In July 2016, Mr. Trevor Flugge
A former executive of the Australian Wheat Board, was found guilty of violating the conditions of his employment agreement as the head of AWB Limited. The findings by the Victorian Court, according to a report submitted by the Australian Securities and Investment Commission (ASIC), reveal the moist compelling truth about the incidents that marked the most well-known white-collar crime (WCC) ever experienced in UN and Australian government quarters. Iraqi officials required kickbacks as part of the UN-instituted program known as Oil-For-Food in Iraq, which they referred to as a transport fee. (Frain, Bell, & Lauchs, 2013). According to the report, the AWB used the special account given by UN to withdraw funds after they had inflated the price of wheat supply and payed for the transport fees to a company, called Alia in Iraq (Australian Securities and Investment Commission).
The kickbacks amounted to over US $221.7 million at the time of UN revelation of the crimes (Dunlop & Coghlan, 2006). In analytical point of view, it is clear that it was a form of white-collar crime that only necessitated the intervention of regulatory authorities, such as the Australian Wheat Export Authority (WEA), the Department of Foreign Affairs and Trade (DFAT). Others were the Australian Securities and Investment commission at the time, as well as the United Nations Security Council (Siewert, 2005). The current paper, therefore, will aim to emphasize the role of the main regulators at the time, WEA and the Department of Foreign Affairs and Trade in line with routine theory activity theory as a basis for the failures of regulations within the AWB scandal as a form of white-collar crime.
Description
The rise of globalization has condensed the geographical space that used to limit the extent, at which nations could interact and conduct business. People and institutions are now much able to relate positively without thinking of boundaries that limited them in time with the advent of technology. The rise of this globalized village has also brought with it some challenges regarding crime control and regulation. The most common of them is the white-collar crime involving extortion and bribery.
The Australian Wheat Board scandal is one of the most common white-collar bribery example ever witnessed in history (Frain et al., 2013). The scandal took place between the years 1990 and ended in 2003 after an inquiry was placed over the allegations later in 2004. According to evidence, AWB was acting on behalf of two main interests: first was the desire to make wheat growers in Australia happy by securing the contracts and second as the need to meet business requirements in Iraq. Regardless, the scandal ramifies the notion that it was being conducted under the watchful eyes of the Department of foreign affairs and trade as well as the Australian Wheat Export Authority. At the mention of the scandal, several ethical concerns are raised, especially regarding cultural relativism and absolutism, that guided the kickbacks to take place.
The events unfolded between 1999 and 2003, where AWB was conducting business under the sanctions of United Nations agenda, called Oil-For-Food-Program (OFFP). In this plan, the company was required to sell humanitarian food to Iraq in exchange for oil that it could get from Iraq government. Since Saddam Hussein was the president by then, there is increasing evidence pointing to how he manipulated the transaction to get kickbacks through his Ministry of Trade docket. By 1999, the Iraq Grain Board (IGB) started to demand internal transportation fees to be paid to a company called Alia for the sale of wheat (Cockfield & Botterill, 2007). According to Volcker, Goldstone, & Pieth (2005), Iraq's demands were imposed on over 139 companies that were doing humanitarian supply under the sanction of the UN's security council, and it received over 2,253 kickbacks, including those of AWB. By then, Iraq was recovering from the aftermath of the Kuwait attacks it had conducted in 1990, but defeated by the United States.
Under the mandate of UN, every amount of money from the sales was to be remitted to the French account in the UN-monitored bank called Bank Nationale de Paris (BNP) (Frain et al., 2013). AWB received a total of $2.3 billion by selling the humanitarian products to Iraq, and it amounted to over 221.7 million in illicit fees to the Iraq government. The grain board was the sole controller of all transportations of supplies such as wheat in Iraq, and this was an opportunity to make profits, using the fees. The agreed fee began at $12 per ton of wheat supplies in 1999. Then, in mid-2000, the fee rose to $15 per ton. Further, in 2011 going forward, the fees stood from $45-56 per ton for the supplies. These fee increases matched the period when Iraq introduced memoranda, detailing after-sales service to be part of all tracking fee (Volcker et al., 2005). By law, all transaction payment under OFFP were to pass through the escrow account established by UN, but AWB had no interest in doing so. Instead, it paid directly to the transportation company, prompting more questions over the allegations of regulations.
As a rule, the first concerned party regarding regulation should have been the United Nations since all transactions were being conducted under the same organizations' bank account that is monitored. They should have found a way of controlling all forms of payments to go through the escrow account, and all withdrawals monitored without necessarily waiting for over four years. Since AWB was interested in large wheat contracts from the Iraq government, they had to oblige and make the payments of tracking fee and ASSF to Alia (Frain et al., 2013). The result of their failures is a long-standing case that was just recently resolved, and it was evident under the agreement the AWB supplied over 12 million tons of wheat under 45 contracts and in 285 shipments (Siewert, 2005). The shipments made the Iraq government wrack in more than 217 million in kickbacks, leading to media recognition and UN request to Paul Volcker to make an inquiry that revealed everything as noted above.
