33.1 Rhine Ruhr Pty Limited[792] is a company based in Melbourne, Victoria; its principal business is the design and supply of removable vessel internals used in oil refineries, chemical plants, water treatment plants and gas processing facilities.[793] About half of Rhine Ruhr's sales are export sales.[794] The countries it exports to include Malaysia, Taiwan, Singapore, South Africa and the United Kingdom.[795] Prior to 2001 it had not supplied any of its products to Iraq.[796] During the period 2001 to 2002 Rhine Ruhr's annual turnover was about $3 million to $5 million.
33.2 The directors of Rhine Ruhr during the period of the Oil-for-Food programme were[797]:
33.3 Mr Thurgood was one of the five founding directors and shareholders of Rhine Ruhr. The other four were Messrs Calpin, Von Schach, Von Schwartzkoppen and Grobe. Each of these four directors was at all times an overseas resident. Each resigned from the Rhine Ruhr Board on 16 November 2002. None of them had any involvement in the day-to-day business of Rhine Ruhr in the period 2001 to 2003 and none had any involvement with the contract to supply goods to Iraq mentioned in the Independent Inquiry Committee's final report.[798] The Rhine Ruhr directors did not have formal meetings but communicated informally via email and facsimile. Whilst Mr Thurgood may have sent the non-resident directors sales reports that included details of the Iraqi contract, there were no significant discussions between the directors about it. No board minutes referring to the contract were produced to the Inquiry.[799]
33.4 Prior to 25 June 2002 Mr Thurgood was the managing director of Rhine Ruhr[800] and the only director who played any role in the day-to-day management of the company. During 2001 and 2002 Mr Thurgood resided overseas, primarily in Malaysia[801], although he travelled regularly to Australia.[802] On 25 June 2002 Mr Tyzzer was appointed a director and took over the role of managing director.
33.5 Prior to Mr Tyzzer's appointment in June 2002, Rhine Ruhr had no resident directors. Mr Bryden, a project manager and qualified engineer, was the most senior employee in the Melbourne office.[803] He reported directly to Mr Thurgood.[804] Mr Bryden's duties and responsibilities as project manager were in the areas of engineering, procurement and construction. Usually he had no involvement in contract negotiations prior to an order being booked.[805] Mr Thurgood was responsible for contract negotiations.
33.6 Between October 1999 and 2003 Ms Nys was employed by Rhine Ruhr as the administration manager. Her duties and responsibilities included the handling of all accounts, purchasing, payroll and general administration.[806] Despite Mr Bryden being the most senior employee in the Melbourne office, on most administration matters Ms Nys reported directly to Mr Thurgood in Malaysia.[807] However, Rhine Ruhr's office was a small office, with between 10 and 12 employees, and accordingly Mr Bryden was generally aware of the main tasks Ms Nys was performing.[808]
33.7 In September 2000 Mr Thurgood received a telephone call from Mr Davies of Eastoft Hall Limited. Mr Davies is a resident of the United Kingdom, and Eastoft Hall is a company incorporated in the United Kingdom.[809] At the time of the telephone conversation Mr Thurgood did not know Mr Davies, and Rhine Ruhr had not had any prior commercial dealings with him or Eastoft Hall.[810] It is Mr Thurgood's belief that Mr Davies was referred to him by a fellow director in two UK-incorporated companies-Distillation Alliance International Limited and Distall Limited.[811]
33.8 During their telephone conversation Mr Davies inquired of Mr Thurgood whether Rhine Ruhr would be interested in supplying goods to Iraq under the Oil-for-Food Programme. Mr Davies told Mr Thurgood he had experience in relation to the Iraqi market, that he represented a number of companies in that market, that he had a number of local contacts and connections in Iraq, and that he knew a good deal about the Oil-for-Food Programme and could assist Rhine Ruhr in relation to its operation.[812] Mr Davies explained the proposed arrangements in Iraq to Mr Thurgood in the following terms:
His [Mr Davies'] local contact in Iraq would identify potential business opportunities in Iraq and would request Tony Davies to seek a quote for the supply of the relevant goods and services. Tony Davies would contact Rhine Ruhr Australia if he believed that the request would be relevant to Rhine Ruhr and we would prepare a quote and forward it to Tony Davies. He would arrange for the quote to be presented in the format required by the Iraqi client and to be submitted to the relevant authority before the deadline. The local contact in Iraq would be responsible for communicating with the Iraqi company and making any representations on behalf of Rhine Ruhr.[813]
33.9 Mr Thurgood told Mr Davies that Rhine Ruhr would be interested in supplying to Iraq under the Oil-for-Food Programme and agreed to pay Eastoft Hall 10 per cent commission on any sales.[814]
33.10 The agreement between Rhine Ruhr and Eastoft Hall was not reduced to writing, although, at the request of Mr Davies, Mr Thurgood prepared and sent to Mr Davies a letter addressed to a company in Iraq called Emlood Elec. Mech. Contracting Co. Ltd.[815] That letter confirmed the appointment of Emlood as Rhine Ruhr's sales agent in Iraq for 12 months. Mr Thurgood received no reply to the letter and had no contact at any time with Emlood or its managing director Mr Younis.[816]
33.11 It was common for Rhine Ruhr to retain agents in countries to which it exported or hoped to export its goods.[817] It generally paid commission on sales to its agents of between 5 and 10 per cent.[818] Its agency agreements were not always reduced to writing.[819]
33.12 The first contract to supply goods to Iraq that Rhine Ruhr entered into was eventually abandoned and not performed. Approval of the contract by the United Nations was never sought. Nor was permission to export under the Customs (Prohibited Export) Regulations ever applied for in respect of the goods the subject of this contract. It is nonetheless relevant to consider the negotiation and execution of this contract because it set the stage for the contract that was ultimately performed.
33.13 In late April 2001 Mr Thurgood received by facsimile a request by Mr Davies to quote for the supply of valve trays for a stabiliser tower for North Gas Company, an Iraqi company also called Northern Gas Industry and Northern Gas Industries.[820] In response to this request, Mr Thurgood prepared a quote and sent it to Mr Davies on 26 May 2001.[821] The quote was for the 'design, manufacture, corrosion protection, inspection, packaging and delivery FOB Melbourne' of equipment described as 'Valve Trays and Downcomers' and a 'Partial Draw-off Chimney Tray'. The price specified in the quotation was £32,500. Rhine Ruhr's usual terms of supply were either FOB[822] or CIF.[823] It was unusual for Rhine Ruhr's terms of supply to include the cost of transportation to the ultimate destination for the goods.[824]
33.14 The quotation also specified that Rhine Ruhr could offer installation, supervision and inspection on site at rates to be agreed. It was standard for Rhine Ruhr's quotes to include this provision. Ordinarily, if the client requested provision of that service, the cost of the service would be agreed and included in the resulting contract.[825] In those circumstances the client would pay Rhine Ruhr for the provision of that service.[826]
33.15 In accordance with the arrangements agreed between Mr Thurgood and Mr Davies, Mr Davies put the contents of Rhine Ruhr's quote into a tender document suitable for provision to the Iraqi authorities.[827] The tender prepared by Mr Davies on behalf of Rhine Ruhr replicated the material terms of the quote prepared by Mr Thurgood. The only material change was that the terms of supply were specified as 'CIP Kirkuk', for which an additional £1,600 was added to the price. The final price was £34,100. CIP means that delivery of the goods to the named place of destination is at the seller's expense.[828] In this case it meant that the contract price included carriage of the goods to Kirkuk, their final destination, at Rhine Ruhr's expense. Mr Davies explained to Mr Thurgood that £1,600 was a fair charge for delivering the goods.[829]
33.16 The only other change from the quotation prepared by Mr Thurgood was that the tender made no reference to Rhine Ruhr's offer to provide installation, supervision and inspection at an additional cost to be agreed.[830] The offer put to the Iraqi authorities was for the supply of goods and nothing else.[831] Mr Davies sent Mr Thurgood a copy of the tender letter before it was submitted to the North Gas Company.[832]
33.17 On 21 June 2001 Mr Davies sent a facsimile to Mr Thurgood, advising that Rhine Ruhr's tender had been successful and attaching a draft contract. Mr Davies advised:
The contract is for our quoted amount of £34100 (goods £32500 + CIP Kirkuk £1600) enhanced by an Iraqi 'Engineering Services Fee' of 10%. This additional £3410 is required to be paid as the goods are dispatched (4 weeks before arrival on site) but you will receive L/C for the full contract amount to cover this enhancement.[833]
33.18 This was the first occasion Mr Thurgood learnt that the contract price had been increased, or 'enhanced', by 10 per cent to incorporate a fee.[834] Mr Thurgood had not been involved in any prior discussions or negotiations about the contract price. When he received Mr Davies' facsimile, Mr Thurgood understood that Rhine Ruhr was obliged to pay the 10 per cent that had been added to the contract price back to someone[835]-most likely the customer.[836]
33.19 The draft contract[837] that was transmitted to Mr Thurgood with Mr Davies' facsimile recorded that the parties to the contract were the Economics & Finance Department, Ministry of Oil, Baghdad (described as the 'client'), 'Distall (Rhine Ruhr Pty Limited) Australia' (described as the 'supplier') and Northern Gas Industry (described as the 'end user'). The contract was for the supply, CIP Kirkuk, of the 'materials' specified in the contract at the contract price (described as the 'total value') of £37,510. The contract made no reference to the requirement for Rhine Ruhr to pay an 'engineering services fee' of 10 per cent of the contract price or to the fact that the specified contract price had been 'enhanced' by 10 per cent to cover the fee. It did, however, include a clause that provided that the client (the Ministry of Oil) undertook to pay all taxes and customs duties arising inside Iraq, whereas the supplier (Rhine Ruhr) was to bear all other charges.
