AWB: The story so far

The Sydney Morning Herald has taken the slack news period over the Easter weekend to summarise the Australian Wheat Board/BHP oil-for-food sanctions bribery/kickback rort/scandal story/non-event, and it is handy and, perhaps, instructive to have it all served up on one plate.

Not that most Aussies will give a rats arse about it all. Near as I can tell, they figure trade with third world countries in particular is rife with corruption, trade with big business is a rigged and uneven playing field, and trade competition with the US is so unbalanced in favour of the US that any chance we can get to land one for our side is just good friendly sport. So, to them, it is like a gangland feud; let the buggers all bloody each other. What do you expect from such a lot. They deserve themselves and leave them to it.

But we cannot allow our cynicism to make us look the other way here, if for no other reason than that by paying attention to this nasty episode it can remind us that there are rules of engagement, that they can be policed, and that while most of the time these big, corporate, political chums can get away with it, society can impose its druthers from time to time, and we'd druther those bastards not hold themselves out as better than us when they are so obviously not.

We simply must force ourselves to care that, when the big end of town blythely ignores the rules it lays down for the rest of us, the system has been entrusted to the wrong folks and we have got to replace them or the whole system will rot from within. You see, there are a lot of people out there with the notion that the system is already rotten to the core and will delight in its implosion. They, as much as the big boys, want us to treat the matter as a tempest in a teapot, and to just wait for it all to blow over. You are not attacking the system if you criticise these events; you are protecting it by making sure it gets a proper airing and a proper clean up.

So, on with the story -- so far. The sources are:
The players
Deceit by the truckload
They backed the scam to the bitter end
Greased up for business
Two heads not necessarily better

Also see Guambat's postings on the subject, and
Inquiry into certain Australian companies in relation to the UN Oil-For-Food Programme

That which follows is my picking and choosing and rearranging of stuff from all of the cited material.

The oil-for-food program was designed to feed Iraq while starving Saddam Hussein of hard currency until he gave up his weapons of mass destruction.

Within hours of the resolution passing the UN Security Council, the salesmen of the Australian Wheat Board were back on the road to Baghdad. These were crazy, dangerous journeys that ended in brief meetings, long lunches and huge wheat deals. As American bombs and missiles rained down on Baghdad in December 1998, the board clinched deals to sell more than 2 million tonnes of grain.

Australia has been selling wheat and mutton to tyrants for a long time. That's business and we're good at it. We're good at doing the deals, good at trading with the enemy while keeping our allies onside. This country traditionally runs two foreign policies: one for the nation and another for the bush. We refused to recognise Mao's China, but Mao was one of the wheat farmers' most valued customers.

Saddam was a familiar kind of client and the Australian Wheat Board - an arm of government about to morph into the private corporation AWB Limited - became the single biggest seller of wheat to Iraq in the last years of Saddam's regime. Our farmers had Iraq cornered. "It was huge," recalled an AWB executive with awe. "It was profits and money all round."

Under UN Security Council Resolution 661, Australia was responsible for seeing that no cargo left its shores in breach of sanctions. Regulations introduced in Australia during the first Gulf war banned all shipments to Iraq unless the foreign minister was "satisfied that permitting the exportation will not infringe the international obligations of Australia". Under the oil-for-food program, no wheat could leave without a tick from Alexander Downer. He and his officers would sign off on 292 ships carrying 12 million tonnes of wheat to Iraq worth more than $2 billion. And almost every cargo breached sanctions.

The wheat was clean. The problem was the cash ferried in on the cargo. Iraq's oil revenues were held in a mighty escrow account in a New York bank with the UN as cashier. From these oil billions, Saddam was allowed to buy "humanitarian" supplies - mostly wheat - but he was not supposed to get his hands on the cash. Starving him of hard currency was seen by the international community - not least Australia - as the most effective way of forcing Iraq to disarm.

Yet Saddam got hold of billions. The UN was to prove too riven by political division over Iraq to police its own system. Australians were too willing to break the rules. And the Iraqis proved magnificent shakedown artists.

Amnesia and confusion would later seize senior AWB executives when quizzed about the arrangements Iraq imposed in 1999. But the two AWB salesmen lunching that day with Zuhair - Dominic Hogan from AWB's Cairo office, and Mark Emons, the manager of the company's Middle East section - recognised this for what it was: a scheme for siphoning cash out of the UN's escrow account. Emons later told Terence Cole's inquiry into the AWB scandal: "We knew it was outside the sanctions."

Emons returned from Baghdad to drive a five-month search for ways of hiding the payments from the UN.

Strictly speaking this was not a bribe because the rate was set by the Iraqi Grain Board and would be paid - somehow or other - into the coffers of the government of Iraq. But it was a classic kickback: a side payment made from falsely inflated contracts. The beauty of the rort from AWB's point of view was that Australia's wheat farmers didn't pay a cent. The money was all coming out of the UN's escrow account.

At Ceres House, the wheat trader's headquarters in Melbourne, the mantra was: "It's no skin off our nose."

By October AWB still hadn't found a way to get the cash into Iraq undetected. Dominic Hogan was running out of ideas. A notorious email he sent at this time ended with the flourish: "Other option is to use maritime agents/vessel owners' account/or buy a very large suitcase."

