AWB: The Penultimate Chapter

Howard knew what WHEN, and told who WHAT??

Guambat has enjoyed, in a purely literary sense, the ongoing who-dun-it novel being played out involving the Australian Wheat Board's shenanigans with the governments of Australia and Iraq and incidental others. Fiction writers would give their eye teeth to come up with such a tale. It's just another case of truth turning out to be stranger than fiction, though.

Now we're told that not only did John Howard's government know at least a year before the invasion of Iraq that it would be an inevitable event in which Australia would inevitably become involved, but it gave the AWB a heads-up tip to allow them to get in early with the pillage.

Flugge knew invasion plans by Marian Wilkinson

ONE year before the invasion of Iraq, Australia's then ambassador to the United Nations, John Dauth, confidentially told AWB's former chairman, Trevor Flugge, that the Howard Government would participate in military action with the US to overthrow Saddam Hussein, new AWB documents reveal.

Details of the extraordinary conversation undercut previous statements by the Prime Minister that Australia had not agreed to join the war in Iraq before the UN debate in late 2002 and early 2003.

The conversation between Mr Dauth and Mr Flugge took place in early 2002 - 13 months before the war - and the details are contained in confidential AWB board minutes that were released without fanfare yesterday by the Cole inquiry.

The minutes record Mr Flugge telling the board on February 27, 2002, that Mr Dauth confided in him "he believed that US military action to depose Saddam Hussein was inevitable and that at this time the Australian Government would support and participate in such action".

With astonishing accuracy, Mr Dauth also predicted that the Iraqi regime's offer to invite UN weapons inspectors to return would be "likely to stave off US action for 12 to 18 months but that some military action was inevitable". The ambassador also told Mr Flugge the operation in Iraq would operationally be similar to that in Afghanistan, with "heavy use of air support followed by deployment of ground troops".

Mr Dauth promised Mr Flugge he would ensure AWB had "as much warning as would be possible" of the action but that it was likely even the Australian Government would not know the timing.

Until now, it was believed that the Howard Government began to consider military action against Saddam Hussein only in the middle of 2002. British and Australian intelligence assessments claiming Iraq still held weapons of mass destruction were released in September 2002, but throughout the next months Australia publicly supported the return of UN weapons inspectors to Iraq.

The minutes reveal Mr Flugge was given an unusual level of access to highly sensitive information. While Mr Flugge was voted out of his job in 2002, he was kept on on retainer by AWB until 2003.

Immediately after the US-led invasion of Iraq, he was hired to help with reconstruction efforts. He brought more than $1 million in cash into Iraq to distribute as part of the postwar operation.

See no evil

The AWB scandal unfolded under the watch of Alexander Downer and Mark Vaile. The two ministers are now bracing for the Cole report - and the inevitable political fallout.

ALEXANDER DOWNER was in full flight. "I've never heard more hogwash than that in the whole of my life!" The Minister for Foreign Affairs was berating Canberra's foreign press corps recently on climate change, Iraq, North Korea and corrupt Solomon Islanders.

He knows in the Pacific they call him "colonialist, arrogant and overbearing". But, he quipped: "Actually, I'm lovely."

It was a rare light moment in a shrill Downer performance. These days, his old jocular persona is a distant memory. Thrown by the implosion of the Bush White House and rocked at home by Terence Cole's probing into the oil-for-food scandal, Downer finds the political ground rapidly shifting beneath him for first time in a decade. And he sounds decidedly uncomfortable.

In public Downer vents his anger on reporters who won't "bring on the truth for at least five minutes in the third quarter and give it a run around". He vents it on Kim Beazley, who wants to "cut and run" from Iraq.

But in private, Downer also vents a little anger about the Prime Minister's most senior official, Dr Peter Shergold.

Shergold, a career public servant with a fondness for bush gardening, persuaded John Howard last November to set up the Cole inquiry into the oil-for-food scandal. And for that, Downer may never forgive him.

The tension between Downer and Shergold over Cole is extremely sensitive within the Howard Government. Insiders say Downer saw Shergold's advice as naive, arguing he failed to recognise the damage it would wreak on the Department of Foreign Affairs and Trade. But Shergold's backers reply that there was no alternative once the UN's Volcker report found that AWB had paid almost $300 million in kickbacks to Saddam Hussein's regime.

Shergold ran through all the options - a police inquiry, public service inquiry and closed door inquiry - but he firmly believed that without full judicial powers to subpoena documents and call witnesses, no inquiry would get to the bottom of one of Australia's worst postwar scandals.

