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BIL
BIBLT
BHP Billiton Plc - Findings of its internal review into
matters raised in the Cole commission
BHP Billiton Plc
SHARE CODE: BIL
ISIN: GB0000566504
BHP BILLITON RELEASES FINDINGS OF ITS INTERNAL REVIEW
INTO MATTERS RAISED IN THE COLE COMMISSION
BHP Billiton today released the report of its internal
review into the matters raised in the Cole Commission of
Inquiry into the UN Oil for Food Program, and in
particular the payment by BHP Petroleum for a shipment of
wheat delivered to Iraq in 1996.
The report follows an announcement by BHP Billiton"s
Chief Executive Chip Goodyear on 19 January 2006 that the
company would undertake a thorough review of the issues
surrounding the shipment and would publicly release its
findings.
Chief Executive Chip Goodyear said the release of the
internal review report delivered on the company"s
commitment to provide a full and transparent account of
the issues.
"The conclusions reached by the internal review were
consistent with Commissioner Cole"s findings - that is
that BHP and BHP Petroleum complied with Australian law
and UN Sanctions. He made no adverse findings against
the company.
"At the time BHP Billiton was first named in Commission
hearings, I said we would use this opportunity to review
all of the events surrounding the shipment of wheat and
look at current processes and practices to ensure that we
meet the highest ethical standards in all our dealings.
To do so is consistent with our Charter values and a
fundamental plank of our licence to operate.
"We will continue to improve our processes and practices
even in the light of Commissioner Cole"s conclusion that
there is no basis for any adverse finding against the
company and to that end I have adopted the
recommendations from the report." Mr Goodyear said.
The internal review was conducted by a Steering Group
appointed by Mr Goodyear, with support from external
legal advisors Freehills and consulting expertise from
Deloitte.
A summary guideline to the full report is attached. The
full report can also be found at www.bhpbilliton.com.
Internal Review Report of the BHP Billiton Steering Group
United Nations Oil-For-Food Programme
Summary
(The full report can be found at www.bhpbilliton.com.)
On 19 January 2006, BHP Billiton announced it would
undertake an internal review into the circumstances
surrounding a shipment of wheat to Iraq in January 1996
and related events. In February, Chief Executive
Officer, Chip Goodyear, appointed a Steering Group to
undertake the internal review. The Steering Group was
extensively supported in its work by Freehills, Deloitte,
Tom Bathurst QC, and BHP Billiton"s Internal Audit.
The key findings from the Internal Review Report are:
The 1996 Wheat Shipment
* BHP Petroleum"s objective was to develop its reputation
and standing in Iraq (Pg 7).
* The 1996 Wheat Shipment was approved by BHP, DFAT and
the UN as a gift and was executed as a gift (Pgs 7 & 8).
* In making the 1996 Wheat Shipment, BHP Petroleum acted
consistently with UN Sanctions. The 1996 Wheat Shipment
was not a bribe and did not breach Customs Regulations
(Cth) or the Crimes Act (Cth) (Pg 8).
* The 1996 Wheat Shipment was generally consistent with
business conduct standards at the time (Pg 10).
* The 1996 Wheat Shipment was not `reformulated" from a
gift to a debt transaction by BHP Petroleum in 1996, or
subsequently (Pg15).
* The draft letter of 21 June 1996 should never have been
contemplated (let alone prepared), given DFAT"s
unequivocal rejection of the `reformulation" proposal.
This reflected an error of judgment on the part of those
involved, in particular Mr Stott (Pg 16).
The 2000 Agreement
* Through the 2000 Agreement, BHP Petroleum purported to
assign to Tigris something more akin to a "debt" than
anything else. BHP Petroleum could not confer a right in
Tigris to recover a "debt" from Iraq, because no debt
existed (Pg 18).
* BHP Petroleum did not appoint Tigris as its agent. In
fact, BHP Petroleum expressly disclaimed any agency
relationship (Pg 18).
* BHP Petroleum did not act inconsistently with UN
Sanctions by executing the 2000 Agreement or the `To Whom
It May Concern" letter because neither changed the
original character of the 1996 Wheat Shipment. Nor did
it breach the Crimes Act (Cth) (Pg 19).
*The 2000 Agreement contained terms that suggested the
1996 Wheat Shipment was a debt transaction rather than a
gift. This occurred because at least Messrs Davidson
Kelly, Stott and Lyons failed to act with reasonable
care. In the case of Mr Davidson Kelly, it is possible
that his acts and omissions were motivated by other
considerations, given that he later directly benefited
from the assignment of the "debt" (Pg 21).
*
The events of 2004 and the subsequent "debt" recovery
* Neither BHP Billiton, nor BHP Petroleum, was involved
in, or aware of, the steps taken by Tigris to recover the
"debt". BHP Petroleum never received any moneys in
respect of the 1996 Wheat Shipment (Pg 24).
* BHP Petroleum did not breach the Criminal Code Act
(Cth) or Crimes Act (Vic), nor was it directly or
indirectly involved in the `loading up" of AWB contracts
to recover the `debt" (Pgs 24 & 25)
* The events of 2004 flowed from the events of 2000 and
compounded the error of 2000 (Pg 25).
BHP Billiton"s arrangements with Tigris
* Neither BHP Billiton nor BHP Petroleum holds, or has
ever held, an interest in Tigris or any of its related
companies (Pg 26).
* Since the Cole Commission hearings began, BHP Petroleum
has terminated the 2004 Agreement with Tigris, and Tigris
has exited from a participation agreement with BHP
Petroleum and other parties. BHP Petroleum is currently
a party to two co-operation arrangements which include
Tigris in relation to Iraq. BHP Billiton is reviewing
both arrangements in light of the findings of
Commissioner Cole. BHP Billiton will not conduct any new
business with Mr Davidson Kelly, Tigris or any of its
related companies, or any other company associated with
Mr Davidson Kelly (Pgs 26 & 27).
Reputational issues and areas for improvement
* Would BHP Billiton proceed in the same way today? BHP
Billiton:
- recognises that the next generation of world class
resources is likely to come from countries where the
standards of business conduct may not be consistent with
the standards in developed countries.
- must comply with applicable law and its own standards
of conduct which include generally accepted business
standards as set out in BHP Billiton"s policies and
procedures, including its Charter and Guide to Business
Conduct.
- also regards programs designed to enhance its
citizenship in communities in which it works as part of
its licence to operate. (Pgs 11 & 12).
* BHP Billiton"s ability to operate effectively in
countries that are more "difficult" and "risky" and to
responsibly manage its community programs will be
impaired if its reputation is damaged. While it is never
possible to guarantee that a company of BHP Billiton"s
size and spread will not find itself before inquiries of
this kind in the future, it needs to take all available
steps to ensure each of its employees, agents and
contractors knows and implements the standards of conduct
in the Charter and the Guide to Business Conduct (Pg 12).
* The Steering Group is satisfied that the policies,
standards and guidelines governing business conduct have
been significantly and effectively enhanced in practice
since 1996. In particular, BHP Billiton has strongly
enhanced its policy and procedures in relation to
community development, gifts and donations since 1996.
Notwithstanding this, areas for improvement have been
identified (Pgs 13 & 14).
* The Steering Group recommends that:
- in dealing with "difficult" and "risky" countries,
BHP Billiton continues to progress its Country Risk
project, which relates to processes and protocols for
integrated country assessment, project evaluation,
country entry and systems for capturing country risk data
(Pg 14);
- BHP Billiton clarifies key criteria for appropriate
community payments, donations, sponsorships and business
development expenditure (Pg 14);
- the Global Ethics Panel review the mechanisms
employed to ensure that agents and contractors are also
aware of the required standards of conduct (Pg 14);
- BHP Billiton review and assess the reach of its
current policies and guidelines governing recruitment,
including training (Pgs 16 & 17);
- the Guide to Business Conduct be amended (where
appropriate) to provide further guidance on dealing with
conflict of interest situations and on selecting
contracting parties and potential joint venture parties
(Pg 22).
29 November 2006
Internal Review Report
United Nations Oil-For-Food Programme
This is the report of the Steering Group appointed by the
Chief Executive Officer of BHP Billiton to conduct the
Internal Review. The CEO adopts this Report in its
entirety and has provided it to the Board of BHP
Billiton.
