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8Ed.sol8.07 - CASE 8.7 AUSTRALIAN WHEAT BOARD Synopsis The...

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CASE 8.7 AUSTRALIAN WHEAT BOARD Synopsis The Australian government created the Australian Wheat Board in 1939 to help the nation’s struggling wheat farmers. All wheat grown in Australia had to be sold to this government agency. The resulting proceeds were then distributed on a pro rata basis to the nation’s wheat growers. In 1999, the Australian government converted the Australian Wheat Board into AWB Limited, a company controlled by the country’s wheat growers. By this time, the domestic wheat market had been deregulated, but AWB retained the exclusive right to export Australian wheat to other nations. Thanks to AWB and its predecessor, Australia became the second largest wheat exporter in the world, second only to the United States. Other large wheat exporters around the globe frequently criticized the market structure that Australia had established for its wheat industry, insisting that the so-called “single-desk” system gave Australian wheat producers an unfair advantage in the intensively competitive international wheat market. These same critics suggested that AWB often paid bribes and kickbacks to secure lucrative wheat contracts with developing countries. Increasing concern over the integrity of international markets caused the OECD (Organization of Economic Cooperation and Development) in 1996 to issue the Convention against Bribery Of Foreign Public Officials in International Business Transactions . This convention was modeled after the U.S. Foreign Corrupt Practices Act of 1977. OECD members, including Australia, quickly adopted legislation to enact the key provisions of the OECD Convention, the principal provision being to criminalize payments made to officials of foreign governments for the purpose of obtaining or retaining international business relationships. AWB’s management team ignored the new law that incorporated the OECD Convention and continued to make illicit payments to officials of foreign governments to secure large wheat contracts in the global marketplace. Most notably, AWB paid approximately $300 million to Saddam Hussein’s regime to become Iraq’s largest wheat vendor under the U.N. Oil-for-Food Program. In addition to concealing these payments from the U.N., AWB was forced to conceal the illicit payments from its independent auditors, Ernst & Young. When two newly-hired executives became aware that suspicious payments were being funneled to the Iraqi government, they hired a consulting team from Arthur Andersen to investigate those payments. AWB’s management ignored the report prepared by the Andersen consultants that questioned the propriety of the Iraqi payments. A U.N. investigative team chaired by Paul Volcker discovered and reported the bribes paid by AWB to Saddam Hussein’s regime. The highly publicized scandal embarrassed AWB’s management and resulted in the company losing its exclusive right to export Australian wheat.
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76 Case 8.7 Australian Wheat Board Australian Wheat Board—Key Facts 1.
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