33.20 When he received the draft contract Mr Thurgood read it carefully[838], although he 'probably' did not turn his mind to the fact that the contract did not refer to Rhine Ruhr's obligation to pay the 'engineering fee'.[839]
33.21 Attached to the draft contract was a 'purchase order' that provided a detailed description of the goods to be supplied under the contract and specified that the unit price of the goods was £37,510. Mr Thurgood agreed that the purchase order was incorrect and misleading because the deal that Rhine Ruhr had in fact struck was to supply the goods at a price of £34,100, not £37,510.[840]
33.22 Also included with Mr Davies' facsimile of 21 June 2001 was the following document:[841]
33.23 This document appeared to Mr Thurgood to be a document from some other contract that had been amended to apply to the Rhine Ruhr contract.[842] The signature on the document above Mr Thurgood's name was not Mr Thurgood's signature, but this was of no concern to Mr Thurgood when he perused the document.[843] He expected and understood that Rhine Ruhr was being asked to sign this document or something like it and that if Rhine Ruhr did not sign it someone would probably sign it on Rhine Ruhr's behalf. He also understood that it was a condition of the contract between Rhine Ruhr, the Iraqi Ministry of Oil and Northern Gas Industry that there be some document like this one containing an undertaking by Rhine Ruhr to pay the additional £3,410.[844]
33.24 The document refers to a request from Northern Gas Industry for 'payment against engineering services, installation, handling, verification, inspection on site for A/M enquiry'. Mr Thurgood never asked to see any such request. He simply accepted the explanation for the fee contained in the document.[845] He knew, however, that the contract was to supply goods only and that Rhine Ruhr was not obligated to install them.[846] He explained his understanding of the nature of the fee in the following terms:
Q: What is being put here is that there should be an additional 10 per cent paid on top of the agreed contract price, including freight and insurance, described as an 'engineering services fee'?
A: That's correct.
Q: But your company was not providing any-
A: That's correct.
Q: -engineering services fee, and so there would be no basis for the price being inflated to include that sum?
A: Well, somebody has to undertake that work and it was-I guess we accepted that if the customer was going to have to do it himself, possibly he needs to be paid for it.
Q: But if the customer needs to be doing it himself, why do you have to include it in your price?
A: I guess, in this case, this was unusual-this was an unusual contract. We accepted that this was the system for doing business with Iraq and I was led to believe that this was known by everyone and this was accepted.
Q: The system, as you understood it, being that you include in your contract price a figure for a service which you are not going to provide?
A: That's correct.
Q: And then you pay that increased figure to the person who is purchasing your goods?
A: That's correct.[847]
33.25 Mr Thurgood also understood that whilst the fee would be paid by Rhine Ruhr to an Iraqi entity, the 10 per cent increase in the contract price that funded the payment of the fee was to be paid out of the UN-controlled escrow account established under the Oil-for-Food Programme. It was this that made the contract unusual.
Q: You have referred on a couple of occasions to the fact that this was an unusual contract. Why was it unusual?
A: Well, I guess the main thing which was unusual is that the customer, the person buying the goods, was not the customer-was not the person who was actually going to pay us, and this made it different.
…
A: So you understood at the time that when the contract fee was enhanced by 10 per cent, that enhanced price, the enhancement, was to be paid by the United Nations-you knew that at the time didn't you?
A: Yes.
Q: And you knew at the time that, insofar as Rhine Ruhr's commitment to pay the equivalent sum of 10 per cent out, that was not a figure that was to be paid to the United Nations was it?
A: No, it wasn't paid to the United Nations.
Q: And that's what was unusual about it, right?
A: Yes.[848]
33.26 The fact that the 'system' was that the fee was to be paid to the Iraqis out of the UN escrow account did not concern Mr Thurgood or cause him to check that this was properly disclosed and recorded in the contract documentation.[849] Nor did it concern Mr Thurgood that Rhine Ruhr was being paid for services that it had not agreed to provide and that it had no contractual obligation to provide. Rhine Ruhr did not know what, if anything, was required of it in relation to the services.[850]
33.27 Mr Thurgood did not recall any conversation he had with Mr Davies about the 'engineering services fee' referred to in the 21 June 2001 facsimile, although he believed there would have been some discussion about it.[851] Mr Thurgood's reply to Mr Davies' 21 June facsimile made no mention of the 'enhanced' contract price or the fee.[852]
33.28 Mr Thurgood claimed he gained the impression from Mr Davies that the 'system' that included the enhancement of the contract price and the payment of a fee was a normal part of doing business with the Iraqi Oil Ministry and that the United Nations was aware of the fee. He was, however, unable to say how or when he gained this impression.[853] He never asked Mr Davies to confirm this in writing and never made any inquiries with the United Nations or the Department of Foreign Affairs and Trade to ascertain whether the impression he gained from Mr Davies was a correct impression.[854] Mr Thurgood did not understand at the time that it was part of the system or process that the payment of the 10 per cent fee was not to be disclosed in the contract documentation.[855]
33.29 Mr Thurgood believed that, in accordance with his normal practice, he would have forwarded all of the relevant documents relating to the contract to Mr Bryden.[856] He did not recall having any discussion with Mr Bryden about the engineering services fee.[857]
33.30 Mr Bryden saw the draft contract and the documents received from Mr Davies and was aware of the fee. Mr Bryden's belief and understanding of the nature of the fee and the reason for the price 'enhancement' was broadly similar to Mr Thurgood's. He understood and believed that whilst Rhine Ruhr's contract was for the supply of goods only and did not involve installation, the fee somehow related to the cost of installing the goods and was to be paid out of the UN-controlled escrow account:
Q: I understand that. I still don't understand why you would pay somebody else additional moneys.
A: The equipment is only of use after it's installed. Somebody has to pay for installing it. In the normal circumstances-remembering that this was coming from the United Nations, this appeared to be all above board. I mean, okay, it doesn't necessarily look that way now, but at the time, an engineering services fee covering these items seemed perfectly reasonable.
Q: But an engineering service fee had absolutely nothing to do with your company. Your company was to supply the goods.
A: Which had to be installed?
Q: Of course, by somebody else.
A: Yes.
Q: And you would expect whoever wanted to have them installed would pay for them to be installed?
A: But remembering that the money was all controlled by the United Nations.
Q: What does that have to do with you paying moneys to-
A: Well, this appeared to be the means where the money was coming for installation. That was-
Q: So am I to understand that you are saying that you thought that by including this 10 per cent, there could be derived from the United Nations-controlled funds moneys which interests in Iraq could use to pay for the cost of installation; is that what you're telling me?
A: That was my belief …[858]
33.31 Mr Bryden read the contract and knew that it did not refer to Rhine Ruhr's obligation to pay a fee of 10 per cent of the contract amount and that it did not disclose that the specified contract price included not only the price that had been agreed between the parties for the supply of the goods but also an additional 10 per cent to cover the payment of the fee. At the time he did nothing to ensure that these matters were properly documented because he was satisfied with the explanation of the fee contained in the Northern Gas Industry document that was included in Mr Davies' facsimile of 21 June 2001. The fee did not seem unusual to him, even though he had never encountered such an arrangement before.[859]
33.32 The first Rhine Ruhr contract with the Iraqis was never performed. Rhine Ruhr was informed that the vessel into which the equipment the subject of the contract was to be installed was condemned due to severe corrosion and as a result the entire vessel was to be replaced, not just the internals.[860] Approval of payment for the contract was never sought from the United Nations, and no documents relating to this contract were ever sent to DFAT.
33.33 The proposals and negotiations relating to the second Rhine Ruhr contract overlapped in time with the proposal and discussions that occurred in relation to the first Rhine Ruhr contract.
33.34 On 19 May 2001 Rhine Ruhr received a facsimile from the North Gas Company, asking Rhine Ruhr[861] to submit a tender for the supply of certain equipment.[862] The facsimile does not refer to any request for the provision of engineering services or the payment of any fee for such services.
33.35 On 5 June 2001 Mr Thurgood responded to this request by sending Mr Davies a quotation for the supply of two sets of valve trays to the North Gas Company. This quotation was similar in form and content to the quotation Mr Thurgood prepared for the first contract. The price for the 'design, manufacture, corrosion protection, inspection, packaging and delivery F.O.B. Melbourne' of the specified equipment was quoted as £123,500. In a separate facsimile to Mr Davies on the same date, Mr Thurgood confirmed that the price in the quotation included a 10 per cent commission payable to Eastoft Hall.[863]
33.36 Mr Davies prepared a tender to the North Gas Company based on Mr Thurgood's quotation.[864] This tender also bears the date 5 June 2001 and was submitted to the North Gas Company prior to the official deadline on 6 June 2001.[865] As was the case with the first contract tender, the main difference between Mr Thurgood's quotation and Mr Davies' tender was the change of the terms of supply from FOB Melbourne to CIP Kirkuk and the addition to the price of an amount to cover the transportation costs. In the case of the second contract, the addition to the price was £7,000. On 31 August 2001, a further or amended tender was lodged with the North Gas Company by Mr Davies on behalf of Rhine Ruhr.[866] It was in the same terms as the initial tender, but the price was reduced to £119,790 for the goods and £5,225 for the transportation to Kirkuk (a total supply price of £125,015).
