Threshing for grains of truth
Australian wheat was at the heart of the 'world's greatest swindle', a scam that eventually involved the US, the UN and the war in Iraq. Caroline Overington investigates the crooked path of the kickback scandal
May 05, 2007

TWELVE days before Christmas 2003, coalition forces in Iraq announced that Operation Red Dawn - the mission to find Saddam Hussein - had been successful. The Iraqi leader had been hiding in a "spider hole" in the small town of ad-Dawr, near his birthplace of Tikrit. He was armed with a pistol but offered no resistance during his capture. US marines who grabbed him by the collar and pulled him to the surface of the earth also found two AK47 rifles, $US750,000 in $100 bills, Mars bars and a stash of Spam.
The news was greeted by cheers in Baghdad, including by the Australians who were working in Iraq for the Howard Government, among them the former chairman of the wheat exporter AWB Ltd, Trevor Flugge, and the head of international sales and marketing, the tall, bald, charismatic Michael Long.

Flugge had arrived in Baghdad in April 2003, aboard a US military C-130 Hercules cargo plane. "We flew in at night because the area wasn't secure," he later told reporters. "Once you were on the ground, the back doors would open. You'd get out as fast as you could. The engines would still be running, they'd close the doors again, and they'd be gone after three to five minutes maximum on the ground."

Flugge's job, as he publicly stated it, was to help the Iraqis revive their agriculture industry, which had been badly damaged by successive wars. Machinery was left to slump and rust. Farmers were struggling to feed their families. Long, who had followed Flugge into Baghdad to work for the Iraqi ministry for trade, knew exactly what to do. He recalls striding confidently into the offices of one of the American generals and, then and there, asking for $50 million.

The general - unnamed here, for obvious reasons - was horrified.

"You want me to give you $50 million in cash?" he asked.

"Sure," said Long. "Count it, mark it, give it to us, and we'll hand it out to banks, who can give it to farmers."

The general studied Long - taking in his massive frame, his shaven head, his confidence - and reached for an order book on his desk.

"He was looking the other way when he didit," Long remembers, "but he signed theorder."

Long - who had taken the code-name Proton for his five-month stint working in Baghdad - exchanged that note for greenbacks, so many of them that they had to be packed in sacks.

There is no doubt that Flugge and Long worked their butts off in Baghdad: 10, 12, sometimes even 15 hours a day. They never felt secure. It was incredibly hot. Desert sands got under the door and into their clothes. Terrifying firefights often broke out in the cities. Locals called it Baghdad Rain. To relieve the stress, to conquer their fears of being fired upon, blown apart or kidnapped, they often had a few drinks. Sometimes they went a bit crazy, which perhaps goes some way towards explaining why Flugge was once photographed, red-faced and bare-chested, pointing a pistol at the camera.

The pictures of Long weren't quite so damaging: he was photographed smiling while handling a sub-machinegun and admiring the sacks of greenbacks.

Years later, some of those pictures - terribly embarrassing, not only for Long and Flugge, but for Prime Minister John Howard, who sent them to Baghdad as representatives of the Australian people - would be published in newspapers across the nation. Flugge - a man who takes his image seriously - was horrified, but Long took the incident in his stride.

"Was I happy about it? No. But my motto in life is: what can I do about this situation? If the answer is nothing, then I simply try to handle myself as best I can," he said. "Most people - I mean the public - were able to put those pictures in context. We were living in a city with 150,000 US soldiers, all of them armed to the teeth. You would go to the mess hall in the morning. There would be soldiers with guns next to them while they ate their porridge.

"There were machineguns on the seat beside you, soldiers in the streets, the hotels. Of course, after a while, you get used to it. I'd say: 'What kind of gun is that? Can I have a look at it?' And some pictures were taken. And with the cash, it was the same thing. We were carrying huge sacks of American dollars around. You had to photograph it or nobody would believe it."

Long was proud of the work he had been able to do for the Iraqi people on behalf of Australia, too. He doesn't mind people knowing that he got right into his role as Proton, the warrior for the Iraqi people. His weekly reports to the Department of Foreign Affairs and Trade still make fascinating reading: in the week ending June 8, 2003, for example, Long visited all the Kurdish areas, staying at Saddam's palaces.

