The Quiet Oil-for-Food Scandal

The Quiet Oil-for-Food Scandal
By Joshua Holland, AlterNet
Posted on November 4, 2005, Printed on November 9, 2005


Last week, the Independent Committee investigating the Oil-for-Food program (OFF) released its final report detailing how Saddam Hussein's regime skimmed just under two percent from the otherwise successful relief effort by charging kickbacks and "inland transportation" fees to companies doing business with Iraq.

The small group of conservative writers who I've dubbed the "Scandal Pimps" have been less enthusiastic about the release of this report than they've been about those that preceded it. The day after the release, the Wall Street Journal editorialized that the report didn't really add anything new, it just filled in some details.

What they characterized as "details" were actually the names of over 2,000 companies that paid bribes to the Hussein regime for a shot at buying Iraq's oil, selling spare parts for its oil infrastructure or providing humanitarian goods for a population starving under the U.S./ U.K.-led sanctions regime.

The Scandal Pimps have been low-key because the final report of the Committee -- known as the Volcker Committee for its chair, former Fed Chairman Paul Volcker -- offers further evidence that what they've worked so hard -- and so successfully -- to portray as a massive UN scandal has always been a relatively modest corporate scandal, interesting more for the players involved than because of its scale.

The details the Journal editors referred to include the process by which Saddam and his cronies squeezed what were effectively bribes out of multinational corporations, great and small. Contracts were submitted to the United Nations where they were reviewed by the Security Council states (the U.S. and Britain were the only ones that reviewed every contract). Revenues from approved sales were deposited into UN-administered trusts from which goods could be purchased. But before companies could "lift," or load, oil, they had to come up with some cash for the Iraqi government. Those fees and surcharges were paid directly by the companies either into Iraqi-controlled accounts (mostly in Jordan) or as bags full of cash dropped off at Iraqi embassies around the world. The illicit funds -- widely reported by the media at the time -- never touched UN hands.

More to the point, the Scandal Pimps are unlikely to delve too deeply into the final report because it reveals that some of our leading corporations, and the vaunted "entrepenuers" that outlets like the Washington Times always crow about, weren't in the least bit reticent to pay off a brutal dictator accused of mass murder in order to pump up their bottom lines.

Even more damning to the conservative worldview is that the United States' "strategic class" was deeply involved. In fact, profits from sales under OFF program that were lubricated with illicit payments to Saddam Hussein found their way into both the Bush and Kerry presidential campaigns of 2004.

You wouldn't know that from the modest coverage of this most interesting report. Most of the reporting has focused on the fact that many of the contracts went to French and Russian companies. The Washington Post's take was typical: "most of those allegedly receiving rewards were not Americans. The preponderance of lucrative contracts went to French and Russian companies, on the grounds that their governments opposed the sanctions regime and favored Iraq in the U.N. Security Council."

That's technically accurate but substantially false. In a global economy, distinctions between "American" or "French" companies are essentially a joke. The Volcker report paints a picture of layer upon layer of front companies and cut-outs, off-shore subsidiaries and hastily slapped together strategic partnerships: "Iraq's preference for French companies and the limited number of recipients in France for Iraqi crude oil led certain companies to pass themselves off ... as being French-based." The report cites a 1998 letter from a French official to an Iraqi official based in Paris, in which he expressed "his concerns and his government's concerns ... regarding the increase in British and American companies as well as others who exploit the decision of the Iraqi leadership in providing priority to conducting business with French companies by signing contracts with Iraq through their offices in France."

The Associated Press reported that "the difficulty of finding out who paid kickbacks in the U.N. Oil-for-Food program is illustrated by two Liechtenstein-based firms, Alcon Petroleum and Fenar Petroleum."

Both were set up late in the program -- Alcon in 2000, Fenar in 1999 -- and almost immediately landed huge contracts to buy oil from Iraq. Both companies are registered only under the names of trustee firms, meaning their owners' names and nationalities were undisclosed.

