Iraq Survey Group Final Report
Directing and Budgeting Iraq’s Illicit Procurement
Throughout the 1990s and up to OIF (2003), Saddam continually directed his advisors to formulate and implement policies, methods, and techniques to terminate the UN’s sanctions and obtain prohibited conventional military and WMD-related goods.
- Saddam directed and approved illicit procurement by his Regime.
- The Diwan and Presidential Secretary facilitated Saddam’s procurement directives by processing nonbudget funding for conventional military and WMD programs.
- The Iraqi budget process was divided into two different systems: a formal budget that served as a common governmental budget and a supplemental or secret budget that was controlled by Saddam and the Economic Affairs Committee (EAC). This supplemental process, which emerged in its most efficient form after 1995, used illicit hard currency to finance prohibited procurement programs.
President and Presidential Secretary’s Role in Illicit Procurement
The highest levels of the government, including the President and the Presidential Secretary, used trade Protocols and other cooperative agreements after 1991 as vehicles to circumvent UN sanctions and to facilitate the continued arming of Iraq. Iraq negotiated bilateral trade agreements called “Protocols” with Syria, Jordan, Turkey, and Egypt and less formal cooperative trade agreements with several East European countries such as Belarus, Poland, Ukraine, and Russia.
- The Syria, Jordan, Turkey, and Egypt Protocols were official bilateral cooperative agreements approved by officials of the countries involved (see Annex A: Translations of Iraq’s Bilateral Trade Protocols).
- According to press reporting, Aziz traveled to Moscow on 25-26 January 2002. Recovered documents also indicate that Tariq Aziz delivered a letter to Moscow in person, and he met with senior Russian leaders.
- Belarusian President Lukashenko and Saddam developed a special relationship in which Lukashenko agreed to support Saddam because of the Iraqi President’s support of the 2001 Belarusian Presidential elections.
Saddam approved and directed the illicit procurement relationships that Iraq had with other countries in order to improve Iraq’s military capabilities against regional threats. The Presidential Secretary, Abid Hamid Mahmud al-Tikriti, was a member of the committee that was formed to task the IIS via IIS Director Tahir Jalil Habbush al-Tikriti to procure technology for the MIC. In accordance with Saddam’s instructions to Huwaysh to improve Iraq’s missile capabilities, the MIC-IIS joint effort was to emphasize the support to Iraq’s missile programs.
The oil vouchers that the Regime would give to those who supported his Regime goals further emphasized Saddam’s influence over these trade agreements. The Presidential Secretary along with Vice President Taha Yasin Ramadan al-Jizrawi facilitated the issuance of these vouchers and approved other trade arrangements by handling the paperwork involved and giving approval on behalf of Saddam for allocation of the oil shares.
Reportedly, Russian, Ukrainian, and Belarusian individuals, who in Baghdad’s view, had contributed in some special way to Iraq’s security, received oil shares at the request of Saddam (for the full list, see Annex B: Known Oil Voucher Recipients). Some of these persons have also been identified in Iraqi military procurement efforts (see Table 1).
Presidential Diwan’s Role in Illicit Procurement
The Presidential Office of Saddam comprised two sections: the Presidential Secretary, and the Presidency Office or Presidential Diwan. The Diwan was created in July 1979 to research and study specific issues requested by the President, the Council of Ministers, the Economic Affairs Committee (EAC), and the Revolutionary Command Council (RCC). The Diwan was purely an administrative presidential bureau with no policymaking authority. It had several departments representing a variety of issues (see Figure 1). There was also an Administrative Department and a Financial Accounts Department.
Diwan’s Role in Supplemental Funding of Government Ministries
Military and security service entities such as the IIS and the (MIC) could submit requests for additional funds to the Presidency. The information on this procedure is often contradictory.