"There is a huge area on the river with canals, including 21 palaces. We stayed at the Water Palace. Flying over the mountains ... down into the most fertile valleys you can imagine, across the Tigris, and then on to a huge dam near the border. In many places, bombed tanks were everywhere. Mirage fighter jets blown up, tails fallen off."

Long was also concerned about security and annoyed that Australian government officials seemed to have more of it than he did. He noted: "Currently, only the Australian ambassador and DFAT staff are in armoured vehicles. Won't look good in the Aussie press if something happens, if it's one thing for DFAT and let the rest fend for themselves." Long's note from the week ending June 15, 2003, was interesting, too. The Iraqi police would "not be effective against serious criminals-looters" because, "despite being armed with AK47s, they won't shoot fellow Iraqis".

When Long left Baghdad, the Howard Government had him replaced at the Iraqi ministry of trade by another AWB employee, Darryl Hockey, who had formerly worked for the deputy prime minister, John Anderson. Unlike others who arrived, Hockey was not shocked by what he found in Baghdad. He was familiar with the city because he had spent three months there in the 1980s and had fallen in love with the place.

"A spectacular city," he said. "The riverfronts were gorgeous. Fishermen would cook their catch on the banks of the river, in wire cages they held over open fires. People suffered terribly, but as a city it was beautiful."

Hockey and Long had a week's "cross-over" where Long helped Hockey get used to the place. Like Flugge, he would stay at the two-star al-Rashid, with its fading wallpaper and unpredictable water taps. The guests were the envy of Baghdad because it had a beautiful, turquoise pool. But the al-Rashid was close to the perimeter wall of the Green Zone (a zone fortified and protected by US forces). Insurgents could basically stand outside and fire at the building. One morning, when Hockey was looking out the window, brushing his teeth, he saw a shoulder-fired missile coming towards him. Within seconds he was flat on the floor. A woman staying two doors down - who had arrived just the day before - had part of her arm blown off. There was blood on the wallpaper in the hall. Another day, Hockey was swimming in the pool when bombs started hitting the hotel windows. Glass poured down into the water. The speakers started screaming "Evacuate, evacuate!" but Hockey was wearing only his Speedos. He refused to run into the street without first returning to his hotel room to at least get some pants on.

Despite these challenges, it was difficult for Hockey and others who went to Baghdad after the war not to feel thrilled by the opportunity to help Iraq. He genuinely wanted to help the Iraqi people and resented the suggestion by the Americans that because he was employed by AWB, his loyalty was only to AWB.

Hockey worked in a room surrounded by Americans, many of whom were convinced that AWB was up to its neck in corruption in the UN oil-for-food program. They would heckle him about it.

"There'd already been a blanket decision made in Washington, DC, to remove 10 per cent off every contract," Hockey would later tell the Cole inquiry into the scandal.

"Now, therefore you could imagine in the office that I worked there was probably five or six Americans working on taking this 10 per cent out. That's all they ever talked about, the 10 per cent kickback scheme and how they believed it was in breach of Security Council resolutions. They were saying that every single contract was going to have that 10 per cent deducted off it.

"One of our key guys in the office said to me - an American guy - 'I'm just giving you the tip-off that I've been asked to work on this investigation, we're going to do a search of all the files here in Baghdad, I'm going to be working on this full time.'

"He said: 'You guys had better look out, you Aussies, because this has been generated by political concerns in Washington and there's going to be a big investigation and they're going to be chasing you guys because you're the Aussies, because you are the biggest contributors and it's because of the wheat market."' Hockey said he replied: "'I think you are wasting your time.' I got quite angry about it, to be honest."

In Hockey's view, Iraq was on the verge of a humanitarian crisis and he did not think Western aid workers should be "sitting down there, looking through old contracts".

Hockey sent a message back to Canberra, warning that the US was trying as hard as possible to steal the wheat trade from Australia by spreading the allegation that AWB had been involved in the corruption of the oil-for-food program and had been funding Saddam's regime before the war.

