AWB oil-for-wheat scandal: the Saddam kickbacks

By the time the Cole Inquiry handed down its final report in November 2006, the story of AWB Limited and its dealings with Saddam Hussein's Iraq, the oil-for-wheat scandal, had become one of the most damaging corporate scandals in Australian history. Not because the wrongdoing was especially baroque. It wasn't. It was, at its core, a long series of decisions to pay money to a regime the United Nations had sanctioned, dress it up as trucking fees, and then deny all knowledge when the questions started.

Reading the Cole Report alongside the contemporaneous parliamentary record, what strikes me is how ordinary the mechanics were. No offshore genius. No elaborate financial engineering. Just a company that wanted to keep selling wheat, a regime that wanted a cut, and a chain of people who either knew or chose not to ask.

Iraq, UN sanctions and the oil-for-wheat scandal

After the Gulf War, the United Nations imposed comprehensive sanctions on Iraq under Security Council Resolution 661. By the mid-1990s, with evidence that ordinary Iraqis were suffering acute shortages of food and medicine, the UN established what became known as the Oil-for-Food Programme. Iraq would be permitted to sell oil; the proceeds, held in a UN escrow account, would be used to buy humanitarian goods including food. Contracts had to be approved by the UN's sanctions committee. Suppliers were expressly prohibited from paying any part of their proceeds to the Iraqi government.

AWB Limited, the privatised successor to the Australian Wheat Board, which had held a statutory monopoly on bulk wheat exports, became one of the largest single suppliers under the programme. Between 1999 and 2003, according to the Cole Inquiry's findings, AWB contracted to supply wheat worth roughly $2.3 billion to Iraq. It was, by some distance, the dominant relationship.

How the kickbacks worked, according to the Cole Inquiry

The Cole Inquiry, formally the Inquiry into Certain Australian Companies in Relation to the UN Oil-for-Food Programme and conducted by former NSW Court of Appeal judge Terence Cole, found that AWB paid what it described as "trucking fees" to a Jordanian company called Alia for the inland transport of wheat inside Iraq. The inquiry found those fees were not genuine transport charges. They were, in substance, payments that ended up with the Iraqi government, specifically the State Grain Board, and amounted to a surcharge demanded by the Iraqi regime as a condition of doing business.

According to the inquiry's findings, AWB paid approximately $290 million in these fees across the life of the programme. The money was sourced from the UN escrow account, the same account funded by Iraqi oil sales that was meant to benefit the Iraqi people. The inquiry found that AWB's conduct constituted a systematic pattern of deception, and that AWB knowingly made false statements to the UN when it certified that its contracts contained no payments to the Iraqi government.

Commissioner Cole found that AWB's conduct breached the UN sanctions regime and that a number of its officers were involved in or aware of arrangements that were, on any reasonable reading, improper. The report referred twelve current and former AWB officers to the Australian Federal Police and relevant state authorities for consideration of potential criminal charges.

What AWB told the Australian government

One of the most politically charged dimensions of the inquiry concerned what AWB told the Department of Foreign Affairs and Trade, and what DFAT passed on to the UN. The inquiry examined a substantial volume of correspondence and found that AWB had provided misleading information to DFAT when questions were raised about the trucking fees, and that DFAT had in turn relayed those assurances to the UN without independently verifying them.

Commissioner Cole was careful in his findings here. He found no evidence that any minister had actual knowledge of the kickbacks. He found that the Howard government ministers who appeared before the inquiry, including the then Foreign Minister and the then Trade Minister, had not been told the truth by AWB, and had not personally turned their minds to the issue in a way that disclosed awareness of wrongdoing. That finding was contested by the Labor opposition and by some commentators at the time, who argued the inquiry's terms of reference had been drawn too narrowly to allow a thorough examination of ministerial conduct. That's a fair political observation, though it is distinct from a legal finding.

The inquiry's terms of reference, set by the Howard government, did not extend to an examination of whether ministers or their offices had been negligent in their oversight of AWB. Commissioner Cole acknowledged the limitation. His mandate was the conduct of the companies involved, not the adequacy of governmental supervision.

