The Australian wheat exporter AWB made secret payments totalling more than US$220m to Saddam Hussein’s regime in Iraq, a trial has heard.

AWB’s former chairman Trevor Flugge and its former group general manager trading Peter Geary are facing a civil trial for allegedly breaching their duties as officers.

The Victorian supreme court heard the Cole inquiry in 2006 found AWB had knowingly made secret payments to Hussein’s regime.

Norman O’Bryan SC, for the Australian Securities and Investments Commission, said it did not take long for the countries that invaded Iraq in 2003 to discover AWB’s contracts were artificially inflated.

O’Bryan said the Americans in particular were deeply suspicious of the contracts entered into by AWB under the UN oil-for-food program. After Iraq’s invasion of Kuwait in 1990 and the first Gulf war, the UN essentially took control of Iraq’s international trade, O’Bryan said.

The international community sought to limit and prevent the monstrous activities of Saddam Hussein after the invasion, he said.

“The UN sought to tighten its grip around Saddam Hussein by denying to him the use of international currency which they knew that he would use to buy things like weaponry to threaten and attack his neighbours.”

O’Bryan said that unknown to Australia’s international competitors, AWB had accepted a lower price for its wheat than was recorded in its contracts.

He said the nominal contract price was inflated by disguised payments for inland transport and after-sales service, which effectively handed international currency to an Iraqi government desperately in need of it.

“In effect AWB became an exporter of two commodities from Australia – wheat and cash,” O’Bryan said.

“The contract of course didn’t say anything like that because the cash component was buried in the fine print of the contract. But that’s effectively the business that AWB decided to involve itself in when it agreed to pay these fees and when it increased over the years to these extraordinary amounts of money.”

The court was told AWB made payments for purported inland transport and after-sales service fees totalling more than US$220m between July 1999 and March 2003, which AWB then recovered from a special UN account. If the fees were not paid, the ships carrying the wheat would not be unloaded in Iraq.

O’Bryan said the inland transport fees had increased to extraordinary levels after 1999.

“The completely inexplicable inflation of the so-called inland transportation fees … would have made it as plain as a pikestaff it had nothing to do with the cost of inland transport.”

He said AWB had sought no explanation or justification for what was happening to the money it was paying to an intermediary company. “It simply closed its eyes and paid,” O’Bryan said.

AWB and the Iraqi Grain Board made up new trade terms in their contracts under the oil-for-food program, the court heard.

“The inland transportation obligation was a sham because, contrary to the written terms of the OFFP contracts, neither AWB nor IGB ever intended or expected that AWB would deliver or transport, or arrange to deliver or transport, any AWB wheat within Iraq.”

The Asic legal action started in 2007.

In a statement released by his lawyers, Flugge maintained he had done nothing wrong. “My family and I have had to live with untested allegations, rumours and innuendo levelled over the years,” he said.

“For the sake of my family, I trust that these will finally be put to rest. I fervently believe now, as I did from day one, that I have done nothing wrong.”