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Weapons of Mass Destruction (WMD)

Iraq Survey Group Final Report

 

Financing Iraq’s Illicit Procurement

Overview

Iraq developed four major mechanisms for raising illicit funds outside the legitimate UN OFF program. These included the sale of Iraqi oil to neighboring and regional states via trade Protocols, the imposition of surcharges on oil sold through the UN OFF program, and the receipt of kickbacks on UN-approved contracts for goods purchased under the UN OFF program, and so-called “cash-sales” or smuggling.

  • From 1996 through 2000 a combination of the UN OFF Program, bilateral trade, and illicit oil profiteering allowed the Iraqi economy to recover from the post-1990 depression. This recovery ended the threat of economically induced Regime instability and provided Saddam with sufficient resources to pursue costly procurement programs.
  • After the economic recovery waned in 2000, Saddam’s revenues continued to amass via increasingly efficient kickback schemes and illicit oil sales. ISG estimates Saddam generated $10.9 billion in hard currency through illicit means from 1990 to 2003 (see Figure 5).

The 1996-2003 UN OFF Program opened many opportunities for Saddam’s Regime:

  • It provided $31 billion in needed goods for the people of Iraq, relieving the economic pressure on Regime stability.
  • Saddam was able to subvert the UN OFF program to generate an estimated $1.7 billion in revenue outside of UN control from 1997-2003 (see Figure 6).
  • The UN OFF oil voucher program provided Saddam with a useful method of rewarding countries, organizations and individuals willing to co-operate with Iraq to subvert UN sanctions.

Iraqi Economy’s Role in Illicit Procurement

During Saddam’s rule, Iraq adopted the Soviet Union’s centrally planned economic model. Saddam sought to centrally plan all facets of the state economy and utilized “Five Year Plans” to optimize the use of national resources. Viewing the Iraqi economy from Saddam’s perspective, we assess it underwent distinct phases from 1980 through OIF: “ambition,” “decline,” “recovery,” “transition,” and “miscalculation.” Readers may find it useful to refer to the Timeline summary chart at the end of the chapter.

Economic Ambition (1980-91)

Given Iraq’s large oil revenues of the 1970s and early 1980s, Saddam was able to ambitiously pursue a state-controlled economy without having to choose between solvency and other priorities, such as health and welfare programs, infrastructure development and development of his armed forces (see Annex D: Iraq Economic Data (1989-2003). Iraq’s oil wealth allowed Saddam to overcome the inefficiencies of the economy until the war with Iran. Even with the war, his cash reserves and borrowed money from friendly Arab states allowed Saddam to continue his ambitious policies into the mid-1980s.

The Iran-Iraq war, however, exhausted and crippled the Iraqi economy:

  • Iraq had been free of foreign debt and accumulated $35 billion in foreign reserves by 1980. These reserves, however, could not bear more than the opening salvos of the war with Iran, which over 9 years cost an estimated $54.7 billion in arms purchases alone.
  • Following the war, Iraq was under pressure to pay off high-interest, short-term debts to Western creditors estimated between $35-45 billion. Saddam, however, never paid off this debt [see Annex D: Iraq Economic Data (1989-2003)].

The economic burdens resulting from the Iran-Iraq war led Saddam to abandon Ba’ath-socialist economic policies that dominated in the 1960s and 1970s. In 1987, Saddam attempted to turn the Iraqi economy around with abrupt economic reforms, including abolishing universal employment labor laws and privatizing key government industries.

  • As a result, thousands of government workers were jobless.
  • Bus companies, gas stations, department stores, agricultural businesses, and factories were left outside the responsibility of the government.

Rather than shocking the Iraqi economy into performing, these measures, by 1989, deepened the economic crisis and accelerated the collapse of living standards for most Iraqis. Sensing a threat to the viability of the Regime, Saddam again imposed price controls, renationalized some former state enterprises, and raised industrial and agricultural subsidies. The Iraqi economy was pushed to crisis by Saddam’s inability to address or resolve a number of economic realities:

  • The rising cost of maintaining the Iraqi welfare state, which was among the more generous and comprehensive systems in the Arab world.
  • Low oil prices on the international markets, which Saddam associated with Kuwait and its conducting “economic warfare” against Iraq.
  • The lingering debt from the war with Iran.
  • The cost of rebuilding his military and expanding his WMD programs.

Saddam chose to fight his way out of economic crisis by invading Kuwait.

Economic Decline (1991-96)

Rather than rescuing the Iraqi economy, the invasion of Kuwait resulted in even greater fiscal strains as Saddam found himself in a second costly war, this time facing a US-led Coalition. After Saddam’s defeat in Kuwait, the UN trade sanctions placed on Iraq following the invasion remained in place. These sanctions, supported by over 150 nations, cut Iraq’s ability to export oil, its main revenue generator. After Desert Storm, Saddam also had to contend with compensation claims made for reparations of damage inflicted during the invasion and occupation of Kuwait.

As Saddam stubbornly refused to comply with UN Resolutions in the early 1990s, the Iraqi economy crashed to a low point in 1995.

  • From 1989 to 1995, Iraq’s GDP per capita fell from $2304 to $495. Some estimates reveal that the Iraqi per capita GDP never rose above $507 from 1991 to 1996.
  • Inflation between 1989 and 1995 increased from 42 percent to 387 percent.
  • Simultaneously, the street dinar exchange rate rose from 10 ID per $1 in 1991 to 1674 ID per $1 in 1995.
  • During this same period, income inequality became a larger problem because the limited wealth was concentrated in the hands of Regime loyalists and elite traders, while the average Iraqi subsisted on much less income. Equally significant, by 1995 the plummeting dinar consumed the savings of the average Iraqi, causing the Iraqi middle class to virtually cease to exist.

This period of economic decline also resulted in a dramatic increase in corruption, incompetence, and patronage in all facets of government. A good example of the Regime’s incompetence in economic matters was illustrated when the government set up a Directorate in 1992 to combat economic crimes under Ibrahim al-Battawi, who reported directly to Watban Ibrahim Hasan al-Tikriti, the Interior Minister and Saddam’s brother. The task of the Directorate was to punish merchants and traders guilty of “profiteering.” In July 1992, the Regime summarily executed 42 merchants in front of their shops in Baghdad’s market district. Saddam felt that the duty of the private sector was to provide goods and services to the Iraqi people while constraining price increases. These merchants were found to be shirking their “duty.”

Collecting Compensation for the First Gulf War

The United Nations Compensation Commission (UNCC) was responsible for processing and collecting such claims as authorized by UN Security Council Resolution 692. With the insistence of Moscow, the UN readdressed the revenue allocation of Iraqi oil revenue. In June 2000 it voted for the UNSC-adopted UNSCR 1330 that changed the percentage of oil allocated to the UNCC from 30 percent (UNSCR 705) to 25 percent. The UNCC estimated that the reduction to 25 percent would generate an extra $275 million in Phase XII of the OFF program for the Iraqi Regime. As of 7 May 2004, claims totaling $266 billion have been adjudicated, and claims worth $48 billion have been awarded by the UNCC. Additional claims worth $83 billion need to be resolved.

Economic Recovery (1997-99)

We judge that the harsh economic conditions from 1995 to 1996 were the primary factors in Saddam’s decision to reluctantly accept the UNSCR 986 (see United Nations OFF Program section).

  • Saddam wanted to perpetuate the image that his people were suffering as “hostages” to the international community under the UN sanctions.

UN-approved oil exports from Iraq began in December 1996. The trade fostered under the UN OFF program opened the door for Iraq to develop numerous kickback and illicit money earning schemes, possibly beginning as early as 1998. These legitimate and illegitimate revenue streams bolstered the Iraqi economy enough to raise it out of depression, at least for the Iraqi leadership and the elite.

  • In the 1996 to 2000 period, Iraq’s GDP increased from $10.6 billion to $33 billion.
  • According to the UN International Children’s Emergency Fund (UNICEF), Iraq’s chronic malnutrition rate dropped from 32 percent in 1996 to just over 20 percent in 1999.
  • Iraqi oil production jumped from under 1 million barrels per day (bbl/d) in 1997 to 2.5 million bbl/d in mid-2000.

Economic Transition and Miscalculation (1999-2003)

After 2000, Iraq’s economic growth slowed for a number of reasons, most involving the production and sale of oil. As the Iraqi economy improved, Saddam began to restrict oil production to influence the price of oil in the world market and to leverage political influence. Additionally, Iraq’s oil sector could not meet demand because of years of poor reservoir management, corrosion problems at various oil facilities, deterioration of water injection facilities, lack of spare parts, and damage to oil storage and pumping facilities. These petroleum infrastructure problems limited Saddam’s ability to export oil and hampered the Regime’s ability to sustain the economic growth shown in 1997 to 2000.

  • Iraq’s GDP slipped from a peak of $33 billion in 2000 to $29 billion in 2001.
  • Iraqi oil production dropped from 2.5 million bbl/d in mid-2000 to under 2 million bbl/d in 2002.

Nevertheless, from the late 1990s until Operation Iraqi Freedom, Saddam steadily strengthened the fiscal position of the Regime while investing, as he wished, in development, technology, industry, and defense. Saddam also had enough revenue at his disposal to keep his loyalists in the Regime well paid. In short, after 1996 the state of the Iraqi economy no longer threatened Saddam’s hold on power in Iraq.

  • The budget for the MIC, a key illicit procurement organization, grew from $7.8 million in 1996 to $500 million in 2003.
  • Despite Iraq’s economic problems, MIC Director Abd al-Tawab Mullah Huwaysh stated that Saddam went on a palace and mosque building spree in the late 1990s that employed 7,000 construction workers.

Iraq’s Revenue Sources

During UN sanctions on Iraq, from August 1990 until OIF in March 2003, Saddam’s Regime earned an estimated $10.9 billion utilizing four primary illicit sources of hard currency income. The UN OFF program became Saddam’s sole legitimate means to generate revenue outside of Iraq (see Figures 7, 8, and 9):

  • Illicit barrel surcharges on oil sold through the UN OFF program, hereafter referred to as surcharges.
  • Ten-percent kickbacks from imports authorized under the UN OFF program, hereafter referred to as kickbacks.
  • Exports, primarily petroleum, to private-sector buyers outside the Protocol and UN systems, hereafter referred to as private-sector exports.

