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 surcharge payments by labeling them as “loading fees” or “port fees.” In one instance, a bank official advised Taurus to switch the term “commissions” on certain money transfers to “loading fees.” Payments labeled as “loading fees” and discussed in this section were applied uniformly to the payment of surcharges on oil contracts. Oil companies paid high premiums to intermediaries and beneficiaries on Iraqi oil purchases to cover surcharges. When interviewed, companies claimed that market forces, not any deliberate attempt to pay surcharges through another party, caused the increase in premiums. Yet, most of the participants in Iraqi oil sales have admitted that everyone was aware that Iraq demanded surcharges on oil exports. Some participants have admitted to agreeing with oil companies and traders that the premium covered their commission, as well as the surcharges owed on the contract. As described in this Chapter, the premium split was particularly apparent when Glencore paid the commission directly to the contracting company and the surcharge to another entity. By the fall of 2002, the Government of Iraq decided to discontinue its surcharge policy because of the decrease in demand due to the continued imposition of “retroactive pricing” by members of the 661 Committee. By then, of course, the Government of Iraq effectively had succeeded in using the sale of oil under the Programme as a tool of foreign policy and a sizeable source of illicit revenue. Part II of this Chapter reviews the administration of Iraqi oil exports under the Programme. Parts III and IV describe the preferential treatment of companies and individuals based in Russia and France, respectively. Part V examines other political beneficiaries of oil allocations. Part VI examines the major oil traders and companies that emerged as significant purchasers of crude oil when surcharges initially were imposed by the Iraqi regime. REPORT ON PROGRAMME MANIPULATION–OCTOBER 27, 2005 PAGE 14 OF 623
INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME REPORT ON PROGRAMME MANIPULATION CHAPTER TWO OIL TRANSACTIONS AND ILLICIT PAYMENTS II. IMPLEMENTATION OF THE OIL-FOR-FOOD PROGRAMME Previous Committee <strong>report</strong>s have discussed the background to the introduction of surcharges and the effect of the surcharges on the Iraqi oil market, together with the efficacy of measures taken by the United Nations to combat them. 9 A. THE INITIAL PHASES Although the sale of crude oil was to be monitored and approved by the 661 Committee, the Iraqi Ministry of Oil and its marketing arm, SOMO, were given the discretion to choose its customers and the amount of oil to be sold to each one. As an initial matter, SOMO contracted with oil companies without regard to the nationality of the owner or the location of their corporate base. According to an Iraqi official, when the Programme began, the Ministry of Oil was concerned about attracting customers given the risk associated with purchasing oil from a deteriorated Iraqi oil industry and under an untested United Nations program. During the first phase, Amer Rashid, then serving as Iraqi Minister of Oil, conveyed to SOMO employees that he was anxious to sell oil to any company prepared to arrange for a vessel to load it. An American, Oscar Wyatt, was the first person who agreed to purchase oil. Mr. Wyatt arranged for a vessel to load the oil through his United States-based company, Coastal Petroleum Company. Other established oil companies followed suit, including: A.S. Tupras (Turkey), Alfa Eco (Russia), BP (United Kingdom), Chevron Products Company (United States), Lukoil Petroleum Ltd. (Russia), Machinoimport (Russia), Repsol Petroleo S.A. (Spain), Shell (United Kingdom/Netherlands), SOCAP International (France), Total International Limited (France), and Zarubezhneft (Russia). 10 B. THE POLITICIZATION OF OIL ALLOCATIONS As early as Phase II of the Programme, the Government of Iraq began directing oil allocations to particular countries and individuals. Iraqi officials took the position that it was within their discretion to sell oil to countries “friendly to Iraq” and individuals perceived as being able to 9 “Programme Management Report,” vol. II, pp. 32-34, 121-150. 10 Ibid., vol. I, pp. 18, 27-28 (discussing oil sales under the Programme and the respective role of SOMO, the 661 Committee, and the oil overseers); SOMO allocation table for Phase II (translated from Arabic); Iraq officials interviews. The SOMO Crude Oil Division was responsible for selling oil and executing contracts with purchasers. During the Programme, the division was divided into the Crude Oil Departments I, II, and III to deal with companies from different regions. SOMO sales contract no. M/01/01 (Dec. 8, 1996) (contracting with Coastal Petroleum); Committee oil company table. Each phase lasted approximately six months, and each year—starting in 1997—held two phases of the Programme. Thus Phase I started at approximately the end of 1996 and continued until mid-1997, and Phase II started in mid- 1997 and continued until approximately the end of 1997. “Programme Management Report,” vol. I, pp. 18, 27-28. REPORT ON PROGRAMME MANIPULATION–OCTOBER 27, 2005 PAGE 15 OF 623
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