report on programme manipulation - Independent Inquiry Committee

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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
INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME REPORT ON PROGRAMME MANIPULATION CHAPTER TWO OIL TRANSACTIONS AND ILLICIT PAYMENTS Mr. Giangrandi stated that he and Mr. Chalmers agreed to use Italtech as an agent for Bayoil in the Iraqi crude oil market. They entered into a written agreement in June 2000, and again in May 2002, when it was amended. The agreement provided that Italtech would request oil from the Government of Iraq and solicit Iraqi oil from other companies and beneficiaries. For his services, Mr. Giangrandi was to be paid a commission of $0.015 and later $0.02 per barrel. No financial or logistical arrangements were undertaken by Italtech on the oil transactions. Bayoil was responsible financing letters of credit, and lifting and trading the oil. 223 Mr. Giangrandi stated that all oil transactions conducted by Italtech in Iraq were done on behalf of Bayoil. In Iraq, Mr. Giangrandi identified himself as a representative for Bayoil. His efforts to obtain SOMO contracts prior to Phase IX failed. According to Mr. Giangrandi, in October 1999, Mr. Aziz denied his request (made at Bayoil’s instruction) to grant direct oil allocations to Italtech. Mr. Aziz explained to Mr. Giangrandi that Italtech and Bayoil furthered Iraq’s political objectives by acting as conduits for other beneficiaries to cash in their oil allocations. Mr. interviews (Mar. 11-12, and Apr. 25 and 27-28, 2005). Italtech’s original purpose was to research and develop new mini-submarine propulsion systems. Ibid. 223 Augusto Giangrandi interviews (Apr. 25 and 27-28, and July 24-25, 2005); Hobi Sabih fax to Lucio Moriconi, (Oct. 27, 1999) (containing a draft letter to be forwarded to SOMO by Mr. Moriconi, Managing Director of Italtech, describing Italtech and Bayoil as “sister companies with common directors”); Italtech record, Bayoil and Italtech teaming agreement (June 4, 2000) (superseded by Revision 1 agreement (Dec. 15, 2000)); Italtech record, Bayoil and Italtech revenue sharing agreement (Dec. 27, 2000); Italtech record, Bayoil and Italtech revised teaming agreement (Feb. 20, 2001) (increasing Italtech’s commission to $0.02); Bayoil record, Power of attorney agreement (Sept. 7, 1999) (granting Augusto Giangrandi the power to execute contracts with SOMO in Bayoil’s name); Bayoil record, Transaction detail by account (Jan. 1995 to Dec. 2003) (denoting payments to the United Nations escrow account, finance charges for letters of credit, payments to contract holders, sales to end-users, insurance and freight costs for lifts, and payments from refineries in relation to contracts M/08/120, M/09/07 (Italtech), M/09/15 (Al-Hoda), and M/10/14 (PTSC)); Augusto Giangrandi letter to David Chalmers (Oct. 10, 2000) (confirming an agreement to deposit $1 million in operating capital to an Italtech account at UEB Geneva for the sole purpose of financing Italtech’s purchases of Iraqi oil); Jean Johnston letter to Augusto Giangrandi (Sept. 10, 2001) (requesting the return of the $1 million deposit with interest); Augusto Giangrandi letter to David Chalmers (July 12, 2000) (requesting the deposit of funds for a bank guarantee); Italtech letter to UEB Geneva (Dec. 20, 1999) (authorizing the bank to issue a letter of credit in favor of the United Nations “under the sole authority, direction and financial obligation of Bayoil Supply & Trading Co”); Bayoil fax to Cosmos (May 25, 2000) (instructing Cosmos, a company affiliated with Italtech, to retype the shipping nomination on Italtech letterhead and forward to the Director-General of Iraqi Ports); Italtech letter to BNP (Jan. 27, 2001) (authorizing Bayoil to open letters of credit under the name of Italtech). Italtech invoiced Bayoil for the fees to register as an oil buyer with the United Nations and for its office expenses, as well as gifts for regime officials, such as a jet ski for Uday Hussein (Saddam Hussein’s son). Italtech record, Invoice (Dec. 20, 1999) (for $19,698); Augusto Giangrandi fax to Jean Johnston (Sept. 29, 2000) (requesting reimbursement of expenses). REPORT ON PROGRAMME MANIPULATION–OCTOBER 27, 2005 PAGE 117 OF 623
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