The Regime filtered the majority of the illicitly earned monies through foreign bank accounts in the name of Iraqi banks, ministries, or agencies in violation of UN sanctions. According to senior Iraqi officials at SOMO, oil suppliers and traders, who sometimes brought large suitcases full of hard currency to embassies and Iraqi Ministry offices, so that the payments would be untraceable, filled these illegal bank accounts.

During 1997 to 2003, Saddam generated enough revenue to procure sanctioned military goods and equipment, dual-use industrial material, and technology as well as some legitimate uses. These sanctioned goods transactions will be described in detail in later sections. He used those funds to slow the erosion of his conventional military capability in contravention of UN SC resolutions. Available information also indicates Iraq used trade Protocols with various countries to facilitate the delivery of some dual-use items that could be used in the development and production of WMD.

Bilateral Trade Protocols

Iraq’s bilateral trade Protocols with neighboring states provided Saddam with his largest source of illicit income during UN sanctions. The Protocol with Jordan ensured the Regime’s financial survival until the UN OFF program began in December 1996. Total income from the Protocols is estimated at $8 billion.

  • Baghdad coordinated Protocols with Syria, Turkey, Jordan, and Egypt. These governments were full parties to all aspects of Iraq’s unauthorized oil exports and imports (see Annex A: Translations of Iraq’s Bilateral Trade Protocols).
  • According to SOMO records, Iraq earned approximately $3.5 billion from illicit oil sales to Syria, Turkey, and Egypt under the Protocols from 2000 until the recent war, exclusive of trade with Jordan. We estimate Protocol trade with Jordan added an additional $1.4 billion since 2000 and $3 billion from 1991 through 1999.

Jordan Trade Protocol.Jordan was the key to Iraq’s financial survival from the imposition of UN sanctions in August 1990 until the implementation of the UN’s OFF program. Jordan was Iraq’s largest single source for income during the sanctions period. Oil sales to Jordan under Protocols began as early as 1983. Terms were negotiated annually, including 1991 and every year thereafter during sanctions. The UN Sanctions Committee “took note” in May 1991 of Jordan’s oil imports from Iraq. Essentially, the Committee neither approved nor condemned Jordan because of its dependence on Iraqi oil at the time (see Annex A: Translations of Iraq’s Bilateral Trade Protocols).

  • Iraq trucked both crude oil and oil products—fuel oil, gas oil, LPG, base oil, and gasoline—to Jordan under the agreement, according to SOMO records. Crude shipments rose from about 45,000 barrels per day (bbl/d) in 1990 to 79,000 bbl/d by 2002. Oil product shipments rose from 13,000 bbl/d to 20,000 bbl/d over the same period.
  • Jordan was to receive up to 90,000 bbl/d of crude oil that year. The difference between this number and the 79,000 bbl/d figure announced in 1993 for what they imported in 1992, probably was the roughly 20,000 bbl/d that Iraq shipped to Egypt through Jordan during the first half of 1992.

Analysis of Iraqi Financial Data

The following revenue analysis is based on government documents and financial databases, spreadsheets, and other records obtained from SOMO, the Iraqi Ministry of Oil, and the Central Bank of Iraq (CBI), among others. These sources appear to be genuine, of good quality, and consistent with other pre- and post-Operation Iraqi Freedom information. This hard data are augmented, put into context, and explained by statements from former and current Iraqi government officials, particularly from SOMO, the Ministry of Oil, the Ministry of Trade, and the CBI (for more details, see Annex E: Illicit Earnings Sources and Estimation Methodology).

  • Jordanian officials also agreed to import nonpetroleum Iraqi products in 2001, including sulfur, urea, and barley, but we do not know if these goods were actually imported or what Iraq’s earnings were from them.

We do not have complete Iraqi data for Iraq’s effective earnings from the Jordan Protocol during the sanctions period but estimate them at $4.4 billion (see Annex E, Illicit Earnings Sources and Estimation Methodology).

  • We judge Iraq’s earnings amounted to about $400 million annually from 1991 through 1995 for a total of $2 billion. This estimate includes trade approved under the Protocol averaging about $200 million annually and Iraq’s debt to Jordan increasing by $1 billion, which accounts for additional Iraqi imports averaging another $200 million a year (see Figure 10).
  • We used announced trade Protocol levels to estimate earnings in 1996 to 1998 amounting to $730 million.
  • A combination of SOMO invoice and collections data was used to estimate earnings from 1999 to 2003 totaling $1.7 billion.
  • Iraq’s earnings under the Protocol primarily were deposited in an Iraqi Ministry of Trade (MoT) account in the Central Bank of Jordan (CBJ) (see Figure 10).

Jordan deposited its credit payments for Iraqi oil, into an account at the CBJ on behalf of the CBI. Funds were then disbursed to suppliers by the CBJ by order of the CBI.

  • In March 2003, prior to Operation Iraqi Freedom, Iraq had an estimated $444 million dollars in its trade account in Jordan. With total deposits to the trade account during the sanctions Regime estimated at about $4.4 billion and $444 million remaining at the end of the war, Iraq would have spent almost $4 billion on Jordanian origin goods and reexports under the Protocol agreement.

The Jordan Protocol is generally referred to (by Jordanian and Iraqi officials) as a 100 percent credit account, with no cash being provided to Iraq. SOMO information and a senior MoT official, however, indicated a small portion of the trade was 60 percent credit and 40 percent cash.

  • SOMO Documents list oil sales to the Jordanian Ministry of Energy and Minerals on a 60-percent credit, 40-percent cash basis. Contracts of this type are listed only for 2002 and are valued at only $6.2 million.
  • A high-level Iraqi Trade Ministry official stated that Jordan’s payments to Iraq for the cash portion of the trade Protocol was negotiated between the CBI and Jordan and provided specific written instructions about how to transfer the funds to Iraq. We have no further information on this aspect of the Jordan-Iraq trade Protocol.
  • A MoO official stated his ministry had two accounts in Jordan funded by the Protocol. This could refer, in part, to the 40-percent cash portion of the trade, although the accounts held almost $80 million while this trade only earned $6.2 million.
  • According to SOMO’s database, the 60-percent earnings were deposited in the Jordan National Bank. The 40-percent cash earnings were deposited in the Ahli Bank, where much of Iraq’s cash earnings from other Protocols were deposited. These, along with cash earnings from other sources, could account for the funds in the Ministry’s accounts.
  • It is possible, maybe even likely, that Iraqi oil sales under the 60/40 arrangement, sales to the Jordanian military, and purchases that resulted in $1 billion in debt owed to Jordan are not technically part of the trade Protocol. Nevertheless, given the government to government nature of these transactions, they were accounted for here instead of as private-sector exports.

Syria Trade Protocol. Iraq’s trade Protocol with Syria was Iraq’s primary illicit income source from 2000 until OIF in March 2003. With Syria facing increased political pressure from the US, opening relations with Iraq seemed attractive for both political and financial reasons. Negotiations began, and the Protocol was signed before Hafiz al-Assad died on 10 June 2000. The relationship probably accelerated when al-Assad’s son, Bashar al-Assad, became President on 17 July 2000. For Baghdad, the relationship was attractive because Syria could buy significantly more oil at better financial terms than Iraq’s other available illicit markets and Damascus was more willing than any other neighboring state to allow military goods to be shipped to Iraq through its territory.

  • SOMO and the Syrian Oil Marketing Office negotiated the bilateral trade Protocol in Baghdad from 27 to 29 May 2000. Contracts were written under the Protocol from June 2000 through March 2003 (see Annex A: Translations of Iraq’s Bilateral Trade Protocols).
  • Under the agreement, Iraq exported crude, gas oil, fuel oil, gasoline, base oil, LPG and asphalt to Syria by pipeline and/or tanker truck.

Iraq’s total earnings over the life of the Protocol were about $2.8 billion (see Figure 11).

  • Iraq charged Syria roughly $6 less than the authorized price for crude under the UN OFF program. Gas oil was sold for $75 per metric ton and fuel oil was sold for $20 per metric ton, both significantly discounted from world prices. These shipments allowed Syria to export its own crude oil at market prices instead of having to use it for domestic consumption.
  • Under the Syrian Protocol, 60 percent of Iraq’s earnings were deposited in a SOMO account in the Commercial Bank of Syria for use in buying Syrian goods or foreign-made items purchased through Syria.
  • Iraqi sources’ statements concerning the disposition of the remaining 40 percent cash payment are not clear. The best information, however, seems to indicate the cash was first deposited in a Commercial Bank of Syria cash account. Once this account reached $1 million, the funds were transferred to an account at the Syrian Lebanese Commercial Bank in Beirut, Lebanon. One source states this account was in Lebanon, another in Damascus. SOMO eventually transferred the money to CBI accounts in Baghdad, possibly by courier.
  • According to SOMO records, $1.18 billion in contracts were written drawing on the SOMO (presumably credit) account with Syria. If 60 percent ($1.68 billion) of Iraq’s total earnings of $2.8 billion were deposited in that account during the existence of the Protocol, there would be $500 million remaining in unspent funds at the end of the war. All of these contracts probably had not been completed before OIF. This, and the possibility of other small accounts, probably explains the $842 million in total Iraqi funds remaining in Syria at the outbreak of OIF.

Turkey Trade Protocol. Trade under the Turkey-Iraq Protocol was a significant source of illicit income for Iraq from 2000 until OIF in March 2003. The Protocol was a rationalization and expansion of preexisting Iraqi-private-sector contracts. Iraq was able to increase the volume of its exports and earnings.

  • The main details of the Turkish Protocol were agreed to at meetings between Iraqi and Turkish delegations in early 2000. Minutes of meetings were signed on 16 January 2000, 29 February 2000, and 16 May 2000. The 16 January document was signed by Amir Rashid Muhammad al-Ubaydi, MoO, Republic of Iraq, and by a Turkish trade official, Republic of Turkey. It was decided a joint team of experts from the two sides would meet every three months to review the progress of the implementation of the Protocol (see Annex A: Translations of Iraq’s Bilateral Trade Protocols).
  • For 2000, Iraq agreed to export 2.75 million tons (54,247 bbl/d) of crude oil to four Turkish buyers: Oz Ortadobgu, Ram Dis, Tekfen, and the Turkish Petroleum International Company (TPIC) during 2000. TPIC was the trading arm of the Turkish National Oil Company and was granted the right to contract for additional oil above the 2.75 million metric tons.
  • Contracts were written under the Protocol from July 2000 to February 2003.

