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 Although it did not receive any further allocations directly, Glencore remained a major oil trader in Iraqi crude oil as it financed and lifted over 82 million barrels of oil during Phases X through XII. During this period, Glencore entered into an agreement with Incomed Trading Corporation (“Incomed Trading”) to purchase oil. Incomed Trading, a Panama-registered company, was closely held by members of Mr. Alvarez’s family, the main Glencore trader for Iraqi crude oil. Glencore purchased 11 million barrels of oil through Incomed Trading in Phases X through XIII. Glencore’s agents, Mr. Abu-Reyaleh and Mr. Lakhani, paid the surcharges imposed on Incomed Trading contracts in Phases X and XI. 305 On Incomed Trading’s contract in Phase X, both Glencore agents were involved in paying the levied surcharge of $800,821. An advance surcharge payment was made on the contract and the balance was paid through Glencore agents. Glencore records show that it paid Incomed Trading approximately €1,421,168 on the contract, which amounted to a premium of $0.40 to $0.45 per barrel. Incomed Trading, however, returned most of the money to Glencore’s agent, Mr. Lakhani, and kept an amount that would have corresponded to a lower agent commission of $0.08 per barrel. Business records show that Incomed Trading directed the payment of €1,167,479 to Mr. Lakhani’s bank account in Cyprus. Shortly thereafter, Mr. Lakhani transferred €1,015,000 from his account in Cyprus to Mr. Abu-Reyaleh’s bank account in Dubai. In turn, Mr. Abu- Reyaleh transferred the funds into a bank account in Beirut that he appeared to have opened to transact short-term transfers. A total of $710,822 was wire transferred from Mr. Abu-Reyaleh’s of the situation, and asking the Swiss authorities to investigate Glencore’s activities highlighted in the oil overseers’ <strong>report</strong>); 661 Committee Chairman letter to oil overseers (May 10, 2001) (asking oil overseers to bring to the attention of Glencore International AG that “[t]he Oil Overseers will examine thoroughly the performance by Glencore International AG under future applications for the purchase of Iraqi oil”); Amer Rashid interview (Oct. 9, 2004) (stating that SOMO was incensed by Glencore’s diversion of oil); Iraq official interview (stating that there was a problem with Glencore because it was caught diverting oil to a different market than the one designated). Mr. Buur-Jensen served as an oil overseer under the Programme. Morten Buur-Jensen interview (Sept. 9, 2004). 305 Committee oil financier table; Committee note-to-file (Aug. 30-31, 2005) (detailing the review of Incomed Trading and Glencore International AG operating agreements (Oct. 25 and Nov. 22, 2002)). Mr. Alvarez’s father was the main shareholder in Incomed Trading and his mother was the chair. Panama Permanent Representative to 661 Committee Chairman (Mar. 27, 2000) (nominating Incomed Trading Corporation to participate in the Programme); Luis Alvarez interview (Sept. 13, 2005) (indicating that his father owned shares in Incomed Trading and that his mother was the Chairman); Murtaza Lakhani interview (Aug. 7, 2005) (indicating that Mr. Lakhani’s understanding was that the owner of Incomed Trading was the father of Luis Alvarez); Committee oil financier table, contract nos. M/10/26, M/11/22, M/11/112, M/12/60, M/12/124, M/13/63; Committee oil surcharge table, contract nos. M/10/26, M/11/22, M/11/112. Incomed Trading was incorporated in 1983 in Panama and is operated from an office in Spain. At the time of incorporation, it was owned by British Petroleum (“BP”). However, its shares were purchased in 1993 by certain former BP managers, including Mr. Alvarez’s father. Incomed Trading Corporation general information document (undated); Luis Alvarez interview (Sept. 13, 2005). REPORT ON PROGRAMME MANIPULATION–OCTOBER 27, 2005 PAGE 152 OF 623
INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME REPORT ON PROGRAMME MANIPULATION CHAPTER TWO OIL TRANSACTIONS AND ILLICIT PAYMENTS bank account in Beirut to a SOMO account to satisfy the outstanding surcharge balance. 306 table below provides an overview of the flow of funds. The 306 SOMO letter to Amer Rashid (July 23, 2001) (translated from Arabic) (approving contract M/10/26 for three million barrels of oil for Incomed Trading and referring to “Mr. Leith Shbeilat” as the allocation holder); Committee oil company table, contract no. M/10/26 (indicating that SOMO levied $800,821 in surcharges on the contract); Committee note-to-file (Aug. 30-31, 2005) (detailing the review of payments relating to contract no. M/10/26); Incomed Trading fax to C. Palama (Dec. 11, 2001) (enclosing draft invoices, referring to payments to Mr. Lakhani’s account, which Incomed Trading wanted Ms. Palama to print on Al-Khaled letterhead); Incomed Trading fax to C. Palama (Dec. 11, 2001) (listing all the payment instructions that Incomed Trading had given the Bank of Cyprus); Murtaza Lakhani letter to Talal Hussein Abu-Reyaleh (Dec. 28, 2001) (attaching copy of transfer advices); Fransabank record, Talal Hussein Abu- Reyaleh account, credit advices (Mar. 5, 2002) (showing transfer of $420,000,), (Mar. 8, 2002) (showing transger of $199,995), (Mar. 8, 2002) (showing transfer of $99,995); Fransabank record, SOMO account, credit advices (Mar. 8, 2002) (showing transfer of $220,907 from Mr. Abu-Reyaleh), (Mar. 9, 2002) (showing transfer of $218,392 from Mr. Abu-Reyaleh), (Mar. 9, 2002) (showing transfer of $271,523 from Mr. Abu-Reyaleh). Only seven transactions were registered on the account of Mr. Abu-Reyaleh—six of which took place within four days. Fransabank record, Talal Hussein Abu-Reyaleh account, statement (Jan. 1, 2002 to May 17, 2005). REPORT ON PROGRAMME MANIPULATION–OCTOBER 27, 2005 PAGE 153 OF 623
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