Volume 1 - Iraq Watch

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OverviewFinancing Iraq’s IllicitProcurementIraq developed four major mechanisms for raisingillicit funds outside the legitimate UN OFF program.These included the sale of Iraqi oil to neighboring andregional states via trade Protocols, the imposition ofsurcharges on oil sold through the UN OFF program,and the receipt of kickbacks on UN-approvedcontracts for goods purchased under the UN OFFprogram, and so-called “cash-sales” or smuggling.• From 1996 through 2000 a combination of the UNOFF Program, bilateral trade, and illicit oil profiteeringallowed the Iraqi economy to recover fromthe post-1990 depression. This recovery ended thethreat of economically induced Regime instabilityand provided Saddam with sufficient resources topursue costly procurement programs.• After the economic recovery waned in 2000, Saddam’srevenues continued to amass via increasinglyefficient kickback schemes and illicit oil sales. ISGestimates Saddam generated $10.9 billion in hardcurrency through illicit means from 1990 to 2003(see Figure 5).The 1996-2003 UN OFF Program opened manyopportunities for Saddam’s Regime:• It provided $31 billion in needed goods for thepeople of Iraq, relieving the economic pressure onRegime stability.• Saddam was able to subvert the UN OFF programto generate an estimated $1.7 billion in revenueoutside of UN control from 1997-2003 (see Figure6).• The UN OFF oil voucher program providedSaddam with a useful method of rewarding countries,organizations and individuals willing to cooperatewith Iraq to subvert UN sanctions.Iraqi Economy’s Role in Illicit ProcurementDuring Saddam’s rule, Iraq adopted the SovietUnion’s centrally planned economic model. Saddamsought to centrally plan all facets of the state economyand utilized “Five Year Plans” to optimize theuse of national resources. Viewing the Iraqi economyfrom Saddam’s perspective, we assess it underwentdistinct phases from 1980 through OIF: “ambition,”“decline,” “recovery,” “transition,” and “miscalculation.”Readers may find it useful to refer to the Timelinesummary chart at the end of the chapter.Economic Ambition (1980-91)Given Iraq’s large oil revenues of the 1970s and early1980s, Saddam was able to ambitiously pursue astate-controlled economy without having to choosebetween solvency and other priorities, such as healthand welfare programs, infrastructure developmentand development of his armed forces (see Annex D:Iraq Economic Data (1989-2003). Iraq’s oil wealthallowed Saddam to overcome the inefficiencies of theeconomy until the war with Iran. Even with the war,his cash reserves and borrowed money from friendlyArab states allowed Saddam to continue his ambitiouspolicies into the mid-1980s.The Iran-Iraq war, however, exhausted and crippledthe Iraqi economy:• Iraq had been free of foreign debt and accumulated$35 billion in foreign reserves by 1980. Thesereserves, however, could not bear more than theopening salvos of the war with Iran, which over 9years cost an estimated $54.7 billion in arms purchasesalone.• Following the war, Iraq was under pressure to payoff high-interest, short-term debts to Western creditorsestimated between $35-45 billion. Saddam,however, never paid off this debt [see Annex D: IraqEconomic Data (1989-2003)].The economic burdens resulting from the Iran-Iraq war led Saddam to abandon Ba’ath-socialisteconomic policies that dominated in the 1960s and1970s. In 1987, Saddam attempted to turn the Iraqieconomy around with abrupt economic reforms,Regime Financeand Procurement19
Figure 5. Iraqi illicit revenue sources (US $),1991-2003.Figure 6. Iraqi illicit earnings by type (million US $), 1991-2003.20
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Comprehensive Reportof the Special
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versus another. They deserve at lea
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In Saddam’s view, Iraq was the na
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UNSCOM gave a sufficiently positive
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The Regime, drawing on the experien
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December 1998. The United States an
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The new Iraq could benefit from the
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and the Baath party. This is a volu
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have been important, though they ha
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Regime StrategicIntentRegime Strate
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ContentsKey Findings...............
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AnnexesA. The Quartet—Influence a
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Key FindingsSaddam Husayn so domina
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Former Iraqi Regime Officials Varie
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Who Made Iraq’s StrategicDecision
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• Tariq ‘Aziz described the req
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• Instead, voluminous files were
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secure Saddam’s support for odd o
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Saddam’s Use of Execution—Manag
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solely for civilian use when the re
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directly and continuously to him. H
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How Saddam Saw HisSubordinatesMinin
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Saddam’s PsychologyHow Saddam Saw
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to consist of was hazy. His drive t
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Iraq’s Use of CW in 1991 Against
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Excerpts from a Closed-Door Meeting
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maker asserted that either country
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Israel“There can never be stabili
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Saddam’s handling of Iraq’s res
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this to the international community
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Regime StrategicIntentNote: Red cel
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Iraq’s Relationship With RussiaTh
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Realizing Saddam’s VeiledWMD Inte
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Selected UN Security Council Resolu
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Husayn KamilBorn in 1955 within the
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ibility with UNSCOM. Iraqi demands
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and the International Atomic Energy
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The Saga of the “Chicken Farm”
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Security Services (continued)The Sp
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VX Warhead Samples & The Iraqi Air
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success—reduced or suspended oil
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Preserving and Restoring WMD Infras
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• The Regime also sought diplomat
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Renewing UN InspectionsIraq allowed
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never part of the military plan cra
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• Former Minister of Defense Sult
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Annex AThe Quartet—Influence and
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Perceptions of Threat and Challenge
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OverviewAnnex BIraq’s Intelligenc
Page 104 and 105: Regime StrategicIntentThe Scientifi
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Page 112 and 113: Structure of M40• M40/1 Monitors
Page 114 and 115: OverviewAnnex CIraq’s Security Se
Page 116 and 117: The Special SecurityOrganizationSad
Page 118 and 119: Regime StrategicIntentThe Special S
Page 120 and 121: Structure of the SSO Security Branc
Page 122 and 123: The Republican GuardThe Republican
Page 124 and 125: The Republican Guard Forces Command
Page 126 and 127: Annex DSaddam’s Personal Involvem
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Page 130 and 131: Regime Financeand ProcurementRegime
Page 132 and 133: ContentsA Word on the Scope of This
Page 134 and 135: MIC Banking and Financing .........
