BHP funded a 20,000 tonne shipment of wheat to Iraq in 1996, allegedly in a bid to win petroleum exploration rights in the country once UN sanctions against dictator Saddam Hussein's government were lifted.
The company then set in train a complex debt recovery process using its Iraq joint venture partner, Gibraltar-registered Tigris Petroleum, and Australian wheat exporter AWB. This process has become a major focus of the Cole Inquiry, which is investigating $300 million in kickbacks paid by AWB to Saddam Hussein's regime.
BHP wanted to set up a deferred payment plan to get the $US8 million debt back from Iraq, the inquiry was told.
But the Department of Foreign Affairs and Trade (DFAT) told the company that the arrangement would be illegal under sanctions in force against the country since the Gulf War.
After BHP handed responsibility for the debt to Tigris Petroleum, Tigris hired AWB to help recover the money for a $US500,000 fee.
AWB inflated two wheat contracts under the UN's oil-for-food program to recover the BHP-Tigris debt. These contracts never revealed the true arrangement for retrieving the money.
Commissioner Terence Cole has described those contracts as "a sham".
BHP had first proposed that the wheat be provided on a deferred payment plan, but it had been advised by DFAT that this would breach the UN sanctions, commission senior counsel John Agius said.
Agius suggested that DFAT's original rejection of the deferred payments resulted in the actual debt recovery process being deliberately hidden from the authorities.
"AWB could not inform DFAT and the UN that that debt was being paid out of these two (wheat) contracts without disclosing that the actions in 1995/1996 had themselves been outside the sanctions," Agius told the inquiry.
AWB sales chief Michael Long agreed that the the UN and DFAT were never told about the Tigris deal.
But he said he believed it was proper for BHP to hand responsibility for the debt to Tigris on the authority of the head of BHP's petroleum division, Philip Aitken.
"I believed that BHP, being the company that it is, wouldn't assign those proceeds lightly," Long said.
