

…

5. Post has drawn on previous talking points provided from Canberra rejecting these claims made previously by US Wheat Associates President, Alan Tracy. [1574]

28.40 On 23 October 2003, Mr Baxter and Mr Davies (both in Washington) sent a cable to DFAT Canberra.[1575] The cable reported that the letter to President Bush, which had been circulated within Congress on 22 October 2003, was initiated by Senate Minority Leader Daschle.[1576] The cable stated:

2. Charge met Daschle staff late on 23 October. Drawing on existing talking points we strenuously rebutted the allegation that the price received by AWB for wheat to Iraq in any way implied that kickbacks were paid to the Saddam regime. Such an allegation was without foundation and utterly reprehensible. [1577]

28.41 On 23 October 2003, a cable was sent from DFAT Canberra to Australia's embassy in Washington. The cable reported:

AWB Limited management does not support a further public announcement on the part of the company. To do so would, in their assessment, only further inflame the issue and generate unwanted Australian publicity. AWB Limited stands on its statement of 6 June 2003 that the claims are 'baseless and outrageous'[1578]

28.42 The cable also included a number of talking points which, it was suggested, could be incorporated into letters to members of Congress in order to 'dissuade them from adding their support' to the 'UWA's campaign'.[1579] Some of those talking points were that:

28.43 In October 2003, Ms Armstrong spoke with Mr Whitwell about the renegotiation of contracts A1670 and A1680.[1581] Ms Armstrong's evidence was that Mr Whitwell said words to the effect:

The renegotiation has been through the WFP and the UN and has been accepted by Lee Schatz of the CPA. The price has only been reduced by a very nominal amount. The WFP renegotiations focused on the freight component of the two AWB contracts that were being renegotiated. The WFP believed the price of wheat was acceptable but was querying the freight component and said that it was concerned that the freight component may be disguising kickbacks. We rejected these claims as spurious and fought hard against them. There were no kickbacks.

The freight costs for the contracts were high because they covered the delivery of wheat all over Iraq and reflected the greater inland distribution costs. The FOB price was US$151 while the delivered price to every town in Iraq was Euros 280. The prices also take into account risks and demurrage. Ship discharges are often delayed by up to six weeks and often take 28 days.

As an example of how expensive it is to do business in the Middle East and the sort of prices that need to be charged, you should look at an article in March 2001 where the US Wheat Associates refer to complaints from growers about USAID selling wheat for $408 per tonne in Afghanistan. US Wheat Associates responded by pointing to the high costs of transport and insurance.

We strongly refute the US Wheat Associates claims that AWB had paid kickbacks. The figures have now been publicly cleared by the CPA. [1582]

28.44 Towards the end of October 2003 Ms Armstrong spoke to Mr Whitwell about the allegations made by the US Wheat Associates. Ms Armstrong's evidence was that Mr Whitwell said words to the effect:

The allegations by the US Wheat Associates that AWB had charged Iraq twice the price of US wheat are preposterous. AWB had to charge risk premiums and freight premiums. We are not prepared to pass these costs on to the Australian wheat grower.

We refused to agree to a blanket 10 per cent reduction in the contract price. We argued strongly that we had not paid any kickbacks-and this was accepted by the CPA.[1583]

Ms Armstrong gave further evidence about this conversation in the following terms:

After Mr Whitwell said the words the effect of which I set out in that paragraph, he said words to the effect of, 'We only had to agree to a nominal reduction. We agreed to it but very reluctantly.' This subject was of interest to me as I understood from having read Captain Puckett's memorandum that reductions of 10 per cent might reflect the view of the CPA and WFP that a contract had, upon investigation, included kickbacks or the like. I took the view that a reduction of significantly less than 10 per cent would be consistent with Mr Whitwell's advice that the CPA had accepted that AWB 'had not paid any kickbacks'. I therefore said words to the effect of, 'How much is nominal?' He replied in words to the effect of, 'I don't want to divulge it.' I said words to the effect of, 'Was it five per cent?' He replied in words to the effect of, 'Much less than that.' I said words to the effect of, 'Was it two per cent, or one per cent?' He replied in words to the effect of, 'Around there.' I accepted this, and took the view that such a result was consistent with Mr Whitwell's advice that the CPA had accepted AWB's position that it 'had not paid any kickbacks'. [1584]

28.45 Mr Whitwell's evidence was that he did not believe that he said 'we only had to agree to a nominal reduction. We agreed to it but very reluctantly' to Ms Armstrong.[1585] His evidence was:

The only thing that I can suggest which might assist is that there may be a misunderstanding in what Ms Armstrong asked me and the answer that I gave her, which is in relation to what effect the renegotiations had on the final FOB price of our contract, which is-the FOB price of the contract is that part which goes back to the growers, so it is our essential price to defend, and after the renegotiations, because of some FX differences, because of some active management and some cost management, we had managed to get to a stage where worst-case budget the FOB price, even after the 10 per cent reductions, was only 1 or 2 per cent different from where it had been prior to the negotiations. So I can only think that that was the situation. And that was our outcome that we were very focused on.[1586]

Mr Whitwell accepted that it would not have been accurate to say to Ms Armstrong that AWB had only agreed to a nominal reduction because AWB had accepted the 10 per cent reduction.[1587]

28.46 On 31 October 2003, Ms Armstrong forwarded to Mr Long, by email, a copy of the US Wheat Associates Wheat Letter of 30 October 2003 which included an article entitled 'AWB-Iraq Contract Prices Confirmed'. The Wheat Letter of 30 October 2003 stated:

AWB-IRAQ CONTRACT PRICES CONFIRMED

Jerry Hagstrom, a reporter for the highly respected Congress Daily and AgDayta news service, broke a story last week about some amazing prices in Australian wheat contracts with Iraq. U.S. Wheat Associates has also obtained copies of those contracts, and can confirm that Hussein's government agreed to pay about $297 per metric ton for wheat in December 2002, when the U.S. price for comparable wheat was approximately $151 per ton FOB.

In addition to asking USW for our views on the contracts, Hagstrom went to the AWB and to the Australian Mission to the UN (which was listed as the official contact) for their perspectives. The Mission spokesperson said, according to Hagstrom, that they only delivered the contracts and had no role in the negotiations. The AWB spokesperson, not surprisingly, offered no numbers but tried to justify the prices by generalizing about incidental costs that normally go into wheat contracts.

USW is not convinced. 'Even if the price included an international shipping cost, war insurance and inland shipping, there's still a big gap between these prices and any credible listing of costs,' USW president Alan Tracy states. 'It's troubling that the AWB refuses to explain why Iraq would agree to such exorbitant prices - with millions of dollars unaccounted for - after initially threatening to halve their purchases' because Australia announced they were joining the U.S. military coalition.

Australian Trade Minister Mark Vaile tried to deflect the questions about the contracts, telling an Australian television reporter that the contracts were 'closely scrutinized by the United Nations. Go to the UN. It has been endorsed by the Coalition Provisional Authority, which is headed up by Americans.' U.N. officials told Hagstrom, however, that they did not supervise the price negotiations in the Oil for Food Program, that their job was to certify that Iraqi was buying food and medicine allowed under the program. And, incidentally, the Coalition Provisional Authority wasn't in existence when the AWB and the government of Saddam Hussein signed the contracts.

Remaining wheat contracts with Iraq, which were initially negotiated under the Oil For Food program, were recently renegotiated. 'The question is whether the renegotiated contracts are at current market prices or are they still inflated?' Tracy asked. 'Unfortunately, there's still no competitive bidding or transparency in this process - and given the billions of U.S. dollars going to Iraq, that is a real concern.'

But USW is primarily concerned about the future, Tracy says. 'When the thug was in charge, you had to play by the thug's rules. But it's a new day for Iraq, and we ought to at least be able to prevail upon our own government to make sure that a fair and open competitive system is established so that U.S. wheat has an equal chance to participate in that market.' [1588]

28.47 On 31 October 2003, Mr Long replied to Ms Armstrong's email of the same date. He stated:

Thanks Zena

Still think it best to keep quiet and not fuel the fire. We have refuted all these claims before.

Rgs
Michael [1589]

Mr Long also forwarded Ms Armstrong's email to Mr Whitwell with a similar message:

Chris

Still think that we keep quiet and not fuel the fire. Pls chat with Michael T and his team to make sure we are all on the same page. [1590]

28.48 On 31 October 2003, Ms Freeman sent a cable to Canberra outlining the 'numerous representations to the Administration, Congressional Members and the American wheat industry' that had been made by the Embassy 'to rebut and refute allegations made by US Wheat Associates President Alan Tracy'.[1591]

28.49 The Wheat Export Authority (WEA), through its Senior Manager Performance Monitoring, Mr Charman, became aware of the allegations in the press concerning 'kickbacks' by AWB to Iraq.[1592]

28.50 On 31 October 2003, Mr Sheridan (Performance Manager, AWB National Pool) forwarded to the WEA a briefing note entitled 'USWA allegations about AWB wheat contracts to Iraq'.[1593] The note refuted the allegations of 'kickback' payments and described the allegations as 'ludicrous' and 'absolutely untrue'. It noted a formal complaint had been made to the US Secretary of State, and that all contracts 'including pricing aspects' had the sanction of the United Nations.[1594]

28.51 On 1 November 2003, Mr Baxter wrote to Ms Armstrong by email.[1595] He referred to the US Wheat Associates 'Wheat Letter' of 30 October and asked whether it was known if prices quoted as having been paid for AWB's December 2002 wheat shipment with Hussein's government were accurate.[1596]

28.52 On 3 November 2003, Ms Armstrong replied to Mr Baxter's email of 1 November 2003. The email stated:

AWB Ltd has confirmed that they do not want to pass across details of the costs of the contracts. They don't want to get into a slanging match with USWA over the costs-not, they say, because they have anything to hide but because USWA isn't particularly interested in the facts.

…

The AWB had to renegotiate the costs [of contracts A1670 and A1680] with the WFP after the reprioritization. The WFP said it would take off 10 per cent but AWB refused saying these were bona fide costs that directly arose from the costs associated with transportation, insurance etc NOT a kickback. I don't have details of the final price that was agreed but I understand that WFP, after threatening to ditch the contracts, finally agreed with AWB's costings, less around one per cent that AWB capitulated to with extreme reluctance. [1597]

Ms Armstrong's email set out her understanding of the position based on what she had been told by Mr Whitwell.[1598]

The Wheat Export Authority: issues for examination

28.53 On 11 February 2004, the WEA Board decided that an important issue for examination in its 2004 report was an 'analysis of AWBI policies and procedures in regard to its relationship and conduct in the Iraq market'.[1599] This was noted by the WEA secretariat as an item required to be followed up.[1600]

28.54 During February and March 2004, WEA requested from AWBI:

28.55 On 19 March 2004, AWBI provided its 'Guidelines on Business Conduct', and a booklet on its corporate ethics. In response to WEA's request to provide a summary of all contracts with Iraq and their execution and payment status and an update to the Brief note on Iraq previously provided in April 2003, AWBI provided information on the then current contracts, A1670 and A1680.[1602] It also provided a schedule of Iraq shipments for the period October 2003 - February 2004.[1603] AWBI did not disclose the Tigris dealings or inland transport arrangements in the material provided to the WEA.

The commencement of the IIC investigation

28.56 On 18 March 2004, Ms Armstrong spoke to Mr Whitwell about AWB contracts under the Oil-for-Food Programme. Ms Armstrong's evidence was that Mr Whitwell said words to the effect:

AWB entered into a number of contracts with the Iraqi Grains Board. Because of the way in which the UN OFF program was set up, the Iraqis required the contracts to include inland transport and AWB was instructed to use a Jordanian trucking company. The prices were loaded up in the freight costs and insurance and risk premiums. The UN paid the contract.

The cost of freight and associated insurance charges and risk premiums were high and this is why the extra costs were high. Monopolies were charging what they liked-it was not exactly an open bidding system.

AWB paid the Jordanian trucking company. The Jordanian trucking company might have made payments to the Iraqis of their own volition.

AWB advised DFAT of the arrangement with the Jordanian trucking company in 2000. [1604]

28.57 Mr Whitwell said that he did not believe that he said the words 'AWB paid the Jordanian trucking company. The Jordanian trucking company might have made payments to the Iraqis of their own volition' to Ms Armstrong.[1605] He said that his belief in March 2004 was that AWB had paid Alia for inland transport, and Alia paid the Iraq Ministry of Transport for the inland transport and that it was UN approved.[1606] If Mr Whitwell's evidence were to be accepted, it meant that he knew in March 2004 that Alia had not been providing trucking services during the Oil-for-Food Programme, but was a conduit for payments to the Iraq Ministry of Transport. In contrast, AWB maintained in correspondence with the IIC that it was not until October 2005 that it became aware that Alia had not provided trucking services, and was a conduit for money to Iraq.

28.58 Following her conversation with Mr Whitwell, Ms Armstrong prepared a Ministerial Submission regarding the UN's imminent announcement of an investigation into allegations of corruption in the Oil-for-Food Programme for the Ministers for Foreign Affairs and Trade, Mr Downer and Mr Vaile.

The submission included:

4. While AWB Ltd is not included in an Iraqi Ministry of Oil list of companies and individuals alleged to have profited from the OFF program, as the largest single OFF supplier it is unlikely to escape scrutiny. The investigation may look particularly closely at contracts issued from OFF Phase 8 (1998), identified by the CPA as the phase when the so-called 10 per cent kickback was introduced. At that time AWB was still under government purview. AWB Ltd has strenuously denied US Wheat Associates' allegations that it paid kickbacks to the regime, advising that the relatively high prices for OFF-contracted wheat reflected the costs of insurance, on-the-ground distribution and technical support not just the cost of acquiring and shipping the grain. The Iraqi Grains Board delegation currently in Australia has advised that AWB Ltd has acted with propriety at all times in Iraq. The company concedes however that the Jordanian company handling local transport might, of its own volition, have provided kickbacks to the regime. Given the gravity of the allegations we have suggested to AWB Ltd that they may wish to provide more formal advice on their position to the Government. AWB Ltd is bound by the Commonwealth Criminal Code which contains offences relating to bribery and corruption by Australian companies and their officials overseas.[1607]

The submission also made the following recommendations:

That you:

28.59 On 29 March 2004, Mr Long sent an email to Mr Trewin, copied to Messrs Thomas, Geary, Whitwell and others, in the following terms:

Kofi Anan has instigated an investigation into the alleged fraud surrounding the OFF program.

DFAT have forwarded correspondence in this regard and attached a letter from Bremer instructing Interim Ministers and Senior Advisers within CPA to seize all records in this regard pending further investigation.

The note lists all companies to date that have been highlighted as being involved.

No Australian company is listed. No Jordanian company that AWB has dealt with in relation to the OFF Program/inland transport is listed.

Zena (DFAT) held private discussions with Nazar (Head of IGB delegation) who reiterated to her that according to his knowledge, AWB acted with utmost integrity during this period.

Zena has 'off the record' suggested we take a proactive approach in AL writing to Downer assuring him that there is nothing to be concerned about.

We need to hit on the following:

28.60 On 30 March 2004, Mr Trewin sent a draft letter to Mr Long for comment. The draft read:

… You would be aware that AWB was responsible for coordinating and financing inland transport costs in Iraq through a Jordanian trucking company that was sanctioned under the program. This cost, as well as other embedded costs of conducting business with Iraq, including shrinkage and demurrage, was incorporated into the overall price submitted and approved under the program. [1610]

28.61 Ms Armstrong's ministerial submission was noted by Mr Downer on 30 March 2004 and by Mr Vaile in April 2004.[1611] Mr Downer noted the following under the word 'action':

This worries me, how were AWB prices set and who set them? I want to know about this. [1612]

28.62 Mr Downer did not receive a satisfactory response to the query he noted on the Ministerial Submission. His evidence was:

A: The advice I've been given by the Department is that the response had come from AWB Limited; that is, the 10 June letter.

Q: One doesn't necessarily have to be experienced in government to know that if a minister writes something in such definitive terms, 'I want to know about this', one would expect normally that the minister's staff would make sure that he does, or she does in that case. Do you know what was done in response to your request that you wanted to know that information beyond the receipt of the letter from AWB?

A: No, I don't.[1613]

28.63 On 1 April 2004, Mr Long sent a copy of the draft letter to Mr Downer to Ms Armstrong for her comments.[1614] Mr Long had made some changes to the draft which now read:

Given the sensitive nature of the market and the rules of the OFF program, AWB maintained a close and effective dialogue with the Department of Foreign Affairs and Trade (DFAT). All contracts were passed through the good offices of DFAT for on forwarding to the United Nations as required under UN guidelines.

…

Inland transport costs paid to a Jordanian trucking company were a visible and essential part of the contract. UN regulations stipulated the wheat must be delivered to all Iraq Governorates. The Iraq Brains [sic] Board (IGB) nominated the preferred trucking supplier and the rate to apply. It was AWB's view that the rates charged seemed reasonable in the context of an Australian benchmark. In the circumstances, AWB did not have access to a range of transport suppliers.[1615]

28.64 Another undated version of the draft letter read:

Given the unique nature of the market and the rules of the OFF program, AWB maintained a close and effective dialogue with the Department of Foreign Affairs and Trade (DFAT). AWB actions were procedural according to the process outlined under the Security Council Resolution 986. All contracts were passed through the good offices of DFAT for on forwarding to the United Nations as required under UN guidelines.

…

Inland transport costs paid to a Jordanian trucking company were a visible and essential part of the contract. UN regulations stipulated the wheat must be delivered to all Iraq governorates. The Iraq Grains Board (IGB) nominated the preferred trucking supplier and the rate to apply. The distribution program was agreed between the IGB and the UN as per the resolution. AWB was effectively at the mercy of a monopoly inland transport supplier, a situation sanctioned by the U.N.[1616]

28.65 Ms Armstrong's recollection regarding the draft letter was that she told Mr Long that in her view the draft misrepresented DFAT's role in the Oil-for-Food process. She suggested that he amend it.[1617]

28.66 On 6 April 2004, Ms Armstrong had a conversation with Mr Long regarding AWB's contracts under the Oil-for-Food Programme in the context of the UN inquiry.[1618] Ms Armstrong's evidence was that Mr Long told her:

The trucking company would not do anything until it received payment. We had to pay before final UN authentication came in. The Letter of Credit could come through as late as 21 to 25 days after unloading.

We sent remittances to Alia Transport to Jordanian Bank account. We knew the Jordanian company. It was a legitimate trucking company. The Iraqis handled the negotiations of the freight rates with Alia and advised AWB how much the fee was and the freight rate. It was that rate that went into the contract. [1619]

28.67 On 21 April 2004, United Nations Secretary-General Kofi Annan announced the formation of an independent panel to conduct an inquiry into allegations of impropriety in the administration and management of the Iraq Oil-for-Food Programme.

Notification to the Boards of AWB's internal investigation

28.68 On 6 May 2004, Mr Cooper sent a memorandum on behalf of Mr Lindberg to the AWB Limited and AWBI directors notifying them of AWB's investigation of its Oil for Food contracts with Iraq.[1620] The memorandum stated:

Introduction

Media speculation regarding AWB's contracts with Iraq under the Oil for Food Program is increasing and is expected to intensify over the coming months.

Attached is a report from ABC national rural radio news today that KPMG has been appointed to investigate claims that AWB overpriced the wheat sold to the Iraqi Grains Board (see transcript from ABC news below).

Action already undertaken

Last year we commenced a detailed review of the facts surrounding AWB's Oil For Food Contracts with Iraq. This has involved reviewing over 30,000 emails, many files and interviewing AWB management. The process has been led by Chris Quennell, Trade & Transport lawyer with Blake Dawson Waldron, Melbourne.

A report on the factual findings will be tabled with AWB management tomorrow and I will be in a position to brief you next week.

