report on programme manipulation - Independent Inquiry Committee

INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME
REPORT ON PROGRAMME MANIPULATION
CHAPTER TWO
OIL TRANSACTIONS AND ILLICIT PAYMENTS
1. Bayoil’s Purchases from Russian Companies
Prior to Phase IX, Bayoil purchased approximately 215 million barrels of Iraqi crude oil from
companies that had received allocations under the Programme. Bayoil purchased over half of its
Iraqi oil from Russian companies holding SOMO contracts, including Alfa Eco (JSC), Tatneft
(OAO), Lukoil, Tyumen Oil Company, Nafta Moskva (JSC), ACTEC, and Zarubezhneft. Bayoil
continued to purchase oil from Russian companies after the imposition of surcharges. Between
Phases IX and XIII, Bayoil purchased approximately 64 million barrels from them. 220
Agency agreements with two Russian companies, Nafta Moskva and Machinoimport, indicate
that Bayoil paid commissions as low as $0.03 to $0.05 per barrel to companies hired to obtain
Iraqi crude oil contracts. Under one agreement, Machinoimport sold approximately two million
barrels of oil to Bayoil under contract M/12/01. Bayoil corporate records show that, after each
lifting, Machinoimport was paid $55,000 and $45,000, which correspond to commissions of
$0.05 per barrel. 221
2. Bayoil’s Use of Italtech to Solicit Iraqi Oil Contracts
In 1998, Mr. Chalmers appointed a former business associate, Mr. Giangrandi, as a director of
Bayoil to solicit Iraqi oil contracts for Bayoil. Mr. Chalmers met Mr. Giangrandi while Mr.
Giangrandi was involved in selling weapons to Iraq in the late 1980s. According to Mr.
Giangrandi, he assisted in the building of an armaments factory in Iraq to produce cluster bombs
during the Iraq-Iran war. Through his work, Mr. Giangrandi also became familiar with Mr.
Rashid, who was then an Iraqi Army General involved in developing Iraqi military equipment.
Because Iraq was experiencing a foreign currency shortfall at the time, Mr. Giangrandi arranged
to get paid for the factory construction with Iraqi crude oil. Mr. Giangrandi turned to Mr.
Chalmers, then head of the crude oil department of Carey Oil, to assist him in trading the oil. Mr.
Giangrandi and Mr. Chalmers eventually established Bayoil as a joint-venture to trade the oil.
After Bayoil expanded to other markets, Mr. Giangrandi sold his half of the company to Mr.
Chalmers. Several years later, Mr. Chalmers and Mr. Giangrandi were involved in forming
Italtech to fund a business venture that ultimately was abandoned. Italtech was largely a dormant
company until it was used as a front company for Bayoil in connection with the Programme. 222
220 Committee oil financier table.
221 Ibid.; Bayoil record, Bayoil and Nafta Moskva agency agreement (Feb. 19, 1999); David Chalmers letter
to BNP Suisse (June 3, 1999) (instructing BNP to pay commission fees of $29,699 on 989,975 barrels);
Bayoil record, Bayoil and Machinoimport agency agreement (Oct. 3, 2002); Bayoil record, Transaction
detail by account (Jan. 1995 to Dec. 2003) (listing payments to Machinoimport on October 23 and
November 26, 2002).
222 Augusto Giangrandi letter to Taha Yassin Ramadan (May 1, 1999) (as Chairman of Bayoil S.A.
Luxembourg); Augusto Giangrandi letter to Ministry of Oil (Sept. 9, 1999) (as Chairman of Bayoil Supply
& Trading Co.); Bayoil record, Power of attorney agreement (Sept. 7, 1999); Augusto Giangrandi
REPORT ON PROGRAMME MANIPULATION–OCTOBER 27, 2005 PAGE 116 OF 623