U.N. Lesson: Follow the Oil-for-Food Money

U.N. Lesson: Follow the Oil-for-Food Money
Thursday, July 01, 2004
By Claudia Rosett

NEW YORK — This is the tale of a bribe linked to the U.N. oil-for-food program in Iraq.

The bribe itself, paid to Saddam Hussein's regime, first made the news in late 2002. What got no attention at the time, however, was just how odd a response it drew from the United Nations. There, it was treated as just another modest irregularity in oil-for-food — worthy of polite inquiry, but not the outrage and immediate expert investigation it deserved.

Certainly there was far less fury from the United Nations over this bribe than Secretary-General Kofi Annan and his aides have since expressed in rejecting criticisms that the world body ran a crooked oil-for-food program. But here's the charm at the center of it all (and one that various investigators now sorting through oil-for-food might want to keep in mind): U.N. procedure itself, even in a matter as serious as bribery, evidently entailed treating Saddam not like a totalitarian ruler under strict sanctions, but as just another esteemed head of state — albeit one with a particularly large U.N. welfare program underway.

Here's the story of the bribe itself — or rather, of its discovery.

As a rule, Saddam's partners-in-corruption were not eager to file official complaints, having nothing to gain from informing on themselves. Nor was the United Nations very inquisitive, despite rumors about corruption from the program's early days. When several oil-for-food contractors brought Iraqi kickback demands to the attention of the program's executive director, Benon V. Sevan, in 2000 — as the Secretariat finally disclosed to the Financial Times in 2004 — he effectively buried the issue at that time by telling informants to leave him alone and go file official complaints with their country missions.

But in the case of this particular bribe, matters had already gone too far for a brush-off.

The informant was a Russian businessman named Gazi Luguev, president of a Swiss-based trading company, Lakia S.A.R.L, which was authorized to buy Iraqi oil from Saddam under the program. Luguev was upset — not because Saddam's regime had asked him for a bribe — but because, by his own account, he had paid the bribe to no avail. He wanted his company's money back.

As detailed in a fax dated Oct. 2, 2002, which Luguev sent to Iraq's State Oil Marketing Organization (SOMO) and copied to the U.N. oil overseers in Sevan's New York office, Luguev had been asked by the Iraqi regime to pay a "deposit" of $60,000 into a secret bank account in the Jordan National Bank in order to procure an oil-for-food shipment of underpriced Iraqi oil. Any such payment was in gross violation of both U.N. sanctions against Iraq and oil-for-food rules, which spelled out that all Iraq's oil-related revenues would flow strictly into a U.N.-held escrow account. To read the Lakia fax, click here — Adobe Acrobat required to view pdf.

According to Luguev's fax, Lakia had paid the $60,000 to Baghdad in advance (which was by several accounts standard practice for such kickbacks on oil shipments, which were widely rumored to be commonplace). But this time, Iraq did not deliver any oil. So Luguev, in his fax to the Iraqi authorities and to Sevan's office, demanded Iraq refund to Lakia its deposit "or we will be obliged to take all necessary legal steps and apply to all concerned organizations to get our money back."

A copy of this fax, and the ensuing correspondence, was obtained by private investigators John Fawcett and Christine Negroni, at the New York law firm of Kreindler & Kreindler. In reviewing these papers recently, they took a closer look at Sevan's response to Luguev's fax. What jumped out was that Sevan had fired off a letter that same day, Oct. 2 (as well he should have, this being formal documentary evidence of a kickback to Saddam's regime.) To read the Sevan letter, click here -- Adobe Acrobat required to view pdf.

But did he write immediately to inform the Security Council, which oversaw the program? Did he alert any independent auditing or investigative authority?

Evidently not. First, and foremost, Sevan wrote to Saddam's U.N. ambassador, Mohammed Aldouri, attaching Luguev's complaint. Sevan warned Aldouri: "I am duty bound to bring the matter to the attention of the Security Council Committee." Sevan then added a crucial sentence: "Prior to doing so, however, I should like to receive most urgently the views and comments of the Government of Iraq on the information provided by Lakia SARL."

He asked for a response within one week.

In other words, in the interest of what one can only suppose was routine information-gathering at the United Nations, Sevan's first move was, in effect, to give Baghdad a week's notice to bury the evidence and prepare a reply.

In a purely private business setting, this might be excused as nothing worse than an attempt to gather all the facts before taking the case to the boss (though in some quarters, one might hope that documented allegations of a $60,000 payoff would warrant the immediate attention of the top brass).