We anticipated this enquiry over 12 months ago and put in place this process to establish the facts and to manage AWB's risk. The enquiry has been rigorous and very detailed. Although substantially complete, the enquiry will take a further few weeks to fully complete.[1621]

28.69 Mr Cooper's evidence was that there was no such 'report on the factual findings', but that the documents that recorded the findings included:

the first board presentation on 25 May, briefs to senior counsel and all the attached documents, and Quennell kept a folder of core documents himself, which were used for interviewing witnesses and for briefing AWB management. [1622]

28.70 The same day, Mr Cooper briefed the Chairman, Mr Stewart, on Project Rose. Mr Cooper explained the work the Project Rose team had performed and the results. Mr Stewart asked his assistant to make notes of the meeting.[1623] Those notes indicate that:

Project Rose continues

12 May 2004: memorandum of instructions to Senior Counsel

28.71 On 12 May 2004, Mr Quennell, on Mr Cooper's instructions, briefed Mr Tracey QC on Project Rose. Mr Quennell provided Mr Tracey QC with a memorandum of instructions[1624], together with an accompanying volume of documents.[1625]

28.72 Mr Tracey QC was requested to advise upon:

… whether AWB may have

28.73 The memorandum of instructions set out the procedures for the provision of humanitarian supplies to Iraq and the UN contract approval procedure. It then went on to note that, prior to July 1999, AWB's contracts with IGB were concluded on a CIF free out Umm Qasr basis. It set out the inclusion in the IGB's wheat tender dated June 1999 of the following clause:

10-PRICE

CIF free on truck to silo at all Governarate (sic). Cost of discharge at Umm Qaser and land transport will be USD 12 per metric ton to be paid to the land transport co. For more details contact Iraqi Maritin (sic) in Basrah. [1627]

28.74 It then summarised the history of the introduction of the trucking fee into the three contracts A4653, A4654 and A4655 concluded on 14 July 1999 and contract A4822 concluded on 14 October 1999.

28.75 It noted the inclusion in the short-form contract A4653 of the following clause:

SHIPMENT: … The cargo will be discharged Free in to Truck to all silos within all Governates of Iraq at the average rate of … The discharge cost will be a maximum of US$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.

PRICE: The CIF, Free in Truck price per tonne of 1,000 kilos is … UNITED Stews of America dollars is as follows [deleted for confidentiality].

and specifically noted that:

The 'discharge cost' of US$12 per m.t. was added to the sale price of the wheat. There is no specific reference to 'land transport'. [1628]

28.76 The memorandum continued:

Subsequent contracts between AWB and IGB (eg A4970, A4971 and A4972 dated 20 January 2000) … continued to include a provision to the effect that the discharge costs would be a maximum amount (eg US$15 per m.t.) and was to be paid by the sellers to the nominated maritime agents in Iraq, the clause being 'subject to UN approval of the Iraq distribution plan'. However, the signed contracts (eg A4970, A4971 and A4972) as submitted to the UN … did not include the above provision. Instead, the shipment clause made no reference to the 'discharge costs' and merely stated

The cargo will be discharged free into truck to all silos within all Governates of Iraq at the average rate of 3000 m.t. per day. [Emphasis in original][1629]

28.77 The instructions noted that all AWB contracts submitted to the United Nations from January 2000 made no specific reference to a payment of a discharge cost or a trucking fee and stated:

The trucking fee was increased from time to time, eg contract A1441 dated 23 June 2002 was for a total of [deleted] CIF Free in Truck to all Governates Iraq with a trucking fee of US$47.45 per m.t.[1630]

28.78 In respect of the mechanism for payment of the trucking fee, the memorandum stated that:

The trucking fee in respect of contracts A4653, A4564, A4655 and A4822 was paid directly by AWB to a Jordanian company, Alia for Transportation and Trade ('Alia').

In relation to subsequent contracts, payment of the trucking fee was for a time effected by whichever shipping company had undertaken to provide the ocean carriage of the particular shipment. However as appears from an email from Charles Stott … on 25 July 2000 … the procedure was then changed so that AWB remitted the funds direct to Alia.[1631]

It made no mention of the suspicions which were current in AWB at that time that Alia was part owned by the Iraqi Ministry of Trade.

28.79 The memorandum then set out the substance of Mr Stott's letter of 30 October 2000 to Ms Coutney (at DFAT)[1632] and of Ms Drake-Brockman's reply of 2 November 2000[1633], noting that:

…as at 30 October 2000 the arrangements for the payment of the trucking fee had already been in place for approximately 8 months. [1634]

28.80 Mr Tracey QC was then instructed:

The documents which instructing solicitors have examined do not indicate whether the trucking fees paid by AWB to Alia can be regarded as a genuine payment for the provision of inland freight services actually provided by Alia. We have not seen any contract between AWB and Alia. We have seen no evidence to indicate whether or not the trucks used to transport wheat after its discharge at Umm Qasr were provided by Alia. We have seen no explanation as to how the trucking fee was calculated or the basis upon which the trucking fee was subsequently increased. The trucking fee does not appear to have been calculated with regard to the differing distances between Umm Qasr and the various Governorates … [1635]

He was then referred to some internal AWB emails in which the trucking fee was discussed.

28.81 The memorandum contained no reference to the after-sales-service fee of 10 per cent, to the ownership of Alia, to the negotiation of contracts A1670 and A1680 to include an uplift in price to cover the Tigris debt, or the proposed payment via the trucking fee of the iron filings compensation of US$6 per tonne.

28.82 Mr Tracey QC gave oral advice in conference with Mr Cooper and Mr Quennell on 25 May 2004.[1636] Mr Quennell's notes of that conference record the following:

RT

If trucking was a legitimate service-don't see breach of resolution.

AWB people clearly had concerns about it.

But on the documents I can't see anything wrong with it.

JC

Prices 'marvellous'

We would have to sell elsewhere-

$50 discount per ton.

CQ

Trucking fees-no evidence of trucks.

RT

(1) no evidence of any breach of the UN Resolution or of Australian Domestic Law.

[illegible] 'underlying [illegible]'

were there trucks

re'ship between Alia and Government officials

why did UN express concern?

Why did we keep paying the trucking fees after UN expressed concern.[1637]

That oral advice was summarised in a PowerPoint presentation given at a joint information session of the Boards on 25 May 2004, the content of which is set out immediately below. The oral advice was confirmed much later in a memorandum of advice dated 12 August 2005.[1638]

25 May 2004: joint information session

28.83 On 25 May 2004, Mr Cooper and Mr Quennell gave a briefing to a joint information session attended by the Directors of AWB Limited and AWBI. The minutes of the AWB Limited Board meeting held on 26 May 2004 summarised the briefing as follows:

Project Rose

The Board noted it had received a briefing on Project Rose (attended also by directors of AWB (International) Limited) on Tuesday 25 May 2004 and had also received a memorandum on this matter from the Managing Director on 6 May 2004. Project Rose is the code-name for the AWB Group's internal investigation of AWB's wheat exports to Iraq and AWB's involvement in the United Nations Oil for Food Program (OFF) in regard to which allegations of impropriety had been made in the public arena.

The briefing session was addressed by Mr Jim Cooper, General Counsel, and Mr Chris Quennell, trade and transport lawyer of Blake Dawson Waldron. (The Board noted that a copy of the briefing presentation would be filed with the Board papers).

The Board noted the following with regard to the Project Rose briefing:

28.84 The PowerPoint presentation given at the briefing recorded:

…

AWB's internal process

Have taken a 'factual snapshot' by review of:

14 IS&M ring binders

100 chartering files

30,000+ AWB emails for 1999 & 2000

Interview of AWB personnel

Audit of documents held by AWB (USA)

Summary of findings

Contracts prior to July 1999-no grounds for concern

June 1999-AWB notified by Grain Board of Iraq ('GBI') that payment of inland transportation fee necessary for future contracts

Contracts from July 1999 to December 2002:

Contracts included payment of 'trucking fee' payable to Jordanian company (Alia) nominated by GBI

Same trucking fee payable under each contract regardless of destination of cargo (ie distance transported)

Trucking fee increased from time to time for no apparent reason

Summary of findings (cont.)

All AWB contracts were approved by the Office of the Iraq Program at the UN ('OIP')

No evidence of any AWB knowledge that money paid to Alia was onpaid to Iraqi regime

No evidence of payment of funds by AWB to any other person in relation to OFF shipments

No evidence of payment of funds to any AWB employee by any other person in relation to OFF shipments

Legal advice

Richard Tracey QC has been briefed and advised in conference today:

RT is maintaining a watching brief and can advise at short notice if the matter develops further (eg by commencement of some form of inquiry)

OIP approval procedure

All AWB contracts were reviewed by OIP at the UN

For each AWB contract the OIP issued a report confirming that the price and value had been examined in accordance with its standing instructions and appeared reasonable and acceptable (or words to that effect)

…

GBI tender-June 1999

GBI invitation to tender received mid June 1999

New price provision:

'CIF free on truck to silo at all Governates. Cost of discharge at Umm Qasr and land transport will be US$12 per m.t. to be paid to the land transport co. For more details contact Iraqi Maritime in Basrah'.

AWB ultimately agreed to pay land transport costs to Alia.

Contracts A4653, 4654 and 4655… and Contract A4822 …

Sale on Free in Truck basis at US$155 per tonne

Shipment terms

'The cargo will be discharged free into truck to all silos within all Governates of Iraq at the average rate of 3000mt … day… the discharge cost will be a maximum of US$12.00 and shall be paid by the Sellers to the nominated Maritime agents in Iraq. This clause is subject to the UN approval of the Iraq distribution plan.

These contracts were submitted to the OIP at the UN and approval was given

Subsequent contracts

Since January 2000, all AWB contracts submitted to the UN have included the words

'the cargo will be discharged free into truck to all silos within all Governates of Iraq at the average rate of …tons… per day …'

ie without specific reference to discharge costs or inland transportation component

The fee paid by AWB for inland transport has varied from initial cost of US$12/t to a maximum of US$47.75/t. Immediately after the war cost dropped to US$25/t and is now at US$35/t (affected by recent security risks)

AWB position

Every AWB wheat contract under OFF program has required specific approval of UN OIP

OIP was obliged under Security Council Guidelines to determine whether price of goods is reasonable

The price of every AWB shipment to Iraq under OFF program has been declared 'reasonable and acceptable' (or words to that effect)

AWB's price was high because it factored in contingencies for demurrage costs, war risk premium, interest costs due to delay in processing of payments by UN/BNP, rejection, shrinkage, currency exposure, and after sales service

AWB continues to use Alia both as its vessel agents in Umm Qasr and in relation to 100% of all inland transportation requirements. [1640] [Emphasis added]

28.85 While the presentation noted that AWB continued to use Alia 'in relation to 100% of all inland transportation requirements', it did not mention that it was only after the incursion into Iraq in March 2003 that AWB was actually required to make arrangements for the movement of wheat, and only then negotiated a contract with Alia for the carriage of wheat.

28.86 Similarly, while it noted that AWB's price was high because it incorporated 'after-sales service', it did not mention that 10 per cent of the value of each contract, including the trucking component, was unilaterally imposed by IGB, and paid by AWB via Alia, for all contracts from 2 November 2000. It also did not mention that after 2 November 2000, a portion of the amount paid to Alia represented a 10 per cent surcharge unilaterally imposed by the Iraqi government, in addition to a fee nominally for trucking.

28.87 The presentation stated that there was no evidence of any AWB knowledge that money paid to Alia was onpaid to the Iraqi regime. Prior to giving the presentation, Mr Cooper had conducted an internet search on Alia, from which he had found that:

28.88 Further, Mr Cooper was aware at that time of emails dating from June to November of 1999 which made it clear that AWB staff knew that the Iraqi regime was the ultimate recipient of monies paid to Alia.

28.89 Mr Al-Khawam's family was based in Iraq and owned 51 per cent of Alia. While it is not clear whether Mr Cooper knew this at 25 May 2004, he clearly knew it by 28 July 2004, when he incorporated it into his PowerPoint presentation for the next presentation to the board.

28.90 When he first attended before the Inquiry on 22 and 23 February 2006, Mr Cooper gave evidence that he learned sometime before the Board was briefed in May 2004 that Alia was 49 per cent owned by an Iraq instrumentality, and that the Board was advised of this at a presentation in May 2004.[1642]

28.91 However Mr Cooper resiled from this evidence in his third statement to the Inquiry.[1643] At paragraph 29 of that statement, he said:

Issue 15 [in a letter from the Inquiry to Mr Cooper's solicitor requesting a further statement] concerns a briefing to the Boards in May 2004 regarding the part ownership of Alia by an Iraqi instrumentality. As a result of this issue being raised I have further reviewed my files since I first gave evidence to this Inquiry, I am not in a position to say the JIS of the Boards was informed at the presentation on 25 May 2004 that 49% of Alia was owned by an Iraqi instrumentality…

I am not able to recall when the Board was briefed in relation to the ownership of Alia, however I can say that whatever was learnt about the payment of the inland trucking fees as a result of the investigation was passed on to the Boards and therefore I expect the Boards were informed at some time after we were informed of that fact. From late July 2004, the AWB executives, including Lindberg, were aware of this fact.[1644]

28.92 Mr Cooper gave evidence on 28 March 2006 that he recalled speaking to the Board about Alia at the first board presentation (in May 2004):

… the last bullet point was information that I had obtained before the first board presentation by conducting an Internet search on Alia, and I do recall at the first board presentation [in May 2004] talking about Alia to the board members. I told them I had done a Google search and I remember some of them remarking they didn't know what that was, and I told them that it was a search engine on the Internet and that I had seen information on Alia, about them being a Jordanian-based company, they were involved in transport, they were currently bidding for the tender to operate the new domestic Iraqi airline, and the last piece of information at the bottom was historic information about the Al-Khawam family.

I believe I knew that information before the May board meeting … [1645]

28.93 The Directors' evidence about what they learnt about Alia in May 2004 was varied. Mr Martin said that he learnt that some AWB contracts with the IGB involved the use of a company known as Alia but he could not recall when he was first told of an allegation that Alia was partly owned by Iraq.[1646]

28.94 Mr Starr said that he recalled having been told prior to 28 July 2004 that Alia was a family owned company and that it had interests in other businesses. He was not told that Alia had any connection with Iraq or that the family which owned Alia had any connection with Iraq.[1647]

28.95 Mr Polson said that he first learned that AWB contracts with IGB involved the use of a company known as Alia at the May 2004 briefing, however he could not recall having been told of the shareholdings or ownership of Alia until after the publication of the Volcker report in October 2005.[1648]

28.96 Mr McClelland said that he first learned that contracts between AWB and IGB involved the use of Alia at the May 2004 briefing but he did not learn of the allegation that Alia was partly owned by Iraq until September 2005.[1649]

28.97 It is clear that Alia was raised at the joint information session held on 25 May 2004. At the meeting the structure and shareholding of Alia was discussed.[1650] There is insufficient evidence however to find that the Boards were told in May 2004 or July 2004 that Alia was 49 per cent owned by an Iraqi instrumentality.

3 June 2004: a further memorandum of instructions

28.98 On 3 June 2004, Mr Quennell provided a further memorandum of instructions to Mr Tracey QC regarding Project Rose. In that memorandum, Mr Quennell noted:

In their previous instructions to Counsel, instructing solicitors noted that they had seen no explanation as to how the trucking fee was calculated or the basis on which the trucking fee was subsequently increased. Although it remains the case that the original method of calculation of the trucking fee is unknown, instructing solicitors have now ascertained the basis of calculation of the increase as applied to AWB's contracts after 2 November 2000, commencing with Contract No. A0430.[1651]

The instructions also noted:

The original trucking cost under that contract (No. A0430) was US$25 per m.t. However, an additional 10% (of US$[deleted]) was then added to the price per m.t. by way of an addition to the trucking fee. The total price then became US$[deleted] per m.t. and the trucking fee was increased to US$44.50 (US$25.00 + US$19.50 per m.t.).[1652]

28.99 Mr Quennell referred Mr Tracey QC to an email from Mr Hogan to Mr Morison (then General Manager Trading) and others dated 2 November 2000 entitled 'Iraq-confirmed sale'.[1653] The memorandum also enclosed a graph which showed the trucking fee payable per metric tonne for each contract. Mr Quennell noted:

The reason for the sharp reduction in the trucking fee payable in respect of contracts 1680 and 1670 is that these contracts were executed after the fall of the Iraqi regime and a reduction of the price for those contracts was agreed by AWB.[1654]

28.100 The memorandum made no mention of the uplift in the price of those two contracts to recoup the Tigris debt, or the proposed payment via the trucking fee of the iron filings compensation of US$6 per tonne. Nor was it noted that the reason for the reduction in the contract price for those two contracts was an across the board directive from the CPA to remove the surcharge, usually of 10 per cent, levied upon all contracts under the Oil-for-Food Programme since phase IX.

28.101 Mr Tracey QC was requested on the basis of the further information provided:

To advise whether his previous advice to the effect that there is:

remains unchanged.[1655]

28.102 This request for advice generated a series of emails between Mr Tracey QC and Mr Quennell.[1656] On 4 June 2004, Mr Tracey QC requested by email the following information from Mr Quennell:

1. whether the details contained in the Hogan memo were translated into contracts which were subsequently seen by the UN committee;

2. whether there was any commercial justification for the increase; and

3. why the IGB (or its successor) agreed to a reduction after the fall of the Iraqi regime and, in particular, whether there was an commercial justification for the reduction.[1657]

28.103 Mr Quennell responded to Mr Tracey QC on 7 June 2004, in the following terms:

Dear Richard,

In the circumstances please advise on the above basis. [1658]

June 2004: Mr Tracey QC's advice

28.104 On 8 June 2004 Mr Tracey QC advised by email:

Dear Chris

In the absence of commercial justification for the introduction, increases and decreases in the trucking fee and the lack of specific approval for the fee and its quantum by the UN there is reason to suspect that the fee (or part of it) was used as a kick-back to the IGB or persons associated with it. Whether the money was so used can only be determined by an investigation of the finances of the Jordanian trucking company which was the recipient of the trucking fees.

A further reason for suspecting the efficacy of the fee is Hogan's assertion that UN approval for its payment had been obtained. If this was not the case then a question arises as to why the assertion was made. Was it a deliberate attempt to mislead AWB management or did he make an honest mistake?

None of this establishes that AWB or any of its employees is guilty of any offence or of breaching UN resolutions. What it does suggest is the need for further enquiries (if this is possible) to determine all the facts surrounding the payment of the trucking fee and, in particular, whether any part of it found its way to the IGB or any Iraqi officials.

Regards,

Richard Tracey[1659]

28.105 Mr Quennell's evidence was that he discussed Mr Tracey QC's email with Cooper shortly after receipt of it.[1660] It is not known whether the AWB Board was informed of the considerable reservations and doubts expressed by Mr Tracey QC. There is no apparent reason why they would not have been so informed. Mr Cooper gave evidence that the Board was briefed about Project Rose on at least 16 occasions between May 2004 and November 2005.[1661]

28.106 In particular, there is no reason to think that in the many briefings given to the Boards of AWB Limited and AWBI on Project Rose, the legal advisers would not have informed the Boards of what those conducting Project Rose knew. Indeed, Mr Cooper's evidence was:

I can say that whatever was learnt about the payment of the inland trucking fees as a result of the investigations was passed on to the Boards. [1662]

It follows that from some time shortly after June 2004, probably July 2004, the Boards of AWB Limited and AWBI were aware that an additional fee equivalent to 10 per cent of the contract price had been included in the contract price, and added to the trucking fee, and that there was no known commercial reason for this fee to which AWB had agreed. Further, that such additional fee had been agreed to and paid by AWB from at least contract A0430 (November 2000).

10 June 2004: letter to Mr Downer

28.107 The draft letter to Mr Downer referred to in paragraphs 28.63 and 28.64, was further amended by Mr Quennell and then Mr Cooper on 3 June 2004. Mr Cooper advised Mr Trewin by email:

The letter was amended by Chris Quennell of Blake Dawson Waldron and then by me. I approve its sending from a legal perspective.