Glossary of defined terms and individuals
We have adopted the following definitions in this Report:
Term Definition
ASIC Australian Securities and Investments
Commission
AWB AWB Limited and its predecessors
BHP The Broken Hill Proprietary Company Limited
and from 1999, BHP Limited (the BHP entity
prior to its merger with Billiton plc in 2001)
BHP Billiton BHP Billiton Limited
BHPP BHP Billiton Petroleum Pty Limited and its
predecessors
Board Board of Directors of BHP Billiton
CEO Chief Executive Officer of BHP Billiton
Cole Royal Commission of Inquiry into certain
Commission Australian companies in relation to the UN Oil-
for-Food Programme, established by Terms of
Reference dated 10 November 2005
Cole Report Report of the Cole Commission, dated 24
November 2006
Customs Customs (Prohibited Exports) Regulation 1958
Regulations (Cth)
Deloitte Deloitte Touche Tohmatsu - the firm of
consultants engaged by BHP Billiton to support
the work of the Steering Group
DFAT The Australian Government Department of
Foreign Affairs and Trade
Freehills The firm of lawyers engaged by BHP Billiton to
support the work of the Steering Group
IGB Grain Board of Iraq / Iraqi Grain Board
Internal The internal investigation undertaken by BHP
Review Billiton in relation to the involvement of
BHPP, and its associated companies and
employees and officers (past and present), in
the 1996 Wheat Shipment, 2000 Agreement and
2004 Agreement
Maritimo Maritimo Investments Pty Limited
Steering Appointed by the CEO to undertake the Internal
Group Review. Comprises Ms Karen Wood (Group Company
Secretary) and Mr John Fast (Chief Legal
Counsel & Head of External Affairs)
Tigris The Tigris Petroleum Corporation Limited
Tigris Tigris Petroleum Corporation Pty Limited
Australia
UN The United Nations
661 Committee of all members of the UN Sanctions
Committee Committee, established under UN Resolution 661
to oversee its implementation
1996 Wheat Shipment of wheat to Iraq in early 1996 funded
Shipment by a payment from BHPP to AWB
2000 Agreement between BHPP and Tigris, signed on
Agreement 13 September 2000
2004 Participation Agreement between BHPP and
Agreement Tigris, signed on 25 November 2004
We set out below a reference to the key individuals
referred to in this Report, and the positions held by
them at the relevant time:
Individual Positions held Relevant
time period
Philip Aiken BHP - Executive General Manager, May 1997 to
Corporate Development August 1997
BHPP - Acting Executive General August 1997
Manager and Chief Executive to October
Officer 1997
BHPP - President and Chief October 1997
Executive Officer to March
2004
BHP Billiton - Group President, March 2004
Energy to April
2006
BHP Billiton - President, UK April 2006
to present
Sadaala Al- Iraqi Ministry of Oil - Senior August 1995
Fathi Advisor to October
2000
Zuhair Daoud IGB - Director General 1995 to 2000
Norman BHPP - Group General Manager, February
Davidson Business Development 1995 to 1997
Kelly
BHPP - Group General Manager, September
New Business Opportunities 1997 to 2001
BHPP - Internal Consultant November
1998 to
March 2001
BHPP - International Energy From
Consultant September
2000
Tigris - President From
September
2000
Tigris Australia - Company From
Secretary and President September
2000
John Feakes DFAT - Desk Officer, Middle East 1995 to 1996
and Africa Branch
Tom Harley BHP - Treasury, Special Project March 1989
Manager to March
1994
BHPP - Group Manager, Financial April 1994
Structuring to December
1995
BHPP - Group Manager, Business December
Development 1995 to
April 1999
BHP Billiton - Vice President, May 1999 to
Mergers & Acquisitions January 2004
BHP Billiton - President, January 2004
Corporate Development to present
Jim Lyons BHPP - Group Manager, Legal 1995 to 2001
BHPP - Regional Counsel, 2001 to July
Australia and Asia 2004
BHPP - Special Counsel (part- July to
time) December
2004
John BHPP - Executive General Manager February
O"Connor and Chief Executive Officer 1995 to
August 1997
John BHP - Managing Director and May 1991 to
Prescott Chief Executive Officer March 1998
Charles AWB - Marketing Officer, 1985 to 1987
Stott International Sales and
Marketing (Melbourne)
AWB - Head of Marketing, Europe 1987 to 1988
and Middle East (London)
AWB - Regional Manager, 1988 to
Marketing, Middle East, Africa March 1996
and Europe (Melbourne)
BHPP - International Business March 1996
Development Manager to 1998
BHPP - Project Development 1998 to June
Manager, Pipelines 2000
AWB - General Manager, July 2000 to
International Sales and August 2001
Marketing
AWB - General Manager, Mergers, September
Acquisitions, Strategy and 2001 to
Business Development September
2003
AWB - General Manager, Landmark November
Rural Services 2003 to June
2006
1 Announcement of Internal Review - January 2006
On 19 January 2006, BHP Billiton issued a release
announcing that it would undertake an internal review
into the circumstances surrounding a shipment of wheat to
Iraq in January 1996 and related events.
BHP Billiton made this announcement following comments
made about the conduct of its wholly owned subsidiary,
BHPP, during the opening of public hearings of the Cole
Commission on 16 January 2006.
Those comments linked the 1996 Wheat Shipment with the
alleged improper recovery, by Tigris, of an amount from
the UN escrow account in late 2004.
BHP Billiton made further announcements in relation to
the Internal Review in late January and February 2006, in
which it undertook to conduct an extensive investigative
process, supported by significant resources. Those
announcements also promised the public release of the
conclusions of the Internal Review, following the
completion of the Cole Commission.
The Cole Report was released publicly on 27 November
2006. In it, Commissioner Cole made no findings as to
possible breaches of the law by BHPP, BHP Billiton, or
any of their current or former officers or employees.
Commissioner Cole did make such findings in relation to
Messrs Davidson Kelly and Stott, in their capacity as
officers or employees of Tigris and AWB respectively.
2 BHP Billiton undertakes Internal Review
In February 2006, the CEO appointed a Steering Group to
undertake the Internal Review. This appointment was noted
by the Board.
The Steering Group was extensively supported in its work
by Freehills, Deloitte, Tom Bathurst QC and BHP
Billiton"s Head of Internal Audit.
It has had access to:
* Submissions of Counsel Assisting dated 3 October 2006,
BHP Billiton"s Reply Submissions dated 17 October 2006,
and the Cole Report;
* work undertaken by Freehills, which has been endorsed
by Tom Bathurst QC, and, in relation to business
compliance, by Deloitte and Internal Audit;
* documents retrieved by BHP Billiton in response to
three Notices to Produce issued by the Cole Commission to
BHP Billiton between January and March 2006;
* documents produced to the Cole Commission by other
parties and entities, including AWB, the Australian
Government, the UN and Tigris, that have been made
publicly available; and
* information from over 200 witnesses, including BHP
Billiton witnesses (current and former employees) and Mr
Stott, who was separately represented and attended the
Cole Commission to be examined under oath principally in
his capacity as an AWB employee.
The Steering Group has not had access to:
* Messrs Davidson Kelly and O"Connor, who have refused to
co-operate with the Internal Review. Mr Davidson Kelly
also refused to co-operate with the Cole Commission;
* documents held by Tigris, the Iraqi Government (and its
various officials), and the UN, which were not made
available to the Cole Commission; and
* certain documents made available to the Cole
Commission, including some confidential exhibits.
This Report sets out the Steering Group"s key findings as
to whether:
* BHP Billiton or BHPP has breached Australian law; and
* any employee (or former employee) of BHP Billiton or
BHPP has breached his or her duty to BHP Billiton or BHPP
by breaching generally accepted business standards,
including as set out in BHP Billiton"s policies and
procedures.
In considering whether there has been a breach of law,
the Steering Group"s work overlaps with the Cole
Commission. In considering whether there has been a
breach of duty, the Steering Group"s work extends beyond
the Cole Commission.
3 Key Factual Questions
The following five key factual questions underlie the
Internal Review:
1. Was the 1996 Wheat Shipment a "gift" or a "debt"
transaction?
2. Was the 1996 Wheat Shipment subsequently
`reformulated" from a "gift" to a "debt" transaction?
3. Did BHPP attempt to assign to Tigris a "debt"
(connected with the 1996 Wheat Shipment), under the 2000
Agreement?
4. Was BHP Billiton or BHPP involved in, or aware of,
the steps taken by Tigris to recover moneys from Iraq in
late 2004, purportedly in connection with the 1996 Wheat
Shipment?
5. Have BHP Billiton, BHPP, or any of their officers,
ever held an interest in Tigris?
Immediately following the key factual findings, the
Steering Group addresses whether or not the conduct
involved breached Australian law or standards of business
conduct.
Following those findings, the Steering Group has set out
areas for improvement recognising, as it does, the
importance of learning from this experience.
4 Was the 1996 Wheat Shipment a "gift" or a "debt"
transaction?
4.1 The facts
The key factual findings of the Steering Group relating
to the 1996 Wheat Shipment are as follows:
* in early 1995, following the introduction of UN
Sanctions in 1990, BHPP developed an interest in the
Halfayah oil field in Iraq. BHPP was advised by DFAT in
February 1995 that Australian companies could lawfully
"pursue future business opportunities in Iraq, so long as
no trade occurs until sanctions are lifted";
* Mr O"Connor recruited Mr Davidson Kelly on 28 February
1995, in part, to lead BHPP"s business development
activities in Iraq;
* BHPP first made direct contact with Iraq in April 1995,
by letter of introduction from Mr O"Connor to the Iraqi
Minister of Oil. This letter was followed by a meeting
between Mr Davidson Kelly and the Minister in early June
1995. At that meeting, the Minister linked, for the first
time, the opportunity to participate in the development
of the Halfayah oil field with the provision of wheat to
Iraq;
* between September and November 1995, BHPP considered a
number of proposals for a shipment of wheat to Iraq.
BHPP actively pursued two proposals: to provide the wheat
to Iraq on a debt basis (a five year letter of credit
with interest repayable in oil if UN Sanctions were
lifted, or cash); and to pay for the shipment on a gift
basis;
* BHPP"s objective, by either proposal, was to develop
its reputation and standing in Iraq as against
competitors in the future;
* in late September 1995, Mr O"Connor sought Mr
Prescott"s approval for the credit proposal. Mr Prescott,
after expressing some concerns with the proposal, made it
clear in writing in late October 1995 that he would only
agree to the proposed wheat shipment if BHPP proceeded
via DFAT and obtained UN approval. He regarded their
backing as a clear measure of appropriateness;
* BHPP sought DFAT"s approval for the letter of credit
proposal in late October 1995. Mr Harley informed DFAT of
BHPP"s requirement for confidentiality, its commercial
objective and its concern to avoid a breach of UN
Sanctions. DFAT told Mr Harley that a credit transaction
was not permitted under the UN Sanctions, but that a gift
transaction would be consistent with UN Sanctions. DFAT
also separately communicated this to AWB;
* after the credit proposal was refused by DFAT, Mr
O"Connor told Mr Harley that he was willing for the wheat
shipment to proceed as a gift;
* Mr Prescott understood that the rationale for the gift
proposal was to seek "to establish a reputation or
standing in Iraq that might get (BHPP) a seat at the
table when (BHPP was) able to negotiate commercial
business with Iraq";
* at that time AWB was a government instrumentality. It
had specific powers to handle and transport wheat. It was
an offence at the time under Australian law to export
wheat without the written consent of AWB. DFAT and the UN
were aware of AWB"s role as the exporter of the 1996
Wheat Shipment and that the IGB was the intended
recipient of the shipment;
* in November 1995, AWB (as the exporter of the wheat)
obtained approval from the 661 Committee for the export
of 100,000 MT of wheat to Iraq, on the basis of "cash
payment to be received through third parties". A copy of
this approval was passed on by AWB to BHPP;
* BHPP, although not the exporter, also sought approval
directly from DFAT for the wheat shipment to proceed as a
gift. Mr Harley informed Mr Feakes of DFAT of the
commercial rationale for the gift. Mr Feakes informed Mr
Harley in early December 1995 that DFAT had no objection
to BHPP providing the gift to Iraq;
* Mr Harley prepared the memorandum from Mr O"Connor to
Mr Prescott dated 5 December 1995 seeking approval for
the transaction on the basis that it was a gift;
* on 9 December 1995, Mr Prescott gave written approval
for the wheat shipment to proceed on a "straight forward
grant basis", which Mr Prescott understood to be a gift,
not a loan. The approval was within his authority;
* on 21 December 1995, DFAT provided AWB with a
permission to export the wheat (20,833 tonnes) in
accordance with the Customs Regulations, which required
any person planning to export goods from Australia to
Iraq to obtain written permission from DFAT;
* on 30 January 1996, AWB invoiced BHPP in the amount of
US$4,999,920 for the shipment of wheat, which BHPP paid
on 5 February 1996. The payment was recorded in the
accounts of BHPP as a business development expense (non-
deductible donation);
* no tax deduction was ever claimed for the payment made
by BHPP to AWB for the 1996 Wheat Shipment;
* no debt was ever recorded in the accounts of BHPP in
respect of the payment made by BHPP to AWB;
* in March 1996, the Board of BHP discussed the 1996
Wheat Shipment and the fact that it was made as a
donation; and
* in June 1996, the Audit Committee of BHP discussed the
1996 Wheat Shipment and the fact that it was made as a
donation.