Just days before the MV Pretty Ruby arrived at Umm Qasr in late November with its cargo of Australian Hard, AWB deposited $US504,000 in Alia's account in the Jordanian capital. Over the next three years, AWB would pay this obscure company hundreds of millions of dollars without ever conducting due diligence, without a contract and without ever checking if it had any trucks in Iraq. It didn't.

This is a story defined at every stage by what was not done. When obvious checks aren't made and obvious questions aren't asked, someone doesn't want to know the answer.

IRAQ was putting the hard word on everyone, but the Canadians did what AWB would never do in the years ahead: they sought the UN's advice and were told emphatically not to pay.

The Canadians were Australia's only real rivals in the market because Saddam had black-banned American grain. Now the UN's verdict put them in a bind and they turned on the Australians. In mid-January 2000, a Canadian diplomat told UN inspectors that according to the Iraqi Grain Board, AWB was already paying the trucking fees.

A UN official, Felicity Johnston, immediately contacted the Australian mission at the UN to ask for "discreet, high-level inquiries" to be made into AWB. At this point, the whole trucking fee scam could have been stopped in its tracks. But it never happened. The to and fro of cables and meetings and phone calls that followed raise for the first time the big question in this story: was the Australian Government complicit or staggeringly incompetent?

CHARLES STOTT was an old Iraq hand, wheeling and dealing in oil and wheat for decades in the Middle East. In June 2000 he returned to AWB after a few years with BHP Petroleum. Stott was the key figure in the single shabbiest episode in this saga.

Stott would always claim the UN approved the trucking fees, but evidence to the Cole inquiry suggests that on his return to AWB he set out to simplify and shore up the covert system for paying them. His strategy included extracting a vague letter from the Foreign Affairs Department that AWB would later produce as proof of a kind that the "trucking fees" had official blessing.

THE Tigris affair began as a sharp bit of business disguised as a great humanitarian gesture that morphed into a loan repaid as a secret commission after the fall of Baghdad. It was the filthiest of all AWB's deals with Iraq.

The donor was BHP, back in 1996 when it was still the big Australian. But a decade on, the Cole inquiry is trying to untangle a web of intrigue that draws together big oil, big wheat, big names, a very big scandal and high stakes - the Halfayah oilfield, one of the richest in Iraq, with reserves the size of Bass Strait.

Out front are big public names: BHP Energy's president Phil Aiken; Liberal Party stalwart and BHP Billiton executive Tom Harley; AWB's former managing director Andrew Lindberg and executive Charles Stott; the former British foreign secretary Sir Malcolm Rifkind who lobbied for BHP; and the Australian Foreign Minister, Alexander Downer, who was swept up in the hopes of Australia winning a slice of Iraq's oil wealth after the fall of Saddam Hussein.

More shadowy characters were pulling strings behind the scenes in Baghdad, Melbourne and London. These include a former BHP executive and chief of Tigris Petroleum, Norman Davidson-Kelly, who has refused to return to Australia from Britain to give evidence to the Cole inquiry; his Baghdad agent Sabah Jumah; and the former head of the Iraq Grain Board, Yousif Abdul Rahman, who once worked in the Iraqi oil ministry.

These last three all played a role in clinching AWB's final and most dubious million-tonne wheat deal done in the last months before the capture of Baghdad. As well as being loaded with all the usual kickbacks and surcharges, the deal was constructed to repay a supposed $US8 million debt owed to Tigris Petroleum by Iraq.

What has always been difficult to understand is why the Iraqis were so keen to pay this money to an obscure little company just months before the war began. And perhaps more difficult to grasp is why AWB's most senior executives agreed to help Tigris pull off this deal and then wash the money from a UN escrow account through AWB's books. The deal was so dodgy some of AWB's managers demanded legal absolution before they would touch it.

Tigris grew out of the ruins of BHP's big plan in the mid-1990s to win the right to exploit one of the richest oil fields of Iraq. When the country was starving, BHP proposed a "great humanitarian gesture": shipping up to 100,000 tonnes of wheat to Baghdad on credit. In exchange, the company was hoping for a warm welcome at the Iraqi oil ministry. Commissioner Terence Cole, QC, suggested this was, in fact, "a soft bribe".

But the plan began to fall apart when the Labor government refused to bend sanctions. The rules were clear: absolutely no credit deals with Iraq. So the first shipload of wheat worth $US5 million was sent off in early 1996 - with approval from the UN as a gift. But a gift did not put the Iraqis under any formal obligation to BHP. Documents produced to the Cole inquiry show that BHP and AWB continued to regard this as a sale on credit - with repayment either in five years or as soon as sanctions were lifted.

BHP hoped this would happen any day. But instead of sanctions going, the oil-for-food program arrived. This was bad news for BHP. Iraq did not need their sort of "humanitarian gestures" any more and there was still no prospect of being paid for the one shipment already sent.

With BHP stymied, its petroleum boss, Aiken, passed its Iraq interests to a private company run by one of his former senior oil executives, Davidson-Kelly. The new company, Tigris Petroleum, registered in Gibraltar with unknown owners, was also given the services of BHP's local Iraqi agent, Sabah Jumah, plus the right to recover its wheat "debt", which was now worth $US8 million.