If you amend the letter any further, could you please send it to me for final checking, otherwise it is ready for signing by Andrew and sending to Downer. [1663]

28.108 The letter was signed by Mr Lindberg and sent to Mr Downer on 10 June 2004.[1664] It was in different terms to the drafts previously prepared. It read:

Given the unique nature of the market and the rules of the OFF program, AWB maintained a close and effective dialogue with the Department of Foreign Affairs and Trade (DFAT). All AWB's contracts were passed through the good offices of DFAT for on forwarding to the United Nations (UN) as required under UN guidelines and particularly UN Security Council Resolution 986.

…

Wheat was delivered to Iraq by AWB for distribution to all governorates of Iraq in accordance with the Distribution Plan for the relevant Phase of the OFF program as approved by the UN. This was reflected in the terms of each AWB wheat sale contract approved by the UN, which provided for the cargo to be discharged 'Free into Truck to all silos within all governorates of Iraq'. The Iraq Grains Board (IGB) nominated the preferred trucking supplier and the rate to apply.[1665]

28.109 This letter did not advise Mr Downer of the reservations expressed by Mr Tracey QC, or of the fact then known to AWB that from November 2000 AWB had been paying an unexplained additional fee of 10 per cent of the contract value to Alia as a supposed trucking fee.

28.110 Mr Downer responded to Mr Lindberg's letter on 25 June 2004. Mr Downer welcomed Mr Lindberg's assurances that 'AWB acted with integrity in its dealings with the Oil-for-Food program, and complied with the relevant UN-mandated procedures as set out in UN Security Council Resolution 986'.[1666]

PSI investigation

28.111 In late June 2004, AWB was informed of the commencement of an investigation by the United States Senate Permanent Subcommittee on Investigations (PSI) into the Oil-for-Food Programme.[1667]

28.112 On 30 June 2004, AWB's US lawyers, Piper Rudnick, met with PSI staff in Washington DC. Following this meeting AWB received a telephone briefing from Piper Rudnick about the nature of the PSI's proposed investigation.[1668]

28.113 On 2 July 2004, Mr Cooper provided a briefing paper to Mr Lindberg regarding Project Rose. In that briefing paper Mr Cooper noted:

AWB internally commenced review of issues and documentation in June 2003 and this finished late May 2004 when we reported to the AWBL and AWBI Boards on the issues. We have located all relevant documents from AWB's Portland, Cairo and Melbourne offices and built a chronology. Richard Tracey QC has advised that he can see no breach of Australian law.[1669]

Mr Cooper then went on to inform Mr Lindberg about the PSI investigation.

28.114 Following this briefing Mr Lindberg instructed Mr Cooper to establish a taskforce to respond to the investigation.[1670] Mr Cooper retained Mr Scott Chesterman of Minter Ellison to provide strategic litigation advice to AWB regarding the investigation.[1671]

28.115 Members of the taskforce established by Mr Cooper included AWB staff from the Stakeholders Relations Division, Legal Division and International Sales and Marketing Division; US lawyers Piper Rudnick, and AWB's external Australian lawyers. AWB's Australian lawyers included Mr Chesterman, Mr Quennell, Mr Tracey QC and Mr Stephen Donaghue of counsel.[1672]

28.116 The taskforce had its first meeting on 7 July 2004. After that the taskforce met weekly until late November 2004 and had approximately 20 meetings.[1673]

28.117 In July 2004, Mr Cooper and Mr Quennell met with lawyers from Piper Rudnick in London. At that meeting they received advice on the implications for AWB's operations of an Inquiry in the United States by the PSI. Piper Rudnick subsequently provided to AWB written legal advice on US law on these issues. AWB has claimed legal professional privilege over that advice.[1674] This claim was upheld.[1675]

28.118 On 19 July 2004, Mr Cooper met with Mr Hockey and Mr Whitwell. At that meeting Mr Cooper was advised that Alia was 49 per cent owned by the Iraqi Ministry of Transport.[1676]

28.119 Mr Whitwell gave evidence that in mid July 2004 he thought it was important that Project Rose staff were aware of the imposition of the 10 per cent after-sales-service fee, and how the 10 per cent was incorporated into the price of contracts for sale to Iraq. He approached Mr Long to discuss the matter. Mr Whitwell, together with at least Mr Long, briefed Mr Cooper about the pricing components of contracts for the sale of wheat to Iraq, including the addition of a 10 per cent surcharge to the total contract price.[1677] It is not clear whether this is the same meeting at which Mr Cooper was advised that Alia was 49 per cent owned by the Ministry of Transport. It is likely however that Mr Cooper was already aware of the addition of 10 per cent to the contracts, having been aware of the Project Rose memorandum to counsel of 3 June 2004 which singled it out for the attention of Mr Tracey QC.

28.120 On 26 July 2004, Mr Cooper gave an update on Project Rose to the Executive Leadership Group. Dr Fuller's handwritten notes record an agenda item 'Iraq-OFF' but they do not record what was said by Mr Cooper.[1678] Mr Cooper's notes of the meeting record, amongst other things:

Can't cooperate fully-too damaging

and

Limited cooperation-AL's preferred pos.[1679]

'AL' is a reference to Mr Lindberg.

These notes indicate that AWB had formed a view that it would limit the cooperation it afforded to investigating authorities out of fear that full coopration would reveal facts damaging to it.

28.121 On that same day, Mr Thomas, AWB's then General Manager, Corporate sent an email to Messrs Hargreaves and Trewin copied to Messrs Cooper and McKinlay reporting on the overview given by Mr Cooper to the Executive Leadership Group. The email read:

Peter/Matt,

Jim gave a good overview to the ELG on where things are up to regarding Rose. Discussion took place. AL and Jim will present to the Board on Wed.

In summary, the view is that we should take a 'passive cooperative approach'-i.e. assist where asked and provide appropriate responses-but not much upside in being actively cooperative.[1680]

Further meetings and briefings

27 July 2004: the Wheat Export Authority - AWBI Board-to-Board meeting

28.122 On 27 July 2004, the Boards of the WEA and AWBI met. At the meeting the Boards discussed the draft Performance Monitoring Review Report, the Growers Report, International visits by WEA, the 2004 Review and Report and Future Board to Board meetings.

28.123 The Boards discussed the status of the WEA's request that had been made in March 2004 for copies of AWB's Iraq contracts which had not been met.[1681] Because of concerns regarding confidentiality, it was proposed by AWBI senior management that the WEA attend AWBI's offices to sight the contracts and carry out their audit in house.[1682]

28.124 At this time, the AWBI Board was aware that AWB had been conducting an internal investigation into its Oil for Food contracts with Iraq since June 2003.[1683] The Board was also aware that Mr Tracey QC had been briefed to advise upon whether AWB may have contributed to a contravention by Australia of its obligations under UN Resolution 661 or contravened any Commonwealth or State legislation.[1684] The Board did not disclose this information to the WEA.

28 July 2004: a joint information session

28.125 On 27 July 2004, Mr Cooper sent a copy of the briefing he proposed to present to the Board on 28 July 2004 to Messrs Quennell and Chesterman requesting that any comments be provided by that afternoon.[1685] Mr Quennell responded to Mr Cooper's email in the following terms:

Jim,

One suggestion which was made at the last Board meeting was that we should conduct an investigation of Alia's structure, shareholding etc (I think the idea may have come from Chris Moffatt). The decision was subsequently taken (by management) not to go down that route.[1686]

28.126 AWB have claimed legal professional privilege over the remainder of Mr Quennell's email. This claim was upheld.[1687] Mr Cooper responded to Mr Quennell's email that evening stating, 'Chris-thanks-I have added a page on Alia into the slides'.[1688]

28.127 The page on Alia drafted by Mr Cooper formed the final page of a PowerPoint presentation entitled 'AWB; Project Rose AWB Limited Board Briefing 28 July 2004'. It read:

Alia for Transportation and General Trade Company

28.128 At the top of the page was a note in Mr Cooper's handwriting[1690], which read 'Remove from pack'.

28.129 Mr Cooper described the circumstances in which he came to write these words 'Remove from pack':

I had inserted this page the day before to address the board's request for further information on Alia, and it was a combination of information that I had found and had been given instructions on by the business people, and I printed that document out and took the presentation to Andrew Lindberg. Some time after I finished it, I have reconstructed from my email records that I finished this draft at about 5 o'clock in the afternoon on 27 July 2004, and it was presented-it was used the following day at the various board meetings, and I, sometime between completing it-I took it upstairs in hard copy form as I hadn't reviewed it with Andrew Lindberg at that stage, and as a non-member of the ELG and as someone presenting to the board I would always review such presentations with Andrew before they were presented.

And at that stage we had been working for the last - the previous seven weeks on the American investigation operated by the permanent subcommittee on investigations of the US Senate, and the presentation was mainly about that, but also included this page on Alia's background, which some of the board members had requested more detail on. I recall reviewing it in Andrew's office, the whole pack, and he was to present the next day to the AWB Limited board, which he subsequently did on his own, without my attendance, on just the PSI inquiry, and I was separately presenting the next day for about half an hour to both boards, at what is called a joint information session. When we got to this slide, Andrew just said 'Oh, yeah, take that one out', and I did. That's my handwriting at the top, and it is not my relaxed form of handwriting, it indicates to me that I have scribbled it while sitting at Andrew's desk.

So that page was taken out, but my understanding was that the slide pack was going to be used for two presentations the following day-my presentation to the joint information sessions and that Andrew was going to use it for his presentation to the board on the PSI inquiry. [1691]

28.130 As to why Mr Lindberg wanted the page taken out, Mr Cooper said:

There was no elaboration about it. My sense of why he wanted it taken out was that he thought it was too much detail.[1692]

28.131 Mr Cooper gave evidence that, in response to Mr Lindberg's direction, he did the following:

Well, I did as he said, but I always intended to address it at the joint information session the next day.[1693]

…

I had no instruction from Andrew not to tell the board about the 49%, and I left that meeting with him taking the slide-removing that slide from the pack, but I intended to tell the board about Alia and their percentage shareholding. [1694]

28.132 When asked whether he did tell the Boards about the 49 per cent ownership of Alia by an Iraqi instrumentality, Mr Cooper's evidence was equivocal. He said:

To the best of my recollection, I can't recall telling the board about that the next day, but I cannot recall not telling them. I have made inquiries of other people who were at that presentation, and none of those people have kept notes or could remember whether I addressed that issue, but I certainly have a recollection that I intended to present that issue, and I assume that we had imparted that information to the board.[1695]

28.133 In his second supplementary statement to this Inquiry, Mr Cooper wrote regarding the 28 July joint information session:

At that briefing the Board was informed of the following:

28.134 There is no other evidence before the Inquiry which would suggest that Mr Cooper advised the Boards at the joint information session of 28 July 2004 of AWB's knowledge on this point.

28.135 It was the evidence of several Directors that the page regarding Alia was not used during the presentation, nor were its contents discussed.[1697]

28.136 Dr Fuller's notes of the joint information session do not refer to Alia.[1698]

28.137 Mr Lindberg denied instructing Mr Cooper to remove the page from the presentation.[1699] His evidence was that Mr Cooper disclosed information about Alia's ownership at a presentation to either the Boards or the Executive Leadership Group in the second half of 2004.[1700]

28.138 The Minutes of the AWBI Board Meeting held on 27 July 2004 and those of the AWB Limited Board Meeting held on 28 July 2004 after the joint information session simply record that Directors of both Boards attended (or would attend) a joint information session including a presentation by Mr Cooper regarding 'Project Rose: Oil for Food Inquiry'.[1701]

28.139 The ownership of Alia was known to Mr Lindberg and Mr Cooper. The weight of evidence is that Mr Cooper did not tell the Boards at the joint information session of the structure and ownership of Alia. His evidence was no higher than that he assumed the information was imparted to the Boards.

28.140 On 6 August 2004 Ms Freeman[1702], met with Messrs Hargreaves, Long and Trewin in Melbourne. At that meeting Mr Hargreaves told Ms Freeman that AWB had been approached by PSI staff to provide information in relation to their contracts under the OFFP.[1703]

August 2004: Wheat Export Authority briefing paper

28.141 On 11 August 2004 Mr Sheridan provided the WEA with a briefing paper regarding AWB's involvement in the Oil-for-Food Programme.[1704] The paper was supplied to Mr Sheridan by Mr Hargreaves.[1705]

28.142 Amongst other things, the paper noted:

3. AWB's supply of wheat to Iraq under the OFF Program

…

…

…

28.143 AWBI did not disclose in the briefing paper that the fact or amount and change in amount of the payments for trucking fees made to Alia, were not disclosed on the face of any of the twenty six contracts. It did not disclose the unexplained 10 per cent increase in trucking fees. It did not disclose prepayment of the fees, or that such fees were passed on to the Ministry of Transport. The inflation of the price in contracts A1670 and A1680 to recover the Tigris debt was also not disclosed.

Wheat Export Authority's inspection of contracts

28.144 On 11 August 2004, Mr Charman and Ms Duck (both from the WEA) attended the offices of AWB in Melbourne and were given access to documents in a folder, namely:

These were the documents sought in March 2004 and which it was noted at 27 July 2004 Board meeting had not been supplied by that date.

28.145 In preparing the documents that were to be inspected by the WEA, Mr Sheridan spoke to Mr Long. He asked Mr Long for copies of 'contracts and associated documentation such as the UN approvals documentation'.[1708] Mr Sheridan's evidence was that Mr Edmonds-Wilson was directed by Mr Long to copy the documents.[1709] Mr Sheridan also spoke to Mr Cooper about the request made by the WEA because he was coordinating Project Rose.[1710] Mr Sheridan did not limit the documents he requested from Mr Long or Mr Cooper.[1711]

28.146 On 8 July 2004, after the documents had been compiled, Mr Sheridan sent an email to Messrs Long and Whitwell and Ms Scales, copied to Messrs Johnson, Edmonds-Wilson, Cooper, Heath and McCormack:

Michael/Chris/Sarah,

as per request from WEA for Iraq contracts, Nigel has provided a set of documents which we are advised includes:

17 AWB Limited Export Sales Contracts (and amendments) between 20/1/00-23/6/02 (14 of these are with Grain Board of Iraq, 2 with Savas and 1 with CSC)

UN Approvals to Ship

Applicable customs clearances

Can you confirm it is okay to release documents to WEA accordingly?

Regards,
Steve [1712]

Mr Long responded that same day noting that he had reviewed the documents. He advised:

there is nothing that hasn't already been seen by DFAT/UN. OK to go from my perspective. [1713]

28.147 The 17 contracts identified in Mr Sheridan's email would not have included the 14 July 1999 contracts A4653, A4654 and A4655 or the 14 October 1999 contract A4822 which all contained the clause:

The cargo will be discharged Free into Truck to all silos within all Governorates of Iraq at the average rate of 3,000 metric tonnes per weather working day of 24 consecutive hours. The discharge cost will be a maximum of USD12.00 and shall be paid by the Sellers to the nominated Maritime Agents in Iraq. This clause is subject to UN approval of the Iraq distribution plan. [1714]

The 17 contracts would also not have included contracts A1670 and A1680 which had been inflated to recover the Tigris debt.

28.148 Mr Sheridan's evidence was that it was the WEA who specified the two-year time frame for the contracts they wanted to inspect.[1715]

28.149 Mr Charman did not have a record of the dates of any of the 17 contracts that he looked at.[1716] He could not recall seeing contracts A1670 and A1680.[1717] He said that if he had not seen contracts A1670 and A1680 on 11 August 2004 he would never have seen them.[1718]

28.150 The primary purpose of the WEA's review was to confirm that the contract data which had previously been provided to them reconciled to the contracts that were on hand within the AWBI offices so that the WEA could be confident that its use of the data provided was producing a reliable result regarding calculation of an FOB price.[1719] In addition, one of the matters that Mr Charman and Ms Duck were to review was the allegation that there may have been a 10 per cent kickback to the Iraqi Government or other entities in Iraq.[1720]

28.151 Mr Charman considered his role to be to check the AWBI documents to establish whether the FOB prices previously advised by AWBI were consistent with the contracts.[1721] As the contracts did not separate any of the costs, including inland transport costs, Mr Charman could not have reconciled the FOB amount. Nor could he have identified whether or not the contracts were of a kind that might have disguised a kickback.

28.152 Mr Besley, the WEA's Chairman, acknowledged that Mr Charman would have needed to know the contract price, and all costs to be deducted from that price, to establish the true FOB price. He accepted that tests carried out by Mr Charman could not possibly determine if the FOB price obtained by AWBI was the best available for growers, as Mr Charman did not have the material before him necessary to calculate the FOB price.[1722]

28.153 Mr Charman instead satisfied himself that the price in the contracts, less such costs as he had previously been advised, which did not include inland trucking fees, exceeded the FOB price AWB had previously advised. He apparently noted that this was above the benchmark price and was accordingly satisfied.[1723]

28.154 Mr Charman and Ms Duck also reviewed two letters from the WFP relating to contracts A1670 and A1680. The letters stated that the WFP had been requested by the CPA to deduct the after-sales-service fee of 10 per cent on each contract. Mr Charman's evidence was that, upon seeing these letters, he asked Mr Sheridan what this was about, and why a 10 per cent reduction had been agreed. He said Mr Sheridan left the room and when he returned said words to the effect:

When the coalition forces came into Iraq the CPA forced a 10% reduction on all suppliers of food imports to Iraq. This was because they wanted to gain credibility and show value to the Iraqis by reducing the costs of goods and services. All suppliers agreed bar one, a Russian company, and that Russian company's contract was cancelled.[1724]

28.155 Mr Sheridan's evidence was that when the WEA raised the query regarding the 10 per cent reduction he left the meeting and sought a response from Mr Long or Mr Whitwell.[1725] He then returned to the meeting and conveyed the response provided to him by Mr Long or Mr Whitwell to Mr Charman and Ms Duck.[1726]

28.156 Mr Whitwell's evidence was that he did not believe that he had provided the information to Mr Sheridan. His evidence was:

A: I don't think I was part of the process of providing that information to the WEA on 11 August. I did provide him with an email on or around 11 to 13 September, which did provide further information to him.

Q: But it was not your view, was it, that the 10 per cent deduction was unrelated to the alleged claims-that is, the claims of kickbacks-and was a move by the CPA to gain credibility from, and show value to, the Iraqis?

A: Again, that was not something that I-that's not a line that I would say that I had formed in my own mind.[1727]

28.157 In truth, each of Mr Long and Mr Whitwell knew of the imposition of the 10 per cent after-sales-service fee by Iraq and its inclusion in the trucking fee. They had explained it to Mr Cooper in mid July. It had been highlighted in Mr Quennell's brief to Mr Tracey QC in early June. It was thus widely known within AWB and AWBI. However, whoever of Mr Long or Mr Whitwell gave instructions to Mr Sheridan, they did not inform him of the known situation regarding the 10 per cent increase. The explanation conveyed to and by Mr Sheridan was untrue, as either of Mr Long or Mr Whitwell knew.

28.158 Mr Charman accepted Mr Sheridan's explanation. He stated that because the risk premium incorporated in the contract was so high, a 10 per cent reduction would still deliver a high FOB return against benchmarks. He could see no detriment to the growers.[1728]

28.159 Mr Charman and Ms Duck were not told that the prices in the contracts had been inflated to recover the Tigris debt from the UN escrow account, or that AWBI held that money.

28.160 On his return to Canberra, Mr Charman prepared a record of the meeting.[1729] The record in relation to AWB's Iraq sales contracts read as follows:

Iraq Sales Contracts

10. AWB(I) provided a folder, for WEA perusal, which contained:

11. The WEA read each document in the folder to verify that the details were consistent with information and data previously obtained by the WEA.

12. There were two letters dated 22 November 2003 from the WFP relating to contracts, A1670 and A1680, which stated that 'WFP have been requested by the CPA [Coalition Provisional Authority] to deduct the after sales service fee of 10 percent on this contract'.

