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 Figure: SOMO approval letter for contract no. M/09/06 (Dec. 21, 2000) (translated from Arabic). Mr. Majali used Montega Trading as the contracting company to purchase the oil. Montega Trading arranged to sell the oil through Sopak SA (“Sopak”), a wholly-owned subsidiary of Glencore. Glencore financed the contract with a $46,585,093 letter of credit through BNP, and it arranged for lifting and selling the oil. Although Glencore was backing Montega Trading’s SOMO contract, the company insisted that its name be concealed from disclosure to any third parties: 203 203 South Africa Mission note verbale to 661 Committee, S/AC.25/2000/OIL/HUM 986/COMM.383 (Dec. 21, 2000); Deloitte & Touche Corporate Finance Ltd. due diligence review (Jan. 2002) (based on their interview of Mr. Majali et al. on Jan. 23, 2001); George Poole letter to Paul Major and Kirk Lazarus (Mar. 5, 2001); Paul Major fax to Rodney Hemphill (Mar. 7, 2001); Clyde & Co. letter to Bell Dewar & Hill REPORT ON PROGRAMME MANIPULATION–OCTOBER 27, 2005 PAGE 106 OF 623
INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME REPORT ON PROGRAMME MANIPULATION CHAPTER TWO OIL TRANSACTIONS AND ILLICIT PAYMENTS Figure: Glencore draft letter of credit request to BNP (Jan. 19, 2001). Glencore did not have the oil delivered to the United States, as agreed in the contract, but instead had it shipped to Singapore. Over 1.85 million barrels were lifted on Montega’s contract at a total value of $45,502,470, using a United Nations pricing formula that took into account that the final destination would be the United States. As a result of Glencore’s change in shipping destination, Montega Trading, as the contracting company, owed millions of dollars to SOMO for the price differential. 204 According to Mr. Hemphill, Montega Trading was not involved in the decision to ship the oil to Singapore, and he requested and received a letter from Sopak confirming that the intended destination had been the United States. Despite being Glencore’s wholly-owned subsidiary, Sopak denied involvement in Glencore’s decision to change the destination of the oil under the Montega Trading contract. Ultimately, Sopak and Montega Trading reached a settlement on their dispute over liability for the increased costs of lifting the oil. While the dispute between the parties was settled, the outstanding surcharges on the Montega Trading oil purchases were not. According to Ministry of Oil records, a surcharge of approximately $464,632 ($0.25 per barrel) was imposed on the oil that Glencore had lifted. As part of their agency agreement, Sopak agreed to pay a fee to Montega Trading of $0.30 per barrel, which would have covered the surcharge as (Mar. 7, 2001); Glencore letter to Strategic Fuel Fund Association (Jan. 28, 2002); Committee oil financier table, contract no. M/09/06; Oil overseers approval of contract no. M/09/06, S/AC.25/2001/OIL/1330/ OC.05 (Jan. 2, 2001); Rodney Hemphill interview (July 4, 2005); Paul Major fax to Rodney Hemphill (Jan. 19, 2001) (addressed to “Rog Hempman” and regarding Montega Trading contract M/09/06); Oil Inspections Limited fax to “Glencore UK Ltd Attn: Paul Major” (Feb. 7, 2001) (advising Mr. Major of the status of the Ocean Jewel at Mina al-Bakr); Sandi Majali interview (June 30, 2005); Sopak record, Montega Trading and Sopak sales agreement (Jan. 16, 2001), purchase agreement (Jan. 16, 2001), and agency agreement (Jan. 29, 2001); Glencore draft letter of credit request to BNP (Jan. 19, 2001). Paul Major is copied on other correspondence relating to the Montega. Lucy Collinson e-mail to BNP (Jan. 19, 2001) (regarding Glencore’s letter of credit backing Montega Trading and their guarantee of all obligations on behalf of Montega Trading and copying Paul Major). 204 Committee oil company table, contract no. M/09/06; Sopak record, Montega Trading and Sopak sales agreement (Jan. 16, 2001) and settlement agreement (Apr. 26, 2001); SOMO fax to Montega Trading (Mar. 2, 2001); SOMO fax to Montega Trading (Feb. 26, 2001); Rodney Hemphill interview (July 4, 2005); Sandi Majali interview (June 30, 2005). REPORT ON PROGRAMME MANIPULATION–OCTOBER 27, 2005 PAGE 107 OF 623
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