The 1996 Wheat Shipment was, as set out above, variously
referred to in contemporaneous documents as a "gift",
"donation" and "business development expense".
As at January 1996, there was nothing to suggest that the
1996 Wheat Shipment was to proceed as a debt. Apart from
the initial credit proposal, which was abandoned, there
was no suggestion at the time that Messrs Davidson Kelly
or Harley, or any other person, had been involved in the
negotiation, or execution, of an agreement that provided
for the 1996 Wheat Shipment to proceed as a debt. Mr
Davidson Kelly told the Iraqis in January 1996 that the
1996 Wheat Shipment was a gift to the people of Iraq.
In conclusion, the 1996 Wheat Shipment was made as a
gift.
4.2 Did BHPP breach Australian law in making the 1996
Wheat Shipment?
The Steering Group"s key findings in relation to whether
BHPP breached Australian law in making the 1996 Wheat
Shipment are as follows:
* there was no breach of the Customs Regulations because
AWB obtained DFAT"s permission for the exportation of the
wheat to Iraq, as had to occur, under the Customs
Regulations. BHPP independently sought DFAT"s permission;
* BHPP did not breach the Crimes Act 1914 (Cth) because
it did not mislead a government authority (DFAT or AWB)
about the terms of the 1996 Wheat Shipment. It told both
DFAT and AWB that the 1996 Wheat Shipment was to be a
gift and it explained its commercial rationale; and
* BHPP did not bribe a foreign official: DFAT was fully
aware of the gift, and its commercial purpose; the gift
was made to the Iraqi Government, not to a public
official; and, in providing the gift to the Iraqis, BHPP
hoped to forge a relationship with the Iraqi Government,
not to cause it to act dishonestly.
BHPP also acted consistently with UN Sanctions because
the 1996 Wheat Shipment was notified to the 661 Committee
as a gift and approved by the 661 Committee, as required
under Resolution 661.
4.3 Findings of Commissioner Cole
(a) Key factual findings
Commissioner Cole"s key factual findings relating to the
1996 Wheat Shipment are as follows:
* "as at December 1995: BHP(P), through Mr Prescott, had
intended to enter into the transaction on the basis that
it was a gift, and approved the transaction only on that
basis";
* "AWB had both DFAT and UN approval on the basis of
`cash payment to be received through third part(ies)".
That implied a gift by the third party, especially as
proposed credit or deferred payment arrangements had been
earlier expressly rejected by DFAT"; and
* "the (1996 Wheat) (S)hipment was approved by BHPP, DFAT
and the (UN) as a gift or grant and was delivered as
such".
These findings are consistent with the Steering Group"s
findings as set out at part 4.1 above.
(b) Key legal finding
Commissioner Cole found that BHPP did not mislead either
the United Nations or DFAT in respect of the transaction.
This finding is consistent with the Steering Group"s
findings as set out at part 4.2 above.
4.4 Did any officer of BHPP breach standards of business
conduct in making the 1996 Wheat Shipment?
The primary issue in this period is whether the 1996
Wheat Shipment, as formulated and executed, was flawed
and therefore constituted a breach of business conduct
standards by the relevant officers involved. Before
setting out the Steering Group"s key findings on this
question, it is necessary make some preliminary comments.
(a) Background
In 1995, a major part of BHPP"s strategy, as introduced
by Mr O"Connor, was to seek opportunities to offset high
risk exploration with proven undeveloped fields in
politically "difficult" and "risky" locations. Under Mr
O"Connor"s direction, BHPP pursued opportunities in
Algeria, Pakistan, Syria and Iraq. BHPP took the view at
the time that it was necessary to pursue strategic
opportunities wherever they may be located, subject to
compliance with the law and the application of generally
accepted business standards (including as set out in BHP
Billiton"s policies and procedures). That remains BHP
Billiton"s position today.
Clearly, there were, and are, greater risks and pressures
involved in pursuing and executing opportunities in
"difficult" and "risky" locations such as Iraq. BHPP took
a number of steps to mitigate the risks and pressures it
faced in its early contact with Iraq.
First, BHPP approached DFAT in February 1995 about
dealing with Iraq. DFAT advised BHPP that it could
pursue business opportunities in Iraq, provided it did
not trade prior to the lifting of UN Sanctions.
Second, BHPP prepared, and commissioned, various risk
assessment reports in relation to Iraq in 1994 and 1995.
These reports considered the general commercial and
political risks of engaging in business with Iraq.
Third, Mr O"Connor involved Mr Prescott (as Managing
Director and Chief Executive Officer of BHP) in the
decision making process. Mr Prescott initially had
significant reservations about the proposed shipment. He
consulted with, among others, the Corporate General
Manager of External Affairs and the Director of Public
Policy of BHP. He received detailed papers on the
proposal. Mr Prescott understood clearly the rationale
for the proposed shipment, and said in oral evidence
before the Cole Commission that BHPP was "seeking to
establish a reputation or standing in Iraq that might get
(BHPP) a seat at the table when (BHPP was) able to
negotiate commercial business with Iraq". Eventually, Mr
Prescott decided to agree to the proposal if BHPP
proceeded transparently via DFAT and obtained UN
approval. He believed their approval would be a clear
measure of the broader appropriateness of the proposal.
Fourth, AWB (as the exporter of the shipment) obtained
the written approval of DFAT and the UN for the wheat
shipment on the basis that it would proceed as a gift
transaction, consistent with Mr Prescott"s conditions.
BHPP, in addition, obtained separate approval from DFAT.
BHPP made DFAT aware of the commercial rationale of the
gift, as understood by Mr Prescott.
Fifth, BHPP considered at the time making a public
release regarding its role in the 1996 Wheat Shipment.
For business judgment reasons, a decision was made not to
make a public disclosure.
(b) Key findings
The Steering Group"s key findings in relation to the
primary issue are as follows:
(1) No specific guidance
The 1996 Wheat Shipment was an unusual transaction, as Mr
Prescott (and others involved) recognised at the time.
Accordingly, there was no specific policy or procedure in
place at the time of any relevance. Neither the gift
policy, nor the improper payments policy (both set out in
a one page principles document known as the 1992 Business
Conduct Guide), provided for these circumstances.
A feature of the unusual nature of the 1996 Wheat
Shipment was its magnitude. The absence of policy or
procedural guidance, and its size, meant that the issue
needed to be (as it was) elevated to senior management.
Mr Prescott, as the Managing Director and Chief Executive
Officer of BHP, made the policy decision to proceed (on a
conditional basis), in possession of all relevant
information and after careful consideration. His decision
was that DFAT and the UN should be the ultimate arbiters.
The Steering Group is of the view that Mr Prescott made a
prudent and sensible decision on how to proceed.
(2) General policy guidance
The 1992 Business Conduct Guide required the affairs of
BHPP to be conducted at all times in accordance with the
law and "high ethical standards". It did not further
define "high ethical standards". The 1995 Executives"
Handbook required "satisfactory relations" with
government.
The Steering Group considers that transparency,
accountability and honesty are, and were at the time, key
indicia of ethical behaviour relevant to the 1996 Wheat
Shipment. In relation to the 1996 Wheat Shipment, it
finds that as to:
* transparency - the 1996 Wheat Shipment, including its
rationale, was fully and accurately disclosed internally
to the Chief Executive Officer of BHPP and the Managing
Director and Chief Executive Officer of BHP. It was
accurately recorded in BHPP"s accounts as a donation and
BHP"s Board, and Audit Committee, were told that the 1996
Wheat Shipment was a donation. It was also fully and
accurately disclosed externally to DFAT and, through
DFAT, to the 661 Committee. Consideration was given at
the time as to whether or not the 1996 Wheat Shipment
should be disclosed publicly. For business judgment
reasons, it was not;
* accountability - the 1996 Wheat Shipment was approved
by those senior people and key bodies who had the
relevant authority to approve it (see above);
* honesty - the 1996 Wheat Shipment was intended to be
made as a gift, and was in fact made as a gift,
consistent with representations made to AWB, DFAT and the
661 Committee.
By proceeding as he did, Mr Prescott was clearly
conscious of the ethical risks of the proposed
transaction to the reputation of BHP and BHPP. His
requirement for DFAT and UN approval was designed to
address those risks.
Accordingly, the 1996 Wheat Shipment was consistent with
business conduct standards at the time it was made.
As to the delivery of the 1996 Wheat Shipment, BHPP used
AWB, a government instrumentality, and an exporter well
known to DFAT and the UN. It did not separately take
steps to prove that delivery was, in fact, made to the
intended recipient, the IGB, although delivery was
subsequently confirmed by the Iraqi Government.
As to "satisfactory relations" with government, the
Steering Group and the Commissioner found that BHPP
expressly sought DFAT"s approval for the 1996 Wheat
Shipment and that BHPP did not mislead DFAT in relation
to the terms of the 1996 Wheat Shipment. When seeking
approval for the 1996 Wheat Shipment, BHPP (through Mr
Harley) disclosed its commercial objectives to DFAT. The
Steering Group considers that BHPP acted appropriately in
its dealings with DFAT in 1995 and that its conduct was
consistent with then applicable policy.
