Thursday, 16 August 2007
International Trade Integrity Bill 2007
The International Trade Integrity Bill 2007 seeks to repair the damage done to Australia’s trading reputation by the AWB scandal. Sadly, it is a case of locking the stable door after the horse has bolted. The House should not need to be reminded of this, but right from the outset let us make no mistake about what a big deal the AWB scandal has been. In an international inquiry into an international scandal it was an Australian company which came out at the top—a gold medallist in the kickback Olympics, far outstripping any other company in the race. The Volcker inquiry estimated the AWB kickbacks at $US220 million. The next biggest supplier, Chayaporn Rice Co. Ltd of Thailand, came in at $US42 million, less than a quarter of the AWB sum.
There is no starker example of how this bill seeks to lock the stable door after the horse has bolted than in its amendments to the Income Tax Assessment Act. The bill is amending the Income Tax Assessment Act to align the definition of facilitation payment with that in the Criminal Code. This is precisely Labor policy and has been so for quite some time. For example, in March last year Labor moved an amendment to the Tax Laws Amendment (2006 Measures No. 1) Bill to align the facilitation payment provision in the income tax act with those in the Criminal Code. The government used its numbers here to defeat this change. What have been the consequences of the government’s action? After the Cole report was handed down, AWB went off to the Australian Taxation Office and proceeded to claim the $300 million in kickbacks as a tax deduction. This is truly astonishing. AWB confirmed in late December, just before Christmas, that the tax office had ruled that the bogus trucking fees it had paid to Iraq in breach of United Nations sanctions in order to secure wheat contracts were not bribes and qualified as legitimate business expenses. AWB’s share price surged almost 10 per cent to $2.88 on the news that it had dodged a tax bill expected to be more than $100 million.
Commissioner Cole said that AWB was not guilty of the crime of bribery because the Iraqi officials who took the money from AWB were not breaking Iraqi law. This drew the not unreasonably incredulous response from Tracy Lee in the Australian Financial Review:
Australian companies wanting to pay bribes overseas should make sure they do it in really corrupt regimes if they want to get a tax deduction.
That is the ridiculous outcome from yesterday’s decision by the Australian Taxation Office that has let AWB keep up to $180 million in deductions claimed on the payment of bogus trucking fees to the former regime of Saddam Hussein.
The Australian Financial Review obtained a letter to AWB from the tax office stating that it had relied on the Cole report in making its decision to allow AWB to keep over $100 million in tax deductions. We had the Treasurer saying that he was relying on the Cole inquiry as well. He said that the probabilities are that the tax office is bound by the Cole inquiry. But Commissioner Cole made no findings on tax matters, saying that it was ‘beyond the technical and resource capacity of this inquiry to conduct a detailed investigation’ into the tax treatment of the kickbacks. He drew ‘to the attention of the Commissioner of Taxation the fact that this matter has not been the subject of any inquiry by me’. But, elsewhere in his report, Mr Cole said that the payments were ‘not unlawful in Iraq’.
So we ended up with an astonishing situation. Each of them—the Cole commission, the tax office, the Treasurer—is saying: ‘Don’t look at me. It’s not my job to stop AWB from getting a tax break for these kickbacks.’ Whose job is it? If the Treasurer had not been so preoccupied with trying to undermine the Prime Minister by giving off-the-record briefings to journalists, maybe he would have taken a good look at Labor’s amendment instead of imperiously dismissing it. And, if he had taken up Labor’s amendment, Australia’s hardworking taxpayers would not now be in the outrageous situation of bankrolling bribes to Saddam Hussein.
The Treasurer claims this was not the case and says the tax office was bound by Commissioner Cole’s findings. But he produces no evidence for that; he simply asserts it. It is absolutely unconvincing. The shadow Assistant Treasurer, the member for Prospect, was quite right to bring to the attention of the House the history of this matter, with the member for Hunter having raised it in question time and having been dismissed by the government. Now we have the real proof of the pudding in the eating. Now we have before the House the very provision which Labor moved in March last year and which the Liberal Party rejected. The Treasurer says we are wrong, but he knows we are right, and this provision—to align the facilitation payment provision in the tax act with the facilitation payment provision in the Criminal Code—is the proof that the Treasurer knows we are right.
In introducing the bill the Attorney-General said the bill ‘continues Australia’s tough stance against foreign bribery and contravention of United Nations sanctions’. I had not realised until I read this that the Attorney-General possesses a sense of humour. This kind of remark is increasingly characteristic of a government grown out of touch and which has forgotten Abraham Lincoln’s classic ‘You cannot fool all of the people all of the time’. The Attorney-General went on to say, ‘We have a reputation as a corruption-free trading partner.’ The problem is that this government has allowed that reputation to be trashed. Its response to the UN’s Volcker report, the Cole inquiry, unfortunately turned into a monumental whitewash. It has achieved nothing by way of ministerial accountability for this debacle. It has achieved nothing by way of departmental or public service accountability for this debacle. It has achieved nothing by way of reform or restructure of AWB. It has achieved nothing in terms of prosecutions for individual wrongdoing. As I mentioned before, the crowning glory, the piece de resistance, was that, once the Cole report came down, AWB proceeded to claim the $300 million in kickbacks as a tax deduction and the tax office and the Treasurer went along with it.
