The official inquiry into whether three Australian companies paid huge bribes to former Iraqi president Saddam Hussein's regime could yet prove embarrassing for Canberra after it emerged that investigators are scrutinising the government's role in the affair.

The commission of inquiry, which began in Sydney this week, was set up by John Howard, Australia's prime minister, following last November's report by Paul Volcker into the United Nations' discredited 1996-2003 oil-for-food programme. The report alleged that AWB, Australia's national wheat exporter, paid US$220m (€182m, £125m) in kickbacks to Iraq's government, the largest amount of any of the 2,200 companies worldwide that dealt with the Iraqi regime.