Davidson-Kelly began lobbying old friends at AWB to get the money repaid. On the surface, it looked like a fool's errand: Iraq was broke and had no access to hard currency except through the UN account that bankrolled the oil-for-food program. But in late 2002 AWB's wheat sales were in trouble and Davidson-Kelly lent a helping hand through his fixer, Sabah Jumah. New contracts to sell a million tonnes of wheat signed in December that year were loaded with a number of kickbacks including payment of the Tigris "debt".

With Iraq open for business again after the invasion, Davidson-Kelly had two strategic aims: to ensure those contracts were honoured by the UN, and to win rights to the country's largest oil fields with BHP Billiton. Tigris and BHP Billiton signed a deal in May 2003 and approached Downer to help them with their claim for the Halfayah field.

Davidson-Kelly was impatient. In May he called AWB's headquarters in Melbourne to ask the company's Middle East manager, Chris Whitwell, when the wheat contracts would be approved. The Tigris boss explained: "A number of influential people will need to start receiving funds and that further delays would cause difficulties going forward".

Whitwell believed Davidson-Kelly was talking about paying officials in the newly liberated Iraq, and he told the Cole inquiry these remarks "set off an amber light that this was a bribe".

The old wheat contracts with most of their kickbacks intact were finally approved in September 2003 and the money flowed into AWB's accounts over the next few months. Then came the problem of finding some plausible basis for paying the funds to Tigris. In the end, BHP's "great humanitarian gesture" was repaid as "commission" to Tigris for help in securing wheat sales in Iraq. AWB executives insist its legal advisers cleared the payment, but they have declined to let the advice be seen by the Cole inquiry.

The payout was a great result for everyone - except the newly liberated Iraq, which was footing the bill. AWB pocketed $1.3 million for its services and more than $5 million disappeared to the mysterious owners of Tigris.

In November 2000, an AWB expedition to Baghdad led by Dominic Hogan was told by the new supremo of the grain board, Yousif Abdul Rahman, that a 10 per cent surcharge was now to be paid on all contracts under the oil-for-food program. Hogan had no doubt what this was about. Back in Melbourne he emailed his worries to everyone in the international sales and marketing division: "We believe the increase in trucking fee and addition of the service charge is a mechanism of extracting more dollars from the escrow account."

The new scam was hardly secret. Foreign intelligence reports about it were circulating in Canberra by March 2001. That same month, the US and Britain tried and failed to persuade the UN to curtail the kickbacks. Riven by division, the enforcing 661 Committee never, in the words of Paul Volcker, "seriously considered the merits of these or any other proposals to redress the payment of kickbacks".

Bronte Moules reported these failed attempts in a cable distributed to the offices of the Prime Minister, the Minister for Trade and the Minister for Foreign Affairs. By October, P&O stevedores in the Persian Gulf was warning its customers of Iraq's compulsory 10 per cent "after sales service" fee. P&O tipped off the US and British navies and posted the news on its website. If you were in the business of shipping to Iraq, you knew what was going on.

But the Foreign Affairs Department kept on rubber-stamping AWB's contracts on their way to the UN. Once approved over there, the department rubber-stamped export permits for every shipload of wheat leaving Australia for Umm Qasr. Department officials have told the Cole inquiry they regarded themselves as no more than a postbox in this process. They never checked the contracts, didn't read them, would not have understood their terms and were unaware they even contained trucking clauses.

Downer faced a key question when he appeared before the Cole inquiry: who told the bureaucrats they were only a postbox? Evidence before the inquiry showed that a much tougher system of scrutiny had operated under Labor. And no one from Drake-Brockman down could explain when and why it was decided that scrutiny of Australian contracts under oil-for-food would be left entirely to the UN.

Downer explained that the change came about after a fresh UN resolution in 1996. "Under Security Council Resolution 986 the United Nations established an Office for the Iraq Program, and this office had the task, amongst other things, of vetting particular contracts." In time, this would become the Government's core defence.

[As we all know, Howard whole-heartedly jumped on the Bush bandwagon to stage a pre-emptive strike on Iraq in 2003. Iraqi minister for trade, Mohammed Mehdi Saleh told AWB representatives in Baghdad, before the invasion] he was slashing purchases from AWB by half. Wheat farmers turned on the Government. John Howard promised diplomatic assistance. And the company responded to the threat in August by sending a high-powered delegation on what's known in the folklore of the wheat trade as the "mad dash to Baghdad".

How they saved the day was a mystery. AWB would put it down to the deep bonds of trust between Iraq and Australian wheat farmers. John Howard would talk of the importance of keeping politics and commerce separate, and commend "the capacity of the wheat board to handle these things with sensitivity". But the truth is that AWB sold 1.5 million tonnes of wheat to Iraq as we slid towards war by dramatically increasing kickbacks.

The last two contracts signed with Saddam's ministers - known as 1670 and 1680 - were the dirtiest of them all. They were loaded with "trucking fees" of more than $US50 million; a scam known as the "iron filings rebate" of more than $US2 million; and the repayment of the 1996 debt to Tigris Petroleum of a further $US8.4 million. Total payments in breach of sanctions on that million-tonne sale alone came to roughly $US60 million.

