By ROD McGUIRK
The Associated Press
Monday, November 27, 2006; 4:17 PM

CANBERRA, Australia -- An inquiry cleared Australia's government of wrongdoing in an Iraqi oil-for-food scandal Monday, but recommended top officials of the monopoly wheat exporter face charges for paying more than $200 million to the Saddam Hussein regime.

Prime Minister John Howard promised the inquiry's key recommendations would be acted upon immediately and said the findings vindicated him and other top government officials who denied having prior knowledge of the kickbacks.

Howard's government launched the inquiry last year after an investigation by former U.S. Federal Reserve Chairman Paul Volcker exposed the AWB _ formerly the state-owned Australian Wheat Board _ as the largest source of suspect payments under the oil-for-food program.

Former Judge Terence Cole recommended police investigate 11 executives from the wheat exporter and a 12th from another company, saying they deceived the United Nations and likely broke Australian corporate and criminal law. But he found no evidence of wrongdoing by government officials in his monthlong investigation of the kickbacks.

Howard said a police task force would be set up to investigate AWB executives mentioned by Cole, who identified possible crimes but did not have the power to file charges.

Howard also said the government would review the system granting AWB a monopoly over Australia's wheat exports. The system has been criticized as unfairly protective by Australia's competitors on world grain markets.

"The government has hidden nothing," Howard told a news conference after the report was released. "The commissioner has found in the most emphatic terms imaginable that there is no evidence of wrongdoing" by the government.

Critics say the government was negligent for failing to respond to a string of diplomatic cables sent by Australian officials at the U.N. and in the Middle East warning that AWB may have been violating the sanctions imposed on Baghdad after its 1990 Kuwait invasion.

Labor opposition leader Kim Beazley said Howard's claims of vindication rang hollow, because the government should have known about the kickbacks and stopped them.

"What people expect of their political leadership is competence when they are handling national security matters and foreign policy matters," Beazley told Australian Broadcasting Corp. radio. "And what they've had from this government is gross incompetence."

The inquiry's government-given mandate was to examine company executives _ not government officials. Howard denied the investigative powers were set deliberately narrow to ensure the government was not implicated in the scandal.

Among the executives facing possible charges was AWB's former chairman, Trevor Flugge, who became widely known after a photograph became public of him, shirtless, brandishing a revolver during a trip to Iraq in 2003.

At the inquiry, Flugge said he was unaware the payments were in breach of U.N. sanctions. He was not immediately available to comment on the findings.

Brendan Stewart, AWB's chairman, said in a statement that his board "deeply regrets" the way in which the wheat trade with Iraq was conducted.

From 1999-2003, AWB executives allegedly authorized $222 million in bogus transport fees to a Jordanian trucking company, Alia Transport, that was partly owned by Saddam's government. Payments to Saddam were illegal under U.N. sanctions.

AWB allegedly inflated the cost of wheat it was charging to the oil-for-food program by as much as $50 per ton to cover the bogus transport fees, which the Iraqi Grain Board demanded as a condition of lucrative grain contracts.

Cole also called for a review of the powers of the industry regulator, the Wheat Export Authority, saying it failed to keep AWB in check in Iraq.

"AWB knew that the fee it was paying to Alia was not for the provision of transport services. It knew the fee was a payment to Iraq," Cole said, noting AWB went to "extraordinary lengths to hide the payment."

"These subterfuges were undertaken because AWB knew that the fees were not approved by the United Nations," Cole said.

Cole also found, however, that the world body knew Iraq was breaching sanctions by requiring extra payments for transport fees and after-sales service fees.

"It took no steps to publicize or warn member states of the Iraqi practices and it took no steps to stop the practices," Cole said.

In New York, U.N. spokesman Stephane Dujarric said files from the larger inquiry into oil-for-food "continue to be accessible and available to all judicial authorities investigating these allegations."

"What the United Nations Secretariat has done and how it handled the program has been thoroughly examined by Mr. Volcker for all to see in his voluminous report and we have accepted the findings of his investigation," Dujarric said.

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On the Net:

Inquiry Web site: http://www.offi.gov.au/