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Australia Reaps Iraqi Harvest

by Marc MoncriefSpecial to CorpWatch
April 4th, 2006

United Nations sanctions against Saddam Hussein may have failed to end his regime but they succeeded in enriching both the Iraqi dictator and corporations able to manipulate the scandal-ridden world body's Oil-for-Food program. Among the profiteers was the Australian Wheat Board, a former state-owned monopoly, which funneled $A290 million (U.S. $208,887,000) into Saddam's coffers even as the “Coalition of the Willing” was preparing for invasion.

The Oil-for-Food program (OFF)--intended to punish and isolate Saddam while supplying food and medicine to ordinary Iraqis--accomplished neither objective. The Bush administration added that failure, and revelations of endemic corruption within the program, to his shifting case for war, after the danger of Iraqi weapons of mass destruction evaporated as a legitimating cause.

But while U.S. French, Russian, and African politicians, businessmen and companies benefited from Saddam's profiteering, the program's worst corruptor was the Australian Wheat Board (AWB), the largest importer of food into Iraq under Oil-for-Food.

The growing scandal has rocked Australia over the past few weeks as government hearings exposed a pattern of outright fraud by the AWB. Ironically, the same Australian wheat company officials who benefited before the war were appointed by the Americans after the invasion to help run the ministry of agriculture, where they profited handsomely once again.

REAPING THE HARVEST

It was clear from the outset that the invasion of Iraq would bring its own opportunities for profiteering, but Australia had already been profiteering in Iraq for years.

Even as George Bush, Australian Prime Minister John Howard and British Prime Minister Tony Blair prepared their three peoples for war, AWB funneled $A290 million (U.S. $208,887,000) worth of bribes into Saddam Hussein's coffers. The graft, which continued until just months before the invasion, bought Australia access to the Iraqi wheat market and functioned to exclude the United States, Australia's most virile rival in the global wheat industry.

Today, as a result of UN investigations into the exploitation of the Oil-for-food program and an Australian government inquiry that followed, the AWB stands condemned.

Its managing director has resigned.

The political infrastructure that maintained its power lies in tatters.

Top ministers in the Australian government are accused of using taxpayer money to subsidize an outlaw industry hosted by a brutal regime.

And American farmers are mounting an assault to sweep up the spoils.

"We must hold this corporation accountable for paying millions of dollars of kickbacks to Saddam Hussein at the exact time that Saddam was trying to shoot down U.S. pilots who were patrolling the no fly zones," declared Alan Tracy, the head of American industry group U.S. Wheat, at a February 4 press briefing in San Antonio.

Since the end of Bush's "major operations," sales of American wheat to Iraq have increased almost seven-fold. U.S. Wheat's annual report accounts for 57,000 metric tons of wheat sold to Iraq in the 2002/03 financial year. This number rocketed to 245,000 metric tons in 2003/04, and by last year topped 387,000 metric tons.

U.S. Wheat passed a resolution urging Congress to "take whatever actions are necessary to protect the integrity of U.S. market development and export programs."

"The AWB is not the Australian government, nor is it a nonprofit organization made up of hardworking Aussie farmers," Mr. Tracy said. "It is a vast independent multinational corporation that uses its monopoly control of Australian export wheat supplies to compete unfairly against American farmers."

Australia, the United States and Canada are the three most powerful wheat producing countries in the world. The three countries, steadfast allies on other fronts, fight bitterly over access to wheat markets.

Mr Howard's government privatized its monopoly wheat export agency in 1999. The Australian Wheat Board, listed on the Australian Stock Exchange under the ticker AWB, continues to be the only exporter of Australian wheat. Its executives are some of the most powerfully connected men in the country.

Federal Agriculture Minister Peter McGauran defended the "single desk," or monopoly, exporter against attacks, particularly from U.S. wheat interests.

"It's rich in the extreme for countries who make trade distortions an art form to rely on the AWB to besmirch Australia's own credentials," he said. "AWB is not trade distortionary, it's not a government entity buttressed by government subsidies or transfers. It (the argument that the single desk should be dismantled) is purely a negotiation tactic that we would be stupid in the extreme to fall for."

In a report to the board of directors of his lobby group Mr. Tracy said: "AWB's continued protestations of ignorance do not pass the laugh test."

"We need to speak up here in the U.S., to protect the integrity of our programs, of our marketing system. USW (US Wheat) strongly believes that it is time to put a stop to the abusive power of the export monopolies. Knowingly paying kickbacks to prop up the Saddam regime, if proven, would be a moral outrage."

SOWING THE SEEDS

As Washington prepared its unstoppable plans for invasion, Canberra positioned itself to take a privileged place in the new Iraq. The conservative Australian government, led by Prime Minister John Howard, did not hide the fact that it joined the "Coalition of the Willing" in large part to stay in George Bush's good graces.

