Kelvin Thomson (Wills, Australian Labor Party, Shadow Minister for Public Accountability and Human Services) Share this | Hansard source

I rise in support of the Tax Laws Amendment (2005 Measures No. 6) Bill 2005 and, in particular, in support of the amendment put forward by the member for Hunter to deny tax deductibility for facilitation payments. The amendment of the member for Hunter calls on the government to align the definitions of facilitation payments under the Criminal Code and the Income Tax Act 1997 and to refer this matter to the Standing Committee on Economics, Finance and Public Administration for urgent inquiry.

The reason we are moving this way is in order to close the loophole that currently allows deductions for fuzzy payments used to facilitate deals. Currently, facilitation payments are loosely defined and exempt from the normal bribery provisions of the Income Tax Assessment Act. In the light of the burden currently being shouldered by Australian wheat farmers due to the many payments made by AWB to Saddam Hussein to facilitate trade, it is a pity this loophole was not closed some years ago. Had it been closed, the AWB would not have been able to describe up to $300 million as ‘facilitation payments’ and thus be entitled to multimillion dollar rebates courtesy of the Australian taxpayer.

Just as the government has received many international warnings about kickbacks made to Saddam Hussein, so has the government received international warnings about this particular loophole in our tax law. As recently as January 2006, the OECD Report on the application of the convention on combating bribery of foreign public officials in international business transactions found that Australia’s defence of facilitation payments was also identified for further monitoring because of concerns such as the practical effectiveness of the record-keeping requirement. Indeed, I feel it is likely that Commissioner Cole would agree that the practical effectiveness of AWB’s record keeping in relation to their facilitation payments leaves much to be desired. It seems to me that Commissioner Cole may well not have had a job if this proposed amendment had been in place several years ago.

Labor’s proposed amendment would prohibit AWB style deductions. I think that many Australians were astonished to learn a week and a half ago, back on February 16, just as this parliament was rising, of evidence before the Cole inquiry into $300 million in illicit payments to Saddam Hussein’s government by AWB revealing that AWB had claimed these kickbacks as a tax deduction. We learned a week and a half ago that the Australian Taxation Office is now investigating that revelation, but this was after AWB’s chief financial officer, Paul Ingleby, revealed to the commission that the company had claimed the Iraq kickbacks as a tax write-off. Under questioning by the Cole commission’s senior counsel, John Agius, he agreed that the payment of trucking fees, the kickbacks demanded by Saddam’s regime, was treated by AWB as an expense and therefore as a tax deduction. I think Commissioner Cole certainly needs to force AWB to throw open their books so that we can understand exactly what has gone on here, but ordinary Australians who pay their taxes and do not seek tax deductions for anything of this character would be astonished and appalled to discover what has gone on.

As recently as today, a senior AWB manager has admitted to having organised a string of illicit payments from the wheat exporter to Saddam Hussein’s government up to seven years ago. The former chartering manager, Michael Watson, became the fourth whistleblower at the Cole inquiry. His lawyers submitted a last-minute statement about his involvement in the $300 million kickbacks which AWB had paid to Iraq. Mr Watson said he had organised money to be paid to the Iraqi dictator’s regime between June 1999 and December 2000 despite knowing such payments breached United Nations sanctions which were in place against Iraq at the time. He also said his immediate bosses at AWB knew about and ordered the payments being made. Mr Watson told the commission today that he was in charge of paying the trucking fees to Alia. He said:

Once I was advised of the amount of the ‘trucking fee’, as chartering manager, I organised for the payment of the trucking fee to be made through third parties such as shipowners or Ronly to the nominee of the Iraq Grain Board.

I understood that by the payment of ‘trucking fees’ to Alia that the AWB was making a payment to the IGB or to the Iraqi government. Alia did provide a protective agency service at Uum Qasr port, but AWB was invoiced separately for that.

Mr Watson also said:

I also understood that the payment of the trucking fee could not be made directly or openly to Iraq because of the UN sanctions.

At all times I believed that the payment of trucking fees was made with the knowledge and consent of AWB senior management.

Here we have the outrageous situation that Mr Watson knew that these things were in breach of the UN sanctions, he knew that AWB senior management knew about and consented to these arrangements; yet AWB has apparently claimed these payments as tax deductions.