But oil-for-food was not a private business. It was an international program that existed — and was funded handsomely with 2.2 percent of Saddam's oil revenues — solely to supervise the commerce of a predatory totalitarian regime under strict U.N. sanctions. One would have thought that a fax detailing the illicit flow of money to Saddam's regime via a Jordanian bank account should have inspired loud and immediate alarms on all fronts, and an immediate heads-up to the Security Council — not just an exclusive letter to the Iraqi mission that begins with the salutation, "Excellencies," and requests "views and comments" about the Lakia charges.

Any official oil-for-food document with Sevan's signature gets extra scrutiny these days for two reasons. First, the United Nations has persistently kept most of the vital paperwork concerning the program secret. Second, because there have been allegations, now under investigation, that in 1998 Sevan himself received oil allocations from Saddam.

Sevan has denied he ever took anything from Saddam's regime. But even if he is officially cleared of all allegations, even if in the case of the Lakia bribe he was simply following established procedure, there remains the big question: Just what kind of crazy shop had the United Nations become that the excellencies of Baghdad — the accused bribe-takers in this dispute — were treated not as a government under sanctions, but as esteemed clients? So softly worded is Sevan's letter that it's hard to tell whether his chief concern was that Baghdad had been collecting bribes, or that Baghdad had failed to deliver on them.

In a reply to Sevan, dated oddly enough a day earlier than Sevan's letter (but registered by the oil-for-food office six days later, on Oct. 8 — just within the deadline set by Sevan) Saddam's Ambassador Aldouri said that the fax from Lakia contained information that was "incorrect." To read the Aldouri letter, click here -- Adobe Acrobat is required to view pdf.

However, according to a Newsweek story about the Lakia kickback spat, published in November 2002, Saddam's government then offered to refund Luguev's money. And while the Security Council's Sanctions Committee was eventually informed of the Lakia affair, a source close to the United Nations reports that such member states as China, Russia, France and Syria opposed any action — and none was taken.

Sevan did not reply to requests for his comments on this matter. Annan's office, asked to clarify if it was U.N. procedure to relay bribe allegations to Saddam before informing the Security Council, gave a pro forma response that the Secretariat is not commenting these days on anything that is "within the purview" of the oil-for-food investigation led by former Federal Reserve Board Chairman Paul Volcker.

Indeed, we have yet to hear any U.N. statement of condemnation, let alone contrition, for the oil-for-food fiasco. Over the course of the program, which ended last year, Saddam's regime by General Accounting Office estimates pocketed more than $4 billion in such "deposits" — skimmed from oil earnings meant to feed and doctor the people of Iraq.

What needs investigating here is not only whether the United Nations violated its own practices, but how it slid into procedures that so comfortably let this happen.

Claudia Rosett is Journalist-in-Residence at the Foundation for the Defense of Democracies, an adjunct fellow at the Hudson Institute, and writes a column, "The Real World," on issues of tyranny and human rights, especially as these relate to the war on terror, for The Wall Street Journal’s Opinionjournal.com and The Wall Street Journal Europe. Previously, Ms. Rosett has served as a member of The Wall Street Journal’s editorial board in New York, as bureau chief in The Wall Street Journal’s Moscow Bureau and as editorial-page editor of The Asian Wall Street Journal. For her on-site coverage of China’s 1989 Tiananmen Square uprising, Ms. Rosett won an Overseas Press Club Citation for Excellence.

French Connection Armed Saddam

Excerpt from:


Treachery
by Bill Gertz

French connection armed Saddam
By Bill Gertz
THE WASHINGTON TIMES

The United States stood by for years as supposed allies helped its enemies obtain the world's most dangerous weapons, reveals Bill Gertz, defense and national security reporter for The Washington Times, in the new book "Treachery" (Crown Forum). In this excerpt, he details France's persistence in arming Saddam Hussein.

New intelligence revealing how long France continued to supply and arm Saddam Hussein's regime infuriated U.S. officials as the nation prepared for military action against Iraq.

The intelligence reports showing French assistance to Saddam ongoing in the late winter of 2002 helped explain why France refused to deal harshly with Iraq and blocked U.S. moves at the United Nations.

"No wonder the French are opposing us," one U.S. intelligence official remarked after illegal sales to Iraq of military and dual-use parts, originating in France, were discovered early last year before the war began.

