WATCHING THE WORLD: Wheat, chaff, and oil deals

Dec. 4, 2006
Separating wheat from chaff is important in every business, the oil industry included.

Separating wheat from chaff is important in every business, the oil industry included. Such a separation has become especially important in Australia, where fallout from the United Nation’s Oil-for-Food Program continues.

Last week, BHP Billiton Ltd. said it broke no Australian laws in its dealings with Iraq under the UN program despite allegations that a former executive conspired to defraud the scheme of millions of dollars.

Norman Davidson Kelly was one of 12 people named in a government investigation of $222 million in kickbacks paid by Australia’s monopoly wheat exporter, AWB Ltd., to former Iraqi dictator Saddam Hussein under the program.

Tainted reputation

BHP became tainted by the scandal by evidence that one of its subsidiaries, BHP Petroleum-apparently in hopes of winning favor with the regime and gaining access to oil exploration rights-paid $5 million for an AWB wheat shipment to Iraq in 1996. Four years later, Tigris Petroleum, a company founded by Kelly, the former BHP executive, sought to recover the $5 million as a debt and allegedly contracted AWB to recover the money by inflating the price of wheat it was charging the program.

Judge Terence Cole cleared BHP and BHP Petroleum of wrongdoing in his report to the Australian government, but Cole found that Kelly may have breached the country’s criminal laws by conspiring with AWB to inflate wheat prices across two UN oil-for-food contracts. BHP Chief Executive Chip Goodyear, who had ordered a separate investigation by the firm itself, said: “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.”

Close call

Still, BHP has had a close call with the chaff of allegation. It has learned valuable lessons from the experience, saying 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. To avoid damage to its reputation, as well as similar inquiries in the future, BHP said it needs to take all available steps to ensure each of its employees, agents, and contractors knows and implements the standards of conduct in its charter and Guide to Business Conduct (GBC).

The firm said it will need to:

  • Clarify key criteria for community payments, donations, sponsorships, and business development expenditure.
  • Review mechanisms employed to ensure that agents and contractors are aware of the standards of conduct.
  • Review and assess the reach of its policies and guidelines governing recruitment, including training.
  • Amend the GBC (where appropriate) to provide further guidance on dealing with conflicts of interest and on selecting contract and joint venture partners.

That sounds, to borrow an advertising line from a breakfast cereal made from wheat, like the breakfast of champions.