Theoretical Review
Specific emphasis on any form of white-collar crime results in the sporadic mentioning of several theories without necessarily linking them with regulation lapses. The fact that the Commonwealth regulators such as Australian Wheat Export Authority and the Department of Foreign Affairs and Trade failed to conduct a thorough inquiry and regulation into the crisis makes analysts think twice. Their thoughts revolve around the role of the Australian government in these business deals over the course of the four years.
Cultural Relativism
Looking back at the period when the scandals started, to get the limelight, it is evident that they occurred at different cultural backgrounds. The cultural diversities that come with them are two ethical theories regarding the bribery cases. Most international bribery cases occur between countries with different cultural bearings. The Islamic culture of Iraq is quite different in terms of the norms and values regarding bribery, compared to the more expansive and considerate Christian Culture of Australia. As for cultural relativism theory, a country such as Iraq doing bribery is normal, because everyone was doing it, especially under the sanction of the United Nations. In other words, if the UN had backed the process, then it is not a big issue to regulators, since by the end of the period, Iraq had received $1.5 billion, with over 2253 OFFP products dispatched. The kickbacks were just a measure of securing business goals. They wanted to maneuver a distorted global market, and at the same time, retain contracts while they make sure that their wheat growers are satisfied back home. Relativism holds that, apart from local norms that control the conduct of people, no other norms can be used to control others in the globe or somewhere else. In this regard, it was very difficult for Commonwealth regulators, such as DFAT and WEA, to offer sanctions over to Iraq, since it was the source of all bribery cases. On the other hand, the involvement of UN sanctions should have intervened when they realized that there was no remittance of money into their accounts by Australian wheat suppliers and even when the Canadian officials reported of being coerced by Iraqi officials to offer kickbacks (Dunlop & Coghlan, 2006).
Ethical Absolutism
Ethical absolutism infers that there is a universal set of principles that are shared by all regarding business and conduct. In reality, international business is fostered by the limited control regarding norms, because people come from different backgrounds. In this instance, imposing any form of regulation is quite impossible, because one would wish to make a profit, while the other may wish to retain a competitive edge among other issues. In this case, people do not act regarding their culture rather their values and norms. However, in Iraq, values and norms were quite absent, whereas profit-making was the case. Nonetheless, down to Australia, DFAT and WEA as well as the UN should have acted to provide a way, in which AWB could have limited the amount of money it withdrew and deposited into the escrow account.
Routine Activity Theory
Apart from ethical theory, there is literature linking Routine Activity Theory to the AWB scandal as well as the regulation process. The theory offers that a crime has to occur with the confluence of motivated offender, the appearance of a target that is suitable, and a guardian's absence that is capable. The motivated offender is any individual, who has an interest in committing a crime, the motivated target is that individual or entity the motivated offender is after, and a capable guardian is that individual or institution that can prevent a crime from taking place (Frain et al., 2013). According to the literature of the theory, apart from the three, six other basic precincts need to be considered when analyzing a case, such as the AWB scandal. First of all, these are the cultural variability, moral imperialism, and intimate handler. The fourth is the place manager, then the crime facilitator, and finally unallocated events.
The suitable target must have involved several issues, including the processing of association during the period of the scandal. The first must have been the provision of an illegal service, giving out benefit outside the purpose intended as well as an individual entity being compliant to a bribe scheme. The result of this is that the two persons will comprise their values and norms to facilitate the intended claim and purpose. AWB and Alia, as well as Iraqi government, did score highly regarding a suitable target.
In this instance, the theory asserts that the Commonwealth regulators such as the Australian Wheat Export Authority (WEA) and the DFAT should have been the capable guardians, who could control and stop the bribery from taking place. The Organization for Economic Cooperation and Development envisaged this challenge and offered governments to sign into action the UN-backed Convention against corruption in 2000 and the 2003 convention against transnational crime. Apart from that, they offered to have the government implement the points within the Commonwealth Criminal Code Act of 1995 (Frain et al., 2013). From this act, it is evident that the government under the department of foreign affairs had a regulatory obligation to oversee the findings of the monopoly of AWB and Iraq officials.
Regarding the variability of culture, the theory looks at the difference in the convergence of Iraqi culture, compared to that of Australian AWB officials at the time of the scandal. Iraqi regime at the time had no interest in regulating its relationship with Australia over the course of the association. Australian culture of association is majorly based on ethics and universal norms of humanitarianism. Therefore, regulation in that country should have been based on ethics of the officials in whatever capacity they must have been serving in the AWB limited, the government officials, and AWE officials, among others.
The motivated offender is that individual with an interest in conducting an international white-collar crime. Regardless of his positioning in the market, a motivated offender will go for profit, rather than considering social implications that that effort would lead him into in the future. Saddam Hussein can be said to be one of the most motivated offenders in history because after the defeat in Kuwait, he had an ambition of revenge to any Commonwealth country that had affiliations with the US through the UN-backed humanitarian food supply (Dunlop & Coghlan, 2006). He had oil, but needed a foreign reserve to sustain his mission of becoming once again powerful.
