A quick visit to the AWB scandal

I’ve been remiss in my non-coverage of the developing AWB scandal. Fortunately, GetUp! has a succinct and very funny spoof AWB commercial that gets you right up to date with everything you need to know.

For much more detail, however, you can’t go past Tim Dunlop, who has too many posts on the subject to link individually. Just scroll down and read them all. The case is now unarguable that Howard and Downer at least knew about the AWB’s Saddam kickbacks some years ago, and Downer even actively tried to limit Australia’s co-operation with the UN Volcker enquiry (contrary to previous claims by both Downer and Howard).

The trouble is, as I’ve commented before, that the reaction of many if not most voters to revelations that the politicians knew about the Saddam bribes but lied will be a barely stifled yawn. “Is the Pope a Catholic?”, I can hear them scoffing.

What interests me now is why Commissioner Cole hasn’t already requested an expansion in his Commission’s terms of reference to cover knowledge and actions of public servants and Ministers. My initial suspicion was that Cole would run a tame-cat enquiry and make no attempt to pursue possible government knowledge or involvement. But events have proven that hypothesis wrong. The conduct of the enquiry to date has been exemplary and determined. But, as a matter of law, Commissioner Cole won’t be able to make any substantive findings or recommendations about public servants, Departments or Ministers, unless the terms of reference are wide enough to encompass them (and they currently aren’t).

Moreover, if he intends making any such findings or recomendations, Commissioner Cole is obliged as a matter of natural justice to flag that possibility expressly so as to give those affected by any such adverse finding a proper opportunity to defend themselves. Given that that will inevitably significantly prolong the hearings, I would have expected that Commissioner Cole would have sought the extension of his terms of reference by now, and also flagged the potential adverse findings. I wonder why he hasn’t. Perhaps there is even more damaging evidence still to come, and he’s waiting until the case for expanded terms of reference is so overwhelming that Howard will have no political choice but to accede to the request.

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
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Geoff Honnor
Geoff Honnor
15 years ago

“to revelations that the politicians knew about the Saddam bribes but lied”

I obviously lack your forensic skills but if there have been revelations proving that the government knew about the AWB scam and “lied” it’s news to me. Why would the government knowingly encourage AWB to bribe Saddam when – given the numbers of people inevitably involved – it would obviously eventually be revealed that it did so?

I think one of the major turnoffs for the punters here is that it’s blindingly obvious that no-one in politics or the commentariat is particularly interested in the great moral questions posed by the alleged AWB malfeasance itself – it’s all peripheral to the main game which is “getting”: the government and taking out Vaile, Downer, and Howard in that order. In other words, it’s politics as usual

Ludicrously over-stated crap like “Howard was funding Palestinian suicide bombers!” (TM) is ultimately self-defeating. It’s the same old exaggerated for effect political background noise which treats every punter as a moronic fuckwit able to be convinced of anything if the hysteria is ramped up. Hearing Kevin Rudd sonorously denounce Howard as “a liar”(TM) sounds like a re-run of the brilliantly successful ALP campaign of 2004.

The government has obviously been negligent – at this point it’s unarguable – but the AWB people were grown, adult Australians and most people simply won’t buy the case that it was all about Howard, Downer and Vaile. And the Comwealth games are on. And there’s been a cyclone. And the Biggest Loser is on at 7.

whyisitso
whyisitso
15 years ago

I think Geoff is right on the ball as usual. The hysteria from the Australian’s Caroline Overington and Kevin Rudd has been completely over the top.

What I’m still a little unsure of is how the monetary transactions actually worked. Perhaps you can enlighten us about that, Ken. As I understand it (using hypothetical numbers) AWB was selling say $1,000,000 of wheat to the Iraq wheat authority. The Iraqis insisted that they invoice them $1,100,000. AWB receives that amount but sends $100,000 to the transport company, leaving them (AWB) with the originally negotiated sale of $1,000,000. So who is out of pocket? It seems to me that it was the Iraqi wheat authority and hence the Iraqi consumers to the tune of $100,000. In other words, Hussein was adding a purchase tax of $100,000 onto the Iraqi buyers.