When the sums were finally done by Volcker, it was revealed that AWB had funnelled into Iraq $US220 million in breach of UN Security Council Resolution 661. That made the Australian wheat trader the biggest single sanctions-buster among suppliers of humanitarian goods under the oil-for-food program. And AWB was the winner by a big margin: second on the list was a Thai rice trader called Chayaporn that paid a mere $US40 million.

While AWB was doing its last shabby deals in Baghdad, the Australian Government was at work in Washington pledging military support and securing Australia's hold on the wheat market in post-Saddam Iraq. It would be a cheap crack to say we went to war for wheat, but Australia was not going to join the Coalition of the Willing only to see its market taken by the ruthless and highly subsidised wheat traders of the US. Australia sold an audacious plan to the US: after the fall of Saddam, AWB's former chairman, Trevor Flugge, a man who knew Iraq and its old regime well, would run the Ministry of Agriculture. His formal role would be to assist the "revitalisation of Iraq's agricultural sector". But as Howard would later tell Parliament: "The Government has sought the involvement of Mr Flugge in post-Saddam Iraq ... because our principal concern at that time was to stop American wheatgrowers from getting our markets."

War when it came was accompanied by rhetoric that looks, in retrospect, deeply embarrassing. A few days before the formal declaration of hostilities, the Prime Minister told the Canberra press club that among the many urgent reasons for ousting the tyrant of Iraq was this: "He has cruelly and cynically manipulated the United Nations oil-for-food program. He's rorted it to buy weapons to support his designs at the expense of the wellbeing of his people."

With the fall of Saddam, AWB lost one of its best customers ever. The Trade Minister, Mehdi Saleh, so assiduously wooed by AWB, was on the Pentagon's most-wanted list, the six of hearts in the pack of cards. Within weeks, he would be in US military custody and talking under interrogation.

AWB and the Australian Government had always worked hand in glove but in the new Iraq, the intimacy between the diplomats and the grain trader intensified. Their long-term aim was the same: to secure the Iraq market for Australia. Inside AWB the strategy was dubbed Operation Hunta and its chief strategist was Michael Long, whom the Australians had placed in a critical position in the new Iraqi Ministry of Trade. Long gave himself the codename Proton.

The Government and the grain trader also shared an identical short-term objective: persuading the UN to "reprioritise" or honour those filthy last contracts, 1670 and 1680. What followed was a breathtaking fraud on the newly liberated Iraq that was only achieved with unquestioning support at the highest levels for AWB sales to Iraq: the Trade Minister, Mark Vaile, Foreign Minister, Alexander Downer, and their senior officials working in Baghdad, Washington, New York and Canberra.

There was no time to lose. The oil-for-food program was to be wound up within six months and already hostile forces - the US wheat lobby and Iraqi exiles led by Ahmed Chalabi - were sniffing around, convinced quite rightly that the program was riddled with kickbacks that had kept Saddam afloat. "Reprioritising" was jargon for weeding out inflated or corrupt deals.

AWB was in deep trouble. Iraqis are fine bureaucrats. Buried in the files of the old regime was the evidence of the company's kickbacks paid over years, laundered through Alia, washed through Jordanian bank accounts and ultimately channelled to the Ministry of Finance, where it was used for whatever purpose the dictator chose. Numerous Iraqi officials knew about AWB's kickbacks.

Though rumours of kickbacks were rife by the time Long and Flugge arrived in Baghdad to take up their posts in May, AWB was not going to take a backward step. Despite the obvious conflict of interest, Long's duties at the Ministry of Trade included the reprioritisation of oil-for-food contracts. While he was there he helped secure a top job in the ministry for AWB's old friend from the Grain Board, Yousif Abdul Rahman. Long was to boast in emails back to Ceres House that he'd saved Yousif from the "de-Baathification" purge carried out by the Coalition Provisional Authority.

The storm over AWB broke in June. The powerful American lobby US Wheat Associates had somehow got its hands on two of AWB's Iraq contracts. One, already heavily loaded with kickbacks, was from mid-2002. The other was 1680, signed six months later. At a time when the world price of wheat had barely shifted, the price increase between the two was $US50 a tonne. AWB's fierce opponents had the evidence they needed.

They didn't muck around. In a letter to the US Secretary of State, Colin Powell, the lobby accused Australia of writing "undoubtedly inflated" contracts with Iraq - adding that "earlier oil-for-food wheat contracts with prices inflated by millions of dollars per shipload have provided foundation to the rumours that some of the excess may have gone into accounts of Saddam Hussein's family".

Howard's senior ministers leapt to AWB's defence when the letter was published around the world. Vaile called the allegations absurd and insulting. Where was their gratitude? "I was very, very annoyed, given the close co-operation that Australia and the US have played together as both members of the Coalition of the Willing and as two countries who participated together as close allies in the first Gulf War."

