Volume 1 - Iraq Watch

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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
Fa’iq AhmadSharifAndMastekMillionsof BarrelsAllocatedMillionsof BarrelsLifted60.756 43.614Hamad Bin AliAl Thani 27.359 19.215A former senior Iraqi official with direct access to the informationbelieved Sharif to be a Malaysian resident and an owner orhigh level executive of the company Mastek.A Qatari national and owner of the private airline Gulf Eagle(not a regular commercial enterprise) Al Thani was responsiblefor opening an air link between Baghdad and Damascus.Figure 18. IIS oil voucher recipients.Figure 19. Iraq’s estimated earnings from OFF oil surcharges(million US $).Figure 20. Surcharge amounts charged in US cents perbarrel for each OFF phase.(late)• ISG does not have information from Iraqi sourcesregarding the revenue earned from these kickbacks;but we estimate, using a 10 percent average, thatthese kickbacks totaled approximately $1.512billion from late 2000 until OIF (see Figure 21).For more information on the methodology used togenerate this estimate, see Annex E: Illicit EarningsSources and Estimation Methodology.According to senior MoT and official sources,kickback payments were deposited into temporaryaccounts controlled by the Iraqi ministry involvedwith the contract at banks in Jordan and Lebanon.These “bridge” accounts were not in the name of theministry, but used false names to disassociate the Iraqigovernment from the transaction. Within 24 hours,the funds were transferred to a CBI account at thesame bank. At the end of each day, the ministry bridgeaccounts had a zero balance. Kickback payments also36
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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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Structure of M14• Special Operati
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M18, Directorate of ResidencyM18 is
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Structure of M40• M40/1 Monitors
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OverviewAnnex CIraq’s Security Se
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The Special SecurityOrganizationSad
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Regime StrategicIntentThe Special S
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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
Page 140 and 141: ents. He made all modifications to
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
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 176 and 177: SOMO Account Balances Outside of Ir
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Page 188 and 189: OverviewExecuting Illicit Procureme
Page 190 and 191: necessary to accommodate the large
Page 194 and 195: offices, there was only a single em
Page 196 and 197: MoD’s Procurement Leadership at t
Page 198 and 199: Although other Iraqi ministries wer
Page 200 and 201: From 2000 onwards, the RG’s annua
Page 204 and 205: The information provided by these t
Page 208 and 209: its real activity, which was coordi
Page 212 and 213: • In May 2002, ARMOS was offered
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Page 218 and 219: • A foreign intelligence service
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MIC Research Support at Universitie
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Regime Financeand ProcurementFigure
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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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