That official was careful to stipulate that intelligence reports did not indicate whether the French government had sanctioned or knew about the parts transfers. The French company at the beginning of the pipeline remained unidentified in the reports.

France's government tightly controls its aerospace and defense firms, however, so it would be difficult to believe that the illegal transfers of equipment parts took place without the knowledge of at least some government officials.

Iraq's Mirage F-1 fighter jets were made by France's Dassault Aviation. Its Gazelle attack helicopters were made by Aerospatiale, which became part of a consortium of European defense companies.

"It is well-known that the Iraqis use front companies to try to obtain a number of prohibited items," a senior Bush administration official said before the war, refusing to discuss Iraq's purchase of French warplane and helicopter parts.

The State Department confirmed intelligence indicating the French had given support to Iraq's military.

"U.N. sanctions prohibit the transfer to Iraq of arms and materiel of all types, including military aircraft and spare parts," State Department spokeswoman Jo-Anne Prokopowicz said. "We take illicit transfers to Iraq very seriously and work closely with our allies to prevent Iraq from acquiring sensitive equipment."

Sen. Ted Stevens, Alaska Republican and chairman of the Senate Appropriations Committee, declared that France's selling of military equipment to Iraq was "international treason" as well as a violation of a U.N. resolution.

"As a pilot and a former war pilot, this disturbs me greatly that the French would allow in any way parts for the Mirage to be exported so the Iraqis could continue to use those planes," Stevens said.

"The French, unfortunately, are becoming less trustworthy than the Russians," said Rep. Curt Weldon, Pennsylvania Republican and vice chairman of the House Armed Services Committee. "It's outrageous they would allow technology to support the jets of Saddam Hussein to be transferred."

The U.S. military was about to go to war with Iraq, and thanks to the French, the Iraqi air force had become more dangerous.

The pipeline

French aid to Iraq goes back decades and includes transfers of advanced conventional arms and components for weapons of mass destruction.

The central figure in these weapons ties is French President Jacques Chirac. His relationship with Saddam dates to 1975, when, as prime minister, the French politician rolled out the red carpet when the Iraqi strongman visited Paris.

"I welcome you as my personal friend," Chirac told Saddam, then vice president of Iraq.

The French put Saddam up at the Hotel Marigny, an annex to the presidential palace, and gave him the trappings of a head of state. The French wanted Iraqi oil, and by establishing this friendship, Chirac would help France replace the Soviet Union as Iraq's leading supplier of weapons and military goods.

In fact, Chirac helped sell Saddam the two nuclear reactors that started Baghdad on the path to nuclear weapons capability.

France's corrupt dealings with Saddam flourished throughout the 1990s, despite the strict arms embargo against Iraq imposed by the United Nations after the Persian Gulf war.

By 2000, France had become Iraq's largest supplier of military and dual-use equipment, according to a senior member of Congress who declined to be identified.

Saddam developed networks for illegal supplies to get around the U.N. arms embargo and achieve a military buildup in the years before U.S. forces launched a second assault on Iraq.

One spare-parts pipeline flowed from a French company to Al Tamoor Trading Co. in the United Arab Emirates. Tamoor then sent the parts by truck through Turkey, and into Iraq. The Iraqis obtained spare parts for their French-made Mirage F-1 jets and Gazelle attack helicopters through this pipeline.

A huge debt

U.S. intelligence would not discover the pipeline until the eve of war last year; sensitive intelligence indicated that parts had been smuggled to Iraq as recently as that January.

"A thriving gray-arms market and porous borders have allowed Baghdad to acquire smaller arms and components for larger arms, such as spare parts for aircraft, air-defense systems and armored vehicles," the CIA said in a report to Congress made public that month.

U.S. intelligence agencies later came under fire over questions about prewar estimates of Iraq's stockpiles of weapons of mass destruction. But intelligence on Iraq's hidden procurement networks was confirmed.

An initial accounting by the Pentagon in the months after the fall of Baghdad revealed that Saddam covertly acquired between 650,000 and 1 million tons of conventional weapons from foreign sources. The main suppliers were Russia, China and France.

By contrast, the U.S. arsenal is between 1.6 million and 1.8 million tons.

As of last year, Iraq owed France an estimated $4 billion for arms and infrastructure projects, according to French government estimates. U.S. officials thought this massive debt was one reason France opposed a military operation to oust Saddam.

The fact that illegal deals continued even as war loomed indicated France viewed Saddam's regime as a future source of income.