Downer declined to discuss Shergold this week, saying he would make no comment on the Cole inquiry except to attack the media and Beazley for "a series of outrageous allegations" against him. "These will be tested by [the] independent commission of inquiry," he said. The indefatigable Downer had just left Indonesia after signing the Lombok Treaty with his Indonesian counterpart, Hassan Wirajuda, and was meeting the US Secretary of State, Condoleezza Rice, in the poignant setting of Hanoi to discuss the quagmire in Iraq.

But on his return home Downer will confront Terence Cole's weighty report. The still-secret final tome will be handed to the Government on Friday. It will make no findings against Downer or any Government minister. Indeed, Cole will make it clear he had no brief in his terms of reference to investigate their performance. But Downer is expected to announce a major shake-up of his department to respond to criticism in the report. Everything from record management to crisis management is being scrutinised.

The Cole report is expected to lay out in excruciating detail how AWB managed to funnel almost $300 million in kickbacks to Saddam Hussein's regime under the nose of Downer and his department. It will expose evidence of criminal behaviour by AWB executives and managers. But it will also find AWB grossly deceived the Government, and both Downer and Howard will rely on this to clear them of any wrongdoing in the scandal.

Even so, Downer cannot escape the reality that AWB was furiously busting UN sanctions against Saddam at the same time as he and his department were responsible for upholding them.

For this reason, despite Cole's restrictive terms of reference, his inquiry has already bruised Downer. In effect, the inquiry tore down the walls of secrecy that normally shield a government department and its minister. It exposed both to unprecedented and, at times, brutal scrutiny and left them looking incompetent.

Hundreds of documents - ministerial submissions, diplomatic cables, records of embarrassing discussions between Downer and AWB executives - were slapped onto the public record. According to one insider, Downer found his own appearance in the witness box one of the most stressful experiences in his career.

Downer has already been briefed on the voluminous draft submission prepared by Cole's counsel assisting, John Agius, which will be the basis of the final report. The Agius draft prompted the department's lawyers to make lengthy submissions to Cole in the hopes of softening its criticisms. Among them are that DFAT was "cursory" in its approach to enforcing the sanctions against Saddam; that it lost a vital file about AWB's trucking fees which adversely reflected on DFAT; and that individual officers should have read the warning signs. The actions of officers in the Middle East branch, in the Jordanian embassy, in the UN's New York headquarters and on the Iraq taskforce are dealt with in detail.

Many in the department, especially the middle-ranking officers, are still shell-shocked. One long-time officer described the mood as "unsettling and very uncomfortable".

There is also anger in the ranks that the most senior DFAT officers were spared from appearing in the witness box. "They don't point the finger but there is a lot of talk that there is a void in responsibility at the level of secretary and deputy secretary," one officer said. "A lot of the burden of accountability has fallen at the middle level. These are the desk officers, the junior officers who carry the water. The decision-making and the advice does not start and stop at that level in the department."

The middle-ranking officers realise if Cole's final report confirms that criminal charges could be brought against senior AWB figures such as Trevor Flugge and Andrew Lindberg, they will be called as witnesses in criminal trials and subjected to rigorous cross-examination by the defence.

A key chapter in the draft, called "The Knowledge of the Commonwealth", makes it clear that AWB's only real defence to many of the charges is to attempt to establish that departmental officers knew about the kickbacks.

Cole's limited brief was to look for evidence of lawbreaking by AWB, not examine the Government's competence. But there is little doubt that in the months of hearings, he inflicted serious collateral damage not only on the department but on Downer. "There is no doubt it undermined him," said one Liberal backbencher. "The negative question times, the bad publicity, the editorials day in and day out. It can't not have had an impact."

THOSE who have worked closely with Downer credit him with enormous energy and rigour. Even among his opponents in the Liberal party room he has earned respect, if not love. But friends and enemies alike say Downer has one serious weakness as a foreign minister. Behind the sometimes blustering appearance, he is a deeply partisan animal. He passionately embraces a stand and once he does, he and his circle defend it to the death.

As one former close colleague put it: "They take a position, mark out their ground and then defend it very, very vigorously. And often when you're defending it so vigorously, you don't notice the guys behind you have disappeared."

Downer's style was starkly exposed during the Cole inquiry. The paper trail from his office reveals that when AWB was under attack over allegations of kickbacks, Downer chose to accept the company's denials largely at face value and go into bat. "I'm more relaxed about this than they are," he memorably scrawled on a note to his departmental head, Michael L'Estrange, who pointed out AWB had admitted its trucking firm in Iraq was half-owned by Saddam's regime.

