Australian Securities and Investments Commission v Ingleby
[2012] VSC 339
•10 August 2012
40willi7
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
CORPORATIONS LIST
No. 10079 of 2007
IN THE MATTER OF AWB LIMITED ACN 081 890 459
| AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION | Plaintiff |
| v | |
| PAUL JOHN INGLEBY | Defendant |
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JUDGE: | ROBSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 13 June 2012 | |
DATE OF JUDGMENT: | 10 August 2012 | |
CASE MAY BE CITED AS: | ASIC v Ingleby | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 339 | |
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CORPORATIONS – Chief Financial Officer – Admitted contravention of s 180(1) of the Corporations Act 2001 (Cth) – Agreed statement of facts – Agreed declarations of contraventions – Agreed proposed penalties – Factors to be considered in imposing penalties – Role of court where contraventions are admitted and proposed penalties agreed on – Penalties imposed less that those agreed by the parties - Importance of general deterrence in imposing penalties.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | M Colbran QC with N Goodenough | ASIC |
| For the Defendant | M Abbott QC with M Burnett | Logie-Smith Lanyon Lawyers |
HIS HONOUR:
Introduction
Mr Ingleby is one of six defendants to this proceeding in which ASIC seeks civil penalties against former officers of AWB Limited (AWB) for alleged contraventions of the Corporations Act 2001 (Cth). These arise out of AWB’s alleged abuse of the Oil For Food Program conducted by the United Nations (UN) as part of sanctions imposed on Iraq during the first Gulf War.
Recently, in ASIC v Lindberg[1] I imposed pecuniary penalties and a period of disqualification on Mr Lindberg in respect of four admitted contraventions of s 180(1) of the Act. Mr Ingleby admits to one contravention of the Act and, as with Mr Lindberg, applies with ASIC to obtain orders resolving the claims against him in the proceedings. This approach involves the tendering of an agreed statement of contravention, an agreed statement of facts, and an agreed submission on the relevant legal principles, as well as proposed declarations and orders.
[1][2012] VSC 332 (ASIC v Lindberg)
The agreed submission on the relevant legal principles is in the same terms as that put forward in Mr Lindberg’s application. I will not repeat what I said on the legal principles. My findings and views on them and other relevant legal principles can be found in ASIC v Lindberg.
The agreed contravention
The following is the agreed contravention:
Between December 2001 and September 2004, Paul John Ingleby as Chief Financial Officer of AWB failed to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were an officer of a corporation in AWB Ltd’s circumstances and occupied the office held by, and had the same responsibilities within AWB as Paul John Ingleby, in that he:
a. co-authorised payments to Alia in respect of inland transport fees payable under contracts for the sale of wheat to Iraq as set out in the Schedule;
b. had information available to him to raise questions as to the legitimacy of the inland transportation fees and to suggest that the fees
i.were ultimately being paid to the government of Iraq; and
ii.were recovered by AWB from the UN Escrow Account.
c. took no steps to ascertain whether or not the inland transport fees were ultimately being paid to the government of Iraq; and
d. took no or no reasonable steps to inform the Board of AWB of the information available to him which suggested that payments of inland transport fees were ultimately paid to the government of Iraq.
in circumstances where he knew that:
i AWB’s trade with Iraq was conducted under the UN OFFP which prohibited direct payments to the government of Iraq; and
ii payments from the UN Escrow Account to AWB in respect of contracts for the supply of wheat could only be made for the purposes of the OFFP
and thereby contravened s180(1) of the Corporations Act 2001.
The Role of the Court
The Court must not make a declaration of contravention by consent of ASIC and the defendant unless the Court is satisfied by evidence (including agreed facts) that the statutory conditions for making of the declaration have been fulfilled.[2]
The circumstances of the contravention[3]
[2]ASIC v Elm Financial Services Pty Ltd (2005) 55 ACSR 411, (Elm’s Case) [3] (Barrett J); Re One Tel Ltd (in liq); ASIC v Rich (2003) 44 ACSR 682; and ASIC v Rich (2004) 50 ACSR 500.
[3]The statement of agreed facts and joint submission as to penalty is attached as an annexure.
Mr Ingleby was the Chief Financial Officer of AWB from 1 July 1999 to 30 October 2006. He had been CFO of its predecessor organization the Australian Wheat Board from 14 April 1998 until the Wheat Board was privatized on 1 July 1999.
At this stage, I will not repeat all the agreed facts relevant to Mr Ingleby’s contravention. It is sufficient for me to merely set out the substance of the relevant matters.
Iraq was a major market for the sale of AWB wheat. As a result of Iraq’s invasion of Kuwait, in 1990 the UN imposed sanctions on Iraq. Those sanctions called on member states to prevent the sale to Iraq of commodities or products except supplies intended for strictly medical purposes and, in humanitarian circumstances, foodstuffs. The sanctions also sought to deny the Iraq regime access to hard currencies. Under the sanctions, proceeds from the sale of Iraq petroleum were paid into an UN Escrow Account. Funds from that account could be released to pay for the importation into Iraq of foodstuffs such as wheat from AWB. This arrangement was known as the Oil For Food Program (OFFP).
From June 1999, Iraq required importers of wheat to pay to an agent of the Iraq government a fee purportedly for inland transport of the wheat within Iraq. The fee was to be paid in hard currency. In fact, the fee was well in excess of the actual cost of inland transport of the wheat. The fee was merely a method of circumventing the UN sanctions to permit the Iraq regime to obtain hard currency. AWB agreed to pay the fee on its wheat shipments to Iraq.
AWB would present to the relevant UN authorities the contract for the sale of wheat to Iraq and the UN would release from the Escrow Account the sale price to AWB, if satisfied all was in order. The moneys for the inland transportation fees were included in the sale price of the wheat. The consequence of these transactions was that the UN Escrow Account was being misused to pay for goods other than for humanitarian foodstuffs and the Iraq regime was receiving hard currencies in breach of the UN sanctions.
It is not contended that Mr Ingleby was aware that this was taking place. Mr Ingleby was not involved in the marketing of wheat to Iraq. His only involvement was in co-authorizing payments to the agents of Iraq, Alia, for the purported inland transport fees. It is not suggested that he was aware the fees were other than for inland transport.
The agreed contravention is that Mr Ingleby failed to exercise his powers and duties with the degree of diligence that a reasonable person would exercise if they were an officer of a corporation in AWB’s circumstances and occupied the office held by and had the same responsibilities within AWB as Mr Ingleby. In other words, that Mr Ingleby was negligent. It is not suggested that he did anything deliberately wrong, that he was dishonest, or his actions involved moral turpitude. His contravention is one of omission rather than commission.
In particular, it is agreed that Mr Ingleby had information available to him to raise questions as to the legitimacy of the inland transportation fees and to suggest that the fees:
(a) were ultimately being paid to the government of Iraq; and
(b) were recovered from by AWB from the UN Escrow Account.
As mentioned above, it is not suggested that Mr Ingleby knew those matters.