- According to the Minister of Finance, the Iraqi security organizations submitted written requests for additional funds either to the chief of the Presidential Diwan, or to the head of the Presidential
Secretariat. The latter, who was also the Secretary of the National Security Council (NSC), probably handled all requests from any security organization and may have been preferred by some organizational heads as he was considered to be closer to the President.
- The head of the MIC, the Minister of Defense and the Governor of the Central Bank of Iraq (CBI) have also described approaching the Diwan for supplementary funds. The Chief of the Diwan and Presidential Secretary were sometimes unaware of requests made to one another. Saddam reportedly did this to limit the number of people who had access to expenditure data. Requests sent to the Presidential Diwan were sometimes sent to the Diwan’s Financial Accounts Department for study. The chief of the Presidential Diwan sometimes directed the head of the Financial Accounts Department to discuss the request with the concerned minister. (Both Khalil Mahudi, the Secretary of the Council of Ministers (CoM), and Muhammed Mahdi Al Salih, the Trade Minister, were former heads of the Financial Accounts Department.)
- Organizations seeking budget supplements could also schedule a personal appointment with Saddam.
A Selection of Oil Vouchers Awarded by Saddam Husayn
|Name||Position||Barrels of Oil Per Year|
|Ruslan Khazbulatov||Speaker of the Supreme Soviet Parliament under President Boris Yeltsin’s administration||1.5|
|Gennadiy Zuganov||Head of Communist Party of the Russian Federation||1.5|
|Sergey Rudasev||Chairman of the Russian Solidarity With Iraq organization||1.5|
|Vladimir Zametalin and Nikolai Yevanyinko
||Chairman of the Federation of Trade Unions and Former Presidential Administration Deputy Chief
|Dr. Victor Shevtsov||Director of Infobank and Head of Belmetalenergo (BME) a major Belarusian foreign trade company
|Yuri Shebrov||Director of BELFARM enterprise||1.5|
|Aleksandr Roboty||Officer in the Belarusian security network (possibly the Belarusian KGB)
|Oleg Papirshnoy||Director of private Ukrainian company||1.5|
|Professor Yuri Orshaniskiy||Director of MontElect, a Ukrainian firm||1.5|
|Leonid Kozak||Belarusian Federation of Trade Unions||3|
Extent of Knowledge of the Former President of the Diwan
The Chief of the Diwan, Ahmad Husayn Khudayir al-Samarra’i, maintains that he authorized payments to bodies such as the MIC only on the orders of the President through the Presidential Secretary without knowing the details of the projects being financed. However, the head of the MIC and Minister of Finance identified him as having been involved in the processing of requests for extra-budgetary payments to the military and security services. Moreover, the Minister of Finance stated that documents containing details of the request, such as project information or justification, were kept at the Chief of the Diwan’s office, or with the Presidential Secretary, depending on where the request had been submitted. In addition, captured documents suggest the Chief of the Diwan had at least some knowledge of military and security matters.
- In April 1996, al-Samarra’i provided a cover note for paperwork covering Protocols with a Georgian entity for a military aircraft industrialization complex.
- In April 2002, al-Samarra’i provided a cover note for paperwork concerning problems with a contract between the MIC and the Moldavian company Balcombe for an assault rifle (7.62 x 39mm) ordinance production line.
Budgeting Iraqi Procurement
Off-budget and secret budget planning bypassed large government forum and was processed directly between the Ministry of Finance (MoF) and the Presidency, between the requesting organization and the Presidency, or between the requesting organization and Saddam. The former Regime relied heavily on liquidating assets (forcing the Central Bank of Iraq to print more money) to meet its yearly budget shortfalls.
General Government Budget
The general government budget, made up of current and capital spending, however, does not represent the total Iraqi budget because sensitive issues, such as defense, intelligence, and security were excluded. As a result, government expenditures and debt probably were higher than what was listed in the budget.
- In 2001, according to statistics from the CBI, the former Regime spent over $1.1 billion (constant 2001 dollars). This represents an increase of 49.5 percent over 2000.