Even when the head of the UN inquiry, Paul Volcker, warned in October last year that there was overwhelming evidence against the company, Downer was still accepting AWB's denials and personally advising its executives on how to defend themselves. No one in his department, according to the evidence, offered the frank and fearless advice that AWB executives could be lying.

One month later, Howard had backflipped and set up the Cole inquiry.

Downer's passionate partisanship is in overdrive when he is defending George Bush's strategy in Iraq. In August this year, as a tsunami-like tide of American public opinion was building against the Iraq war, Downer helped fund the fringe neo-conservative commentator Mark Steyn on a speaking tour of Australia. For several colourful days and nights, Steyn delivered humorous polemic diatribes in support of Bush, the war and Downer, calling his patron "my favourite foreign minister".

At a dinner for Steyn co-sponsored by Downer and the new journal The Conservative, the minister was surrounded by his staunch factional allies on the right of the Liberal Party, the Finance Minister, Nick Minchin, and the Minister for Ageing, Santo Santoro. The NSW Liberal apparatchik David Clarke even put in an appearance. Downer basked in Steyn's praise of his "magnificent performance" during question time that afternoon, when Downer damned Opposition calls to pull out of Iraq with the jibe that Beazley's "constant companion is a white flag".

In stark contrast, a few months earlier Downer's estwhile American colleague, the former secretary of state Colin Powell, was telling Bush he was in deep trouble in Iraq. Powell, dumped by Bush in 2004, was invited back to the White House by his old boss to discuss the deepening crisis as Iraq teetered on the brink of civil war.

While Downer and Howard were publicly holding the line in Canberra, Bush was seeking out bipartisan ideas on his clearly failing Iraq strategy. He set up the Iraq Study Group under his father's old adviser, James Baker, and invited Powell and nine other former secretaries of state and defence to brainstorm.

Downer was fully briefed on the shifts in Washington at the time but it has taken months for him to qualify his public rhetoric. This week, in the aftermath of the savage US election swing, Downer acknowledged the White House might consider "adjustments to the tactics" in Iraq.

Bush is expected to announce a significant shift in the structure of US forces in Iraq and their tactics soon. There will be a greater emphasis on securing Baghdad, but the President insists he will not bow to Democratic demands for a timetable on withdrawals.

After their meetings in Hanoi this week with Bush and Rice, Howard and Downer were adamant America's fundamental strategy would not change. That strategy is to train Iraq's military and police forces in order to progressively hand over security to the Iraqis themselves. Downer concedes this works only if the shaky, faction-ridden Iraqi Government can stand up. But as Powell told Bush earlier this year, if Nouri al-Maliki's Government is already falling apart, the coalition will not be building up security forces in Iraq, it will be building up sectarian militias that are slaughtering each other.

SO FAR, Downer's unflinching support for the Iraq war has cost him little politically, but with Bush looking like a lame duck that may change. The decision to go into Iraq deeply split Canberra's elite foreign affairs and defence community. Labor's Kevin Rudd labelled it "one of the most reckless decision in the history of postwar Australian foreign policy". Friendships have been ructured over Iraq, including several of Downer's. Now his critics are again asking Downer to explain why he supported it.

The former Foreign Affairs head Richard Woolcott was once a friend and sounding board for Downer. Two weeks ago he delivered a stinging public attack on the Government's Iraq policy during a speech at Newcastle University. Calling the invasion "a catastrophic foreign and security policy blunder", Woolcott argued that Australia's role had "raised Australia's profile as a terrorist target and … massively accelerated terrorist activities in Iraq itself".

Woolcott was put on Downer's enemies list in 2004 after he signed a letter with 42 other retired government advisers saying Australia's support for the invasion was a mistake. Downer was furious because at the time Woolcott's son, Peter, was working as his chief of staff.

Woolcott questions whether his old department gave frank and fearless advice advice to Downer on the decision to support the US-led invasion. Along with two former Howard Government advisers who spoke to the Herald, Woolcott questioned whether DFAT had produced a comprehensive cabinet submission on the implications of the invasion before the war.

They point to the revelation in the 2004 Flood report on Australian intelligence that the Government's peak intelligence agency, the Office of National Assessments, never produced a comprehensive report on the implications of supporting invasion.

