Cole:Bribes probe blasts AWB culture

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Bribes probe blasts AWB culture
Mark Davis
November 27, 2006 - 4:26PM

Legal authorities should consider criminal prosecutions against AWB Ltd and senior company executives including former chairman Trevor Flugge, the inquiry into AWB's bribery of Saddam Hussein's regime has found.

The 1951-page report by Commissioner Terence Cole, tabled in federal parliament this afternoon, named 11 senior AWB executives whose conduct may have involved being accessories to criminal behaviour or breaching the Corporations Act.

In addition to Mr Flugge, the report named executives Mark Emons, Peter Geary, Dominic Hogan, Paul Ingleby, Michael Long, Nigel Officer, Murray Rogers, Charles Stott, Michael Watson and Jim Cooper.

But Commissioner Cole found that evidence presented to his inquiry did not implicate the Prime Minster John Howard and senior government ministers or officials in AWB's payment of $290 million in kickbacks to Hussein's regime.

"There is no evidence that any of the Prime Minister, the Minister for Foreign Affairs, the Minister for Trade or the Minister for Agriculture, Fisheries and Forestry were ever informed about, or otherwise acquired knowledge of, the relevant activities of AWB,'' the report said.

Tabling the report, the Attorney-General Philip Ruddock said the government had accepted Commissioner Cole's recommendation that it should establish a task force of government agencies to consider possible prosecutions in consultation with the Director of Public Prosecutions.

He said the government would also consider recommendations to tighten Australia's domestic legal arrangements for enforcing United Nations sanctions, including recommendations.

AWB paid the kickbacks to Iraqi government agencies to ensure that it continued winning contracts to supply Australian wheat to the country under the United Nations "oil for food'' sanctions imposed on the country.

Commissioner Cole sheeted the blame for AWB's series of illicit payments to the company's internal corporate culture.

"The question posed within AWB was: 'What must be done to maintain sales to Iraq'.

"The answer given was: 'Do whatever is necessary to retain the trade'.

"No one asked, 'What is the right thing to do?'''

Commissioner Cole said AWB used subterfuges to devise ways of paying the kickbacks to the Iraqi rEgime and then sought to hide its conduct from the Federal Government and the United Nations.

"Necessarily one asks, 'Why?' The answer is a closed culture of superiority and impregnability, of dominance and self-importance,'' the report said.

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http://www.oilforfoodinquiry.gov.au/agd/WWW/unoilforfoodinquiry.nsf/Page/Report

Has the complete 5 volume report.

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AWB report likely to alter wheat system
November 27, 2006 - 4:25PM



Prime Minister John Howard flagged possible changes to the operation of the single desk wheat marketing system in the wake of the public release of the report into the AWB Iraqi kickbacks scandal.

The report, which was tabled in parliament, has recommended 12 people - all but one of them former AWB staff - be investigated by a new taskforce for possible criminal and corporations offences over the scandal.

In a statement released just after the report was tabled, Mr Howard said it had clear implications for the operation of the single desk system for Australian wheat exports.

"In particular the role of AWB Limited, AWB International and the Wheat Export Authority in relation to wheat marketing," he said.

Mr Howard said the government would now give urgent consideration to the future of marketing operations for the export of Australian wheat.

"It will announce its proposals for the way forward shortly," he said.

"In formulating its response, the government's dominant concern will be the interests of Australian wheat growers."

Under the single desk system, AWB has monopoly control over the export of Australian wheat and can veto applications by other companies to sell the grain overseas.

There is a growing clamour for AWB to lose its monopoly powers but the Nationals are resisting attempts to change the current system.

In his report, Commissioner Terence Cole called for an overview of the regulation concerning AWB.

Among his five recommendations, Mr Cole suggested a review of the power, functions and responsibilities of the Wheat Export Authority, which had been charged with regulating the export of wheat, as well as AWB's performance.

"Insofar as those functions include the obligation to monitor performance of proper standards of commercial conduct by AWBI (AWB International), and through it AWB, the WEA was not successful in so doing in relation to sale to Iraq," he said.