Telltale chemical

Just days before U.S. and coalition forces launched their military campaign against Iraq, more evidence of French treachery emerged.

In mid-March 2003, U.S. intelligence and defense officials confirmed that exporters in France had conspired with China to provide Iraq with chemicals used in making solid fuel for long-range missiles. The sanctions-busting operation occurred in August 2002, the U.S. National Security Agency discovered through electronic intercepts.

The chemical transferred to Iraq was a transparent liquid rubber called hydroxy terminated polybutadiene, or HTPB, according to intelligence reports.

U.S. intelligence traced the sale to China's Qilu Chemicals, "the largest manufacturer of HTPB in China," one official says.

A French company, CIS Paris, helped broker the sale of 20 tons of HTPB, a controlled export that was shipped from China to the Syrian port of Tartus. The chemical solution was sent by truck from Syria into Iraq, to a missile-manufacturing plant. The Iraqi company that purchased the shipment was in charge of making solid fuel for long-range missiles.

HTPB technically is a dual-use chemical, because it also can be used for commercial purposes such as space launches. However, Iraq often disguised military purchases as commercial ones, as documents found later in Iraq would confirm.

In a report to Congress, the CIA said Iraq had constructed two "mixing" buildings for solid-propellant fuels at a plant known as al-Mamoun. The facility originally was built to produce the Badr-2000, a solid-propellant missile also known as the Condor.

The new buildings "appear especially suited to house large, U.N.-prohibited mixers of the type acquired for the Badr-2000 program," the CIA report stated.

French denials

Despite controversy over prewar intelligence on Iraq, the CIA said its estimates of Iraqi missiles were on target.

Representatives of the French and Chinese governments went on the attack when The Washington Times asked about the chemical sale.

Chinese Embassy spokesman Xie Feng did not address the specifics, but said "irresponsible accusations" about China's exports had been made in the past.

"These accusations are devoid of all foundation," French Foreign Ministry spokesman Francois Rivasseau declared. "In line with the rules currently in force, France has neither delivered, nor authorized, the delivery of such materials, either directly or indirectly."

By that point, many in the U.S. government were fed up with French denials.

Deputy Defense Secretary Paul Wolfowitz called in the French ambassador to the United States, Jean-David Levitte, to complain about France's covert and overt support for Saddam's regime.

"Twelve years of waiting was too costly in terms of the growing threat from Baghdad," Wolfowitz told the ambassador, according to a U.S. official who was present.

Made in France

The war in Iraq, which began March 19, 2003, provided disturbing evidence that France's treacherous dealings come at a steep cost to the United States.

On April 8 came the downing of Air Force Maj. Jim Ewald's A-10 Thunderbolt fighter over Baghdad and the discovery that it was a French-made Roland missile that brought down the American pilot and destroyed a $13 million aircraft. Ewald, one of the first U.S. pilots shot down in the war, was rescued by members of the Army's 54th Engineer Battalion who saw him parachute to earth not far from the wreckage.

Army intelligence concluded that the French had sold the missile to the Iraqis within the past year, despite French denials.

A week after Ewald's A-10 was downed, an Army team searching Iraqi weapons depots at the Baghdad airport discovered caches of French-made missiles. One anti-aircraft missile, among a cache of 51 Roland-2s from a French-German manufacturing partnership, bore a label indicating that the batch was produced just months earlier.

In May, Army intelligence found a stack of blank French passports in an Iraqi ministry, confirming what U.S. intelligence already had determined: The French had helped Iraqi war criminals escape from coalition forces — and therefore justice.

Then, there were French-made trucks and radios and the deadly grenade launchers, known as RPGs, with French-made night sights. Saddam loyalists used them to kill American soldiers long after the toppling of the dictator's regime.

The intelligence team sent to find Iraqi weapons also discovered documents outlining covert Iraqi weapons procurement leading up to the war. The CIA, however, refused to make public the documents on assistance provided by France or by other so-called allies of the United States.

The clandestine arms-procurement network, disclosed late last year by the Los Angeles Times, put a Syrian trading company in a pivotal role. Documents showed the company, SES International Corp., was the conduit for millions of dollars' worth of weapons purchased internationally, including from France. Al Bashair Trading Co. in Baghdad was the major front used by Saddam to buy arms abroad.

A Defense Department-sponsored report produced in February identified France as one of the top three suppliers of Iraq's conventional arms, after Russia and China. The report revealed that France supplied 12 types of armaments and a total of 115,005 pieces.

