Deceit by the truckload

Sydney Morning Herald
April 15, 2006

It is the greatest international scam in Australia's history. David Marr and Marian Wilkinson reveal the inside story on the wheat board kickbacks.

BETWEEN them, a pitiless dictator and UN sanctions had reduced Iraq to ruin. The currency was destroyed. Millions were starving. Hospitals had no medicines, no bandages and no anaesthetics. Faced with a death toll of half a million children since sanctions began, the US secretary of state, Madeleine Albright, remarked: "We think the price is worth it."

But the world grew so restive at the sight of this man-made catastrophe unfolding in Iraq that a compromise was forced on the US. The oil-for-food program was designed to feed Iraq while starving Saddam Hussein of hard currency until he gave up his weapons of mass destruction.

Within hours of the resolution passing the UN Security Council, the salesmen of the Australian Wheat Board were back on the road to Baghdad. These were crazy, dangerous journeys that ended in brief meetings, long lunches and huge wheat deals. As American bombs and missiles rained down on Baghdad in December 1998, the board clinched deals to sell more than 2 million tonnes of grain.

Australia has been selling wheat and mutton to tyrants for a long time. That's business and we're good at it. We're good at doing the deals, good at trading with the enemy while keeping our allies onside. This country traditionally runs two foreign policies: one for the nation and another for the bush. We refused to recognise Mao's China, but Mao was one of the wheat farmers' most valued customers.

Saddam was a familiar kind of client and the Australian Wheat Board - an arm of government about to morph into the private corporation AWB Limited - became the single biggest seller of wheat to Iraq in the last years of Saddam's regime. Our farmers had Iraq cornered. "It was huge," recalled an AWB executive with awe. "It was profits and money all round."

But it was not business as usual. Up in the Persian Gulf, hundreds of Australian servicemen were working in a multinational force supervising shipping in and out of Iraq's only port, Umm Qasr. Oil and weapons were the main game, but their mission was to prevent all breaches of UN sanctions. In the last stages of this story, an Australian would command that force from the decks of the USS Cushing.

Under UN Security Council Resolution 661, Australia was responsible for seeing that no cargo left its shores in breach of sanctions. Regulations introduced in Australia during the first Gulf war banned all shipments to Iraq unless the foreign minister was "satisfied that permitting the exportation will not infringe the international obligations of Australia". Under the oil-for-food program, no wheat could leave without a tick from Alexander Downer. He and his officers would sign off on 292 ships carrying 12 million tonnes of wheat to Iraq worth more than $2 billion. And almost every cargo breached sanctions.

The wheat was clean. The problem was the cash ferried in on the cargo. Iraq's oil revenues were held in a mighty escrow account in a New York bank with the UN as cashier. From these oil billions, Saddam was allowed to buy "humanitarian" supplies - mostly wheat - but he was not supposed to get his hands on the cash. Starving him of hard currency was seen by the international community - not least Australia - as the most effective way of forcing Iraq to disarm.

Yet Saddam got hold of billions. The UN was to prove too riven by political division over Iraq to police its own system. Australians were too willing to break the rules. And the Iraqis proved magnificent shakedown artists.


ZUHAIR DAOUD, head of the Iraqi Grain Board for more than 30 years, was soon to die in an ambush on the road to Amman, but in his last weeks in office he had a strange task to perform: to tell an AWB team visiting Baghdad that they must now load into their contracts the cost of trucking wheat all over Iraq. The prospect was a nightmare for the company. Where would it find the trucks? Who would insure the loads? But Zuhair cleared the air by telling the team AWB wouldn't be responsible for trucking anything anywhere. Iraq just wanted the money.

Amnesia and confusion would later seize senior AWB executives when quizzed about the arrangements Iraq imposed in 1999. But the two AWB salesmen lunching that day with Zuhair - Dominic Hogan from AWB's Cairo office, and Mark Emons, the manager of the company's Middle East section - recognised this for what it was: a scheme for siphoning cash out of the UN's escrow account. Emons later told Terence Cole's inquiry into the AWB scandal: "We knew it was outside the sanctions."

