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September 30, 2004

Did Saddam bribe European Politicians?

Posted by Michael Mosbacher

Last night the Social Affairs Unit hosted a talk, on Saddam's Oil Vouchers - The European Dimension, by Dr Nimrod Raphaeli, formerly of the World Bank and now the Iraq specialist for MEMRI. Dr Raphaeli argued that documents found in Iraq suggest that Russian individuals and organisations were the largest recipients of Saddam's largesse, with French individuals and entities also well represented. Here is some of what Dr Raphaeli, who has testified before the US Congress on Saddam Hussein's oil vouchers, had to say:

In the mid 1990s, seeking to alleviate the hardships created by the multilateral sanctions imposed on Iraq in August 1990 following its invasion of Kuwait, the UN Security Council sanctioned a program whereby Iraq could trade oil for food. The 'Oil-for-Food' program (OFF), which was authorized by Security Council Resolution 986 in April 1995, and finally put into operation in December 1996 following more than eighteen months of Saddam's haggling, became the largest humanitarian program ever managed by the United Nations.

However, the program has led to a monumental scandal. On January 25, 2004, the Iraqi independent daily, al-Mada [the Horizon] published a list of approximately 270 individuals and entities from about 50 countries who had received oil vouchers from the Saddam regime with Europeans topping the list as the largest beneficiaries. In essence, the Saddam regime was engaged in a scheme of siphoning off enormous amount of riches to those who needed them least from those who needed them most - the Iraqi people.

The ensuing scandal has implicated Saddam and his regime, the beneficiaries, and the United Nations bureaucracy which was assigned the responsibility for administering OFF.

A Broad Scheme of Corruption
The oil vouchers were part of a broader scheme by the Saddam regime to subvert the 'Oil for Food' program. By the late 1990s, there were widely reported stories that the Saddam regime had began to generate illicit revenues by instituting a surcharge scheme on oil sales under OFF. Pursuant to this scheme, Iraq would charge an extra 10 to 35 cents per barrel 'surcharge' on Iraqi oil sales transacted under the program. The size of the 'surcharge' varied with the oil shipment's destination, with the highest surcharge reserved for oil shipments to the U.S. which, throughout the sanctions regime, was one of the largest, if not the largest, importer of Iraqi oil. After the surcharge program became known, the U.S. and the U.K. insisted on a new 'retroactive pricing' of Iraqi oil, ensuring that the actual price paid was close to 'fair market value' - a requirement under Resolution 986 which sanctioned the program - and that not enough leeway was left for the surcharge the Iraqis were seeking. In addition to the surcharge, there was vast oil smuggling through a pipeline from Kirkuk (Iraq) to Banyas (Syria), through trucks to Turkey and through small boats to Iran and various Gulf countries. An unintended result, was a major environmental disaster in Shat al-Arab because of oil spillage over the years.

As a matter of record, the U.K. and the U.S. were the only two of the Security Council's five permanent members who paid attention to the abuses under the program and had often put a 'hold' on contracts suspected of providing goods for dual military-civilian purposes or because they quoted prices that were perceived to be higher than market prices at the time or were generally not considered eligible under the program.

Vouchers Distribution by Region
The Saddam regime provided entities and individuals in 16 European countries with oil vouchers for a total of 4,350.4 million barrels of oil. European beneficiaries were by far the largest beneficiaries of the vouchers with 3,441.8 million barrels or 79 per cent of the total, followed by beneficiaries in the Middle East with 540.8 million barrels or 12.5 percent of the total. Asia comes third with 260.5 million barrels or 5.9 percent of the total, with Africa and North/South America trailing at the bottom with 1.3 percent each. As far as we know, all vouchers were issued by Saddam or at his behest.

Russian beneficiaries received the lion's share of vouchers for a total of 2553.5 million barrels or 74.1 percent of the European total but only 58.6 percent of the grand total. If we add Belarus and the Ukraine the share of the former Soviet Union will rise to 2,784.2 million barrel, or 80.9 percent of the European share and 63.9 percent of the grand total.

The preponderant share of Russia in the oil vouchers is not surprising given that Russia had remained Saddam Hussein's friend and supporter to the very end of his regime. The most intriguing question is whether the vouchers in the amount of 1,366 million barrels granted to the 'Russian State' were intended to provide a handsome commission to a reliable friend or whether they were meant as authorization of shipments of oil to Russia at vastly discounted prices to pay for illicit goods from Russia, mainly weapons and other military supplies. Russia itself is a major exporter of crude oil and it would defy both logic and economics as to why Russia would import Iraqi oil for its local consumption. One can only speculate that the Russian state, to the extent that it paid for the Iraqi oil, would have most likely sold it quickly on the international market, making a handsome profit in the process. It was known at the time that Russian traders were active on the Iraqi oil scene. In fact, according to the Iraqi press at the time, Saddam Hussein insisted on selling oil to the U.S. through Russian traders. It would not be too much to expect that one of the many on-going investigations of the 'Oil for Food' program will shed light on this issue.