Iraq’s total earnings over the life of the Protocol were $710 million (see Figure 12)

  • Iraq charged Turkey roughly $6 less than the authorized price for crude under the UN OFF program. The low price served as an incentive for Turkey to participate in the scheme.
  • Under the Turkish agreement, 70 percent ($497 million) of Iraq’s earnings were to be deposited into an account at the Turkey Halk Bankasi A.S. The account was under the name of TPIC, but the control of SOMO. This account was to be used by SOMO to pay Turkish companies for goods and services delivered and rendered to Iraqi organizations.
  • According to a senior SOMO official, some of these funds were transferred to interest bearing accounts. As of January 2004, SOMO held $157 million in these accounts and had earned almost $7.7 million in interest since October 2000.
  • Iraqi statements about the amount of cash deposited are inconsistent, but the best information indicates the remaining 30 percent in cash ($213 million) was deposited in a SOMO account at the Saradar Bank in Lebanon. Some of these funds may eventually have been transferred to a CBI account at the Syrian Lebanese Commercial Bank. SOMO eventually transferred the money to CBI accounts in Baghdad, possibly by courier.
  • Iraqi statements about cash deposits are again inconsistent, but a SOMO foreign account balance sheet showed the TPIC (70 percent) account containing over $195 million just prior to OIF. Another report states Turkish entities owes Iraq $265 million but also mentions an account balance in January 2004 of $234 million. At least in the case of the $234 million, the accounting included both the Protocol credit account ($52 million) and some savings accounts ($182 million). If 70 percent ($497 million) of Iraq’s total earnings of $710 million were deposited in this account, and $195 million (assuming the lower figure) was remaining at the end of the war, Iraq would have spent about $302 million on Turkish goods and reexports under the Protocol agreement. The value of contracts signed using SOMO accounts amounted to $303.5 million according to SOMO records. Some of these contracts almost certainly were not completed prior to OIF.

Egypt Trade Protocol. Iraq and Egypt participated in a relatively short-lived Protocol from late 2001 to early 2002. We do not have access to documents outlining this agreement, but, according to a senior Iraqi official, the deal involved the MIC-related company, Al-Husan.

  • The first contract under the Protocol was signed in August 2001 and the last contract in June 2002.
  • The trade involved primarily crude oil, but the last two contracts were for fuel oil.
  • The trade reached an estimated peak of 33,000 bbl/d in May 2002. The cargo was shipped by truck from Iraq to Aqaba, Jordan, where it was loaded on ships for transport to Egypt or Yemen.

Iraq’s total earnings over the life of the Protocol were $33 million according to SOMO records. All but $1 million was earned in 2002.

  • Iraq generally charged Egypt about $7 per metric ton less than the authorized price for crude under the UN OFF program. The first two contracts were $15 per metric ton off the UN price.
  • The Protocol was 60-percent credit and 40-percent cash. The credit account was under SOMO’s name at the National Bank of Egypt and the cash proceeds were deposited in the Ahli Bank (Jordan National Bank) in Jordan.

United Nations OFF Program

The UN OFF program saved the Iraqi Regime from financial collapse and humanitarian disaster. When Iraq began exporting oil under UN OFF in December 1996, the Regime averted economic conditions that threatened its survival. The program also provided Iraq with unprecedented opportunities to earn significant amounts of hard currency outside the control of the UN.

Phases of the UN OFF Program

The UN OFF Program was run in phases. Each phase was approved by a UNSCR and was designed to last for 180 days, although the length was adjusted at times as deemed necessary. Phase 1 ran from 10 December 1996 to 7 June 1997. The first oil was exported on 15 December 1996, and the first contracts financed from the sale of oil were approved in January 1997. The first shipments of food arrived in Iraq in March 1997 and the first medicines arrived in May 1997. The final oil exporting period (phase 13), authorized by UNSCR 1447 (2002), was in effect from 5 December 2002 through 3 June 2003 (see Figure 13).

Disposition of UN OFF Funds

As of 19 November 2003, Iraq’s oil exports under the program had earned over $64 billion. After deducting the costs of the UN’s administering the OFF program and WMD monitoring mission, as well as, the Compensation Fund, $46 billion was available for Iraqi humanitarian imports. Of this amount:

  • $31 billion worth of humanitarian supplies and equipment were delivered to Iraq including $1.6 billion of oil industry spare parts and equipment.
  • $3.6 billion was approved for projects to be implemented by UN agencies.
  • $8.1 billion had been transferred to the Development Fund for Iraq as of 19 April 2004.
  • The remainder of this revenue was uncommitted and in the UN-Iraq accounts awaiting further distribution.
  • In addition to the $46 billion, an additional $8.2 billion in approved and funded humanitarian goods were in the production and delivery pipeline and under review by the UN and Iraqi authorities.

Oil Vouchers and Allocations

Throughout the UN OFF Program, Iraq used a clandestine oil allocation voucher program that involved the granting of oil certificates to certain individuals or organizations to compensate them for their services or efforts in undermining the resolve of the international community to enforce UNSC resolutions. Saddam also used the voucher program as a means of influencing people and organizations that might help the Regime. By the end of the final phase (13) of the UN OFF Program, Iraq had allocated 4.4 billion barrels of oil to approved rec1pients. However, only 3.4 billion barrels were actually lifted (loaded and exported)—the same figure reported by the UN.

  • The oil allocation program was implemented through an opaque voucher program overseen and approved by Saddam and managed at the most senior levels of the Iraqi Regime.
  • Starting in Phase 3 of the UN OFF program, until OIF, the Iraqi Regime began to politicize the allocations process by giving quantities of oil to individuals and political parties it favored.
  • According to Tariq Aziz, Taha Yasin Ramadan al-Jizrawi, and Hikmat Mizban Ibrahim al-Azzawi, the oil voucher program was managed on an ad hoc basis by the Regime officials listed in Figure 14.
  • The Iraqi Intelligence Service, Ambassadors, and other senior Iraqi officials also commonly made nominations for oil allocations.

Oil Voucher Process

The MoO normally distributed the secret oil allocations in six-month cycles, which occurred in synchronization with the UN OFF phases (see Figure 15). Senior Iraqi leaders could nominate or recommend an individual or organization to be added or subtracted from the voucher list and an ad hoc allocation committee met to review and update the allocations (see Annex B: Known Oil Voucher Recipients). However, Saddam personally approved and removed all names on the voucher recipient lists.

This voucher program was documented in detail in a complete listing maintained by Vice President Taha Yasin Ramadan al-Jizrawi and the Minister for Oil, Amir Muhammed Rashid Tikriti Al Ubaydi. If a change was requested by telephone by Saddam or any other top official, either the MoO or SOMO rendered a detailed memo for the record of the conversation. A senior Iraqi official, ambassador, the IIS, or Saddam himself would recommend a specific recipient (i.e. company, individual, or organization) and the recommended amount of the allocation. That recommendation was then considered by the ad hoc committee and balanced against the total amount of oil available for export under the UN program disbursement. When former Vice President Ramadan finalized the recipient list, it was sent to Al Ubaydi. The official at SOMO in charge of issuing the final allocation vouchers (making the disbursements) stated that Tariq Aziz would give the final list to him. He believed that it was Aziz that finalized the list upon the direction of Saddam.

Secret Voucher Recipients

In general, secret oil allocations were awarded to:

  • Traditional oil companies that owned refineries.
  • Different personalities and parties, which were labeled “special allocations” or “gifts.” This group included Benon Sevan, the former UN Chief of the Office of Iraq Program (OIP), numerous individuals including Russian, Yugoslav, Ukrainian, and French citizens.
  • “The Russian State” with specific recipients identified (see Annex B: Known Oil Voucher Recipients).

Recipients could collect their allocation vouchers in person at SOMO or designate someone to collect them on their behalf. The oil voucher was a negotiable instrument. Recipients, especially those not in the petroleum business, could sell or trade the allocations at a discount to international oil buyers or companies at a 10 to 35 cent per barrel profit. Frequent buyers of these large allocations included companies in the UAE as well as Elf Total, Royal Dutch Shell and others.

Figure 16 reflects the general proportion of the nationalities targeted to receive Iraq’s oil allocations by volume of oil allocated, according to a former government official with direct access to the information. The top three countries with companies or entities receiving vouchers were Russia (30%), France (15%), and China (10%)—three of the five permanent members of the UNSC, other than the US and UK.

Iraqi Oil Vouchers Provided to International Leaders

The following select individuals (see Figure 17) include world leaders, senior politicians and corporate officials, were approved by the ad hoc committee as recipients of oil vouchers under this program (see Annex B: Known Oil Voucher Recipients for a more complete listing).



Millions of
Barrels Allocated
Millions of
Barrels Lifted
Mr. Zierbek
Russian
Communist Party
110.10
87.391
Mr. Azakov and
Mr. Velloshia
Rus Naft Ambix and the Russian Presidential Office
84.278
72.516
Vladimir Zhirinovsky and LDPR Companies
A former senior official in the Iraqi government stated that Zhirionvsky visited Iraq on a regular basis
53.0
79.8
“Russian Foreign
Ministry”

55.0
42.722
Patrick Maugein
Iraq considered Maugein a conduit to French President Chirac, according to a former Iraqi official in a claim we have not confirmed.
14.0
13.199
“Raomin”
Allocations were made to an individual listed as Raomin who is further described in the voucher allocation list as the son of the former Russian ambassador in Baghdad.
13.5
13.071
Mr. Nikolayi Ryzhkov and Mr. Gotzariv
Members of the Russian
Parliament (Duma)
12.0
11.88
Charles Pasqua
Businessman and former French
Interior Minister
11.0
10.751
Benon Sevan,
UN Chief of the Oil for Food Program
Former Iraqi officials say he received his illicit oil allocations through various companies that he recommended to the Iraqi government including the African Middle East Company.
13.0
7.291
Government of Namibia

7.0
7.123
Government of Yemen

5.0
4.713
Sukarnoputri
Megawati,
President of Indonesia
Iraqi documents list President Megawati as a recipient of oil allocations.
6.0
3.779

Figure 17. Selected secret oil voucher recipients.

The voucher list provided by SOMO includes Russian members of government, politicians, and businessmen. The former Iraqi Vice President Ramadan stated that he believed the Russian Government was sympathetic to the plight of Iraq and strongly against the sanctions imposed upon it and that most of the parties of the Russian Parliament (Duma) supported Iraq’s position. He stated that many Russian companies were dealing with the Iraqi ministries in charge of exports, and that this was no secret because many of the Russian Ministers visited Iraq regularly to aid this activity.