(3) Bribery
In general terms, a bribe is a payment of an undue reward
to a person in a public office, made to influence that
person"s behaviour in that office and to induce that
person to act contrary to accepted rules of honesty and
integrity.
The Steering Group has concluded that the 1996 Wheat
Shipment was not a bribe because:
* DFAT was fully aware of, and approved, the 1996 Wheat
Shipment as a gift. BHPP informed DFAT of its commercial
objective in providing the 1996 Wheat Shipment;
* the gift was made to the Iraqi Government, not to a
public official. BHPP"s payment for the 1996 Wheat
Shipment was made directly to AWB; and
* in providing the gift to the Iraqi Government, BHPP
hoped to forge a relationship with that government, not
to cause it to act dishonestly.
(4) Other companies" practice
An examination of corporate practices in the mid 1990s in
relation to the provision of benefits to foreign
governments, or foreign entities, indicates that various
companies offered benefits to Iraq and other developing
countries with the hope of obtaining future business
concessions.
While this is not of itself evidence of appropriate
practice, and while each transaction needs to be
understood in its context, other major corporations were
involved in conduct broadly analogous to the 1996 Wheat
Shipment.
(5) Overall finding
It follows from these key findings that the Steering
Group is of the view that no individual acted in breach
of his or her duties to BHPP in connection with the
making of the 1996 Wheat Shipment by breaching a
particular policy, or by breaching standards of business
conduct.
4.5 Broader observations and areas for improvement in
light of the 1996 Wheat Shipment
(a) Broader observations
Notwithstanding the overall finding, the Steering Group
has further considered whether BHPP would proceed in the
same way today were the same proposal to come forward.
The Steering Group makes the following observations:
(1) The next generation of world class resources is
likely to come from countries where the standards of
business conduct may not be consistent with standards in
developed countries. To deliver on BHP Billiton"s
corporate objective of creating long term value for
shareholders, BHP Billiton has a commercial obligation to
continue to conduct business in countries that might be
regarded as more "difficult" and "risky". This includes
countries like Iraq.
(2) In conducting its business throughout the world, BHP
Billiton has committed to do so, subject to compliance
with:
* applicable law (including the local law); and
* the application of BHP Billiton"s own standards of
conduct, which include generally accepted business
standards, as set out in BHP Billiton"s policies and
procedures, including its Charter and Guide to Business
Conduct.
BHP Billiton sees this as a fundamental plank of its
"licence (or right) to operate" and does not adjust down
its standards when it operates in countries where a lower
standard might be acceptable.
(3) BHP Billiton also regards its licence to operate as
including the implementation of programs designed to
enhance its citizenship in communities in which it works.
While the 1996 Wheat Shipment was properly classified as
a "gift" (and not a "debt"), the Steering Group
recognises that it is a classification that could lead to
confusion. The 1996 Wheat Shipment was variously
described as a "gift", a "donation" and as a "business
development expense". With few exceptions (the payments
made to aid the relief effort following the Asian tsunami
in 2004 being one), BHP Billiton does not make
philanthropic payments. Any payment made must be tied to
a legitimate business objective.
Building relationships and partnerships is fundamental to
its business and its ability to work cooperatively with
others, from business partners and governments to non-
government organisations and host communities.
BHP Billiton"s Community Program, under which gifts or
donations are made, has the objective of providing
community assistance (through compensation,
infrastructure building, donations and/or sponsorships)
to local, regional and national communities. To ensure
the necessary link is established between payments under
the Community Program, and the business objective, the
Community Program:
* usually applies to communities in countries in which
BHP Billiton has interests;
* generally seeks to assist sustainable development
rather than provide short term assistance;
* is commonly undertaken in partnership with a charity or
other not-for-profit organisation, and involves the
community receiving the aid, to ensure (among other
things) appropriate stewardship of the aid; and
* normally pro-actively communicates BHP Billiton"s
involvement, including by publishing that involvement in
its Community Program reports (in particular, Yesterday,
Today, Tomorrow (bi-annually) and The BHP Billiton
Sustainability Report (annually)) and on its website.
BHP Billiton is committed to creating sustainable value
for its host communities. In 2001, it introduced a target
to spend 1% of its pre-tax profits (on a historic three
year rolling average) on its Community Program. Since its
introduction, BHP Billiton has met, or exceeded, this
target. In 2005/06, BHP Billiton invested US$81.3million
(1.45% of its pre-tax profits on a three year rolling
average) on community programs.
BHP Billiton has guidelines in place which govern the
provision of community assistance under the Community
Program, consistent with the principles set out above.
BHP Billiton recognises that its ability to operate
effectively in countries that are more "difficult" and
"risky", and to responsibly manage its community
programs, will be impaired if its reputation is damaged.
While it is never possible to guarantee that a company of
BHP Billiton"s size and spread will not find itself
before inquiries of this kind in the future, BHP Billiton
must take all available steps to ensure that each of its
employees, agents and contractors knows, and implements,
the standards of conduct that reflect the commitments
made in BHP Billiton"s Charter and Guide to Business
Conduct.
BHP Billiton particularly recognises that great care must
be taken to ensure that any gifts or donations (made, as
they will be, as part of a business objective) are
closely controlled and made strictly in accordance with
those commitments. While the link between the 1996 Wheat
Shipment and BHP Billiton"s underlying commercial
objective was made clear within BHP and to DFAT and the
UN, BHP Billiton needs to ensure that whatever label
attaches to payments (ie "gift" or "donation"), any
underlying business objective is clear.
Since the 1996 Wheat Shipment was made, BHP Billiton has
made a considerable number of enhancements to its
practices and processes that it believes better protect
the company from the risk of this kind of reputational
damage. These are outlined at part 4.5(b) below. Having
had the benefit of the Internal Review, the Steering
Group considers that a number of additional enhancements
should be made. These are outlined at part 4.5(c) below.
(b) Developments since the 1996 Wheat Shipment
As to BHP Billiton"s dealings with "difficult" and
"risky" countries, BHP Billiton has, as part of the
policy and procedure enhancements made since 1996:
* introduced Country Risk Protocols that are focussed on
the quantification of a `country risk premium" for
financial evaluation purposes. These serve as "red flags"
for assessing country risk; and
* established, in early 2006, a Country Risk project team
(under the sponsorship of the Chief Financial Officer) to
enhance the Country Risk Protocols beyond financial
evaluation by developing processes for Country Risk
assessment, project and opportunity evaluation, and
country entry.
In relation to BHP Billiton"s community development,
gifts and donations programs, BHP Billiton has, since the
1996 Wheat Shipment, made significant enhancements to the
Guide to Business Conduct. Those enhancements cover a
range of matters, including the provision of financial
inducements. They have been designed to give BHP
Billiton"s employees and contractors effective and
practical guidance on what amounts to acceptable and
unacceptable conduct. In developing that guidance, BHP
Billiton has:
* had regard to Australia becoming a signatory to the
OECD Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions;
* had regard to the United Nations Global Compact, to
which it is a signatory;
* implemented governance structures to provide policy
guidance on and oversight of community programs, some of
which are publicly available and include: Corporate
Community Programs Guidelines, Community Development
Principles, Managing Community Programs, Reporting
Community Contributions, and Health, Safety, Environment
and Community Management Standards;
* established a Global Ethics Panel, which includes
external independent membership, and meets on a regular
basis and assesses issues relating to ethics and business
conduct;
* established a Forum for Corporate Responsibility,
comprised of representatives from leading non-government
organisations who provide advice to the CEO on
sustainable development issues, including business
conduct issues.
BHP Billiton has also had regard to the OECD Working
Group"s Report on "Bribery in International Business
Transactions" (dated January 2006), and a recent study by
the Centre for Australian Ethical Research (dated March
2006), and has implemented strong governance and controls
around these particular risks through its Guide to
Business Conduct.
The Steering Group is satisfied that the policies,
standards and guidelines governing business conduct have
been significantly and effectively enhanced in practice
since 1996.
The Steering Group is also satisfied that there are
robust processes in place to ensure employees are aware
of the required standards of business conduct. These
include personal "sign off" by managers that they have
read and understood the Guide to Business Conduct and
that they have implemented processes to ensure that
colleagues for whom they are responsible have also read
and understood the Guide to Business Conduct. Efforts are
made to provide practical guidance on how to interpret
the Guide to Business Conduct and a worldwide Helpline
exists for employees to ask questions or to express
concerns about business conduct issues.
Notwithstanding that position, the Steering Group
recognises that BHP Billiton"s ability to effectively
operate its business depends on the maintenance of its
reputation in these vital areas. Accordingly, some areas
for improvement have been identified below.
(c) Areas for improvement
As the 1996 Wheat Shipment was a one-off transaction, and
was provided to a country in which BHP was not conducting
business at the time, it would not clearly fall within
the scope of the BHP Billiton Community Guidelines or
other current policies (as referred to above).
In addition to the mechanisms outlined above that have
been implemented by BHP Billiton since the 1996 Wheat
Shipment, the Steering Group recommends that:
* in dealing with "difficult" and "risky" countries, BHP
Billiton ensures that its Country Risk project, which
deals with:
* processes for integrated country assessment;
* guidelines for enhanced project evaluation;
* protocols for country entry; and
* systems for capturing country risk data,
is integrated with its Enterprise Wide Risk Management
System;
* in relation to BHP Billiton"s community development,
gifts and donations programs, BHP Billiton directs the
Global Community Programs Panel (comprised of relevant
stakeholders, including asset representatives) and/or the
Global Ethics Panel, as appropriate, to:
* clarify key criteria for appropriate community
payments, donations, sponsorships and business
development expenditure of universal application and
amend, as appropriate, community program definitions and
guidelines (including in relation to donations); and
* in particular, determine whether:
* a distinction should be drawn between countries in
which BHP Billiton has existing operations and countries
in which BHP Billiton has no presence;
* there are adequate systems in place (including
training) to properly capture unusual transactions,
recognising the importance of individual judgment in this
process; and
* appropriate assurance and audit processes for ongoing
community development contributions are in place,
including in relation to ensuring that such contributions
reach their intended recipients; and
* the Global Ethics Panel review the mechanisms employed
to ensure that agents and contractors are also aware of
the required standards of conduct and that sufficient
practical guidance on application is made available to
all employees, agents and contractors.
