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Follow the Big Money: Bad Business with Baghdad
By Craig Rowley and Richard Tonkin
Some may have tried to blow it off as a political beat up, but that would be a big mistake. This story just gets bigger each day as anyone closely following the Cole inquiry into bad business by sanction busting bribe-payers would know. It is the biggest scandal we've seen for many years. Alexander's wheat dreams have become a nightmare, and not just for him. The list of those involved keeps getting longer and the exposure of what they've done gets more excruciating. American farmers and politicians are getting more agitated and excited. Our own wheat farmers are growing more concerned. Investors in the companies involved are set for substantial losses. Our politicians are getting set for a big fight. Our nation is faced will substantial damage to its international reputation.
Opposition leader Kim Beazley has called on Prime Minister John Howard yet again to widen the Oil-for-Food inquiry terms of reference. "One thing we can absolutely not afford as a nation is any more cover-up," he told reporters in Melbourne. And Mr Howard is now saying he would be prepared "to consider expanding" the terms of reference if requested by Mr Cole to do so.
And make that request for broader terms of reference is exactly what Mr Cole did yesterday, but not quite in the way expected. Rather than immediately seeking broader scope to look into the Howard Government's role in the scandal, Cole is keen to have the scope to investigate another big player that would appear to have been involved in the bribery and sanction busting business - BHP, the big Australian.
Howard and his government are not off the hook yet though, with Cole also noting that he might ask the government to broaden the terms of reference for the probe if he uncovered any evidence of illegal acts by the government or its officers. As a consequence the Prime Minister is playing the confidence card. He says he would appear before the Cole inquiry if called and that he is confident that no ministers or public servants had known that AWB was paying kickbacks. "I did not know, Mr Downer did not know, and on the information that I have ... I do not believe that anybody in the departments were told that AWB was paying bribes", he told reporters on Friday.
But this is about something much bigger than bribes. It's not just about bad business. It's about sanction busting. Those sanctions were put in place to beat Saddam without the need to drop bombs on Baghdad. The failure of those sanctions was cited as a reason for the invasion of Iraq by George W Bush's coalition of the willing.
Whatever you believe there is no doubt this is big and it seems set to only get bigger.
In October 2005, the Independent Inquiry Committee into the United Nations Oil-for-Food Programme—better known as the Volcker Committee – released its final report into the United Nations on the Oil-for-Food program. The Volker Committee identified more than 2,200 international firms that, knowingly or unwittingly, paid a total of more than a billion dollars in kickbacks to Saddam Hussein's regime.
As pointed out by Tony Parkinson in The Age last November, whilst the rollcall of global corporations includes pharmaceutical giant GlaxoSmithKline, DaimlerChrysler, Volvo, Siemens and the Chinese state-owned industrial conglomerate SinoChem., right near the top of the list is our very own Australian Wheat Board. That's not just a consequence of Australia starting with an A. If you sort the list by the amount of money that made its way back into the Iraqi dictator's pocket you'll find AWB Ltd right at the top of the list.
The Volcker inquiry found AWB Ltd paid almost $300 million to a bogus trucking company, Alia Transportation & Trading Co. of Amman, Jordan, purportedly as fees for transporting inland 8 million tonnes of Australian wheat. In fact, Alia did not cart a single grain of wheat. Alia, a front company majority-owned by the Khawam family (a powerful Iraqi clan living in Jordan) was established and 49% owned by the Iraqi Transportation Ministry, and it simply took a cut and passed on the rest of AWB Ltd's payments to Saddam's bankers.
The Volcker inquiry found no evidence to suggest the monopoly wheat exporter had acted dishonestly, concluding on the evidence it had that AWB Ltd did not knowingly pay kickbacks. The Cole inquiry is finding evidence that in fact AWB did act dishonestly, did knowingly pay the kickbacks, and did more.
On Thursday a former AWB manager, Mark Emons, blew the whistle on AWB's payment of kickbacks, telling the Cole inquiry that since at least 1999 senior executives agreed to the system that funnelled money to Saddam's regime and that they did this knowing that it could be illegal. They believed it was the only way to get things done. Through the course of the Cole inquiry to date we're starting to see a clear picture of exactly what the people at AWB believed was this 'only way' things had to be done.
Saddam had issued a special presidential decree demanding a US$12 surcharge per tonne from suppliers selling wheat to Iraq under the UN Oil-for-Food program. Suppliers were told no payment, no unloading in Iraqi ports. From numerous emails and facsimiles between senior AWB executives, the Iraqi directly involved - Grains Board head Zuhair Daoud and the general manager of Alia, we learn how AWB dealt with that demand. Rather than question the demands made of them, as the Canadian Wheat Board did, they focused on finding a way to facilitate the payments.