It is agreed that in those circumstances Mr Ingleby failed to exercise his powers and duties as he should by co-authorising payments to Alia for inland transport fees under certain contracts for the sale of wheat to Iraq; by taking no steps to ascertain whether or not the inland transport fees were ultimately being paid to the government of Iraq; and by taking no or no reasonable steps to inform the Board of AWB of the information available to him which suggested that payments of inland transportation fees were ultimately paid to the government of Iraq. It is agreed that his failure to take these steps arose through his failure to exercise the degree of care and diligence required of him in dealing with the information available to him that raised questions as to the legitimacy of the inland transportation fees.
The information that he had available to him that should have alerted him is set out in paragraphs 28 to 53 of the agreed statement of facts and relate to communications from August 1999 to 28 October 2003.
Finding on contravention
The agreed facts satisfy me that the statutory conditions for making the declaration of contravention have been satisfied.
Mr Ingleby’s submissions
Counsel for Mr Ingleby raises several matters that he says put the contravention into its proper perspective. The documents that should have alerted Mr Ingleby to AWB’s abuse of the OFFP were few in number and were spread over some three years. At the same time, Mr Ingleby was responsible for the whole of the AWB Group financial reporting which included preparation of statutory accounts, management accounts, forecasts and other accounts. The statutory accounts were audited, initially by the Auditor-General and then after 1999 by private auditors. Counsel for Mr Ingleby said that there was never any qualification of the accounts during Mr Ingleby’s reign.
Mr Ingleby was responsible for important tasks such as funding strategies, capital raising, interest rate management, foreign exchange management and credit ratings. AWB dealt with some forty nine countries of which Iraq was one. Although Iraq sales were substantial, they only amounted to about ten per cent in value of the wheat that AWB sold around the world.
Mr Ingleby was responsible for procuring financing for the trade in wheat, which included trade credit, credit reviews, credit arrangements, credit insurance, and taxation issues such as the usual issues of GST, payroll, CGT and the like. In his role as CFO, Mr Ingleby was also a director of seventy five AWB subsidiaries.
These extensive responsibilities indicate that the number of documents that it is said should have alerted Mr Ingleby to the misuse of the OFFP, was but a small proportion of the large volume of material that came across Mr Ingleby’s desk. His own department had some 100 employees at any one time.
The General Manger of Finance, the Head of Taxation, the Head of Trade Finance, the Treasurer and the Group Commercial Manager all reported to Mr Ingleby. Mr Ingleby was a member of the Executive Leadership Group, the Corporate Risk Review Committee and on occasion gave the CFO’s report to the Board of AWB.
As part of his duties, Mr Ingleby was required to travel overseas four times a year for about two or three weeks’ duration to meet bankers, investors, and government authorities dealing with trade that AWB was conducting with the forty nine countries throughout the world.
Many of the communications relied on in support of the contravention are in the form of emails where Mr Ingleby was only one of many recipients. On several occasions, he was overseas and would have received the relevant email on his Blackberry. Mr Ingleby makes the point that his failure to digest thoroughly the import of these emails must be judged in that context.
Mr Ingleby played an important part in some major initiatives undertaken by AWB, including the privitisation of AWB from a government agency to a non-listed public company from 1998 to 1 July 1999, the installation of a new IT system across the entire business, both domestically and internationally, and the issuing of an IPO in 2001 in which members of the public took up shares in AWB.
Mr Ingleby was one of the leaders of the due diligence teams which looked at strategies and possible acquisitions, particularly the acquisition of the Landmark business in 2003, that was acquired by AWB for $825 million.
Mr Ingleby says that it is a testament to his performance that when Mr Lindberg became the CEO in 2000, he retained Mr Ingleby but dismissed nine of the other ten serving general managers.
Mr Ingleby seeks to put his contravention into the context of the structure of AWB. Mr Ingleby did not have responsibilities outside his department, which was only one of six. The heads of departments other than Mr Ingleby’s, such as International Sales and Marketing (IS&M), were on the same level as Mr Ingleby. Mr Ingleby’s role was not to second guess or supervise their roles. He says that this is important in relation to his counter signing of authorisations, as these authorisations had already been signed by the head of one of the other departments as correct and appropriate.
Mr Ingleby expected that other executive officers would do their job in their department and that he could rely on them. For example, the wheat contracts were prepared by IS&M and the legal department. Mr Ingleby did not see any wheat contracts. They were not brought to him for consideration.
The admitted contravention identifies five payments between 28 March 2002 and 11 October 2002 that Mr Ingleby co-authorised. Mr Ingleby was presented with payment requests that included information as to whom the payment was made, and the vessel name. Mr Ingleby only executed authorisations after another signatory had already done so.
As mentioned above, Mr Ingleby’s contravention was not one of dishonesty or lack of integrity, nor was it one of some degree of wilful blindness. Mr Ingleby says that his contravention must be seen in the context of the many duties he was required to perform in the structure of AWB.
Mr Ingleby accepts that he failed to ‘join the dots’. It is not alleged, however, that he was actually told in a face-to-face meeting of the details of how inland transport fees were paid nor is it alleged that he had actual knowledge of what was going on or that he was directly advised by officers of AWB. The auditors did not raise these matters with Mr Ingleby.
Mr Ingleby accepts, however, that had he ‘joined the dots’ and with the benefit of hindsight, he would have appreciated that AWB was acting in breach of the OFFP and therefore in breach of UN resolutions.
The payment requests included a column headed, ‘Inland transport payment.’ Mr Ingleby had information available to him to raise questions as to the legitimacy of the inland transportation fees and to suggest that those fees were ultimately being paid to the Government of Iraq and being recovered by AWB from the UN Escrow Account
Mr Ingleby’s circumstances
As mentioned above, Mr Ingleby was CFO of AWB from July 1999 until 30 October 2006. Mr Ingleby had been the CFO of a predecessor organisation, the Australian Wheat Board. Mr Ingleby reported directly to the Managing Director.
Mr Ingleby was a member of important executive committees of AWB. He attended board meetings of AWB and AWB International (AWBI) and presented the CFO’s report. Mr Ingleby was not involved in the operational aspects of AWB's wheat trade or its contractual arrangements. The IS&M team were responsible for negotiating the terms of the contracts. Mr Ingleby and his department were copied into the correspondence dealing with financial aspects of those contracts.
Mr Ingleby is 60 years of age. He is married with three grown up children. He has been married for some 33 years. In 1975, he obtained a Bachelor of Arts degree from the South Australian Institute of Technology that is now Uni SA. He is an Associate of the Institute of Chartered Accountants in Australia.
Prior to joining the Wheat Board, Mr Ingleby had significant experience in senior financial positions. Between 1970 and 1985, Mr Ingleby held various positions with the Commonwealth Government and the South Australian State Government. Between 1985 and 1990, he was a chartered accountant with the firm of Touche Ross & Co that subsequently became part of KPMG. Between 1990 and September 1995 Mr Ingleby was employed by the State Bank of South Australia, holding a variety of positions and ultimately that of CFO.