Emons returned from Baghdad to drive a five-month search for ways of hiding the payments from the UN. Aware that Iraq's transport infrastructure was in ruins, the international body had approved the principle of contracts covering the cost of "inland transport" - but the fees had to be customary, reasonable and not a source of hard currency for the regime. All three provisos were breached by the 700,000-tonne contract AWB signed in July loaded with "trucking fees" of $US12 per metric tonne. It was a hard-currency bonanza.

Strictly speaking this was not a bribe because the rate was set by the Iraqi Grain Board and would be paid - somehow or other - into the coffers of the government of Iraq. But it was a classic kickback: a side payment made from falsely inflated contracts. The beauty of the rort from AWB's point of view was that Australia's wheat farmers didn't pay a cent. The money was all coming out of the UN's escrow account.

At Ceres House, the wheat trader's headquarters in Melbourne, the mantra was: "It's no skin off our nose."

By October AWB still hadn't found a way to get the cash into Iraq undetected. Dominic Hogan was running out of ideas. A notorious email he sent at this time ended with the flourish: "Other option is to use maritime agents/vessel owners' account/or buy a very large suitcase."

Salvation - if that's the word - came out of the blue nine days later in a mangled fax from Alia for Transportation and General Trade, a company based in the Jordanian capital of Amman: "We would like to introduce to you our company being one of the Jordanian Establishments specialized on the fields of over land and ocean freight transportation." Zuhair confirmed Alia would take the "trucking fees", which had to be paid in advance.

Just days before the MV Pretty Ruby arrived at Umm Qasr in late November with its cargo of Australian Hard, AWB deposited $US504,000 in Alia's account in the Jordanian capital. Over the next three years, AWB would pay this obscure company hundreds of millions of dollars without ever conducting due diligence, without a contract and without ever checking if it had any trucks in Iraq. It didn't.

This is a story defined at every stage by what was not done. When obvious checks aren't made and obvious questions aren't asked, someone doesn't want to know the answer. A grey area is being left grey. No evidence has emerged at the Cole inquiry that AWB ever sought advice on paying "transport fees" from the bodies supposed to be vetting the contracts: the Foreign Affairs Department and the UN. And no one at AWB checked up on Alia.

Othman al-Absi, the company's general manager, would tell the Cole inquiry: "I do not recollect ever being asked by anyone from AWB about who owned or controlled Alia, or whether it had connections with the Ministry of Transport. However, Alia's ownership was public knowledge and was not hidden." The records show the Baghdad ministry holding 49 per cent of the shares.

According to a "distillation" of secret evidence to the Cole inquiry, this fact had been known for at least a year in Canberra. A 1998 report by a foreign intelligence agency had been circulated to the departments of Foreign Affairs, Defence and Prime Minister and Cabinet indicating "that Alia Corporation based in Jordan was part-owned by the Iraqi government and that it was involved in circumventing UN sanctions on behalf of the Iraqi government".


IRAQ was putting the hard word on everyone, but the Canadians did what AWB would never do in the years ahead: they sought the UN's advice and were told emphatically not to pay.

The Canadians were Australia's only real rivals in the market because Saddam had black-banned American grain. Now the UN's verdict put them in a bind and they turned on the Australians. In mid-January 2000, a Canadian diplomat told UN inspectors that according to the Iraqi Grain Board, AWB was already paying the trucking fees.

A UN official, Felicity Johnston, immediately contacted the Australian mission at the UN to ask for "discreet, high-level inquiries" to be made into AWB. At this point, the whole trucking fee scam could have been stopped in its tracks. But it never happened. The to and fro of cables and meetings and phone calls that followed raise for the first time the big question in this story: was the Australian Government complicit or staggeringly incompetent?

On the ABC's Four Corners, Johnston insisted she spoke to the diplomat Bronte Moules at the Australian mission specifically about "trucking fees". Moules denies this but she kept no notes of their conversations; says she never asked what the suspect payments were for and never examined any of the many AWB contracts in her UN office. She confessed she couldn't have understood their terms even if she had.

