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
names of these companies typically did not appear on SOMO contracts or United Nations
records. 6
Iraq awarded “special” allocations not only to companies, but also to individuals and their
representatives. These individuals were influential in their respective countries, espoused pro-
Iraq views, or organized anti-sanctions activities. They included present and former government
officials, politicians and persons closely associated with these figures, businessmen, and activists
involved in anti-sanctions activities. Iraq also allocated oil to political parties and organizations.
Instances of oil allocations to these individuals and parties are discussed in this Chapter. Table 5
(entitled “Summary of Oil Sales by Non-Contractual Beneficiary”) provides a list of oil
allocations to “non-contractual beneficiaries” (i.e., individuals and entities other than the named
contracting party). 7
Iraqi officials awarded these “special” allocations without regard to the beneficiary’s familiarity
with the oil trading market. Some beneficiaries sought the assistance of intermediaries to arrange
for oil sales. Others used front companies to enter into United Nations contracts and then sold the
oil to established oil companies or traders who bought the oil for a premium over the United
Nations official selling price for the oil. The premium covered the commissions owed to
intermediaries and beneficiaries.
These layers of individuals and companies between the allocating and lifting of the crude oil
resulted in transactions in which the United Nations could not determine from the face of the
contract who was benefiting from or purchasing the oil. This lack of transparency took on added
significance when Iraq instituted a policy to collect an illicit surcharge on every barrel of oil sold
under the Programme.
Beginning in the fall of 2000, in the middle of Phase VIII, Iraq ordered its Ministry of Oil to
collect surcharges. The surcharge phases ultimately extended until the fall of 2002, in the middle
of Phase XII. Iraq initially set surcharges at $0.10 per barrel. At the end of 2000, Iraq tried to
impose a surcharge of $0.50 per barrel, but soon reduced it to $0.25 to $0.30, and ultimately
lowered it to $0.15 before the scheme ended. The Iraqi State Oil Marketing Organization
(“SOMO”) ran a highly organized system to collect oil surcharges and maintained an extensive
database to keep track of the payments. Every contracting customer, if not each beneficiary, was
advised of the requirement. Surcharges were levied on each barrel lifted, that is, loaded by a
tanker at the port. Surcharge payments were generally due within thirty days of the oil lift.
Unless a higher official had given a company dispensation, SOMO prohibited a company from
loading additional oil when surcharges were overdue. Surcharges owed on a contract were not
always paid in full in one payment. Partial surcharge payments often were made in an effort to
ensure that SOMO did not stop or delay future oil lifts. For this reason, payments to Iraqi-
6 Throughout this Report, Table 4 is referenced as “Committee oil financier table.”
7 Throughout this Report, Table 5 is referenced as “Committee oil beneficiary table.”
REPORT ON PROGRAMME MANIPULATION–OCTOBER 27, 2005 PAGE 11 OF 623