Volume 1 - Iraq Watch

were made to at least two Iraqi front companies: Aliain Jordan and Al-Wasel & Babel in the UAE. Ultimately,the kickback funds were couriered back to theCBI in Iraq.Each individual ministry that engaged in the importkickback contract scheme had copies of their respectivecontracts or deals. The MoT was responsible formonitoring these contracts but was not involved innegotiating the terms. Each of the following ministries(see Figure 22) engaged in the 10 percent feescheme:Although the kickback was paid to the particular ministrythat entered into the contract, those ministrieswere not able to use the funds—they usually weretransferred to the CBI as mentioned above.• In order to encourage kickback collections by theministry, and in order to compensate the ministryfor the difficulties involved with the scheme, theCBI returned 5 percent of the 10 percent kickbackto the ministry collecting the kickback.• These funds were distributed to the employees ofthe particular ministry as an incentive to collect thekickbacks.Another method of generating kickbacks from UNOFF import contracts emerged in the later years ofthe UN OFF program. This method was based ondeceiving the UN over the quality of the items beingimported to Iraq. For this illicit revenue scheme,Iraq arranged for a co-operative supplier to obtaina legitimate UN OFF contract specifying “firstquality”humanitarian goods. Iraq would then beauthorized under UN OFF to pay top quality pricesfor the items via the UN OFF-controlled accounts.In reality, however, the co-operative supplier substitutedcheap, poor-quality goods for the contract.This generated very high profits for the co-operativesupplier. Saddam then arranged for the excess profitsto be returned to Iraq via diplomatic channels, afterthe co-operative supplier took its “fee.” This revenuescheme was particularly nefarious since it left thepeople of Iraq with second-quality, sometime useless,humanitarian goods. (see the Use of Foreign Bankssections.)Private-Sector Oil SalesIraq’s trade with private-sector businessmen duringthe sanctions period provided a $1.2 billion supplementto illicit money earned from kickbacks andsurcharges related to the UN OFF program and37Protocols with neighbor states (see Figure 23). Iraqisalso refer to this trade as “border trade” or “smuggling.”(see Annex F: Iraqi Oil Smuggling for a casestudy on this topic.)• These sales began almost immediately after sanctionswere implemented, with examples dating backto at least 1993.• Iraq exported crude oil, petroleum products, anddry goods such as dates and barley. ISG has verylittle information about the volume or earningsfrom the dry goods portion of the trade.ISG estimates Iraq earned about $30 million annuallyfrom 1991 through 1997 for a total of $210 millionduring the period.Private-sector sales were made by SOMO, but outsidethe UN OFF oil export program and the trade Protocolswith Jordan, Syria, Turkey, and Egypt. SOMOinformation on these sales covers from 1998 untilOIF. Payment for these sales amounted to $992 million,and was made in three ways:• Some contracts were listed as “cash.” According tothe SOMO Invoice and Contract Data Base, thesecontracts were signed from June 1997 throughMarch 2003 and were for all types of petroleumproducts (gas oil, fuel oil, asphalt, etc.) as well assmall amounts of crude oil. These cargoes wereshipped through the Arabian Gulf, Turkey, Jordan,Syria, and possibly Lebanon. The contracts werevalued at $560 million and $523 million was actuallycollected.• Another category of contracts was “goods/barter.”These contracts were signed from January 1998through March 2003 and were primarily for fueloil and gas oil. Like the cash contracts above, thesecargoes were shipped through the Arabian Gulf,Turkey, Jordan, Syria, and possibly Lebanon. Thecontracts were valued at $469 million. Becausethese were barter contracts as payment for goodsto be received by specific Iraqi ministries, SOMOreceived no cash in payment.• The final category of contracts was “Iraqi Dinars.”These contracts were signed from May 1999through December 2002. They were all for fueloil and all were sold to the “North,” probably theKurds. The income was in dinars and when translatedinto dollars at prevailing exchange rates onlyRegime Financeand Procurement