Canberra's inquiries amounted to one phone call to AWB's government liaison man, Andrew McConville, who said the accusations were "bullshit". As far as the Australians were concerned, that settled the matter. But the Canadians were still unhappy and threatening to go public, so in March Johnston alerted the Australian trade commissioner in Washington. Alistair Nicholas was galvanised into action and within days had a high-powered AWB team sitting in his office.

According to the notes of the team, they talked trucking fees that day. Nicholas denies this. But everyone agrees they spoke about sending the UN the full text of the standard terms and conditions in AWB's contracts. If that's all the UN wants, one of the team emailed home, "we have nothing to worry about".

The terms and conditions say nothing about trucking. But every contract AWB was now writing with Iraq contained the commercial formula for inland transport: "The cargo will be discharged Free into Truck to all silos within all Governorates of Iraq." Australian officials would claim they never noticed these words in more than 40 AWB contracts. And by sheer bad luck, Felicity Johnston had picked from the pile the one last contract with Iraq that didn't have a trucking clause.

It was an extremely close shave. AWB got through without being quizzed about trucking fees by anyone. Unable to find anything in the paperwork about them, Johnston let the matter drop. She reproaches herself now but it seemed so unlikely to her back then. "That what I perceive to be an agency of [the Australian] Government would be deceptive and would be deliberately flouting the sanctions, and then avoiding telling the truth about the matter, was really incomprehensible."

The crisis had only the vaguest impact on Canberra. Alexander Downer remembers being told about the complaint but can't recall reading any of the cables generated by the crisis, though they were distributed to his office.

In these same weeks, more foreign intelligence about Alia reached both Downer's department and the Department of Prime Minister and Cabinet: "Alia received fees in Jordan for the discharge and inland transport within Iraq of goods purchased under the oil-for-food program ... the fees, less a small commission, were paid into accounts accessible by Iraq in violation of sanctions. The amounts involved were very substantial."


CHARLES STOTT was an old Iraq hand, wheeling and dealing in oil and wheat for decades in the Middle East. In June 2000 he returned to AWB after a few years with BHP Petroleum. Stott was the key figure in the single shabbiest episode in this saga.

Stott would always claim the UN approved the trucking fees, but evidence to the Cole inquiry suggests that on his return to AWB he set out to simplify and shore up the covert system for paying them. His strategy included extracting a vague letter from the Foreign Affairs Department that AWB would later produce as proof of a kind that the "trucking fees" had official blessing.

In late October Stott faxed the section that handled AWB's contracts and asked if it would be "comfortable" with the company "entering into discussions with ... Jordan trucking companies with a view to agreeing a commercial arrangement in order to ensure that there are enough trucks to enable the prompt discharge of Australian wheat cargoes".

The fax bristled with problems, not least that by this time AWB had been locked into its deal with Alia - at the direction of the Iraq government - for nearly a year. Neither the deal nor Alia were mentioned in the fax. Stott would later claim that before sending the letter he spoke informally to officers of the branch "to make sure that DFAT was comfortable with the terms of the letter". They deny this.

Jane Drake-Brockman's reply came astonishingly swiftly. The assistant secretary of the Middle East and Africa branch wrote: "We ... can see no reason from an international legal perspective why you should not proceed. That is, this would not contravene the current sanctions regime in Iraq."

Success has many authors. No one claims to have written the Drake-Brockman letter. One officer concedes she may have had a bit of a hand. All the others swear ignorance. Drake-Brockman says she signed the draft relying on the line that reads: "International Legal Division has been consulted in the preparation of this response." But, told AWB needed the letter in a hurry, she sent it away without checking with the lawyers.

The letter was prized at AWB and used to reassure restive employees and unhappy lawyers - especially when things got sticky after the fall of Baghdad. But at the Department of Foreign Affairs and Trade, the copy went missing from the files.



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