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
According to Mr. Giangrandi, Mr. Al-Khafaji did not pay the surcharge, and the Ministry of Oil
unfairly held Italtech responsible for it. 235
5. Surcharge Payments through Al-Hoda
Beginning in Phase IX, Italtech and Bayoil also used Al-Hoda as a conduit for paying surcharges.
According to the founder of the company, Riyadh Al-Khawam, Al-Hoda was created in May
2000 for the purpose of executing oil and humanitarian contracts under the Programme. Mr. Al-
Khawam stated that his family and the Government of Iraq, through the Ministries of Finance and
Oil, shared ownership of the company. During the Programme, Al-Hoda received and sold its
own oil allocations, as well as traded oil allocations granted in the names of other beneficiaries. 236
Beginning in Phase IX, Bayoil purchased four million barrels of oil that had been allocated to Al-
Hoda. The oil was lifted, financed, and sold by Bayoil under contract M/09/15. As detailed
below, Bayoil also financed other Iraqi oil contracts through Al-Hoda. Mr. Al-Khawam stated
that Bayoil agreed to pay Al-Hoda a commission of $0.05 or $0.06 per barrel as well as additional
funds to cover the surcharges owed on contracts. He admitted that Al-Hoda made the actual
surcharge payments. According to Mr. Al-Khawam, he discussed payment of the surcharges with
a Bayoil employee. Bank records show that, between July 2001 and February 2002, an Al-Hoda
bank account received at least $4.7 million in wire transfers from Bayoil. Within days of each
payment, funds totaling $3.4 million were transferred from the Al-Hoda account to SOMO bank
accounts to pay for the surcharges owed on the oil contracts with Bayoil. 237
235 Augusto Giangrandi interviews (July 24-25, 2005); Italtech record, Augusto Giangrandi letter to Amer
Rashid (July 21, 2002); SOMO letter to Amer Rashid (Oct. 10, 2000) (approving contract M/08/117 for
five million barrels of oil for “Mix Oil Limited (Shakir Al-Khafaji)”) (translated from Arabic); SOMO
sales contracts, nos. M/08/116 (Oct. 3, 2000), M/08/120 (Oct. 30, 2000); Italtech record, Shakir Al-Khafaji
handwritten note to Augusto Giangrandi (Feb. 22, 2001). Contract M/08/117 was never executed.
Committee oil company table.
236 Committee oil beneficiary table, contract nos. M/10/106, M/10/22, M/10/68, M/11/40, M/11/93;
Committee oil company table, contract nos. M/09/15, M/11/20, M/12/36; Riyadh Al-Khawam interviews
(Mar. 29 and May 12, 2005).
237 Committee oil financier table, contract nos. M/09/15, M/10/106, M/10/22, M/11/20, M/11/93
(combined); Al-Hoda letter to Crédit Agricole Indosuez Suisse S.A., Geneva (Jan. 21, 2002) (naming
Bayoil as the backer for a letter of credit); Riyadh Al-Khawam interview (May 5, 2005); Arab Bank record,
Al-Hoda account, credit advices (July 23, Aug. 16, Oct. 29, and Dec. 9, 2001, and Jan. 30 and Feb. 12,
2002); Bayoil record, Transaction detail by account (Jan. 1995 to Dec. 2003) (listing payment to Al-Hoda
of $760,801 on February 11, 2002); Jordan National Bank record, SOMO account, credit advices (July 24,
Aug. 19, Sept. 5, Nov. 1 and 28, and Dec. 30, 2001, and Jan. 21, Feb. 26, and Mar. 7, 2002). Al-Hoda was
also responsible for paying the commissions to the beneficiaries on allocations: $85,000 to a Syrian
government official; $180,000 to Faras Mustapha Talas, the son of the Syrian Minister of Defense; and
$100,000 to the Society for Austro-Arab Relations. Riyadh Al-Khawam interview (May 5, 2005); Arab
Bank record, Al-Hoda account, personal check (Feb. 26, 2002) and bank statement (Dec. 31, 2001)
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