I want to substantiate each of those claims in turn. First, there has been no ministerial accountability for the AWB scandal. The Minister for Foreign Affairs approved 41 contracts over a five-year period—contracts which contained over $300 million in bribes that have cost Australia’s international trading reputation and Australian farmers dearly. Minister Downer made a virtue of his ignorance. He revelled in the fact that Commissioner Cole did not find he was criminally culpable. But the government had limited the terms of reference of the Cole inquiry to such an extent that it was unable to meaningfully evaluate the culpability of the government.
This is not a scandal that the government can disown. Under the relevant Security Council resolutions, national governments have a clear obligation to monitor compliance with the sanctions regime under resolution 661. Governments cannot escape responsibility merely by claiming that their national companies circumvented sanctions on their own initiative. Nor did the Cole commission have anything to say when evidence emerged contradicting government claims to the commission that it did not know about AWB’s payments of kickbacks to the Iraqi government.
First there was Alia. The government claimed that it knew nothing about this Jordanian company, through which kickbacks were laundered, until the Volcker inquiry in 2004. But an email in September 2003 showed that Austrade officials met with the al-Khawam family—51 per cent owners of Alia—and the former head of the Iraqi Grains Board in 2003. Then there was the case of Tigris. The Minister for Foreign Affairs and other Howard government personnel claimed to the Cole commission that the first they knew about Tigris Petroleum’s plan to defraud the oil for food program of $US8.8 million was through the Cole inquiry itself and that they had not heard of Tigris at all until 2003. But an email from AWB’s government relations manager, Matthew Foran, says that he spoke with Minister Vaile’s office in September 2002 advising the government to not make any public comment about a statement by the Iraqi embassy which explicitly referred to the Tigris deal. The email states that Minister Vaile’s office contacted the offices of the Minister for Foreign Affairs and the Prime Minister to warn them of the statement by the Iraqi embassy. The Howard government was caught out misleading the Cole inquiry, first over Alia and then over Tigris, but the Cole commission failed to follow up these matters or deal with them in its report.
Nor has the Cole commission achieved anything at all by way of departmental accountability. Minister Downer simply ignored Commissioner Cole’s findings of incompetence and negligence and announced that there would be no review of administrative practices within the Department of Foreign Affairs and Trade. This was incredible. It represented an all-time low in public accountability standards. It would seem like society is to blame. There was $300 million in kickbacks and society is to blame. Nor has the Cole commission achieved anything in the restructure of AWB. Michelle Grattan reported:
Ministers have signed off on a political compromise for the new bulk wheat export marketing system designed to get the Government through the election.
A “kitchen cabinet” of John Howard and senior ministers decided farm organisations should be given until March to either set up a new grower-owned and controlled company to run the single desk, or have AWB demerge and AWB International operate the desk.
The Cole inquiry achieved nothing on this front either. We now know that the single desk—AWB’s export monopoly, also known as the National Party’s compulsory unionism—lives on. Two and a half weeks ago, on 30 July, Lenore Taylor reported in the Australian Financial Review:
Angry backbenchers have accused Agriculture Minister Peter McGauran of using stalling tactics to protect wheat exporter AWB’s monopoly status, after it emerged he had approved only three out of 85 applications from other wheat exporters since he was handed approvals power last December.
the member for Hume—
said it was “reprehensible” that so few licences had been approved, and some applicants he knew had been waiting for up to six months for a ministerial decision.
“The system is obviously too slow … I know some growers who are being denied $55 a tonne more than they can get from AWB because exporters can’t get a decision out of the minister,” Mr Schultz said.
The report goes on to say that the member for O’Connor, who is described as ‘outspoken’—I think he can live with that—said that he suspected the minister was using his decision-making power:
as a disruptive tactic … to make sure applicants did not have time to get arrangements in place before the forthcoming harvest.
The article continues:
Mr McGauran confirmed he had approved only three applications. He said nine applications were still pending. The rest he had rejected on public interest grounds.
This led to OzEpulse, which is a Sydney based grain exporter, urging the federal government to reverse its rejection of an export licence application to send 50,000 tonnes of Australian wheat to Yemen or face a Federal Court challenge in September. Some 80 per cent of Western Australian growers last year refused to sell to AWB. OzEpulse has launched a legal challenge, scheduled for mid-September, to last December’s original licence rejection, claiming that the Minister for Agriculture, Fisheries and Forestry took into account irrelevant or false information. OzEpulse said that it was having the content checked because if the AWB submission looked false, misleading and untrue, and if they misled the minister—which is not that different from their actions in the Iraqi affair that sparked the Cole inquiry—they have a basis for a legal challenge. So, as far as the AWB and the agriculture minister are concerned, compulsory unionism lives on.
The bottom line is that, despite repeated emails and communications to ministers, their officers, staff and senior bureaucrats, commencing virtually from the inception of this scandal back in 2000, AWB was still able to provide some $350 million in funds to the Saddam Hussein regime in breach of the UN sanctions and Australian law, specifically the Customs (Prohibited Exports) Regulations 1958. No legislation, no matter how comprehensive or wide ranging, can have any effect when the government is willing to turn a blind eye and is unwilling or unable to enforce its own laws. This bill simply serves to highlight just how duplicitous the government has been regarding the whole AWB saga. The fact is that this government failed to enforce its own law and, through its negligence, allowed $350 million to be channelled to a terrorist dictator.