From 1995 to 1998, Mr Ingleby was the CFO of Elders Australia Limited. He was ‘head hunted’ from Elders to join AWB as the CFO on 14 April 1998. He held that position until he became the CFO of AWB after the privatisation of the Australian Wheat Board on 1 July 1999. Mr Ingleby reported directly to the Managing Director of AWB. From April 2000, this was Mr Andrew Lindberg. He remained CFO until the termination of his employment in October 2006.
It is said on Mr Ingleby’s behalf that he has held a number of very senior positions in large and well respected corporations and that his whole work history is one of ability, honesty and integrity in his working and family life. The several fine references tendered on his behalf support that contention, which I accept.
As far as his work at AWB is concerned, Mr Abbott says that Mr Ingleby was a very hardworking and competent CFO who performed well in that position and who played a significant part in AWB’s successes and expansions during his time with the company.
Mr Ingleby through his counsel and through the agreed facts indicates his contrition for what is alleged and acknowledged in the contravention.
Personal consequences for Mr Ingleby
Mr Ingleby is one of the twelve persons against whom Commissioner Cole made findings of possible breaches of the Corporations Act 2001 and the Crimes Act 1958. Mr Ingleby was personally criticised by the Cole Commission and as a consequence his employment was terminated. Since 2006, Mr Ingleby has been employed from time to time in various consulting roles. Mr Ingleby has had to live with the threat of possible criminal proceedings. They ended in 2009, with the disbanding of the AWB task force.
Mr Ingleby has also had to live with the threat of civil sanctions for some five years since 2007 when the proceedings commenced. Mr Ingleby filed no defence in this proceeding and his counsel says that Mr Ingleby has been prepared to accept the proposed banning order from a very early stage of the proceedings. Mr Ingleby‘s counsel says that Mr Ingleby has co-operated with ASIC’s investigation, including a lengthy section 19 examination, without objection. Counsel contends that these civil proceedings should therefore be regarded as akin to a plea at the earliest opportunity for which he should be give full credit.
Mr Ingleby cooperated with the Cole Commission in giving a full statement. Mr Ingleby states that he has suffered damage to his reputation as a result of this matter, and it has caused distress to him and his family.
References
Several references are tendered on Mr Ingleby’s behalf. These all attest to his good character, honesty, diligence and long-standing public service. In particular, Mr Peter Poulos a partner of KPMG; Mr Robert Rorrison, an Executive Director of Macquarie Capital Australia Limited; Mr Stephen Laidlaw, Chief Financial Officer of Rural Bank Limited; and Mr Alan Schmerl, National Manager of Business Development for Australian Wool Handlers gave references.
Pecuniary Penalty
The parties have agreed that the contravention was serious.[4] A finding that the contravention was serious enlivens the Court’s power to impose a pecuniary penalty. As discussed in ASIC v Lindberg,[5] if this is a question of fact, then I am satisfied that the contravention was serious on the evidence of the agreement of ASIC and Mr Ingleby that it was.
[4]Section 1317G(1)(b).
[5][2012] VSC 332.
If the matter were left to me, but for the admission of Mr Ingleby that the contravention was serious I may have found that it was not serious.
Accordingly, I find that the statutory conditions for imposing a pecuniary penalty have been satisfied.
Conclusions
The agreed contravention by Mr Ingleby does not involve any deliberate wrongful act, dishonesty or moral turpitude. Mr Ingleby admits that as the CFO of AWB he was negligent in that he failed to observe the degree of care and skill a reasonable officer would in his situation.
The parties have proposed that Mr Ingleby be disqualified from managing corporations for fifteen months and a pecuniary penalty of $40,000 be imposed.
I have canvassed the matters that ought to be taken into account in determining a period of disqualification and in determining a pecuniary penalty in ASIC v Lindberg. I repeat those in these reasons. These principles include that in determining a penalty the factors taken into account in the criminal jurisdiction such as retribution, deterrence, reformation, contrition and protection of the public are central to determining a period of disqualification and pecuniary penalty.
I have regard to specific deterrence. I think there is little risk of Mr Ingleby contravening the Act again. General deterrence is also an important factor. In ASIC v Lindberg I referred to ASIC v Beekink[6] where the Full Court of the Federal Court emphasised the importance of general deterrence in cases of neglect and carelessness. I consider that general deterrence is important in Mr Ingleby’s case.
[6](2007) 238 ALR 595 [92] (Mansfield, Jacobson and Siopis JJ).
The evidence establishes that had Mr Ingleby acted with the degree of care and diligence consistent with his statutory obligations, AWB may have at an earlier stage ceased making payments of the purported inland transportation fees to Iraq, which payments ultimately ceased following the US incursion into Iraq in March 2003. The harm suffered by AWB through the abuse of the OFFP by persons other than Mr Ingleby has been enormous. There is no evidence that the harm AWB has suffered may have been less if AWB had ceased making the payments of the purported inland transportation fees to Iraq at an earlier stage. Nevertheless, the damage said to be caused by Mr Ingleby is an important factor that should be taken into account.
I have also taken into account Mr Abbott’s submissions that qualify and put into context Mr Ingleby’s contravention of the Act. Mr Ingleby was not involved in making the contracts that make provision for the payment of the purported inland transportation fees to Iraq. Mr Ingleby’s area of responsibilities were concerned with other areas of AWB’s operations as discussed above.
I have already dealt with the contrition exhibited by Mr Ingleby. It also relevant that although this proceeding was started in December 2007, the proceeding against Mr Ingleby has not been brought on for trial and nearly five years have elapsed. I also take into account Mr Ingleby’s co-operation with ASIC and the Cole inquiry.
I take into account that a Court may impose a penalty of up to $200,000 under s 1317G(1) of the Act. I also take into account that this power applies where a declaration of contravention has been made in relation to provisions that are more serious than a breach of s 180(1). I note that the penalty can be imposed where the contravention materially prejudices the interests of a corporation or its members or materially prejudices the corporation’s ability to pay its creditors. These factors were not present in this case. In other words, the maximum relates not only to contraventions of s 180(1) but also involves other contraventions and contraventions that materially prejudice the corporation as described above.
No two cases are alike, and all cases must be decided on their own peculiar facts. Nevertheless, in ASIC v Adler[7] the Court imposed on the finance director of HIH a pecuniary penalty of $5,000 with no disqualification for a contravention of s 180(1) of the Act. I mention this case merely to observe that although the contravention in the case was held to be serious and did materially prejudice the interests of HIH, the Court, in the circumstances, imposed a fine of $5000 which is in the lower range of penalties.[8]
[7]{2002} NSWSC 483 (Santow J).
[8]Ibid [187].
As discussed in ASIC v Lindberg, if the penalty proposed is, broadly speaking, within the permissible range (having regard to all the circumstances) the authorities establish that the Court should not depart from the agreed penalty.