The second largest group of beneficiaries of oil vouchers, with 165.2 million barrels or 4.7 percent of the European total, is in France, another staunch supporter of Saddam Hussein. But France was a beneficiary of another kind. At Saddam's instructions, oil revenues were deposited in an escrow account at Banque Natinale de Paris-Paribas. The deposits over the life of the program totaled perhaps as much as $65 billion.

Pricing Transfer
The special account at BNP-Paribas reimbursed the suppliers for goods exported to Iraq, after advance authorization by the United Nations. However, it was the Iraqi government which negotiated the deals with the exporters or suppliers. At the stage, the two sides (the government and the suppliers) connived to add a big margin, a minimum of 10 percent, to the negotiated price. The additional margin, commonly known in business as pricing transfer, was then deposited either in individual accounts or in the account of Iraqi embassies abroad which, in turn, transferred the money in cash back to Baghdad. The margin on contracts is confirmed by a message marked 'secret and urgent' dated August 3, 2000, from Iraq's Vice President Taha Yassin Ramadhan and addressed to 'concerned ministers'. The message said that 'the Iraqi leadership' desires to obtain 'additional income…at the highest percentage possible' from the 'oil for food' agreement provided such additional income is made by secret transfers to Iraqi accounts in Jordan and the United Arab Emirates.

The Authenticity of the List
One of the oft-asked question concerns the authenticity of the list. I am not a forensic expert but I believe the list is authentic for the following reasons:

The first reason has to do with who is on the list. It is difficult to imagine, unless one is dealing with pure science fiction, a list of beneficiaries that would be quite so diverse;

Second, quite a few of those on the list have admitted receiving oil coupons but argued they were granted the vouchers in payment for goods provided and/or services rendered. Such an argument is completely disingenuous because those contracted under the 'Oil for Food' program were paid by the United Nations directly. If they were indeed paid by oil vouchers for such goods and services it is for contracts concluded outside the 'Oil for Food' program, and likely for illegitimate purposes or as a bribe;

Third, the former secretary general of the Ministry of Petroleum, Abdul Sahib Salman Qutub has confirmed that the list was prepared by the State Oil Marketing Organization (SOMO); and

Fourth, relying on Iraqi and Arab press, MEMRI had drawn attention to the abuses of the 'Oil for Food' program as early as May 2002. In MEMRI's dispatch we underscored the 10 percent kickbacks on contracts with the framework of OFF, the issue of surcharges on the sale of oil, oil smuggling and the use of oil coupons which allow the recipients to receive a certain amount of oil either free or at discounted price. Hence, the publication of the list in the daily al-Mada came as no surprise.

Update October 8th: The claims made by Dr Nimrod Raphaeli in his talk the Social Affairs Unit have now been supported by the official report of the Iraq Survey Group under Charles Duelfer, the US chief weapons inspector. See: How Saddam tried to bribe the world and break UN sanctions and Saddam had only weapons of mass corruption in The Times, How UN aid let Saddam spread web of corruption in the Daily Telegraph and French and Russians 'took cash from Iraq' in The Guardian.

Update October 28th: Dr Nimrod Raphaeli has produced an update on the oil for food programme in the light of the Iraq Survey Group/Duelfer report, Saddam's Oil Vouchers Revisited.


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Today Kofi Annan blamed the UK and US for the oil-for-food scandal. Granted, mistakes may have been made. But no-one is suggesting that either the US or UK governments took bribes to make those "mistakes" as in the case of Benon Sevan. Neither is it being suggested that either government spent 7 months shredding all the incriminating documents as in the case of Iqbal Riza.

But it is perhaps wrong however to vilify the U.N. for its institutional corruption. It is handicapped at every turn by its membership of institutionally corrupt and self interested states. Why should UN kleptocrats be expected to keep their fingers out of the till when the Al-Mada 270, including the French and Russian Governments, cannot?

The war in Iraq was a direct consequence of Saddams belief that the U.N. had been bought and paid for and that we and the Americans would lack the political willpower to bring him into compliance with his 1991 commitments by force without the approval of the UN.

Let us not forget that Oil-for-food was supposed to be a charitable undertaking and that the cash that was stolen was supposed to feed starving children. The estimated amount stolen equates to roughly $40,000 per (UN estimated) dead child. Those responsible should be pursued accordingly.

So are you going to do the honourable thing now Kofi? "Hell no!".

Posted by: Simon Barnett at April 15, 2005 04:15 PM
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