Number 32/06

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.

For further information please contact:

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: SA +27 11 376 2121 or UK +44 20 7802 4183
email: Alison.Gilbert@bhpbilliton.com

Internal Review Report of the BHP Billiton Steering Group
United Nations Oil-For-Food Programme
Summary
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 Petroleumcould 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).

Internal Review Report