Volume 1 - Iraq Watch

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Behind the scenes, the Iraqi government illegally generated billions of dollars inrevenue through illegal surcharges it placed on UN approval oil sales, kickbacksit secretly received on top of UN approved contracts for purchase of commercialgoods, and from illegal/secret cash border sales and smugglling of oil.Regime Financeand ProcurementFigure 7. Saddam’s legitimate and illicit oil revenue process.Figure 8. Summary of illicit Iraqi revenue, 1991-2003.Figure 9. Illicit Iraqi revenue sources by percentage,1991-2003 table.23
• Illicit barrel surcharges on oil sold through the UNOFF program, hereafter referred to as surcharges.• Ten-percent kickbacks from imports authorizedunder the UN OFF program, hereafter referred to askickbacks.• Exports, primarily petroleum, to private-sectorbuyers outside the Protocol and UN systems, hereafterreferred to as private-sector exports.The Regime filtered the majority of the illicitlyearned monies through foreign bank accounts inthe name of Iraqi banks, ministries, or agencies inviolation of UN sanctions. According to senior Iraqiofficials at SOMO, oil suppliers and traders, whosometimes brought large suitcases full of hard currencyto embassies and Iraqi Ministry offices, so thatthe payments would be untraceable, filled these illegalbank accounts.During 1997 to 2003, Saddam generated enoughrevenue to procure sanctioned military goodsand equipment, dual-use industrial material, andtechnology as well as some legitimate uses. Thesesanctioned goods transactions will be described indetail in later sections. He used those funds to slowthe erosion of his conventional military capability incontravention of UN SC resolutions. Available informationalso indicates Iraq used trade Protocols withvarious countries to facilitate the delivery of somedual-use items that could be used in the developmentand production of WMD.Bilateral Trade ProtocolsIraq’s bilateral trade Protocols with neighboringstates provided Saddam with his largest source ofillicit income during UN sanctions. The Protocolwith Jordan ensured the Regime’s financial survivaluntil the UN OFF program began in December1996. Total income from the Protocols is estimated at$8 billion.• Baghdad coordinated Protocols with Syria, Turkey,Jordan, and Egypt. These governments were fullparties to all aspects of Iraq’s unauthorized oilexports and imports (see Annex A: Translations ofIraq’s Bilateral Trade Protocols).Analysis of Iraqi Financial DataThe following revenue analysis is based on governmentdocuments and fi nancial databases, spreadsheets,and other records obtained from SOMO, theIraqi Ministry of Oil, and the Central Bank of Iraq(CBI), among others. These sources appear to begenuine, of good quality, and consistent with otherpre- and post-Operation Iraqi Freedom information.This hard data are augmented, put into context, andexplained by statements from former and currentIraqi government offi cials, particularly from SOMO,the Ministry of Oil, the Ministry of Trade, and theCBI (for more details, see Annex E: Illicit EarningsSources and Estimation Methodology).• According to SOMO records, Iraq earned approximately$3.5 billion from illicit oil sales to Syria,Turkey, and Egypt under the Protocols from 2000until the recent war, exclusive of trade with Jordan.We estimate Protocol trade with Jordan added anadditional $1.4 billion since 2000 and $3 billionfrom 1991 through 1999.Jordan Trade Protocol. Jordan was the key to Iraq’sfinancial survival from the imposition of UN sanctionsin August 1990 until the implementation ofthe UN’s OFF program. Jordan was Iraq’s largestsingle source for income during the sanctions period.Oil sales to Jordan under Protocols began as early as1983. Terms were negotiated annually, including 1991and every year thereafter during sanctions. The UNSanctions Committee “took note” in May 1991 of Jordan’soil imports from Iraq. Essentially, the Committeeneither approved nor condemned Jordan becauseof its dependence on Iraqi oil at the time (see AnnexA: Translations of Iraq’s Bilateral Trade Protocols).• Iraq trucked both crude oil and oil products—fueloil, gas oil, LPG, base oil, and gasoline—to Jordanunder the agreement, according to SOMO records.Crude shipments rose from about 45,000 barrels perday (bbl/d) in 1990 to 79,000 bbl/d by 2002. Oilproduct shipments rose from 13,000 bbl/d to 20,000bbl/d over the same period.• Jordan was to receive up to 90,000 bbl/d of crudeoil that year. The difference between this numberand the 79,000 bbl/d figure announced in 199324
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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
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Regime StrategicIntentThe Scientifi
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M6, Directorate of Internal Securit
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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 154 and 155: OverviewFinancing Iraq’s IllicitP
Page 156 and 157: including abolishing universal empl
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Page 162 and 163: Figure 10. Iraq’s estimated earni
Page 168 and 169: stated that he believed the Russian
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Page 188 and 189: OverviewExecuting Illicit Procureme
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Page 198 and 199: Although other Iraqi ministries wer
Page 200 and 201: From 2000 onwards, the RG’s annua
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its real activity, which was coordi
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Regime Financeand ProcurementFigure
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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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