After taking into account the relevant principles of sentencing that are applicable to a civil penalty proceeding, the periods of disqualification and pecuniary penalties imposed in other cases, Mr Ingleby’s conduct in relation to the management of AWB including the particular circumstances of the contravention in this case, and Mr Ingleby’s circumstances in general, I find that the agreed period of disqualification and pecuniary penalty broadly speaking are too severe and fall outside the permissible range that are appropriate in all the circumstances to Mr Ingleby’s contravention of the Act.
In those circumstances, I find that the period of disqualification and pecuniary penalty falls to be imposed by me, in my discretion, after having regard to all the matters I have referred to in considering whether the proposed penalty fell within the permissible range in all the circumstances.
I propose to impose a period of disqualification until the end of 2012. This period takes into account that this matter was heard in June, along with the other relevant factors referred to. I propose to impose a pecuniary penalty of $10,000.
Declaration:
1. Pursuant to s 1317E(1) of the Corporations Act 2001 (Cth) (the Act), the Court declares that the defendant PAUL JOHN INGLEBY (the defendant) contravened s 180(1) of the Act in that between December 2001 and September 2004, as Chief Financial Officer of AWB Ltd, he failed to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were an officer of a corporation in AWB Ltd’s circumstances and occupied the office held by, and had the same responsibilities within AWB Ltd as the defendant, in that he:
a. co-authorised payments to Alia in respect of inland transport fees payable under contracts for the sale of wheat to Iraq as set out in the Schedule;
b. had information available to him to raise questions as to the legitimacy of the inland transportation fees and to suggest that the fees
i. were ultimately being paid to the government of Iraq; and
ii. were recovered by AWB from the UN escrow account
c. took no steps to ascertain whether or not the inland transport fees were ultimately being paid to the government of Iraq; and
d. took no or no reasonable steps to inform the Board of AWB Limited of the information available to him which suggested that payments of inland transport fees were ultimately paid to the government of Iraq
in circumstances where he knew that:
i.AWB’s trade with Iraq was conducted under the UN Oil-for-Food Programme (‘OFFP’) which prohibited direct payments to the government of Iraq; and
ii.payments from the UN Escrow Account to AWB in respect of contracts for the supply of wheat could only be made for the purposes of the OFFP.
Schedule
Contracts Date Amount A0784, A0785 and A1112 28.03.2002 €7,700,743.08 A0785 and A1112 29.04.2002 €2,843,848.20 A1111 and A1112 14.05.2002 €3,202,529.09 A0784, A0785, A1111 and A1112 17.06.2002 €3,238,259.26 A1111 and A1112 11.10.2002 €5,352,979.38
And the Court orders that:
1.Pursuant to s 1316G(1) of the Act, that within 30 days hereof the defendant pay to the Commonwealth of Australia a pecuniary penalty in the amount of $10,000.
2.Pursuant to 206C, the defendant is disqualified from managing corporations until the end of 2012.
3.There be no order for costs.
4.The claims made against the defendant in this proceeding be otherwise dismissed.
Annexure
Statement of agreed facts and joint submissions as to penalty
General Background
A. AWB AND THE AWB GROUP
[1] The Australian Wheat Board (the Wheat Board) was established in 1939 as a government statutory authority to control the domestic and export marketing of Australian wheat. From 1939 to 1989 the Wheat Board was the sole marketer of Australian wheat both domestically and for export: it also had other functions under Commonwealth statutes that dealt with wheat marketing.
[2] The domestic wheat market was deregulated under the Wheat Marketing Act 1989; however, the Wheat Board retained the sole right to export wheat from Australia. In 1997 and 1998 significant changes were made to the Wheat Marketing Act 1989 so that most of the marketing and financial functions of the Wheat Board were transferred to a new grower owned company structure (the AWB Group). AWB was the head of that new structure.
[3] On 1 July 1999, AWB was an unlisted public company. From that time, it was the exclusive manager and marketer of all bulk wheat exports from Australia. This was done though a supply- pooling system known as the Single Desk which was also established by the amendments to the Wheat Marketing Act 1989. All Australian wheat exported in bulk was to be pooled, marketed, sold and exported by AWB International Ltd (AWBI), a subsidiary of AWB.
B. UN RESOLUTIONS ON TRADE WITH IRAQ
[4] In 1990, as a result of Iraq’s invasion of Kuwait, UN imposed sanctions on Iraq. By resolution 661 of the UN Security Council adopted on 6 August 1990 (Resolution 661), the Security Council, inter alia:
a. decided that member states should prevent the sale or supply by their nationals of any commodities or products to Iraq except supplies intended for strictly medical purposes and, in humanitarian circumstances, foodstuffs;
b. decided that all member states should not make available to Iraq any funds or any other financial or economic resources;
c. established a Committee of the Security Council that became known as the 661 Committee (the 661 Committee).
[5] By resolution 687 of the UN Security Council adopted on 3 April 1991, the Security Council determined that the prohibitions on the sale of commodities or products should not apply to foodstuffs notified to the 661 Committee.
[6] By resolution 986 of the UN Security Council adopted on 14 April 1995 (Resolution 986), the Security Council:
a. authorised member states to permit the importation of petroleum and petroleum products originating in Iraq of a value not exceeding one billion US dollars every 90 days;
b. required the funds paid for the purchase of Iraqi petroleum and petroleum products to be paid into an escrow account to be established for the purposes of Resolution 986 (the UN Escrow Account); and
c. decided that the funds in the UN Escrow Account should be used to meet the humanitarian needs of the Iraqi population.
[7] The initiative established by Resolution 986 became known as the OFFP.
[8] From 15 October 1997 to 21 November 2003 in order to obtain payment from the UN Escrow Account, exporters of foodstuffs to Iraq were required to submit to the UN Office of the Iraq Programme (the OIP) the concluded contract for each transaction in respect of which payment was sought. Each concluded contract was required to be submitted through the exporting country’s Mission to the UN. The contracts were examined by the OIP for a range of matters including price and value. If the OIP approved the relevant contract, the exporter became eligible for payment from the UN Escrow Account.
C. AWB WHEAT SALES TO IRAQ
[9] The Wheat Board and its successor, AWB, have sold wheat to Iraq since 1948. In the late 1990 and early 2000s, AWB’s wheat sales to Iraq constituted a substantial part of AWB’s overall annual wheat sales. From 1 October 1999 to 30 September 2005 Iraq was consistently one of the largest markets for wheat exported by AWB under the single desk, and AWB's wheat sales to Iraq were highly profitable. The Iraqi market was seen within AWB as a ‘high risk, high return’ market.
[10] In the period between December 1996 and December 2002, AWB entered into various contracts with the Grain Board of Iraq (IGB) for the sale of wheat in accordance with the procedures established by the OFFP.
D. THE INLAND TRANSPORTATION FEE
[11] From June 1999 all wheat tenders issued by the IGB included a requirement that purported to be on account of “cost of discharge at Umm Qasr and land transport”. The fee paid pursuant to this requirement was described as an inland transportation or trucking fee in relation to the supply of wheat within Iraq (the inland transportation fee). AWB paid this fee to Alia for Transportation (Alia), a company based in Jordan. Alia did not in fact transport the wheat; rather it remitted the fee (minus a small commission) to the Government of Iraq allowing it to obtain internationally traded currency contrary to the UN sanctions.