A major reason Iraqi militants posed a threat to U.S. forces for so many months was that they had access to weapons that Saddam stockpiled in violation of U.N. resolutions.

A close call

One of the most frightening examples of how the militants put French weapons to use against the Americans came Oct. 26, 2003. That morning, at about 6 o'clock, they bombarded the Rashid Hotel in Baghdad with French missiles.

The French rockets nearly killed Wolfowitz, whom Defense Secretary Donald H. Rumsfeld has called "the brains" of the Pentagon.

The deputy defense secretary had just gotten dressed in his room that Sunday morning when a car stopped several hundred yards from the hotel. It dropped off what appeared to be one of the blue electrical generators that were common in the power-starved Iraqi capital. The driver stayed just long enough to open a panel on the end of the metal box that was pointing upward toward the hotel.

The car sped off. Minutes later, a pod of 40 artillery rockets set off by remote control began firing at the hotel, their trails leaving sparks as they flew. The rockets hit one floor below where Wolfowitz and about a dozen aides and reporters were staying.

One rocket slammed into the room of Army Lt. Col. Charles H. Buehring, a public-affairs officer. The explosion hit Buehring, 40, in the head. A reporter discovered him and tried to help, but the Fayetteville, N.C., resident died a short time later.

In all, between eight and 10 missiles hit the hotel. The casualties might have been higher, and included Wolfowitz, if the improvised rocket launcher had fired all the missiles.

Because of a malfunction, 11 failed to go off.

Playing defense

Half the missiles fired at Wolfowitz's hotel were French-made Matra SNEB 68-millimeter rockets, with a range of two to three miles. The others were Russian in origin.

The French missiles were "pristine," Navy SEAL commandos reported.

"They were either new or kept in very good condition," said one SEAL who inspected the rocket tubes.

The rockets were thought to have been taken from Iraq's French-made Alouette or Gazelle attack helicopters.

The fact that new French missiles were showing up in the hands of Saddam loyalists months after the fall of Baghdad made Wolfowitz and his close aides livid. Still, others in the U.S. government worked to defend the French.

The CIA, to avoid upsetting ties with French intelligence, played down the French role in helping Saddam. The agency had a weak human intelligence?gathering capability, and France, because of its history of ties to Iraq, was much better at penetrating Saddam's regime.

The State Department's response was not surprising. Asked about French support for Iraq while on a fence-mending mission to Paris in May 2003, Secretary of State Colin L. Powell had said: "We're not going to paper over it and pretend it didn't occur. It did occur. But we're going to work through that."

Powell, the retired four-star general and former chairman of the Joint Chiefs of Staff, was too inexperienced in the ways of diplomacy. As a result, he largely had turned over control of State Department policy-making to the Foreign Service.

The problem with the Foreign Service is its culture. It trains diplomats to "get along" with the foreign governments they are sent to work with. Not insignificantly, Paris is among the most coveted postings in the world.

Backing down

Pentagon hard-liners on France, led by Rumsfeld and Wolfowitz, carried the day early in the war, but accommodationists within the upper councils of the Bush administration took control as the conflict went on.

Among those who took a softer position on France was National Security Adviser Condoleezza Rice, the former Stanford provost who surrounded herself with State Department officials and Foreign Service officers.

Rumsfeld drew a great deal of attention on Jan. 22, 2003 — and created a backlash within the State Department — when he let fly a verbal salvo against France and Germany for not siding with the United States, describing them as "old Europe" during a meeting with foreign reporters.

Rumsfeld also criticized French and German political leaders for making policy based not on "their honest conviction as to what their country ought to do" but on opinion polls that reflected ever-shifting public sentiments.

As the accommodationists in the Bush administration gained the upper hand, Rumsfeld and others were ordered to tone down the anti-Europe rhetoric. By late last year, the defense secretary's critics within the Foreign Service were crowing that Rumsfeld had been "tamed."

Just a day after the Iraqi attack on Wolfowitz's hotel in Baghdad, in an interview with The Washington Times, Rumsfeld took an even softer approach toward the French.

"People tend to look at what's taking place today and opine that it is something distinctive," Rumsfeld said of the turbulence in Franco-American relations. "I don't find it distinctive. I find it an old record that gets replayed about every five or seven years."

The public soft-policy line was, in many ways, a great victory for France. Even as new evidence poured in that the French had betrayed the United States and cost the lives of American troops, the government backed down from a confrontation with its erstwhile ally.