33.37 Neither Mr Thurgood's quotation nor Mr Davies' tenders referred to the provision of any services, or the obligation to pay a fee, or to the fact that the price would be increased to accommodate the payment of a fee. This was despite the fact that, according to Mr Thurgood, by the time of the preparation of this quotation and the tenders he had gained the impression from Mr Davies, as a result of the first contract, that it was an ordinary part of doing business with the Iraqi Ministry of Oil to pay an engineering services fee in respect of contracts for the supply of goods.[867]
33.38 On 20 October 2001 Mr Davies sent Mr Thurgood an email reporting on the state of the negotiations with the North Gas Company in relation to the contract.[868] Mr Bryden, though not an addressee, received and read a copy of the email.[869] The email included the following particulars:
Original offer £123,500 LESS 10% discount = £111,150
We have reduced our commission to 8% to give a goods price of £111,150 less 2% extra discount from us = £108,900
Extra for delivery (based on 2 x 20 foot containers + 1% for insurance) + £4,750.
NEW OFFER Goods 108,900 + CIF 4,750 = £113,650.
For your information this price level is 0.5% below Sulzer on a like for like basis.
Please confirm if you are happy for us to sign and stamp the contract on these prices and if this is the case that we add, as before, the extra 10% 'Iraqi Engineering Services Fee' to be covered by the enhanced L/C.[870]
33.39 The reference to 'as before' in this email was a reference to the first contract and Mr Davies' facsimile of 21 June 2001.[871] Based on what they had seen in the context of the first contract, both Mr Thurgood[872] and Mr Bryden[873] understood this to mean that, whilst agreement had been struck to supply goods at the price of £113,650, the price was to be 'enhanced' by 10 per cent to provide for the payment of an 'Iraqi engineering services fee'. Rhine Ruhr would then be obliged to pay the same amount to an Iraqi entity. The 'enhanced' contract price would be paid for by letter of credit funded from the UN escrow account. As was the case with the first contract, Mr Thurgood could not remember any conversation he had with Mr Davies about the fee and did not see, or seek to see, any documentation from Mr Davies or the Iraqis concerning the obligation to pay this fee or the services to which the fee was supposedly referable.[874]
33.40 Mr Thurgood responded to Mr Davies' email by telephoning Mr Davies and confirming that Rhine Ruhr authorised him to arrange for a contract to be signed on the basis set out in the email.[875] Mr Thurgood prepared a sales order that recorded the price for the sale of the two valve trays as being £108,900. The freight price was recorded as £4,750. The total 'order value' was thus £113,650 ($324,000).[876] This was the actual price agreed between the parties for the supply of the goods, without the 10 per cent enhancement. The sales order also recorded that 8 per cent commission was payable to Eastoft Hall based on the sale price of £108,900.
33.41 On 25 October 2001 a contract between Rhine Ruhr, the Economics and Finance Department of the Iraqi Ministry of Oil and the Northern Gas Industry was executed.[877] This contract was in similar terms to the first Rhine Ruhr contract. It specified the contract price for the supply of the goods described in the purchase order annexed to the contract as £125,015 CIP Kirkuk. The clause of the contract dealing with the contract price was in the following terms:
3. Contract price
Contract price breakdown: (as applicable)
1.1 Supply of materials
__________________________________
1.2 Total contract price: (125,015) one hundred and fifty two thousand & fifteen Sterling pounds.[878]
33.42 The contract also included the following clause in relation to the payment of taxes and duties:
10. Taxes and duties
The client shall be responsible for payment of taxes and custom duties arising inside Iraq. All other duties and charges shall be borne and paid by the contractor.[879]
33.43 The contract purports to have been executed on behalf of Rhine Ruhr by Mr Thurgood, but the signature above Mr Thurgood's name is not Mr Thurgood's signature.[880] Neither Mr Davies nor Eastoft Hall's 'local contact' were authorised to sign contracts under Mr Thurgood's name, although Mr Davies was authorised to sign contracts on behalf of Rhine Ruhr.[881]
33.44 As was the case with the first contract, this contract was solely for the supply of goods and made no reference to any obligation on Rhine Ruhr's behalf to supply or pay for any services. Nor does it provide for the increase or 'enhancement' of the contract price for reasons associated with the payment of any fee.
33.45 The only document (apart from communications emanating from Mr Davies) that referred to any obligation on the part of Rhine Ruhr to pay any fee to the North Gas Company was the following document.[882]
33.46 The signature purporting to be Mr Thurgood's signature on this document is not his signature.[883] Mr Thurgood had not seen this document before he was shown it by his lawyers in preparation for giving evidence to the Inquiry.[884] Nor had Mr Bryden.[885] This document was not amongst Rhine Ruhr's files that were produced to the Inquiry. It was produced to the Inquiry by the IIC. The IIC advised the Inquiry that the document was obtained by it from the files retained by the Ministry of Oil.
33.47 The document refers to the provision of a bank guarantee by Rhine Ruhr to 'cover' the amount of £11,365, which is said to be an amount payable by Rhine Ruhr against 'engineering, services, installation, handling, verification, inspection on site for A/M enquiry'. Amongst the documents produced to the Inquiry by the IIC was a document obtained by the IIC from the Ministry of Oil[886], together with an English translation[887], that appears to record the provision by 'Rihine Rure' of a guarantee by the Rafidain Bank in Amman for £11,365.
33.48 Both Mr Thurgood[888] and Mr Bryden[889] knew that, for Rhine Ruhr to receive payment under any contract it entered into with an Iraqi entity, payment under the contract had to be approved by the United Nations under the Oil-for-Food Programme. They also knew that the procedures Rhine Ruhr was obliged to follow before it could export the goods included sending some documentation to DFAT.[890]
33.49 Amongst the documents produced to the Inquiry by Rhine Ruhr was a printout from DFAT's website entitled Exporting to Iraq.[891] This document was either provided to Ms Nys or she printed it herself from the DFAT website to ascertain what she had to do to get permission to export.[892] It spelt out the requirements and procedures necessary to obtain both UN approval for the payment of the contract and permission to export from the Minister for Foreign Affairs under s. 13CA of the Customs (Prohibited Exports) Regulations.
33.50 On 3 November 2001 Mr Davies sent Mr Thurgood and Mr Bryden an email in which he stated, amongst other things:
Attached is the purchase order from North Gas Co relating to our quote C991. You will see that our Baghdad office has partly completed the form 986 which is required by the United Nations. After the form has been amended to include the US tariff code for these items at point 4b it should then be sent to the Australian Foreign Trade Department for sending on to the Australian Mission to the United Nations in New York for presentation to the 661 (technical approval) committee.[893]
33.51 The reference in this email to the 'form 986' was a reference to the UN 'Notification or request to ship goods to Iraq' form. Lodgment of this form with the United Nations was the first step in obtaining approval for payment from the UN-controlled escrow account. It was apparent from the form itself that it was to be lodged with the United Nations by the mission of the country of the exporting company.
33.52 Mr Thurgood said he did not open the attachment to the email. Instead, on 5 November 2001 he forwarded the email to Ms Nys, stating:
The attached documentation appears urgent.
Please print out and see what you can do to start the ball rolling on them before Richard returns.[894]
33.53 Ms Nys was the person at Rhine Ruhr who was primarily responsible for sending the relevant documentation to, and liaising with, DFAT. Mr Bryden assisted Ms Nys in completing the documentation.[895] As the most senior employee in the Melbourne office of Rhine Ruhr, he was also responsible for checking the documents that were sent to DFAT and ultimately the United Nations.[896] Ms Nys was not an engineer by training and had not been involved at all in the contract negotiations. Accordingly, when filling out the relevant forms she relied on information and documents provided to her by others, including Mr Bryden.[897]
33.54 Ms Nys obtained the 'Notification or request to ship goods to Iraq' form from the internet and typed the contract details into the form from information given to her by Mr Bryden.[898] The details in the form included details of the goods to be shipped (two sets of valve trays), the 'value' per item (£62,507.50) and the 'total value' of the goods to be shipped (£125,015). This information married up with the contract details. It did not reveal that the agreed price for the supply of the goods was in fact £113,650 (including freight), that the contract price of £125,015 included a 10 per cent 'enhancement' to accommodate the payment of an equivalent fee to an Iraqi entity, or that Rhine Ruhr had undertaken to pay such a fee.