[12] Between November 1999 and July 2000, payments made by AWB to Alia were made through intermediaries either:
a. via shipowners —AWB would pay shipowners the freight plus the inland transportation fee and the shipowner would pay the inland transportation fee to Alia. AWB paid inland transportation fees in respect of three shipments in November and December 1999 through Atlantic and Orient Shipping Company (Atlantic and Orient);
b. via Ronly Holdings Limited (Ronly) or its nominee (Tse Yu Hong Metal Limited).
[13] In July 2000 AWB ceased making payments of inland transportation fees through Ronly, and commenced paying the fees directly to Alia.
[14] From November 2000 the IGB also imposed an additional payment of 10 per cent of the total price per tonne (inclusive of the inland transportation fee) of all wheat shipped to Iraq. This 10 per cent component was included as part of the inland transportation fee which AWB continued to pay to Alia. It ultimately became known as the after sales service fee. It did not relate to any service; its purpose was to allow the Government of Iraq to obtain further amounts of internationally traded currency (the “after sales service fee”).
[15] From its introduction in 1999 and March 2003 the inland transportation fee (which from November 2000 included the after sales service fee) was paid by AWB to Alia in amounts ranging from US$12 to €55.40 per metric tonne of wheat.
[16] Between 1999 and the end of the OFFP in 2003, AWB received in excess of $2 billion for the sale of wheat to Iraq under the OFFP. AWB made payments of purported inland transportation fees and purported after sales service fees totalling more than US$220 million over the life of the OFFP. Each of those payments was subsequently recovered by AWB from the UN Escrow Account. A part of these payments was allocated by the Government of Iraq to agencies responsible for the discharge and distribution of wheat with Iraq in accordance with the Distribution Plan, but the remainder (approximately two thirds of each payment) went to the Iraqi Ministry of Finance.
Summary of Facts
E. MR INGLEBY's ROLE AND RESPONSIBILITIES AT AWB
[17]Mr Ingleby was the Chief Financial Officer (CFO) of AWB from 1 July 1999 to 30 October 2006. He had been CFO of its predecessor organisation the Australian Wheat Board (Wheat Board) from 14 April 1998 until the Wheat Board was privatised on 1 July 1999.
[18] Prior to joining the Wheat Board, Mr Ingleby had significant experience in senior financial positions, including as CFO of the State Bank of South Australia and, from 1995 – 1998, as CFO of Elders Australia Limited.
[19] Mr Ingleby reported directly to the Managing Director of AWB. From April 2000 this was Andrew Lindberg (Lindberg).
[20] AWB was the holding company of the AWB Group and directly or indirectly owned all the shares in all subsidiary companies, including AWBI. AWBI was responsible for, and managed, the AWB National Pool. Between 1999 and early 2003 all staff directly responsible for the wheat pool were employees of AWB Limited including Mr Ingleby. There was no separate position of CFO for the Pool. From 2003 AWB Services Limited provided management services and business infrastructure to the AWB Group, and from this time Mr Ingleby was an employee of AWB Services Pty. Ltd.
[21] As CFO of AWB Mr Ingleby was responsible for:
a. the financial reporting of AWB, including preparation of statutory accounts and management accounts. Part of the preparation of the accounts involved ensuring that costs were properly allocated between AWB (and its subsidiaries) and the AWB National Pool;
b. Treasury, which included funding strategies, capital raising, interest rate management, foreign exchange management and credit ratings;
c. Trade Finance, which included trade credit, credit reviews, credit arrangements and reviews, credit insurance, debtor and performance reviews;
d. taxation for the AWB group;
e. between 2000 and 2003, risk management and compliance; and
f. between 2000 and 2002, Legal.
[22] Mr Ingleby's direct reports included:
a. the General Manager, Finance;
b. the Head of Taxation;
c. the Head of Trade Finance, Mr Terry Aucher;
d. the Treasurer;
e. Group Commercial Managers on financial reporting lines; and
f. Risk, Compliance and Legal Managers, when Mr Ingleby had responsibility for those areas.
[23] Mr Ingleby was a member of the executive committee of AWB[9] (ELG), which comprised the Managing Director and senior executives who reported directly to the Managing Director, and regularly attended ELG meetings. He also received the minutes of all ELG meetings.
[9]Known variously from time to time as the Executive Group, the Small Executive Group, the Small Executive Management Group and Executive Leadership Group.
[24] Mr Ingleby was a voting member of an executive committee of AWB known as the Corporate Risk Review Committee (CRRC) and regularly attended meetings of that committee. He also received the minutes of the meetings whether he attended or not.
[25] Mr Ingleby attended Board meetings of AWB and AWBI at which he presented the CFO’s report. He also attended various Board committee meetings including audit, risk and investment.
[26] From his role as CFO, attendance at executive meetings and AWB's own publications such as the annual report, Mr Ingleby understood the importance of the Iraq market to AWB.
[27] Mr Ingleby was not involved in the operational aspects of AWB’s wheat trade or contractual arrangements. The International Sales and Marketing team were responsible for negotiating the terms of international wheat contracts, including the contracts with the IGB. Mr Ingleby and his department would be copied into correspondence dealing with financial aspects of those contracts after they were struck.
F. CHRONOLOGY OF RELEVANT EVENTS
[28] In or around August 1999 when Mr Ingleby was Chief Financial Officer of AWB, he submitted a report to the AWB Board entitled “Chief Financial Officer’s Report” for the period ending 31 July 1999. The report referred to a marketing delegation to Iraq “to discuss in detail the changed terms and conditions being sought by Iraq for the distribution of food under the United Nations food for oil scheme”. The CFO report is a high level report of the financial position of AWB including performance indicators and issues that may affect financial performance, both directly and indirectly. The document is prepared by a variety of people, but the CFO report is the vehicle by which those reports are presented to the board of AWB.
[29] At some time in 1999, David Cowan, a project accountant allocated mainly to the Chartering division, attended a meeting in Nigel Officer’s room with Officer, Emons, Watson and Mr Ingleby at which the inland transportation fees were discussed. Cowan states that:
“At that meeting Nigel Officer stated that AWB wanted to distance itself from the transaction .”
Cowan also noted that:
“It was common in AWB’s business to talk about costs being disguised, this being the practice of not disclosing the component parts of the final price per tonne.”
[30] In March 2000, Mr Ingleby exchanged correspondence with Pacific Rim Shipping Pty Ltd (PacRim), concerning the payment of the inland transportation fees.
a. On 15 March 2000, Mr Ingleby received a letter from PacRim advising that their principals (Atlantic and Orient Shipping Co) had received an audit enquiry regarding the payment of ‘trucking fees’ and the amount of trucking fees paid. The letter requested confirmation that all wheat contracts and trucking fees were “sanctioned by the United Nations and approved by the Australian Government.”
b. On 16 March 2000, Mr Ingleby signed a response to Michael Kudelka of PacRim that advised that:
“1) All wheat contracts between Australia and Iraq are approved by the United Nations and the Australian Government.