We've learned that one AWB executive, Dominic Hogan, went as far as joking about smuggling cash in a very large suitcase, though considering that the wheat for gold story perhaps it was only half in jest. What is no joke is the course AWB finally settled on, a scheme set up to meet the sanction busting demands of the Iraqi dictator. They engaged the bogus trucking company Alia back as a means of funnelling money directly to Saddam Hussein's regime.
Big problems for a big hearted (former) big Australian - BHP
BHP likes to be seen as a business with a big heart as well as a hefty and healthy balance sheet. In 1996, it was warned by DFAT that its big-hearted plan to send wheat to Iraq as a "humanitarian gesture" (and then recoup the money -- with interest -- through instalment payments) would breach United Nations sanctions against Saddam Hussein's Ba'athist regime. Still it seems the big Australian was unperturbed, so it went ahead, bought 20,000-tonne wheat from the then statutory Australian Wheat Board, and shipped it to Iraq. Then it did some funny business with AWB to build the repayments of US$5 million to a BHP related company using sham contracts with further inflated wheat prices. These contracts involved a BHP related company called Tigris Petroleum.
This week the Cole inquiry has heard that BHP Billiton's head of Energy, Phil Aiken, brokered the deal between AWB and Tigris Petroleum, the company collecting the $5 million owed to BHP. Tigris agreed to pay US$500,000 to AWB for recovering the debt. Michael Long, AWB's head of marketing, said in evidence that Phil Aiken wrote a reference letter in September 2000 confirming Tigris had been assigned the debt to BHP by the Iraq government. Asked if he was concerned the money paid to Tigris might go to the Iraqi government, Mr Long told the inquiry he was reassured by correspondence from BHP.
BHP says it will cooperate fully with the inquiry, which Commissioner Cole is now looking to have broadened so it can consider charges against the world's biggest miner. On Friday, Cole said in an address to the inquiry that it was "incongruous and inappropriate" that he has been unable to make findings about BHP's activities. The inquiry has heard that BHP funded the 1996 "humanitarian gesture" in a bid to win petroleum exploration rights in the country once UN sanctions were lifted. BHP has denied the money was intended to help secure BHP oil rights in Iraq, despite an assertion made by AWB CEO Andrew Lindberg in a statement to the Australian Stock Exchange in mid January that it was the intention of BHP to get the inside running on the oil exploration rights.
Bit players in big strife - Rhine Ruhr and Alkaloids of Australia
Rhine Ruhr, based in Sunshine makes parts used in oil refineries, chemical plants and water treatment plants. They won a contract in 2001 to supply more than £113,000 worth of "trays for regenerator towers" to Iraq's oil industry under the UN "oil-for-food" program (how these trays fit into program to supply food to starving Iraqi people we can only wonder at). Rhine Ruhr inflated the contract by 10 per cent to pay kickbacks to Iraq in violation of UN sanctions. A sum of £11,365, described as an "engineering services fee", was then paid to the Iraqi Government by a British agent acting for Rhine Ruhr in Iraq. The British agent, Tony Davies, has refused to come to Australia to give evidence to the inquiry. Thanks to the investigative journalism of Marian Wilkinson, National Security Editor for The Age, we've learned that Davies is still working for Rhine Ruhr, trying to secure new contracts in Iraq and no doubt still trying to 'faciltate' kickbacks - this time to the new Iraqi government.
Alkaloids of Australia used a Canadian-based Iraqi man to help them negotiate the sale of one tonne of pharmaceutical raw materials in Iraq. More than $75,000 was added to the price and used to pay off Iraqi officials. Christopher Joyce, a sales agent for Alkaloids of Australia, told the Cole inquiry that he was unconcerned that the 10% bung was added on top of the contract. It was just normal business practice in the region he believed. Obviously no thought was given to whether normal business turns to sanction busting when the UN Security Council says don't funnel money to Saddam.
Ministers with big headaches - Alexander Downer and Mark Vaile
Mr Howard is saying he does not believe that any of the leading players in his Government were aware of the possibility of bribes being involved in the wheat deals. "I did not know," he said. "Mr Downer and [the Trade Minister] Mr Vaile did not know, and on the information that I have and based on the advice, I do not believe that anybody in the departments were told that AWB were paying bribes."