After a Reston, Virginia-based firm, Midway Trading, plead guilty to OFF related charges last month, the Washington Times tried to figure out who owned the company. "So far," the Times editors wrote, "the only answer is a shadowy one. There is no directory listing for a Midway Trading in the Reston area and in the past 10 years there is no mention of the company in any major Virginia or Washington newspaper." The Times editors called "the only listed company in Reston called "Midway" for comment -- Midway Oil Holdings, Inc., an offshore holding company with offices in Switzerland and Greece -- but the calls went unanswered, as did an email."

The fact is the United States, which consumes about a quarter of the global energy supply, received 36 percent of all oil exports from Iraq -- mostly through middle-men and cut-outs -- and American companies and individuals profited from those sales.

The Bushies, Saddam and why we'll never get to the bottom of the OFF story

In a widely-reported interview a year ago, Paul Volcker said, "Look, we have problems with the American government ... I can't say that the American government has been eager, or officials of the American government have been particularly eager in some cases." He added: "I'm talking about the executive branch."

That was nothing new. In April, 2004, news reports claimed "the U.S. administrator in Iraq, L. Paul Bremer, deliberately put the brakes on an investigation by the Iraqi Governing Council into ... bribes, kickbacks and smuggling at the U.N. Oil-for-Food program."

At around the same time, Bremer's replacement, John Negroponte, told the Senate Foreign Relations Committee that the Bush administration "can identify the private business firms that cut kickback deals with Saddam Hussein, but intends to keep the names secret," according to reporter Lawrence O'Rourke.

A month later, U.S. troops and their Iraqi trainees raided the home of former Iraqi exile Ahmad Chalabi. According to Forbes, "The raid on Chalabi's home -- characterized by the White House as resulting from an Iraqi-led investigation -- may frustrate the ability of private accounting firm KPMG to complete a comprehensive audit into the Oil-for-Food program."

One reason for the administration's obstructionism is apparent in the way Forbes described the scandal -- before the Scandal Pimps framed it to their liking -- as one "involving top U.S. accounting firms, powerful K Street lobbying firms and international oil companies widely held by institutional and individual investors."

But it's more than that. Oil-for-food is a scandal that hits close to this administration.

The Committee found that at least two companies in the Carlyle Group had contracts -- and paid surcharges -- under the program. Petroplus, through its Dutch subsidiary, had two contracts to purchase oil worth almost $80 million dollars. It's listed as an underlying financier of contracts worth $44 million. Petroplus had $150,0000 in "surcharges" levied for the sales, but apparently never actually paid the bribes, which are listed as "outstanding."

Another firm in the Carlyle Group, Rexnord Industries, sold Iraq a half-million dollars worth of spare parts, for which it paid the regime bribes of around $50,000 dollars. Rexnord is based in Milwaukee, but the transactions were channeled through its Belgian subsidiary.

George W. Bush left the Board of Carlyle years ago, but his father George H. W. Bush was on it until 2003, after the OFF program ended. The family's "fixer," James Baker, still serves on the company's board, as do Colin Powell and a veritable who's who of former officials from several administrations. A number of Clinton-era officials, as well as one of John Kerry's top foreign policy advisors, former Secretary of Defense William Perry, also sit on Carlyle's board.

James Baker's lawfirm, Baker Botts, represents Halliburton, the firm headed by Dick Cheney during the Clinton years. At least one Halliburton firm, Oil Tools International, is listed in the latest report as having made sales of spare parts under the program and paying kickbacks to the regime.

That's in addition to the $73 million in business Halliburton did with Iraq during the sanctions regime under Cheney's leadership, as previously reported by the Washington Post.

Dick Cheney has a history of lobbying to lift sanctions in countries where Halliburton was doing, or hoped to do, business. Those countries include Burma (he signed an amicus brief against the Massachusetts Burma Law), Libya, Iran and Azerbaijan. During the 2000 presidential campaign, he acknowledged that Halliburton -- through off-shore subsidiaries -- did business in those countries but insisted "Iraq's different."

Jack Kemp, former Republican Vice Presidential candidate and former head of the anti-tax group Freedomworks -- which coordinated artificial folksy townhalls for President Bush's Social Security tour last year -- also lobbied to have the sanctions regime against Iraq lifted. According to MSNBC, Kemp has been questioned by the FBI about his dealings with Samir Vincent, a major player in the OFF scandal who was indicted for lobbying on behalf of Iraq in exchange for millions of dollars in illicit funds.