Australia called in its markers with the US. Zena Armstrong's office asked ambassador Michael Thawley to push AWB's denials in Washington. "We are very concerned at egregious allegations made by US Wheat Associates against AWB Ltd ... Grateful ambassador raise the matter at a senior level with the US Administration, noting our concern that AWB Ltd's international reputation would be damaged by the unfounded claims ..."

Thawley was hard at work conveying "our outrage" in US capital at the "smears and innuendo" of the US wheat lobby. After making an official complaint to then deputy secretary of state Richard Armitage, the ambassador reassured Canberra that the Washington end of the fracas was under control: the State Department "understands the issue, is concerned to contain it" and would look at ways of reining in the lobby and its powerful boss, Alan Tracy.

For the next 2 years, the mantra of the Government was that these "unsubstantiated rumours" of kickbacks were to be discounted entirely as the work of AWB's enemies, who wanted to wrest the Iraq market from Australian hands.

But that didn't explain Captain Blake Puckett of the US Army's civil affairs command in Baghdad, who had swiftly drawn the conclusion that "every contract" for humanitarian supplies under the oil-for-food program since 1999 "included a kickback to the regime from between 10 and 19 per cent". Within days of the US Wheat Associates writing to Colin Powell, Puckett was circulating a memorandum about the kickbacks to all the ministries in Baghdad.

Again AWB made ritual denials and, again, no one in Canberra questioned them. Now was the time for someone in government to ask AWB to provide a forensic analysis of the pricing in its contracts. It was never done.

When Bob Hawke put the separate Foreign Affairs and Trade departments together in 1987, the idea was to head off this kind of conflict between trade promotion and foreign policy.

But now the department has come spectacularly apart with its failure to spot and stop the $290 million paid by AWB to the Saddam Hussein regime.

Richard Woolcott, the diplomat who headed the department between 1988 and 1992 (covering the first Gulf War) is amazed. "I would have expected that the amalgamated department would have been more successful in reconciling different foreign policy and trade policy interests under the one roof," is all he will say.

But many other recently retired officials fear it points to an erosion of capabilities in the department, which is still a rarity in a world that mostly keeps its foreign and commerce ministries separate.

They point to a top-down politicisation of the department that started in 1996 when the Howard Government took office and immediately fired six departmental chiefs, including Foreign Affairs and Trade's Michael Costello, putting their replacements on finite contracts.

Like the ABC, Foreign Affairs was suspect as too attuned to Labor. One result was a steady crackdown on leaks and unauthorised disclosures, with its internal security section getting a big increase in resources. Former officials say debate and criticism inside the department became more restricted, with the policy planning group abolished and some outside input like the post of academic-in-residence cancelled.

At the same time, the department was hit with the "managerial" culture of recent years, with increased emphasis on "measurable outcomes" and "performance assessments". Trade deals are eminently quantifiable: relationships and influence less so.

One result, say veterans of the department and intelligence agencies, is that traditional diplomatic reporting on the politics of foreign countries has declined.

"A lot more emphasis is put on general administration, fulfilling administrative targets, performance assessments, and attending on visiting ministers from Canberra, rather than doing the substantial work of knowing what's happening where you are," one former senior diplomat said.

The price of not looking after ministers from Canberra was emphasised in 2001 when the ambassador in Chile, John Campbell, was fired after missing Downer's arrival on a delayed flight at Santiago airport. His exit meant the loss of a veteran Korean-speaker, just before the North Korea nuclear crisis erupted.

Under the new culture of unquestioning obedience to government policy, officials checking the Iraq oil-for-food scheme would have known Canberra's first priority was wheat sales, a former ambassador said. Also that John Howard and his ministers derided the United Nations.

"DFAT has many old Trade Department hands who could work out in a few minutes whether or not the contract prices were inflated, or they they could have asked someone in the grain trade," the former envoy said.

"But they knew they should not make politically inconvenient inquiries: their annual bonuses, promotions, postings and indeed careers depended on it."

A sobering cable setting out Puckett's findings reached every senior minister's office in Canberra - including Howard's - and was also distributed to every senior public servant, including Australia's intelligence chiefs. Puckett's findings mirrored reports from Australian Treasury officials in Baghdad assigned to work on the new Iraqi budget. But nothing was done. Alexander Downer told the Cole inquiry he dismissed Puckett's conclusions as the work of someone too far down the pecking order: "This was information provided by a captain in the US Army, a junior officer in the US Army."

By contrast, the response inside AWB to the developing crisis was frenetic. Its head, Andrew Lindberg, set up an internal investigation as soon as the first allegations surfaced. Later dubbed Project Rose, this mammoth exercise was outsourced from the start to squads of private lawyers, beginning with Chris Quennell, a partner of Blake Dawson Waldron in Melbourne. In this way, all the findings of Project Rose were shielded by legal professional privilege from external investigation. It's a cast iron box the Cole inquiry has not been able to break into.

The UN was demanding the "after sales service" kickback be cut out of all contracts. AWB was very reluctant to make the 10 per cent cut because it amounted to an acknowledgement of wrongdoing. It had no choice. But in a face-saving move it persuaded the UN that so high was the cost of trucking in postwar Iraq - and by now the company actually was delivering wheat all round the country - that the final price paid per tonne should be shaved by only a few dollars.