5 Was the 1996 Wheat Shipment `reformulated" from a
"gift" to a "debt" transaction?
5.1 Facts
The key factual findings of the Steering Group relating
to whether the 1996 Wheat Shipment was `reformulated"
from a gift to a debt transaction are as follows:
* Mr Stott took up the position of Manager International
Development with BHPP on 18 March 1996, at Mr Davidson
Kelly"s instigation, and with Mr O"Connor"s agreement. Mr
Stott worked on Iraq business and reported to Mr Davidson
Kelly;
* following inconsistent communications from DFAT as to
the acceptability to the UN of credit arrangements, BHPP
(led by Mr Stott) had a number of discussions with DFAT
between March and May 1996 as to whether additional wheat
shipments could be provided to Iraq on a credit basis.
Ultimately, BHPP did not, in fact, provide any further
wheat shipments to Iraq;
* in May 1996, BHPP (through Mr Stott and Mr Lyons)
discussed with DFAT whether it would be possible to
`reformulate" the 1996 Wheat Shipment from a gift to a
credit arrangement. In the course of those discussions,
Mr Stott raised the possibility of some form of "side
letter" arrangement with Iraq to this effect. It appears
that these discussions occurred because at least Mr
Davidson Kelly wanted BHPP to be able to provide further
wheat shipments;
* on 27 May 1996, DFAT advised BHPP in writing that any
`reformulation" would not be permissible. The letter was
provided to Mr Harley, and distributed by him to at least
Messrs Stott, Lyons and Davidson Kelly;
* later that day, Mr Stott asked AWB to send all of the
original shipping documents for the 1996 Wheat Shipment
to BHPP. He said he wanted the documents so that BHPP
could demonstrate at a later time that it had paid for
the wheat. In early June 1996, AWB provided the shipping
documents to Mr Stott, who arranged for them to be placed
into safe custody;
* in June 1996, Mr Stott prepared a draft letter to Mr
Daoud of the IGB. The draft letter appears to be a "side
letter" of the kind that DFAT had cautioned against in
May 1996. The draft letter, dated 21 June 1996, referred
to the initial credit proposal and "suggested" that BHPP
continue to hold the original shipping documents, and
"receive value", consistent with the original
understanding, by presenting those original documents to
the IGB or the Central Bank of Iraq. Mr Stott concluded
the letter by asking for "comments/suggestions" as to
this or "some other proposal". The draft letter contained
the handwritten words "Cleared with Jim Lyons". Mr Lyons
could not recall in his evidence whether he provided
clearance in relation to that particular draft letter. Mr
Stott provided the draft letter to Mr Davidson Kelly. Mr
Harley was not aware of, or involved in the drafting of
the draft letter dated 21 June 1996;
* it appears, in any event, that the draft letter was
never finalised and sent. The only subsequent reference
to it was in October 2000, when Mr Davidson Kelly
provided Mr Stott (then back at AWB) with an unsigned
copy. Mr Davidson Kelly did not refer to it in any
letters to AWB, or to the Iraqis, in connection with
Tigris" recovery efforts from October 2000.
Notwithstanding that, this letter should never have been
prepared; and
* Mr Davidson Kelly knew that he needed Mr O"Connor"s and
Mr Prescott"s approval to change the 1996 Wheat Shipment
from a gift to a loan. There is no suggestion that he
sought either Mr O"Connor"s or Mr Prescott"s approval to
this draft letter. Mr Prescott never saw it.
In conclusion, notwithstanding the matters outlined
above, the 1996 Wheat Shipment was not `reformulated"
from a gift to a debt transaction by BHPP in 1996, or
subsequently.
5.2 Did BHPP breach Australian law by `reformulating"
the 1996 Wheat Shipment?
As the 1996 Wheat Shipment was not `reformulated" by
BHPP, the Steering Group considers that the legal
position remains as set out at part 4.2 above. In
summary, BHPP did not breach Australian law and acted
consistently with UN Sanctions.
5.3 Findings of Commissioner Cole
(a) Key factual findings
Commissioner Cole"s key factual findings relating to
whether the 1996 Wheat Shipment was `reformulated" from a
gift to a debt transaction are as follows:
* the proposal to `reformulate" the 1996 Wheat Shipment
was rejected by DFAT; and
* it "seems unlikely" that the letter of 21 June 1996 was
sent.
These findings 5.1 above.
(b) Key legal findings
Commissioner Cole made no adverse findings as to the
conduct of BHPP set out at 5.1 above. This is consistent
with the Steering Group"s findings as set out at part 5.2
above.
5.4 Did any officer of BHPP breach standards of business
conduct in the attempted `reformulation" of the 1996
Wheat Shipment?
As the Steering Group found that the available evidence
does not establish that the 21 June 1996 letter was sent,
it considers that no officer or employee of BHPP breached
his or her duties to BHPP by breaching a particular
policy, or by breaching generally accepted business
standards.
owever, the Steering Group considers the letter of 21
June 1996 should never have been contemplated, let alone
prepared, given DFAT"s unequivocal rejection, of the
`reformulation" proposal, set out in its 27 May 1996
letter. The letter reflected, in the Steering Group"s
view, an error of judgment on the part of those involved,
in particular, Mr Stott.
As to "satisfactory relations" with government, Mr Stott
appears to have contemplated ignoring DFAT"s advice and
establishing a new "side letter" arrangement with the
IGB. This was inappropriate, in circumstances where Mr
Prescott was not consulted. As, however, the available
evidence does not establish that the 21 June 1996 letter
was sent, the Steering Group is of the view that, on the
final analysis, no individual acted inappropriately
and/or inconsistently with generally accepted business
standards, in his or her dealings with DFAT in 1996.
5.5 Broader observations and areas for improvement in
light of the attempted `reformulation" of the 1996 Wheat
Shipment
In light of the finding set out at part 5.4 above in
relation to the contemplation and preparation of the
letter of 21 June 1996, and other failings set out below,
the Steering Group has examined the circumstances in
which Messrs Davidson Kelly and Stott came to be
appointed. In this regard, the Steering Group has
identified as secondary failings that, in breach of clear
BHP policy at the time (as contained in the Staffing
Authorities Guide, Corporate Authorisation Guide and
Staffing Manual):
* reference checks were not (it appears) carried out in
relation to the appointment of Messrs Davidson Kelly and
Stott (in 1995 and 1996 respectively); and
* requisite approvals for Mr Davidson Kelly"s appointment
from Mr Prescott were not obtained.
While the Steering Group cannot opine on whether
conducting these checks and approvals would have caused
BHPP not to appoint either or both of Messrs Davidson
Kelly or Stott (given the apparent information available
as to each at the time), they should nevertheless have
been undertaken.
In light of this failure of policy implementation, and in
recognition of the need for policies and procedures to be
effective in practice, the Steering Group recommends that
BHP Billiton review and assess the reach of its current
policies and procedures governing recruitment (including
training) to determine whether there are any systemic
issues that need to be addressed in relation to
implementation.
6 Did BHPP attempt to assign to Tigris a debt
(connected to the 1996 Wheat Shipment) under the 2000
Agreement?
6.1 The facts
The key factual findings of the Steering Group relating
to the 2000 Agreement are as follows:
* BHPP continued to negotiate with Iraqi officials in
relation to the Halfayah oil field during 1996 and 1997.
During those negotiations, the Iraqis asked BHPP to make
a US$100 million loan to Iraq for humanitarian supplies.
Mr Stott discussed such a proposal with DFAT in February
1997. DFAT was not supportive of the proposal, taking the
same position it did in May 1996. The proposal was later
promoted by Mr Davidson Kelly (in October 1997) and
ultimately rejected by Mr Prescott;
* Mr Aiken replaced Mr O"Connor as the Chief Executive
Officer of BHPP in October 1997. In August 1998, BHPP"s
Executive Committee agreed that BHPP would not fund or
engage in any further activity in Iraq in the short term;
* between late 1998 and early 2000, Mr Davidson Kelly"s
role within BHPP changed, from a full time internal
consultant, to a part time consultant. By mid 1999, Mr
Stott"s role at BHPP had effectively become redundant. In
June 2000, his employment with BHPP was terminated and he
returned to AWB on 10 July 2000;
* Mr Stott and Mr Davidson Kelly each referred to the
1996 Wheat Shipment as a "debt" for the first time in
emails in early May 2000 (Mr Stott did so in an email
dated 2 May 2000 and Mr Davidson Kelly in an email dated
9 May 2000), despite knowing that there was no debt to
collect, and that DFAT was opposed to any credit
arrangement. Mr Aiken believes that this was probably the
first time he had heard of a "debt" being owed to BHPP by
Iraq. He enquired at this time of a member of BHPP"s
Finance department as to whether there was such an item
recorded in the accounts and was told there was not. Mr
Aiken formed the view at that time that it was highly
unlikely any amount would be recovered;
* Mr Harley responded to Mr Stott"s email of 2 May 2000
(which was forwarded to him by Mr Davidson Kelly) by
suggesting that they meet to discuss. That meeting did
not occur. In his statement, Mr Harley said that he
recalled saying to Mr Aiken, in or about early May 2000,
that "there was no debt". Mr Harley cannot recall whether
he told Mr Aiken of the background to the 1996 Wheat
Shipment, including DFAT"s views that it could not
proceed as a debt;
* Mr Aiken said in his statement that, while it is likely
that he spoke with one or both of Mr Harley or Mr Lyons
about the possible "debt" around that time, he had no
recollection of doing so. Mr Aiken said in his statement
that his focus was on the present. He said that he did
not, at any stage, make enquiries concerning the terms
upon which the 1996 Wheat Shipment had been made. His
immediate concern was about the potential impact on
BHPP"s accounts. Notwithstanding that, he said that he
did not know if there ever was a "debt", to the best of
his knowledge;
* consistent with his statement, Mr Aiken said initially
in oral evidence that he never ventured to find out
whether or not the 1996 Wheat Shipment had been regarded
as a debt or gift in 1996. His further oral evidence as
to his knowledge was more specific. He agreed, in cross-
examination, with the statement that "the concept of it
being a gift was not something he had learnt of";
* in mid May 2000, Mr Davidson Kelly proposed to Mr Aiken
that an entity established by him take over BHPP"s
position in Iraq, suggesting that BHPP could choose to
"back in" on any project and obtain a 25% interest. Mr
Davidson Kelly also wanted the benefit of any recovery
related to the 1996 Wheat Shipment, and proposed a 75/25
split. Mr Aiken was generally attracted to Mr Davidson
Kelly"s proposal to take on BHPP"s business in Iraq, as
it was a convenient means for BHPP to fully withdraw from
Iraq (while preserving an option to participate in the
future) and to part company with Mr Davidson Kelly, who,
given the change in BHPP"s strategic direction, was not
actively engaged;
* Mr Aiken directed that Mr Harley not be involved in the
negotiations relating to Mr Davidson Kelly"s exit
arrangements from May 2000. Mr Harley had no involvement
in those negotiations;
* in early June 2000, Mr Davidson Kelly sent to Mr Aiken
a draft agreement, which Mr Davidson Kelly had probably
prepared. The draft agreement contained a "transfer and
assign(ment)" of "all, if any, rights it (BHPP) may have"
to the "Grain Board Receivable" and referred to the
"recovery in cash or in kind of amounts possibly owing"
by Iraq. Mr Aiken asked Mr Lyons to take forward the
negotiation and preparation of the draft agreement. Mr
Lyons made limited changes to the draft agreement and
provided no overarching advice in relation to the
lawfulness of the proposed transfer and assignment,
notwithstanding his knowledge of the history of the 1996
Wheat Shipment. The final draft agreement was,
inappropriately, more consistent with the assignment of a
"debt" than a gift;
* Mr Davidson Kelly prepared a draft letter, addressed
"To Whom It May Concern" in relation to the "Grain Board
Receivable", for BHPP to sign. The draft letter was given
to Mr Lyons on 7 September 2000. It was not materially
amended by him. It stated that: "... BHPP has assigned to
Tigris all its rights to receive value from the Grain
Board of Iraq, or its assignee, in relation to the ...
