By Dr George Venturini
The greatest international scam, the biggest corruption of its kind in Australia’s history resulted in international condemnation and litigation. The United States successfully pursued criminal charges against several citizens and others in its borders, but the Australian criminal investigation into A.W.B. was eventually dropped. Civil charges, however, were initially successful.
On 11 July 2006 North American farmers claimed US$1 billion in damages from A.W.B. before a court in Washington D.C., alleging that the Australian wheat exporter used bribery and other corrupt activities to corner grain markets. The growers claimed that A.W.B. used the same practices to secure grain sales in other markets in Asia and other countries in the Middle East. The lawsuit was dismissed in March 2007.
In August 2009 the Australian Federal Police dropped the investigation into any criminal actions undertaken by A.W.B. and others in this matter. The reason seemed to be that the chance of obtaining a conviction was limited and “not in the public interest.”
A civil case was brought by shareholders of A.W.B., and was settled out of court for AU$39.5 million in February 2010. Nobody really knows why.
The Australian Securities and Investments Commission proceeded with several civil cases against six former directors and officers of A.W.B. Some of those cases were discontinued on condition that the parties would bear their own costs. A.S.I.C. decided to discontinue the proceedings after forming the view that it was “no longer in the public interest” to pursue its claims.
A.S.I.C.’s proceedings against Trevor Flugge, the former chairman of A.W.B., and Peter Geary, the former Group General Manager Trading of A.W.B., continued.
There were ‘lateral’ discoveries, such as the one involving big hearted (big Australian) B.H.P. has always liked to be seen as a business with a big heart as well as a hefty and healthy balance sheet. Most uninformed Australians went along with that story.
Yet, in 1996, B.H.P. had been 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 the Saddam Hussein’s régime. Still, it seemed, the big Australian was unperturbed, so it went ahead, bought 20,000 tonnes of wheat from A.W.B., and shipped it to Iraq. Then it did some unusual business with A.W.B. to build the repayments of US$5 million to a B.H.P. related company, using sham contracts with further inflated wheat prices. These contracts involved a B.H.P. related company called Tigris Petroleum.
The Cole Inquiry was given an opportunity to hear that B.H.P.’s Head of Energy, Philip S. Aiken, had brokered the deal between A.W.B. and Tigris Petroleum, the company collecting the US$5 million owed to B.H.P. Tigris had agreed to pay US$500,000 to A.W.B. for recovering the debt. Michael Long, A.W.B.’s head of marketing, said in evidence that Aiken had written a reference letter in September 2000 confirming Tigris had been assigned the debt to B.H.P. 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 B.H.P.
Four years later, six former A.W.B. top executives would be able to escape criminal charges over the ‘kickbacks’.
The Australian Securities and Investments Commission would not have tried to revive civil cases against those accused of breaching U.N. sanctions against Saddam Hussein.
Key figures in the A.W.B. ‘kickbacks’ affair were set to avoid criminal charges after another retreat by the nation’s ‘corporate regulator’.
Five former A.W.B. officers, including the former chairman Trevor Flugge, were told in June 2010 that the ‘corporate regulator’ would not have prepared a criminal brief for the Commonwealth Director of Public Prosecutions.
But the end of the criminal investigation, revealed in the Victorian Supreme Court, had cleared the way for A.S.I.C. to revive civil penalty cases that it had initiated against the five in late 2007.
A.S.I.C. was the last ‘corporate regulator’ still examining possible criminal charges over A.W.B.’s systematic payment of more than US$225 million in illicit fees and commissions to Saddam Hussein’s régime between 1999 and 2004 in pursuit of contracts to sell Australian wheat.
The Australian Federal Police and Victoria Police had abandoned their criminal investigations in August 2009 after the federal Director of Public Prosecutions had decided that there would have been no chance of success.
Eventually the most serious of A.S.I.C.’s charges against Trevor Flugge, the former chairman of A.W.B., and Peter Geary, the former Group General Manager Trading of A.W.B., would be dismissed. (P. Durkin, ‘ASIC loses AWB case against Trevor Flugge a decade after Oil-for-Food’, The Australian Financial Review, 15 December 2016).
