October 27, 2005

UN names oil companies in Iraq kickback scheme

By Timothy Gardner

UNITED NATIONS (Reuters) - Oil companies, including one
that employed an Iraq weapons supplier, paid hundreds of
millions of dollars in illegal kickbacks to Saddam Hussein
during the U.N. oil-for-food program, a U.N. report said on

Saddam Hussein's government took in $228.8 million from
surcharges in connection with oil contracts, the report said.
That was nearly 13 percent of the $1.8 billion in surcharges
Iraq received from more than 2,200 foreign companies during the
oil-for-food humanitarian program of 1996 to 2003, the report

Intricate webs of companies, individuals, and governments
stretching from Europe to Asia took part in paying illicit
surcharges to Saddam's government. Russia and France were the
countries with the most companies involved in the oil-for-food

The bulk of the illicit oil contract payments began when
Iraq began leveling surcharges at the end of 2000. The
surcharges, which lasted until the end of 2002, caused Iraq's
regular customers to balk, the report said.

As a result, a group of four trading companies financed and
lifted more than 60 percent of Iraqi crude oil in the market
from December 2000 to mid-2001, Phase IX of the oil-for-food

Those trading companies were U.S. and Bahamas-based Bayoil,
and three Swiss companies: Taurus, Vitol, and Glencore,
according to the report.

All of the oil traders, executives and companies have
denied knowingly making surcharge payments to Iraq.

Bayoil President David Chalmers and his former business
associate, Augusto Giangrandi, used a front company, Italtech,
to solicit oil allocations in Iraq, the report said.

Chalmers met Giangrandi, who was involved in selling
weapons to Iraq, in the late 1980s. Giangrandi secured cluster
bombs for Iraq.

Bayoil eventually paid more than $6 million in surcharges
to the Iraqi regime through Al Wasel & Babel General Trading
and Al-Hoda International Trading Co.

Jordanian businessman Talal Hussein Abu-Reyaleh, a Glencore
agent, paid the surcharges, and Glencore paid him, the report

Vitol used Malaysian company Mastek to finance many of its
oil deals with Iraq. The report said Iraq's oil marketing
company, SOMO, received nearly $10 million of the charges it
levied on Mastek in an account at Jordan National Bank in 31
separate payments.

Other companies, Dutch-based Trafigura and French oil
services firm Ibex Energy, bribed U.N.-hired inspectors to buy
more oil than was authorized under the oil-for-food program,
the report from a U.N.-established Independent Inquiry
Committee said.

Trafigura on Thursday denied it was knowingly involved in
payment of bribes to purchase Iraqi oil.

The oil-for-food program was introduced in 1996 as a way to
ease sanctions levied in 1990 against Iraq after it invaded
Kuwait. It was designed to allow Baghdad to sell oil to pay for
food and medicine for the Iraqi people.

The 500-page report is the final one from the panel, led by
former U.S. Federal Reserve Chairman Paul Volcker, which has
investigated the now-defunct program for the past 19 months.
The report aims to put into context the manipulation of the
program by companies around the world as well as individuals,
groups and governments.

Also named was U.S.-based Coastal. French bank BNP-Paribas
which held the escrow for the program, failed to act against
corruption in the program.

"While some elements of the bank's relations to the U.N.
remain in dispute, BNP was clearly inhibited from disclosing
fully the first-hand knowledge it acquired of the true nature
of financial relationships that fostered the payment of illicit
surcharges," said the report.

Under the program, Iraq sold a total of $64.2 billion of
oil to 248 companies, of which 139 paid illicit surcharges, the
report said.