33.55 Mr Bryden did not recall seeing the notification form before Ms Nys sent it to DFAT, although he expected that he would have.[899] He would have seen that the value of the goods to be shipped was specified as £125,015, rather than £113,650.[900] He was also aware that Ms Nys in due course forwarded a copy of the contract to DFAT.[901] It did not cross his mind at the time that the figure supplied in the form should have been £113,650 or that there should have been some disclosure of the engineering services fee.[902] He was unaware at the time that the fee had to be highlighted as a separate issue.[903] Mr Thurgood did not see the notification form until late 2005.[904]
33.56 Ms Nys sent the notification form to DFAT under cover of a facsimile dated 13 November 2001.[905] The person with whom Ms Nys dealt at DFAT was Mr Cuddihy, the Iraq Desk officer.[906] At Mr Cuddihy's request Ms Nys sent some additional documentation to DFAT, including catalogue and design notes concerning the relevant goods[907] and the purchase order.[908] None of these documents disclosed Rhine Ruhr's obligation to pay the fee or that the price had been 'enhanced' to facilitate the payment of the fee. On 21 November 2001 Mr Cuddihy advised Ms Nys that Rhine Ruhr's contract had been lodged with the United Nations the previous day.[909]
33.57 Mr Davies continued to liaise with Mr Thurgood, Mr Bryden and Ms Nys during the approval process. On 15 January 2002 he sent an email to each of them, advising that the UN 661 Committee had approved the contract.[910] On the following day Mr Cuddihy advised Ms Nys that the United Nations had deemed the contract eligible for payment.[911]
33.58 In late January 2002 Rhine Ruhr received a copy of the UN communication advising that the contract was deemed eligible for payment.[912] A permission to export under the Customs (Prohibited Exports) Regulations was signed by a delegate of the Minister for Foreign Affairs on 22 January 2002.[913] Mr Bryden saw both the UN advice and the permission to export.[914] He did not observe at the time that both documents approved payment for, or permitted the export of, the relevant goods and made no mention of services or the payment for services.[915]
33.59 On 10 July 2002 Mr Davies sent to Mr Bryden an email that included the following information and request:
Before the goods will be allowed to be shipped to Um Qasr we will have to provide the shipping company with the official receipt for the 10% Iraqi Government Fee added to this contract of UK£11,365. Can you ask Mardi if she needs an Eastoft Hall Ltd invoice to cover this cost and we will make the arrangements as to where this money needs to be transferred so that we can obtain the receipt.[916]
33.60 Mr Bryden replied to this email on 11 July 2002 and advised Mr Davies that Ms Nys would deal with Mr Davies directly in relation to the fee.[917] He also forwarded Mr Davies' email to Ms Nys and asked her to 'sort this fee direct with Tony'.[918]
33.61 Ms Nys spoke to Mr Davies about payment of the fee. Mr Davies advised Ms Nys that the fee was separate to the commission that was payable to him and asked that the money for the fee be paid into his bank account. Ms Nys advised Mr Davies that she would need an invoice to be able to make the payment.[919] On the same day Mr Davies emailed an invoice to Ms Nys and gave her details of Eastoft Hall's bank account in the United Kingdom.[920] The invoice was on Eastoft Hall's letterhead and included the following particulars:
Service Details Net Amount
Technical Service/Engineering fee in respect of 11,365.00
Contract NGI/10/12
Currency-£Sterling[921]
33.62 Ms Nys sent an email to and spoke with Mr Bryden about the Eastoft Hall invoice. She may also have spoken with Mr Thurgood.[922] Mr Bryden instructed Ms Nys to pay the invoice and she then arranged for the transfer of funds to the bank account nominated by Mr Davies.[923] Whilst Mr Bryden instructed Ms Nys to pay the invoice, Mr Thurgood was ultimately responsible for approving the payment, although he did not recall whether he saw the invoice at the time.[924] On 24 July 2002 Rhine Ruhr purchased the required foreign currency from a foreign currency dealer and transferred the funds to Eastoft Hall in payment of the invoice.[925]
33.63 Despite the fact that the invoice represented that a 'Technical Service/Engineering fee' was payable to Eastoft Hall for services provided by it, Mr Bryden knew that the Eastoft Hall invoice related to the '10% Iraqi Government Fee' referred to in Mr Davies' email. He also believed that the fee referred to in the invoice was payable to Northern Gas Industry.[926] Rhine Ruhr paid the fee to Eastoft Hall because it did not know how or where to pay the fee, and Mr Davies had suggested that if Rhine Ruhr paid the money for the fee to him he would arrange to get it paid.[927] Mr Bryden did not consider it unusual that the invoice was from Eastoft Hall for a 'Technical Service/Engineering fee', rather than from Northern Gas Industry, to whom the fee was to be ultimately paid.
Q: But Eastoft Hall weren't providing any of those services. That's just a false invoice.
A: Well, I didn't see it as a false invoice then, and I would certainly say that today as well. We were providing that money-the company was providing that money in relation to the engineering services fee, which was ultimately flowing through to North Gas.
Q: What technical service engineering did Eastoft Hall provide you?
A: He was providing-he was-the engineering services fee money was flowing through.
Q: I understand the concept of a conduit for money, and it may well be that Eastoft Hall was a conduit for this money.
A: Yes.
Q: What I am putting to you is a different question. You have an invoice for services.
A: Yes.
Q: The services are not for the conduit of money. The services are for 'technical service engineering' in respect of a contract. What technical services engineering did Eastoft Hall provide to you, to your company?
A: That invoice was effectively providing a receipt for the-an initial receipt for the money, because when that 11,000 left Rhine Ruhr, it was going into an Eastoft Hall account, and we wouldn't pass money out without an invoice to pay.[928]
33.64 It did not concern Mr Bryden that Rhine Ruhr was paying this money to Eastoft Hall well in advance of the goods being shipped to Iraq and without knowing how or to whom it was to be paid.[929] He knew that Rhine Ruhr had to make this payment before the goods could be shipped to Iraq and before Rhine Ruhr could be paid.[930]
33.65 Mr Thurgood also understood that the fee was ultimately going to be paid to the Iraqis and that Mr Davies and Eastoft Hall were a mere conduit.
Q: As I understand your evidence, Mr Thurgood, you understood at the time that this fee was to be paid to the end user in the contract-that's the North Gas Industry company-is that right?
A: That was my understanding, yes.
Q: It would have been a fairly straightforward thing to have inquired of North Gas Company what account to pay that fee into, right?
A: I think normally that would have been the case, yes.
Q: You're an engineer, you know what a conduit is, do you not?
A: I suppose so. I don't know what you're getting at, but I know what a conduit is.
Q: That's what Mr Davies and Eastoft Hall was in relation to the payment of this fee; right?
A: Yes.
Q: It went into his account and then he paid it off, you understood, to NGI, North Gas Industry; right?
A: Yes.
Q: Did you follow up with Mr Davies as to whether he in fact did pay it to the North Gas Industry?
A: Personally, no.[931]
33.66 Rhine Ruhr retained its usual freight forwarders, A Hartrodt Australia Pty Limited, to deliver the goods to Kirkuk via Umm Qasr.[932] Hartrodt in turn arranged the sea freight from Melbourne to Umm Qasr through P&O Nedlloyd Limited.[933] Ms Nys was primarily responsible for arranging the freight and liaising with Mr Davies and the freight forwarders about the shipment.
33.67 From the second half of 2001 it was well known to shipping companies, freight forwarders and their customers that persons shipping goods to Iraq were required to provide evidence that they had paid a 10 per cent 'after-sales-service' tax to the relevant Iraqi Ministry or its agent.[934] In late July and early August 2002 P&O Nedlloyd sent to Hartrodt a number of emails that contained information about the documentary requirements for shipping to Iraq. These emails were forwarded to Rhine Ruhr. In an email dated 23 July 2002 P&O Nedlloyd advised that the documentary requirement for movement of cargo into Iraqi destinations included proof of payment of a 10 per cent 'after-sales tax.' The email included the following:
… we need a proof of payment of the 10% aftersales tax levied on all shipments to Iraq moved under phase 8 onwards. fyi. this is paid directly by shipper to cnee [consignee]. The carrier is not involved, but shipments which has not been paid for will not be allowed to discharge in Umm Qasr and will be returned to J/Ali. Any charges involved in returning cargo or any cost for the delay of the vessel in Iraq, will be for shippers account.[935]
33.68 Another email from P&O Nedlloyd to Hartrodt, dated 3 August 2002, a copy of which was sent to Ms Nys at Rhine Ruhr, included the following:
Please pay special attention to after sales charge/confirmation.
1) Arabic bank confirmations from Rafeedein Bank Baghdad indicating receipt of money
OR
2) Letter from Alia transport who are authorised by consignee ISCWT to receive money on their behalf (if the money has been transferred through them)
OR
3) Letter from consignee confirming receipt of money
OR
4) Letter from ISCWT confirming receipt of money.
If the above confirmations are not received in time the boxes will incur unnecessary line & port demurrage in Jebel Ali.[936]
33.69 Ms Nys discussed the matters referred to in these emails with Mr Davies. Shortly after receiving the P&O Nedlloyd email of 3 August 2002 Ms Nys received an email from Mr Davies in which he advised that this was 'standard procedure' and that he would liaise with P&O in Jebel Ali (in the United Arab Emirates) to ensure that there were no problems.[937] On 3 September 2002 Mr Davies sent an email to Ms Nys in which he advised that the vessel would arrive in Jebel Ali on 5 September and that 'the 10% receipt has been transferred to the harbour master at Um Qasr port who has informed the agent of PONL [P&O Nedlloyd]'.[938]
33.70 Despite Mr Davies' efforts, the shipment did encounter problems in relation to proof of the payment of the 10 per cent fee.[939] As indicated in its emails, P&O Nedlloyd shipped goods to Umm Qasr via Jebel Ali. On 4 and 5 September P&O Nedlloyd advised Hartrodt, and Hartrodt advised Ms Nys at Rhine Ruhr, that there was a delay at Jebel Ali because no receipt for the payment of the 10 per cent fee in respect of the shipment could be located. As a result, the consignment could not be released for on-forwarding to Umm Qasr.[940]
33.71 On 5 September 2002 Ms Nys advised Mr Davies of this problem by email and requested a copy of the receipt.[941] This email was copied to Mr Thurgood. On the same day Mr Davies sent Ms Nys an email that included the following:
Our office in Baghdad, on client instructions, did not pay the money to the state company for internal transportation and have paid it to the clients bank account at Al Rafidian bank, Amman Jordan Branch. They tell me that the client has issued the instructions to PONL and I have asked them for a copy receipt so that we can send a copy to you and Mr Jivani at PONL in Jebil Ali.[942]
33.72 On the following day, Mr Davies sent an email to Hartrodt, copied to Ms Nys, in which he stated the following:
We are the agent for the Iraqi market for Rhine Ruhr as well as about 12 other companies from around the world.