Kemp, James Baker, Samir Vincent and former Reagan Secretary of Defense Frank Carlucci -- now Chairman of the Carlyle Group -- all sat on a committee to promote "economic development" in the Middle East organized by Kemp in 2003. According to MSNBC, "Carlucci told Kemp that Vincent was a 'good guy,' said Kemp, who added that Carlucci and Vincent were tennis partners."

And then there are the contributors. Among the biggest American players in the Iraqi markets were Bayoil (registered in the U.S. and the Bahamas), the Valero Energy Group and Texas oilman Oscar Wyatt (working through several different corporations he owned, and as an individual).

Bayoil, which was indicted in April, was among the biggest financiers of Iraqi oil deals. The firm financed more than $7 billion dollars in sales to Russia, China, Europe and the U.S., including to Oscar Wyatt's firms, Nafta Petroleum and the Mednafta Trading Company. The company itself lifted 403 million barrels of crude under the program. Bayoil's president, David Chalmers Jr. later used an Italian front company, Italtech -- formed with a former associate, Augusto Giangrandi, to solicit additional contracts from Iraq.

Giangrandi had made friends among high Ba'ath Party officials during the 1980s, when he "arranged the sale of almost $200m of cluster bombs and other armaments to Mr Hussein's regime" in violation of a weapons ban then in effect, according to the Financial Times.

According to his FEC disclosures, the overwhelming majority of David Chalmers' contributions have gone to Republican candidates, PACs and the RNC.

Oscar Wyatt was also indicted for his role in bribing the Iraqi government. His companies lifted a half billion dollars worth of Iraqi oil. He paid the regime over $7 million in surcharges. Wyatt is a major political contributor, having given about $700,000 dollars since 1989, according to the Houston Chronicle. The majority, a half-million, went to Democrats, although he has been generous with Republicans as well. More than party affiliation, though, Wyatt is an integral part of the same Texas oil circles as the Bush family.

According to the Volcker Report, Valero was the underlying financier of $186 million in sales to Wyatt's companies. According to the Center for Public Integrity, Valero spent $830,000 lobbying in 2003 and donated over a half million to campaigns in 2004, 70 percent to Republicans.

Koch Industries financed two contracts worth over $185 million dollars to South Africa's Mocoh Services. A half-million in bribes were paid on the contracts. Koch is not only a heavy donor to Republican campaigns and a firm that lobbies extensively, it's also a pivotal funder of the new conservative movement, with family foundations that gave away over $9 million dollars in 2001 to right wing causes (among their major recipients is Jack Kemp's Freedomworks, which received over $12 million dollars in Koch Foundation cash between 1985-2002, according to the Center for Media and Democracy).

And then there's Marc Rich. Rich, a whipping boy of the right known for his last-minute pardon by Bill Clinton is actually close to influential figures on both sides of the aisle. Rich's lawyer, dating back to the 1980s was none other than recently indicted Cheney aide Irving "Scooter" Libby, who received over $2 million dollars in legal fees from Rich over the course of their relationship.

Rich -- through various French front-companies he established for the purpose -- not only lifted over eight million barrels of oil (paying around $1.5 million in bribes), but his companies financed over $430 million dollars in oil sales.

It's because of the bipartisan nature of the top of the heap -- all those companies that donated tons of cash to the Republicans also gave some to the Democrats in case they ever regain power -- that means we'll never get to the bottom of what is a revealing corporate scandal.

While the Volcker report will result in major investigations into companies from Russia, Jordan and notably India -- where the report is causing shock waves that have rattled the ruling coalition government - here in the U.S., no investigation will go beyond the U.N. itself. We'll get investigations run by political hacks like Norm Coleman (R-Minn.) and James Inhofe (R-Okla.), whose committees will limit themselves to supposed perfidy within the UN and show no taste at all for uncovering the web of oil traders and bankers that descended, vulture-like, on Oil-for-Food.

For more on how U.S. companies side-step sanctions, see this 2003 Mother Jones article.

This article has been corrected. The article did not clearly state that Jack Kemp is no longer chairman of FreedomWorks.

Joshua Holland is an AlterNet staff writer.
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