Maybe I’ve misunderstood the accountancy of this thing; if I am could someone please enlighten me their understanding of how it worked.

Ken Parish
Ken Parish
15 years ago

whyisitso

Your account is pretty much the way I understand the kickbacks worked. It breached the sanctions because it succeeded in funneling money to the Saddam regime which it could (and did) use to purchase weapons, preventing which was the central purpose of the sanctions.

Geoff

If you take the time to read through the sequence of posts on Tim Dunlop’s blog, I don’t see how any but the most credulous person (which you’re not) could conclude anything less than that Downer either knew or at least strongly suspected that AWB were engaging in kickacks at latest by June 2003, when he received a top-secret cable from his staff in Baghdad (which he admits he read) saying: “Every contract (signed under the UN’s oil-for-food program) included a kickback to the regime.” And there were further cables, including one where he scrawled a note where he specifically said he was worried about it. But they still did nothing, and Downer still obstructed the UN enquiry until early 2005 when Howard with his superior nose for political danger instructed him to cease and desist. Characterising this conduct as mere “negligence” is extraordinarily charitable to put it mildly.

Geoff Honnor
Geoff Honnor
15 years ago

“But they still did nothing, and Downer still obstructed the UN enquiry until early 2005 when Howard with his superior nose for political danger instructed him to cease and desist. Characterising this conduct as mere “negligence”

whyisitso
whyisitso
15 years ago

If my understanding of the financial arrangements were as I described above (and Ken concurs that it is his understanding too) then in no way can do the transactions constitute bribes or kickbacks. Sure they were colluding with Saddam Hussein in diverting funds from the Iraqi consumers to the dictator for use overwhelming on his own luxuries and palaces (not weapons, which you may recall were non-existent), but words surely still have meaning (maybe?). A bribe is when you use your own money to get an unfair advantage.

Ken Parish
Ken Parish
15 years ago

whyisitso

In Australian law, especially tax law, it WAS the AWB’s money which it paid to Saddam’s company. The contract price (i.e. income) AWB received on your example was $1.1 million, and they’re not entitled to a tax deduction for the $100,000 they paid back to Saddam. You can play around with it all you like, but that’s the legal reality. And at the very least, I’ll be astounded if AWB and all its then directors aren’t pursued by the ATO for criminally evading tax on income of about $300 million (i.e. the approximate total of kickbacks that were claimed as tax deductible transportation costs when they were really non tax-deductible bribes). Don’t you find it even slightly remarkable that Australia’s Foreign Minister was told about the kickbacks unequivocally by his own public servants in June 2003 (if not earlier) and not only did nothing to stop or investigate it but actively obstructed the UN appointee who WAS investigating?

I certainly accept Geoff’s point about the motivations of Rudd etc, and the public’s reaction to his confected outrage, but MY outrage is in no sense confected, and I frankly don’t understand how anyone who knows the facts and isn’t completely stupid or morally bankrupt could feel any different.

whyisitso
whyisitso
15 years ago

The deductibility of the payments may or may not be deductible, Ken. It’ll make for an interesting appeal to the High Court if the Tax Commissioner knocks them back. Don’t believe every beat up you read in “The Australian”. The point I’m making is that commercially the income to the AWB was $1,000,000. The rest is purely structure that doesn’t affect the commercial reality. The payments were not bribes, no matter how many times you or the media repeat that they were.

I’ll certainly disagree with the use by you of “unequivocally”. The opposite is true. DFAT hads severe doubts themselves at that time, and were accepting of the AWB explanations.

Fabian
Fabian
15 years ago

whyisitso

According to the dictionary

Bribe

1. Something, such as money or a favor, offered or given to a person in a position of trust to influence that person’s views or conduct.
2. Something serving to influence or persuade.

If the Americans, who I imagine were probably our competitors in this situation, offered $900 000 (in your example) for the same amount of wheat, without the 100k “shipping” charge, Saddam would have knocked it back. The 100k in his pocket was the influence that kept him buying our wheat, rather than anyone elses. It wasn’t based on the best price, it was based on who was giving him the best kickback. Therefore the AWB was serving to influence or persuade, and they were successful.

