| 29 January 2007 |
| Board Brief - January 2007 |
| Authors: John Keeves, Robert Wyld |
 Cole Report into AWB
Lessons for Corporate Australia
The much-anticipated 'Cole Report', which was handed down by Commissioner Terrance Cole and tabled by the Commonwealth Attorney General on 27 November 2006, marked the end of the Commissioner's 12-month investigation into the activities and wheat sales of AWB Limited (and AWB International Limited) in relation to the former Iraq Government of Saddam Hussein under the United Nations Oil-For-Food Program.
In this Board Brief, we review the Cole Report and discuss some lessons for corporate Australia (Johnson Winter & Slattery represented four former AWB executives before the Oil-For-Food Inquiry).
Critical recommendations from the Report
Commissioner Cole made a number of critical recommendations in his Report, including the establishment of a Task Force comprising officers of the Australian Federal Police, the Australian Securities & Investments Commission and the Commonwealth and Victorian Directors of Public Prosecutions.
This Task Force was charged with the responsibility to investigate and consider a range of criminal and civil offences against AWB and its nominated officers involved in the Iraq wheat sales under the Oil-For-Food Program.
In relation to AWB's statutory monopoly to export Australian wheat, known as the "single desk", the Commissioner was silent. However, he did recommend tighter regulation and independent supervision of wheat sales.
AWB has sought to divest itself of its subsidiary, AWB International Ltd (AWBI), which operates the single desk, in an attempt to head off legislative reform to remove AWBI's statutory monopoly right to approve wheat exports. The Commonwealth Government has removed that monopoly for 6 months, with the Agriculture Minister being given the power to approve wheat exports. The continued existence of the single desk and the increasing pressure the Australian Government will face from United States and European economic interests to abolish the single desk are political issues that will not be resolved easily.
Potential criminal and civil liability
Commissioner Cole's Report is focussed on making a finding of primary liability around whether AWB "might" have broken the law in relation to the circumstances of each wheat contract that it concluded with Iraq between 1999 and 2003.
Accessorial liability is then considered against the relevant officers in connection with their respective conduct concerning each wheat contract. The offences related to each of the 20 wheat contracts AWB concluded with Iraq between July 1999 and December 2002.
The possible criminal and civil liability offences are those involving:
• deception, false statements and dishonesty in contravention of ss29A, 29B and 29D of the Crimes Act 1914 (Cth); • influencing or conspiring to influence a Commonwealth public official in contravention of ss135.1(7), 135.4(7) and 136.1 of the Criminal Code; • obtaining property or a financial advantage by deception in contravention of ss81 – 82 of the Crimes Act 1958 (Vic); • money laundering (being the possession, concealment or disposal of the proceeds of crime) in contravention of s.82 of the Crimes Act 1958 (Vic), particularly in relation to the wheat contracts associated with the "Tigris transaction"; • contraventions of the Banking (Foreign Exchange) Regulations (Cth) in relation to transactions that were not authorised by the Reserve Bank of Australia; • the financing or funding of terrorism in contravention of ss.102.6 and 103.1 of the Criminal Code (Cth); and, • civil and criminal breaches of the Corporations Act 2001 (Cth) and Corporations Law 2001 (Cth), particularly where:
- firstly, if officers of AWB provided false or misleading information to AWB's Board of Directors,
- secondly, if officers of AWB falsified books in relation to the recording of transactions and thirdly, AWB officers failed to act in accordance with their statutory duties to act in good faith in the best interests of the company, for a proper purpose and to exercise care and diligence.
Some lessons from the Cole Report
A culture or practice, or course of conduct which is in breach of laws, or which crosses acceptable moral boundaries, and which depends entirely on not being 'found out' involves a massive risk to a corporation, its shareholders and those involved in the conduct if it is found out.
A culture of corporate responsibility and governance must be implemented from the top down. Culture is the product of structure, attitudes and actions – the results of human agency and, as AWB has so strikingly demonstrated, failures to act. If employees believe that "sailing close to (or over) the edge" is acceptable, for commercial profit, the corporation's reputation is always open to question.
No AWB employee, during the course of its conduct under the United National Oil-For-Food Program, asked "what was the right thing to do?" Commercial gain prevailed over ethics and morality - and the price has been paid. A Code of Conduct must be implemented in practice, not just regarded as a token gesture towards the trend of good corporate governance.
A Board of Directors must be aware of its management's activities and pro-actively ensure that a corporation's internal (and external) audit and review processes work. Effective whistleblower regimes (see the Australian Standards as a good example) should operate to encourage reporting on unethical behaviour without fear of sanction or recrimination.
When trading or operating in countries where bribes, kickbacks or "facilitation" payments are considered the norm, Boards must be extra vigilant about the applicable Australian laws governing potential criminal liability. If events arise that put an employee on notice of problems, the employee (or director) must decide for himself whether to complain or not - and if not, whether to accept the conduct (and the potential consequences) or resign.
Boards need to consider whether the legal advice their companies require is aimed at just 'getting the deal done' rather than protecting the longer term interests of the company. There may be times that a Board needs advice from lawyers who are independent of management and have no ongoing relationship with the company, in order to obtain an opinion that can be seen to be independent of management.
During any crisis, corporations turn to their lawyers. Legal professional privilege plays a fundamental role in the Australian legal landscape. Privilege will, as a general rule, be upheld unless the client volunteers the substance of any advice as a means of trying to justify its conduct or seeks to act improperly. Once that occurs, it is relatively clear that any privilege will be lost. AWB's case demonstrates that a lawyer's duty ought not to be owed just to the client but also to the court (in administering justice), to ensure that a client does not misuse its privilege. The operation of legal professional privilege is now being reviewed by the Australian Law Reform Commission and may be abolished in so far as it affects Federal investigative agencies, such as the Australian Securities & Investments Commission, the Australian Taxation Office, the Commissioner for Customs and the Australian Competition & Consumer Commission.
This will, if implemented, reflect a substantial change to the operation of the law of privilege and affect many corporations in their dealings with agencies.
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Download:  E-Board Brief 35.pdf (136 Kb) |
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