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 Giangrandi also stated that Mr. Rashid apparently enjoyed the irony of a United States company indirectly assisting in the financing of Iraq’s lobbying effort against the sanctions. 224 Mr. Giangrandi also had limited success in his initial efforts to obtain oil on Bayoil’s behalf from other beneficiaries. Italtech obtained one oil contract in Phase VII for oil allocated under the name of Fouad Sirhan, an Iraqi based in Brazil. The oil was purchased by Bayoil. For Phase VIII, Italtech obtained oil contracts for over 11 million barrels on Bayoil’s behalf. 225 Surcharges initially were imposed in Phase VIII. Mr. Giangrandi insisted that he never was contacted directly by SOMO when the surcharges were announced. He admits, however, that the imposition of surcharges by the Iraqi regime was discussed openly in the oil trading community beginning in the fall of 2000. Mr. Giangrandi also confirmed that he discussed the demand for surcharges with Mr. Chalmers, as well as the notice by the United Nations Oil Overseers in December 2000 warning companies not to pay the illegal surcharges. Mr. Giangrandi stated that, in their discussions, Mr. Chalmers stressed the illegality of the surcharge payments proposed by the Iraqi regime. 226 224 Augusto Giangrandi interviews (Apr. 25 and 27-28, and July 24-25, 2005); Iraq official interview; Jean Johnston e-mail to Lucio Moriconi (Oct. 8, 1999) (providing wording for an Italtech letter to the Minister of Oil); Committee oil company table, contract no. M/09/07 (noted as the first direct allocation to Italtech without an additional beneficiary). When interviewed in the presence of investigators from the Iraq Special Tribunal, the former Minister of Oil denied that the Ministry of Oil understood Italtech was acting as an agent for Bayoil. Amer Rashid interview (Aug. 22, 2005). The Committee does not find the denial credible under the circumstances. Letters from Mr. Giangrandi to Iraqi officials, at that time, explicitly identified himself as acting on behalf of Bayoil. Augusto Giangrandi letter to Ministry of Oil (Sept. 9, 1999) (describing himself to SOMO as Chairman of Bayoil Supply & Trading Ltd.); Augusto Giangrandi letter to Taha Yassin Ramadan (May 1, 1999) (detailing, as Chairman of BOTCO S.A., Mr. Giangrandi’s relationship to Bayoil); Augusto Giangrandi letter to Taha Yassin Ramadan (May 1, 1999) (lamenting the “huge commissions” payable by Bayoil to intermediaries and requesting direct allocations). 225 Augusto Giangrandi interviews (Apr. 25 and 27-28, and July 24-25, 2005); SOMO sales contract, no. M/07/51 (Dec. 18, 1999) (for 1.5 million barrels of Basra Light oil); Committee oil beneficiary, company, and financier tables, contract nos. M/07/51, M/08/116, M/08/116, M/08/120 (combined), M/08/120; Fouad Sirhan letter to SOMO (Nov. 22, 1999); Fouad Sirhan letter to Augusto Giangrandi (Nov. 22, 1999); Fouad Sirhan and Augusto Giangrandi letter to Ministry of Oil (Dec. 21, 1999). The beneficiaries for the allocations in Phase VIII were NIS Yugopetrol and Shakir Al-Khafaji. Italtech record, Zivojin Veljkovic and Augusto Giangrandi meeting minutes (Sept. 25, 2000); Augusto Giangrandi interviews (July 24-25, 2005); Committee oil beneficiary table, contract nos. M/08/116, M/08/116, M/08/120 (combined), M/08/120. 226 Augusto Giangrandi interviews (Apr. 25 and 27-28, and July 24-25, 2005); SOMO sales contract, no. M/07/51 (Dec. 18, 1999) (for 1.5 million barrels of Basra Light oil); Committee oil beneficiary, company, and financier tables, contract nos. M/07/51, M/08/116, M/08/116, M/08/120 (combined), M/08/120; Fouad Sirhan letter to SOMO (Nov. 22, 1999); Fouad Sirhan letter to Augusto Giangrandi (Nov. 22, 1999); Fouad Sirhan and Augusto Giangrandi letter to Ministry of Oil (Dec. 21, 1999); Italtech record, oil overseers fax to “Buyers of Iraqi Crude Oil” (Dec. 15, 2000). REPORT ON PROGRAMME MANIPULATION–OCTOBER 27, 2005 PAGE 118 OF 623
INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME REPORT ON PROGRAMME MANIPULATION CHAPTER TWO OIL TRANSACTIONS AND ILLICIT PAYMENTS 3. Direct Oil Allocations for Italtech in Phase IX When the Ministry of Oil had problems selling Iraqi oil in Phase IX, Mr. Giangrandi took the opportunity to renew his request for direct oil allocations for Italtech and Bayoil. According to Mr. Giangrandi, he met with Mr. Rashid and others in Baghdad to discuss the crisis that was stalling Iraqi oil exports. There are conflicting accounts of the meeting. According to Mr. Giangrandi, Mr. Rashid <strong>report</strong>edly begged Mr. Giangrandi and Mr. Chalmers to begin lifting as much Iraqi oil as they wanted in order “to open the gate” so that other oil traders would follow suit. Mr. Giangrandi claimed that, at the meeting, Mr. Rashid did not mention surcharges. Mr. Giangrandi stated that he raised the issue that paying the surcharges would be a problem for Mr. Chalmers. According to Mr. Giangrandi, Mr. Rashid responded that they would work out that problem later. Mr. Giangrandi stated that, after this meeting, he discussed the proposal with Mr. Chalmers, and Mr. Chalmers agreed to lift the Iraqi oil that was offered through Italtech. 227 According to Iraqi officials, they were obligated to enforce the surcharge scheme beginning in Phase IX of the Programme. The Ministry of Oil was experiencing a crisis because there was a dearth of oil traders willing to pay the surcharges at that time. They claim that Italtech was granted large oil allocations because Mr. Giangrandi was one of the few oil traders willing to pay the surcharges being demanded at the beginning of Phase IX. 228 For the first three months of Phase IX, Bayoil lifted a total of approximately 29 million barrels of oil that had been allocated directly to Italtech. Ministry of Oil records show that a total of over $11 million in surcharges was owed by Italtech in March 2001 on the Phase IX contract, as well as a contract from the prior phase. Neither Bayoil nor Italtech had made any efforts to pay the surcharges imposed on these contracts up to that point. 229 227 Augusto Giangrandi interviews (Apr. 25 and 27-28, and July 24-25, 2005); see also Augusto Giangrandi letter to Amer Rashid (July 21, 2002) (concerning outstanding surcharge payments owed to SOMO by Italtech/Bayoil). In this letter to Mr. Rashid, Mr. Giangrandi accepted the role that he and Bayoil had played “when [he and Mr. Chalmers] re-opened the lifting during the difficult period of December 2000 and did everything possible to help S.O.M.O. to ‘open the gate.’” Ibid. 228 Iraq officials interviews. 229 Committee oil company and financier tables, contract nos. M/08/116, M/08/116, M/08/120 (combined), M/08/120, M/09/07; Augusto Giangrandi interviews (Apr. 25 and 27-28, and July 24-25, 2005) (insisting that he believed Italtech and Bayoil could avoid surcharges and claiming that he did not promise to pay surcharges before getting the allocations in Phase IX or discuss the surcharge issue with the Iraqis prior to March 2001). In addition to the 29 million barrels allocated directly to Italtech in Phase IX, Italtech contracted for approximately five million barrels allocated to Shakir Al-Khafaji in Phase VIII, but not lifted, and combined this purchase with approximately three million barrels allocated to NIS Yugopetrol, also not lifted in Phase VIII. Committee oil company table, contract nos. M/08/116, M/08/116, M/08/120 (combined), M/08/120; Bayoil record, Shakir Al-Khafaji and Bayoil cooperation agreement (Oct. 20, 2000); SOMO letter to Amer Rashid (Oct. 10, 2000) (indicating an allocation of five million barrels for Mix Oil (Shakir Al-Khafaji)); Italtech record, Zivojin Veljkovic and Augusto Giangrandi meeting minutes (Sept. 25, 2000). REPORT ON PROGRAMME MANIPULATION–OCTOBER 27, 2005 PAGE 119 OF 623
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