What AWB had failed to tell the UN was that this price included $US10 million in kickbacks. These were the so-called "iron filings rebate" and the final payment of the old and dodgy Tigris debt. The contracts were still filthy.

ON A freezing Washington winter's day, the US chief weapons hunter, Dr David Kay, appeared before Congress to deliver his report on Iraq's weapons of mass destruction. In a stunning blow to the Coalition of the Willing, Kay candidly told Congress: "We were all wrong."

Stung by Kay's revelation, the Bush Administration, the Republican Congress and the Iraqi opposition switched their focus to corruption. Washington instructed a Stanford-educated aid official, Jim Warlick, to secure all documents from the old ministries in Baghdad for an audit of the program. Warlick was put into the Iraqi Ministry of Trade and, as he put it, "worked to ensure that pertinent documents were not destroyed and were available to investigators".

By now, Long had left the ministry to return to Melbourne but he was replaced in Iraq by AWB's corporate affairs manager, Darryl Hockey, once again paid for by AusAid.

Among the documents being uncovered were handwritten records from the Iraqi Ministry of Transport showing payments from AWB to Alia being funnelled to the Ministry of Finance, Saddam's funding source for everything from the Iraqi intelligence services to the postwar insurgency.

By March 2004 it was clear the UN would be forced to set up an independent investigation. The news rattled Ceres House. When Armstrong spoke about the new investigation with Chris Whitwell, her point man at AWB, he told her for the first time that AWB had paid for inland transport through a Jordanian trucking company before the war. To her amazement he went on to say the company "might have made payments to the Iraqis of their own volition".

In April 2004, the UN Secretary-General, Kofi Annan, asked Volcker to investigate the greatest scandal ever faced by the world body: the corruption of its $US100 billion oil-for-food program. The program had rescued Iraq from the brink of starvation and economic collapse after the UN-imposed sanctions on Saddam Hussein. But since the US-led invasion toppled the dictator, a chorus of critics from Iraqi exiles to the US Congress were on the attack, even accusing Annan's son of corruptly benefiting from the program.

News of Volcker's investigation was met with anxiety in Canberra, where the Government had mounted a vigorous defence of allegations coming out of Baghdad and Washington that Australia's monopoly wheat trader, AWB, had paid kickbacks to Saddam's regime. AWB had shipped $2.2 billion worth of wheat under the oil-for-food program, by far the largest supplier of goods, and would inevitably come under intense scrutiny by Volcker.

A month earlier, the Foreign Minister, Alexander Downer, and the Trade Minister, Mark Vaile, were warned that despite AWB's previous blanket denials it had paid kickbacks in exchange for these contracts, the company was now admitting it could be vulnerable. Downer's senior adviser, Zena Armstrong, reported an AWB executive telling her that the Jordanian trucking company used by the company "might of its own volition have provided kickbacks to the regime".

Despite this, Downer never asked his department to independently inquire into the kickbacks. The elite Iraq Task Force that pulled together the expertise of Australia's intelligence agencies, diplomats and public servants never had such an instruction. Instead, for the next 18 months, as the evidence mounted against AWB, Downer would put his head in the sand. No one wanted to believe the great Australian wheat exporter had been funding Saddam's regime. John Howard told the Cole inquiry last week: "It hadn't crossed my mind that it would have behaved corruptly."

Yet a simple check of the internet, or indeed Australia's intelligence holdings, would have revealed that Alia, the Jordanian trucking company paid by AWB, was half-owned by the old Iraqi regime and deeply involved in sanctions busting for years. It would have exposed AWB's denials as disingenuous. From the company's own records it was clear that its oil-for-food contracts had been inflated with kickbacks to the regime funnelled through Alia.

On April 21, Australia's delegate at the United Nations in New York voted to support the independent investigation of the oil-for-food program. The resolution called on all member states to "co-operate fully by all appropriate means with the inquiry". From the outset, this was not Canberra's intention.

Both the Howard Government and AWB knew Volcker depended on their co-operation. Volcker had no power to subpoena documents and no legal authority to compel anyone to be interviewed. In the end, these constraints would not save AWB - partly because of documents being unearthed in Baghdad but also because the politics of the oil-for-food scandal were ultimately beyond the control of either the company or Canberra.

On Capitol Hill, Bush's allies were nervous. In this election year they were desperate to shore up their defence of the war. One of the most strident voices was that of Senator Norm Coleman, a Republican former Minnesota prosecutor who now sat on the powerful Senate permanent sub-committee on investigations. Coleman had made his name in Washington attacking the UN and had announced a sweeping investigation of corruption in the oil-for-food program, rivalling Volcker's inquiry.

On June 23, one of Coleman's staff made a surprising call to AWB's American office in Portland, Oregon, to warn that the Australian wheat trader was a target of the senator's probe. Stunned by the news, the company directed its high-powered American law firm, Piper Rudnick, to assess the potential threat. It was bleak. Coleman's investigation was to be the committee's biggest in a decade; it had bipartisan support, was planning to hold hearings for up to two years and any false statements to the committee could land witnesses in jail.