American and British Oil Voucher Recipients

According to a former high-ranking Iraqi official with direct access to the information, there are two Americans and one UK citizen listed as recipients on the list of Iraq’s illicit oil allocation program (although at least three names are annotated “American” on the Iraqi lists). Deputy Prime Minster Tariq Aziz was the principal point of contact for handling all high profile foreign recipients, all American recipients and most other non-Arab voucher recipients, called “internationals”, who lived in countries outside of the Arab world.

Benon Sevan’s Use of Iraqi Oil Vouchers

At the center of the day-to-day operations of the UN’s $64 billion OFF program, Sevan who spent his entire career at the UN, received oil allocations through various companies that he recommended to the Iraqi government . This arrangement reportedly began soon after the OFF program started in December 1996. An investigation by the Iraqi Governing Council has uncovered a letter linking Sevan to a Panamanian-registered company called African Middle East Petroleum Company. The letter, dated 10 August 1998, from Saddam Zayn Hasan, the executive manager of SOMO, and addressed to Amir Muhammad Rashid Tikriti Al Ubaydi, then the Iraqi Oil Minister implicates Muwafiq Ayyub in playing a role in setting up the deal. The letter says: “Muwafiq Ayyub of the Iraqi mission in New York informed us by telephone that the above-mentioned company has been recommended by his Excellency Mr. Sevan, director of the Iraqi program at the UN, during his recent trip to Baghdad.” A second page detailed the “Quantity of Oil Allocated and given to Mr. Benon

Sevan,” listing a total of 7.3 million barrels of oil as the “quantity executed.”

A Source at SOMO confirmed that Sevan received allocations by way of a Cypriot company or the Panamanian registered, The African Middle East Petroleum Company. According to the source, when the Chairman of the Iraqi UN OFF Committee, Vice President Taha Yasin Ramadan al-Jizrawi, saw any company with Sevan’s name in parenthesis next to it (and there were a lot of them, according to the source) on the proposed voucher recipient list, Ramadan automatically gave approval to issue the vouchers associated with that account.

  • SOMO voucher documents only list Sevan in relation to the African Middle East Petroleum Company. We have no further information on the role of a Cypriot company or any other company.

According a high-level source at SOMO, Sevan never received his oil allocations in person. Sevan’s vouchers were always picked up by Fakhir Abdul Noor, an Egyptian now residing in Switzerland and connected to the African Middle East Petroleum Company, who would sign documents on Sevan’s behalf and pick up his allocations at SOMO. Noor conducted this business for Sevan for each phase of the UN OFF MOI starting in the fourth phase and ending in the ninth phase. Sevan’s allocations ended after the ninth phase when SOMO representatives informed Noor that the African Middle East Petroleum Company owed money under the oil surcharge program and the payments were in arrears.

Iraqi Intelligence Service Nominations for Oil Vouchers

Those who were nominated by the IIS and placed on the master voucher list were most likely placed there for their service in an intelligence capacity for the former Regime. The following two individuals were nominated by the IIS and approved for inclusion on the list (see Figure 18).


Millions of Barrels Allocated
Millions of Barrels Lifted

Fa’iq Ahmad Sharif
And
Mastek
60.756
43.614
A former senior Iraqi official with direct access to the information believed Sharif to be a Malaysian resident and an owner or high level executive of the company Mastek.
Hamad Bin Ali Al Thani
27.359
19.215
A Qatari national and owner of the private airline Gulf Eagle (not a regular commercial enterprise) Al Thani was responsible for opening an air link between Baghdad and Damascus.
Figure 18. IIS oil voucher recipients.

Oil Export Surcharges

In addition to income from the trade Protocols and the UN OFF program Iraq demanded a surcharge fee for each barrel of oil it exported under the UN OFF program because of the relatively large built-in profit margin allowed by the UN Oil Overseers. Buyers were willing to pay Iraq a surcharge, usually 25 to 30 cents per barrel of oil, because they made sufficient profit to do so. Iraq reduced the amount it charged in 2002 as the Sanctions Committee gradually eliminated the profit margin; the last SOMO invoice for a surcharge was dated September 2002.

  • The surcharge system began in the 8th phase of the UN OFF program. According to SOMO records, the surcharge was charged on 1,117 million barrels of oil between phases 8-12. The total contract value for the surcharges was $265.3 million.
  • Iraq actually collected only $228.6 million in surcharge payments from September 2000 until March 2003 (see Figure 19). Iraq was unable to collect $36.7 million in surcharges. (see Annex E: Illicit Earnings Sources and Estimation Methodology)
  • Payments were usually made to SOMO bank accounts in Jordan and Lebanon, but $61 million was delivered in cash to Iraqi embassies, usually Moscow by Russian entities, according to SOMO documents. Ten other Iraqi embassies were used in this way including: Hanoi, Vietnam, Ankara, Turkey and Geneva, Switzerland.

Iraq’s Oil Allocation Voucher Process

The UN allowed Iraq to sell a certain amount of oil under the Oil For Food Program and the proceeds would go to Iraq through an UN approved bank, the BNP. The UN did not monitor Iraq’s oil voucher system and, according to senior Iraqi officials at SOMO, Baghdad made every effort to keep the details of the system hidden from the UN. During Iraq’s negotiations with the UN concerning the OFF program Baghdad fought hard for the right to determine to whom it could sell its oil and Baghdad considered the UN’s concession on this point an important victory. The UN approved the final contract between Iraq and the lifting company, ensured the company was on the register of approved lifting companies, and monitored the actual lifting of the oil to make sure the amount lifted fit within the approved contract amount. The UN also made sure that the total amount lifted matched the OFF allocation.

The Legality of Oil Voucher Allocations

The Oil Voucher Allocation system was set up by the former Regime of Iraq in order to allocate their exports under the UN Oil-For-Food (OFF) Program to entities that would gain Iraq the greatest benefit. Using the voucher program as a method of rewarding and/or influencing entities or countries really did not begin until about Phase 3 of the OFF Program. Phase 3 ran from 5 December 1997 to 29 May 1998. At the time, this internal Iraqi process was unknown to the UN and was not addressed in any UN resolutions.

The UN approved all companies lifting oil under the OFF program and accounted for all the Iraqi oil lifted by authorized oil lifting firms. However, some entities and individuals may have abused this system by using an intermediary to lift and sell the oil allocated to them by Iraq under the voucher system. For example, according to oil voucher registers recovered from SOMO and statements by Iraqi authorities, several private individuals and political organizations were listed as a voucher recipient. However, an intermediary (a UN registered oil lifter) was used to pick these vouchers and actually lifted the oil under a UN approved contract. In this example, the UN was not aware that an individual or political organization was involved in, and was profiting from, the transaction. Consequently, if individuals or organizations knowingly received profits from these oil sales they were taking part in actions which were not sanctioned by the UN OFF program. ISG has no direct evidence linking these individuals or political organization to actually receiving the proceeds from these oil allocations. However, individuals and organizations are named as being on the list for oil allocations, statements from Iraqi officials support the fact that these entities received oil allocations, and evidence that Iraq entered into contracts with the intermediaries that actually lifted these allocations exist. In conclusion, the Oil Voucher Allocation program is another example of how Saddam’s Regime strove to undermine UN sanctions and the OFF process while garnering favor with well placed individuals and entities that would be able to favorably act on Iraq’s behalf on the political scene.

  • Some companies preferred to pay Iraqi embassies directly out of fear for public disclosure of the illegal arrangements. This may explain the preference to conduct such business with cash.
  • Payments were mostly made in US dollars, but a few times they were made in Euros. The cash was later moved to Baghdad from the embassies via diplomatic pouch and deposited in the SOMO accounts at the CBI or Rafidian banks.

A former senior Iraqi official with direct access to the information stated that Saddam first ordered companies be charged a flat rate of 15 percent of their profits as the surcharge, but the companies refused to pay. Saddam then pursued a 50-cent per barrel surcharge that his advisors warned him was not workable. When Saddam realized they were right, he allowed the surcharge to be dropped to 30 cents and then finally to 10 cents. Ten cents was the amount first charged by SOMO in September 2000.

  • Some companies, particularly the French, refused to pay the surcharge.
  • However, some companies used a ‘middleman’ to hide the link between the originating company and Iraq.

Iraq tolerated the refusal of some companies to pay the 10-cent per barrel surcharge until the end of the 8th phase (5 December 2000) in order to avoid their refusal to ship the oil and reduce Iraq’s projected exports.

  • The 10-cent surcharge was increased in January 2001 during the 9th phase to35 cents a barrel for sales to the US and 25 cents per barrel for sales to other countries. The surcharges continued into phase 12 at 15 cents per barrel to all customers (see Figure 20).

The surcharge system was an open secret. The subject was discussed by the media and by worldwide oil market. It was known the former Regime received income from its sales that were deposited in special accounts outside of Iraq.

  • The system continued until October 2001 when the UK and US took unilateral action to eliminate the excess profit that allowed surcharges to be paid.

How Surcharges Were Collected

The buyers agreeing to the surcharges did so with a written personal pledge to pay. Iraq’s main leverage to enforce payment was to deny the buyer future contracts until he made good on his debt. Iraq exercised this option in the case of the African Middle East Petroleum Company, according to SOMO documents. By the 12th phase, there were 42 entities receiving oil export allocations that were not allowed to sign contracts because they had not fully paid their surcharges.

Kickbacks on Commercial Goods Import Contracts

The fourth revenue source for Saddam’s Regime was kickbacks from UN OFF program commercial goods contracts being imported into Iraq. According to a former senior MoT official, beginning with the 8th phase in June 2000, Iraq began to demand a kickback on all UN OFF program import contracts to generate illicit income. The amount of the kickback could vary, but generally was around 10 percent. ISG suspects, however, that Iraq had been receiving similar types of kickbacks since the beginning of the UN OFF program to varying degrees.

Contracts were written for 10 percent above the actual price and the supplier company would deposit this amount into Iraqi accounts. The fee was often included for spare parts or after sales service. The fee was often applied, particularly in Jordan, through the mechanism of the supplier providing a 10 percent performance bond in advance, which was then automatically transferred to an Iraqi account when the supplier was paid for the goods.