Questioned about this by the Herald, Downer did not refer to any formal cabinet submission or ONA assessment but said: "There was an enormous amount of discussion and analysis of the implications of Australia's participation in the overthrow of Saddam Hussein's regime."

One former adviser closely involved in the Iraq strategy believes whatever the lack of formal reports, Downer and Howard were acutely aware that US plans for postwar Iraq were problematic. This is why Howard insisted on an extremely small Australian postwar military presence in Iraq. "We were conscious it would be a difficult period," the adviser said. "But no one envisaged it would be so bad. And no one expected after four years it would be as bad as it is now."

Downer and Howard are now both "trapped in a dilemma of their own making", Woolcott says. But Howard made it clear this week he could not envisage a US withdrawal from Iraq soon, saying it would do "enormous damage to the reputation, prestige and influence" of the US.

Until this year, Downer's close alignment with Howard and the Bush Administration elevated his stature internationally. Unlike Powell or Blair's former foreign secretary, Robin Cook, Downer prosecuted his Government's policies unflinchingly, seldom taking a backward step. At home, his closeness to Howard enhanced his power in the Government.

BUT some of his factional opponents in the Liberal Party note that Downer is looking weaker. In March, when he was distracted by the AWB hearings, Downer's opponents had a rare opportunity to land a blow. His former senior adviser and close friend, Joshua Frydenberg, made a bold run to challenge the party's leading moderate, Petro Georgiou, in the safe Victorian seat of Kooyong. Downer's perceived intervention in support of Frydenberg created a furious backlash against him. In an extraordinary move, the rival Victorian factions, headed by the Treasurer, Peter Costello, and the former Victorian premier Jeff Kennett, combined to crush Frydenberg.

Downer insists he played no role in Frydenberg's push. "I neither encouraged or discouraged him to stand for the Kooyong preselection and spoke to no delegates at all on his behalf," he told the Herald.

Downer's party opponents dismiss his denials and are still crowing. "He used his prestige on something that was a dismal failure," was how one summed it up.

But those who saw Downer come back from his failed stint as Liberal Party leader don't question his political resilience. He's like a wind-up toy, says one colleague. With L'Estrange, he has already set in train the reforms to answer the Cole report.

Among them is expected to be the hiring of a new phalanx of public relations officers. Which suggests Downer is planning to dig in to defend his territory rather than concede any ground.
The foreign affairs cables

January 13, 2000 Australia's UN mission in New York says the UN is warning that AWB could be paying kickbacks to Saddam Hussein in breach of UN sanctions.

January 18, 2000 Canberra responds, declaring "we think it unlikely … AWB would be involved knowingly" in kickbacks.

March 10, 2000 New York advises that despite AWB assurances, there is still a "question mark" over its dealings with Baghdad.

March 11, 2000 Austrade in Washington expresses its concern over AWB's reluctance to provide more material to New York and says the Trade Minister should be advised.

March 17, 2000 Canberra advises that the UN concerns will be addressed with AWB executives the following week.

March 22, 2000 Canberra tells New York and Washington that AWB stands by its view there is nothing untoward in its Iraqi wheat contracts.

June 23, 2003 Baghdad embassy reveals that an energetic US captain has sifted through the oil-for-food contracts and found that "every contract since Phase 9 included a kickback to the regime from between 10 and 19 per cent".

August 19, 2004 Washington embassy warns that US Senate committee is on the hunt for incriminating documents, declaring "it is in the interests of both the AWB and the Government to remain in close contact on the issue"

Meanwhile, AWB to be sued by shareholders

A US lawsuit claiming up to $US1 billion ($1.29 billion) in damages from AWB is on hold, but a shareholder class action against the disgraced wheat exporter is set to be filed in Australia within a month.

The US case, which will rely on American laws designed to crack down on organised crime, has been withdrawn from the US District Court in Washington DC for fine tuning, one of the lead solicitors in the action said.

It could be refiled in another jurisdiction - possibly the same American court where AWB is facing another lawsuit relating to sales of soybeans to Indonesia three years ago.

"We just did a voluntary dismissal and the reason we did it was to finalise a few more details," Washington lawyer Palmer Foret said.

"It will be refiled in the not too distant future."

The move gives AWB some breathing space as it braces for the likely damning findings of the Cole inquiry into the $290 million in kickbacks the company paid to the former Iraqi regime of Saddam Hussein under the corruption-ridden UN oil-for-food program.

But the legal mire enveloping the company deepened today when Australian law firm Maurice Blackburn Cashman confirmed it was close to launching a shareholder class action against AWB.