(1996 Wheat Shipment)...". The letter was also
(inappropriately) more consistent with the assignment of
a "debt";
* Mr Davidson Kelly also prepared a draft letter from
BHPP to the Iraqi Ministry of Oil, which purported to
represent his entity as an agent of BHPP. Mr Lyons was
uncomfortable with that representation and advised Mr
Aiken to that effect. Mr Aiken agreed with Mr Lyons. Mr
Davidson Kelly ultimately recast the draft letter into an
acceptable form; and
* the 2000 Agreement and the "To Whom It May Concern"
letter were signed by Mr Aiken on 13 September 2000, in
the presence of Mr Lyons. Mr Aiken read the draft
agreement reasonably carefully. Mr Lyons did not draw any
particular issues to his attention. Mr Aiken had not
previously seen the letter. He believes he glanced at the
"To Whom It May Concern" letter and assumed it was in
accordance with the 2000 Agreement, before signing it.
In conclusion, BHPP:
* through the 2000 Agreement, purported to assign to
Tigris something more akin to a "debt" than anything
else. BHPP could not, however, as a matter of law, confer
a right in Tigris to recover a "debt" from Iraq, because
no debt existed. BHPP could not convert a "gift" to a
"debt" without the agreement of the Iraqi Government. No
such agreement was ever entered into by BHPP; and
* did not appoint Tigris as its agent. It transferred the
entirety of the "Grain Board Receivable" to Tigris,
retaining a right to be paid 25% if any money was
recovered. Tigris was given complete discretion to deal
with this "right" without further BHPP involvement. BHPP
expressly disclaimed any agency relationship.
6.2 Did BHPP breach Australian law by attempting to
assign to Tigris a debt under the 2000 Agreement?
The key finding of the Steering Group as to whether BHPP
breached Australian law in relation to the 2000 Agreement
is that BHPP did not breach the Crimes Act 1914 (Cth) by
executing the 2000 Agreement or the "To Whom It May
Concern" letter. It made no representation to the
Commonwealth or a public authority in doing so.
Further, the Steering Group has found BHPP did not act
inconsistently with UN Sanctions by executing the 2000
Agreement or the "To Whom It May Concern" letter because
neither changed the original character of the 1996 Wheat
Shipment.
The disconnect between the 2000 Agreement and the "To
Whom It May Concern" letter, and recovery by Tigris are
discussed at parts 6.3 and 7 below.
6.3 Findings of Commissioner Cole
(a) Key factual findings
Commissioner Cole"s key factual findings relating to the
2000 Agreement are as follows:
* "BHPP assigned the IGB"s purported liability to repay
BHPP for the cost of the (1996 Wheat Shipment)". It
assigned all its rights to Tigris, subject to a right to
receive 25% of any recovery by Tigris;
* Tigris was not an agent of BHPP. "Mr Davidson Kelly
(inaccurately) stated that Tigris had been appointed as
agent to recover the debt when in fact it was the
assignee of the `Grain Board receivable"";
* Mr Aiken was "at no stage ... aware that the 1996
(Wheat) (S)hipment was a gift";
* "Mr Aiken signed the (2000) (A)greement under a
misunderstanding as to the real facts of the 1996 (Wheat)
(S)hipment." The 2000 Agreement did contain a
qualification or reservation that "BHPP makes no
representations and gives no warranties as to the
validity of the claim";
* "Mr Aiken would not have signed the letter "To Whom It
May Concern" (which contained no qualification or
reservation) ... had he been told there were no such
rights, and in particular no right to seek payment";
* "Mr Lyons knew Mr Davidson Kelly was trying to persuade
Iraq to pay for the (1996 Wheat Shipment) which had been
a gift." Mr Lyons did not tell Mr Aiken that the 1996
Wheat Shipment was a gift;
* Mr Harley"s evidence that he told Mr Aiken that the
shipment to Iraq was a gift should not be accepted. "Had
(Mr Harley) done so... Mr Aiken would not have signed the
("To Whom It May Concern" letter)";
* "BHPP assisted Tigris in pursuing repayment of a gift
... by allowing Tigris to represent to Iraq that BHPP
regarded the cost of the (1996 Wheat Shipment) as being a
`receivable" to be repaid by Iraq";
* "(w)hether any such representation would have any
consequence depended upon the view of the transaction
held by Iraq";
* "BHPP so acted by mistake because Mr Aiken, who had no
personal knowledge of the 1996 (Wheat) (S)hipment, was
not told at any time that the shipment had been approved
by the Managing Directors of both BHP and BHPP only on
the basis that the transaction was a gift, and further
they had required both DFAT and (UN) approval which also
was given only on the basis that the transaction was a
gift"; and
* "(w)hat use Tigris and Mr Davidson Kelly made of (the
"To Whom It May Concern" letter) was entirely a matter
for them ... Mr Davidson Kelly was fully aware that the
(1996 Wheat) (S)hipment had been made by BHPP as a gift".
The Steering Group agrees that Mr Aiken executed the 2000
Agreement in ignorance of the fact that the initial
shipment was a gift. It does not, however, follow from
this that the conversation that Mr Harley recalls having
had with Mr Aiken in or about May 2000 did not occur.
When the conversation was put to Mr Aiken in cross-
examination, he could not recall it.
Mr Harley was not cross-examined or challenged on his
evidence in relation to the conversation. Any
conversation that took place appears likely to have been
informal, while the two were travelling together in the
US. It was not reduced to writing. It is likely that any
such conversation had a limited impact on Mr Aiken, in
circumstances where:
* only two emails had been circulated on the issue, both
being prior to any proposal being advanced in relation to
any "debt"; and
* at Mr Aiken"s direction, Mr Harley was soon after
excluded from discussions (ie. from mid May 2000), and
therefore did not participate in any negotiations with Mr
Davidson Kelly that ultimately led to the execution of
the 2000 Agreement in September 2000.
The Steering Group agrees that Mr Lyons did not tell Mr
Aiken that the 1996 Wheat Shipment was a gift, but notes
that Mr Lyons" involvement in Mr Davidson Kelly"s actions
in trying to persuade Iraq to pay for the 1996 Wheat
Shipment was limited to his involvement in the
negotiation and preparation of the 2000 Agreement.
The Commissioner found, as referred to above, "BHPP
assisted Tigris in pursuing repayment" and that "whether
any such representation (in the "To Whom It May Concern"
letter) would have any consequence depended upon the view
of the transaction held by Iraq."
Commissioner Cole"s subsequent analysis evidences no link
between the "representation" and the payment of the
Tigris "debt".
In addition, the Steering Group notes that:
* there is no evidence that the "To Whom It May Concern"
letter was provided to the Iraqis. It was not referred to
in, or attached to, any correspondence sent by Tigris to
the IGB, or the Iraqi Ministry of Oil, that was made
available to the Cole Commission. For example, Mr
Davidson Kelly, in his letter to the Iraqi Vice President
in April 2002, lists "key documents" relating to the
"receivable" without referring to the "To Whom It May
Concern" letter; and
* there is no evidence that the Iraqis, even if they
received a copy of the "To Whom It May Concern" Letter,
were deceived by it. As stated in the Cole Report, Mr
Stott noted in an email to Mr Davidson Kelly in October
2000 that Mr Davidson Kelly"s "challenge/risk" in
relation to recovering the `receivable" was Mr Al-Fathi,
and that if Mr Al-Fathi "runs around saying it was a gift
then it is going to be tough." Mr Al-Fathi was a Senior
Advisor at the Iraqi Ministry of Oil at the time of the
1996 Wheat Shipment. As a senior officer in the Iraqi
Government, he therefore had knowledge of the true
position in 1996 and 2000. Also, the IGB did not
acknowledge that a "debt" was owing until 21 months after
it was first raised by Mr Stott in October 2000.
Accordingly, the Steering Group has found no evidence
that would suggest that the "To Whom It May Concern"
letter played any part in the payment of the Tigris
"debt".
The Steering Group also agrees with the Commissioner"s
finding that Mr Davidson Kelly was fully aware that the
1996 Wheat Shipment had been made by BHPP as a gift, and
the use that was made of the "To Whom It May Concern"
letter by Mr Davidson Kelly and Tigris was "entirely a
matter for them".