13. AWB(I) explained that the 10 percent deduction was the result of a blanket demand from the CPA of a 10 percent reduction on all contracts for food imports, including wheat:

§ there was little choice but to comply, if the contracts were to be honoured;

§ there was sufficient risk dividend built into the contract price to allow for the deduction without significant detriment to the National Pool; and

§ a Russian supplier of food products refused to meet the demand and was unable to make a sale to Iraq.[1730]

Meeting with PSI staff

28.161 On 14 August 2004, Messrs Cooper, Hargreaves and Chesterman (from Minter Ellison) travelled to Washington DC to meet with staff of the PSI. This meeting took place on 17 August 2004. Present at that meeting were Messrs Hargreaves, Cooper and Chesterman, together with Mr McDermott and Mr Merrigan of Piper Rudnick, AWB's US lawyers and four members of the PSI staff.[1731]

28.162 On the following day, Messrs Cooper and Hargreaves met with Mr Baxter, the then Deputy Chief of Mission of the Australian mission, and Mr Davies at the Australian Embassy in Washington to brief them on their meeting with the PSI staff the previous day.

28.163 On 19 August 2004, Mr Davies sent a cable to Canberra reporting on the meeting.[1732] In that cable Mr Davies noted that AWB was to consider its position about future cooperation with the PSI investigation.

Further interviews with AWB employees

28.164 Throughout August 2004 Mr Quennell, with the assistance of a lawyer from Minter Ellison, conducted further interviews with AWB employees Messrs Stott, Geary, Whitwell, Snowball, Owen, Lister, Edmonds-Wilson and Borlase and Ms Scales.[1733] Mr Quennell recorded notes of those interviews and draft witness statements were produced.[1734]

Wheat Export Authority's request for a written explanation of the 10 per cent reduction in prices

28.165 On 24 August 2004, Mr Sheridan sent an email to Mr Hargreaves copied to other employees of AWB including Messrs Cooper and Whitwell entitled 'Iraq Query'. The email enclosed a copy of the Wheat Export Authority's record of meeting on 11 August 2004 and stated:

Peter ,

Further to our meeting with WEA on 11 August, they have provided their minutes of the meeting below. They have also requested a written explanation of the 10% reduction in prices requested by CPA:

'…An item that arises from the meeting is that relating to the reason for the 10% reduction in contract price. In addition to the items highlighted in this document, could you please provide a letter or email confirming the advice regarding the CPA's demand for the reduction. This just closes the WEA's audit loop.'

Peter could you provide a written explanation that we can forward to WEA to close this off. I believe Jim does not have an issue with it and suggested you or Chris could draft something??

Happy to discuss,

Steve [1735]

28.166 On that same day, Mr Hargreaves forwarded Mr Sheridan's email to Mr Long requesting his assistance in preparing a response to the WEA's request.[1736] Mr Long sent Mr Hargreaves' email to Mr Whitwell on 28 August 2004 requesting that he provide Mr Hargreaves with 'a short note regarding the matter'.[1737]

25 August 2004: AWB Board presentation

28.167 On 25 August 2004, Mr Cooper and Mr Hargreaves gave an oral presentation to the AWB Board. This presentation was focused on their meeting in Washington DC with the PSI staff.[1738]

28.168 The AWB Board minutes record that the Board discussed the verbal presentation given by Messrs Cooper and Hargreaves.[1739]

Request for Government's support in responding to the PSI investigation

28.169 On 27 August 2004, Mr Lindberg wrote to Mr Downer and Mr Vaile seeking the government's support in responding to the PSI investigation.[1740] Mr Lindberg urged Mr Downer and Mr Vaile to 'authorise the Ambassador to approach the PSI on our behalf to have this matter resolved in a way that does not damage relationships between our two countries'.[1741]

Explanation of the 10 per cent reduction in prices

28.170 On 13 September 2004, Mr Whitwell sent an email to Mr Hargreaves in the following terms:

Peter

Sorry for the delay accessing emails has been a nightmare

from best recollection:

I was advised by certain CPA officials that there was a CPA directive to WFP to insist on a 10 pct reduction in ALL contracts that were to be renegotiated and that this was not supplier specific. When I was contacted by WFP in late September to renegotiate the balance of A1680 (approx 300 K) and A1670 (500K) this was again put to me. I protested in the strongest possible terms and took guidance from our contacts in Baghdad who confirmed the determination on this matter.

At the time the consequences of not taking the decision to reduce by 10 pct far outweighed any benefit. We had been carrying the stock in a small 02/03 pool and this was already costing large additional carry costs to supply chain. In addition I had freight contracts that if not executed would incur a loss to the Pool. In addition we also had possible Forex losses associated with not executing the contract. However, by far the most compelling need to execute the contracts was that if we did not then the option of selling the wheat on the open market would have incurred a loss to the pool model of at least USD 30 pmt on the net fob of the Iraq sale (even with the 10 pct reduction) compared to what the market was on the day for an equivalent type of wheat (you may want to check the exact figures if necessary with the Pool pricing team).

I hope this assists[1742]

28.171 Mr Whitwell's email explained the commercial reasons why AWB had agreed to the reduction. It did not mention that the reason why the 10 per cent reduction was required was to remove the after-sales-service fee. This was known to Mr Whitwell and to Mr Long, who had been copied with Mr Whitwell's reply. Mr Whitwell's email said nothing about moves by the CPA to gain credibility, or about the demand being unrelated to the alleged kickback claims, both matters which the WEA had been told on 11 August 2004.

28.172 Mr Sheridan did not subsequently relay this information to the WEA[1743], nor did Mr Hargreaves.[1744] WEA's request for a written explanation for the reduction in price of 10 per cent on contracts A1670 and A1680 thus went unanswered.

3 September 2004: AWBI Board update

28.173 On 3 September 2004, Mr Lindberg provided a verbal update on Project Rose to the AWBI Board. The AWBI Board minutes record under the heading 'Information/Discussion items' that the Board discussed the verbal update provided by Mr Lindberg.[1745] What was said is not known.

28.174 The AWBI Board was also briefed on a number of issues that had arisen regarding the draft Wheat Export Authority Performance Monitoring Review Report. Mr Sheridan's evidence was that the Board was told that the WEA had attended AWB's offices to review AWB's contracts with Iraq.[1746]

The Australian Embassy's meeting with PSI staff

28.175 On 16 September 2004, Mr Cooper sent a status report on Project Rose to Messrs Thomas and Hargreaves for provision to the ELG.[1747] The status report noted the following under the heading 'AWB's Background Preparations':

An electronic database of all documents relevant to this matter has now been established by Minter Ellison. This has been an intensive effort over the past 8 weeks with approximately 14,000 documents being located, electronically scanned and indexed on the system. Now that this task is completed, costs will reduce significantly. Interviews with nearly all AWB management have been completed with written statements prepared. It will be necessary to hold some final interviews with certain key executives to increase our understanding of key events.[1748]

28.176 On 16 September 2004, Mr Baxter and Ms Freeman from the Australian Embassy in Washington DC met with staff from the PSI.

28.177 On 20 September 2004, Ms Freeman sent a cable to Canberra reporting on the meeting with PSI.[1749] The cable noted that AWB had assured the government that it had acted with propriety at all times in its Oil-for-Food dealings. The cable also noted that the PSI staff did not appear to be swayed by the arguments put forward and were keen 'to determine the extent of AWB Ltd's cooperation in the investigation sooner rather than later'.[1750]

28.178 On 21 September 2004, Mr Downer and Mr Vaile responded to Mr Lindberg's letter of 27 August 2004.[1751] The Ministers informed Mr Lindberg that they had 'directed the Australian Embassy in Washington to convey to the Subcommittee on Investigations Australia's concern that Australian companies be treated fairly, and receive no less favourable treatment in their dealings with the inquiry than their US counterparts'.[1752]

28.179 On 27 September 2004 Mr Hargreaves sent an email to Mr Baxter enclosing some brief notes to assist in 'preparing Ambassador Thawley for his meeting with Senator Coleman'.[1753] The notes comprised:

Mr Hargreaves noted in his email:

It is also critical to us, that from this meeting, PSI understands that our reluctance is not because we believe we have anything to hide but our concern that on justifying our price, we will be obliged to divulge commercially sensitive information that shows how we do business in Iraq, how we cost it, and how we extract a premium but still remain competitive. [1755]

28.180 That day, Mr Baxter and Ms Freeman met with representatives of AWB's US-based legal counsel, Piper Rudnick, to discuss their views and experience about the operations and methods of the PSI and the possible implications of this for AWB.[1756] During the meeting, the representatives of Piper Rudnick gave Mr Baxter and Ms Freeman a copy of a briefing it had prepared which summarised the Defence Counsel Audit Agency (DCAA) Report. This was a report that had been jointly prepared with the Defence Contract Management Agency on the pricing evaluation of contracts awarded under the Oil-for-Food Programme.[1757]

28.181 On 28 September 2004, Mr Blazey wrote a Ministerial Submission to Mr Downer and Mr Vaile regarding Mr Downer's request to review files held in Canberra and New York on the Government's involvement in the Oil-for-Food Programme between 1996 and 2003.[1758] Mr Blazey reported:

We found no evidence on the files to support accusations that AWB Ltd paid kick-backs to the former regime, or to suggest that the Government was aware of, or involved in, any inappropriate conduct in connection with the Oil-for-Food programme. Our Mission to the United Nations was advised by OIP of accusations (raised by an unnamed third country) that AWB Ltd had used 'irregular payment methods', and the files also refer to kick-back allegations levelled by US Wheat Associates, but we found no evidence to support either claim. [1759]

28.182 On 28 September 2004, Mr Cooper and Mr Hargreaves gave a verbal update to the AWBI Board on Project Rose.[1760] The Board minutes record that the Board discussed the update.[1761] Notes in Mr Cooper's notebook record the following information was to be conveyed to the Board:

28.183 On 5 October 2004, Mr Hargreaves sent some revised talking points by email to Ms Freeman for Ambassador Thawley's meeting with Senator Coleman.[1763] On 7 October 2004, Ambassador Thawley met with Senator Coleman in Washington DC.[1764]

28.184 On 8 October 2004, Mr Hargreaves had a telephone conversation with Ms Freeman in which she enquired whether AWB would be prepared to submit a 'goodwill' document for the PSI.[1765] A 'goodwill' document was something that would be a gesture towards the PSI by AWB providing some information about their experience of doing trade in Iraq under the Oil-for-Food Programme.[1766] A document was prepared by Minter Ellison for possible provision to the PSI however it was never provided.[1767]

28.185 Mr Hargreaves had a further telephone conversation with Ms Freeman and Mr Baxter on 12 October 2004. Messrs Cooper, Trewin, Chesterman and McDermott (from Piper Rudnick) also participated in the telephone conference. The purpose of the telephone conference was to provide AWB with a summary of the meeting between Ambassador Thawley and Senator Coleman.[1768]

28.186 In November 2004, Mr Hockey contacted Mr Hargreaves and told him that DFAT required a point of contact at AWB to pass on to the Independent Inquiry Committee.[1769] On 17 November 2004 Mr Hargreaves sent an email to Mr Blazey advising him that he was the AWB contact in relation to the United Nations and the Oil-for-Food Programme Inquiry.[1770]

The IIC investigation continues

Cooperation with the IIC

28.187 On 19 November 2004, Mr Blazey wrote a Ministerial Submission to Mr Downer and Mr Vaile regarding a request for information received from the IIC.[1771] Mr Blazey referred to a meeting held on 8 November 2004 with the Australian mission to the United Nations and representatives of the IIC. Mr Blazey noted that

The high-level UN panel investigating alleged corruption in the Oil-for-Food (OFF) program has asked us for information about Australian suppliers to the program and possible breaches of sanctions. They have also asked for relevant documents held by the Government and to interview officials. We have an obligation under UNSCR 1538 to cooperate with the panel. While we propose to offer an appropriate level of assistance, we do not intend to provide copies of documents already held by the UN, and while we will entertain written questions, we will not allow officials to be interviewed. We will encourage companies to seek independent legal advice.[1772]

On 22 November 2004, Mr Downer read and endorsed the recommendation made by Mr Blazey.[1773]

28.188 On 22 November 2004, Mr Blazey wrote to Mr Hargreaves advising that the IIC inquiry had requested assistance from the Australian Government and that AWB was encouraged to co-operate with the inquiry.[1774]

28.189 On 2 December 2004, Messrs Hargreaves and McBride circulated a memorandum to the ELG regarding Project Rose. The memorandum noted that through DFAT, AWB had been asked to provide a contact point for the IIC inquiry and that AWB's strategy was 'to insist that all communication be conducted through DFAT since they were conduit for approval process for sales into Iraq under OFF'.[1775]

28.190 On 11 December 2004, following receipt of this letter, Mr Hargreaves had a telephone conversation with one of the IIC investigators. Mr Hargreaves could not recall the precise details of the conversation but he could recall that it concerned the IIC inquiry and AWB's cooperation with it.[1776] Following Mr Hargreaves' initial discussion with this IIC investigator, several emails passed between them regarding the IIC inquiry. Mr Hargreaves was also involved in discussions with Messrs Cooper and Chesterman in relation to his contact with the investigator.[1777]

28.191 In mid December 2004, Mr Stewart received a telephone call from Mr Downer. Mr Downer told Mr Stewart that some time prior to the call, the Prime Minister had received correspondence from the Volcker Inquiry (IIC), and that the Prime Minister had instructed him to tell AWB to cooperate. Mr Stewart told Mr Downer there were some differences concerning a protocol for the provision of confidential information to the Volcker Inquiry but that AWB would cooperate with the Volcker Inquiry.[1778]

14 December 2004: joint information session

28.192 On 14 December 2004, the Boards of AWB Limited and AWBI attended a joint information session. Presentations were given by Mr Long about Iraq and by Mr Trewin about the Iraqi Debt Senate Inquiry. In addition a presentation was also made by Mr Cooper concerning 'Project Water-Tigris'.[1779]

28.193 The minutes of the AWBI Board meeting held on 14 December 2004 and the AWB Limited Board meeting held on 15 December 2004 record that:

The Managing Director briefed the Board in relation to the Tigris transaction. It was noted that Tigris had assisted AWB in recovering threatened wheat sales in Iraq in 2002; in consideration for that assistance AWB had assisted Tigris in recovering a debt owed to Tigris by the Grains Board of Iraq; Tigris had paid a commission for the recovery of the debt and all of that commission was paid to AWB (International) Limited and therefore to growers.

The Company had received advice from Senior Counsel that having collected the debt it was lawful to pay it to Tigris.[1780]

The IIC request for information and negotiation of memorandum of understanding

28.194 On 22 December 2004, one of the IIC investigators wrote to Mr Hargreaves by email seeking access to documentation and interviews with relevant AWB staff. The investigator sought the following information from AWB:

28.195 On 12 January 2005, Mr Hargreaves travelled to Canberra to meet with DFAT officials. The purpose of his visit was to discuss the level of cooperation DFAT was providing to the IIC and to seek some guidance from them as to how to respond to the IIC to ensure a consistent approach between AWB and DFAT. Mr Hargreaves' evidence was that Mr Blazey told him that DFAT was just a 'post box' for the United Nations and they would not be duplicating documents already sent to the United Nations by DFAT, nor would they be making staff members available for interview with IIC investigators.[1782]

28.196 On 20 January 2005, Mr Hargreaves responded to the IIC investigator's email of 22 December 2004. Mr Hargreaves did not provide an answer to the investigator's request but stated that AWB were continuing to 'explore what would be the most appropriate way to assist the inquiry'.[1783]

28.197 On 24 January 2005, Mr Hargreaves circulated a memorandum to the ELG regarding Project Rose. The memorandum noted that AWB had received a detailed request from a senior investigator with the IIC but that no information had yet been provided. The memorandum noted in respect of 'AWB's strategy':

AWB's strategy continues to be to minimise the impact if the inquiry on AWB's reputation and its business activity by remaining in the 'middle of the pack'-not standing out for fulsome cooperation nor for recalcitrance. [1784]

28.198 On 27 January 2005, the IIC investigator again wrote to Mr Hargreaves seeking a response to his original request of 22 December 2004.[1785]

28.199 On 31 January 2005, Mr Hargreaves responded to the IIC investigator's email. His response was:

We struggle to see how there would be any benefit in duplicating the chain of documentation regarding our trade with Iraq under the OFF program given you are already accessing this information through the United Nations, but would be prepared to discuss this with you.

Further, given the effluxion of time and company policy it would not be our intention to offer AWB representatives for interview but would consider a process for answering questions on notice.[1786]

Ambassador and First Secretary's meeting with Mr Volcker

28.200 On 7 February 2005, Ambassador Dauth and First Secretary to the United Nations Mr Milton, met with Mr Volcker and IIC senior investigators at Mr Volcker's request. Following the meeting Mr Milton sent a cable to Canberra reporting on the meeting. The cable read:

2. Volcker said he wished to discuss Australia's cooperation with the inquiry. Speaking frankly, he thought the IIC had encountered a problem with Australia's cooperation and, of all countries, did not want Australia to be on the inquiry's black-list. Australia, he said, had been 'beyond reticent, even forbidding' in responding to the Committee's requests. It was important to break through this barrier.

3. Volcker said, quite bluntly, there was strong evidence the AWB had been involved in illegal surcharges and kickbacks under the Oil-for-Food program. According to Pieth, the AWB had operated through a middle-man in Jordan under the pretence of paying transportation costs. After calculating for haulage, Pieth thought the AWB had paid perhaps an eight to ten percent surcharge. Volcker said the AWB's involvement was significant for the IIC. The AWB had been the largest contractor of sales of humanitarian goods to Iraq under the OFFP. While the AWB was not alone in paying surcharges for its shipments, its case could help the inquiry investigate other cases that were not as large but could be more damaging. Volcker said the UNSC 661 Committee had known about the surcharges, but had done nothing. This was of great concern and the Committee would need to look into this further.

Comment

12. Volcker's message was blunt. On the evidence available, his inquiry considers the AWB was involved in illegal surcharges and kickbacks under the Oil-for-Food program. His position that it would be in the AWB's interests to cooperate with the inquiry was clear-and underscored by his reference to the inquiry's 'neutral' treatment of BNP (at least in its interim report) following its cooperation with the inquiry. We should make clear to the AWB it will need to consider its position carefully. Volcker also said that they had significant information about AWB's role from Iraqi sources and material. On the basis of Volcker's interim report, it is apparent he will not be afraid to name and shame those he considers acted outside the rules and regulations of the OFFP.

13. Volcker's unhappiness with Australia's cooperation in general is also apparent. We believe that we should reply to his requests for information quickly. [1787]

28.201 On 8 February 2005, Mr Borrowman, Assistant Secretary International Division of the Department of the Prime Minister and Cabinet, wrote a brief to the Prime Minister for the purpose of updating him on investigations into the United Nations' Oil-for-Food Programme. The brief read:

Key Issues: Volcker Approach: Volcker has told Australian officials that he considers there is 'strong evidence that AWB Ltd was involved in illegal surcharges and kickbacks under the OFFP', in particular that AWB knowingly paid inflated transportation costs which were kicked back to the Iraq regime. … Volcker emphasised that it would be in AWB's interest to cooperate more fully with the IIC.

…

Recommendation: that you note the above. [1788] [emphasis added]

28.202 Mr Milton's cable was brought to the attention of Mr Downer on or about 9 February 2005. Mr Downer immediately telephoned Mr Milton and instructed him to convey to Mr Volcker that the Australian Government would give its full cooperation to the IIC. Mr Downer then discussed the matter with the Prime Minister, who endorsed his instruction. Mr Downer directed DFAT to ensure that the IIC had full cooperation. He also telephoned Mr Stewart to urge AWB to give its full cooperation to the IIC.[1789]

28.203 On 9 February 2005 Mr Blazey wrote a Ministerial Submission to Mr Downer and Mr Vaile regarding the Ambassador's meeting with Mr Volcker. The submission noted:

We understand you (Mr Vaile) are informing AWB Ltd of the UN's concerns about their perceived lack of cooperation and the risks from non-cooperation and are encouraging them to cooperate with the IIC. In doing so we recommend you also seek AWB Ltd's consent to the Government handing to the IIC AWB Ltd sourced information that may be in our possession.