We normally would be expected to have paid money deposited by Rhine Ruhr to the State Company for Internal Transportation in either Baghdad or Um Qasr but for some reason the commercial department at the end client, North Gas Co Kirkuk, have confused the issue by instructing our Baghdad office to keep the sales tax in the clients bank account in AMMAN and there was to be an internal receipt issued to the harbour master at Um Qasr to confirm the issue of the official receipt.
We have sent a man from Baghdad to Um Qasr to sort out the problem and to email a copy of the receipt us for onward transmission to you.
I will monitor over this weekend to ensure that the container can load on the next coaster.[943]
33.73 Mr Davies continued to monitor the situation. On 10 September he advised Ms Nys by email that Northern Gas Industry in Kirkuk had given instructions to the Ministry of Internal Transport in Um Qasr to re-send the necessary confirmation to P&O Nedlloyd.[944] The confirmations must in due course have been sent and satisfied the relevant Iraqi authorities, because the shipment eventually arrived in Umm Qasr. Its delivery was certified by the UN independent inspection agent on 24 October 2002.[945]
33.74 As would be expected, Ms Nys kept both Mr Thurgood[946] and Mr Bryden[947] informed about the delay occasioned by the need to evidence the payment of the 10 per cent after-sales-service tax.
33.75 Mr Bryden saw and read the documents that came to Ms Nys from P&O Nedlloyd through Hartrodt.[948] On a printout of one of the Hartrodt emails Mr Bryden wrote, 'We need to pay that 10% surcharge now to get the certificate prior to loading'.[949] Despite the fact that the various emails refer to the 10 per cent payment as an 'after-sales-service charge', or 'tax', and Mr Bryden himself called it a 'surcharge', Mr Bryden maintained that the payment was the engineering services fee referred to in the initial communications received from Mr Davies.[950] The different 'terminologies' did not concern him.[951] The only thing that Mr Bryden considered unusual was Mr Davies' advice that he paid the money into an account in Jordan.[952]
33.76 Mr Bryden also maintained that he always believed the money was to be paid to Northern Gas Industry. This belief persisted despite Mr Davies' observation in one of his emails that the money would normally be expected to be paid to the State Company for Internal Transportation[953] and despite the fact that it was apparent from the P&O Nedlloyd emails that all persons shipping goods into Iraq were required to pay a 10 per cent tax or charge.[954] Mr Bryden never saw, or asked to see, the receipt that would have confirmed the entity to which the fee was paid.[955]
33.77 Whilst Mr Thurgood was aware that an issue arose in relation to the receipt for the payment of the 10 per cent fee, he relied on his staff and Mr Davies to deal with the problem. He did not recall receiving or reading any of the emails or speaking with Ms Nys about them.[956] Like Mr Bryden, at the time he never saw, or attempted to obtain a copy of, the receipt and took no steps to ascertain exactly to whom the money was paid.[957]
33.78 Rhine Ruhr eventually obtained a copy of the receipt in December 2004 in the context of the investigation being conduced by the IIC.[958] The receipt was in Arabic, but no attempt was made by either Mr Thurgood or Mr Bryden to have the receipt translated. A translation of the receipt obtained by the Inquiry reveals that the funds were received into the account held by the Iraqi Ministry of Petroleum in the Rafidain Bank in Jordan.[959]
33.79 Rhine Ruhr received payment for the goods under the letter of credit drawn on the UN escrow account on 8 November 2002.[960]
33.80 In late 2004 Rhine Ruhr was contacted by investigators from the IIC. Mr Tyzzer, who by this time was the managing director, was appointed to respond to and deal with the IIC investigators.[961] Mr Tyzzer was selected as the contact point, even though he was the one director who had not had any involvement in the transactions that were to be investigated.[962]
33.81 Both Mr Thurgood and Mr Bryden were aware that Mr Tyzzer was responding to questions asked by the IIC investigators. Both had discussions with Mr Tyzzer about the questions and the information to be provided.[963] Mr Bryden provided information to Mr Tyzzer about the nature of the 10 per cent payment that appeared to be the focus of the IIC investigations.[964] Mr Tyzzer had access to all the documents relating to the contract in Rhine Ruhr's possession.[965]
33.82 On 3 February 2005 Mr Tyzzer sent an email to the IIC investigators. He sent, or would have sent, a draft of this email to Mr Thurgood and Mr Bryden before sending it to the IIC.[966] The final version of the email was copied to Messrs Thurgood, Bryden and Davies. After referring to the negotiation of the contract, the email included the following:
The final selling price came to UKP 113650. Tony Davies was made aware of the requirement of the additional 'Iraq sales tax' of 10% and this tax of UKP 11365 was requested to be an addition to our price and covered by the LC documentation in order for it to be seen by the U.N. as a reimbursable cost. As you are aware, we won the contract with the LC value being UKP 125015. No additional monies were paid out or allocated for this contract.
…
As discussed with you, the only strange action that I'm aware of is when the 10% Iraqi tax payment was required we were instructed at the last moment to deposit the payment in the clients account (Al Rafeedein bank), Amman branch, instead of the Baghdad branch. After the deposit, we were issued with the correct official receipt (a copy is enclosed) and we were allowed to proceed with shipping and delivery. As requested, I also enclose e-mails warning us regarding the correct documents and proof of payment of 10% Iraqi tax. These were received from our international shippers (Hartrodt) via PONL.[967]
33.83 On 4 February 2005 the IIC investigators responded to this email and asked Mr Tyzzer whether the issue of the 'Iraqi sales tax' was raised with Australian government officials or whether Rhine Ruhr ever received instructions to the effect that this was a normal requirement. Mr Tyzzer responded by email, copied to Messrs Thurgood, Bryden and Davies, in the following terms:
Once again I have looked through our correspondence. I have also discussed the project with our engineer who coordinated the manufacture and delivery. There was no questioning of the need for a 10% Iraqi tax to any Australian government official, and our people would not have raised this as an issue at the time. The contract was awarded with our requirement that this internal tax was not for our account. The order we received had the tax included in the total order value. The order came with the full blessing of the UN. Because of this we regarded payment as an obligation (similar to paying GST).
My previous email had attachments from PONL and our shippers. These documents freely discussed the absolute need for paying this charge, other wise the goods would not be delivered and penalties would be applied. These instructions appeared to be in the public domain and we considered this as confirmation that this tax was a normal requirement. By forwarding this 10% payment and getting the receipt (attached to my first e-mail) our equipment was cleared by UN officials and quickly delivered to site. ie every thing worked as described by our shippers and agents.[968]
33.84 A number of the statements made by Mr Tyzzer in both these emails are inconsistent with much of the contemporaneous documentation and with what both Mr Bryden and Mr Thurgood claimed was their understanding and belief about the nature of the fee. The inconsistencies include:
33.85 Mr Tyzzer did not tell the IIC investigators that the 'engineer who coordinated the manufacture and delivery', Mr Bryden, claimed he did not believe that the payment was a sales tax but was a fee relating to installation and engineering services (although Mr Bryden himself had described it as a 'surcharge').[971] Nor did he give the IIC investigators copies of the documents that described the payment as an engineering services fee. Mr Tyzzer said nothing in the emails about the fact that Rhine Ruhr had received an invoice from Eastoft Hall for the payment of the fee, or that it had used Eastoft Hall as a conduit for the payment of the fee, or that Rhine Ruhr never knew precisely how or to whom the money had been paid.
33.86 Both of Mr Tyzzer's emails to the IIC investigators were copied to Messrs Thurgood, Bryden and Davies. Despite the fact that much of what Mr Tyzzer put in these emails was inconsistent with their understanding and beliefs, neither Mr Thurgood nor Mr Bryden told Mr Tyzzer that any of his statements to the IIC were inaccurate or incorrect.[972] Nor did Mr Tyzzer have any discussion with Mr Davies about the nature of the 10 per cent payment.[973]
33.87 Mr Davies is a resident of the United Kingdom. He is still acting as Rhine Ruhr's agent, and Rhine Ruhr has active tenders in Iraq through Eastoft Hall.[974] The Inquiry asked Mr Davies whether he was prepared to attend and give evidence before the Inquiry, a request he initially declined.[975] A further request was made through Rhine Ruhr's solicitors following Mr Thurgood's evidence. Rhine Ruhr's solicitors subsequently advised the Inquiry that Mr Davies had again declined to attend and give evidence before the Inquiry.