Page 136 and 137: A Word on the Scope of This Chapter
Page 138 and 139: Key FindingsThroughout the 1990s an
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Page 142 and 143: Chapter SummaryThe Illicit Finance
Page 144 and 145: The Regime TimelineDecline (1991-96
Page 146 and 147: OverviewDirecting and Budgeting Ira
Page 148 and 149: Regime Financeand ProcurementFigure
Page 150 and 151: Iraq’s National Budget 1991-2002A
Page 156 and 157: including abolishing universal empl
Page 158 and 159: Behind the scenes, the Iraqi govern
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Page 162 and 163: Figure 10. Iraq’s estimated earni
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Page 188 and 189: OverviewExecuting Illicit Procureme
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The information provided by these t
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Regime Financeand ProcurementFigure
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its real activity, which was coordi
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• In May 2002, ARMOS was offered
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officer suggested Neptune would be
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• A foreign intelligence service
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MIC Research Support at Universitie
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Figure 51. Sattam HamidFarhan Al-Ga
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Supplying Iraq With ProhibitedCommo
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UNSCOM’s Operation Tea Cup (1995
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• The technology included guidanc
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Embassy to Jordan in Amman. The fir
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Regime Financeand ProcurementThis i
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Since 1991, Iraqi-Turkish trade rev
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cash through private sector trade o
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Chinese Assistance in Iraqi Telecom
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October 2001, Syrian technicians we
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• Yugoslav Federal also supplied
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jammers, night-vision devices, and
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• According to captured documents
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Transportation Routes From North Ko
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Materials, Equipment and Services P
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conflict, President Lukashenko inst
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Many transactions for prohibited go
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Importing ProhibitedCommoditiesDece
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International Commodity Deception:T
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Disguising the Commodity’s Destin
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months to reach Baghdad from Bulgar
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Figure 68. Primary oil smuggling ro
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Annex ATranslations of Iraq’s Bil
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An ISG Translation of the 2003 Iraq
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Benzene for automobiles:If there is
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Secondly: oil derivativesThe Iraqi
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Fifteenth:Based on the Jordanian re
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Figure 1. The Iraq-SyriaTrade Proto
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Figure 2. Iraq-Syria TradeProtocol
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Figure 3. The Iraq-TurkeyTrade Prot
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Annex BKnown Oil Voucher Recipients
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Oil Allocation RecipientList (conti
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Key Budgetary ActorsAnnex CIraq’s
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decision and issued a presidential
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• The NSC Auditing Division sent
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Annex DIraq Economic Data (1989-200
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Figure 8. Sectoralcomposition of Ir
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Figure 10. Iraq’s Paris Clubcredi
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Balance of Payments/Exchange RatesE
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Figure 16. Exchange rateID/USD.Regi
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Annex EIllicit Earnings Sources and
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account for half a year each, were
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Annex FIraqi Oil SmugglingCaptured
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ISG Translation of an Oil Sale Cont
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truck to the Turkish border. Althou
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Figure 22. Contractbetween the Nati
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Figure 22. Contractbetween the Nati
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Figure 24. Letter from A.J.Khazamip
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Figure 25 . Second letterfrom A.J.
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Figure 27. Contract forpetroleum pr
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Figure 27. Contract forpetroleum pr
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Figure 29. Contractbetween al Basha
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Figure 29. Contractbetween al Basha
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Figure 31. Telex from aFrench bank
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Figure 32. Unipack ofParis contract
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Figure 33. Telex from VitolGeneva t
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Figure 35. Letter dated 30December
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Annex GIraq’s Banking Systemdid n
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Figure 37. Department,department di
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anks for some transactions in the b
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Annex HUN Security Council Resoluti
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• UNSCR 1175 also noted that the
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Annex ISuspected WMD-Related Dual-U
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• An electrophoresis system inclu
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• The MIC initiated direct contac
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Annex JThe Procurement of Conventio
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Possible Breaches of UN Sanctions b
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Letters Dealing With a Planned Visi
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ack to Baghdad without repair. The
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specified that the Iraqi attendees
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• In April 1999, seven Russian en
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• The letter also indicates that
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• In another letter, SARA-M refer
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Possible Belarusian Breaches of UN
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Possible Syrian Breaches of UN Sanc
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• A recovered contract dated 20 F
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9k38 portable air defense systems (
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Annex KSuspected Intermediary andFr
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Atera ManufacturingDaei Internation
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Annex LProcurement AcronymsAcronymA
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IAFIraqi Armed ForcesIDIraqi DinarI
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TPICTTCUAEUAVUDMHUHFUNUNCCUNDPUNESC
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Regime Strategy and WMD Timeline Ev
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