"They are using some dirty tactics," he said. But the fact that the UN's oil-for-food program had been corrupted by Saddam's regime had, by now, become a global scandal (indeed, some newspapers had begun to refer to it as the "world's greatest swindle"). Millions had gone missing. The US was dismayed yet delighted: it proved the UN was incapable of managing even a basic aid program, and the swindle took some of the heat off Washington, which was struggling to find any weapons of mass destruction in Iraq.

The pressure to investigate the scandal was immense. In March 2004, almost a year after the war began, Hockey told a Howard government official, Iraq Task Force member Zena Armstrong, that an investigation would soon be under way and that AWB - as the largest single supplier under the oil-for-food program - probably wouldn't escape scrutiny.

As it happened, a small delegation of Iraqis from the Iraqi Grains Board was visiting Australia at that time. Armstrong was among their chaperones. Shortly after she received Hockey's message, she found herself in a taxi queue with the head of the delegation. She couldn't remember his full name but she thought she would grab the opportunity to test whether the allegations being made against AWB were true. The Iraqi, on a free trip to Australia, assured Armstrong it was all fine.

"He spoke profusely about the professionalism of AWB," Armstrong would later tell the Cole inquiry. "If they had said, 'Oh, there are a few issues here' ... that might have sent up a red flag, but that didn't happen." Quite a few people sitting at the inquiry when Armstrong made those remarks wondered whether she really thought that a quick conversation in a cab queue constituted an investigation into this magnificent scandal.

Obviously, it was lame. Perhaps that explains why Armstrong was so defensive. In one snippy exchange with the senior counsel assisting the Cole inquiry, John Agius SC, she said: "I take my responsibilities as an Australian public servant very seriously, Mr Agius."

Yet Armstrong and many other Howard government officials had, by then, known for years - at least since March 2004 -- that AWB had, in fact, been paying money to a Jordanian trucking company, and that the Jordanian trucking company may have kicked the money on to Saddam's regime.

Indeed, Armstrong and her boss, diplomat John Quinn, had written a formal note to both Foreign Affairs Minister Alexander Downer and then trade minister Mark Vaile that said exactly that: "Those with access to the relevant documents believe that any company doing OFF (oil-for-food) business in Iraq could not have escaped being implicated in inappropriate activity, whether or not they were aware of it." (Emphasis added.)

She also said that AWB had conceded that "the Jordanian company handling local transport might, of its own volition, have provided kickbacks to the regime". In other words, AWB's money might have found its way to Saddam's regime. This note, or ministerial submission, marked an important turning point for the Howard Government.

In his final report, released last November, commissioner Terence Cole would say that the evidence before him could not support a finding of "actual knowledge" on behalf of the Howard Government of the kickback scandal. It is fair to say that many people regard this view as ridiculous. Some people believe many people in the Government always knew or studiously avoided trying to find out. Others believe the relevant ministers were so gullible, so ignorant or - to be more charitable about it - so busy that the $290 million trade scam may well have passed them by.

What is incontrovertible is that Armstrong's note was dated March 2004. That is, it was written and received a full 18 months before the UN's inquiry into the corruption ended and almost two years before Australia's Cole inquiry really got started. The Government now had a choice: it could take this information and launch its own private inquiry into the matter or it could call in the Australian Federal Police and ask it to investigate.

But the Government made a decision not to investigate the matter.

The question must be asked: why? Perhaps, as claimed, they just couldn't believe it was true. And yet, by now, AWB had admitted that it might be true. Was there too much at stake? Were diplomats too focused on protecting AWB from US wheat farmers? Were they worried about what else they might find if they peeled the lid off AWB's business practices? Or, on some level, did some people in government understand that AWB must have been involved in the corruption and that it was better to try to hide this fact rather than open it up to scrutiny? Iraq was already such a problem: no weapons of mass destruction had been found and the battle against insurgents was, in 2004, just beginning.

Some may say: well, perhaps the message never got to Downer. But, unlike the diplomatic cables - which nobody of importance even pretends to read - a ministerial submission can't really be ignored and there is no doubt that Downer got this one because his handwriting was on it.

"This worries me," Downer had scrawled on the bottom of his copy. "How were AWB prices set and who set them? I want to know about this."

This is an edited extract from Kickback: Inside the Australian Wheat Board Scandal by Caroline Overington (Allen & Unwin).

Ellie