Volume 1 - Iraq Watch

documents. Ten other Iraqi embassies were usedin this way including: Hanoi, Vietnam, Ankara,Turkey and Geneva, Switzerland.• The system continued until October 2001 when theUK and US took unilateral action to eliminate theexcess profit that allowed surcharges to be paid.• Some companies preferred to pay Iraqi embassiesdirectly out of fear for public disclosure of the illegalarrangements. This may explain the preferenceto conduct such business with cash.• Payments were mostly made in US dollars, but afew times they were made in Euros. The cash waslater moved to Baghdad from the embassies via diplomaticpouch and deposited in the SOMO accountsat the CBI or Rafidian banks.A former senior Iraqi official with direct access to theinformation stated that Saddam first ordered companiesbe charged a flat rate of 15 percent of their profitsas the surcharge, but the companies refused to pay.Saddam then pursued a 50-cent per barrel surchargethat his advisors warned him was not workable. WhenSaddam realized they were right, he allowed thesurcharge to be dropped to 30 cents and then finallyto 10 cents. Ten cents was the amount first charged bySOMO in September 2000.• Some companies, particularly the French, refusedto pay the surcharge.• However, some companies used a ‘middleman’ tohide the link between the originating company andIraq.Iraq tolerated the refusal of some companies to paythe 10-cent per barrel surcharge until the end of the8th phase (5 December 2000) in order to avoid theirrefusal to ship the oil and reduce Iraq’s projectedexports.• The 10-cent surcharge was increased in January2001 during the 9th phase to35 cents a barrel forsales to the US and 25 cents per barrel for salesto other countries. The surcharges continued intophase 12 at 15 cents per barrel to all customers (seeFigure 20).The surcharge system was an open secret. The subjectwas discussed by the media and by worldwide oilmarket. It was known the former Regime receivedincome from its sales that were deposited in specialaccounts outside of Iraq.How Surcharges Were CollectedThe buyers agreeing to the surcharges did so with awritten personal pledge to pay. Iraq’s main leverageto enforce payment was to deny the buyer future contractsuntil he made good on his debt. Iraq exercisedthis option in the case of the African Middle EastPetroleum Company, according to SOMO documents.By the 12th phase, there were 42 entities receiving oilexport allocations that were not allowed to sign contractsbecause they had not fully paid their surcharges.Kickbacks on Commercial Goods ImportContractsThe fourth revenue source for Saddam’s Regimewas kickbacks from UN OFF program commercialgoods contracts being imported into Iraq. Accordingto a former senior MoT official, beginning with the 8 thphase in June 2000, Iraq began to demand a kickbackon all UN OFF program import contracts to generateillicit income. The amount of the kickback could vary,but generally was around 10 percent. ISG suspects,however, that Iraq had been receiving similar typesof kickbacks since the beginning of the UN OFFprogram to varying degrees.Contracts were written for 10 percent above theactual price and the supplier company would depositthis amount into Iraqi accounts. The fee was oftenincluded for spare parts or after sales service. The feewas often applied, particularly in Jordan, through themechanism of the supplier providing a 10 percent performancebond in advance, which was then automaticallytransferred to an Iraqi account when the supplierwas paid for the goods.• A source described how it often worked for onefront company. For instance, the Al-Eman Group(a Jordanian Company) would sign a contract withIraq and deposit the 10 percent performance bondin an escrow holding account. When the goods weredelivered to Iraq, the UN Iraq account would paythe full contract price to Al-Eman. At that point,the Jordan National Bank would automatically kickback the performance bond to an Iraqi accountinstead of returning it to Al- Eman, as would normallybe the case.Regime Financeand Procurement35