33.88 The issues of fact requiring determination are:
I answer the first two questions and the last in the affirmative. In relation to the third, the statement that the 'total price' was £125,015 was factually wrong because it included a 10 per cent fee. The fourth question is answered in the negative.
33.89 There is also a question about whether the payment Rhine Ruhr arranged to be made to Iraq via Eastoft Hall complied with the Banking (Foreign Exchange) Regulations.
33.90 The evidence establishes that the contract price was inflated by 10 per cent to provide for the payment of a 10 per cent fee to an Iraqi entity. Mr Davies' correspondence establishes that an agreement was struck to supply the goods to Northern Gas Industry for £113,650 but that this price was 'enhanced' in the contract (and the corresponding letter of credit) by 10 per cent to cover the payment of an 'Iraqi Engineering Services Fee'. The same arrangement had been entered into in connection with the first Rhine Ruhr contract. The contract between Rhine Ruhr, Northern Gas Industry and the Iraqi Ministry of Oil contained the 'enhanced' price of £125,015 but made no reference to the fact that the price had been enhanced by 10 per cent or that there was a corresponding obligation on the part of Rhine Ruhr to pay a fee.
33.91 The 10 per cent fee was paid by Rhine Ruhr purchasing the required foreign currency and transferring it to Eastoft Hall on the understanding that Eastoft Hall would use the funds to pay the fee. The money was ultimately paid into an account held by the Ministry of Oil in the Rafidain Bank in Jordan on 12 September 2002.
33.92 Neither Mr Thurgood nor Mr Bryden disputed that the price for the supply of the equipment was increased to allow for the payment of the fee or that the fee was ultimately paid to an Iraqi entity. They claimed they understood that the fee related to installation or engineering services and at all times they believed it was paid to the Iraqi end user, Northern Gas Industry.[976]
33.93 I reject the notion that the 10 per cent fee related to services provided, or to be provided, in relation to the installation, verification or inspection of the equipment. The documents that so describe the fee were a mere cover designed to conceal the true nature of the payment, which was a fee paid to the Iraqi Government to enable it to acquire foreign currency in circumvention of the UN sanctions regime. This conclusion is supported by a number of aspects of the evidence, including:
33.94 The finding that the fee had nothing to do with the provision of, or payment for, engineering services is supported by the findings of the IIC in relation to the imposition by the Iraqi Government of a 10 per cent after-sales-service fee in respect of all contracts under the Oil-for-Food Programme after about August 2000.
33.95 The more difficult question is whether either Mr Thurgood or Mr Bryden knew or appreciated at the relevant time that the 10 per cent fee was a fee, tax or surcharge that was to be paid to the Iraqi Government and further knew that it was a way of obtaining foreign currency and circumventing the UN sanctions.
33.96 Both Mr Thurgood and Mr Bryden maintained they understood and believed the fee was a genuine fee related to the end user's need to install and service the equipment and there was nothing improper or untoward about it. Both Mr Thurgood and Mr Bryden generally presented as credible witnesses endeavouring to give an honest account of their dealings in relation to the Iraq contract and their understanding of the contract and payment of the fee. Rhine Ruhr fully cooperated with the Inquiry and produced a large number of documents in response to a summons issued by the Inquiry, including documents that would reasonably have been thought to be potentially incriminating or at least against Rhine Ruhr's interests. Mr Thurgood voluntarily gave evidence to the Inquiry, even though he now resides in Malaysia and therefore could not have been compelled. These matters tend to suggest that Rhine Ruhr and its officers and employees did not believe the payment of the fee was improper or unlawful.
33.97 I am satisfied, however, that both Mr Thurgood and Mr Bryden knew that the 10 per cent increase in the contract price was not related to a payment for installation services for the reasons given. In addition, they knew Rhine Ruhr's contract was for the supply of goods, not goods and services. There is no sensible basis for increasing the value of the supply contract by 10 per cent to enable a seller to provide funds to the purchaser to perform installation services. Installation, when excluded from the supply contract, is the responsibility of the purchaser. As experienced engineers, each knew that. Further, Mr Davies' email of 10 July 2002 spoke of the 10 per cent as a '10% Iraqi Government fee'. That left no room for any belief that the sum was for installation services. Finally, the P&O Nedlloyd email left no room for doubt that the 10 per cent was a 'tax' levied by Iraq that needed to be paid to Iraq in one of the specified ways before the shipment would be unloaded. Failure to pay the sum on time resulted in delays, of which both Mr Thurgood and Mr Bryden were aware.
33.98 It does not follow, however, that Mr Thurgood and Mr Bryden knew the payment of the fee was a bribe or 'kickback' or was otherwise improper, unlawful or in breach of the sanctions-particularly at the time the documentation for the approval of the contract by the United Nations was submitted to DFAT. There is insufficient evidence to establish that level or degree of knowledge on the part of Mr Thurgood and Mr Bryden at the time of the approval process. At that time Mr Thurgood and Mr Bryden were relying on their agent, Mr Davies, who had represented to them that he knew the workings of the Oil-for-Food Programme. They did not. There is no evidence that Mr Davies informed them of the true nature of the fee. Whilst neither Mr Thurgood nor Mr Bryden recounted a conversation in which Mr Davies advised them that the payment of the fee was standard and accepted practice, it may reasonably be accepted that it was likely this is what he did. Certainly both Mr Thurgood and Mr Bryden claimed that they gained the impression that the fee was an approved practice. Whilst it is true that no significant inquiry was made of Mr Davies or anyone else about the nature of the fee and whether it was known to and approved by the United Nations, it does not follow that the only reasonable inference to be drawn from this is that Mr Thurgood and Mr Bryden knew the fee was improper or unlawful or not sanctioned by the United Nations.
33.99 A number of Criminal Code offences have as an element the making of a false or misleading statement or a deception. These offences include ss. 134.1, 134.2 and 136.1. In the light of the findings concerning the payment of the fee and Mr Thurgood's and Mr Bryden's knowledge of the nature of the fee, I must consider whether any of their actions in dealing with DFAT constituted, or are capable of constituting, a false or misleading statement or deception.
33.100 Both Mr Thurgood and Mr Bryden had a general understanding of the nature of the UN sanctions against Iraq and the operation of the Oil-for-Food Programme. Neither, however, had any significant interaction with DFAT or any interaction at all with the United Nations. Submission of the required documentation to DFAT was largely left to Ms Nys, a relatively junior employee who had not been involved in the contract negotiation. Mr Bryden and, to a lesser extent, Mr Thurgood were responsible for providing information and documentation to Ms Nys, and Mr Bryden helped Ms Nys complete the documentation. Mr Bryden also knew what documents Ms Nys sent to DFAT. Mr Thurgood was responsible for the overall supervision of Ms Nys' actions.
33.101 The 'Notification or request to ship goods to Iraq' form that was filled in by Ms Nys includes particulars of the 'total value' of the goods to be shipped. The figure inserted by Ms Nys was the recorded contract price of £125,015. Ms Nys sent both the notification form and a copy of the contract to DFAT. Other documents were subsequently forwarded to DFAT at the request of the Iraq Desk officer. None of the documents sent to DFAT revealed, or was capable of revealing, the fact that the contract price had been inflated by 10 per cent to accommodate the payment of a fee or that there was a collateral arrangement or requirement that Rhine Ruhr pay a fee of 10 per cent of the contract to an Iraqi entity.
33.102 There are two statements made in, or arising from the submission of the notification form and the supporting contractual documents that might be regarded as being false or misleading by reason of the failure to make any reference to the 10 per cent fee and its incorporation in the contract price. The first statement is the statement in the notification form that the 'total value' of the goods to be exported by Rhine Ruhr was £125,015. The second is an implied statement, or a statement made by conduct or silence, to the effect that the details in the notification form and the accompanying documents contained the entirety of the terms on which Rhine Ruhr was supplying the goods to Iraq and there were no collateral or 'side' arrangements between the parties.
33.103 The statement in the notification form about the 'total value' of the goods is factually wrong because the value included the 10 per cent fee. However, 'total value' may include properly payable transaction costs and fees. Since the contract is for supply CIP Kirkuk, the contract price clearly includes the cost of freight and insurance. These costs are built into the overall contract price and are not separately disclosed in the contract. Further, it is apparent from clause 10 that Rhine Ruhr was contractually responsible for the payment of all 'duties and charges' arising outside Iraq. It is in the circumstances doubtful whether transportation costs or any duties and charges to be paid by Rhine Ruhr were required to be separately particularised or deducted from the specified 'total value' of the contract. In the circumstances, it is difficult to see why a properly payable 10 per cent fee payable by Rhine Ruhr (however described) should necessarily be regarded differently. The position would be different if it was known by those submitting the documents to be a hidden fee payable to Iraq or an Iraqi entity because it would not be a true expense properly associated with the supply of the goods.
33.104 Here, Rhine Ruhr and its officers were relying on Mr Davies' indication that the payment of a 10 per cent fee was a proper and usual charge. Accordingly, I am satisfied Rhine Ruhr made a false statement in the notification form, although those making the statement did not know it to be false.
33.105 There are difficulties in concluding that Rhine Ruhr made a statement to DFAT that there were no collateral arrangements. That is because I am satisfied that Rhine Ruhr and its officers regarded the 10 per cent payment as an integral part of the contractual arrangements, not a collateral arrangement.
