The wheat was sold to Iraq under the oil for food programme

Australian Prime Minister John Howard has denied his government knew that wheat exporter AWB had paid kickbacks to Saddam Hussein's Iraq regime.

Mr Howard was commenting on a letter he wrote to AWB in 2002 recommending "close contact" with the government over its Iraq contract.

Mr Howard acknowledged the letter but said officials "were in no way involved with the payment of bribes".

AWB is now a private company but was the government wheat board at the time.

AWB was the largest single supplier of humanitarian goods under the UN-sponsored oil-for-food programme in Iraq between 1996 and 2003, which allowed the Iraqis to sell oil and import food and medicine under sanctions.

An inquiry in Sydney is trying to determine if AWB broke any Australian laws in its oil-for-food dealings.

Close contact

Mr Howard sent the 2002 letter to AWB managing director Andrew Lindberg following a threat by Iraq to cut in half wheat imports from Australia because of its support for the US.

"The government cannot accept any Iraqi attempt to politicise our wheat trade or to pressure us into dropping our support for UN Security Council resolutions requiring international inspection of Iraq's (weapons) facilities," Mr Howard wrote in the letter, a copy of which was seen by the Associated Press.

"In view of the importance of this matter, I suggest that the government and AWB Ltd remain in close contact in order that we can jointly attempt to achieve a satisfactory outcome in the longer term," it said.

The letter has been released to the inquiry.

Shortly after the letter was sent, officials from Australia's Department of Foreign Affairs and Trade accompanied Mr Lindberg on a visit to Iraq, the Sydney Morning Herald reported.

According to documents which have already been seen by the inquiry, AWB deliberately inflated the price of wheat it sold to Iraq.

But Mr Howard told ABC radio on Monday: "We were in no way involved with the payment of bribes. We didn't condone them, we didn't have knowledge of them, but we did work closely with AWB."

At the start of the third week of the inquiry's hearings, the head of the investigation, Terence Cole, said he was recommending "a large number" of criminal charges against AWB executives.

The inquiry is due to report its findings by the end of October.