AWB 'closed eyes' to kickbacks
There had been shock and awe after US-led troops stormed Iraq in 2003, and the reverberations were soon felt in the Australian boardroom of AWB, the Victorian Supreme Court heard this week.
The single-desk wheat exporter received a "haircut" to its contract to supply grain into Iraq after coalition force auditors found it was over-valued in Iraq's favour.
A 10 per cent premium was being paid in the form of trucking and other fees, the Court was told, in a practice allegedly in breach of sanctions imposed on Iraq.
"They applied a haircut to many of those contracts, particularly AWB," Australian Securities and Investments Commission counsel Norman O'Bryan SC said of coalition force auditors, who arrived in Iraq in 2003.
Two former AWB executives - chairman Trevor Flugge, a Katanning farmer, and group general manager trading Peter Geary - are now on trial for breach of their duties over the payments.
A total of $300 million in alleged kickbacks were paid to the Iraqi government in the form of inland transport and after-sales service fees from 1999 to 2003.
The court was told AWB's share of the Iraqi grain market rose from about 50 per cent to 90 per cent while these fees were being paid.
Concerns were raised internally that payment of an inland transport fee would effectively extend AWB's liability for potential grain loss beyond the dock.
This drew an assurance Iraq "did not want anything except for money to be paid into a Jordanian bank account," Mr O'Bryan said.
He said Mr Flugge had set out to restore Australia's grain supply to levels seen before sanctions were imposed over Iraq's 1990 invasion of Kuwait. AWB used a 1995-established UN Food For Oil program, which allowed AWB to supply grain into Iraq and to recover its costs from a UN escrow account.
"Mr Flugge was highly successful in re-opening the doors," Mr O'Bryan said.
Mr Flugge was "at the very heart" of AWB's dealings with Iraq, he said, and Mr Geary had a responsibility to act as whistle-blower.
"It's not difficult to draw the inference that they knew full well when they decided to breach these sanctions, as they did a few years later," Mr O'Bryan said.
Mr Flugge left AWB in 2002 but Mr Geary was still working there in 2003 when US-led forces invaded Iraq.
"The invasion ... made no difference in his obligation to blow the whistle," Mr O'Bryan said.
He said Mr Flugge could have put a stop to its "evil" sham payments that in effect exported $300 million in cash to Saddam Hussein's brutal regime. Instead, AWB simply closed its eyes and paid the kickbacks.
"As chairman of the board of this company, Mr Flugge could have done many things which would have put an effective end to what occurred," Mr O'Bryan said.
He said unknown to Australia's competitors, AWB accepted a lower price for its wheat and the secret payments in effect handed currency to an Iraqi Government desperately in need of all the international funds it could get.
"In effect, AWB became an exporter of two commodities from Australia - wheat and cash, " he said.
The court heard the Iraqis demanded the fees - which AWB paid to an intermediary company in Jordan called Alia, linked to the Hussein regime - and then recovered the money from the UN escrow account.
ASIC alleges Mr Geary, the fourth highest-paid staff member at AWB, personally authorised six payments of the purported fees totalling almost million to Alia between March 2002 and February 2003.
"This is simply a straight-out fraud being practised upon the UN and the UN escrow account - nothing to do with inland transport fees, simply a designed fraud to inflate the price of wheat," Mr O'Bryan said.
AWB ended up with more than 80 per cent of the Iraqi market.
In an earlier statement, Mr Flugge said he hoped the case would put to rest the untested allegations, rumours and innuendo he and his family had lived with since the ASIC action started in 2007.
"I fervently believe now, as I did from day one, that I have done nothing wrong," he said.
Opening statements in the case are expected to conclude today.
AAP
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