…

Volcker also told us 'there was strong evidence AWB Ltd had been involved in illegal surcharges and kick-backs under the Oil-for-Food programme'. According to him, AWB Ltd paid an 8 to 10 per cent kick-back through a middle-man in Jordan under the pretence of paying transport costs. Volcker implied that if AWB Ltd cooperated it would be treated more generously. (AWB Ltd have acknowledged privately and in comments to the press in April 2004 that they could not vouch for the bona fides of the trucking company they used in Iraq, but that they were required to use the company under the terms of the programme, and did not knowingly pay kick-backs.)[1790]

28.204 On 9 February 2005, Mr Hargreaves wrote to the IIC investigator informing him of his and Mr Cooper's plans to be in the United States during February. Mr Hargreaves sought a meeting with the investigator to explore 'a mutually acceptable process by which AWB could assist the IIC in its inquiries'.[1791]

28.205 On 10 February 2005, a telephone conference was held regarding Project Rose. Attendees were Messrs Stewart, Lindberg, Cooper, Long, McBride, Trewin, Hargreaves and Dr Fuller. Mr Cooper's note of the telephone conference records:

Downer call-must be full cooperation

Aust. Govt respects Volcker

Last thing you want is for there to be allegations of corruption which wd require us to put Fed. Police on case

They won't release AWB K's w/o our permission

…

We will cooperate but it has got to be measured & sensible. [1792]

28.206 On 9 February 2005, Mr Vaile spoke to Mr Stewart. Mr Vaile told Mr Stewart that concerns had been raised by Mr Volcker about the company's lack of cooperation with the Volcker Inquiry. Mr Vaile said that it was the government's view that the company ought to fully and expeditiously assist in the investigations.[1793]

28.207 On 10 February 2005, the Prime Minister endorsed Mr Borrowman's brief noting 'there must be full disclosure & transparency'.[1794] On the same day the Prime Minister requested that Mr Vaile write to Mr Stewart to impress upon AWB the importance of its full cooperation with the IIC. The Prime Minister discussed the contents of this letter with Mr Vaile, and approved them, before the letter was sent.[1795]

28.208 On 10 February 2005, Mr Vaile wrote to Mr Stewart referring to the matters raised in his telephone conversation with Mr Stewart on 9 February 2005. The letter read:

It is the Government's strong view that censure of AWB Limited by the Volcker panel would be seriously damaging to the reputation and standing of the company. For this reason, I urge you in the strongest possible terms to fully and expeditiously assist the IIC in its investigations.

The IIC has proposed an MOU with the Australian Government which contains appropriate protections against improper use or release of confidential information passed by the Government to the IIC. In the Department of Foreign Affairs and Trade's previous correspondence with AWB Limited it indicated that AWB Limited should seek its own legal counsel. This remains the Government's view, including in relation to any interest AWB Limited may have in seeking appropriate assurances from the IIC regarding the improper use of AWB Limited information. That said, given the seriousness of the concerns raised by the IIC Chair, I am strongly of the view that it is in your interests to cooperate fully and supply the requested documentation.[1796]

That day, the IIC investigator responded to Mr Hargreaves' email of 9 February 2005. The investigator reiterated his request for access to information previously sought and stated:

In terms of 'a mutually acceptable process by which AWB could assist the IIC in its inquiries', the AWB was a leading contractor under the United Nations Oil-For-Food Programme (OFFP). The IIC has been tasked with conducting an investigation of the OFFP. As part of that investigation the IIC will be investigating the very public allegations made against the AWB. In order to conduct a proper investigation it is necessary for the IIC to have access to all relevant documentation and to conduct interviews with AWB staff who have relevant information.[1797]

28.209 On 11 February 2005, Mr Blazey wrote to Mr Lindberg noting the recent correspondence and telephone conversation between Mr Stewart and Mr Vaile and seeking a response to Mr Vaile's request regarding AWB's consent to the department passing any relevant AWB material in its possession to the IIC.[1798]

28.210 On 14 February 2005, Mr Quennell met with Messrs Lindberg and Cooper, Dr Fuller and Mr Chesterman of Minter Ellison. At that meeting he showed Mr Lindberg a number of documents which, he said, required explanation. His evidence was that he thought he discussed with Mr Lindberg emails written in 1999 concerning the inland transport arrangements and that he expressed his own reservations.[1799] Mr Lindberg agreed that he was briefed by Mr Quennell in February 2005 at which time he was shown documents which he subsequently described as 'blemishes'.[1800]

28.211 On 16 February 2005, Mr Lindberg had a telephone conversation with Mr Volcker regarding AWB's cooperation with the IIC Inquiry. Notes drafted in preparation for that telephone call contained a number of dot points regarding AWB's cooperation and the IIC's request for documents. Part of those notes were in the following terms:

… It would be helpful in these dealings if the IIC understood the process for exports to Iraq under the OFF Program.

DFAT was central to this process. All communication with the United Nations pertaining to Australian involvement or the involvement of Australian companies in the OFF was undertaken through DFAT. For example:

1. All exports to Iraq throughout the life of the OFF Program were undertaken with the full knowledge of, and in consultation with, DFAT.

2. All documentation between AWB Limited (AWB) and the UN was handled through DFAT.

3. In each case DFAT granted permission to AWB to export pursuant to regulation 13CA of the Australian Customs (Prohibited Exports) Regulations (As Amended).[1801]

28.212 On 17 February 2005, Mr Lindberg responded to Mr Blazey's letter of 11 February 2005.[1802] Mr Lindberg confirmed that he had been in contact with Mr Volcker and reassured him that AWB would be cooperating with the IIC.

28.213 Mr Lindberg also wrote that day to Mr Volcker regarding the IIC's work and his request for assistance from AWB.[1803] Mr Lindberg referred to matters discussed during a telephone conference on 16 February 2005 and provided a summary of the 'main points' made in that conversation. The IIC was provided with a draft confidentiality agreement dated 18 February 2005.[1804]

28.214 By letter dated 18 February 2005, Ms Ringler, Counsel to the IIC, informed Mr Lindberg that the Committee was unable to accept the confidentiality agreement proposed by AWB.[1805] Attached to Ms Ringler's letter was a proposed memorandum of understanding which Ms Ringler said embodied the extent of the protections that the Committee was willing to extend to AWB.[1806]

28.215 Mr Lindberg subsequently gave Mr Cooper responsibility for negotiating the Memorandum of Understanding.[1807] These negotiations took place between 22 February and 26 February 2005.[1808]

28.216 They concluded in a memorandum of understanding, pursuant to which AWB set up a data room comprising 24,000 pages of AWB documents being documents falling within the categories formulated in the memorandum of understanding. Those documents were made available at AWB's office in Melbourne for inspection by investigators from the IIC.[1809] Those documents were the 71 volumes initially made available to this Inquiry. They omitted many relevant documents briefed by Mr Quennell to Mr Tracey QC as being important. They did not contain any of the results of the investigations conducted by AWB during or as part of Project Rose.

22 February 2005: concurrent meeting of the Boards

28.217 On 22 February 2005, a concurrent meeting of the Boards of AWB Limited and AWBI was held to brief the directors on Project Rose. The minutes disclose that the Board was briefed by Mr Lindberg, Mr Cooper and external lawyers in relation to the following issues[1810]:

28.218 The minutes also disclose that a Working Group was to be established 'to oversee Project Rose matters and receive legal advice on an ongoing basis'. The Working Group comprised Mr Stewart, the Chairman, Mr Lindberg, Mr Barry (Chairman of the Audit Committee), Mr Polson (Chairman of the Group Corporate Risk Committee), and Mr Starr (Chairman, Compliance Committee).

28.219 Dr Fuller's notes of the meeting record the following in respect of Mr Lindberg's address to the Boards:

Issues

28.220 Dr Fuller's notes then record the following discussion (in part):

J. Thame -Wisdom of hindsight. Wished hadn't done that.

AL -Tigris

J. Thame -Notified D & O Insurance

J.C. -Haven't yet but will do so

…

AL - Blemishes-emails. Former employees

…

CM -Any poss-engaged in activities

AL -can't say that

…

Peter H -Briefing-Vaile's staff sympathetic [1812]

28.221 Dr Fuller's evidence about Mr Lindberg's reference to 'blemishes' was that Mr Lindberg was describing some of the documents that had been reviewed as part of AWB's internal investigation and that Mr Lindberg said 'well, look, there are some blemishes there; there are some emails that could be misinterpreted or would not look good'.[1813]

28.222 Mr Stewart said that Mr Lindberg did at some stage talk about the investigations that they had and about emails, in terms of some 'Boys' Own stuff'. He said that the Board was continually reassured that there was nothing that had come to light that would cause them concern.[1814]

28.223 Mr Lindberg did not dispute that he reported to the Board that there were some 'blemishes' and some 'Boys' Own' documents that had been assembled by Mr Quennell. He said that he told the Board that he had sought Mr Quennell's advice about the documents.[1815]

28.224 On 24 February 2005, Mr Cooper and AWB's stakeholder relations team met with Mr Zwier and Ms Thompson from Arnold Bloch Leibler for a 'brainstorming session'. On a whiteboard Mr Cooper took notes of 'worst case allegations that the stakeholder relations managers could come up with, for which they said we [AWB] need to have a developed and agreed position'.[1816] The notes read:

Shortcomings (Alia) PROJECT ROSE

The IIC visit

28.225 Between 26 February 2005 and 2 March 2005, IIC investigators attended the Melbourne office of AWB to review documents.[1818] In addition, the investigators interviewed the former Chairman, Mr Flugge and three members of AWB's staff, Mr Lindberg, Mr Long and Mr Hockey.[1819]

28.226 On 3 March 2005, Mr Blazey wrote a Ministerial Submission for the information of Mr Downer and Mr Vaile.[1820] The submission noted that two investigators from the IIC had visited Canberra and Melbourne from 22 February to 2 March in connection with their inquiry into the Oil-for-Food Programme and that full access to relevant documents and officials had been provided to them. The submission also noted that despite initial reluctance, AWB had eventually negotiated an arrangement with the IIC regarding the handling of AWB information resulting in the investigators being able to access AWB material and interview relevant employees.

28.227 On 4 March 2005, a telephone hook-up of the Project Rose Committee was held.[1821] Mr Lindberg reported on the IIC investigators' attendance at AWB's Melbourne office.[1822]

28.228 A memorandum circulated to the email group 'All Board' detailed a 'strategy to contain the media and only respond to calls if required'.[1823] Some of the 'key messages' were:

28.229 On 7 March 2005, Mr Lindberg had a telephone conversation with Mr Downer.[1824] The purpose of the telephone call was to brief Mr Downer following the attendance of the IIC investigators at AWB's offices.[1825] Prior to the telephone call, Mr Lindberg was provided with a document setting out talking points for his conversation.[1826] Some of those talking points included:

28.230 There was no reference in the talking points to Alia being part owned by the Government of Iraq, although this was known by Mr Lindberg.

28.231 Mr Lindberg's evidence was he raised with Mr Downer a number of the matters set out in the talking points and in particular, he recalled providing Mr Downer with information to the effect that:

28.232 The fact that Alia was part owned by the government of Iraq did not appear in the talking points provided to Mr Lindberg. Mr Lindberg was adamant however that he had a 'very clear recollection' of telling Mr Downer this.[1829] I do not accept Mr Linderg's recollection.

28.233 Mr Downer's recollection was that Mr Lindberg told him that the IIC was pleased with the level of cooperation that AWB had provided.[1830] Mr Downer could not recall the remaining points being raised by Mr Lindberg. Mr Downer said that if he had been told all of those things he would have made a note of it and been quite focused. His recollection was that his conversation with Mr Lindberg focused on the whole question of cooperation with the IIC.[1831] I accept Mr Downer's evidence.

10 March 2005: briefing of the Boards

28.234 On 10 March 2005, a briefing of both Boards of AWB Limited and AWBI was held for the purpose of updating the directors on Project Rose.[1832] The minutes of the AWBI Board meeting held on that same day record that the meeting had taken place prior to the AWBI Board meeting.[1833]

28.235 Mr Fuller's notes of the briefing record:

Used by US thru CPA, used by W Food Prog

RB - were others using it

AL -yes, many

Left happy Prof fully cooperated

Focus on Alia-what we knew and when we knew it

PP -Did we document ability to deliver commercially. Due diligence?

AL -Required to use by IGB. We formed the view

XM -Used before?

AL -Yes

WMcCl -Tigris?

AL -Not an issue.[1834]

28.236 Mr Stewart's evidence was that this meeting was convened essentially to report on the visit to AWB by the IIC investigators.[1835] Mr Stewart did not agree that there was a strong inference arising from Dr Fuller's notes that the Board related the Tigris matter to a possible breach of UN sanctions. He could not however explain why the Tigris matter had been raised in connection with a discussion of the Volcker Inquiry.[1836]

28.237 Mr Cooper made notes in his workbook which read:

28.238 Mr Tracey QC had already raised the third last of the above bullet points in his advice to AWB.

28.239 Mr Cooper recorded that the following Directors asked the following questions and the following answers were given:

Rob Barry 'Did other people use Alia?'

Lindberg 'Yes, many. There were many logistical issues'.

Peter Polson 'Did we document due diligence on Alia when we started using them?'

Lindberg 'No. We had to use them.'

Kerry Sanderson 'Third parties-did they know that Alia was being used?'

Lindberg 'Contract didn't mention Alia but there was common knowledge of Alia'. [1838]

28.240 It appears there was discussion concerning whether AWB had knowingly or unwittingly breached United Nations Resolution 661 by making payments to the Government of Iraq through Alia. There was an acknowledgement that there had been no due diligence upon Alia because AWB had been required to 'use' it by IGB. So far as the notes extend, there was no discussion regarding the reality of the 'trucking fees', the unexplained increase in the trucking fee by the equivalent of 10 per cent of contract value (although this was certainly known to Mr Lindberg and Mr Cooper, and, perhaps, to the Board), but the inquiry was made whether 'Tigris' had been raised by the IIC investigators.

28.241 On 11 March 2005, AWB received draft summaries of interviews from the IIC of Mr Lindberg, Mr Long and Mr Flugge.[1839]

23 March 2005: a further memorandum of instructions

28.242 On 23 March 2005, Mr Quennell provided an additional memorandum of instructions to Mr Tracey QC. The memorandum stated:

Senior Counsel's advice has previously been sought by instructing solicitors in relation to this matter. Enclosed with these instructions are twenty-six documents selected by [names edited for confidentiality] of the Independent Inquiry Committee for reference in their interviews of Andrew Lindberg and Michael Long on 28 February 2005 and 1 March 2005 respectively.

…

On the basis of the documents now provided to Senior Counsel (some of which were included in Senior Counsel's brief delivered on 12 May 2004), Senior Counsel is requested to advise whether his previous advice to the effect that there is:

1. no evidence of a breach by AWB (or more precisely, of a breach by Australia as a result of AWB's conduct) of UN Resolution 661; and

2. no evidence of a breach by AWB (or its officers and/or employees) of Australian domestic law

remains unchanged.[1840]

24 March 2005: the DFAT briefing

28.243 In March 2005, Mr Hargreaves drafted a PowerPoint presentation in collaboration with the Project Rose legal team for the purposes of a briefing that was to be given to DFAT on 24 March 2005.[1841] A draft of the PowerPoint presentation which was entitled 'Report on IIC visit to AWB' read under the heading 'Issues':

Focus -inland trucking arrangements

Questioning seems designed to establish whether, through the use of Alia, AWB had wittingly or unwittingly paid money to the Government of Iraq in violation of the Security Council Resolutions 661 and 986.

Questioning also sought to establish:

· How much did AWB know about the background of Alia?

· AWB representatives assured the IIC they knew nothing of any connection between Alia and the former regime until well after the OFF Program ended and allegations first began to appear in the media

Focus -Inland Trucking Arrangements

Allegations of Corrupt Payments:

AWB's legal review had found no evidence of:

Importantly, IIC advised they had found no evidence to the contrary .[1842] [emphasis in original]

28.244 On 23 March 2005, Mr Hargreaves sent an email to Ms Sharpe, copied to Mr Cooper. Ms Sharpe was Mr Lindberg's personal assistant. Mr Hargreaves' email read:

Andrew

Please find attached revised presentation for DFAT tomorrow-this has been legalled by Leonie Thompson

I would like you to have one more look at it before our meeting with them tomorrow morning

We will be flying out about 8am.[1843]

28.245 AWB has claimed legal professional privilege over the remainder of Mr Hargreaves' email. This claim was upheld.[1844]

28.246 The presentation attached to Mr Hargreaves' email was different to what Mr Hargreaves had first drafted. It was shorter by two pages and read under the heading 'Issues':

Inland trucking arrangements and fees

Questioning seemed designed to establish whether, through the use of Alia, AWB had wittingly or unwittingly paid money to the Government of Iraq through the trucking arrangements in violation of the Security Council resolutions 661 and 986.

AWB interviewees told the IIC that AWB had conducted a legal review in response to the allegations published last year in the media about Alia's connection to the former regime.

The legal review found that all fees for trucking had been paid to Alia, and no other party in accordance with the UN approved contracts

The legal review found no evidence of:

In response to a question from AWB, IIC advised they had found no evidence to the contrary

IIC were also informed that:

Inland trucking arrangements and fees

Investigators sought to establish what AWB knew about the background of Alia during the life of the OFF Program

AWB interviewees told the IIC that:

Inland trucking arrangements and fees

IIC also posed questions regarding working relationship between AWB, Alia and Grains Board of Iraq (IGB) and Iraqi State Company for Water Transport (ISCWT)

AWB assured investigators the liaison between Alia, ISCWT and AWB regarding discharge of ships was typical of any port in the world where port discharge, stevedoring arrangements impact efficiency.[1845]

28.247 On 24 March 2005, Mr Hargreaves travelled to Canberra to provide the briefing to DFAT. Mr Hargreaves was not sure which of the two PowerPoint presentations was used to brief DFAT.[1846] It is likely that the presentation that was sent to Mr Lindberg was the one used to brief DFAT-it was written in clearer language, and, as Mr Hargreaves noted in his covering email, it had been 'legalled' by Ms Thompson.

31 March 2005: Mr Tracey QC's advice

28.248 On 31 March 2005, Mr Tracey QC provided a two page memorandum of advice to Mr Quennell, entitled 'Re AWB Limited-Project Rose'. That advice was said to confirm oral advice provided to Mr Quennell.[1847]

28.249 Mr Tracey QC advised that there was nothing in the further documents provided which caused him to vary advice earlier given.

28.250 On 1 April 2005, Mr Cooper wrote to Ms Ringler regarding the summaries of interviews conducted by the IIC investigators with Mr Lindberg, Mr Long and Mr Flugge.[1848] Mr Cooper informed Ms Ringler that AWB considered the summaries to be flawed and that AWB planned to forward a detailed submission about the summaries.

28.251 Ms Ringler responded to Mr Cooper's letter on 6 April 2005.[1849] In that letter Ms Ringler also requested further information from the AWB and sought interviews with Messrs Whitwell, Watson, Emons, Stott and Edmonds-Wilson.

28.252 On 4 April 2005, Mr Blazey wrote a Ministerial Submission for the information of Mr Downer and Mr Vaile regarding the recent briefing given to DFAT on 24 March 2005. The submission reported:

AWB Ltd told us its relationship with a trucking company named Alia for Transportation had been a particular focus of the IIC investigators' interest. AWB Ltd had engaged Alia, which the IIC suspected had channelled funds to the Saddam Hussein regime, to deliver wheat sold to Iraq under OFF contracts. AWB Ltd indicated they had no knowledge of Alia's links with the regime; they had understood Alia was a Jordanian company and made payments for services to a Jordanian bank account. They also said it was an Iraqi Grain Board (IGB) requirement that they use this company.

