AWB has admitted for the first time it knew it was paying "transport fees" that would end up with Saddam Hussein's regime.
However, the company denies this was in breach of UN sanctions and says the UN and Australia's Department of Foreign Affairs and Trade knew it had to pay the fees as part of its contract with the Grain Board of Iraq, The Australian reports.
The grains exporter also made a bold prediction that shareholders would fail in a $100 million class action that began yesterday, because the Australian courts aren't allowed to rule on issues of public international law where it relates to the conduct of the UN, the Australian government or the Iraqi regime.
The long-awaited class action began yesterday in Sydney in the Federal Court before judge Lindsay Foster, with lawyers for the shareholders opening their case against AWB. John and Kaye Watson, retired wheat farmers, are leading the class action on behalf of about 1000 investors.
The 2005 Volcker report, in which former US Federal Reserve chairman Paul Volcker reviewed the UN's oil-for-food project and found AWB had paid $US221.7m in transport fees to Iraq in connection with contracts for the supply of wheat, sparked an Australian inquiry led by Terence Cole QC. He made his findings public in 2006.
AWB's share price fell dramatically on the allegations it had breached UN sanctions, and the shareholders have gone to court in a bid for compensation.
They say AWB engaged in misleading and deceptive conduct and should have disclosed the information about the transport fees, and they are seeking compensation in the range of $100m.
AWB is set to outline its case on Monday. But according to court documents released yesterday, AWB says it knew the payments being made to the Jordanian trucking company, Alia, were then being forwarded to an Iraqi company, the Iraqi State Company for Water Transport.
But it disputes these payments were in breach of UN sanctions. AWB is set to argue that it is up to the shareholders to prove that the UN and DFAT did not know about the payments "and/or would not have permitted it if they did know".
AWB says a 2003 cable sent by a DFAT official notes "AWB then made payments to Iraqi officials for freight", and that this "does not appear to have been news within DFAT", and will help prove its case DFAT knew about the payments.
AWB further disputes that it had an obligation to tell the Australian Securities Exchange about the payments it was making.
In fact, AWB is set to argue it was the negative publicity it garnered after the Cole report that caused its share price to plunge, and that it is the one that suffered damage. "It is impossible to undo such harm," its written opening submissions say.
It also says the shareholders cannot prove the drop in share price came about following its non-disclosure or the bad publicity arising out of the Cole report.
The case is largely to be based on documents, and barrister for the shareholders John Sheahan highlighted several documents to support the case against AWB. The "highest level of AWB executive" knew about the system of disguising the fees through the Jordanian company, he said, and these fees were "ratcheted up" as time went on, but AWB never questioned the increases.
"By early 2001, AWB executives were not under any illusions or misapprehensions," Mr Sheahan said in opening submissions.
The hearing is continuing.
Read more on The Australian.