"A strong and vigorous regulatory or monitoring organisation is required whilst AWBI or AWB is responsible for the export Australian wheat."

Queensland Nationals leader Jeff Seeney earlier urged federal coalition MPs not to use the Cole inquiry report to abolish AWB's single desk.

He said the two issues should not be linked.

"We are firm supporters of the single desk marketing strategy for Australian wheat and don't see any reason why the Cole report, irrespective of what it finds, should threaten the single desk," Mr Seeney said.

"The two issues are separate and I think the people who try and link them are opportunists who have been trying to attack the concept of single desk marketing for some time."

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Wheat and AWB up for grabs
Kirsty Simpson
November 27, 2006

THE fate of the country's largest agricultural crop and its eighth largest export commodity is up for grabs, at a time when the Australian wheat industry is most vulnerable, as farm incomes dry up under a ferocious and long- running drought.

When the wheat trade is deregulated - and it is no longer a question of if - smaller, more financially marginal farms are likely to be sold, and an avalanche of mergers and takeovers should be expected.

The demise of the smaller farms will doubtless feature clamour for a rescue package of billions of dollars, in much the same way as the Federal Government six years ago offered a $1.94 billion adjustment package to dairy farmers.

And the big daddy of industry, AWB will lose its monopoly over Australia's $3 billion-plus wheat export market.

New AWB management has been quietly attempting to map out a new and monopoly-free future. When new chief executive Gordon Davis arrived two months ago, with no baggage and no loyalty to the old regime, he immediately commissioned ITS Global's Alan Oxley to research new industry models on the single desk.

This suggests that, at least privately, the company had accepted the inevitable loss of the single desk as far back as August.

But AWB had more than just a monopoly on its mind as long ago as 2003 when, as its bagmen were ferrying hundred of millions of dollars to Baghdad, the company made unsuccessful bids for Goodman Fielder's flour milling business, Futuris and Grainco. It wanted to expand.

In the last few months, as realisation dawned that the single desk would go, the company began a desperate attempt to wrest back control of its future.

There was a wholesale turnover in senior management, including the appointment just two months ago of Mr Davis. Already hundreds of other staff have been cut from head office and more are set to go.

External consultants have been brought in to analyse future prospects from every angle, and senior executives and AWB's hired guns have begun lobbying Canberra's best powerbrokers.

But the company must also be wondering about the likelihood of a takeover bid, one that would gazump any restructure.

Thanks to bad publicity and the drought, AWB's share price has more than halved in the past 12 months, closing on Friday at $2.78. It is valued on the sharemarket at $820 million, but its finance and Landmark divisions are more valuable than its trading businesses, according to Austock analysis.

AWB, without the export role, would then be free - if shareholders, many of them wheat-growers, agreed - to diversify to become a major player on the broader agribusiness scene.

But the vultures are circling. Local competitors CBH, Graincorp and ABB, are jockeying for a share of the export spoils, and seeking to win over Australia's wheat farmers, many of whom still own shares in AWB.

Added to that, the giant international trading houses Cargill, Louis Dreyfus and others, are calling for full deregulation.

http://www.smh.com.au/news/business/wheat-and-awb-up-for-grabs/2006/11/26/1164476071727.html

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http://www.bloomberg.com/apps/news?pid=20601080&sid=auAuxJTZ.cT4&refer=asia

AWB Executives Should Be Charged After Report on Iraq (Update3)

By Gemma Daley

Nov. 27 (Bloomberg) -- AWB Ltd. executives paid kickbacks to win sales to Saddam Hussein's regime in Iraq, a government inquiry found, recommending charges against 11 officials from Australia's monopoly wheat exporter.

Prosecutors should pursue officials including Trevor Flugge, the former chairman of the Melbourne-based exporter, for breaching criminal, banking and company regulations, Commissioner Terence Cole said in a report published today. Calls to Flugge's lawyer were not returned.

