AWB Executives Should Be Charged After Report on Iraq

(Update3)

By Gemma Daley


Nov. 27 (Bloomberg) -- AWB Ltd. executives paid kickbacks to win sales to Saddam Hussein's regime in Iraq, a government inquiry found, recommending charges against 11 officials from Australia's monopoly wheat exporter.

Prosecutors should pursue officials including Trevor Flugge, the former chairman of the Melbourne-based exporter, for breaching criminal, banking and company regulations, Commissioner Terence Cole said in a report published today. Calls to Flugge's lawyer were not returned.

The probe was triggered by an investigation of the United Nations Oil-for-Food Program by former U.S. Federal Reserve Chairman Paul Volcker, who found AWB paid bribes to win sales. Prime Minister John Howard said he'll urgently review AWB's monopoly on arranging wheat exports from Australia, the world's third-biggest exporter of the commodity.

``The report of the Cole inquiry has clear implications for the operation of a single desk system for Australian wheat exports,'' Howard said in a statement e-mailed to Bloomberg. ``The government will give urgent consideration to the future of marketing operations for the export of Australian wheat.''

AWB, which ``deeply regrets'' the way it conducted its wheat trade with Iraq, said it won't respond to allegations against individuals in a statement to the Australian Stock Exchange.

Biggest Supplier

Cargill Inc. and Glencore International AG are among companies that have called for an end to AWB's monopoly, a legacy of when the company was state-owned. AWB was the biggest supplier of food under the UN's Oil-for Food program and paid $222 million in kickbacks, according to Volcker.

``The next step for the industry is to devise a wheat export system that doesn't confer monopoly power on any one company,'' Greg Canavan, an analyst at Fat Prophets in Sydney said before the report was released.

The findings will be referred to the Director of Public Prosecutions, Cole said in a report distributed in Canberra today. Cole said AWB did not inform Howard's government or the UN of its ``true arrangements with Iraq.''

Cole said there was no suggestion of illegal activity by the government, prime minister or ministers.

The former judge led a 10-month inquiry that heard from 60 people, including Prime Minister Howard. Cole also said that Davidson Kelly, a former employee of BHP Billiton Ltd., may have conspired with AWB. BHP Billiton, the world's biggest mining company said it was studying the Cole report in a statement to the exchange.

BHP Billiton

The inquiry had heard AWB inflated wheat contracts to recover $8 million of debt, which Gibraltar-registered Tigris Petroleum Corp., BHP's joint venture partner studying oil fields in Iraq, had said it was owed arising from a grain shipment. Kelly set up Tigris in 2000.

Former BHP Group President Energy, Phil Aiken had signed a letter giving Tigris the authority to recover the debt under a ``misunderstanding,'' Cole said. BHP Petroleum, or BHPP, had acted by ``mistake because Mr. Aiken, who had no personal knowledge of the 1996 shipment, was not told at any time that the shipment had been approved by the managing directors of both BHP and BHPP only on the basis that the transaction was a gift,'' Cole said in the report.

Worst-Performer

Shares of AWB, the worst-performing stock on the S&P/ASX 200 Index this year, have fallen 55 percent since the inquiry began Jan. 16. The inquiry has prompted the resignation of at least four executives, including former managing director Andrew Lindberg and company secretaries Richard Fuller and Jim Cooper. Cole said Lindberg was ``not guilty of any criminal conduct.''

Wheat growers in the U.S., the world's biggest exporter of the grain, have called for an end to AWB's monopoly, saying it gives Australian farmers an unfair advantage in price negotiations.

``The loss of the single-desk has been largely incorporated into the share price,'' said Justin Braitling, who helps manage A$100 million in stock at Wilson Asset Management including AWB shares. AWB shares rose 10 cents, or 3.6 percent, to A$2.86 at the 4.10 p.m. close of trade in Sydney.

AWB, which controlled about 14 percent global wheat trade last year, is also facing pressure on earnings as drought threatens to cut wheat production in Australia to a 12-year low of 9.5 million tons. The nation shipped 15.2 million tons of wheat in the 12 months ended June 30, 2006, worth A$3.3 billion ($2.6 billion), according to the country's commodity forecaster.

The Volcker-led U.S. investigation into the Oil-for-Food program has separately resulted in criminal charges against at least seven people, including Oscar Wyatt. The program allowed Iraq to sell oil and use the proceeds to buy food and medicine while remaining subject to economic sanctions.

To contact the reporter on this story: Gemma Daley in Canberra at gdaley@bloomberg.net ;

Last Updated: November 27, 2006 02:05 EST

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