  • A source described how it often worked for one front company. For instance, the Al-Eman Group (a Jordanian Company) would sign a contract with Iraq and deposit the 10 percent performance bond in an escrow holding account. When the goods were delivered to Iraq, the UN Iraq account would pay the full contract price to Al-Eman. At that point, the Jordan National Bank would automatically kick back the performance bond to an Iraqi account instead of returning it to Al- Eman, as would normally be the case.
  • ISG does not have information from Iraqi sources regarding the revenue earned from these kickbacks; but we estimate, using a 10 percent average, that these kickbacks totaled approximately $1.512 billion from late 2000 until OIF (see Figure 21). For more information on the methodology used to generate this estimate, see Annex E: Illicit Earnings Sources and Estimation Methodology.

According to senior MoT and official sources, kickback payments were deposited into temporary accounts controlled by the Iraqi ministry involved with the contract at banks in Jordan and Lebanon. These “bridge” accounts were not in the name of the ministry, but used false names to disassociate the Iraqi government from the transaction. Within 24 hours, the funds were transferred to a CBI account at the same bank. At the end of each day, the ministry bridge accounts had a zero balance. Kickback payments also were made to at least two Iraqi front companies: Alia in Jordan and Al-Wasel & Babel in the UAE. Ultimately, the kickback funds were couriered back to the CBI in Iraq.

Each individual ministry that engaged in the import kickback contract scheme had copies of their respective contracts or deals. The MoT was responsible for monitoring these contracts but was not involved in negotiating the terms. Each of the following ministries (see Figure 22) engaged in the 10 percent fee scheme:

Although the kickback was paid to the particular ministry that entered into the contract, those ministries were not able to use the funds—they usually were transferred to the CBI as mentioned above.

  • In order to encourage kickback collections by the ministry, and in order to compensate the ministry for the difficulties involved with the scheme, the CBI returned 5 percent of the 10 percent kickback to the ministry collecting the kickback.
  • These funds were distributed to the employees of the particular ministry as an incentive to collect the kickbacks.

Another method of generating kickbacks from UN OFF import contracts emerged in the later years of the UN OFF program. This method was based on deceiving the UN over the quality of the items being imported to Iraq. For this illicit revenue scheme, Iraq arranged for a co-operative supplier to obtain a legitimate UN OFF contract specifying “first-quality” humanitarian goods. Iraq would then be authorized under UN OFF to pay top quality prices for the items via the UN OFF-controlled accounts. In reality, however, the co-operative supplier substituted cheap, poor-quality goods for the contract. This generated very high profits for the co-operative supplier. Saddam then arranged for the excess profits to be returned to Iraq via diplomatic channels, after the co-operative supplier took its “fee.” This revenue scheme was particularly nefarious since it left the people of Iraq with second-quality, sometime useless, humanitarian goods. (see the Use of Foreign Banks sections.)

Private-Sector Oil Sales

Iraq’s trade with private-sector businessmen during the sanctions period provided a $1.2 billion supplement to illicit money earned from kickbacks and surcharges related to the UN OFF program and

Protocols with neighbor states (see Figure 23). Iraqis also refer to this trade as “border trade” or “smuggling.” (see Annex F: Iraqi Oil Smuggling for a case study on this topic.)

  • These sales began almost immediately after sanctions were implemented, with examples dating back to at least 1993.
  • Iraq exported crude oil, petroleum products, and dry goods such as dates and barley. ISG has very little information about the volume or earnings from the dry goods portion of the trade.

ISG estimates Iraq earned about $30 million annually from 1991 through 1997 for a total of $210 million during the period.

Private-sector sales were made by SOMO, but outside the UN OFF oil export program and the trade Protocols with Jordan, Syria, Turkey, and Egypt. SOMO information on these sales covers from 1998 until OIF. Payment for these sales amounted to $992 million, and was made in three ways:

  • Some contracts were listed as “cash.” According to the SOMO Invoice and Contract Data Base, these contracts were signed from June 1997 through March 2003 and were for all types of petroleum products (gas oil, fuel oil, asphalt, etc.) as well as small amounts of crude oil. These cargoes were shipped through the Arabian Gulf, Turkey, Jordan, Syria, and possibly Lebanon. The contracts were valued at $560 million and $523 million was actually collected.
  • Another category of contracts was “goods/barter.” These contracts were signed from January 1998 through March 2003 and were primarily for fuel oil and gas oil. Like the cash contracts above, these cargoes were shipped through the Arabian Gulf, Turkey, Jordan, Syria, and possibly Lebanon. The contracts were valued at $469 million. Because these were barter contracts as payment for goods to be received by specific Iraqi ministries, SOMO received no cash in payment.
  • The final category of contracts was “Iraqi Dinars.” These contracts were signed from May 1999 through December 2002. They were all for fuel oil and all were sold to the “North,” probably the Kurds. The income was in dinars and when translated into dollars at prevailing exchange rates only amounted to about $2 million. Because this was not hard currency income, it is not counted in the total hard currency income mentioned elsewhere in this section.

SOMO lists its cash, barter, and dinar contracts as being destined for the “North,” “West,” or “South.”

  • Based on the buyer’s names, shipments to the North almost certainly were mostly destined for Turkey. One of the major purchasers paying with cash was the Asia Company, which bought almost 11 million barrels for $174 million from May 1999 through January 2003. According to Amir Muhammad Rashid Tikriti Al Ubaydi, Iraq’s Oil Minister, Barzani, the leader of the Kurdish Democratic Party, controlled this company. The dinar contracts probably were destined for the Kurds in the three Northern Governorates. Some of the shipments to the North could have found their way to Iran. The total value of private-sector trade with the North was $538 million.
  • Based on the buyers listed, shipments for the West were destined at least for Jordan and Syria. Some of these shipments probably also found their way to Lebanon. The total value of private-sector trade with the West was $95 million.
  • Based on the buyers listed, shipments for the South were destined for export by small vessels through the Arabian Gulf, with most probably destined for the UAE and other nearby bunkering markets. Some probably wound up in India and perhaps other destinations. The total value of private-sector trade with the South was $359 million (see inset).

According to a number of Iraqi officials, the money earned from private sector border trade was primarily deposited into accounts in Lebanon and Jordan controlled by the CBI (see Figure 24).

  • The accounts were kept in US dollars, except for one account in Euros that was closed after one month.
  • One account was maintained in the Rafidian Bank, Mosul, Iraq branch. This account handled earnings from the private-sector trade through the North.
  • The “SOMO Office” in Basrah handled earnings from private sales through the South. ISG does not know if this means there was a corresponding Rafidian Bank account to handle these earnings in the South.
Bank
Currency
Amount
Ahli Bank-Jordan
US$
$287,120,131.61
Rafidian “Filfel” (Mosul)
US$
$146,648,012.00
Jordan Bank-Jordan
Euros converted to US$
$47,026,041.80
Ahli Bank-Jordan
US$
$42,035,812.95
Iraqi Embassies
US$
$930,000.00
Fransa Bank-Lebanon
US$
$48,000.00
Total US$
$523,807,998.36
Figure 24. Total amounts received in Iraqi bank accounts under private sector “cash sales”.a   a This SOMO information is different by less than $1 million from the SOMO data base information cited above. The reason for the discrepancy is unknown.


Role of the SOMO

Iraq’s SOMO is the state-run monopoly that controls all of Iraq’s crude oil exports. It is overseen by the Iraqi MoO and functions as the Ministry’s marketing arm. SOMO maintained all records for sales under the UN OFF program; cash border sales, sales through the Protocol agreements, and oil allocation (vouchers) arrangements.

  • According to the procedures agenda approved by the UNSCR 986, SOMO was responsible for the marketing process of Iraqi oil and was eventually permitted to sell as much oil as it could. However, these sales contracts were only allowed to companies registered with the UN as approved buyers of Iraq’s crude oil. These companies were only to make payments to Iraq into the UN supervised escrow account in the Banque Nationale de Paris in New York.

According to SOMO officials,Saddam demanded that Iraq keep the price of its oil as low as possible in order to leave room for oil traders to pay Iraq the illegal surcharges. A sales director at SOMO stated that they were instructed by the government to get the lowest price. Under normal circumstances, SOMO would have sought the highest price for Iraq’s oil, its only legal source of real revenue.

Among the companies listed in SOMO’s records as having paid illegal surcharges are some of the world’s largest refineries and oil trading companies. SOMO maintained detailed financial records listing invoices and collections for each contract. These companies, when questioned about surcharge payments, deny they were the parties that made them.

  • For example, according to SOMO records, one of the most active purchasers of Iraqi crude was a Swiss-based company named Glencore. It paid $3,222,780 in illegal surcharges during the period of the program. The company denies any inappropriate dealings with the Iraqi government outside of the UN OFF program.
Determining who paid surcharges, and for what amounts for each oil transaction will take some time. Iraqi oil shipments passed through many parties before being delivered to end recipients, the large oil refineries and companies outside Iraq. The parties or oil agents that first bought the oil only to turn around and resell it for profits could have been anyone from small-inexperienced oil dealers and companies, or even businessmen and companies being bribed or rewarded for various reasons by the Iraqi government.
  • According to SOMO records and senior MoO officials, oil surcharges were deposited into Iraq’s bank accounts. Only designated, trusted Oil Ministry employees withdrew the cash and brought it to Baghdad on a regular basis.
  • An estimated $2 billion is believed to be left from the illicit funds deposited in foreign Iraqi bank accounts.
  • As of February 2004, over $750 million had been recovered from these accounts and returned to Iraq, according to the US Treasury Department.

Saddam directed SOMO to set up accounts at the National Bank of Jordan, also known as the Ahli Bank of Jordan. SOMO created separate accounts both for surcharge payments and for Protocol-generated revenue. Three surcharge accounts were created, one each for the deposits of US dollars, Francs, and eventually Euros. The two required signatories on these accounts were SOMO employees.

Funds from SOMO accounts had to be released by a SOMO order. Payments from accounts holding the credit portion of earnings from the Protocol with Syria (at Syrian Commercial Bank) and the credit portion of earnings from the Protocol with Turkey (the TPIC account on behalf of SOMO at the Halk Bank) required authorizations from various ministries and the Presidential Office (Diwan). When SOMO received the appropriate approvals, it generated a letter directing the banks to make payments.