The Steering Group otherwise agrees with Commissioner
Cole"s findings set out above.
(b) Key legal findings
Commissioner Cole made no adverse legal finding as to
BHPP"s execution of the 2000 Agreement and "To Whom It
May Concern" letter.
This overall view accords with the Steering Group"s
conclusions, as set out at parts 6.2 above and 7.2 below.
6.4 Did any officer of BHPP breach standards of business
conduct in relation to the 2000 Agreement and related
conduct?
The primary business conduct issue in this period is how
the 2000 Agreement, as executed, contained terms that
suggested that the 1996 Wheat Shipment was a debt
transaction rather than a gift. In the Steering Group"s
view, this occurred because at least Messrs Davidson
Kelly, Stott and Lyons failed to act with reasonable
care. In the case of Mr Davidson Kelly, it is possible
that his acts and omissions were motivated by other
considerations, given that he later directly benefited
from the assignment of the "debt".
In relation to Mr Stott, by asserting in 2000, contrary
to his knowledge in 1996, that the Iraqi Government was
indebted to BHPP for the 1996 Wheat Shipment, the
Steering Group considers that he did not exercise
reasonable care in the discharge of his duties to BHPP.
Similarly, the Steering Group considers that, by not
correcting Mr Stott"s assertion, and by asserting to
Messrs Aiken and Lyons (and others), contrary to his
knowledge, that there was a potential debt owing to BHPP
for the 1996 Wheat Shipment, Mr Davidson Kelly did not
exercise reasonable care in the discharge of his duties
to BHPP.
Mr Harley reported to Mr Davidson Kelly. In May 2000,
given his reporting relationship, Mr Harley was directed
by Mr Aiken not to be involved in, and was not thereafter
involved in, the negotiations with Mr Davidson Kelly
which ultimately led to the execution of the 2000
Agreement. Mr Harley was aware that Mr Lyons was involved
in the negotiations with Mr Davidson Kelly. Given that he
was removed from the negotiations, and given his
knowledge of Mr Lyons" involvement and familiarity with
the history of the 1996 Wheat Shipment, the Steering
Group considers that Mr Harley acted reasonably by not
doing anything between the cessation of his involvement
in May 2000, and the execution of the 2000 Agreement on
13 September 2000.
In the Steering Group"s view, Mr Lyons did not act with
reasonable care in the discharge of his duties to BHPP in
relation to the 2000 Agreement. He included terms in the
2000 Agreement that were inconsistent with his knowledge,
and failed to advise on the lawfulness of the 2000
Agreement.
Mr Aiken had not been involved in the 1996 Wheat Shipment
or its aftermath. The Steering Group considers that he
was entitled to rely on Mr Lyons, an experienced lawyer,
who had carriage of the negotiations with Mr Davidson
Kelly. He knew Mr Lyons had detailed knowledge of the
history of the 1996 Wheat Shipment.
6.5 Broader observations and areas for improvement in
light of the 2000 Agreement and related conduct
The Steering Group has found that the events of 2000 were
not caused by inadequate systems or controls but rather
by personal failings on the part of Messrs Davidson
Kelly, Stott and Lyons.
The Steering Group has, in light of this, examined:
* the circumstances surrounding the appointment of Mr
Davidson Kelly (see part 5.5 above) and the arrangements
that were agreed with him;
* the nature of the negotiations with Mr Davidson Kelly
in relation to his proposal to take over BHPP"s position
in Iraq, given his role as a senior officer of BHPP; and
* the decision to assign BHPP"s position in Iraq to
Tigris.
The Steering Group has found some secondary failures in
relation to the appointment of Mr Davidson Kelly (see
part 5.5 above), the arrangements that were agreed with
him, and the performance management of him.
While it has not identified any failures in relation to
the nature of the negotiations with Mr Davidson Kelly,
and the decision to assign BHPP"s position in Iraq to
Tigris, the Steering Group recommends action to be taken
to strengthen existing practices, as referred to below.
(a) Arrangements agreed with, and the performance
management of, Mr Davidson Kelly
Mr Davidson Kelly was appointed as an independent
contractor for an unspecified period, and performance
appraisals were not (it appears) routinely conducted, in
breach of appropriate practice, and BHP policy, at the
time.
Currently, the general position taken by BHP Billiton is
that, where a role is "project based" (that is, for a
fixed period of time with clear milestones), the person
responsible for undertaking that project is usually hired
as an employee (rather than an independent contractor) on
a fixed term contract.
The Guide to Business Conduct contains guidelines on the
engagement and management of independent contractors. The
Steering Group recommends that:
* the Guide to Business Conduct be amended (where
appropriate) to provide further guidance as to these
matters; and
* the standard fixed term contract be amended (where
appropriate) to ensure that appropriate provisions are
included as to duration, termination, authority levels,
duties and responsibilities, delegation, non-competition,
compliance with BHP Billiton policies and procedures, and
performance appraisals.
(b) Negotiations with Mr Davidson Kelly
BHPP negotiated with Mr Davidson Kelly, a senior officer
of BHPP, in the lead up to the 2000 Agreement. This did
not constitute a breach of policy or appropriate practice
as Mr Aiken consented (reasonably) to the position of
conflict that Mr Davidson Kelly was in.
As to the current position in relation to conflicts of
interest, BHP Billiton"s Guide to Business Conduct
prohibits conflicts of interest, particularly in relation
to potential competitors or partners of BHP Billiton.
Further, operation of outside businesses that may create
actual or perceived conflicts is prohibited. Employees
are required to receive approval under an established
approvals framework before accepting directorships in
other corporations. There is also a provision relating to
conflicts of interest in BHP Billiton"s Executive
Employment Contracts.
Notwithstanding the overall finding on conflicts, and the
fact that the Guide to Business Conduct contains detailed
provisions on conflicts, the Steering Group recommends
that the Guide to Business Conduct be amended (where
appropriate) to provide further practical guidance on
dealing with conflict of interest situations created by
BHP Billiton"s workforce, including through training.
(c) Assignment to Tigris
BHPP did not conduct independent background checks of
Tigris prior to entering into the 2000 Agreement. This
did not constitute a breach of policy, or appropriate
practice, as Mr Davidson Kelly provided evidence of the
incorporation of Tigris, and represented that he had
effective control of Tigris, in September 2000. Mr
Davidson Kelly was also well known to BHPP, and BHPP had
no reason to doubt his bona fides at that time.
As to the current position in relation to the use of
third parties and agents, the Guide to Business Conduct
requires that the reputation and qualifications of a
potential third party or agent be thoroughly checked,
and, if a contract is entered into, that adequate
performance monitoring take place. BHP Billiton"s Due
Diligence Guidelines provide a comprehensive checklist of
steps to be taken in relation to the selection of third
parties or agents.
The Steering Group recommends that:
* the Guide to Business Conduct be amended (where
appropriate) to provide further practical guidance on
selecting contracting parties and potential joint venture
parties, including through training; and
* existing relevant documentation, including BHP
Billiton"s Due Diligence Guidelines, Contracts &
Commitments Policy, Investment Standards and Mergers, and
Divestments & Acquisitions Handbook, be amended (where
appropriate) to ensure relevant business conduct and
governance considerations have been thoroughly
incorporated.
7 Was BHP Billiton or BHPP involved in, or aware of,
the steps taken by Tigris to recover moneys from Iraq in
late 2004, purportedly in connection with the 1996 Wheat
Shipment?
7.1 The facts
BHP Billiton was not involved in, or aware of, Tigris"
efforts to recover moneys from Iraq. It has become aware
of Tigris" activities subsequently from evidence
submitted to the Cole Commission.
The key factual findings of the Steering Group relating
to the successful recovery of moneys from Iraq by Tigris,
which spanned four years, and a change of regime, and the
knowledge and involvement of BHP Billiton or BHPP, are
set out below. These factual findings are based on the
evidence submitted to the Cole Commission.
As to Tigris" recovery of moneys:
* Tigris commenced its efforts to recover the "Grain
Board Receivable" from the IGB two days after the 2000
Agreement was executed. Tigris initially sought, with the
assistance of AWB, to have the IGB "acknowledge" the
existence of a debt, by requesting AWB to hand letters
from Tigris to the IGB during its visits to Iraq. It did
not simply request payment. Much later, in October 2002,
Tigris and AWB agreed on a fee of $500,000 for AWB"s
efforts in assisting with the recovery;
* Mr Davidson Kelly communicated directly with the IGB,
both in person and in writing, in late 2000 and early
2001, in an effort to secure the acknowledgement. He
offered to work in Iraq in advance of UN approval. In
April 2002, Mr Davidson Kelly wrote to the Iraqi Vice
President;
* it appears that the IGB eventually acknowledged the
"debt" to Tigris during meetings with AWB in June 2002,
21 months after AWB"s first attempts to secure an
acknowledgement;
* Tigris proposed various mechanisms for repayment to the
IGB via AWB. The ultimate mechanism for repayment
(involving "loading up" the price of future wheat
contracts with AWB) appears to have been generally agreed
in meetings between AWB and the Iraqi Minister of Trade
in October 2002;
* in early December 2002, AWB reached agreement with the
Iraqis for the supply of 1m tonnes of wheat, split across
two contracts, A1670 and A1680. These two contracts
included as an additional amount a surcharge of US$8.375
per tonne for the Tigris "debt". This surcharge was not
disclosed in the contracts;
* Contracts A1670 and A1680 were approved by the 661
Committee in January 2003 and DFAT issued a Permission to
Export for A1680 in February 2003. The stated method of
payment was from the UN Iraq Account in accordance with
Resolution 986;
* Tigris sought to reach an agreement with AWB for the
payment of the moneys recovered from Iraq. In May 2003,
Mr Davidson Kelly provided AWB with a draft agreement;
* various iterations of the draft agreement between
Tigris and AWB providing for the payment of the moneys
recovered from Iraq were prepared by Tigris and AWB
(including AWB"s external legal advisors) between March
2003 and late November 2004. BHP Billiton was named as a
party or referred to in a number of the drafts, however,
neither BHP Billiton or BHPP were, at any time, aware of
the draft agreements or otherwise involved in any way;
* around 9 December 2004, the agreement between AWB and
Tigris was executed. A payment of US$7,087,202.24 was
made from AWB to Tigris on 9 December 2004; and
* it is not clear why the Iraqis supported payment of the
"debt". There was no legal rationale for doing so.