Today the Cole commission also heard from Mr Trevor Flugge, the former National Party candidate who chaired the AWB from 1999 and 2002. After the fall of Saddam Hussein’s government, the Howard government sent Mr Flugge to Baghdad and paid him, we heard today, $978,000 from our aid budget for eight months work because he was such a great communicator. Now he tells the Cole commission he is pretty much deaf—a virtually ineffective left ear and a right ear which was somewhat impaired. We sent this deaf, gun-toting cowboy to clean up Iraq. Good grief! Of course, Mr Flugge’s hardness of hearing came in relation to the subject of Iraq or trucking fees being raised at a 1999 dinner where AWB executives were present and Mr Flugge’s endeavours to take issue with AWB whistleblowers who claimed the fees paid to the Jordanian trucking company, Alia, were a means of paying kickbacks. The whistleblowers have said that Mr Flugge had approved the use of the London based trader Ronly Holdings, where his daughter worked as a junior administrator, as a middleman to pay the bribes. Given this, I find it absolutely unbelievable that the government should have paid Mr Flugge $978,000 from our aid budget for an eight-month consultancy job in Iraq.

Another example came earlier with the General Manager for International Sales and Marketing of AWB, Michael Long, telling the Cole commission he was happy to use sham wheat sales contracts to circumvent United Nations sanctions because it was the wish of Saddam’s government. This is outrageous behaviour, yet there are people around who are prepared to defend it. For example, last Tuesday, 21 February, the Herald Sun published a letter from former Victorian Liberal MP Richard de Fegely about the Wheat Board scandal which made a claim that was absolutely about the issue of facilitation payments. It said:

… it is well nigh impossible to do business—

throughout Asia and the Middle East—

without some greasing of palms and it is very clear that the AWB would not have won its very significant contracts had some compromise not been made in that extremely competitive environment.

This sleazy defence that corruption is simply a way of life in the Middle East and this talk of compromise cannot be allowed to pass unchallenged. Firstly, it is illegal to bribe foreign officials; it is an express breach of Australian law. Secondly, the AWB kickbacks were an express breach of UN sanctions. The whole idea of the oil for food program was to stop money going into Saddam’s pocket. AWB did more than any other company in the world to circumvent the UN sanctions. Thirdly, we expressly denied we were doing it. We lied to anyone who asked. We lied to the Canadians, to the UN and to the US senators. We looked them in the eye and said, ‘We are not paying any kickbacks to Iraq.’ The Canadians had asked whether we were paying kickbacks, because their government refused to let their wheat board pay any. So much for the idea that everybody was doing it. Mr de Fegely also made a disgraceful attempt at shooting the messenger when he blamed the Iraqi decision to stop buying our wheat on ‘strident attacks on the Howard government’. He could do much worse than listen to his Liberal colleague in this place the member for O’Connor, who said:

And who can blame the Iraqis, given AWB money was flowing into Hussein’s coffers while he was putting down the Shiites, who are the ones in power now.

You’d think they might just bear a grudge.

Indeed! If they are not bribes, they can stand the light of day, they can withstand public disclosure and public discussion; yet all along we have come across this culture of cover-up and denial. Mr Watson, whom I referred to earlier, was not the only one engaged in cover-up. The Cole commission has heard evidence from Mr Tim Snowball—perhaps aptly named in view of the way this scandal is going—that, before a meeting he attended with Mr McConville and Mr Trevor Flugge, AWB’s former head of the Middle East desk, Mark Emons, sent a fax to Yousif Abdel Rahman at the Iraqi Grain Board on 15 March 2000 asking for information to remain confidential. Mr Emons wrote:

We are very concerned to learn from the UN that the Canadian government has taken action within the UN to discover the manner of AWB payments. We ask your assistance … that no information of a confidential nature is released.

Mr Snowball admitted that he was aware, even before the Austrade meeting, that the Canadian government had stopped a wheat shipment from the Canadian Wheat Board because of trucking fees. As I said earlier, so much for the idea of everyone doing it. In fact, we have been in a situation of cover-up all along. As recently as Saturday, the Weekend Australian reported:

AWB has erased a potentially embarrassing section of its code of conduct policy that provided guidelines for employees paying so-called facilitation payments.