Geoff

Everyone has an agenda. The government’s agenda was to sell the wheat to Saddam, which wouldn’t piss off the wheat growers, thus losing their vote. The fact that Rudd is using this to his political advantage does not have a bearing on the fact that what the government was doing was morally corrupt (and possibly illegal?).

Your point that they couldn’t possibly do it because it would be found, out is frankly nonsensical. You could use that as a defence about ANY criminal activity.

The government were knowingly complicit to an organisation providing bribes to a murderous regime. A regime against which we provided troops to fight. The conflict of interest alone is mind numbing. They should be punished for it.

Ken Parish
Ken Parish
15 years ago

whyisitso

Yes, I agree that my use of “unequivocally” was over-egging the pudding. But whether DFAT (or Downer) in fact had “severe doubts” about the truth of the claims that AWB was paying bribes, or whether it simply suits them to claim that, is another question. Given how persistent and authoritative the reports of universal bribery in dealings with Iraq had become by 2003, what probative basis did Downer or DFAT have for entertaining these “severe doubts”? Answer? None. It simply suits them to profess it, and both we and a jury would be entitled to disbelieve them.

There is already sufficient evidence IMO to put Downer (but not yet Howard or Vaile) on trial for conspiracy-related offences relating to the kickbacks, and perhaps as an accessory to tax evasion on a massive scale. I admit he’d probably be acquitted, because a jury would probably conclude that it wasn’t satisfied beyond reasonable doubt that Downer actually KNEW (as opposed to strongly suspected) that bribery was occurring.

observa
observa
15 years ago

As far as I can see the Iraqi wheat purchasing authority (ultimately totalitarian Saddam and Co-duh!) were simply asking the AWB for a Free on Board price in Iraq. What’s so special about that?, except that when dealing with a totalitarian regime you inevitably have to deal with their totalitarian transport company, among a plethora of other totalitarian terms and conditions. We did it all the time with Communist totalitarians while we conspired and plotted to bring their house down. Just think about how the benefits of comparative advantages of this trade were diverted to all those Gulags. It’s a wonder any of us can sleep at nights. In case we’ve all forgotten, the AWB flogs wheat, not enriched uranium. You know, that stuff (along with other food and medicines)the UN was going to make sure was going to get to needy Iraqis, rather than stuffed in Baathist warehouses and palaces. In fact as I recall that was the whole bloody idea behind the UN’s food for oil easing of punitive sanctions. So our AWB and govt stuffed up a bit here did they? As Geoff says- Golly Gosh!

observa
observa
15 years ago

And have a guess what the loudest critics of the AWB and the govt now, wanted us all to go on continuing to do folks???????

Ken Parish
Ken Parish
15 years ago

observa

Unless it’s changed meaning very recently, “Free on Board” (FOB) is a “trade term requiring the seller to deliver goods on board a vessel designated by the buyer. The seller fulfills its obligations to deliver when the goods have passed over the ship’s rail.”

In other words, it bears no relationship to the ostensible (but charade) arrangements AWB entered. If anything, they were more like FCA (Free Carrier), which is a term “requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. Costs for transportation and risk of loss transfer to the buyer after delivery to the carrier.”

But in fact the payment had nothing to do with transportation of the goods at all, which Alia/Saddam didn’t in fact undertake. It wasn’t a transport company, totalitarian or otherwise. As seems now to be generally accepted, the money simply went straight into Saddam’s pocket.

Don’t get me wrong here. I’ve said in a previous post that in some respects it’s fair enough to take a realpolitik approach to such situations, and that’s part of the reason why the public generally regards the whole AWB affair as tedious and irrelevant. If you want to do business in the Middle East, you have to pay bribes. But the problem occurs when the trader is government-owned or backed by a publicly enforced monopoly (in AWB’s case it was one and then the other). It’s one thing turning a blind eye to wholly private companies taking pragmatic if illegal approaches to international trade, but quite another for governments themselves to collude, actively or passively, in such activity. The real lesson that ought to emerge from the AWB scandal is that the “single desk” monopoly system is just unsustainable. It corrupts the machinery and ethics of government in a serious and fundamental way, effects that are quite out of proportion with whatever (probably minimal) benefits we might obtain from economies of scale and resulting enhanced bargaining power.