2) The payment of trucking fees as remitted via your principals was in accordance with AWB Limited instructions and form part of the contractual obligations of AWB Limited.”.
[31] The letter from Pacific Rim, was to Mr Ingleby, a standard audit request. He assigned the task of preparing the response to the relevant officer in AWB to prepare. Mr Ingleby then signed the letter.
[32] On 25, 26 and 27 July 2000, Mr Ingleby was one of a number of recipients of a series of emails concerning a change to the manner of payment of the inland transportation fee. The emails noted that AWB had been paying the inland transportation fee via Ronly, and would now be paying the same fee directly to a nominated account in Jordan. These emails included the following:
a. an email on 25 July 2000 from Charles Stott (Stott) to Kathleen Gibson and copied to 10 others including Mr Ingleby, which stated as follows:
"Please amend the Iraq freight payment arrangements as follows:
For all future payments, instead of paying ocean and Iraq road transport costs to Ronly, who then pay owners and the land transport company. Please pay owners direct for the ocean freight and the land transport costs direct to the nominated account in Jordan. Under this arrangement we will continue to pay Ronly the USD0.20 cents per tonne for performing the payment although they are no longer involved. The 0.20 cents to continue until the COA with Ronly is fulfilled.
The new arrangement has been discussed and agreed with Nori during his visit to Australia".
b. an email on 26 July 2000 from Watson to Mr Stott and copied to 11 others including Mr Ingleby which stated:
“With immediate effect, Trucking fee of USD 15 p/mt now to be made directly by AWB to the trucking company”
by payment into an account in the name of “Alia for Transportation and General Trade” held with the Jordan National Bank. The account details were included in the email.
c. an email on 27 July 2000 from Watson to Mr Stott and copied to 12 others including Mr Ingleby headed Re: Payments for Freight Iraq which stated :
“Inland Transportation: USD 15 p/mt under phase 7
New contract – Phase 8 – 1 million
15 Sept-28 Jan
Chartering will pay ocean freight direct to Owners and trucking direct to nominated trucking company until otherwise advised.”
[33] Around the time that the emails in the preceding paragraph were sent, there had been a reorganisation of the International Sales and Marketing Area. Mr Goodacre had been appointed general manager and was responsible for the International Sales and Marketing area. Mr Stott reported to Mr Goodacre. The new structure was put in place by Mr Goodacre and Mr Stott because of their concerns with the international sales and marketing team.
[34] On 21 September 2000, Mr Ingleby sent an email to a number of AWB employees headed "Chartering", which stated:
“just confirming that tomorrow the go fwd charteting [sic ] plan will be agreed and confirmed as previously promised.
this is urgent as we seem to find new ways for chartering to lose money each month – this month Yemen demurrage (0.5m) and Iraq trucking (0.5m) – are we sure these are to charterings account??
regards PJI”
[35] Mr Ingleby received a reply to his email of 21 September 2000 from David Cowan of AWB Chartering, which stated:
Michael Watson has argued, at length, that the trucking fee was not for our [AWB Chartering's] account.
Mark Emons & Nigel O. wanted to disguise AWB payments into Iraq for trucking fees
This was achieved by chartering taking a forward contract with Ronly to combine the freight and the trucking payments.
The new regime [at AWB] has not supported this agreement and Chartering have incurred the cost to buy out of the deal.
[36] Mr Ingleby also received a reply to his email of 21 September from Stott which stated:
In response to your queries:
I am advised by David [Cowan—AWB Chartering] that the USD 300,000 (AUD500k) payment to Ronly relates to the US 0.20cents per tonne fee that we agreed to pay for Ronly making Iraq freight and land transport payments on behalf of AWB.
[37] On 12 June 2001, Hogan sent an email addressed to Mr Alvares and Mr Morriss, and copied to Mr Ingleby and four others that set out details of Contracts A0784 and A0785, which included amounts for the inland transportation fees of USD$46.70 and USD$46.90 respectively. The email also stipulated that payments of the inland transportation fees would be made in Euros around 50 days prior to receiving repayment for those inland transportation fees from the UN escrow account.
[38] On 10 and 13 September 2001, Hogan sent emails to Mr Ingleby and Mr Goodacre (copied to others) advising that payments for inland transportation could be withheld in the event that AWB did not receive a letter of credit in respect of a shipment of wheat to be delivered to the IGB.
a. The email of 10 September 2001 stated as follows:
“AWB can hold back 2nd payment Inland Transport Payments (USD$16 million at Sept 30) – hence if by this date L/C is not on our counter, we withhold these second payments from IGB”.
b. The email of 13 September 2001 provided a further update on the wheat shipment and stated:
“AWB holding 2nd payments due to Iraq for Inland Transport equals USD$4.5 million. By 22nd September, this amount will be USD$8.864 million (which almost covers Anassa[10]). Inland Transport Payments will be held until L/C is on our counters.”
[10]“Anassa” refers to a shipment of wheat on a vessel named “Anassa”.
[39] On 21 December 2001, Mr Ingleby was one of a number of recipients of an email from Hogan that stated that, on 20 December 2001, AWB had sold one million tonnes of Australian hard wheat to Iraq. The email set out the details of Contracts A1111 and A1112, which included amounts for “Inland Transport” of EU55.17 for Contract A1111 and EU55.40 for Contract A1112.
[40] On or about 26 July 2002, Mr Ingleby attended a meeting of the ELG in which a briefing note on Iraq was discussed. The briefing note referred to necessary actions in dealing with the Iraq market, including finalisation of a comprehensive crisis management plan to ensure AWB was best positioned in the event of any outbreak of hostilities and the development of a broad strategic approach towards Iraq, including trade and marketing, international governmental relations, Federal government relations, investment, risk management, grower and public relations.
[41] On 16 September 2002, Geary sent Mr Ingleby an email which forwarded an email from Long headed “Letter to Ronly” that stated:
Background is that this vessel hit the berth at Wallaroo, 10/4/00 and there is currently an arbitration in London going on between Amarantos Shipping Co (owner) and Atlantic and Orient Shipping (A and O), operator/time charterer. Legal advice is that owners claim is unlikely to be upheld as it revolves around the issue of charters providing a safe port. If owners win, they will pursue Ronly. Nori has been working with us for several weeks. He wants indemnity from AWB for the AUD4m in case the arbitration rules in favour of the owner.
Ronly were involved in paying inland trucking charges and chartering vessels for us because of alleged problems with the UN/IGB. AWB paid Ronly in advance ($12 per tonne) and Ronly paid (via some shelf company) the Jordanian trucking company.
Mark Emons and Mike Watson set the deal up.
... AWB paid Ronly USD20 cents per tonne facilitation fee. ...
Nori has mentioned that Paul and Trevor are aware of the deal and sanctioned it.
Nori called T Flugge Fri night complaining about our position. TF called me and wants to distance himself.