- Complete data about Iraqi government budget spending after 2001 are unavailable. A common refrain among government officials and detainees is that many of these records perished during looting and fires after the US invaded Baghdad.
Because of the economic constraints following the war with Iran (see Economics Section), it became difficult for the Regime to draft and adhere to an accurate budget. Figures estimated in January diverged considerably by the end of the fiscal year. Also, because of Saddam’s patronage policies, the Presidential accounts were reportedly routinely overdrawn by 15 percent, and about 50 percent of the infrastructure expenditure was spent by Saddam.
Sources of Government Revenue
On-budget revenue—revenue included in the general government budget—came from sources such as:
- Income and property taxes.
- Customs duties and tariffs.
- A percentage of the profits from government-owned institutions and businesses such as banks and insurance companies.
- The revenues of leased state properties.
- The municipalities.
Not all-Iraqi government revenue was accounted for in the general government budget. Some of these off-budget fundsincluded income earned through:
- The Syrian, Turkish, and Jordanian trade Protocols.
- Kickbacks on UN OFF Program import contracts.
Supplemental Budgetary Process
The procurement programs supporting Iraq’s WMD programs and prohibited conventional military equipment purchases were financed via a supplemental budget process that occurred outside of the publicized national and defense budgets (for details on the development, approval, and execution of the common national budgets, see Annex C: Iraq’s Budgetary Process). The approval process and disbursement of funds from the supplemental budget illustrate who was distributing the money into the illicit procurement programs and reflect, in quantitative terms, the intent of the Regime.
Supplemental Budget Submission Procedure
There were two methods for ministries and organizations to obtain fundraising for specific projects or procurement activities that were over and above the scope of their annual budgets:
- One method was through the (EAC).
- The other was to go directly to the Presidential Diwan or the Presidential Secretariat.
The first method, which was common for most ministries and organizations, was to apply for approval from the EAC for the allocation of additional funds (see Figure 3).
- These requests may have been submitted to the chief of the Presidential Diwan or the Secretary of the Council of Ministers (CoM), who would submit the requests to Saddam. It is unclear how much control Saddam exerted during this phase of the process.
- If the EAC voted positively, the Minister of Finance would send a directive to the CBI to send the prescribed amount to the domestic or overseas account or accounts of the concerned ministry.
- If there were a dispute regarding the approval, the issue would be elevated to the CoM for approval. If the dispute were resolved in the requestor’s favor, the Minister of Finance would direct the CBI to complete the transaction.
The second method was reserved for the military and security service entities such as the IIS, the MoD, MIC, and other security organizations that submitted requests for additional funds to the President. The information on this procedure is often contradictory (see Figure 4).
- According to the MoF, the Iraqi security organizations submitted written requests for additional funds to the President, through either the Chief of the Presidential Diwan or the head of the Presidential Secretariat. The latter, who was also the secretary of the NSC, probably handled all requests from any security organization, and may have been preferred by some organizational heads as he was considered to be closer to the President.
- The head of the MIC, the Minister of Defense, and the Governor of the CBI have also described approaching the Diwan for supplementary funds. The Chief of the Diwan and Presidential Secretary were sometimes unaware of requests made to one another. Saddam reportedly did this to limit the number of people who had access to expenditure data. Requests sent to the Presidential Diwan were sometimes sent to the Diwan’s Economic Department for study. The Chief of the Presidential Diwan sometimes directed the head of the Economic Department to discuss the request with the concerned minister. Both Khalil Mahudi, the Secretary of the Council of Ministers (CoM), and Muhammed Mahdi Al Salih, the trade minister, were former heads of the Economic Department.
- Organizations seeking budget supplements could also schedule a personal appointment with Saddam.
Approval and Authorization of Supplemental Funding
While Saddam was the primary approval authority for requests for extra funds, signed authorizations were also issued from the Chief of the Presidential Diwan or the Presidential Secretary (both were authorized to represent Saddam).