But A.S.I.C.’s decision to abandon its A.W.B. criminal investigation paved the way for the ‘corporate regulator’ to revive civil penalty cases it had initiated in late 2007 against five former senior officers of A.W.B.
The five were the former chairman Trevor Flugge, who was accused of seven instances of breaching his fiduciary duties; the former A.W.B. chief financial officer Paul Ingleby – 16 counts; the former head of trading Peter Geary – 10 counts; the former head of sales and marketing, Michael Long – 17 counts; and the former senior marketing executive Charles Stott – 12 counts.
Their cases were postponed in November 2008 while the Supreme Court of Victoria awaited confirmation from either A.S.I.C. or the Commonwealth D.P.P. about possible criminal action. A.S.I.C.’s lawyers told the court on 3 June 2010 that the regulator would soon file an application seeking court approval to restart the civil cases.
A sixth set of proceedings, against A.W.B.’s former managing director Andrew Lindberg, was under way.
However, in another development that day, A.S.I.C.’s lawyers informed Justice Ross Robson that they would have filed an application the following week to have him removed from Lindberg’s case because the judge had admitted to being a close friend of the former A.W.B. director Warwick McClelland.
A.W.B.’s counsel, Norman O’Bryan, S.C., told the court that all directors who were on A.W.B.’s board at relevant times, including McClelland, would be called to give evidence about what they knew and what they were told.
Mr. O’Bryan said that while A.S.I.C. at this stage did not expect to challenge McClelland’s credibility, it ultimately might, and A.S.I.C. believed it was “a moral certainty” that Lindberg would challenge directors’ credibility.
Justice Robson said that he would not hear the application to recuse himself until Lindberg had the opportunity to read a statement or outline of McClelland’s evidence. A.S.I.C. had not finalised its witness statements or outlines.
The case was not expected to return to court before 13 July 2010, at the earliest.
Justice Robson had presided over all the A.W.B. cases in the Victorian Supreme Court, including the 2008 application to postpone the five civil cases. He had allowed A.S.I.C.’s civil penalty case against Lindberg to proceed on the basis that he was highly unlikely to face any criminal proceedings, and he presided over several weeks of opening submissions from A.S.I.C when Lindberg’s stop-start trial had begun in 2009.
A.S.I.C.’s counsel first raised the recuse application in November. At the time Justice Robson said he did not feel “any embarrassment whatsoever about hearing the application for a stay unless you say why I should be embarrassed”, adding that McClelland was not a relative and “not some person I am responsible for looking after; he is a director of a major public company.”
Lindberg’s case, while it had hardly begun, had been tense and dramatic. A.S.I.C. initially alleged that he had breached his fiduciary duties by failing to stop the ‘kickbacks’ but, just as A.S.I.C. opened its case in October 2009 it launched a second, parallel action against the former chief executive.
Early in 2010 the Court of Appeal had allowed A.S.I.C. to run its second case, and the parties agreed to run the two cases as one. It was unclear when Lindberg’s trial would have resumed as there were now disputes about the formulation of A.S.I.C.’s statement of claim.
A.S.I.C.’s expanded case alleged that, as well as failing to halt the ‘kickbacks’, Lindberg did not tell fellow A.W.B. directors what he knew about either the payments or the gravity of allegations levelled at A.W.B. by the United States investigators, and that he allegedly misled directors about an internal A.W.B. investigation into the ‘kickbacks’.
A.S.I.C. would later confirm that its comments to the court regarding the end of criminal investigations related only to the six former officers facing court proceedings. (L. Wood, ‘Six former AWB chiefs escape criminal charges over kickbacks’, The Sydney Morning Herald, 4 June 2010).
During the Inquiry B.H.P. had promised to co-operate fully. For that reason Mr. Cole had been looking to have his terms broadened so it could consider charges against the world’s biggest miner. Mr. Cole said that it was “incongruous and inappropriate” that he had been unable to make findings about B.H.P.’s activities. The Inquiry heard that B.H.P. funded the 1996 ‘humanitarian gesture’ in a bid to win petroleum exploration rights in Iraq once the United Nations sanctions were lifted. B.H.P. had, of course, denied all along that the money was intended to help secure B.H.P. oil rights in Iraq, despite an assertion to that effect made by A.W.B.’s [then] C.E.O. Andrew Lindberg to the Australian Stock Exchange that it was the intention of B.H.P. to get the inside running on the oil exploration rights.
