Volume 1 - Iraq Watch

Iraq’s Oil Allocation Voucher ProcessThe UN allowed Iraq to sell a certain amount of oilunder the Oil For Food Program and the proceedswould go to Iraq through an UN approved bank,the BNP. The UN did not monitor Iraq’s oil vouchersystem and, according to senior Iraqi officials atSOMO, Baghdad made every effort to keep the detailsof the system hidden from the UN. During Iraq’snegotiations with the UN concerning the OFF programBaghdad fought hard for the right to determineto whom it could sell its oil and Baghdad consideredthe UN’s concession on this point an important victory.The UN approved the fi nal contract between Iraqand the lifting company, ensured the company wason the register of approved lifting companies, andmonitored the actual lifting of the oil to make sure theamount lifted fi t within the approved contract amount.The UN also made sure that the total amount liftedmatched the OFF allocation.fee for each barrel of oil it exported under the UNOFF program because of the relatively large builtinprofit margin allowed by the UN Oil Overseers.Buyers were willing to pay Iraq a surcharge, usually25 to 30 cents per barrel of oil, because they madesufficient profit to do so. Iraq reduced the amount itcharged in 2002 as the Sanctions Committee graduallyeliminated the profit margin; the last SOMOinvoice for a surcharge was dated September 2002.• The surcharge system began in the 8th phase of theUN OFF program. According to SOMO records,the surcharge was charged on 1,117 million barrelsof oil between phases 8-12. The total contract valuefor the surcharges was $265.3 million.• Iraq actually collected only $228.6 million insurcharge payments from September 2000 untilMarch 2003 (see Figure 19). Iraq was unable tocollect $36.7 million in surcharges. (see Annex E:Illicit Earnings Sources and Estimation Methodology)• Payments were usually made to SOMO bankaccounts in Jordan and Lebanon, but $61 millionwas delivered in cash to Iraqi embassies, usuallyMoscow by Russian entities, according to SOMOThe Legality of Oil Voucher AllocationsThe Oil Voucher Allocation system was set up bythe former Regime of Iraq in order to allocate theirexports under the UN Oil-For-Food (OFF) Programto entities that would gain Iraq the greatest benefit.Using the voucher program as a method of rewardingand/or infl uencing entities or countries really did notbegin until about Phase 3 of the OFF Program. Phase3 ran from 5 December 1997 to 29 May 1998. At thetime, this internal Iraqi process was unknown to theUN and was not addressed in any UN resolutions.The UN approved all companies lifting oil underthe OFF program and accounted for all the Iraqi oillifted by authorized oil lifting fi rms. However, someentities and individuals may have abused this systemby using an intermediary to lift and sell the oil allocatedto them by Iraq under the voucher system. Forexample, according to oil voucher registers recoveredfrom SOMO and statements by Iraqi authorities,several private individuals and political organizationswere listed as a voucher recipient. However, anintermediary (a UN registered oil lifter) was used topick these vouchers and actually lifted the oil under aUN approved contract. In this example, the UN wasnot aware that an individual or political organizationwas involved in, and was profiting from, the transaction.Consequently, if individuals or organizationsknowingly received profi ts from these oil sales theywere taking part in actions which were not sanctionedby the UN OFF program. ISG has no direct evidencelinking these individuals or political organization toactually receiving the proceeds from these oil allocations.However, individuals and organizations arenamed as being on the list for oil allocations, statementsfrom Iraqi offi cials support the fact that theseentities received oil allocations, and evidence thatIraq entered into contracts with the intermediariesthat actually lifted these allocations exist. In conclusion,the Oil Voucher Allocation program is anotherexample of how Saddam’s Regime strove to undermineUN sanctions and the OFF process whilegarnering favor with well placed individuals andentities that would be able to favorably act on Iraq’sbehalf on the political scene.34