The corporate culture the inquiry described

Reading Volume One of the Cole Report, what emerges is a picture of an organisation that had convinced itself, over time, that its obligation to sell Australian wheat outweighed other considerations. The inquiry found that AWB's senior management were aware that the Iraqi regime was demanding a surcharge, that the trucking fee arrangement was a mechanism to pay it, and that this arrangement was inconsistent with AWB's obligations under UN sanctions. Internal documents tendered at the inquiry showed discussions about the fees and their destination that the commissioner found difficult to reconcile with the company's public claim of ignorance.

There was also, the inquiry found, a corporate culture of non-disclosure. Questions from DFAT, from the UN, and later from Volcker, the Independent Inquiry Committee established by the UN Secretary-General to investigate the programme globally, were met with answers that the commission found were at best incomplete and at worst deliberately misleading.

Honestly, the internal documents are the most dispiriting part of the record. You read exchanges between senior people who clearly understood the nature of the arrangement, followed by letters to regulators that say nothing of the sort. That gap, between what was known internally and what was said externally, is where the inquiry located the core of AWB's culpability.

The Volcker Committee and international context

AWB was not the only company to pay kickbacks under the Oil-for-Food Programme. The Volcker Committee, which reported in 2005, found that more than 2,000 companies from roughly 66 countries had paid illegal surcharges to the Iraqi regime. The total amount paid to Iraq through these mechanisms was estimated by Volcker at around $1.8 billion. AWB, on the inquiry's figures, accounted for the largest single national contribution to that total from any supplier country.

That context matters. AWB's conduct was not an isolated aberration in a clean system. But the scale of Australia's involvement, and the fact that AWB held a statutory monopoly, meaning the Australian government had a closer relationship with it than most exporting countries had with their grain traders, gave the Australian chapter of the scandal a particular edge.

The legal aftermath and what followed

Despite the referrals to the AFP, no AWB officer was ultimately convicted of a criminal offence arising from the inquiry's findings. The AFP and the Commonwealth Director of Public Prosecutions examined the referrals, and prosecutions were considered but did not proceed. It was an outcome that frustrated many observers, including some in the academic and legal communities who had followed the inquiry closely.

AWB itself was restructured. Its single-desk monopoly on bulk wheat exports was removed by the Rudd government in 2008, a reform that had been debated for years before the scandal but which the Cole findings accelerated politically. The company was subsequently acquired by Agrium, a Canadian fertiliser and agricultural products company, in 2010. The AWB brand, which had existed in various forms since the Second World War, effectively ceased to operate as an independent entity.

Several civil proceedings followed the inquiry. ASIC, the corporate regulator, brought actions against former AWB directors and officers. Some of those proceedings settled; others were contested. The Federal Court of Australia dealt with a number of matters arising from the conduct identified by Cole over several subsequent years, with outcomes that varied by respondent. I won't characterise those proceedings beyond what the public record shows: they were hard-fought, and the results were mixed.

What the AWB case says about accountability

The AWB scandal sits in a particular category of Australian corporate wrongdoing: large in scale, well-documented by a royal commission-equivalent, and yet modest in its legal consequences relative to the conduct found. That pattern, thorough inquiry and restrained prosecution, is not unique to AWB. It appears often enough in Australian corporate history to be worth noting without over-theorising about it. Readers wanting comparisons can look at Australia's largest corporate failure, the compensation scandal that changed Australian corporate law, and what the Federal Court actually found in a separate corporate case.

What the Cole Inquiry did accomplish, and this shouldn't be understated, was to establish the factual record with considerable rigour. Commissioner Cole had the powers of a royal commission. Documents were produced. Witnesses were examined under oath. The findings are specific, attributed, and detailed. For anyone who wants to understand how a major Australian company maintained a commercial relationship with a sanctioned regime for the better part of four years while representing to regulators that nothing improper was occurring, the Cole Report remains the primary source.

It is available on the public record. It runs to multiple volumes. And it is, if you have the patience for it, a remarkably thorough account of how institutional self-interest can corrode institutional judgement, one decision at a time.

For a broader look at Australian corporate scandals and the inquiries that exposed them, see our Scandals & Reckonings section.

— Colin Ashworth, Scandals & the Public Record, Brisbane