At AWB's Melbourne headquarters, fresh lawyers were summoned. The company's own secret investigation into the kickback scandal, Project Rose, had been under way for a year since the allegations first surfaced after the fall of Saddam. Now Project Rose was expanded to manage both the Volcker and US Senate investigations. AWB's chief legal counsel, Jim Cooper, was already working with an outside legal firm, Blake Dawson Waldron, but a second firm, Minter Ellison, was now brought on board along with the US lawyers. A third firm, Arnold Bloch Liebler, would soon join them.

The team had examined some 30,000 internal documents including scores of incriminating emails from AWB's international sales and marketing team. It was clear from these that hundreds of millions of dollars in "trucking fees" had been paid to Saddam's regime through Alia. It was also clear the trucking firm was 49 per cent owned by the Iraqi government.

Yet the Project Rose team confidently reported to AWB's board that it had a credible defence. Put simply: there was no "identifiable evidence" that AWB knew the money it paid to Alia was paid to the Iraqi regime; that all AWB contracts had been vetted and approved by the UN Office of the Iraq Program; and that there was no evidence AWB had paid any individual Iraqi any kickbacks.

The first proposition was simply untrue, as the Cole inquiry would later discover. But just how Project Rose justified this defence has never been revealed because the material prepared by the legal teams remains protected by legal professional privilege.

AWB turned to Canberra to try to persuade the American senator to get off its back altogether. In September, the company's managing director, Andrew Lindberg, begged Downer and Vaile to send Australia's ambassador in Washington to plead their case with Coleman. They agreed.

This was a turning point for the Howard Government. By now it had to be clear that AWB was in deep trouble. The company had admitted its money might have been funnelled to the Iraqi regime, albeit without its knowledge. The Coalition Provisional Authority had explicitly told Canberra "all contracts" under the oil-for-food program contained kickbacks. And in July, Colonel Mike Kelly, an Australian officer who had been working with the CPA, briefed the Iraq Task Force that AWB was most likely heavily implicated in the scandal.

Despite all these warning signals, Canberra instructed Michael Thawley to argue AWB's case on Capitol Hill. In early October 2004, armed with talking points drawn up by the Project Rose team, Thawley met the senator and his staff. By Coleman's account, Thawley "unequivocally dismissed the allegations that AWB paid illegal kickbacks to the Hussein regime" and argued that "reports of AWB's illegal payments were simply the smear tactics of a rogue journalist and perhaps an insidious trick by a US wheat marketing association".

By this time, Thawley had been arguing AWB's case in Washington for a year. Once again he was persuasive. AWB's tough legal stance in refusing to hand over documents and witnesses to the committee stymied the probe. Coleman dropped off.

PAUL VOLCKER'S investigators shocked Canberra with their demands. They wanted full access to people, to documents and even to records of financial transactions held by AUSTRAC, the agency responsible for tracking suspicious currency movements in and out of Australia.

Downer and his department baulked. After considering the request for a little more than a week, the minister decided he would severely limit Volcker investigators. They would not be allowed to interview his officers, they could only put questions in writing and they would get no access to any classified cables or to AUSTRAC.

In early January last year, members of AWB's Project Rose team came to Canberra for a meeting with the new head of the Iraq Task Force, Bassim Blazey. Told of the Government's strategy of limited co-operation, AWB immediately decided to follow suit.

Back in New York, the old banker was deeply unimpressed. In a stern face-to-face meeting with Australia's ambassador to the UN, John Dauth, he chided the Australian Government for displaying an attitude that was "beyond reticent, even forbidding". He bluntly informed Dauth that he had "strong evidence" that "AWB had knowingly paid inflated transportation costs which were kicked back to the Iraqi regime".

Howard switched tack. Within days, he and Downer advised Volcker the Government would be "an open book" and would take "strenuous measures" to impress on AWB the need to also fully co-operate. In a scrawled directive to Downer, Howard instructed, "there must be maximum co-operation and transparency". He directed the Trade Minister, Vaile, to pass the same message to Lindberg at AWB. The result would still fall far short of full co-operation.

Downer's officials now began serious work on their own defence. Central to it were two bald arguments. First, the department would continue to accept at face value AWB's denials that it paid any kickbacks. Second, and most importantly, they argued that the failure to monitor AWB's dealings with Iraq was entirely the fault of the UN.

The ducking and weaving by Foreign Affairs was just beginning. When Volcker's investigators appeared in Canberra in February last year, they found witnesses afflicted with memory loss brought on, in part, by a decision of the department not to have them refresh their memories of key events from documents. Critical documents detailing the department's knowledge of the kickback scandal going back to January 2000 were simply not shown to the officers who handled the issue back then. They went into the interviews almost entirely unprepared and could offer Volcker's people little information of value.

The investigators had even less help at AWB's headquarters in Melbourne. Those executives had also not prepared themselves for the interviews. Their memories were shot. Project Rose had gathered 29,000 pages of documents in the company's "data room" but among them were none of the emails, trip reports and briefing notes that have emerged during the Cole inquiry to show AWB knowingly pursued sanctions-busting arrangements with Iraq from 1999.