  • SOMO had at least thirteen accounts that were used to receive and/or hold the 10 percent fee amounts received from the various ministries.
  • The MoO had no authority over these accounts and they were located in Jordan, Syria, Lebanon, and the UAE.

SOMO’s Relationship to the MoO

While SOMO’s role was to sell Iraq’s oil and handle some of the funds derived from those sales, the MoO’s role was primarily to procure goods and services needed by the oil sector. As part of this effort the MoO would collect the 10 percent fee on import contracts.

  • A former Oil Ministry official in charge of contracting for maintenance equipment and spare parts stated they would accept a low bid and require another 10 percent be added to the contract. Iraqi officials believed 10 percent could be easily hidden from the UN. For example, if the bid were for $1 million, the supplier would be told to make it $1.1 million. This scheme was quite effective for generating illicit revenue.
  • The MoO has bank accounts at several different locations and in several different countries. SOMO’s 13 accounts were separate from the MoO. According to a high-level source at the MoO, the Ministry had only basic information relative to the SOMO accounts, such as the name of the financial institution, the account holder’s name, and the name of the person who had signatory authority on the account.
  • The source stated that the MoO had this information so that they could transfer funds to the accounts when oil was sold. According to a source at the Ministry, the MoO is currently trying to recover funds from some of these accounts, particularly in Jordan, and return the money to Baghdad.

Iraq’s MoO currently has two active bank accounts at the Jordan National Bank, Queen Nor Branch, Amman, Jordan. These are the same accounts that the MoO has used for the last several years. The first account is a joint account held in the name of the MoO and Jordan Petroleum Refinery Co., Ltd. Its balance on 30 November 2003 was approximately $78.4 million. The second account is called the Ministry personal current account. Its balance on the same date was $3.9 million.

  • The source of these funds was from the sale of crude oil and oil products to Jordan under the Trade Protocols.
  • The Oil Ministry claims that the funds in these accounts were to be used to purchase engineering and chemical materials necessary to keep Iraq’s oil industry operating at a minimum production level.

Official Oil Accounts

SOMO held a variety of bank accounts to manage and control Iraq’s legal and illegal oil revenues. These accounts have been categorized as non-surcharge accounts (including Protocol revenues), oil surcharge accounts, and cash sales accounts. Figure 25 shows the bank accounts that SOMO opened for non-surcharge purposes.

  • The first five SOMO accounts are individually named accounts at the Ahli Bank in Jordan. For more detail on those names, see Figure 26.
  • The fifth account listed at the Ahli Bank in the name of Ali Rijab & Yakdhan was a Protocol trade account set up to receive payments related to the Iraq-Jordanian Protocol and was opened just a few months before the start of OIF. This trade account allowed 60 percent of oil proceeds to remain in the trade account and 40 percent of the proceeds to be utilized elsewhere. The signature authority on this account was Ali Rijab and Yakdhan Hassan Abrihim.
SOMO Account Balances Outside of Iraq
Country
Account Name
Bank Name
Account Type
Balance in US $
Jordan
Saddam Zibin, Ali Rijab &
Yakdhan Hassan Abrihim
Ahli Bank, Jordan
Cash Account
5,247,427
Jordan
Saddam Zibin, Ali Rijab &
Yakdhan Hassan Abrihim
Ahli Bank, Jordan
Cash Account
33,190
Jordan
Saddam Zibin, Ali Rijab &
Yakdhan Hassan Abrihim
Ahli Bank, Jordan
Cash Account
5,138
Jordan
Saddam Zibin, Ali Rijab &
Yakdhan Hassan Abrihim
Ahli Bank, Jordan
Cash Account
991,544
Jordan
Ali Rijab & Yakdhan
Ahli Bank, Jordan
Trade Account
2,987,054
Lebanon
SOMO
Fransabank, Lebanon
Cash Account
241,052
Lebanon
SOMO
Fransabank, Lebanon
Cash Account
46,583
Lebanon
SOMO
Fransabank, Lebanon
Cash Account
41,010,787
Egypt
SOMO
National Bank of Egypt
Trade Account
19,710,881
Syria
SOMO
Commercial Bank of Syria
Trade Account
790,361,517
Syria
SOMO
Iraqi Embassy in Syria
Cash Account
1,223,401
unknown
SOMO
Syrian Lebanon
Commercial Bank
Cash Account
251,949,039
Turkey
TPIC
Halk Bank, Ankara
Trade Account
195,697,846
Russia
SOMO
Iraqi Embassy, Moscow
Cash Account
1,342,975
Vietnam
SOMO
Iraqi Embassy, Hanoi
Cash Account
406,805
Malaysia
SOMO
Iraqi Embassy, Kuala Lumpur
Cash Account
250,000
Switzerland
SOMO
Iraqi Embassy, Geneva
Cash Account
710,000
TOTAL 1,312,182,052

Figure 25. SOMO accounts balances outside of Iraq (data provided by SOMO in January 2004).

  • There are two different cash accounts listed at the Sardar Bank in Lebanon, both with the name “Rodolphe” listed as the bank point of contact.
  • SOMO established another account at the National Bank of Egypt that was used as a Protocol trade account, similar to the one set up for Syria. Again, a 60/40 split allowed 60 percent of oil proceeds to remain in the trade account and 40 percent of the proceeds to be deposited into Ahli Bank account in Jordan.
  • The Commercial Bank of Syria cash account received the 40 percent of the oil proceeds. The bank was instructed that when the account balance exceeded $1 million, it was to instantly transfer the extra amount to the Syrian Lebanon Commercial Bank account.
  • The Turkish Petroleum International Company (TIPC) is a trading arm of the Turkish National Oil Company and the SOMO equivalent in Turkey. SOMO funds were deposited at the Halk Bank located in Ankara Turkey.
  • The account was actually in the name of TPIC “in the favor” of SOMO. Currently SOMO is requesting to have funds still held at the Halk Bank released.
  • The SOMO amounts listed at the Iraqi Embassies were received directly from oil contract holders. These payments were sometimes delivered directly to the Embassies and other times deposited first into an Ahli Bank account.

As noted in Figure 25, the accounts at the Ahli Bank in Jordan are in the names of Saddam Zibin, Yakdan Hasan Abrihim al-Karkhi, and Ali Rijab Hassan. The accounts all have the same prefix of 501333 and suffix range from 02 to 12. Senior sources at SOMO were not sure of the reason for this.

Figure 27 shows the SOMO non-surcharge accounts through TPIC maintained at the Halk Bank in Turkey. The cumulated interest earned for these accounts, according to SOMO, was $7,678,946.70. Seven ofthese accounts (shown in green) remain open. The current Iraqi Embassy in Turkey has been in contact with the TPIC representatives about the current account balance of SOMO with TPIC. The embassy was informed that TPIC believes that the amount due to SOMO is only $100 million. A source at SOMO stated that TPIC must have allowed unauthorized withdrawals from these accounts.

In the eighth phase of the UN OFF program, Iraq began to impose a 10-cent per barrel illicit surcharge on all oil sales contracts to foreign entities with the exception of Syria (see the Oil Surcharge section). A summary of the surcharge amounts due collected, and left outstanding for phases eight through twelve are displayed in the chart below (see Figure 28).

These oil surcharge payments were deposited into several accounts at banks located in Jordan and Lebanon. Names of these banks included the Jordanian National Bank (Ahli Bank), the Sardar Bank, and the Fransabank in Lebanon (see Figure 29). Escrow accounts were opened in the name of SOMO however these other numbered accounts were opened by Director General of SOMO, Rafid Abd al-Halim or his Deputy and the Director of Finance or his Deputy for the deposit of surcharges.

  • The various accounts at the Ahli Bank were created to receive cash, which flowed in from surcharges, the Protocol accounts, and from payments received through border trade cash sales.
  • The amounts listed for the CBI and the Rafidian Bank are accounts that were still open in early 2004.
  • The two al-Wasel & Babel accounts were for US Dollars and Euros. They were only open for one or two months before being closed out. Al-Wasel & Babel is a partially state owned oil and banking enterprise in the UAE 51 percent of which is state owned while UAE investors own the other 49 percent. This business was used to move goods outside of the UN MOU and is still in operation.
  • Three accounts are shown at the Fransabank in Lebanon. They were Euro accounts, however, the balances have been converted to US Dollars for this chart.
  • Two of these accounts were set up to receive oil surcharge amounts while the third account (marked with an *) shows the total proceeds received by Iraq for the sale of crude oil outside of the UN MOU and not just for the surcharge amounts.

Figure 30 is a graphic representation of the data in the chart above. It illustrates how the surcharge revenues were distributed among the associated SOMO bank accounts.

Figure 31 lists the Iraqi bank accounts, which were established to receive cash payments from illegal border sales of crude oil.

  • Sources at SOMO explained that the account at the Jordan bank was set up for Euros and was closed after just one month. The balance of this account was shifted over to the Ahli Bank accounts.
  • The Rafidian “Filfel”/Iraq account represents a SOMO account at the Rafidian Bank branch office located in Mosul which collected surcharge amounts from the border sales of oil to the areas to the north. The SOMO office in Basra handled the areas to the south.

Figure 32 depicts the allocation of the cash sales revenue in the various banks.

Banking and the Transfer of Financial Assets for Procurement

Iraq manipulated its national banking structure to finance the illicit procurement of dual-use goods and WMD-related goods, as well as other military goods and services prohibited by the UN. Through its national banking system, Iraq established international accounts to finance its illegal procurement network. Iraq’s international accounts, mainly located in Jordan, Lebanon and Syria, were instrumental in Iraq’s ability to successfully transfer billions of dollars of its illicitly earned oil revenues from its various global accounts to international suppliers, front companies, domestic government and business entities, and foreign governments (see Annex G: Iraq’s Banking System for more details on the origins of the Iraqi banking system).

CBI

The CBI was responsible for issuing and storing currency of the government, protecting against counterfeit currency and disbursing funds based on directives from the Minister of Finance. Individuals and companies doing business with the government of Iraq would have to go through the CBI, which handled all official government transactions and funds. The CBI is composed of three domestic branches, including its headquarters in Baghdad as well as one office in Basra and one office in Mosul. The Governor of the CBI before OIF was Isam Rashid al-Huwaysh.