When you see what happened here you will see why we believe it is time to get rid of the tax deductibility of these facilitation payments and why we have moved in this direction. The Weekend Australian reported that it had obtained a 2004 version of AWB’s policy, which outlined instructions for AWB representatives dealing with agency, facilitation and related payments. It reported:

The section was deleted in the updated AWB Corporate Ethics and Code of Conduct Policy available on the company website this week—the only substantial change made to the 17-page policy statement in two years. However, the missing section was reinserted later in the week following questioning by the Weekend Australian.

An AWB spokesman said the deletion of the section—a series of questions and answers for employees faced with facilitation payments—was an accident and that the full document was now publicly available. “I still can’t find out how it happened or why it happened,” he said.

We think it is time that facilitation payments ceased to enjoy tax deductibility. It is time the Howard government recognised that as soon as you support facilitation payments you are entering into the culture of bribery and kickbacks which has done this nation’s trading reputation so much damage in recent times. We have had numerous warnings given to the government about what was going on at the Wheat Board. You can go back to December 1999, when the Canadian Permanent Mission to the UN asked about these issues because they understood that the Australian Wheat Board had entered into this kind of arrangement. In January 2000 we had the UN raising concerns with the Australian Permanent Mission to the UN in New York. According to the Volcker report, Felicity Johnston spoke to the Australian Permanent Mission on the issue of irregular payments to the Iraqi regime and asked the Australians to ask AWB whether it had agreed to any financial arrangements with the Iraqi regime outside the UN escrow account. We had a warning in March 2000 when the UN was still asking questions of Austrade’s representative in Washington and requesting further information about AWB’s contracts with Iraq. AWB discussed this with Bronte Moules, the counsellor at the Australian Permanent Mission to the UN in New York. She reported it back to DFAT in Canberra by cable.

We had a fourth warning in October 2000 when the Chairman of AWB, Trevor Flugge, wrote to the Minister for Trade, Mark Vaile, regarding AWB’s recent visit to Baghdad. AWB then had discussions with DFAT about its proposal to engage Jordanian trucking companies and wrote to DFAT in October 2000 seeking the department’s approval for this arrangement. In May 2002 we had yet another warning when the US General Accounting Office presented its report on weapons of mass destruction. That report set out in detail Saddam Hussein’s misuse of the oil for food program, including the imposition of a 10 per cent levy on commodity contracts. There was a further warning in August 2002 when the Minister for Agriculture, Fisheries and Forestry was warned by a prominent Victorian grain merchant, Ray Brooks, that AWB was paying bribes to Saddam Hussein’s regime. He was warned at one of the Mallee machinery field days in north-western Victoria. Mr Brooks was told by the agriculture minister to stop peddling stories like that around. He was told: ‘The Wheat Board is run by farmers of great integrity and honesty, they wouldn’t do that sort of thing.’ It is a shame that the agriculture minister failed to carry out that which the community is entitled to expect of him as agriculture minister and to take these sorts of warnings seriously.

There was a further warning in June 2003 when an Australian representative on the CPA, Michael Long, received a memorandum of instruction from the CPA which asked ministry advisers to identify any contracts which had:

... a kickback or surcharge of (often) 10 per cent.

Mr Long forwarded this memorandum of instruction to the Department of Foreign Affairs and Trade. They forwarded it to the AWB in June 2003. There was a further warning in June 2003 when US Wheat Associates wrote to the US Secretary of State, Colin Powell, expressing concern that some of the money paid under AWB contracts may have gone into accounts of Saddam Hussein’s family. Again we had the trade minister reject these allegations from the US out of hand. He described them as ‘ludicrous’ and ‘insulting’.

I will run out of time to list all the other warnings, but they happened in August 2003, September 2003, October 2003 and September 2004. All these warnings were ignored. It is disgraceful that the government ignored warnings from the United Nations, warnings from Canada and warnings from wheat farmers in Victoria. It has taken until now, with the loss of this wheat contract potentially worth up to $800 million to Australian wheat farmers, for the Prime Minister to finally get involved in this issue.

This is a shameful situation. We get told that the Middle East and Asia are such corrupt places that we have to do this in order to do business there. No, we don’t. It is not that they are corrupting us; it is that we are corrupting them. It is time to stop. No more getting around the United Nations sanctions, no ignoring the OECD and no looking the Canadians and Americans in the face and telling them barefaced lies. And here is a good place to start. We should start by getting rid of tax deductibility for facilitation payments and getting Australia’s trading reputation back on the course that it needs to be on.

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