awb caught in indian wheat scandal

Two Indian public servants have been arrested as part of an investigation into the corruption of Australia's $300 million wheat trade with India.

The two men, former head of India's State Trading Corporation, S M Deewan, and middleman Hari S Nanda, were arrested after raids on six properties across the country on Tuesday, News Ltd reported on Friday.

The investigation centres on India's purchase of two million tonnes of wheat from the Australian Wheat Board (AWB) in 1998, at what Indian authorities say were exorbitant prices, and despite India not needing supplies at the time.

As part of the contract, AWB agreed to pay a $US2.5 million commission into a Cayman Islands bank account, which is the focus of the Indian investigation.

Two other men were also being investigated over the payment, News Ltd said.

According to News Ltd, India's Central Bureau of Investigation wanted to pursue the scandal in 2001, 2004 and 2006, but each time was thwarted by the Howard Government's lack of assistance.

Tuesday's arrests were due to new Rudd Government's support for the investigation, it said.

Home Affairs Minister Bob Debus instructed the Australian Federal Police (AFP) to fully cooperate with Indian authorities, News Ltd said.

The Indian investigation is the latest scandal to involve the AWB, which in 2005 was found to have rorted the UN Oil for Food program in Iraq.

However, payment of the $2.5 million to the Cayman Islands account was not illegal in 1998, as it happened before the 1999 introduction of the Bribery of Foreign Public Officials Act, News Ltd said.

In 1998 AWB was still a government body, with the wheat board privatisation coming the following year.

A spokesman for the company said it had "fully cooperated" with AFP in their investigation, and "would continue to do so".