Appearing before the Inquiry, A.W.B. chairman Brendan Stewart would say that the company would accept responsibility. “The board deeply regrets the damage done to the company. The board accepts accountability for the actions of management, and the culture at A.W.B. during the Oil-for-Food program. At the end of the day, the board ultimately accepts responsibility for what happened, and is committed to making significant changes to ensure it never happens again.” (‘AWB chairman accepts responsibility’ – 7.30, abc.net.au, 29 November 2016).
More than a decade after the Cole Inquiry, former A.W.B. chairman Trevor Flugge and the former group general manager trading, Peter Anthony Geary, would be facing trial on charges of dereliction of duty in the ‘kickbacks’ scandal.
Mr. Flugge denied helping negotiate the sweeteners to the Saddam Hussein’s régime and welcomed the chance to clear his name.
The ‘corporate regulator’ had begun a civil case against Mr. Flugge in 2007, but froze the case while it pursued criminal charges. These were then discontinued in 2010, but now A.S.I.C. had returned to court, wanting to prove that Mr. Flugge was aware – or at least should have been aware – that A.W.B. was violating U.N. Security Council resolutions.
Meanwhile, A.S.I.C. was alleging that Mr. Geary had personally authorised six payments to Jordanian front company Alia totalling around AU$ 31 million between March 2002 and February 2003.
A.S.I.C. had won two civil cases in 2013 against Andrew Lindberg, who had paid a penalty of $100,000, and former chief financial officer Paul Ingleby, who had paid a penalty of $40,000.
The civil trial of Mr. Flugge and Mr. Geary was expected to last ten weeks.
* * * * *
The Volcker investigation had found no evidence to suggest that the monopoly wheat exporter had acted dishonestly, concluding on the evidence it had that A.W.B. did not knowingly pay ‘kickbacks’.
On its part, the Cole Inquiry was finding some evidence that in fact A.W.B. did act dishonestly, did knowingly pay the ‘kickbacks’ – and did more.
The Cole Inquiry concluded that from mid-1999 A.W.B. had knowingly entered into an arrangement that involved paying ‘kickbacks’ to the Iraqi régime, in order to retain its business. It cleared Government bureaucrats and ministers from wrongdoing, however, it recommended criminal prosecutions be begun against former A.W.B. executives.
The kickbacks also breached the O.E.C.D. Anti-Bribery Convention.
The Cole Inquiry recommended that 12 people be investigated for possible criminal and corporations offences over the scandal.
The scandal resulted in international condemnation and litigation. The United States successfully pursued criminal charges against several citizens and others in its borders, but the Australian criminal investigation into A.W.B. was eventually dropped. Civil charges were however modestly successful.
On 11 July 2006 North American farmers claimed $1 billion in damages from A.W.B. at Washington D.C., alleging the Australian wheat exporter used bribery and other corrupt activities to corner grain markets. The growers claimed that A.W.B. used the same techniques to secure grain sales in other markets in Asia and other countries in the Middle East. The lawsuit was dismissed in March 2007.
In August 2009 the Australian Federal Police dropped their investigation into any criminal actions undertaken by A.W.B. and others in this matter. This decision came after Paul Hastings, Q.C. declared that the prospect of convictions was limited and “not in the public interest.”
A civil case was brought by shareholders of A.W.B., and was settled out of court for $39.5 million in February 2010.
Mr. Flugge was later fined $50,000 and banned from managing a company for 5 years, for failing to inquire about A.W.B.’s payments to Saddam Hussein’s régime. A.W.B.’s managing director at the time, Andrew Lindberg, and chief financial officer Paul Ingleby were fined $100,000 and $40,000 and banned from manager roles for 2 years and 15 months, respectively.