observa
observa
15 years ago

Ken,
Technically you’re right about FOB but in practice that is often not the case.
http://en.wikipedia.org/wiki/Free_on_board
Purchasers always have a preference for knowing the fully landed cost and if you can do that(usually because you are a large supplier with market clout), then they’ll preferably deal with you. The bigger you are as a buyer or seller, the more you get your way at both ends and you can immediately see the problem with AWB wheat sales to Iraq. As you say, monopoly seller meets monopoly buyer and the incentive to collude is huge.

There’s a big snag for suppliers quoting FOB at destination (ie inclusive of all transit costs, although the ‘ownership’ gets fuzzy as it’s often FOB shipping port with the transit cost qualifications, a bit like a RE bidder at auction needing immediate insurance cover like the current owner) because they are ultimately liable for all unforseen shipping/storage/handling charges. These can be the benign types like you can suddenly incur in MDCs. eg you always ship 40 foot reefers of chilled meat to the WC of US and it’s trucked on to another city destination. You’ve always loaded X tonnes into the container but suddenly incur unpacking and repacking and stillage charges, because the axle load laws in one state have just changed. Bugger! Double bugger in countries that have no decent rule of law and you’re at the mercy of officialdom’s whimsy and their need to be remunerated via fee for service.

Talk to any big exporter in Oz and you’ll realize how deliberately naive Labor’s charges against the AWB are. Still it’s a soft big target to aim a few easy kicks at. Like a James Hardie, who ceased flogging asbestos in the mid 70s, while all our govts allowed the whole motor industry to keep supplying and fitting asbestos brake pads till Dec 2003. There’s safety in numbers as all the sardines well know.

observa
observa
15 years ago

Especially UN sanctioned sardines!

whyisitso
whyisitso
15 years ago

“I agree that my use of “unequivocally”

derrida derider
derrida derider
15 years ago

This is just hilarious. whyisitso thinks that Kevin Rudd should refrain from attacking the government because he’s not an objective observer – a very peculiar understanding of the role of an opposition. whyisitso, something can be true even if Kevin Rudd says its true.

I suspect that Howard could be caught in the act of fellating Saddam and whyisitso would declare that he was only doing it in Australia’s interests and therefore it is not newsworthy.

whyisitso
whyisitso
15 years ago

“Kevin Rudd should refrain from attacking the government because he’s not an objective observer”

Glad to see you agree he’s not objective, dd. That’s been obvious to most people ever since this AWB thing first hit the beat-up headlines. Maybe the ALP one day will remember that one of the main functions of an opposition is to present alternative policies!

Geoff Honnor
Geoff Honnor
15 years ago

“As well, the editors of “The Australian”

whyisitso
whyisitso
15 years ago

“the sort of sanctimonious geek that used to get his head shoved down the dunny and flushed”

Great imagery Geoff.

whyisitso
whyisitso
15 years ago

“I would have let Cole slowly work through the media interface”

Agree. Cole isn’t going to let anyone off the hook who deserves to be on it. If he need any extension of his terms of reference I have no doubt he’ll ask for it. Howard has already guaranteed that ministers will appear if they’re asked. The thrust of the critics’ attack on the enquiry is that they don’t credit Cole with either integrity or intelligence. They’re dead wrong.

There’s an old axiom that you don’t initiate an enquiry if you don’t already know the answer. Howard and Downer in my view had clear consciences. If that’s found not to be justified it will require the application of hindsight.

trackback

[…] Only last week I was speculating about why Terrence Cole QC hadn’t sought an extension of his terms of reference to enable him to make substantive findings and recommendations in relation to the conduct of Ministers and public servants in the AWB affair: I would have expected that Commissioner Cole would have sought the extension of his terms of reference by now, and also flagged the potential adverse findings. I wonder why he hasn’t. Perhaps there is even more damaging evidence still to come, and he’s waiting until the case for expanded terms of reference is so overwhelming that Howard will have no political choice but to accede to the request. […]