Analysis
The concept of regulation has been quite evident to be a tough one when it is associated with international white-collar crimes, such as bribery. Corruption has destroyed the integrity of many institutions, and the Australian Wheat Board is one of them after the scandal, involving the Iraqi officials. Opinions link to the moral erosion, depicted by the firm in the wake of the discovery of the scandal, but more emphasis should not only point to the organization, but rather it should be aimed at the collapse and failures of the regulators during the crisis.
Routine action theory looks at the three main areas of white-collar crime: a suitable target, motivated offender, and capable guardian. A motivated offender will always be that person with an interest to conduct a crime, and in this case, it is both Iraqi government, Alia, and AWB. All of them were interested in one thing or the other. For instance, AWB was interested in retaining its influence among Iraqis and local wheat farmers in Australia. However, regarding regulators, the main motivated ones were the Iraqi government. Under the President's guidance, it initiated the bribery and failed to stop it until the scandal was revealed by the United Nations that failed to make an inquiry on time. By the time they were discovering the scandal, the Iraqi government had amassed over $1.5 billion in kickbacks, and out of that sum, $227 million was from AWB. The failure of the United Nations under the guidance of OECD and the Chamber of Commerce to act in time to stop the crime from taking place was the reason for their failures during the scandal. One can cite negligence as the cause of the scandal, especially on the part of the United Nations officials. The United Nations as the capable guardian failed to stop the motivated offender, who was mainly the Iraq government in time, and AWB as well as Alia to meet a suitable target, which was bribery. Their laxity in blowing the whip on these three entities meant that they were fine with the event, and one can only imagine how long it took them to record that funds that had been stolen irregularly through kickbacks, under their watch.
Back at home, the Australian Export Authority, together with Australian Securities and Investment Commission as well as DFAT, were charged with the mandate of overseeing the whole monopoly of AWB in International business (Siewart, 2005; Glass, Wee, & Campbell, 2016). However, in their respective capacities, they left this operation to the guidance of executives of AWB, together with turbulent global competitive market forces, that controlled everything at that time. Instead of implementing the conditions provided by OECD under the Commonwealth Crimes Act of 1995, laxity and lack of seriousness in the face of huge oil imports cheated them. They focused only on restoring their oil reserves from the trade with the Iraq government. At some points in their bilateral arrangements, they held meetings with the Iraq government well before the scandal even began. There were two-pronged agreements between them that prompted the whole operation to be awarded to AWB in the form of contracts. Failure to investigate the officials of AWB also meant the managers were allowed to work under the fewer restrictions available, and no amount of control could stop them. Corruption and negligence by the guardians (AWE and DFAT) were the biggest force, controlling the whole process.
Conclusion
When analyzed, the AWB scandal reveals that the failure of regulation was done mainly due to corruption and negligence of officials, mandated to do their jobs. The Iraq government and Alia Company were under the watch of OECD and the UN, but they remained powerfully corrupt even to avoid money going into the escrowed UN account in Paris for their gains. The AWB Limited remained under the watchful eye of Australian Wheat Export Authority and the Department of Foreign Affairs and Trade, but the level of their negligence prompted the law on international Commonwealth Crime Act of 1995 not to be implemented fully, leading to more bribery and corruption, involving Iraq officials. The failure of the department under the guidance of the government still renders more analysts to ask questions over the engagement of the regime in the scandal even up to now. The facts point to the same conclusion, but the government retains its innocent role in the event.
References
Australian Securities and Investment Commission. (2016). 16-441MR court finds AWB chairman breach his duties by failing to investigate Iraq payments. Retrieved on Feb. 20, 2017, from http://www.asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-441mr-court-finds-awb-chairman-breached-his-duties-by-failing-to-investigate-iraq-payments/
Cockfield, G., & Botterill, L. C. (2007). Deregulating Australia’s wheat trade: From Australian wheat board to AWB limited. Public Policy, 2(1), 44-57.
Dunlop, E. R. & Coghlan, I. A. (2006). The ethics of relativism and absolutism: An examination of the Australian wheat board case. Retrieved on Feb. 20, 2017, from http://www.anzmac.org/conference_archive/2006/documents/Dunlop_Elizabeth.pdf
Frain, M. F., Bell, P., & Lauchs, M. (2013). The Australian wheat board scandal: Investigating international bribery. International Journal of Business and Commerce, 2(9),1-19.
Glass, S., Wee, S., & Campbell, A. (2016). AWB “oil for wheat” scandal – the duty of directors to investigate.gtlaw.com.au. Retrieved on Feb. 20, 2017, from https://www.gtlaw.com.au/insights/awb-oil-wheat-scandal-duty-directors-investigate
Siewert, R. (2005). Government role in AWB scandal will come out…one way or another. Retrieved on Feb. 20, 2017, from http://rachel-siewert.greensmps.org.au/articles/government-role-awb-scandal-will-come-outone-way-or-another
Volcker, P. A, Goldstone, R. J., & Pieth, M. (2005). Manipulation of the Oil-for-Food Programme by the Iraqi regime. Independent Inquiry Committee into the United Nations Oil-for-Food Programme.
