DFAT told BHP that its $US5 million wheat shipment in 1996 would be acceptable only as a gift, the Cole Inquiry heard yesterday.

DFAT warned that if the shipment was treated as a commercial sale with deferred payment, the deal would breach sanctions under the United Nations’ oil-for-food program.

The inquiry was told that BHP had been granted approval for the January 1996 wheat shipment on the understanding that it would be a gift.

But a letter shown to the inquiry indicated that in May that year the company asked DFAT for approval to transform the shipment into a sale with a five-year letter of credit.

A May 1996 letter from DFAT assistant secretary Mark Pierce to BHP group manager Tom Harley stated: “If the gift arrangement were to be reformulated into a credit arrangement, the requirement of notification and disclosure to the UN Security council sanctions committee would not have been met.

“As far as the department is concerned, the sale in January is a closed matter and must remain closed.”

The inquiry heard earlier that in 1995 the Keating Government had told BHP that a wheat sale shipment would breach sanctions.

But BHP went on to pursue a course that it had been advised was illegal.

In September 2000, BHP executive Philip Aiken assigned the debt recovery to Tigris Petroleum, a junior that shared a Baghdad office with BHP and was led by two former BHP executives.

The debt – which due to accruing interest had grown to $US8 million – was eventually recovered by inflating prices of AWB wheat shipments paid for by the UN.