AWB Ltd continue to use Alia's services to transport wheat within Iraq and advised us that the IGB was happy for this arrangement to continue. AWB Ltd was aware that, in the event the IIC delivered an adverse finding against Alia, AWB Ltd could be tarnished by association. We cannot exclude the possibility that the IIC could find AWB Ltd unwittingly funded former Iraqi regime elements through Alia. We recommended that AWB Ltd have a risk mitigation strategy in place should there be a negative finding against Alia. [1850]

7 April 2005: the Wheat Export Authority Board meeting

28.253 On 7 April 2005, the Wheat Export Authority secretariat reported to the Authority's Board on the IIC investigation. It noted:

Further meetings in Washington DC

28.254 On 17 April 2005, Mr Hargreaves travelled to Washington DC with Mr Trewin. During this visit they met with Messrs McDermott and Merrigan of Piper Rudnick.

28.255 Whilst in Washington, Mr Hargreaves also met with Ambassador Thawley, Ms Carayanides and Ms Freeman. During this meeting Mr Hargreaves briefed Ambassador Thawley on the IIC's recent visit to AWB in Melbourne.[1852]

28.256 Ms Carayanides' evidence regarding this briefing was:

Mr Hargreaves said words to the following effect: 'I think that AWB has cooperated with the IIC and that the IIC now has a better appreciation of AWB operations under OFF. AWB has not been involved in paying bribes in Iraq. I think the IIC will conclude that AWB was not knowingly involved in breaching sanctions, or at worst that it was unwittingly involved.' When someone asked what he meant by that statement, he replied in words to the following effect: 'The IIC is looking at the use of a fictitious trucking company. But I'm confident that AWB does not fall in that category.' To my knowledge, Mr Hargreaves referred to Alia by name for the first time either in this meeting or in the meeting on 15 June 2005.[1853]

28.257 Ms Freeman's evidence regarding this meeting was:

39. … A range of issues were discussed, including the Embassy's views on congressional interest in UN reform and the Volker inquiry, as well as the range of Congressional UN-related inquires. Mr Thawley expressly stated that while the Embassy wanted to be helpful, it was not appropriate for us to provide advice to AWB about the course of action they should take. Mr Hargreaves responded to the effect that he believed that the Inquiry's line of questioning was intended to test the theory that AWB had wittingly or unwittingly committed a technical breach of the OFFP rules in relation to its use of Alia and had therefore paid kickbacks to Saddam Hussein. Mr Hargreaves said he had no knowledge of this occurring. He referred to AWB's own legal review, which he said found that no payments to individuals had been made by AWB staff to Saddam Hussein's regime.

40. During that meeting Mr Hargreaves also reported that the Volker inquiry had asked the AWB about the 10 per cent price reduction referred to in the DCAA report (I understood the amount to be 11 per cent, but believed that we were talking about the same contract referred to in the DCAA report). Mr Hargreaves told us that the trucking component had been deleted from the contract. He said that the price in this particular contract reflected the risk of doing business in Iraq. One of us from the Embassy (I cannot recall specifically) asked if Alia was the only company that provided trucking services for goods in Iraq. I recall asking Mr Hargreaves at that meeting what company had wheat (and rice) exporters from other countries used for their trucking services. Mr Hargreaves said that the World Food Program had used Alia just after the start of the war. Mr Thawley asked if US wheat exporters were also using Alia and suggested that this sort of information might be useful in discussions with members of Congress and their staff. Mr Thawley again sought reassurance that AWB had not done anything wrong under the OFFP program and an express assurance was given by Mr Hargreaves. [1854]

28.258 Ms Carayanides and Ms Freeman met with Mr Hargreaves again on 21 April 2005. Ms Freeman's evidence was that Mr Hargreaves 'mentioned that AWB's practices were no different from anyone else's when it came to using Alia' and that he specifically said that other reputable allies were also using Alia.[1855]

28.259 On 22 April 2005, AWB provided a submission to the IIC regarding the summaries of interviews and documents referred to in the interviews.[1856] Enclosed with the submission were copies of redlined versions of the summaries with a number of changes.

22 April, 27 April and 24 May 2005: joint Board committee meetings

28.260 On 22 April 2005, a Joint Board Committee meeting of the Boards of AWB Limited and AWBI was held on the subject of Project Rose. The meeting was conducted by telephone.[1857] It was noted in the Board Minutes under the heading 'Committee's Operation' that the meeting was 'a forum for directors of AWB Limited and AWB (International) Limited to discuss Project Rose, to receive legal advice in relation to Project Rose, and if necessary, to provide advice to the respective Boards'.[1858]

28.261 The minutes of the Joint Board Committee meeting record that the Managing Director briefed the committee on Project Rose. AWB has claimed legal professional privilege over that portion of the minutes addressing the issues about which the Committee was briefed.

28.262 On 27 April 2005, a further joint Board Committee meeting of the Boards of AWB Limited and AWBI was held.[1859] At that meeting Mr Lindberg briefed the Boards on the IIC investigation.[1860]

28.263 The minutes of the meeting record that Mr Lindberg briefed the Committee on Project Rose, including the following issues:

Dr Fuller's notes record that Mr Lindberg spoke in relation to the IIC Inquiry and used the expressions 'Major exposure. Strong defences-but the headlines. Major implications for our business overseas and whether this company is fit to hold the Single Desk'.[1863]

28.264 A further joint Board Committee meeting of the Boards of AWB Limited and AWBI on Project Rose was held on 24 May 2005. The Minutes note discussion by the Boards of the 'next steps':

AWB have claimed legal professional privilege over the remaining portion of the Minutes.[1865]

28.265 Mr Cooper's notes record that Mr Lindberg said the following[1866]:

Mr Cooper's notes also record the following discussion:

XM-does Aust Govt u/stand deficiencies in the process of IIC

AL-no-we will brief them next wk

XM-we have an option of early disclosure

SC-have they specified the periods and tonnages?

AL-they have specified time period-yes

BF-do you think any linkage b/w this inquiry and latest in Iraq?

AL-there is a connection-US wheat interests have been saying that Australians recd inflated prices for wheat b/c Aust paid kickbacks to the Iraqi regime. This has caused witchhunt. US concern with UN. Trip to Iraq-US has Iraqi's agitated over prices, fraud and corruption. We are still using Alia.

XM-externals today?

AL-Arnold Bloch Leibler-strategic legal advice

XM-I favour early disclosure.[1867]

28.266 The Board minutes for the AWB Limited Board meeting held on 24 and 25 May 2005 record that the Board discussed the verbal report by the Chair of the Project Rose Committee, Mr Stewart, and noted the draft minutes of the Committee meetings held on 22 and 27 April 2005.[1868]

1 June 2005: meetings in Canberra

28.267 On 27 May 2005 and 30 May 2005, Mr Lindberg met with Mr Cooper, Dr Fuller, Mr Hargreaves and Mr Zwier and Ms Thompson of Arnold Bloch Leibler in preparation for forthcoming meetings that Messrs Stewart and Lindberg were to have with the Australian Government in Canberra.[1869] Mr Cooper's notes of those meetings record the following observations:

28.268 On 30 May 2005, Mr Stewart and Mr Lindberg were provided by Mr Trewin and Ms Slack-Smith of AWB's Government Relations with an 'Issues brief for meetings in Canberra 1 June'.[1871] The brief outlined numerous meetings that had been organised for Messrs Lindberg and Stewart to attend with Ministers and their staff and provided an outline of issues to be raised at those meetings.

28.269 On 31 May 2005, Mr Hargreaves sent an email to Messrs Stewart, Lindberg and Trewin enclosing a 'revised background sheet' on 'Wheat sales and OFF'.[1872] The background sheet, which Mr Hargreaves noted in his email was 'not for distribution', gave a brief background on the payment of trucking fees, allegations made against AWB and the launch of inquiries into the program.[1873]

28.270 On 1 June 2005, Messrs Stewart, Lindberg and Trewin met with Mr Downer in Canberra. Prior to the meeting Mr Downer was provided with a meeting brief which noted:

Main issues/outcomes:

…

(c) Note the report of the Independent Inquiry committee (IIC) into corruption in the UN's Oil-for-Food Program (OFF) is likely to be released in July or August. Welcome indications that IIC investigators who visited Australia were pleased with the cooperation they received. Note the Government will provide advice to AWB Ltd on the conduct and political context of US inquiries into the OFF, but we are not in a position to provide legal or tactical advice. [1874]

28.271 Mr Downer's recollection of the meeting was that Mr Lindberg assured him that, despite its concerns about the direction of the Volcker Inquiry, AWB had given it its full cooperation. Mr Downer emphasised the importance of AWB continuing to do so. Mr Downer also recalled some discussion about AWB's use of a Jordanian trucking company and that Mr Lindberg told him that AWB had no choice but to use that company.[1875]

28.272 Whilst in Canberra, Messrs Lindberg, Stewart and Trewin also met with Mr L'Estrange, Secretary of DFAT.

28.273 On 2 June 2005, Mr L'Estrange wrote a minute to Mr Downer and Mr Vaile concerning the meeting. The minute read:

4. According to Mr Lindberg, AWB had utilised Alia since the 1980s. AWB's understanding was that Alia was a Jordanian trucking company. In 2004, AWB's own investigations revealed that Alia was part-owned by the Iraqi Ministry of Transport. Mr Lindberg noted that AWB had had no choice but to use Alia and that no concerns had been raised regarding Alia by other organisations, including UN bodies, during the Oil for Food Program.

5. Mr Lindberg was concerned that the investigation would make a finding that AWB payments to Alia would have, at least in part, made their way to the former Iraqi Government and could be interpreted as illegal payments. This concern was based on transcripts of the interviews held by Committee investigators with AWB officials. According to Mr Lindberg, the transcripts had been written in a way he considered reflected badly on the AWB. A complaint about these transcripts had been lodged with the Committee.

…

8. Mr Lindbergh noted that AWB had made all information requested available to the Committee and that it had been commended by the Committee for its cooperation.

9. The AWB considered that a contingency plan should be formulated by the AWB and considered by the Government in the event that an adverse finding is handed down. AWB might be asked why it had not enquired more closely into the company; whether all agency and handling fees were included in the contracts submitted to the UN; whether the handling charges seemed fair or excessive at the time; and whether any other fees were paid at any time. [1876]

Mr Downer endorsed the minute noting:

Spoke to them myself: have to take it as it comes but I'm more relaxed than they are. [1877]

28.274 Mr Stewart's evidence about the various meetings was:

Q : Did you tell anybody that you met on that day from a minister's office or any minister - or, indeed, anybody else that's referred to on this schedule - that AWB was aware that it had been paying money which had found its way to the Iraqi regime?

A : No, sir. That wasn't the state of my knowledge at the time.

Q : I just need to go through this with you. I am not suggesting that it was or it wasn't, but that's why I am asking you. Did you speak about the likelihood of an adverse finding because Alia was evidently part owned by the Iraqi regime?

A : I believe that was discussed.

Q : Did you speak about what AWB's position was concerning breach of sanctions?

A : I can't recall whether our position on breach of sanctions was actually discussed, but certainly the former issue was.

Q : Can you recall anything else that you spoke about during the course of any one of those meetings?

A : I think if there was any discussion around breaches of sanctions it would have centred around the issue as to whether ownership of Alia in itself would change any position in relation to breach of sanctions, but at that particular stage I had no other information that would suggest that that was the case. [1878]

28.275 Messrs Lindberg and Trewin reported back to a meeting of the Project Rose team, including external legal advisers, regarding their meetings in Canberra on 2 June 2005.[1879] Mr Cooper's file note of Mr Lindberg's briefing read:

AL told story.

Independent QC's advice that there is no breach of UN resolutions.

Lack of due process-will get no mileage from this.

Don't go there-can't win. Don't attack Volcker.

L'Estrange-parties who had taken criticism have since been left alone.

May be better conceding pt if it is 'unwitting'.

AL-we have been using Alia since 80's and we still using them. We thought it was Jordanian co.

AL told Australian Ambassador in Iraq in 2002 of using Alia.

Govt knows they are involved in this matter.

MT-They acknowledged AWB had to use Alia-no choice-we'd have lost market-we'd have not met humanitarian need.

Downer-you can't be responsible of what happened to $ after it was paid to Alia.

Contracts were approved by UN.[1880]

28.276 There is no basis for Mr Lindberg's statement that AWB had been using Alia 'since 80s'. AWB had not had any responsibility for trucking grain in Iraq prior to July 1999 and did not actually use Alia for that purpose until October 2003.

28.277 Mr Lindberg's evidence regarding Mr Cooper's file note was:

7. … I have reviewed the note of Mr Cooper ('the Cooper note') from that meeting (Exh. 685). I believe that the Cooper note is an accurate account of what was said by Mr Trewin and I at the meeting on 2 June 2005, save for the matters set out below.

8. The Cooper note records the words 'AL told Australian Ambassador in Iraq in 2002 of using Alia'. This was not a matter that was raised in the meeting with Mr Downer or other government officials on 1 June 2005. At the 2 June 2005 meeting, I said something, by way of an aside, to the effect that I might have mentioned Alia to the Ambassador during my trip to Iraq in August 2002.

9. The Cooper note records the words 'Govt. Feels untouchable on this. US will not criticise Australian Govt.'. I do not believe this was said by Mr Downer or any government official. I believe that this was said by Mr Trewin at the meeting on 2 June 2005 and that it represented Mr Trewin's own assessment of the government's views on this matter.

10. I do recall that in the course of the meeting with Mr Downer on 1 June 2005:

11. I recall Mr Downer responded by saying words to the effect, 'You can't be held responsible for what happened after the money was paid to Alia'.

12. I have reviewed the note of Mr Michael L'Estrange (Exh. 510). I broadly agree with Mr L'Estrange's record of the conversation. In paragraph 4, Mr L'Estrange summarised the conversation and records the words, 'In 2004 AWB's own investigations revealed that Alia was part owned by the Iraqi Ministry of Transport'. I believe that I said to Mr L'Estrange words to the effect that AWB's own investigations had revealed that Alia may have been part owned by the Iraqi Ministry of Transport.[1881]

28.278 In his statement to this Inquiry, Mr Downer observed that it had been suggested that during his meeting with Mr Lindberg he made an observation to the effect that AWB could not be responsible for what happened to money it had paid to Alia. Mr Downer's evidence was that he did not say anything to that effect.[1882] He did not resile from this in oral evidence given to the Inquiry on 11 April 2006.[1883]

28.279 Mr Downer's Chief of Staff, Mr Willox, was also present at the meeting on 1 June 2005.[1884] Mr Willox did not take a contemporaneous note or record of the conversation that occurred at the meeting however he was, during the course of this Inquiry, requested by one of DFAT's legal officers to provide a note of any recollections that he had from the meeting.[1885] Mr Willox's note recorded (in part):

My recollection is that the focus of the meeting was on the AWB's concerns about the general direction of the Volcker inquiry, the provision of commercial-in-confidence material to the inquiry and how that material could potentially be used by its commercial competitors. Mr Lindberg was at pains to stress that, following the AWB's dealings with government ministers and officials earlier in the year, the AWB had co-operated fully with the inquiry with the provision of material.

The AWB was concerned that it would be subject of an adverse finding by the inquiry over its mode of transport of wheat into Iraq. It had used the same transport method for many years and other companies had used the trucking firm called Alia. He said it had little option but to use the transport company to get its wheat into Iraq because of the sheer number of trucks (up to 1200) required to unload ships.

Mr Downer stressed to the AWB that it needed to continue its cooperation with the Volcker inquiry. The Government was cooperating fully with the inquiry and the AWB had to follow suit-to not do so had the potential of damaging Australia's international reputation. This was a point Mr Downer repeated several times.[1886]

28.280 Mr Willox could not recall Mr Downer saying that AWB could not be responsible for what happened to the money after it was paid to Alia.[1887]

28.281 It is not necessary to resolve this conflict of evidence. Nevertheless, it is to be noted that there is no contemporaneous record of this statement. Further, at no time did AWB inform the Government that it had been paying monies to Alia in the knowledge that those monies were being passed on to Iraq.

June 2005: further meetings in Washington DC

28.282 On 11 June 2005, Mr Hargreaves again travelled to Washington DC for meetings with Mr McDermott and other external lawyers acting on behalf of AWB in the United States.

28.283 On 15 June 2005, Mr Hargreaves met with Ms Carayanides, Mr Baxter, Deputy Chief of Mission and Ms Freeman at the Australian Embassy in Washington DC. The purpose of his visit was to update the embassy staff on the IIC progress and to appoint advisors in the US to assist with AWB's media profile following the publication of the final findings of the IIC.[1888]

28.284 Ms Carayanides' evidence regarding what was discussed on that occasion was:

32. Mr Baxter told Mr Hargreaves that he had spoken with the Consultants, and then said words to the following effect: 'They are a top class firm with an excellent reputation. Before they take you on they want to be absolutely sure that AWB had not engaged in any kickbacks or wrong doing under the Oil for Food Programme. I want AWB's assurance that it has not been involved in any kickbacks or wrongdoing, and that it is being completely up front with us and not hiding anything.'

33. Mr Hargreaves replied in words to the following effect: 'I can assure you that AWB has not been involved in any illicit payments to the Iraqi regime or breaches of sanctions. AWB has conducted an internal audit and an independent legal review by a law firm, and both had found no wrongdoing.'

34. Mr Baxter said words to the following effect: 'This is extremely important. The Embassy is only talking with AWB on the basis that it is being up front.'

35. Mr Hargreaves replied in words to the following effect: 'AWB has done nothing wrong. It has not been involved in breaking sanctions. All of AWB's contracts were approved by the UN. No-one in AWB is aware of paying kickbacks to Iraq.'

36. Mr Baxter then asked for AWB's assessment of where things were with the Volcker Inquiry. Mr Hargreaves replied in words to the following effect: 'There seems to be some concern in the IIC that Alia was a front company and was not providing trucking services. This is not true.'

37. I have a clear recollection of Alia being mentioned by name in this meeting.

38. Mr Hargreaves continued in words to the following effect: 'Alia is a Jordanian trucking company that provided real trucking services to AWB in Iraq. Alia unloaded ships at Umm Qasr directly on to its trucks and delivered the wheat throughout the country. As far as AWB knew Alia was not a front company. AWB was not aware of Alia channelling money to Iraq.'

39. I asked whether there were alternative trucking companies AWB could have used at the time. Mr Hargreaves replied in words to the following effect: 'I don't think so-because Alia was the only company that could physically off load from the ship to the truck. This was supervised by UN inspectors.'

40. An Embassy officer (I think it was Ms Freeman) asked whether any other companies or countries used Alia. Mr Hargreaves replied in words to the following effect: 'I'm not sure, but I think Vietnam and companies from a few other countries used Alia for humanitarian assistance. I will look into this.'

41. One of the Embassy officers (I cannot now remember who) asked about allegations of over pricing of AWB's wheat contracts. Mr Hargreaves replied in words to the following effect: 'I am not aware of overpricing. The price reflected the costs of providing trucking services, which involved costs of demurrage, insurance, transport throughout the country, and so on. AWB has already made that clear.' Mr Hargreaves may have referred to one or two other countries, but I cannot recall them.

…

44. An Embassy officer (I cannot now remember who) asked why Mr Hargreaves thought IIC had focused on AWB. He replied in words to the following effect: 'The IIC seems to think Alia was a front company channelling money to Iraq. We have no knowledge of that. I also think one of the investigators on IIC may have felt he did not get sufficient access to AWB documents in Australia and was disgruntled or suspicious with AWB. AWB has cooperated with the IIC and will continue to do so.'[1889]

28.285 On 16 June 2005, Mr Hargreaves, Mr Baxter, Ms Freeman and Ms Carayanides met with representatives of a firm of Washington consultants.[1890] At the meeting the representatives from the consultancy firm sought an assurance from Mr Hargreaves that AWB had not been involved in sanctions violations.[1891] Mr Hargreaves gave an assurance to the effect that AWB had done nothing wrong, there had been no evidence of illicit payments and no breaches of sanctions.[1892]

28.286 Sometime after 16 June 2005, Ms Carayanides had a further meeting with Mr Hargreaves. At that meeting Mr Hargreaves was accompanied by Mr McDermott of Piper Rudnick.[1893]

28.287 Ms Carayanides' evidence regarding that meeting was as follows:

59. Mr Hargreaves said he had been following up on some of the ideas we had raised in earlier discussions, by which I understood him to mean my suggestion that AWB should get testimonial from Alia that could be used publicly to address allegations or misunderstanding that Alia was a front company through which kickbacks were channelled to the Iraqi regime, as well as information about other countries or companies that had used Alia under OFFP.