As a result of the Howard government's enthusiastic participation in the War on Terror, the economic and strategic ties between the two countries have never been stronger. Howard was visiting the United States on September 11, 2001 and was at Bush's side in the attack's immediate aftermath.

A diminutive, balding man with glasses, Howard has capitalized on his everyman image to develop the second-longest term as prime minister in Australia's history. His Liberal Party (which sits at the conservative end of the Australian political divide) has led Australia since 1996.

A student of real politik and a brilliant advocate, Howard becomes inflamed when speaking of his strong and controversial ties to the U.S. And with his penchant for nicknames, Bush refers his Australian ally as the "man of steel" because of his steadfast – even passionate – support for the war despite a storm of dissent at home.

"We have supported the American position on this issue because we share their concerns and we share their worries about the future if Iraq is left unattended to," Mr Howard told Parliament in March 2003. "Alliances are two-way processes and, where we are in agreement, we should not leave it to the United States to do all of the heavy lifting just because they are the world's superpower. To do so would undermine one of the most important relationships we have and, in an increasingly globalized and borderless world, the relationship between Australia and United States will become more rather than less important as the years go by. "

In political speech, this means nothing less than: "We fight with the U.S. now so they won't desert us to fight alone later."

QUESTIONS

For Australia, doing business in Iraq at the expense of the UN had become a habit. The military invasion followed a long and lucrative exploitation of UN sanctions.

In October, the final report of the Volcker inquiry into the UN's Oil-for-Food program found the Australian Wheat Board had paid kickbacks to Saddam via inflated transport prices paid to a Jordanian front company, Alia Transportation, from 1996 to 2003. The monopoly was the biggest single supplier of food under the Oil-for-Food program. It sold 12 million tons of wheat valued at $A2.6 billion (U.S. $1.88 bn) on the UN's watch.

AWB protested its innocence by claiming the Alia arrangement had been approved by the UN. In a statement to the Australian Stock Exchange, on which the exporter is listed, it said: "AWB did not knowingly pay or enter into any arrangements to pay monies to the former regime."

"AWB relied on the UN to supervise and regulate the OFF (Oil-for-Food) Program. There was a 10-step contract approval process established by the UN. Each AWB contract went through this process and was approved."

Alia transported 8 million tons of the Australian wheat under Oil For Food. At the start, transport cost only $A10.80 a ton. By 2003, it had risen to as much as $A56 a ton. The mark up went to Saddam so he could buy bullets and tanks he would later use against Australians - and their American and British allies - who came to wrest him from power.

Alia was established in 1994 as a joint venture between the Iraqi Ministry of Transport and Iraqi businessman Hussain Al-Khawam. The transport company would take a 1 percent cut of the money paid to it by AWB and the rest would pass to the Iraqi State Company for Water Transport.

The Volcker inquiry did not establish that AWB had known about the kickbacks - only that it should have known. But that was enough spark to set the political opposition in Australia alight.

A session of the Australian parliament looks nothing like an American congressional sitting. At the end of every session, during "question time," the parties hurl invective at one another with abandon. Australian politics is characterized by expletives, raucous argument. Occasionally liquor is involved. Often, the exchanges are good-natured jibe sessions and appeal to what the Australians call a " larrikin," prankster character that thrives within the national conscious.

But the findings of the Volcker set off a storm.

Foreign Minister Alexander Downer, known as much for his schoolboy-with-a-silver spoon exterior as he is for a rottweiler wit, was lambasted by the opposition. Whenever he would rise to answer a question, invariably pertaining to the extent of his knowledge of AWB's corruption, the other side of the hall would lambast him like schoolyard bullies. "Saddam's bagman," they called him.

Unable to silence the Opposition Labor party in question time and facing the public perception of corruption, Mr. Howard appointed a former appeal court judge, Terrence Cole, to head the inquiry into the AWB's routing of the UN program.

Cole is an imposing figure. With a high nose and a straight back he has pursued the inquiry like an Antipodean Jean Valjean.

Australian media have been saturated for months with updates from the inquiry. Every day a new front page describes with a bit more clarity the extent of the company's corruption and the complicity of the Howard Government.

Mr. Downer's Department of Foreign Affairs is known to have acted on behalf of the company, lobbying the U.S. government to ignore rumors of corruption and gagging its own people who knew about what the AWB was doing.

THE DEAL

According to memos admitted as evidence to the Cole inquiry, Former AWB managing director Andrew Lindberg and other AWB executives met the Iraqi minister for Trade in 2002, when it was agreed that AWB would inflate transport prices to repay $A 8 million owed to Iraq by Tigris Petroleum, a partner of Australian resources megalith BHP Billiton.