According to a senior Iraqi financial official, the CBI established overseas accounts in 24 Lebanese banks, seven Jordanian banks, and one Belarusian bank to deposit cash from the ten percent system of kickbacks from foreign suppliers of goods and foodstuffs. CBI did not maintain overseas accounts in other countries because senior bank officers feared that such accounts would be frozen by the United States. The financial official said that other Iraqi government ministries also maintained overseas accounts of funds provided from the CBI overseas accounts. CBI did not maintain any overseas holdings in real estate, stocks, bonds, or diamonds.

CBI’s Role in Licensing Money Exchangers

Prior to OIF, the Exchange Department of the CBI was responsible for licensing the approximately 250 licensed money exchangers in the business of converting currency of one country into the currency of another country. Money exchangers were required to obtain a license from the MoT, and present it to the CBI in order to register as a money exchanger. Some money exchangers mark their currency for identification purposes and to assist in the prevention of counterfeiting.

Statements by ‘Isam Rashid al-Huwaysh, Former Director of the CBI

Custodial debriefings revealed that:

  • The CBI funded government departments through payments to the Ministry of Finance. The Presidential Diwan was the only department that received money directly from the CBI.
  • The CBI distributed cash only on the instruction of the Minister of Finance to the Rafidian and Rashid Banks. The Diwan transferred money to their accounts. On instruction from the Minister of Finance, Treasury Bonds were issued to cover cash taken from the CBI.

CBI’s Role in Tracking Foreign Accounts for Iraq

The CBI Investment Department maintained a book that contained all foreign accounts opened by the bank, including the numbered or bridge accounts opened in Lebanon and Jordan. The bridge accounts concealed the fact that foreign companies were making payments to Iraq. Under this system, illicit foreign payments appeared to be going to an account opened in a personal or numbered account. Then the foreign banks immediately transferred proceeds from the bridge account to a CBI account.

CBI maintained accounts in foreign countries specifically for the transfer and distribution of funds to third parties. The Investment Department of the CBI did not conduct normal banking activity after the United Nations imposed sanctions on Iraq in 1990 because its access to overseas accounts, and investment opportunities in particular were tightly limited and controlled. However, the Foreign Accounts section of the Investment Department still maintained vigilance over the CBI accounts that had been frozen around the world in order to track the accrual of interest in these accounts.

  • This section also maintained the hidden overseas accounts in Lebanon and Jordan, which the former Regime used for earnings from the ten percent contract kickback scheme and oil surcharges payments. An Investment Department officer of the CBI was directly responsible for transferring foreign currency funds from the CBI’s hidden overseas accounts in Lebanon and Jordan to separate accounts held by the former Regime leadership and the IIS in overseas banks.

In late 1999, the state-owned Rafidian Bank took over the CBI’s role in managing Iraqi government funds abroad, mostly through Rafidian’s Amman branch.

The Central Bank of Iraq did not possess any authority for auditing the foreign currency account activities of overseas assets of the Rasheed Bank, the Rafidian Bank, or the Iraqi government ministries. In 1994, the Cabinet of Ministers decided to give the Rasheed and Rafidian Banks as well as Iraqi government ministries the authority to open their own overseas accounts independent of CBI controls or authority. As a result, the CBI was no longer able to determine the foreign currency holdings of these institutions.

When directed by the EAC, CBI would transfer foreign currency funds from its overseas accounts in Jordanian and Lebanese banks into ministries’ accounts, often those held at the Rafidian Bank in Amman, Jordan or Beirut, Lebanon. In theory, the EAC would only direct CBI to transfer funds into another government bank or ministry overseas account to fund an import purchase. The EAC transfer of funds’ request, however, only indicated the recipient Iraqi organization, the amount, and the bank account number to which the funds were sent. CBI officials had no means for establishing the end use or final destination of the transferred funds.

  • CBI did not transfer any funds into personal accounts from its overseas accounts. Any transfer of government funds into personal accounts would have been possible only if conducted through the overseas branches of the Rafidian and Rasheed banks or other government ministries’ accounts.

CBI Governor al-Huwaysh wrote several letters to the cabinet ministers requesting increased controls, or at least auditing capability, over foreign currency transactions conducted by the Rafidian and Rasheed banks and government ministries. In early March 2003, with the imminent threat of war, the cabinet ordered government ministries with overseas accounts to transfer all their foreign currency funds to CBI accounts in overseas banks. This was done in order to provide greater security for government funds that had been dispersed in these various overseas accounts, but not yet utilized.

  • In early 2003, Saddam convened a meeting during which he ordered the removal of $1 billion from the CBI in order to avoid the risk of all the money being destroyed in one location in the event of an allied attack. Present at the meeting were the Minister of Finance, the Minister of Trade, the Director of the MIC, the Presidential Secretary, the Chief of the Presidential Diwan, and the Governor of the CBI.
  • Two weeks before the outbreak of the war in March 2003, Saddam formed a committee that was responsible for the distribution of funds. The committee consisted of the Minister of Finance, the Chief of the Presidential Diwan, the Presidential Secretary and Saddam’s son, Qusay Saddam Husayn al-Tikriti. The group visited the CBI and inspected the boxes that contained the $1 billion. The money was stored in 50-kilogram boxes that contained either $100 notes or 500 notes.
  • According to multiple Iraqi officials, including CBI Director Huwaysh, Qusay, along with SSO Director Hani ‘Abd al-Latif Tilfa al-Tikriti, and approximately 50 other people, appeared at the CBI on 19 March 2003 and removed the boxes of money. The money was then distributed to different ministries, including the MoT, which received eight boxes of money. After the war, the MoT boxes were turned in to the proper authorities through ‘Adnan al-Adhamiya, head of the MoT Legal Department. Overall, all the money was recovered except for about $130 million.

Iraqi Bank Holdings

The following chart (see Figure 33) summarizes the total assets accumulated by Iraqi’s banks before OIF (for more details, see Annex G: Iraq’s Banking System).

Funding of the Ministries

Prior to the sanctions resulting from the August 1990 invasion of Kuwait, the Iraqi government would finance its international trade and operations using letters of credit, secured or non-secured and recoverable or non-recoverable, in accordance with international banking laws and regulations. The imposition of the sanctions forced the Iraqis to seek alternative methods to avoid having their assets frozen in accounts in the name of their government or ministries. The two primary methods used to circumvent the sanctions were to pay cash to intermediaries and the use of nominee named letters of credit.

The Finance Minister authorized individuals to take currency out of Iraq. This was against the law for both Iraqi citizens and non-citizens without the consent of the Finance Minister. The Finance Ministry would receive an order from Saddam, authorizing an individual to take a certain amount of currency outside of Iraq. The Finance Minister would then arrange with Iraqi customs for that individual to be allowed safe passage through the border, with the currency. Typically, the funds authorized were not very large. Funds ranged between $2,000 and $3,000, occasionally as high as $5,000. Those authorized to take the currency abroad were friends of Saddam and supporters of the Iraqi cause.

At the beginning of 2000, each ministry and governmental agency established accounts with banks in Syria, Jordan and Lebanon, in the names of selected employees within each of their respective organizations. The Iraqi government used its Rafidian and Rasheed banks in these countries because of their direct links to Baghdad. After MIC contracted for the procurement of goods or materials they would send instructions to the bank to transfer the amount of the contract value into an account for the supplier or middleman. The recipient would be credited with the funds, but the funds would not actually be released until after delivery of the products.

The Use of Foreign Banks

Before the 1991 Gulf War, the Regime had funds in accounts in the US, Europe, Turkey and Japan. After 1991, the Regime shifted its assets into accounts in Jordan, Lebanon, Belarus, Egypt and Syria. An agreement was drafted with Sudan but never completed. Accounts appeared in the names of the CBI and the SOMO.

The CBI’s Investment Department Director General, Asrar ‘Abd al-Husayn was responsible for management of these overseas accounts and maintained signatory power of the accounts, up to a limit of $1 million. CBI Governor Isam Rashid al-Huwaysh had final responsibility and supervisory authority over these accounts. There were no restrictions on the amounts al-Huwaysh could transfer or withdraw from the accounts. The CBI Investment Department retained information on account numbers and account activities at its office in Baghdad on computer discs, and the overseas banks forwarded account statement to the Investment Department on a monthly basis. CBI’s paper records of these accounts were burned, either during OIF or afterwards when the bank offices were looted. CBI did not maintain records of other ministries’ overseas accounts or records of Regime leaders’ personal overseas accounts.

Since 1993, as a result of the financial obligations and economic strains of two consecutive wars and the freezing of its accounts in Western Europe and the United States, CBI had virtually no foreign currency in overseas accounts or its own vault in Baghdad. CBI then began increasing the number of its overseas accounts in Jordan and Lebanon after Iraq accepted and implemented the UN OFF Program and oil exports started to flow in December 1996. CBI only began accumulating large amounts of foreign currency in these accounts in 2001 after the introduction of a formal system of illegal kickbacks from foreign suppliers in 2000, according to a senior Iraqi financial officer.

Prior to 2001, the amount in these accounts was minimal. CBI selected Jordanian and Lebanese Banks for the establishment of overseas accounts based upon prior relations with the bank or based upon competitive bids tendered by various banks that sent representatives to Baghdad seeking the Regime’s banking business. When selecting a new bank, CBI would consult international banking records and consider the additional level of interest the foreign bank would offer above the international bank interest rate. Usually, this interest rate would be between 0.5 and 0.8 percent above the international bank rate, usually the London rate.

According to a senior Iraqi finance officer, when CBI planned to open a new account, the bank would send two investment department officials to either Jordan or Lebanon with an official letter. When the Regime requested CBI draw upon the accounts to transfer foreign currency cash to Baghdad, CBI would send a delegation of three CBI officials, one with account signatory power, to the foreign bank with an official letter from the CBI. It usually took a week to ten days for the banks to prepare the cash, since the banks usually did not maintain large amounts of foreign currency cash on the premises. Then, the cash, the amounts of which usually ranged between $5-10 million, was delivered to the Iraqi Embassy and put in diplomatic pouches for transport back to Baghdad by vehicle. CBI governor al-Huwaysh himself once carried $10 million in his vehicle on his return trip from Beirut to Baghdad.

Use of Banks in Lebanon

16 Lebanese banks were used to hide Iraqi cash, which was physically trucked to Baghdad by the IIS when accounts reached a predetermined level, according to a high-ranking Iraqi official. A committee consisting of the Ministers of Trade, Treasury, Commerce, the governor of the CBI and the Diwan secretary sent CBI officials abroad to collect this cash, according to the former head of the Diwan.