60. Mr Hargreaves told me that he had learnt that Alia had been used by a number of other companies. He named five or six companies. I cannot recall their names, but I can recall that he told me that some were Vietnamese, Thai and Syrian companies.

61. He then said words to the following effect: 'I have also learnt that Alia had asked for an increase in the trucking fees of 10% in 2000 which AWB had agreed to pay. This increased progressively to 35-45% of the trucking fees by the end of the Oil for Food Programme. Alia is a Jordanian company. AWB had paid Alia in Jordan. AWB did not pay any money to Iraq.'

62. To the best of my recollection, I responded that: 'This sounds like a grey area to me. It seems to me to turn on what was a reasonable price to pay for the trucking service at the time. Was the amount paid to Alia for trucking services reasonable?'

63. He replied in words to the following effect: 'Yes, he thought it was reasonable, because it reflected the costs of insurance and transportation throughout the country in difficult circumstances. Alia was providing a real service, and AWB was paying for that service. It was the only trucking company that was reliable and that AWB could use to off load wheat into trucks at Umm Qasr. No one in AWB knew of any money being channelled to the Iraqi regime through Alia. AWB had conducted an independent legal review which hadn't turned up any wrongdoing.' [1894]

28.288 Ms Carayanides' evidence was not in serious contest and should be accepted. Mr Hargreaves could recall having a meeting with Ms Carayanides and Mr McDermott. He said that he was aware that Alia had been used by a number of other companies and he agreed that he may have provided her with that information. Mr Hargreaves also recalled that Ms Carayanides had asked about how the trucking fee was paid. His evidence was that he thought Mr McDermott gave her an explanation of how the fees had been introduced and paid, and did mention to her the 10 per cent uplift. However, Mr Hargreaves could not recall Ms Carayanides inquiring about whether the amount paid to Alia for trucking services was reasonable.[1895]

28 June 2005: an AWB Board meeting

28.289 On 25 June 2005, Mr Hargreaves prepared, in consultation with AWB's legal advisers, a memorandum for Mr Lindberg for him to speak to at the forthcoming Board meeting on 28 June 2005. The memorandum reported (in part):

HIGHLIGHTS SINCE LAST BOARD REPORT

…

Meetings with Federal Government

28.290 There is no evidence to suggest that the last three dot points reflect discussion between AWB and Ministers or officials of the Commonwealth.

28.291 The Board Minutes for the AWB Board meeting of 28 June 2005 record that the Board discussed the Managing Director's Report for the period 1-31 May 2005 including an Iraq update and a Project Rose update.[1897]

Discussion paper: payments to Alia

28.292 On 5 July 2005, Mr Chesterman and Ms Bigby of Minter Ellison forwarded to Messrs Cooper and Hargreaves a 'draft discussion paper, which analyse[d] AWB's position that the payments made to Alia Transport…[did] not contravene the UN sanctions regime established by Security Council Resolution 661 under international law'.[1898] The attached discussion paper expressed a view on each of the following four issues:

Further memorandum of instructions

28.293 On 20 July 2005, Mr Quennell provided a further memorandum of instructions to Mr Tracey QC. The memorandum requested Mr Tracey QC to confirm his oral advice of 25 May 2004 in writing and to give his reasons for such advice.[1908]

28.294 On 29 June 2005 Mr Cooper wrote to Ms Ringler in response to her letter dated 6 April 2005.[1909] He did not respond to her request for interviews with Messrs Whitwell, Watson, Emons, Stott and Edmonds-Wilson.

27 July 2005: an AWB Board meeting

28.295 At the AWB Board meeting on 27 July 2005, the Board discussed the Managing Director's Report for the period 1-30 June 2005.[1910] That report advised that in respect of Project Rose:

28.296 The Board Minutes also record that a joint information session had been held on 26 July 2005 attended by directors of both AWB Limited and AWBI and that one of the updates provided during that session included Project Rose.[1912]

12 August 2005: memorandum of advice

28.297 On 12 August 2005, Mr Tracey QC provided AWB with a memorandum of advice, said to confirm oral advice given in conference on 25 May 2004.[1913] Mr Tracey QC noted that there were passages in various documents with which he had been briefed which were 'suggestive of the possibility that the trucking fee was, in fact, a payment by the AWB to the IGB in contravention of Resolution 661'. Despite this, Mr Tracey QC concluded that the material was insufficient to establish that a breach or breaches occurred. Mr Tracey QC advised:

22. … The absence of any documentation evidencing the commercial basis for the fixing of the trucking fee at various rates and the absence of any contract with Alia may be taken as suggesting the existence of a bogus arrangement under which money was paid through Alia to Iraqi authorities for a purpose other than payment for the provision of trucking services. On the other hand, it may be that the payments were in the nature of an incentive to make it worth the while of Alia to provide more trucks to clear the wheat. … That said, the absence of a contract between AWB and Alia is surprising. However, the evidence does not go so far as to suggest that none was ever entered into.

23. It is also of concern that the Department of Foreign Affairs and Trade was not told, when its advice was sought in late 2000, about these pre-existing events. The AWB gave the Department the impression that the demurrage problem had only recently arisen and that the trucking fee solution was about to become the subject of negotiations with Alia. …

24. Ultimately, however, the question that I was asked to advise on was whether there was evidence that AWB may have contributed to a contravention by Australia of its obligations under Resolution 661. A breach of that resolution would only have occurred if the trucking fees had been paid to the IGB or the Iraqi Government and then only if it was not paid for a legitimate commercial purpose. Whilst some of the material with which I have been briefed raises suspicions that there may have been a perception within the AWB that any payment of the trucking fee may have contravened Resolution 661 and that it was necessary to make the payment to Alia in order to avoid any suggestion that the payments, if made directly to the IGB, would have been in breach of the Resolution, there is absolutely no evidence in the material provided to me that any of the money paid by the AWB to Alia was ever forwarded to the IGB or any other arm of the Iraqi government. It was for this reason, that, despite some misgivings I answered the question posed for advice in the negative. [1914]

Memorandum to directors and ELG members

28.298 On 8 September 2005, Mr Fuller sent a memorandum to 'Directors & Members of ELG' regarding the 'UN Oil For Food Program-report by Volcker Committee'.[1915] The purpose of the memorandum was said to be 'to provide detail on the contents of this latest report and how AWB management is responding'. The memorandum read:

AWB paid a legitimate transport company, based in Jordan and that company provided a genuine service that was critical in successfully distributing wheat to people throughout Iraq.

At no stage did AWB ever pay the Iraqi Government or an Iraqi entity for these transport services. It is also important to note that the company used by AWB during the OFF Program was subsequently endorsed by the Coalition Provisional Authority after the invasion in 2003.

The following points should also be noted:

Request for expert opinion from Sir Anthony Mason

28.300 On 16 September 2005, AWB's lawyers, Arnold Bloch Leibler, retained Sir Anthony Mason, a former Chief Justice of Australia, as an expert on behalf of AWB in order to provide an opinion concerning the operation and effect of specific clauses contained in UN Resolution s 661 and 986.[1917] In particular, Sir Anthony's opinion was sought in respect of the following:

28.301 In answering the above questions, Sir Anthony was asked to provide a legal interpretation of the effect and operation of the United Nations sanctions Resolutions and to consider whether the payment of the inland transportation fees could fall within the exception set out in clause 4 of Resolution 661.

20 September 2005: Mr Tracey QC's advice

28.302 On 22 September 2005, Mr Tracey QC advised upon the following questions:

28.303 Mr Tracey QC answered both questions in the negative.[1920] He observed that on the facts and assumptions upon which he had been asked to advise 'All payments were made to Alia in Jordan [and] AWB ha[d] no reason to believe that any of the funds might have been remitted to the Iraqi regime or any individuals within it'.[1921] Mr Tracey QC advised that even if Alia was half owned by an Iraqi entity, it did not follow that there had been a contravention of Resolution 661 because the prohibition on making available funds only applies to Iraqi government entities 'in Iraq or Kuwait'.[1922] Further, the exception in favour relating to 'humanitarian purposes' would likely have applied in any event.[1923] Mr Tracey QC advised that he was not 'aware of any Australian law which would have been contravened by the AWB or any individual by reason of the payments made to Alia'.[1924]

28.304 Mr Tracey QC's advice was sent by email to Mr Lindberg on 26 September 2005.[1925]

Request for meeting with Mr Volcker

28.305 On 20 September 2005, Mr Stewart and Mr Lindberg wrote to Mr Volcker seeking an urgent meeting with Mr Volcker and his Committee to discuss the inquiry. The letter expressed a number of AWB's concerns regarding the process undertaken by the IIC and noted as follows:

… it is obvious from your latest report that the Committee is concerned about the use of fees for fictitious trucking services paid to 'alleged' transport companies. AWB played no part in this. We do not sit within this category. AWB participated in the OFF Program in good faith and in accordance with the UN Security Council guidelines as we understood them.

So that you are able to more fully appreciate AWB's situation, we reiterate what we have said before in the context of your recent report:

…

28.306 On 21 September 2005, Mr Hargreaves sent a copy of this letter by facsimile to the Australian Embassy in Washington. In his facsimile, Mr Hargreaves noted that he would contact Ms Carayanides to 'background' her.[1927]

Mr Downer's meeting with Mr Volcker

28.307 On 22 September 2005, Mr Downer met with Mr Volcker in New York to discuss the IIC's investigations. Also present at the meeting were two IIC officials, Ambassador Dauth and Messrs Willox and Milton. A record of conversation made by Mr Milton recorded:

3. Mr Downer said the Department of Foreign Affairs and Trade had conducted a thorough search of its files and had found no evidence the AWB had been corrupt or had otherwise acted improperly under the OFFP. It appeared the AWB had used a trucking company in Iraq referred to it by the Government of Iraq which charged inflated prices for internal transportation. One conclusion that could be drawn from this was that the Government of Iraq or Ba'ath party had profited from the arrangement. But there was no evidence the AWB had been aware of the relationship between the contractor and the Iraq government. The AWB had not colluded to exclude others from contracts under the OFFP nor was its relationship with the trucking company in any way inappropriate. There was no evidence that officials had solicited or taken bribes. The Australian Government would take any such allegations very seriously. [1928]

28.308 On 26 September 2005, the Executive Director of the IIC, Mr Morden wrote to Mr Lindberg summarising the narrative that the Committee intended to include in the IIC report regarding the conduct of AWB during the United Nations Oil-for-Food Programme.[1929]

27 September 2005: a meeting with DFAT

28.309 On 27 September 2005, Messrs Hargreaves and Trewin attended a meeting at DFAT in Canberra with Ms Gillian Bird and other DFAT staff. The purpose of this meeting was to discuss the issue of the forthcoming release of the IIC findings.[1930] Following the meeting a DFAT officer, Mr Brancatisano drafted a record of conversation.[1931] The note recorded that Mr Trewin said:

From information available, the IIC would focus on claims that numerous trucking companies were phoney and were a front for the regime, and the assumption therefore that AWB must have known that any payment would have gone to the regime. AWB were different because they had actually used transport services.

In the fourth report, the issue of the Canadians raising irregularities was mentioned. AWB had an ROC of the meeting between DFAT and AWB on the issue and was wondering whether DFAT had any further information on dealings with the Sanctions Committee.

AWB had conducted internal investigations, including outside legal advice, which concluded that they had not breached sanctions.

AWB understood that it was important not to mischaracterise the Government's role, for example by claiming that the Government had approved the contracts.

and that Mr Hargreaves said:

Some companies were paying for fictitious services, but that AWB paid for actual services and the contractual template as put through the sanctions committee made it impossible to differentiate between legitimate and illegitimate companies. [1932]

28.310 Mr Hargreaves accepted that the record of conversation was 'generally accurate' but there were some things that he did not believe were accurate in the 'way they were accounted'.[1933] Mr Hargreaves could not recall whether Mr Trewin said that AWB was different because they had actually used transport services, but his evidence was that Mr Trewin would have had a belief that AWB was paying for a genuine service.[1934] It was Mr Hargreaves' belief that AWB had paid for a genuine service.[1935] This belief emanated from a briefing he had received when he was appointed to the Project Rose team, and it was knowledge that had built up since that time.[1936]

28.311 In respect of the Canadian complaint, Mr Hargreaves was not aware of any record of conversation or meeting between DFAT and AWB on the issue of the Canadian complaint.[1937]

28.312 On 27 September 2005, a joint information session of the Boards of AWB Limited and AWBI was held. Project Rose was the subject of an oral presentation.[1938] At that meeting the directors were provided with a copy of AWB's letter to Mr Volcker of 20 September 2005 and the IIC letter to AWB of 26 September 2005.[1939]

28 September 2005: Professor Wippman's memorandum

28.313 On 28 September 2005, Mr McDermott of Piper Rudnick emailed Mr Hargreaves an 'informal note' from Mr Wippman, Professor of Law, Cornell Law School.[1940] It is implicit in Professor Wippman's note that he was asked to advise on whether it was permissible, under the sanctions regime that applied to Iraq, to pay 'hard currency to a Jordanian company' on account of inland trucking.[1941] Professor Wippman traced the evolution of the sanctions regime. He expressed the view that, having regard to the evolution of the regime, 'AWB could reasonably conclude that payment of reasonable and customary inland transportation fees was not precluded by the sanctions regime'.[1942]

Inquiries in Jordan

28.314 Following receipt of the draft findings of the IIC, Mr Hargreaves discussed them with Ms Thompson of Arnold Bloch Leibler. It was decided that AWB should send someone to Jordan to confirm Alia's position. In consequence, Mr Long travelled to Jordan to speak to Alia about the draft findings.[1943]

28.315 On 4 October 2005, Mr Long sent a facsimile to Ms Thompson and Mr Hargreaves. Mr Long had spoken with Mr Al Absi from Alia. His facsimile read:

Points he will tell the committee:

…

28.316 The facsimile also recorded the following diagram in respect of how the 'trucking system' worked:

28.317 Mr Long's evidence was that he was told in the course of his meeting with Mr Al Absi that in respect of the chain of payments of money - AWB would pay Alia, Alia would transfer the money to the ISCWT, and the ISCWT would pass the money to the Ministry of Transport.[1945] He agreed that, having had this conversation, he could be in no doubt, from 4 October 2005, that Alia was a conduit for the monies that AWB had been paying to it for trucking fees.[1946] Those monies were passed to the Iraqi Government Ministry.

28.318 Mr Hargreaves' recollection was that after receipt of this facsimile (although it may have been following receipt of a second facsimile the following day), Mr Long telephoned him from Jordan and told him that, although the matter was complicated, it was looking like Alia had not provided trucking services.[1947]

28.319 A further facsimile addressed to Ms Thompson and Mr Hargreaves was received from Mr Long on 5 October 2005.[1948] This facsimile attached an Agency Agreement and minutes of a meeting between the Iraqi Grain Board and Alia. The following day Mr Long sent another facsimile to Ms Thompson and Mr Hargreaves attaching further documents.[1949]

28.320 Mr Hargreaves discussed the contents of the facsimiles with Ms Thompson and Ms Thompson told him that she would brief Mr Lindberg. Despite this, Mr Hargreaves thought it necessary to inform Mr Lindberg of the material himself and to inform him that Ms Thompson would contact him to discuss further. Mr Hargreaves subsequently attended Mr Lindberg's office and informed him that he had heard back from Mr Long in Iraq. They discussed the facsimile.[1950] His evidence about this conversation was:

I was simply giving him a heads up that we'd heard from Michael and that it didn't look like-it didn't look like Alia had done the trucking, and that he'd be hearing more from Leonie.[1951]

28.321 Mr Hargreaves did not show Mr Lindberg the facsimiles received from Mr Long.[1952] He told Mr Lindberg that 'it was complicated' and that there had been detailed faxes from Mr Long that needed assessment by Ms Thompson.[1953] Mr Hargreaves could not recall Mr Lindberg's response.[1954]

4 October 2005: a meeting with Mr Downer

28.322 On 4 October 2005, Messrs Stewart and Lindberg travelled to Canberra to brief Mr Downer on the proposed findings of the IIC.[1955] Also present at the meeting were Mr Trewin, Mr Innes Willox, Chief of Staff of Mr Downer's office, Mr Windsor, Advisor and Mr Innes-Brown, Head of the Iraq Task Force.

28.323 Following the meeting, Mr Innes-Brown drafted a record of conversation.[1956] The note records that that Mr Lindberg said:

The last two dot points were not true statements, Mr Lindberg had no basis for making those statements.

28.324 On 6 October 2005, Mr Lindberg wrote to Mr Volcker in response to Mr Morden's letter dated 26 September 2005. The letter stated:

Mr Morden's letter was the first occasion upon which I had been informed that Alia for Transportation & General Trade ('Alia') was simply a 'front company' for the government of Iraq and that it did not provide transportation services to AWB Limited ('AWB'). AWB was never informed of this by Cotecna (who presumably certified the unloading of AWB's wheat into trucks) or by the UN's Security Council or by anyone else.

…

When rumours first surfaced about the trucking arrangements and Alia after the OFF Program, I instituted internal enquiries. Those enquiries revealed no evidence of fraud or corrupt payments by AWB employees to the Iraqi government. Your investigators confirmed to me when we met earlier this year that they were unaware of any payments of that nature. Moreover, no information came to me during my enquiries to suggest that Alia was a 'front company' for the Iraqi government.[1957]

In fact Mr Lindberg had known from July 2004 that Alia was 49 per cent owned by the Iraqi Ministry for Transport.

12 October 2005: a meeting with Mr Volcker

28.325 On 10 October 2005, Mr Stewart and Mr Lindberg travelled to New York. They met with Mr Volcker on 12 October 2005. In attendance at the meeting were Mr Stewart, Mr Lindberg, Ms Thompson, Mr Zwier, Ms Ringler (General Counsel for the IIC), Mr Meyer (Chief Prosecutor to the IIC), and one of the investigators who had interviewed AWB staff in February 2005.[1958]

28.326 A letter signed by Mr Lindberg and Mr Stewart dated 12 October 2005 was delivered by hand to Mr Volcker at the meeting. This letter responded to the IIC's letter of 26 September 2005 concerning AWB's role in the Oil-for-Food Programme. Amongst other things, the letter asserted that:

28.327 On 13 October 2005, Mr Trewin, AWB's Corporate Affairs Manager and Ms Slack-Smith, AWB's Government Relations Adviser met with Ms Gillian Bird, Deputy Secretary of DFAT and Mr Innes Brown, Head of the Iraq Task Force in Canberra regarding the IIC Inquiry.[1960]

28.328 On 13 October 2005, Mr Shergold, Secretary and Mr Kemish, First Assistant Secretary of the Department of Prime Minister and Cabinet wrote a briefing note to the Prime Minister for the purpose of providing:

an update on Paul Volcker's Independent Inquiry committee (IIC) into the UN's Oil-for-food Programme (OFFP) and a detailed chronology, compiled by DFAT, of Australian involvement in the programme.[1961]

28.329 The briefing note advised:

AWB Ltd has continually denied any wrongdoing and asserts that it engaged Alia in good faith, and that Alia provided a genuine service in transporting grains in Iraq. AWB Ltd claims that it acted in accordance with the sanctions regime and that this had been supported by independent legal advice.