An $A 82 billion company led by American Charles "Chip" Goodyear (from the Goodyear lumber family, rather than the Goodyear tire clan,) BHP digs or drills for just about everything on every continent on the planet except Antarctica. Coal, gold, diamonds, iron, oil, gas – if it's in the ground, BHP gets it out. The company employs 36,000 people in 25 countries. Last year it reported an $A11 billion profit, the largest in Australian corporate history.

In 1996, BHP arranged with the AWB to send a 20,000-ton shipment of wheat worth $A5 million to Iraq on credit in hope it would open the way to develop Iraq's 3-billion-barrel Halfaya oil field once UN sanctions were lifted.

The negotiations failed and Phil Aiken, the president of BHP's oil division ordered the project dropped.

But a BHP executive in charge of developing new business opportunities, Norman Davidson Kelly, could not let go of the deal. In 2000, Davidson Kelly's intransigence became too much for Aiken and the BHP president let him go.

Later that year, Davidson Kelly returned under a new name: Tigris. Among the addresses associated with the company was BHP's London office -- Davidson Kelly's former office.

Ostensibly, Aiken had fired Davidson Kelly, but he was not so fired that BHP could not benefit from his Baghdad obsession. Keen to have a hand in the Iraq oil game without getting its own hands dirty, BHP gave its Iraq business to Tigris later that year, but wrote in a back door option to acquire 25 percent of Tigris' operations if it wished.

BHP also passed Tigris the debt owed to it by Iraq -- the debt established by the $A5 million AWB shipment. Interest had by then blown the debt out to $A8 million, 25 percent of which was payable to BHP because of its back-door clause with Tigris.

Davidon Kelly used his connection with the global giant BHP to curry favor with Iraq's gatekeepers. BHP watched and waited. But recalling a debt from Saddam Hussein's government proved difficult.

In the meantime, a dispute had arisen between the Iraq Grain Board and AWB over a shipment of wheat allegedly contaminated with iron fillings. Iraq demanded the AWB refund the shipment to the tune of $A2 million, to be paid via the now well-established method of padded transport costs.

And so, in 2003, a deal was cut. Tigris and AWB agreed that, if AWB helped recoup the $A8 million, Tigris would help AWB back into the regime's good graces.

The AWB arranged to deliver 1 million tons of wheat. They fluffed the trucking prices. Tigris got its $A8 million. Iraq got its $A2 million. AWB cleared the dispute over the contaminated shipment. As far as anyone knows yet, BHP never saw a penny.

One memo told AWB senior staff "We have to keep a lid on this."

This was only one deal, but one that has become emblematic of the culture. The Cole inquiry has heard that it demonstrates the AWB's familiarity with the method by which the Oil-for-Food program was conned.

ALL FOR SHOW


During its three-month run, the inquiry has become theater. Under grilling by Senior Counsel John Agius, Lindberg was forced to deny knowledge of meetings he is known to have attended and reports that specifically mentioned the possibly corrupt nature of AWB's business in Iraq.

Theater occasionally became farce, as when Lindberg said he could not remember any details of the Tigris deal.

"Are you a complete fool, Mr. Lindberg?" Mr. Agius asked.

"I am not a complete fool," came the response.

Lindberg resigned as managing director of AWB before the month was out.

The Cole inquiry was given a mandate to investigate the corporate deals that built to the scandal, but not to look into the Australian Government's involvement. The mandate has, unsurprisingly, generated outrage from the federal opposition party.

Opposition foreign affairs spokesperson Kevin Rudd called the inquiry "a 100 percent, rolled gold political white wash."

Meanwhile, the Australian media have been engaged for months in a hunt for connections between the AWB and the federal government. They are many, but their significance remains to be proven. Canberra has not been above acting in the interests of the AWB even after the corruption came to light.

For example, in 2004, then Australian ambassador to the U.S., Michael Thawley, lobbied U.S. Senator Norm Coleman on AWB's behalf. At the time, Senator Coleman sat as chairman of the Senate Permanent Subcommittee on Investigations. He planned to launch a probe into the AWB, but Thawley assured him AWB would do no wrong to the UN.

The investigation did not go ahead.

Later, when the Cole inquiry began, the U.S. Department of Agriculture unilaterally cut of AWB's access to U.S. export credits. It took only one day for Australian diplomacy to break the USDA ban.

In February, Australian trade minister and deputy prime minister Mark Vaile traveled to Iraq to battle a threatened Iraqi boycott of Australian wheat. He won a promise that Iraq would accept Australian imports, but not from AWB. Since that company runs the only game in town for trading Australian wheat, it remains to be seen how that business is done.