If the supplement request were made during a personal meeting between Saddam and the head of an Iraqi security organization, Saddam would immediately approve or disapprove the additional funds.
- This verbal approval was put in writing and sent to the requesting ministry, and a disbursal order was sent to the MoF.
- Confirmation of these payments would usually be presented as an order from the Presidential Secretary to the Chief of the Diwan.
Approvals for all other ministries would be issued in writing to the concerned ministry and the MoF (It is unclear whether this includes the IIS, MOD, MIC, and Iraqi security organizations).
- Disbursal orders sent to the MoF contained the date, signature of approving authority, amount, but no information about the request. Documents containing details of the request, such as project information or justification, were kept at the Chief of the Presidential Diwan’s office or the Presidential Secretary’s office, depending on where the request had been submitted.
Iraq's National Budget 1991-2002
As illustrated in Figure 2, from 1991 to 1995, Iraqi revenues decreased by an average of 34.3 percent. From 1996 to 2001 revenues increased by an average of 42.3 percent. The reason for the 143.7-percent increase in revenues in 1996 is unclear because signifi cant oil revenues from the UN Oil-for-Food Program (OFF) would not have been realized until early 1997. Some of this increase, however, is probably a result of revenues rising from such a low base. In 1997, there was a 66.8-percent increase in revenues over 1996—a large increase that would be consistent with an increase in revenues from OFF. Expenditures also decreased from 1991 to 1995, but by an average of 28.2 percent. From 1995 to 2001, expenditures increased by an average of 16.8 percent—highlighted by a 49.5-percent increase in 2001. At the same time, over the 10 years since 1991, the government budget defi cit decreased from $1.6 billion to $410 million (see Annex C: Iraq's Budgetary Process).
The Economic Affairs Committee (EAC)
In late 1995, Saddam reestablished the EAC to handle economic issues that would have normally gone to the Presidential Diwan (the EAC existed in the 1980s but was abolished at an unknown date). The EAC had influence over fiscal and monetary policy issues such as government spending, taxation, and importation and interest rates. Only the head of the committee, rather than presenting them to the other committee members, handled some presumably sensitive issues.
ISG has collected information concerning the nature of payments sought by the military and security services through the Diwan. However, this information generally lacks detail.
- For example, the IIS successfully sought additional funding of nearly 48.5 million Iraqi dinars ($2.5 million—a conversion rate of 1,950 ID to the dollar was used to convert 48.5 million ID to $25,000) to provide weaponry and ammunition for the Jalal Al-Talibani Group in early 2002.
According to MIC Director and Deputy Prime Minister, Abd al-Tawab Mullah Huwaysh, the MIC would approach the Diwan for additional hard currency funds. Examples of such occasions occurring from 2000-2002 included:
- A payment of $42 million for an unsuccessful deal to purchase the Belarusian S-300 Air Defense System, with payment split evenly between the Ministry of Finance and President Diwan.
- $25 million for the purchase of 7.62-mm ammunition from the Former Federal Republic of Yugoslavia (FRY) and Syria.
- $25 million for the purchase of light weapons and ammunition (including RPG-7 and KORNET ATGMs) from Russia via a Syrian company.
- $20 million for a maintenance facility for helicopters and the purchase of Mi-17 and Mi-25 helicopter engines.
- $8.5 million for a contract with the FRY company ORAO for a maintenance facility for MiG-21 engines.
- The purchase of 3,000 night-vision goggles from Ukraine.
Disbursal of Supplemental Funds
As stated by the Minister of Finance, the preferred method used to disburse requests for extra-budgetary funds was for the EAC to add the additional funds to the requesting ministry’s budget. However in exceptional cases, such as when requests were time sensitive, the funds would be paid directly to the ministry. Most transactions were conducted using accounts at the Rafidian bank. Additional accounts were located at the CBI.
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