[42] Mr Ingleby replied to Geary’s email of 16 September 2002 on the same day, stating “I didn’t know about these deals until the parties left AWB. (usually done by IS&M and nigel) It could get messy but we have no choice than to pursue correct and ethical path.”
[43] Mr Ingleby was of the view that the claim by the owners should be defended and he was conveying that view to Mr Geary.
[44] On 5 December 2002, Mr Ingleby was one of 19 recipients of an email from Whitwell entitled “SALE 1 MILLION TONNES TO IRAQ” advising that on 4 December 2002 AWB had concluded a sale for 1 million tonnes of Australian Hard wheat to Iraq (Contracts A1670 and A 1680). The email also provided details of price components of the contract and stated “Inland transport not included in price and to be mutually agreed.”
[45] In March 2003, an issue arose concerning the pre-payment of the inland transportation fees in respect of a shipment of wheat on a vessel named the Pearl of Fujairah. This vessel had been directed away from Iraq as a result of the US-led invasion. This issue was the subject of email correspondence and was a topic of discussion in meetings of the Iraq Emergency Response Team (IERT).[11]
[11]And see email and attachments from Kate Robertson in paragraph 49 below.
a. On 20 March 2003 Mr Ingleby was one of 12 recipients of an email from Long which stated that AWB had pre-paid the inland transportation fees in the sum of EURO 2.468 million in respect the Pearl of Fujairah shipment. Long advised "We are requesting these monies be returned and will include Alia's response in next update." The email proposed that the inland transportation fees paid to Alia could be off-set against rebates in relation to quality claims that AWB owed to the IGB.
b. In the period between around 20 March 2003 and 16 April 2003, Mr Ingleby attended a number of meetings of the IERT where the Pearl of Fujairah issue was discussed. He also received ‘Iraq Situation Reports’ dated 20 March 2003, 21 March 2003, 22 March 2003, 25 March 2003, 31 March 2003, 1 April 2003, 2 April 2003, 3 April 2003, 7 April 2003 and 11 April 2003. The Pearl of Fujairah issue is referred to in a number of the situation reports. The reports detail attempts by Alia to assist AWB obtain the return of monies paid to Alia for inland transport fees in respect of the Pearl of Fujairah, Alia having advised that
“they no longer hold inland transport payment on the Pearl of Fujairah (2.468 million Euros) in their account. Transferred on 17th March to another Account in Amman. Alia have requested we send a letter reserving our rights and asking for its return in order to progress matter – to be kept confidential.”
c. The minutes of the IERT list the actions to be taken as a result of the meeting and who had responsibility for each action. The IERT minutes from at least 24 March 2003 to 11 April 2003 record Mr Ingleby and Sarah Scales as having joint responsibility for preparing a financial analysis for the National Pool and AWB Ltd. Up until 7 April 2003 this task was recorded as having a high priority and from 8 - 11 April a medium priority.
d. On 23 March 2003 Mr Ingleby received an email from Whitwell, which was also sent to Lindberg headed “gov figures” in which Whitwell referred to a discussion with Lindberg and Mr Ingleby earlier that day and attached a document titled “Estimated ‘grower’ (Pool) costs if the Iraq contracts A 1441, A1670 and A1680 are not executed”. Under the subheading “Executed Costs Incurred to Date” Jordanian Inland Transport costs relating to the Pearl of Fujairah are listed as USD 2,622,254.
e. On 25 March 2003 an Iraq Situation Report was prepared for IERT which stated “[Alia] have sent a letter to concerned parties re inland transport payment and are awaiting response.”
f. On 28 May 2003, Mr Ingleby and others received an email from Whitwell that referred to Alia’s efforts to recover the purported fees pre-paid in relation to the Pearl of Fujairah. The email included the following statements:
FYG Alia have advised us that the DG has lodged the debt incurred of our POFuj payment in March.[12]
[12]The “DG” refers to the Director General of the IGB.
...
Alia were very pleased to see us and have assured us they will do everything in their power to get back the money deposited with them.
[46] In June 2003, Mr Ingleby was informed of allegations by the US Wheat Associates that AWB had inflated wheat prices under the OFFP and paid kickbacks to the Hussein Regime in Iraq (the US Wheat Associates complaint).
[47] On 12 June 2003, a meeting of the ELG was held where a presentation was given by Chris Quennell of Blake Dawson Waldron. The presentation dealt with the following issues:
a. allegations that
iAWB OFF contract prices were "inflated by millions of dollars";
iisome of the excess funds from these contracts may have gone to Saddam Hussein’s family;
b. the process by which AWB contracts with the IGB were dealt with under the UN Oil-for-Food Programme;
c. an analysis of the inland transportation fee and how it changed over time.
[48] Also on 12 June 2003, Mr Ingleby was one of 11 people copied in to an email from Long, which attached a "memorandum of instruction" from Captain Blake Puckett of the Coalition Provisional Authority (CPA) dated 10 June 2003 to "Ministry Advisors". In this memorandum Captain Puckett gave instructions to ministry advisors on the process for reviewing contracts under the OFFP and stated:
II. Identify which contracts have a kickback or surcharge (often 10%).
[49] On 17 June 2003, Mr Ingleby was one of 8 people who received an email from Kate Robertson which attached two documents one of which was a document entitled "Jordan/Iran Trip Report" which stated:
Importantly, the matter of the EUR2.5m inland transport paid for the MV Pearl of Fujairah was brought up … as soon as someone with authority to sign the appropriate documentation from the Iraqi side, the money would be returned to Alia and then to the company in question (this affected about 10 companies other than AWB).
The report was a 10 page document and the passage referred to appears at the bottom of page 4.
[50] Between June and October 2003, Mr Ingleby received further enquiries from Atlantic & Orient[13] regarding the lawfulness of payments made by Atlantic & Orient to Alia on AWB's behalf in 2000.
[13]The first enquiry is described in paragraph 30 above. The October correspondence is referred to in paragraph 53 below.
a.On 20 June 2003, while in the United States, Mr Ingleby received an email from Murray Wilgus of Atlantic & Orient in which Wilgus advised that due to changes to banking laws in Singapore and Hong Kong, he was seeking clarification of Mr Ingleby’s letter to PacRim dated 16 March 2000[14]. Wilgus asked that Mr Ingleby supplement his 16 March letter to “…include specific information and references in order to avoid further auditing for the purpose of determining illegal banking activity.” and in particular confirmation that “funds transferred via Atlantic and Orient Shipping were for lawful purposes”.
[14]Referred to in paragraph 30 above.
b.Two days later, Mr Ingleby forwarded this email to Peter Jones (Jones), General Manager—Chartering, and asked “Can u fix this or refer to Gordon [Morris] to sign if something needs signing?”
[51] On 24 July 2003, Mr Ingleby was one of 11 recipients of an email from Long concerning the delivery of outstanding AWB wheat shipments. Mr Ingleby was overseas at the time that he received this email (he was overseas from about the end of June 2003 to August 2003). Long wrote:
Would appreciate some help in thinking through an appropriate authentication/delivery procedure for wheat…umm qasr is fine but if we allow say aqaba and tartous for bulk cargo…, would we be in a position to arrange trucking to silo within 2 hours each of basrah, kirhuk, baghdad and zakho? What would the inland transport be and would we be willing to do it? What does Alia say and can they deliver? … can we arrange inland transport to all governorates if it goes to umm qasr, ie really deliver on the cnf all governorates ... I think you can see the dilemma.
