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
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