As early as 2000, according to testimony to the Cole Inquiry by the Australian Security Intelligence Organization (ASIO), the country's top intelligence organization knew that Alia was a front for Saddam and that the company was demanding inflated prices to generate kickbacks. This testimony undermines the government claim that AWB always seemed credible, but Canberra never put the pieces together to deduce that AWB, the biggest importer of food into the country, might also be paying the illegal fees.

A poll has found that 70 percent of Australians believe the federal government knew about the kickbacks but did nothing. Mr. Howard commented that he was unsurprised by the statistic. Media fury and political mudslinging tends to tarnish.

AFTER THE WAR


Whatever the domestic political fallout may be, it is clear that the Howard Government rewarded AWB's success in Iraq with well-paid positions in the aftermath of war.

Former AWB chair Trevor Flugge, who presided over the company while the deals were done but was voted off the board in 2002, was later paid almost $A1 million (US $720,000) as a senior agriculture adviser in Iraq's post-war Coalition Provisional Authority.

It was his job to review and prioritize Oil-for-Food contracts -- including AWB's Oil-for-Food contracts -- for the CPA.

Prime Minister John Howard told Parliament Flugge was hired because "our principal concern at that time was to stop American wheat growers from getting our markets."

Another AWB veteran, Michael Long, was recruited by aid agency AusAID in May 2003 to serve as a trade adviser in the CPA. While he was there, he sent reports back to AWB under the pseudonym "Agent Proton." In one message, he warned the exporter the U.S. knew of the Oil-for-Food kickbacks.

An internal AWB report showed Long used his position in the CPA to ensure Yousef Abdul Rahman, a Baathist and director general of the Iraq Grain Board under Saddam, obtained a top position in the Iraqi Trade Ministry after the Iraq invasion. Yousef was at the head of the Iraqi Grain Board during the AWB's kickback program.

In 2004, the wheat exporter's manager of international market development Darryl Hockey, a former adviser to then-Deputy Prime Minister John Anderson, was also sent to Iraq. It is believed he was sent to replace Mr. Long.

Hockey has escaped the revulsion of the nation, but Australian front pages have depicted Flugge and Long as gun toting cowboys let loose to plunder Iraq. Photos of Flugge, sunk in a Baghdad couch, pistol pointed at the lens, his unfortunate pot belly shirtless, accompanied pictures of Long exhibiting bagfuls of greenbacks, an assault rifle tucked into his shoulder. For many Australians, this is the personification of their nation's place in the “Coalition of the Willing.”

In October 2004, only a few months after Hockey landed in Iraq, the Iraq survey group led by Charles A. Duelfer confirmed that Iraq held no weapons of mass destruction. The stated purpose for war vanished, but Bush held firm. If WMD would not confirm the righteousness of his cause, he would turn to other justifications, including the OFF scandal.

"The Duelfer report showed that Saddam was systematically gaming the system, using the U.N. oil-for-food program to try to influence countries and companies in an effort to undermined sanctions," Bush said.

"He was doing so with the intent of restarting his weapons program once the world looked away."

SOME CLOSING THOUGHTS


In 1991, the federal government paid upwards of $A400 million (U.S. $ 288,120,000) to bail out wheat growers after Saddam defaulted on his debts to the AWB. Faced with the AWB's blatant disregard for taxpayers who baled them out of disaster, one Australian columnist asked: "In underwriting its obsession with protecting and entrenching its market share in Saddam's Iraq, were successive Australian Governments, and therefore taxpayers, effectively bankrolling some questionable dealings with that odious regime?"

Such questions have infected Australian discourse, but will they have any effect? How will Australia replace the wheat monopoly? And how will the new regime affect competitors? The government has steadfastly refused to widen the ambit of the Cole Inquiry unless Cole asks specifically for the mandate to investigate the government. The line-in-the-sand position was challenged last week when Cole called Downer and Trade Minister Mark Vaile to appear. They are not expected to answer any questions about the government's complicity in the AWB scandal, but the entire country waits to witness their refusal to do so.

Without a broader investigation, Australians may never know how complicit their government has been in the corruption of the U.N. program and, by extension, of the UN's credibility. Nevertheless, when Condoleeza Rice visited Australia recently, she expressed confidence that the inquiry would reach the truth.

"On the Volker Commission report, we've all followed the outcomes of that Commission report and I have confidence that Australia, as a democratic state, is going to do everything that it can to investigate the allegations. I understand that there is a Commission that is to do so and this is how democratic states handle situations like this, they investigate the allegations and I am sure they will be thoroughly investigated,'' she told reporters.

Marc Moncrief is a journalist with The Age newspaper in Melbourne, Australia.