Use of Banks in Jordan

Much of Iraq’s money in Jordan was held in private accounts operated by the Iraqi Embassy in Amman or the Iraqi Trading Office. It was standard practice to have two signatories for the accounts as a security measure to prevent theft. Double-signatory Iraqi accounts in Jordan could only be government accounts. Of particular interest was the Jordanian Branch of the Rafidian Bank, which was established purely for use of the Iraqi government; the United Bank for Investment was also important, because of its establishment for use by Saddam’s family. Transactions were never made by telex or electronic transfer, because it was feared these would be detected by the US or UK. Instead, those wishing to buy oil, or other commodities such as sheep, outside of the OFF program would pay cash to an account at Rafidian Bank in Amman. Further cash transfers would then be made to other banks, including the Hong Kong and Shanghai Banking Corporation (HSBC) in Amman, where Regime money remained. Transfers of cash to other countries would be hand-carried using the diplomatic bag to avoid the need to send money electronically. Money was sent to Europe in order to procure goods for Iraq, but was never sent there for secrecy, as the controls over the financial system made it too difficult.

According to a former high-ranking Iraqi government official, when Jordanian officials approved a transaction, the Jordanian Ministry of Industry and Trade notified the Central Bank of Jordan to verify the availability of funds. Jordanian suppliers were then required to post a performance bond and the Iraqi importers were required to obtain a letter of credit from the Rafidian Bank. The Letter of Credit required specification of payment terms according to the Iraqi-Jordanian Protocol. After the receipt of goods, the Iraqi importer would verify acceptance so payment could be released.

In order to make payments to Iraq for the cash, an arrangement was negotiated annually between the Central Banks of Iraq and Jordan. There were written instructions concerning the process for transferring funds to Iraq. In order to transfer funds, the Rafidian Bank served as an intermediary between the Central Bank of Jordan and the CBI. Jordan was a unique case; trading with Iraq was ongoing since the early 1980s so the trade credits Iraq earned from this Protocol were controlled by the Central Bank. Funds were dispersed by the Central Bank of Jordan by order of the CBI or by specific Protocol designed for payment for goods and services. This Protocol included automatic payments to Jordan for Iraqi air travel and Iraqi telephone calls as well as salaries for the employees of the Iraqi embassy in Jordan.

According to a high-ranking Jordanian banking official, the CBI had no accounts with the Central Bank of Jordan and the only relationship between the two was through the implementation of the bilateral oil for goods barter Protocol. The CBJ worked diligently with the MoT and Industry and the Customs Directorate to ensure proper valuation of Protocol shipments, because over-valuation had been a problem.

Use of Banks in Syria

The Syrian connection became much more widely used after the February 1999 ascension of King Abdullah Bin Hussein in Jordan and the June 2000 ascension of Syrian President Bashar Assad. King Abdullah’s government began to create more problems for the Iraqi Regime with regard to importing products from Jordan. Consequently, Iraq turned to Damascus who offered a much friendlier atmosphere for goods not sanctioned by the UN.

The Commercial Bank of Syria was the repository of funds used by the Iraqi government to purchase goods and materials both prohibited and allowed under UN sanctions. The fair market value of oil and oil products would be deposited by Syrian buyers into an account in the Commercial Bank of Syria. Each ministry in the Iraqi government had use of these funds; however, there were quotas set for the amounts they would be able to use. The top four ministries with access to these funds in descending order included the MoO, the MoT, the Ministry of Industry (MoI) and the MIC. The orders to disburse funds through this account would come from the Iraqi Minister of Oil. It is estimated that there could be $500 million held inthis account.

Use of Banks in Turkey

SOMO and the Turkish Petroleum International Company (TIPC) had an agreement to maintain a 70 percent account in the Halk Bank in Turkey and interest bearing accounts.

Use of Banks in Egypt

A high-ranking official in Iraqi Banking stated that this trade agreement began around 2001 and continued through 2002. SOMO set up bank accounts at the Al Ahli Bank in Egypt through which payment was made for the purchase of oil from Iraq. SOMO officials had signatory authority over the accounts. This trade agreement was set up by the MoT and Oil and was not within the guidelines of the UN OFF program.

Some Egyptian government officials helped the government of Iraq to obtain hard currency illegally via the UN OFF program. It is unclear whom in the Egyptian Government was providing the assistance and who was aware of this activity. Under this illicit system, the Egyptian government officials would sign a contract with the Government of Iraq to purchase a certain amount of approved humanitarian goods for a set price under the UN OFF Program. The contract would specify that the goods shipped would be first-quality merchandise. In actuality, the goods shipped would be second-quality goods. When the UN paid the Egyptian Government officials for the first-quality goods, the Egyptian Government officials would distribute the funds for the second-quality products, take a small margin of profit for them, and convert the remaining money into US dollars or gold bullion and deposit the money into the Rafidian Bank or directly into the CBI. When this hard currency was received in Baghdad, the Iraqi government would pack bundles of US one hundred dollar bills into bags and boxes and distribute them to the Iraqi embassies abroad. However, after the arrest of the Iraqi IIS Chief of Station in Amman, the Iraqi government moved their primary transit point to Damascus out of fear that the couriers would be arrested while crossing the Jordanian border.

Use of Banks in Belarus

The CBI used Infobank in Belarus to hide Regime assets in employee-named accounts. These accounts held funds accumulated through the kickback of funds from import contracts under the UN OFF program. Huwaysh, former Director of the MIC, estimated that there was $1 million in this account and the Iraqi MIC had $1.5 million for procurement of Belarusian goods in this account. However, that actual total was $7.5 million (see Iraq’s Illicit Revenue section).

Regime Attempts To Recover Funds Prior to OIF

A high-ranking government official stated that Saddam ordered all funds located in foreign banks brought back to Iraq in 2001. ISG judges that Saddam took this action to prevent his assets from being frozen or seized by the international community. This order indicates that Saddam knew he might come under international pressure in 2001, possibly as a reaction to the Al-Samud missile project or the illicit profiteering from the OFF program.

  • A committee was formed to accomplish the transfer of these Iraqi funds. The committee consisted of the Finance and Trade Ministers, the Chief of the Presidential Diwan, and the Governor of the CBI.
  • The role of the Diwan Chief was mainly to provide funds to those individuals, known as “couriers”, selected by the Finance and Trade Ministers and CBI Governor to travel to retrieve the funds. Most couriers were trusted employees of their respective government entities.
  • At the committee’s second meeting, the Governor of the CBI stated that Iraq had already brought back to Iraq up to $200 million worth of gold. The gold was purchased through an unidentified bank in Beirut and secured in CBI vaults.

The Role of Cash Transactions

The CBI provided foreign currency in cash to Saddam through an official funding mechanism established to release cash from CBI reserves to the Presidential Office. The Presidential Office did not have a fixed budget, and CBI often received messages requesting foreign currency for release to the Presidential Office. The amounts ranged from thousands of US dollars up to $1 million, which were always paid in cash in foreign currency. The Presidential Office was the only entity that would ever request money in cash from the CBI, but the requests never exceeded $1 million. The Presidential Office stated that the cash was used for overseas travel, for government business, and medical reasons. The CBI Credit Department accounted for the cash sent to the Presidential Office in the same way that it accounted for funds used by Iraqi ministries. The ministries, however, never received foreign currency cash. If the ministries needed Iraqi dinars for domestic purposes, they would obtain it from their respective Rafidian bank accounts.

Saddam seldom interfered in the affairs or business of the CBI. As a standard practice, CBI intra-governmental relations focused on the Cabinet of Ministers, the Ministry of Finance, and the Presidential Office Staff. The authorization for CBI to release cash to the Presidential Office usually came from either the Presidential Office Chief of Staff or the Vice Chairman of the Cabinet of Ministers. Some notable exceptions were Saddam’s post-1993 annual special requests for cash and his last request for cash on 19 March 2003, when he authorized Qusay to withdraw $1 billion from the CBI.

Iraq’s Gold Reserves

The CBI vaults contained four tons of gold reserves as of early June 2003. The value of these gold reserves was insignificant in comparison to the bank’s level of cash reserves. CBI began accumulating these gold reserves in 2001 by purchasing gold in relatively small quantities on a frequent basis from Lebanese banks in which the former Iraqi Regime had large foreign currency deposits. As a standard purchase procedure, the respective Lebanese banks supplying the gold would deliver it to the Iraqi Embassy in Beirut for shipment to CBI vaults in Baghdad via diplomatic pouch. The CBI bought gold in amounts ranging from 100 to 500 kilograms per purchase. This amount of gold could be shipped easily by diplomatic pouch. Also, CBI bought gold in small quantities in order to avoid raising the market level of gold in Lebanon and to avoid scrutiny by the US. The Regime did not remove any of the gold from CBI vaults during the war with coalition forces.

  • The CBI Investment Department Director General Asrar ‘Abd al-Husayn was directly responsible for management of the gold purchases using cash from the overseas accounts in Lebanon. CBI Governor Dr. Isam Rashid al-Huwaysh, however, retained final responsibility for supervision of the gold purchase program.
  • The Regime implemented the gold purchase in 2001 upon the recommendation of al-Huwaysh and against the opposition of Minister of Finance Hikmat Mizban Ibrahim al-Azzawi. Al-Huwaysh was concerned that Saddam and his sons could easily remove cash reserves whenever they wanted or could easily use the cash reserves in purchasing weapons from foreign suppliers.
  • Gold, on the other hand, was heavy and could not be easily removed, ensuring that the CBI would retain these reserves, even if the Regime decided to remove the cash reserves. Al-Huwaysh, however, could not use this argument to convince Saddam to begin a gold purchase program, and he instead argued that the gold reserves could not be destroyed in the event of bombing and fire at the bank during a war.
  • Saddam accepted this latter argument and authorized the gold purchased beginning in 2001. Prior to the outbreak war with coalition forces, the Regime did not have any plan for dispersing the gold upon commencement of hostilities.

The Rafidian Bank central office in Baghdad had an unknown but relatively small quantity of gold in its vault as of 19 March 2003. Under the former Regime, Iraqis were not allowed to sell their gold overseas, but many people attempted to smuggle their personal gold out of Iraq to take advantage of the higher prices in overseas markets and to secure foreign currency. When these smugglers were caught, the government confiscated the gold and put it in the vault of the Rafidian Bank. Iraqi ministries did not retain any gold.

 



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