Deeply worried, Lindberg and his managers briefed the company boards on the serious consequences should Volcker find AWB had paid kickbacks. Its billion-dollar foreign markets would be put at risk. Its global rivals, especially the US wheat lobby, would use the finding to attack the company's most valuable asset - the sacred "single desk" system that gave it a monopoly of bulk wheat exports. The share price would be battered. The Government might recommend a federal police investigation or a royal commission.

The company realised its most important ally in the difficult months ahead would be the Howard Government. At the urging of the board, Lindberg and the company's chairman, Brendan Stewart, briefed Canberra on the rapidly developing crisis. Among others they saw Downer, the head of his department, Michael L'Estrange, and John Howard's senior foreign policy adviser, Paul O'Sullivan.

Lindberg would keep the company's innermost secrets from the ministers and officials, but he bluntly warned them that Volcker's findings could be dire. In a stark memo of his meeting with executives, L'Estrange recorded that it was known Alia was part-owned by the Iraq government and that it had been a conduit of funds to Saddam's regime. Lindberg told L'Estrange that AWB wanted to work out "a contingency plan" with the Government, "in the event an adverse finding is handed down".

Downer decided on a face-to-face meeting with Volcker. The old banker was unswayed when they met in New York in the middle of September. Downer had come to the meeting armed with arguments mustered by AWB's lawyers but Volcker swept them aside. He told the Australian minister his investigators had "excruciating detail" on the kickback from former officials in Saddam Hussein's regime and from documents found in their files.

Of all the suppliers under the UN oil-for-food program, AWB was the largest and the largest payer of kickbacks. The only outstanding question really was whether AWB had participated wittingly or unwittingly.

When Downer insisted AWB needed to be "afforded fair and due process", one of Volcker's team interrupted, saying that rather than co-operating with the investigation, AWB had been "very difficult to deal with". However, Volcker was open to AWB executives talking to him one more time. But he warned Downer the company would soon have his draft findings and they should examine them carefully.

The findings arrived a few days later at AWB's headquarters in Melbourne. Volcker's verdict was devastating: he had evidence of AWB paying hundreds of millions in kickbacks through a trucking company that provided no transport services. "AWB's payments to Alia were in actuality kickback payments for the benefit of the government of Iraq and did not correspond to actual transportation costs."

The draft findings blasted a giant hole in AWB's defence, carefully crafted over 18 months by three of Australia's top law firms, several QCs and the company's in-house legal team. Rather than distance itself from the company, the Government had chosen to work hand in glove with AWB to try to keep a lid on the scandal. Now both were about to be exposed on a global scale.

Clearly shocked, Downer met Lindberg and Stewart in Canberra a few days later. Notes of the meeting record Downer telling the AWB men things "did not look good" and that a report from Volcker in these terms would be "a smoking gun". He feared the press reaction: there would be headlines that AWB had paid $300 million in kickbacks to Saddam.

For the first time, Downer began to ask the AWB men some hard questions. Who knew about Alia? Had the UN been told about AWB using the trucking company? It was too little much too late. Downer urged Lindberg and Stewart to fly to New York, take a lawyer with them and talk to Volcker. He would help set it up.

DOWNER got them through Volcker's door. Using all the carefully crafted words of the Project Rose team, Lindberg and Stewart pressed their case - a case we now know is at odds with the evidence in AWB's own documents. They were duped, they told Volcker. "Self-evidently, AWB was part of an elaborate deception by the regime."

The force of their denials, implicitly endorsed by the Howard Government, swayed the old chairman a little. When his final report was published a few days later, he gave AWB the benefit of the doubt: it paid the kickbacks but might have done so unwittingly.

But Volcker did not let AWB off the hook entirely. Not everyone at AWB could claim to have been duped: "Numerous documentary and circumstantial warning signs placed at least some employees of AWB on notice that payments to Alia may have been illicitly funding the Iraqi regime."

Volcker's verdict was a huge public surprise. To this point, the scandal had had little play in the press. The news that an icon Australian company had been exposed as a major bankroller of Saddam's dictatorship seemed to come out of the blue. Howard had taken Australia to war to enforce UN resolutions against Iraq, yet his Government had overseen some of the most serious breaches of UN sanctions documented in Volcker's report.

For the first 48 hours the Government and AWB kept to the old script. The Prime Minister leapt once again to the company's defence. He had always found their managers to be a "very straight up and down group of people," he said. "And I can't, on my knowledge and understanding of the people involved, imagine for a moment that they would have knowingly been involved in anything improper."

But the enormity and credibility of the findings were too serious to be ignored. Under intense pressure from Volcker and Kofi Annan, Howard had little option but to agree to set up his own inquiry into the AWB scandal - almost six years after the kickback allegations were first brought to his Government's attention.

After four months of sittings involving squads of lawyers in front and behind the scenes; after hearing evidence from more than 40 witnesses including two ministers and the Prime Minister; after the unearthing of tens of thousands of documents from AWB, the UN, Alia and half a dozen government departments the Cole inquiry has established beyond doubt that AWB knew what it was doing when it paid those millions to that obscure trucking company: they were kickbacks to Saddam.

Ministers may be humiliated and wheat traders may go to prison. But the Cole inquiry has revealed more than a great corporate scandal; this is one of the most extraordinary failures of government in the nation's history.