The probe was triggered by an investigation of the United Nations Oil-for-Food Program by former U.S. Federal Reserve Chairman Paul Volcker, who found AWB paid bribes to win sales. Prime Minister John Howard said he'll urgently review AWB's monopoly on arranging wheat exports from Australia, the world's third-biggest exporter of the commodity.

``The report of the Cole inquiry has clear implications for the operation of a single desk system for Australian wheat exports,'' Howard said in a statement e-mailed to Bloomberg. ``The government will give urgent consideration to the future of marketing operations for the export of Australian wheat.''

AWB, which ``deeply regrets'' the way it conducted its wheat trade with Iraq, said it won't respond to allegations against individuals in a statement to the Australian Stock Exchange.

Biggest Supplier

Cargill Inc. and Glencore International AG are among companies that have called for an end to AWB's monopoly, a legacy of when the company was state-owned. AWB was the biggest supplier of food under the UN's Oil-for Food program and paid $222 million in kickbacks, according to Volcker.

``The next step for the industry is to devise a wheat export system that doesn't confer monopoly power on any one company,'' Greg Canavan, an analyst at Fat Prophets in Sydney said before the report was released.

The findings will be referred to the Director of Public Prosecutions, Cole said in a report distributed in Canberra today. Cole said AWB did not inform Howard's government or the UN of its ``true arrangements with Iraq.''

Cole said there was no suggestion of illegal activity by the government, prime minister or ministers.

The former judge led a 10-month inquiry that heard from 60 people, including Prime Minister Howard. Cole also said that Davidson Kelly, a former employee of BHP Billiton Ltd., may have conspired with AWB. BHP Billiton, the world's biggest mining company said it was studying the Cole report in a statement to the exchange.

BHP Billiton

The inquiry had heard AWB inflated wheat contracts to recover $8 million of debt, which Gibraltar-registered Tigris Petroleum Corp., BHP's joint venture partner studying oil fields in Iraq, had said it was owed arising from a grain shipment. Kelly set up Tigris in 2000.

Former BHP Group President Energy, Phil Aiken had signed a letter giving Tigris the authority to recover the debt under a ``misunderstanding,'' Cole said. BHP Petroleum, or BHPP, had acted by ``mistake because Mr. Aiken, who had no personal knowledge of the 1996 shipment, was not told at any time that the shipment had been approved by the managing directors of both BHP and BHPP only on the basis that the transaction was a gift,'' Cole said in the report.

Worst-Performer

Shares of AWB, the worst-performing stock on the S&P/ASX 200 Index this year, have fallen 55 percent since the inquiry began Jan. 16. The inquiry has prompted the resignation of at least four executives, including former managing director Andrew Lindberg and company secretaries Richard Fuller and Jim Cooper. Cole said Lindberg was ``not guilty of any criminal conduct.''

Wheat growers in the U.S., the world's biggest exporter of the grain, have called for an end to AWB's monopoly, saying it gives Australian farmers an unfair advantage in price negotiations.

``The loss of the single-desk has been largely incorporated into the share price,'' said Justin Braitling, who helps manage A$100 million in stock at Wilson Asset Management including AWB shares. AWB shares rose 10 cents, or 3.6 percent, to A$2.86 at the 4.10 p.m. close of trade in Sydney.

AWB, which controlled about 14 percent global wheat trade last year, is also facing pressure on earnings as drought threatens to cut wheat production in Australia to a 12-year low of 9.5 million tons. The nation shipped 15.2 million tons of wheat in the 12 months ended June 30, 2006, worth A$3.3 billion ($2.6 billion), according to the country's commodity forecaster.

The Volcker-led U.S. investigation into the Oil-for-Food program has separately resulted in criminal charges against at least seven people, including Oscar Wyatt. The program allowed Iraq to sell oil and use the proceeds to buy food and medicine while remaining subject to economic sanctions.

To contact the reporter on this story: Gemma Daley in Canberra at gdaley@bloomberg.net ;

Last Updated: November 27, 2006 02:05 EST