Evidence of internal communications at AWB that were
tendered to the Cole Commission indicate that some
officers at AWB held a concern at the time that Tigris
had bribed Iraqi officials, although no direct evidence
of such bribery was tendered to the Cole Commission. This
concern was not disclosed in any way to BHP Billiton.
As to the knowledge and involvement of BHP Billiton and
BHPP:
* BHPP renewed its interest in pursuing development
opportunities in Iraq after the commencement of the war
in March 2003. In February 2004, Mr Davidson Kelly and Mr
Aiken agreed "in principle" to working together again in
Iraq. BHPP"s remaining interest in the "Grain Board
Receivable" appears to have been raised by BHPP during
the negotiations with Tigris as a possible bargaining
point. Mr Davidson Kelly had been negotiating an
agreement with AWB from May 2003 for the payment of the
moneys recovered from Iraq, and knew at that stage that
there was money to collect. He did not disclose that fact
to BHPP or BHP Billiton;
* the 2004 Agreement was finalised in November 2004. It
included a clause that released Tigris from its
obligation (provided under the 2000 Agreement) to pay
BHPP 25% of any amounts recovered under the "Grain Board
Receivable"; and
* according to a file note of Mr Aiken"s, approximately
31/2 weeks after the 2004 Agreement was executed, Mr
Davidson Kelly informed him that Tigris had recovered
some money under the "Grain Board Receivable". Mr Aiken
does not recall this conversation. In the 4 year period
between the 2000 Agreement, and payment to Tigris in
December 2004, Mr Davidson Kelly and Mr Aiken appear to
have communicated (on Mr Davidson Kelly"s initiation) in
relation to the "receivable" on 5 occasions. One such
occasion was on 21 May 2002, when Mr Davidson Kelly sent
a letter, by email, to Mr Aiken reporting in general
terms of his progress in relation to seeking repayment of
the "debt". Mr Aiken was never made aware of the payment
mechanism used by Tigris.
In conclusion, neither BHP Billiton nor BHPP was involved
in, or aware of, the steps taken by Tigris to recover the
"debt". BHPP never received any moneys in respect of the
1996 Wheat Shipment.
7.2 Did BHPP breach Australian law in relation to the
steps taken by Tigris to recover moneys from Iraq?
The key findings of the Steering Group as to whether BHPP
breached Australian law in relation to the recovery of
moneys from Iraq by Tigris are that BHPP:
* did not breach the Criminal Code Act 1995 (Cth) in
relation to the "loading up" of contracts A1670 and
A1680, because it was not directly or indirectly involved
in that conduct and in particular, it made no statement
to the Commonwealth. It did not aid or abet any such
breach by Tigris or AWB;
* did not breach the Crimes Act 1958 (Vic), by its
actions in relation to the 2000 Agreement or the 2004
Agreement, because it did not, among other things, by
deception dishonestly obtain for itself or another person
a financial advantage. While the "To Whom It May Concern"
letter was suggestive of a "debt" arrangement, it did not
deceive the Iraqis (see part 6.3(a) above). There must
therefore have been other reasons that motivated payment.
BHPP did not aid or abet any breach by Tigris, or AWB;
and
* did not breach the Criminal Code Act 1995 (Cth) because
it did not bribe any Iraqi official. If there were any
such acts by Tigris, BHPP did not aid or abet them.
Further, BHPP did not act inconsistently with UN
Sanctions in relation to the "loading up" of contracts
A1670 and A1680, because it was not directly or
indirectly involved in that conduct.
7.3 Findings of Commissioner Cole
(a) Key factual findings
Commissioner Cole"s key factual findings relating to BHP
Billiton"s and BHPP"s awareness of, and involvement in,
the successful recovery of moneys from Iraq by Tigris are
as follows:
* "(t)here is no evidence to indicate that BHPP was
informed that the Tigris "debt" was being collected or
the means adopted by Iraq, Tigris and AWB for its
collection, other than Mr Davidson Kelly"s letter of 21
May 2002 to Mr Aiken"; and
* "There was no suggestion (in Mr Davidson Kelly"s letter
to Mr Aiken of 21 May 2002) of inflating contracts
without the (UN"s) knowledge".
These findings accord with the Steering Group"s findings
as set out at part 7.1 above.
(b) Key legal findings
Commissioner Cole found that BHPP was not involved in, or
aware of, the means adopted by Tigris to recover the
moneys from Iraq.
This finding, insofar as it relates to BHPP and BHP
Billiton, accords with the Steering Group"s findings as
set out at part 7.2 above.
7.4 Did any officer of BHPP breach standards of business
conduct in relation to the 2004 Agreement and related
conduct?
The primary business conduct issue in connection with the
2004 Agreement is why BHPP relinquished a "right" which
did not exist.
Our key finding in relation to the primary issue is that
the events of 2004 flowed from the events of 2000. The
relinquishment of a "right" in the 2004 Agreement was
made on the basis of the 2000 Agreement, and compounded
the error of 2000.
No further facts were brought to Mr Aiken"s attention at
the time the 2004 Agreement was being negotiated which
might have led him to question the appropriateness of the
2000 Agreement. Mr Lyons, although only indirectly
involved in the 2004 Agreement, did not relevantly
correct his acts and omissions (as referred to at part
6.4 above) in relation to the 2000 Agreement.
None of the remaining participants in the 2004 Agreement
had been involved in either the 1996 Wheat Shipment, or
the 2000 Agreement, and had little background and
knowledge. Mr Harley was not involved in the negotiation
or execution of the 2004 Agreement.
As to "satisfactory relations" with government, BHPP
maintained regular contact with DFAT and the Australian
Government from March 2003 (after the war) in relation to
its renewed interest in Iraq. Having reviewed various
communications, the Steering Group considers that BHPP,
in keeping DFAT and the Australian Government apprised of
its dealings in Iraq, at all times acted appropriately
and consistently with BHP Billiton policy.
7.5 Broader observations and areas for improvement in
light of the 2004 Agreement
error of 2000. The Steering Group has not identified any
secondary issues in connection with the 2004 Agreement.
8 Has BHP Billiton, BHPP, or any of their officers,
ever held an interest in Tigris?
8.1 The facts
Following extensive searches with ASIC and the Gibraltar
Companies House, only the following registered entities
related to Mr Davidson Kelly were identified as
potentially relevant to this question:
* Tigris (incorporated on 6 September 2000, and
registered in Gibraltar);
* Tigris Australia (incorporated on 26 September 2000 and
registered in Australia);
* Maritimo (incorporated on 28 February 2000, and
registered in Gibraltar); and
* Line Holdings Limited, Line Nominees Limited and Line
Secretaries Limited (incorporated on 15 July 1988, 15
July 1988, 6 March 1980 respectively, and registered in
Gibraltar).
As at the date of the searches carried out (January and
June 2006):
* Mr Davidson Kelly was the sole current director of
Tigris Australia and its sole shareholder was Maritimo;
and
* Line Nominees Limited held the entirety of the shares
in Tigris and Maritimo.
8.2 Commissioner Cole"s observations
Commissioner Cole found that:
* "Tigris is a company registered in Gibraltar.... (Its)
directors ... are lawyers in Gibraltar and its sole
shareholder is a foundation, in the nature of a trust,
the beneficiaries of which are relatives of Mr Davidson
Kelly"s wife"; and
* "Tigris Australia is a company ... incorporated in
Australia, (with) Mr Davidson Kelly as its sole director
and secretary. All shares in Tigris Australia are owned
by Maritimo ... (a) Gibraltar registered company ...
ultimately owned by Mr Davidson Kelly".
8.3 Has BHP Billiton, BHPP or any of their officers,
ever held an interest in Tigris?
BHP Billiton and BHPP do not hold, and never have held,
an interest in any of the companies referred to at part
8.1 above.
On the basis of the information available to the Steering
Group (including from the searches set out at part 8.1
above), there is no suggestion that BHP Billiton, or
BHPP"s officers, have ever held any interest in any of
the companies referred to at part 8.1 above, other than
Mr Davidson Kelly, who left BHPP to set up Tigris.
8.4 Agreements with Tigris and Tigris Australia
BHPP has been a party to various agreements with Tigris
and Tigris Australia (and in some cases, other parties)
since September 2000. Each of the agreements was related
to opportunities in Iraq.
Since the Cole Commission hearings began, BHPP has
terminated the 2004 Agreement with Tigris, and Tigris has
exited from a participation agreement with BHPP and other
parties.
BHPP is currently a party to two co-operation
arrangements, which include Tigris, in relation to Iraq.
BHP Billiton is reviewing both arrangements in light of
the findings of Commissioner Cole.
BHPP will not conduct any new business with Mr Davidson
Kelly, any of the companies mentioned at part 8.1 above,
or any other company associated with Mr Davidson Kelly.
29 November 2006
Further information on BHP Billiton can be found on our
Internet site: www.bhpbilliton.com
Australia
Samantha Evans, Media Relations
Tel: +61 3 9609 2898 Mobile: +61 400 693 915
email: Samantha.Evans@bhpbilliton.com
Jane Belcher, Investor Relations
Tel: +61 3 9609 3952 Mobile: +61 417 031 653
email: Jane.H.Belcher@bhpbilliton.com
United Kingdom
Mark Lidiard, Investor & Media Relations
Tel: +44 20 7802 4156 Mobile: +44 7769 934 942
email: Mark.Lidiard@bhpbilliton.com
Illtud Harri, Media Relations
Tel: +44 20 7802 4195 Mobile: +44 7920 237 246
email: Illtud.Harri@bhpbilliton.com
United States
Tracey Whitehead, Investor & Media Relations
Tel: US +1 713 599 6100 or UK +44 20 7802 4031
Mobile: +44 7917 648 093
email: Tracey.Whitehead@bhpbilliton.com
South Africa
Alison Gilbert, Investor Relations
Tel: +27 11 376 2121 UK +44 20 7802 4183
email: Alison.Gilbert@bhpbilliton.com
Date: 29/11/2006 08:08:23 AM Produced by the JSE SENS Department
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