33.106 The relevant Criminal Code offence provisions require as an element that the alleged offender knew the statement was false or misleading (s. 136.1) or that the offender dishonestly obtained an advantage (s. 134.2) or acted with the intention of dishonestly obtaining a gain or dishonestly influencing a Commonwealth public official (s. 135.1). To make out the mental or fault[977] elements of these offence provisions, it would be necessary for the evidence to be capable of establishing, in general terms, that Mr Thurgood and Mr Bryden knew the statements Rhine Ruhr made to DFAT were misleading by reason of the failure to disclose the fee or its inclusion in the contract price, or that in failing to disclose these matters they acted dishonestly or with a dishonest intention.
33.107 Both Mr Thurgood and Mr Bryden claimed they had very limited, if any, involvement in the submission of the notification form or contract documents to DFAT. Mr Bryden claimed, in effect, that he did not turn his mind to whether the 'total value' in the notification form should not have included the 10 per cent fee or to whether the 10 per cent fee should otherwise have been disclosed. It is implicit in the evidence of both Mr Thurgood and Mr Bryden about their understanding of the nature of the fee that they did not consider it needed to be disclosed to DFAT and they did not know or believe anything that was submitted to DFAT on behalf of Rhine Ruhr was false or misleading or their actions were in any way dishonest.
33.108 The available evidence is not sufficient to support a finding that either Mr Bryden or Mr Thurgood knew that the fee should have been disclosed to DFAT or that statements made to DFAT on behalf of Rhine Ruhr were misleading because of the failure to disclose the obligation to pay the fee or its inclusion in the contract price or that they in any way acted dishonestly. This finding flows from the evidence that neither Mr Thurgood nor Mr Bryden knew the payment of the fee was improper and not sanctioned by the United Nations.
33.109 One of the potentially relevant offence provisions in the Criminal Code has the lesser fault element of recklessness. The offence created by s. 136.1(4) of the Criminal Code is made out if a person makes a false or misleading statement in an application to a Commonwealth entity (including a statement that is misleading by omission) and does so recklessly as to whether the statement is false or misleading.
I am satisfied that neither Rhine Ruhr nor its officers acted recklessly in submitting the notification form and contracts to DFAT without identifying that the contract price included a 10 per cent fee. Rhine Ruhr reasonably relied on the indication from Mr Davies that such a fee was a proper and usual charge. Accordingly, it was not excluded from the contract price or separately identified. Neither Mr Thurgood or Mr Bryden would have appreciated the 'substantial risk'[978] that failure to disclose the existence of the fee would render any statement made on Rhine Ruhr's behalf misleading.
33.110 There is no evidence sufficient to support a finding that Rhine Ruhr or any of its officers or employees committed any offence under the Criminal Code arising from the submission of documents to DFAT (and ultimately the United Nations) or the export of the goods consequent on the approval of the contract and the granting of permission to export. I am also satisfied that there is no material that would support any finding that Rhine Ruhr might have breached s. 103.1 of the Criminal Code.
33.111 It remains to consider whether Rhine Ruhr committed any offence under the Banking (Foreign Exchange) Regulations when it paid the fee to Iraq via Eastoft Hall.
33.112 The evidence establishes the following facts:
33.113 Regulation 42(1) of the Banking (Foreign Exchange) Regulations 1959 provides that it is an offence to 'contravene or fail to comply with, any of the provisions of these Regulations'.
33.114 Regulation 5, as in force from 11 March 2002, provided:
The Bank may, in writing, direct a person:
(a) not to buy … foreign currency in Australia …
33.115 On 5 April 2002 the Reserve Bank issued a direction entitled 'Direction relating to foreign currency transactions and to Iraq'. Regulation (4A) required that, to be a valid direction, the direction either be given to the person to whom it relates or be published in the Government Gazette, as this direction was on 5 April 2002. The direction provided:
The Reserve Bank of Australia pursuant to Regulation 5 of the Banking (Foreign Exchange) Regulations hereby directs that:
1. a person must not, either on the person's own behalf or on behalf of another person, buy, borrow, sell, lend or exchange foreign currency in Australia, or otherwise deal with foreign currency in any other way in Australia;
2. a resident, or a person acting on behalf of a resident, must not buy, borrow, sell, lend or exchange foreign currency outside Australia, or otherwise deal with foreign currency in any other way outside Australia;
3. a person must not be a party to a transaction, being a transaction that takes place in whole or in part in Australia or to which a resident is a party, that has the effect of, or involves, a purchase, borrowing, sale, loan or exchange of foreign currency, or otherwise relates to foreign currency
where the transaction relates to property, securities or funds in Australia belonging either directly or indirectly to, or other payments to, the Government of Iraq, its agencies or its nationals.
All such transactions are prohibited without specific prior approval of the Reserve Bank of Australia.[979]
On the same day the Reserve Bank also revoked its earlier exemption to r. 5 dated 21 June 1984.[980]
33.116 Subject to one submission of Rhine Ruhr on the construction of the direction, I am satisfied that Rhine Ruhr might have breached the direction in that it bought foreign currency in Australia in relation to a payment to the Government of Iraq, its agencies or its nationals without the specific approval of the Reserve Bank of Australia in contravention of the direction issued by the Reserve Bank on 5 April 2002.
33.117 Rhine Ruhr submitted that the words 'directly or indirectly' in the direction:
where the transaction relates to property, securities or funds in Australia belonging either directly or indirectly to, or other payments to the Government of Iraq, its agencies or nationals[981]
should be construed to relate only to 'property, securities or funds in Australia' and not to the words 'or other payments'. Further, it was submitted that the payment must relate to a 'direct' payment to Iraq, not an indirect one.
33.118 I reject that construction. The object or purpose of the direction was to prevent transactions of the type described in paragraphs 1 to 3 inclusive, which are related to Iraq. Since title to 'property, securities or funds' may be legally found in entities that are not 'the Government of Iraq, its agencies or its nationals', even though in fact beneficial ownership of such 'property, securities or funds' may reside in 'the Government of Iraq, its agencies or nationals', it was necessary to reflect the reality of ownership of 'property, securities or funds' was in 'the Government of Iraq, its agencies or nationals', directly or indirectly. There was no such requirement in relation to payments to 'the Government of Iraq, its agencies or nationals'. If the ultimate destination of a payment the subject of a prohibited transaction is 'the Government of Iraq, it agencies or nationals', that being a question of fact, it matters not that the funds are routed directly or indirectly to that destination.
33.119 However, for reasons explained in Chapter 2, acting contrary to the direction made pursuant to r. 5(1) does not constitute the commission of an offence against the Banking (Foreign Exchange) Regulations.
33.120 Accordingly, there was no breach by Rhine Ruhr of the Banking (Foreign Exchange) Regulations.
33.121 On the material before me, there was no breach by Rhine Ruhr Pty Limited of any Commonwealth, State or Territory Law.
Notes
[792] ACN 003221770; registered in New South Wales.
[793] Ex 53, RRP.0005.0456 at 0456-0457, para. 4.
[794] T 1013.1-7.
[795] T 1013.12-17; T 117.33-47. It also had sales to countries including India, Pakistan, Thailand and Indonesia.
[796] T 1014.26-29; T 115.6-12.
[797] Ex 49, RRP.0001.0471 at 0473.
[798] T 112.42 - T 113.16; T 1010.30-41.
[799] T 1011.10-29.
[800] Ex 53, RRP.0005.0456 at 0456-0457, para. 4.
[801] T 1011.31-42; T 109.33-35.
[802] T 1012.1-9.
[803] T 1012.11-14; T 112.40.
[804] T 112.32; T 1012.23. Mr Bryden never had any communications with the non-resident directors: T 113.13-16.
[805] T 111.1-18.
[806] Ex 52, RRP.0005.0570, para. 2.
[807] T 1012.25-26; T 142.1-8.
[808] T 142.6-26.
[809] T 1016.33-39.
[810] T 1014.36-42; T 116.10-14.
[811] Ex 53, RRP.0005.0456 at 0457, para. 8.
[812] T 1014.44 - T 1015.22.
[813] Ex 53, RRP.0005.0456 at 0458, para. 12.
[814] Ex 53, RRP.0005.0456 at 0458, para. 11 and 13; T 1017.29-31.
[815] Ex 53, RRP.0005.0456 at 0459, para. 14; Ex 53, RRP.0005.0478 at 0479. T 1018.21-24; T 1019.25-29. The letter bears the date 6 January 2006, however Mr Thurgood's evidence is that this was the date that he printed the document: T 1018.27.
[816] T 1018.35-36; T 1019.39-41.
[817] T 116.43-47; T 1013.33-42.
[818] T 117.13-21; T 1014.3-18.
[819] T 1013.44 - T 1014.1.
[820] Ex 53, RRP.0005.0456 at 0462, para. 20.
[821] Ex 50, RRP.0006.0028.
[822] FOB means 'delivery of goods on board the vessel at the named port of origin (loading) at the sellers expense; buyer responsible for the main carriage/freight, cargo, insurance and other costs and risks': International Commercial Terms (Incoterms).
[823] CIF means 'the cargo insurance and delivery of goods to the named port of destination (discharge) at the seller's expense; buyer is responsible for the import customs clearance and other costs': International Commercial Terms (Incoterms).