Alexander Downer's big headache is the no win situation DFAT is in. Either they knew about and covered-up the true nature of the bad business done with Baghdad or they failed to heed a series of warnings. From 2000 on, Canada, the US, the UN and Russia all raised concerns about what they understood could be happening - what we now know was happening.
Downer is in denial mode. Had DFAT known the AWB was paying kickbacks "of course" it would have done something about it, Mr Downer says. That still leaves him with a struggle to find a suitable answer to former Democrat leader of the US senate, Tom Daschle, who says Australia's checks and balances have clearly failed - "I would think the Australian Government should have been on this a long time ago. I am still puzzled as to why there was no input, why there was not more effort to find out - why was this happening?"
Deputy Prime Minister and leader of the Nationals Mark Vaile must have felt like a winner these past few years, but lately the strain has been showing. If he's involved in covering up what AWB did then as the Trade Minister for the period under scrutiny he's right in the thick of it. It won't be just his hair and a defector (or two) he's likely to lose this year.
On Thursday he tried to play it all down. He's trying to play the big bluff by saying that no US officials raised the scandal with him last week during trade talks. "I can assure our colleagues in America that that inquiry is being conducted fully, openly, and transparently, and will investigate all facts put before it," Mr Vaile told ABC radio in Rockhampton. "The administration hasn't directly raised this issue with us lately and I was in that circumstance only last weekend ... They are obviously watching the inquiry that is being conducted in Australia and are satisfied - this is my take-out - that the Australian government is doing everything it can and should do in terms of getting to the bottom of the issue and uncovering all the facts."
In fact, there is intense lobbying by US agricultural interests being directed at US Trade Representative Rob Portman in the lead up to the review of the Free Trade Agreement. They want Portman to raise the AWB issue with Vaile in March. The FTA review is now going to be one great big headache for Vaile.
Big trouble with our big trade rival - US Senator Coleman
Americans are beginning to make a big fuss about this for some time. In 2004, when news of the rorts first reached the ears of US politicians with the interests of their own farmers at heart they wanted a Congressional inquiry. The Australian Ambassador to the US, Michael Thawley argued that the allegations of kickbacks to Saddam Hussein's government were baseless and convinced them to curb that inquiry and not look into the conduct of AWB.
Now that the Cole inquiry has confirmed their initial suspicions, a number of US Senators have questioned the role of the Australian Government and the independence of the inquiry. There's been an angry response from some members of the US Congress and there are growing demands to know why claims AWB paid kickbacks to Saddam were "unequivocally dismissed" by Thawley.
Mr Thawley is no longer our ambassador in America. Dennis Richardson, former head honcho at ASIO has that gig and he's preparing to meet Republican Senator Norman Coleman, the head of the US senate inquiry into the oil-for-food scandal. That preparation better be thorough, as the American senator could well put to Richardson one of the big questions left unanswered to date – Marion Wilkinson's closing question in her piece in the SMH (19/1):
Regardless of whether that particular question is put to Richardson he's going to need to do some fancy footwork. He'll need to make a big effort to win the trust of Norm Coleman who is already feeling like one Aussie ambassador duping him is one too many. Coleman is certainly not happy, and he has demanded that Mr Thawley appear before a new inquiry committee to explain himself.
Big reasons to beat a fast retreat - Ambassador Michael Thawley
On Thursday in Washington, The Adelaide Advertiser found former Australian ambassador to the U.S. Michael Thawley, who refused to answer allegations he misled the high-powered congressional committee over the issue. He has big reasons to beat a fast retreat.
Thawley is now a man in the centre of a big mess. He was not just John Howard's appointment as Ambassador but also Howard's former foreign policy advisor. As Tony Walker in the Australian Financial Review has written, when cabinet documents are unsealed in 30 years it may well be demonstrated that Thawley's role went beyond that of simply being an advocate on behalf of Australia's interests and was in fact a driver of Australian policy every bit as important as others in the foreign policy establishment, including Downer.
These days Michael Thawley is a Senior Vice President for the Capital Research Management company, a dividend-focused investment group which manages assets worth over US$750 billion. Funds of this size have considerable clout, enough to dictate the activities of the corporations they hold shares in. As an example, Halliburton announced last year that it would not take any new contracts in Iran because it was making a group of pension funds mightily unhappy.
As a representative of a company with more political clout than many national governments, no wonder Thawley doesn't want to comment. $300 million is small potatoes compared to the level of finance that he's involved in now.
Which reminds us: Follow the Big Money, not the little stuff. Perhaps now is a good time to think about where the Oil-for-Food money ended up converted by the CPA into the Iraq Redevelopment Fund, and handed out to US contractors such as Halliburton to rebuild the country.