DFAT's view is that AWB Ltd was operating in a 'grey area' when making contractual arrangements for inland transport. It advises that the mere fact that AWB Ltd made direct payments to a company for inland transportation of its wheat was not in violation of relevant UN Security Council resolutions-those resolutions did not include explicit provisions on the delivery of approved humanitarian goods within Iraq. DFAT has also not found any evidence that the 661 Committee identified, or required contractors to use, approved providers of inland transport services. However, DFAT emphasises that the UN Security Council resolutions made explicit that contractors were not permitted to make payments to any Iraqi company or agency outside the OFFP. As the 661 Committee never specifically approved AWB's use of Alia for inland transportation, AWB Ltd cannot argue that payments to Alia were authorised under the OFFP. [1962]

The Prime Minister noted the contents of the briefing note on 13 October 2005.[1963]

Brief to advise to Mr Crutchfield

28.330 On 13 October 2005, Ms Peavey briefed Mr Crutchfield to advise upon the following:

28.331 On 17 October 2005, Mr Crutchfield provided his advice in writing.[1965] The advice was 'necessarily of a general nature' due to the insufficiency to the factual information before him.[1966] Mr Crutchfield then set out the relevant principles for attributing knowledge to a corporation-both at common law and under applicable statutes.

28.332 On 20 October 2005, Arnold Bloch Leibler again wrote to Sir Anthony Mason providing further instructions which incorporated information that had been provided to AWB by the IIC.[1967]

28.333 The instructions contained no reference to the after-sales-service fee of 10 per cent, to the negotiation of contracts A1670 and A1680 to include an uplift in price to cover the Tigris debt, or the proposed payment via the trucking fee of the iron filings compensation of US$6 per tonne.

28.334 The documents provided to Sir Anthony which included 'copies of the AWB internal documents referred to by the IIC'[1968] did not include many relevant emails, trip reports and correspondence briefed by Mr Quennell to Mr Tracey QC as being important back in 2003. They also did not contain any of the results of the investigations conducted by AWB on Project Rose.

Sir Anthony Mason's opinion

28.335 On 24 October 2005, Sir Anthony provided an expert opinion.[1969] Sir Anthony's conclusions were as follows:

In the result I answer the questions noted as follows:

Answer: No, so long as the price stipulated was reasonable.

Answer: So long as the fees were reasonable AWB could reasonably conclude that the payment of such fees was consistent with the Sanctions Resolutions.

Answer: The payment of unreasonable fees could fall within the prohibition contained in cl. 4 of Resolution 661.

Answer: As to actual knowledge, no. As to 'ought to have known', the position is not as clear. Although the evidence of steep increases in transportation fees invites suspicion, there are strong arguments that it should not be inferred that AWB ought to have known that the payments were being channelled to the Iraqi Government. [1970]

28.336 On 25 October 2005, Mr Lindberg and Mr Stewart again wrote to Mr Volcker[1971] and submitted that the fairest interpretation of the circumstances was that 'AWB was an unwitting participant in an elaborate scheme of deception devised by the regime.'[1972]

28.337 On the same day, a joint information session of the Boards of AWB Limited and AWBI was held at which an update on Project Rose was provided.[1973] At that meeting a copy of Sir Anthony's expert opinion was provided to each director.[1974] The Board minutes record that the directors discussed the briefing on Project Rose by Mr Lindberg, Ms Thompson and Mr Zwier of Arnold Bloch Leibler, including the following matters:

IIC Meeting

The Chairman and the Managing Director (accompanied by Ms Thompson and Mr Zwier) ('AWB') met with the Independent Inquiry Committee ('IIC') in New York on 12 October 2005. The IIC were represented by Mr Paul Volker (Chairman of the Committee), Ms Susan Ringler (Counsel to the Committee), Mr [name deleted for confidentiality] (Senior Investigator) and Mr [name deleted for confidentiality] (Investigator).

The IIC's proposed findings about AWB (as set out in its letter to the Managing Director (26 September 2004-tabled at the previous Board meeting) were discussed at the IIC meeting.

AWB's position was put to the Committee as follows:

Correspondence with the Prime Minister, Mr Downer and Mr Vaile

28.338 On 26 October 2005, Mr Lindberg and Mr Stewart sent letters to each of the Prime Minister[1976], Mr Downer[1977] and Mr Vaile[1978] in anticipation of the IIC delivering its final report. The letters were in identical terms and stated (in part):

… the Committee has concluded that AWB did not actually know of the matters alleged, namely, that the transport company Alia for Transportation and General Trade ('Alia'), was a 'front company' for the former government of Iraq and that it channelled transport fees to the regime. Nevertheless, the Committee will find that the $200m paid by AWB to Alia for transport fees was 'channelled through Alia to the government of Iraq'. The Committee has found there is insufficient evidence to support a 'knowing' finding and the test by which it assesses the weight of the evidence is one of 'reasonable sufficiency'. This is a lower threshold than tests applied by courts and so the Committee's finding is supportive of AWB's position that it did not know of the matters that have now been uncovered by the Committee's extensive investigation. [1979]

28.339 Enclosed with the letters was a copy of AWB's letter to Mr Volcker dated 25 October 2005, a copy of Sir Anthony's expert opinion and a copy of a letter from forensic accountants, Ferrier Hodgson who were retained by AWB to review AWB's transactional records relating to the shipment of wheat to Iraq pursuant to the OFF Program.[1980]

The IIC's final report and AWB's response

28.340 The final report of the IIC was issued on 27 October 2005.[1981]

A further request from the Wheat Export Authority

28.341 On 8 November 2005, Mr Taylor, Chief Executive Officer of WEA, sent an email to Dr Fuller and Ms Scales, copied to Mr Sheridan requesting 'a detailed brief on the operation of the escrow account for Australian wheat sales under the OFF program.' In particular, Mr Taylor requested a brief from AWBI on 'how the payments for transport made under the OFF program worked'.[1982]

28.342 On 14 November 2005, AWBI provided WEA with a document entitled 'Operation of United Nations Escrow Account Oil for Food Program'.[1983] In the brief, AWBI asserted that it had adhered to UN procedures. However, it did not disclose:

• the 10 per cent after-sales-service fee, or that it was paid through Alia
  
  
• that the IGB set the rate for transport or directed the use of Alia
  
  
• the inflation of contracts A1670 and A1680 to recover the Tigris debt
  
• that Alia on paid transport fees to the Ministry of Transport, or
  
  
• that transport fees were one of the means discussed with Iraq for the payment to it of the iron filings quality claim.

21 November 2005: a joint information session

28.343 On 21 November 2005, a joint information session of the Boards of AWB Limited and AWBI was held. The Board Minutes for both Boards record that the Boards were informed at the joint information session of the renaming of 'Project Rose' to 'Project Lilac', that the Directors had been provided with certain documents in relation to Project Lilac, including media releases and this Inquiry's terms of reference, and that they had been briefed on Project Lilac by Mr Lindberg, Ms Gillingham, Mr Cooper and Mr Zwier and Ms Thompson of Arnold Bloch Leibler.[1984]

28.344 AWB has claimed legal professional privilege over the relevant parts of the Minutes. This claim was upheld.[1985]

13 December 2005: AWB Limited and AWBI Board meetings

28.345 On 13 December 2005, Mr Lindberg provided a verbal update on Project Lilac to the AWBI and AWB Boards. The Board minutes for both meetings record that the Boards discussed 'Project Lilac (OFF/Cole Inquiry) and the verbal update on this matter by the Managing Director'.[1986]

The draft statement of contrition

28.346 In late November 2005 Ms Gillingham spoke to Mr Lindberg about obtaining advice from Professor Sandman in connection with AWB's involvement in this Inquiry.[1987]

28.347 Dr Sandman is a crisis management expert and public relations consultant. He holds the degrees of BA, Princeton University, 1967 (Psychology) and MA, Stanford University, 1968 (Communication). He holds, or has held, various professional appointments at universities in the United States and he has published extensively in the fields of communications, public relations and crisis management. He carries on his practice from Princeton, New Jersey, in the United States of America.[1988]

28.348 Mr Lindberg told Ms Gillingham that one of the directors of AWB, Mr Polson, had suggested Dr Sandman as he had used his services in another matter. Mr Lindberg gave Ms Gillingham Dr Sandman's contact details and requested that she contact Dr Sandman to see whether or not he would be prepared to assist AWB.[1989]

28.349 On 8 December 2005, AWB retained Dr Sandman to provide advice to AWB in connection with AWB's involvement in this Inquiry.[1990] This retainer was arranged through an exchange of emails between Ms Gillingham and Dr Sandman on 7 and 8 December 2005.[1991]

28.350 Dr Sandman's thesis 'was essentially to over-apologise, to apologise for things that had happened, to cover the ground and in fact to go further than was necessary, and that was in the interests of the corporation to do in terms of its public reputation and recovery from events' such as the Volcker Inquiry.[1992]

28.351 Mr Lindberg obtained advice from Dr Sandman on several occasions. On 16 December 2005 he participated in a telephone conference with Dr Sandman, Ms Gillingham, Dr Fuller and Messrs Cooper and Hargreaves.[1993] Ms Gillingham's evidence was that this conference 'was a free ranging discussion in which Sandman discussed his experience, the work he had done for other companies and his theory and philosophy regarding the making of an apology as an appropriate corporate response to particular situations'.[1994]

28.352 A further telephone conference was arranged for 2 January 2006. Prior to this conference Mr Lindberg drafted a document entitled 'Cole Inquiry-Draft Statement of Contrition - Andrew Lindberg'. The document read:

1. As a result of the Volker inquiry into the OFF program AWB accepts that in paying money for inland transportation and after sales service it paid money to the Iraq government in contravention of the UN sanctions.

2. Even though there were warning signs to some employees that this may have been occurring AWB did not challenge these payments and was not alert to the potential consequences of making these payments. For this we are truly sorry and deeply regret any damage this may have caused to Australia's trading reputation, the Australian government or the United Nations.

3. AWB in pursuing its constitutional requirement to maximise returns to the Australian farmer in selling their wheat took a commercial and technical compliance approach to the UN sanctions but failed to consider the broader purposes of the UN sanctions. This was a failure, at the time, of the culture, systems and procedures which the Company deeply regrets and is committed to continuing to improve.

4. Even though the transaction concerning BHP Petroleum in recovering payment for a prior wheat shipment was well intentioned and AWB believed complied with the UN sanctions, it should not have occurred without specific authorisation of the Australian government and the United Nations. AWB regrets this did not occur.

5. Even though AWB relied on the United Nation's supervision and authorisation of each contract the Company should have established its own internal systems of checks and balances such that it did not participate (and may have even aided stopping) the systematic and wide spread abuse of the OFF program. We deeply regret and apologise for not having done so.

6. While AWB can ex-post rationalise its participation in the OFF Program and claim it did not have the benefit of hindsight or the complete picture this does not excuse what occurred and is not offered as an excuse. We simply should have done better; and I am deeply sorry we didn't. [1995]

28.353 Mr Lindberg stated that this document did not accurately record what had occurred[1996], although he accepted that the Tigris debt should not have been recouped without the specific authorisation of the Australian Government and the United Nations.[1997]

28.354 Privilege was claimed by AWB for the statement. That claim was rejected by me. My decision was upheld by the Federal Court of Australia.[1998]

28.355 A copy of the draft statement of contrition was circulated by Ms Gillingham's assistant to Mr Cooper, Mr Zwier, Dr Sandman, Mr Hargreaves and Dr Fuller on 30 December 2005, prior to the telephone conference arranged for 2 January 2006.[1999]

28.356 On 1 January 2006 Dr Sandman circulated his comments and suggestions regarding the draft statement of contrition to Ms Gillingham, Dr Fuller and Messrs Zwier, Cooper and Hargreaves.[2000] Some of Dr Sandman's proposals included:

…

Those who were intimately involved in the Iraq OFF transactions on behalf of AWB should at least have suspected that something was wrong. Yet AWB did not challenge these payments-we said nothing to the UN, to the Australian Government, or to the world public urging scrutiny of the suspect payments. We were thus ethically complicit in a series of transactions that certainly enriched Saddam Hussein and/or his Government at the expense of the Iraqi people. That certainly damaged the reputation of the United Nations, and that may also have damaged Australia's trading reputation. Of course AWB's reputation was damaged as well, and properly so. We are responsible for what we failed to do. On behalf of the company, I apologise.

…

2.3 With respect to those AWB employees* who had intimate involvement in these transactions, I see several possibilities:

(a) Some may have actively known or suspected what was going on, and not realized its ethical significance-perhaps wrongly judging that 'policing' the ethics of a pass-through payment in which AWB had no money at stake was none of our business.

(b) Some may have avoided knowledge that was readily available to them, wishing not to know-perhaps wrongly believing that deniability was sufficient to keep them ethically in the clear.

(c) Some may have actively known or suspected what was going on, considered it ethically significant, and not felt it safe to take any action - perhaps wrongly judging that I and other senior people in the company wished not to be informed.

(d) Some may have convinced themselves that the signs did not mean what they appeared to mean, and that there was nothing amiss-perhaps relying excessively on the AWB's long and cordial business relationship with Iraq's International Grain Board as a reason to assume that these transactions were aboveboard.

…

*My use of the term 'employees' extends also to the former Chairman of the Board of AWB, who was heavily involved in some OFF transactions.

28.357 On 2 January 2006, a further telephone conference with Dr Sandman took place. Ms Gillingham, Dr Fuller and Messrs Lindberg, Cooper, Zwier and Hargreaves participated in this conference.[2001] At this conference the draft statement of contrition was discussed. Ms Gillingham's evidence was that Dr Sandman spoke at length as to his philosophy in relation to the statements of contrition. She said that there was little discussion on the wording of the draft.[2002]

28.358 On 6 January 2006, Mr Hargreaves sent a revised draft of the statement of contrition to Ms Gillingham and Mr Cooper for comment.[2003] The draft was further revised and circulated by Ms Gillingham's assistant to Mr Cooper, Dr Fuller, Ms Thompson, Mr Zwier, Mr Judd QC, Mr Smith of Gavin Anderson & Co and Dr Sandman for review.[2004]

28.359 On 7 January 2006 Dr Sandman provided comments in respect of the revised draft.[2005] His comments included:

I assume you all knew I would hate this draft. What's here is much more a defense than a mea culpa. What little mea culpa is left is impersonal and limited to very narrow misdeeds (your failure to tell the Government about Tigris and the increase in transport costs). Far from apologizing for AWB's prior defensiveness, this document continues it. Far from taking responsibility for a corporate climate in which employees kept their suspicions to themselves, you say only that it would have been better if someone in management had noticed and said something.

If you read this statement to a focus group, I will wager the dominant impression will be of defense, not of apology. If you are legally in good shape vis-à-vis OFF, as you tell me you are, the defense is profoundly unnecessary. Judging from the media coverage I have read, the apology is needed.

What's good about this draft is the clear management choice it frames for you. Focus on the reasons why you shouldn't be blamed, or focus on the reasons why you should. The less you blame yourself, the more the public will blame you. You aren't blaming yourself nearly enough in this draft. I believe.

After reading this draft, I begin to see why you might have been right in the first place when you wanted me in Australia right now. You're left to choose (or compromise) between a position in the room and a position on the other end of a phone line or email exchange.

Draft

Statement for
Inquiry into certain Australian companies relating to
the United Nations Oil for Food Program.

…

So, in summary there was a contractual arrangement between AWB and the IGB. There was also a contract between the IGB and the inland transport company it chose-Alia for Transportation and General Trade. However, there was no contract between AWB and Alia. [Uh-huh-but your people visited Alia, presumably to check them out and make sure they were up to the job (or for some other purpose). This whole list of facts reads to me like a one-sided effort to look as innocent as you can look without actually lying. You are entitled to do that. It is a lawyerly thing to do It might be the right thing to do if you think you're in legal trouble and need to argue your way out. Or it might be the right thing to do if you think you're being ethically criticized unfairly and are preparing to say you did nothing unethical and are the long-suffering innocent victim of an unfair report from Volker and unfair media coverage in Australia. It's a terrible way to begin if you're seeking forgiveness for ethical misconduct that everyone pretty much knows wasn't illegal. It makes the reader want to cross-examine and counterattack. It makes the reader want to find something illegal to get you for. In the face of Tigris (maybe illegal and not in the least unethical). I think that's very much the wrong strategy.]

…

Certainly someone provided the thousands of trucks required to distribute each shipment inland and the wheat reached its inland destinations. [It was you guys who told me you now think most or all of the inland trucking was handled by government employees paid $10 a day. This whole document so far is a brief, a carefully crafted collection of accurate statements capturing the part of the truth you wish to capture. You are right to want people to know these facts-but the spirit of 'even though' is gone. These are no longer things we tell ourselves as reasons to forgive you; they have become things you're telling us to insist that there's nothing to forgive.]

…

As someone pointed out on one of our conference calls, the Tigris deal is ethically clean and legally borderline. The OFF scandals are (you tell me) legally clean but ethically pretty bad. You seem to be more willing to apologize for Tigris than for the OFF offenses. My prediction: If you are insufficiently contrite about OFF-and I certainly consider this draft insufficiently contrite-outrage about OFF will seek an outlet, including a legal outlet. Assuming you are legally vulnerable on Tigris, I would expect legal sanctions for Tigris to be proportional to outrage about OFF. (Outrage is fungible.) As I often say to my US clients, they got Al Capone for tax evasion. [2006]

28.360 Mr Lindberg denied that the information Dr Sandman referred to as emanating from AWB had in fact come from the company.[2007] In particular, he denied that Dr Sandman was told that the Tigris transaction was 'legally borderline'.[2008] The contents of the notes taken by Mr Lindberg, Dr Fuller and Mr Cooper do not permit a conclusion to be drawn as to who was the source of the ideas that were discussed during the telephone conferences.[2009]

28.361 Further drafts were circulated and discussed. Some of the drafts were discussed amongst the Chairman of AWB and some of its directors.[2010] Initially, there was some uncertainty as to whether delivery of the draft statement of contrition 'was to be proceeded with'[2011] and a final version of the document was not settled.[2012] Ultimately, the proposal that Mr Lindberg should make the statement of contrition in the course of his evidence before the Inquiry did not proceed.[2013]

12 January 2006: a joint information session

28.362 On 12 January 2006, there was a joint information session attended by Directors of both Boards, followed by an AWB Limited and an AWBI Board meeting.

28.363 The Board Minutes for both Board meetings record that at the joint information session the Directors were briefed on Project Lilac by Mr Lindberg, Ms Gillingham, Mr Cooper, Mr Judd QC, Mr Zwier, Ms Thompson and Mr Ian Smith of Gavin Anderson and Company.[2014]

28.364 AWB claimed legal professional privilege over part of Dr Fuller's notes of what was discussed at the joint information session.[2015] This claim was upheld.[2016] Mr Cooper noted the following in his notebook:

Introduction BS-short-Cole Inquiry-serious potential

AL-introduce team-brief outline of Inquiry. Look at this in a new light-there were warning signs-need to state facts as we know them. AL has a statement of facts-does contain an apology-will go through this with the Board. [2017]

28.365 The evidence of what Mr Lindberg told the Directors of the Boards on 12 January 2006 regarding the after-sales-service fee and monies finding their way to the Iraqi Government varies widely. Messrs McClelland,[2018] Chamarette,[2019] Fitzgerald,[2020] Martin,[2021] Howarth[2022] and Moffet[2023] gave evidence that Mr Lindberg said either at the Board meeting or at the preceding joint information session that AWB had in fact paid such a fee. However, the evidence of Messrs Donges[2024] and Gibson,[2025] was to the contrary.

28.366 Dr Fuller could not recall whether Mr Lindberg said that AWB had paid after-sales-service fees, including commissions, but said that he may well have done.[2026] Dr Fuller was certain however that, in the course of general discussion, Mr Lindberg told the Boards that money or a portion of the monies that were paid to Alia had found its way to the Iraqi Government.[2027]

28.367 Mr Cooper's evidence was that to the best of his recollection Mr Lindberg did not say that AWB had paid after-sales-service fees, including commissions, which were paid to the Iraqi Government at the joint information session.[2028] Mr Cooper did not however attend either of the Board meetings that followed the joint information session.[2029]

28.368 In circumstances where Mr Lindberg has also denied making any such statement, there is no basis upon which one version is to be preferred over the other.

Notes