[52] On 24 July 2003, Mr Ingleby (while overseas) received a copy of Whitwell’s email in reply to Long’s email dated 24 July 2003 referred to in the preceding paragraph. In his response to Long’s questions, Whitwell indicated that he would need to make further enquiries to ascertain whether it would be possible for AWB to organise inland transport through Alia.
[53]On 28 October 2003 Mr Ingleby was copied into an email from Jones to Rosemary Peavey, Jim Cooper of AWB and Chris Quennell of Blake Dawson Waldron, forwarding emails passing between Jones and Atlantic and Orient. Those forwarded emails included:
iEmail dated 16 October 2003 from Atlantic & Orient to Jones, stating:
after numerous chances to response [sic]to our expressed concerns on the matter of ‘cornflower’ AWB has still not replied. Owners have no choice but to turn to alternative channels to seek information and protect their interests.
iiEmail dated 23 October 2003 from Jones to Atlantic & Orient, in which Jones does not provide the confirmation sought by the 20 June 2003 email, and merely states:
I can also confirm that each sale contract in respect of which wheat was shipped under that COA received prior UN approval.
As you will appreciate, AWB is not in a position to provide advice as to whether any payments made as between AWB and A&O would cause extraordinary legal liability to Atlantic & Orient Shipping.AWB is not in the business of providing advice on legal issues, particularly in the context of the “recent banking laws” which you advise have been adopted in Singapore and Hong Kong.
iiiEmail dated 28 October 2003 from Atlantic & Orient to Jones stating:
…Owners have tried their best to avoid any appearance of confrontation however the reply to our enquiry leaves us no choice but to ask AWB for an explanation as to why a vendor for a grain contract between AWB and a U.N. agency required ’trucking fees’ to be paid via the shipping company carrying the freight.
Why this requirement was only necessary for four shipments and why the shipping company cannot be afforded some written documentation specifically explaining these otherwise strange banking transactions. The shipping company now stands unprotected from possible accusations in the face of an audit of grain shipments into Iraq.
The shipping company was asked to receive and pay out substantial sums in the name of 'trucking fees’ without any supporting documentation. In retrospect these payments look questionable to an outside enquirer and we would like to receive solid supporting documents. Your reply hardly fits that need.
G. AUTHORISATION OF PAYMENTS TO ALIA
[54] Between December 2001 and 11 October 2002 Mr Ingleby co- authorised in payment of the following amounts to Alia in respect of “Inland Transport” for the following contracts:
Contracts
Payment date
Amount
A0784, A0785 and A1112
28.03.02
€7,700,743.08
A0785 and A1112
29.04.02
€2,843,848.20
A1111 and A1112
14.05.02
€3,202,529.09
A0784, A0785, A1111 and A1112
17.06.02
€3,238,259.26
A1111 and A1112
11.10.02
€5,352,979.38
These payments amounted to approximately AUD$37.7 million in aggregate. Mr Ingleby counter-signed payment requests between May and December 2001.
The payment requests signed by Mr Ingleby included the following information:
· The payment was to be made to "Alia for Transportation and General Trade";
· A payment details column which referred to "inland transport" and, for instance, whether it was 100% of the fee or a payment adjustment;
· The vessel name, tonnage, contract number, date of bill of lading, and payment amount;
· A column headed "inland transport pmt" which gave the amount per metric tonne of the inland transportation fee for that contract; and
· The payee's (Alia) account details in Jordan.
[55] The system within AWB was that the appropriate manager within AWB for the team that was responsible for incurring an expense would first sign the payment authorisation and then if the expense was above a certain amount, a co-signatory from another general manger would be required. Mr Ingleby was such a co- signatory.
[56] Mr Ingleby only executed authorisations after another signatory had already executed the relevant authorisation.
Consequences and agreed penalty
H. HARM AS A RESULT OF AWB’S INVOLVEMENT IN THE OFFP
[57] The revelation of AWB’s involvement in facilitating payments of hard currency to the Government of Iraq between mid 1999 and March 2003 in breach of the UN resolutions caused significant harm to AWB and to its members.
[58] Among other harm suffered, including reputational damage and loss of staff morale, there was a significant reduction in the share price between January 2006 and 30 October 2006, shortly before the Cole Report was published. In that period, AWB's share price ranged from $6.26 at the commencement of the Cole Inquiry on 16 January 2006 to a closing price of $2.52 on 31 October 2006. AWB's share price did not subsequently recover. The company was ultimately taken over at a price of $1.50 per share by a Canadian company, Agrium Pty Ltd, and was delisted on 10 December 2010. However, it is difficult to establish the extent of the link between the AWB share price and the revelation of its involvement in the OFFP, particularly after early 2006, as it was a complex situation and other adverse factors emerged after that time which also impacted upon AWB's share price, in particular ongoing drought conditions in growing areas which resulted in reduced wheat production.
[59] Further, on 30 June 2008 the Wheat Export Marketing Act 2008 came into effect, which repealed the Wheat Marketing Act 1989, abolishing AWB’s statutory monopoly over bulk wheat exports (the Single Desk), and introducing a new accreditation scheme for all Australian wheat exporters. As at 24 March 2009 there were 28 accredited wheat exporters, including three subsidiaries of AWB. In his second reading speech the Minister for Agriculture, Fisheries and Forestry cited the Cole Inquiry as one of the factors providing the impetus for abolishing the single desk. The revelation of AWB’s involvement in the OFFP after 2006 may have hastened the abolition of the Single Desk, but it is not possible to say it otherwise would not have been abolished.
[60] AWB has been sued in Australia and in the United State
sfor its role in facilitating payments to the Hussein regime. AWB settled a class action in Australia in about March 2010 on terms including that AWB paid the applicant and group members the sum of $39.5 million in damages, interest and costs. Proceedings in the United States are continuing.[61] AWB has incurred significant legal costs in responding to the Cole Inquiry, subsequent investigations and legal proceedings (including ASIC’s Supreme Court of Victoria proceedings and related proceedings in the Federal Court of Australia). In the period from 1 July 2008 to 30 June 2010 alone, those costs amounted to $38.525 million.
I. HARM TO AWB AS A RESULT OF CONTRAVENTION
[62] The contravention admitted by Mr Ingleby is serious. Had Mr Ingleby acted with the degree of care and diligence consistent with his statutory obligations, AWB may have at an earlier stage ceased making payments of the purported inland transportation fees to Iraq, which payments ultimately ceased following the US incursion into Iraq in March 2003.
J. APPROPRIATE PENALTY
[63] ASIC and Mr Ingleby agree that the appropriate penalty in this matter is a pecuniary penalty of $40,000 and a period of disqualification as a director for fifteen months.
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