Hussein siphoned billions from Iraq business deals

Illicit funds funneled through foreign banks, say officials, documents

February 29, 2004|By NEW YORK TIMES NEWS SERVICE

BAGHDAD, Iraq - In its final years in power, Saddam Hussein's government systematically extracted billions of dollars in kickbacks from companies doing business with Iraq, funneling most of the illicit funds through a network of foreign bank accounts in violation of United Nations sanctions.

Millions of Iraqis were struggling to survive on rations of food and medicine. Yet the government's hidden slush funds were being fed by suppliers and oil traders worldwide who sometimes lugged suitcases full of cash to ministry offices, said Iraqi officials who supervised the skimming operation.

The officials' accounts were enhanced by a trove of internal Iraqi government documents and financial records provided to The New York Times by members of the Iraqi Governing Council. Among the papers was secret correspondence from Hussein's top lieutenants setting up a formal mechanism to siphon cash from Iraq's business deals, an arrangement that went unnoticed by U.N. monitors.

Under a U.N. program begun in 1997, Iraq was permitted to sell its oil only to buy food and other humanitarian goods. The kickback order went out from Hussein's inner circle three years later, when limits on the amount of oil sales were lifted and Iraq's oil revenues reached $10 billion a year.

In an Aug. 3, 2000, letter marked "urgent and confidential," the Iraqi vice president, Taha Yassin Ramadan, informed government ministers that a high-command committee wanted "extra revenues" from the oil-for-food program. To that end, he wrote, all suppliers must be told to inflate their contracts "by the biggest percentage possible" and secretly transfer those amounts to Iraq's bank accounts in Jordan and the United Arab Emirates.

Iraq's sanctions-busting has long been an open secret. Two years ago, the U.S. General Accounting Office estimated that oil smuggling had generated nearly $900 million a year for Iraq. Oil companies had complained that Iraq was squeezing them for illegal surcharges, and Hussein's lavish spending on palaces and monuments provided more evidence of his access to unrestricted cash.

But the dimensions of the corruption have only lately become clear, from the newly available documents and from revelations by government officials who say they were too fearful to speak out before. They show the magnitude and organization of the payoff system, the complicity of the companies involved and the way Hussein bestowed contracts and gifts on those who praised him.

Perhaps the best measure of the corruption comes from a review of the $8.7 billion in outstanding oil-for-food contracts by the provisional Iraqi government with U.N. help. It found that 70 percent of the suppliers had inflated their prices and agreed to pay a 10 percent kickback, in cash or by transfer to accounts in Jordanian, Lebanese and Syrian banks.

At that rate, Iraq would have collected as much as $2.3 billion out of the $32.6 billion worth of contracts it signed since mid-2000, when the kickback system began. Some companies would pay more than the standard 10 percent, according to Trade and Oil Ministry employees.

Iraq's suppliers included Russian factories, Arab trade brokers, European manufacturers and state-owned companies from China and the Middle East. Iraq generally refused to buy directly from U.S. companies, which needed special licenses to trade legally with Iraq.

Iraq also created a variety of other, less lucrative, methods of extorting money from its oil customers. It raised more than $228 million from illegal surcharges it imposed on companies that shipped Iraqi crude oil by sea after September 2000, according to an accounting prepared by the Iraqi Oil Ministry late last year. An additional $540 million was collected in under-the-table surcharges on oil shipped across Iraq's land borders, the documents show.

"A lot of it came in cash," recalled Shamkhi H. Faraj, who managed the Oil Ministry's finance department under the old government and is now general manager of the ministry's oil-marketing arm.

U.N. overseers say they were unaware of the systematic skimming of oil-for-food revenues. In any case, they add, they were focused on running aid programs.

The director of the Office of Iraq Programs, Benon V. Sevan, declined to be interviewed about the oil-for-food program. In written responses to questions sent by e-mail, his office said he learned of the 10 percent kickback scheme from the occupation authority only after the end of major combat operations.

As details of the corruption have recently emerged, law enforcement authorities in several countries said they had opened criminal and civil investigations into whether companies violated laws against transferring money to Iraq. Treasury Department investigators have been helping the Iraqi authorities recover an estimated $2 billion believed to be left in foreign accounts. So far, more than $750 million has been found in foreign accounts and transferred back to Iraq, said Juan C. Zarate, a deputy assistant Treasury secretary.

To some officials of Iraq's provisional government, what is perhaps most insulting is how little their country got for its oil money. Taking stock of what was bought before the U.S.-led invasion toppled Hussein last spring, they have found piles of nonessential drugs, mismatched equipment and defective hospital machines.

"You had cartels that were willing to pay kickbacks but would also bid up the price of goods," said Ali Allawi, a former World Bank official who is now interim Iraqi trade minister. "You had a system of payoffs to the bourgeoisie and royalty of nearby countries. Everybody was feeding off the carcass of what was Iraq."

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.