Corruption scandals have, institutionally, engulfed a number of Australian companies operating overseas. The incidents raise questions about shortfalls in management supervision of staff, who act corruptly for the ‘good’ of their employer. Some of Australia’s largest companies, such as mining giant Rio Tinto, have been involved in widely reported examples. In 2005 the unruly behaviour of A.W.B. hit the headlines. Usually corrupt governments attempt to overcome the temporary embarrassment relying on the lack of attention of a hill-informed, uncaring, fatalistic, indifferent populace. There is little interest beyond the scandalous, often juicy, details. Some cases are not sexy enough to attract attention. Long time ago, bribes were reported to have been paid by Securency International, the company which invented and markets polymer banknotes and is half-held by the central bank, the Reserve Bank of Australia. In the case, two companies – totally held by the Reserve Bank of Australia – Securency and Note Printing Australia, were fined a record $21.6 million in 2012 for their criminal conduct. However, the cases against four accused individuals collapsed after bungling by law enforcement agencies.
Transparency International, the global anti-corruption coalition, has been releasing several progress reports on the enforcement of the Organisation for Economic Co-operation and Development’s Anti-Bribery Convention. Already in 2009 Transparency’s report pointed to Australia’s weak record of enforcing the agreement. In fact, Australia had not prosecuted anyone. Generally enforcement was extremely uneven among the 36 out of 38 signatories to the Convention covered by the report. “There is active enforcement in only four countries (Germany, Norway, Switzerland and the United States) and little or no enforcement in 21 of the parties.” said the report. “Increased efforts are also needed in countries with moderate enforcement because their level of enforcement is not high enough to provide effective deterrence.”
In mid-2009, when Rio Tinto’s Australian head of iron ore marketing in China, Mr. Stern Hu, was charged with bribery, it was suggested that the Chinese Government was taking revenge for a rebuff of its earlier takeover bid for the company. Yet a later court judgement of the case detailed how Hu had demanded a 30 per cent commission – disguised as a ‘consultancy agreement’ – in return for giving a Chinese company a long-term contract for the supply of iron ore through an agent. He had also laundered a US$798,000 ‘cut’ through a friend’s bank account. Other bribes were handed over in a restaurant in the office tower where Rio Tinto has its Shanghai headquarters. Hu’s colleagues also rigged Rio Tinto’s spot market tendering processes in favour of those who bribed them.
Australian Federal Police continued to investigate a whistleblower’s allegations that Securency International offered AU$50 million in bribes and procured prostitutes to win contracts all around the world.
In the A.W.B. case, the grains marketeer admitted that the AU$ 290 million in fees it paid to a Jordanian transport company were loaded with payments which were passed onto Saddam Hussein’s régime. This contradicted its earlier responses to the Australian Securities Exchange and to Paul Volcker, who investigated corruption in the U.N. Oil-for-Food programme in 2005. The Cole Inquiry was told by too many of the cartel’s executives something like this: “ A.W.B. has consistently maintained its position that it did not know, and could not know, what Alia did with the money A.W.B. paid to it by way of transport fees.” The Prime Minister and the two ministers most closely connected with A.W.B.’s operation and supervision new absolutely nothing. “Nothing here to see” seemed to be the pass-word.
Corruption is pervasive, and contagious. The Australian Taxation Office ruled that the AU$290 million that A.W.B. paid was not illegal under Iraqi law. Consequently, they were not bribes under Australian law, and the Tax Office determined A.W.B. was well within its rights to claim the costs as a tax deduction. In 2009 the Australian Federal Police dropped its investigation, on the ground that it was not clear that breaching a United Nations sanction is a criminal offence and a conviction “was not in the public interest.” In 2010 A.W.B. was defending a AU$100 million shareholder class action by claiming that Australian and United Nations officials knew of the ‘kickbacks’ – and, anyway, they did not breach the U.N. Oil-for-Food programme.
Of course, there is always the paramountcy argument of ‘the national interest’ and the ultimately venal consideration that the Australian Government has a conflict of interest as ‘kickbacks’ for contracts leads to profit for government coffers through more exports and more tax revenue. At this point, the healthy the doctrine of paramountcy, expressed in the legal principle which reconciles contradicting or conflicting laws. So the Securency and A.W.B. cases appeared to have the tacit support – almost justification – by the Australian Government.
Way to go!
Continued Saturday – Our mate: Saddam Hussein al-Tikriti (part 6)
Previous instalment – Our mate: Saddam Hussein al-Tikriti (part 4)
Dr. Venturino Giorgio Venturini devoted some seventy years to study, practice, teach, write and administer law at different places in four continents. He may be reached at George.email@example.com.
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