[824] T 1023.38 - T 1024.3; T 1024.5-13.
[825] T 1024.36 - 1025.14.
[826] T 1025.21-28.
[827] T 1025.30-35; Ex 53, RRP.0005.0456 at 0463, para. 22.
[828] International Commercial Terms (Incoterms): www.export911.com.
[829] T 1026.36-41.
[830] T 1027.12-16.
[831] T 1027.23-27.
[832] Ex 53, RRP.0005.0456 at 0463, para. 22.
[833] Ex 53, RRP.0005.0490 at 0491.
[834] T 1030.29-37.
[835] T 1030.39-43.
[836] T 1038.37-39.
[837] Ex 53, RRP.0005.0490 at 0493-0498.
[838] T 1028.10-16.
[839] T 1033.39 - T 1034.18.
[840] T 1034.32 - T 1035.23.
[841] Ex 53, RRP.0005.0490 at 0499.
[842] T 1036.5-8.
[843] T 1035.44 - T 1036.1
[844] T 1037.21-30.
[845] T 1037.32-37.
[846] T 1037.43 - T 1038.8.
[847] T 1038.10-39.
[848] T 1039.18-47
[849] T 1040.14-23; T 1043.1-22.
[850] T 1041.38 - T 1042.25.
[851] T 1043.31-38; T 1044.42 - T 1045.10.
[852] Ex 50, RRP.0006.0027; T 1049.40 - T 1050.5.
[853] Ex 53, RRP.0005.0456 at 0463-0464, para. 27; T 1045.17 - 1048.43.
[854] T 1048.35 - T 1049.8
[855] T 1039.11-16.
[856] T 1051.4-10.
[857] T 1050.43 - T 1051.2.
[858] T 134.39 - T 135.24: see also T 136.27 - T 137.27.
[859] T 138.25 - 139.20.
[860] T 1051.22-27; Ex 53, RRP.0005.0456 at 0466, paras 35-36.
[861] The facsimile was addressed to 'Distal-Australia', however this was a mistake and the document came to the attention of Rhine Ruhr: T 1052.4-11. Mr Thurgood believed that the mistake arose by reason of his association with Distillation Alliance International Limited and Distal Limited: Ex 53, RRP.0005.0456 at 0457, para. 8.
[862] Ex 49, RRP.0001.0014; T 1051.43 - T 1052.11; Ex 53, RRP.0005.0456 at 0466, para. 37.
[863] Ex 49, RRP.0001.0026. This was in response to a specific query by Mr Davies: Ex 53, RRP.0005.0456 at 0467, para. 41.
[864] Ex 49, RRP.0001.0027.
[865] Ex 49, RRP.0001.0029.
[866] Ex 49, RRP.0001.0035.
[867] T 1053.34-46; T 1054.34-45.
[868] Ex 49, RRP.0001.0070.
[869] T 123.46 - T 124.1
[870] Ex 49, RRP.0001.0070.
[871] T 1056.3-6.
[872] T 1056.8-17.
[873] T 126.10-39; T 133.25-31.
[874] T 1056.41-46.
[875] Ex 53, RRP.0005.0456 at 0468, para. 47.
[876] Ex 49, RRP.0001.0071.
[877] Ex 49, RRP.0001.0038.
[878] Ex 49, RRP.0001.0038 at 0039.
[879] Ex 49, RRP.0001.0038 at 0040.
[880] Ex 53, RRP.0005.0456 at 0469, para. 50.
[881] Ex 53, RRP.0005.0456 at 0469, para. 50.
[882] Ex 49, UNO.0004.0281; Ex 53, RRP.0005.0540 at 0541.
[883] T 1057.34-37.
[884] T 1058.1-8.
[885] T 129.7-8.
[886] Ex 990, UNO.0004.0002
[887] Ex 990, UNO.0004.0023
[888] T 1021.26 - T 1022.12.
[889] T 140.15-19.
[890] T 140.35-46 (Mr Bryden); T1061.30-1062.8 (Mr Thurgood); Ex 49, RRP.0001.0072.
[891] Ex 49, RRP.0001.0048-0062.
[892] Ex 52, RRP.0005.0570 at 0571, para. 7.
[893] Ex 49, RRP.0001.0072.
[894] Ex 49, RRP.0001.0072.
[895] T 142.28-42; T 144.41-43; T145.13-17; T 195.22-35.
[896] T 1064.21-25; T 145.24-29.
[897] Ex 52, RRP.0005.0570 at 0571, para. 8; T 1063.17-27.
[898] Ex 52, RRP.0005.0570 at 0571, para. 8.
[899] T 145.24-29.
[900] T 145.31-33.
[901] T 145.35-38.
[902] T 147.30-47.
[903] T 151.39-40.
[904] T 1064.27-43.
[905] Ex 49, RRP.0001.0075.
[906] Ex 52, RRP.0005.0570 at 0571, para. 8.
[907] Ex 49, RRP.0001.0079-0093.
[908] Ex 49, RRP.0001.0094.
[909] Ex 49, RRP.0001.0107.
[910] Ex 49, RRP.0001.0119; Ex 53, RRP.0005.0456 at 0469, para. 52.
[911] Ex 49, RRP.0001.0120.
[912] Ex 49, RRP.0001.0127.
[913] Ex 49, RRP.0001.0124.
[914] T 155.46 - T 156.3; T 157.11-15.
[915] T 156.22 - T 157.30.
[916] Ex 49, RRP.0001.0204.
[917] Ex 49, RRP.0001.0204.
[918] Ex 49, RRP.0001.0208.
[919] Ex 52, RRP.0005.0570 at 0572 para. 11.
[920] Ex 49, RRP.0001.0205.
[921] Ex 49, RRP.0001.0207.
[922] Ex 52, RRP.0001.0570 at 0572, para. 12; Ex 49, RRP.0001.0207.
[923] Ex 52, RRP 0001.0570 at 0572, para. 12.
[924] T 1074.7-10; T 1075.15-19; Ex 53, RRP.0005.0456 at 0470-0471, para. 57.
[925] Ex 53, RRP.0005.0456 at 0470-0471, para. 57; Ex 49, RRP.0001.0242.
[926] T 162.25-45.
[927] T 158.37-46.
[928] T 161.16-46.
[929] T 162.41 - T 163.4.
[930] T 163.20 - 33 .
[931] T 1077.4-30.
[932] Ex 49, RRP.0001.0263; Ex 52, RRP.0005.0570 at 0572 para. 14; T 199.11-14.
[933] Ex 49, RRP.0001.0279; Ex 49, RRP.0001.0226.
[934] Ex 421, WST.0010.0086 at 0088-0089, paras 8-9.
[935] Ex 49, RRP.0001.0223.
[936] Ex 49, RRP.0001.0271.
[937] Ex 49, RRP.0001.0273.
[938] Ex 49, RRP.0001.0320.
[939] Ex 52, RRP.0005.0570 at 0572, para. 14.
[940] Ex 49, RRP.0001.0324 at 0325.
[941] Ex 49, RRP.0001.0327.
[942] Ex 49, RRP.0001.0323.
[943] Ex 49, RRP.0001.0332.
[944] Ex 49, RRP.0001.0333.
[945] Ex 49, RRP.0001.0345.
[946] Ex 53, RRP.0005.0456 at 0471, para. 59.
[947] T 164.8-23.
[948] T 164.21-44; T 151.30-32.
[949] Ex 49, RRP.0001.0226; T 165.29 - T 166.1
[950] T 165.6-12.
[951] T 169.11-19.
[952] T 167.19-29.
[953] Ex 49, RRP.0001.0332.
[954] T 167.7-35; T 168.42 - T 169.19; T 170.8-37.
[955] T 172.11-13.
[956] T 1083.8 - T 1088.1.
[957] T 1087.17-22.
[958] Ex 49, RRP.0001.0436-0437.
[959] Ex 54, RRP.0005.0569.
[960] Ex 49, RRP.0001.0349; UNO.0004.0213-0214.
[961] T 173.7-31; T 1093.21-23
[962] T 173.17-21; T 1093.14-32; T 210.34-38.
[963] T 173.33-35; T 174.12-24; T 1093.41-45.
[964] T 213.41 - T 214.26.
[965] T 173.37 - T 174.10.
[966] T 1095.27-30; T 175.29-32.
[967] Ex 49, RRP.0001.0438.
[968] Ex 49, RRP.0001.0442.
[969] Ex 49, RRP.0001.0070; T 217.14-31.
[970] T 219.10-36; T 220.28-32.; T 173.2-14.
[971] T 222.26 - T 223.31; compare Mr Bryden's description of the fee as a 'surcharge'.
[972] T 176.20-37; T 178.31-45; T 182.32 - T 183.22; T 1097.33-45
[973] T 225.28-31.
[974] T 1015.31-45.
[975] T 1104.43 - T 1105.3.
[976] Cf. Mr Bryden's description of the fee as a '10% surcharge': Ex 49, RRP.0001.0226; T 165.21 - T 167.5
[977] Division 5 of the Criminal Code.
[978] Section 5.4 of the Criminal Code.
[979] Commonwealth of Australia, Gazette, GN20 (22/05/2002) p. 1484.
[980] Commonwealth of Australia, Gazette, GN20 (22/05/2002) p. 1483.
[981] Commonwealth of Australia, Gazette, GN20 (22/05/2002) p. 1484.
