Iraq Survey Group Final Report

 

Deceptive Trade Practices Supporting Illicit Procurement

Use of Trade Intermediaries

Trade intermediaries were a specific subcategory of front company that served as middle-men or agents for illicit procurement between the Iraq clients and international suppliers. On the surface they were transport-related businesses such as freight or shipping companies that disguised the routing, destination, or purpose of acquired goods. They were either foreign or domestic companies and charged a percentage of the contract fee for their services. There were three types of Iraqi trade intermediaries:

• Companies in full collusion with the former Regime (often these were owned or operated by the Regime).
  
• Intermediaries willing to overlook ambiguous or partially completed trade documents if the profit margin was sufficient.
  
• Companies that were unaware of the Iraqi involvement in the contract because of falsified paperwork or Iraqi deception.
  

The conditions for illicit trade via intermediaries was set by the reestablishment of normal trade under the 1996 UN OFF Program and the bilateral trade protocols with Jordan, Syria, and Turkey. These protocols provided effective cover for illicit trade to occur, establishing legitimate linkages between trading companies, and making it more difficult to monitor compliance with UN sanctions.

• Iraqi trade companies established branch offices in neighboring countries or to call on the support of affiliated/sister companies operating abroad. Sometimes these branch offices/sister companies represented the primary office for soliciting offers from foreign suppliers. These relationships gave the appearance that commercial business was being conducted with business clients in the neighboring country, rather than Iraq.
  

Iraqi trade intermediaries generally used several approaches to hide the illicit nature of their cargo. These approaches were used singly or in combination (depending on the sensitivity of the commodities) to get the items into a neighboring country where it could be easily smuggled into Iraq.

• Disguising the nature of the item.
  
• Hiding the ultimate end user.
  
• Changing the final destination.
  
• Nondisclosure. Alternatively, any of these three bits of information could simply be not provided or written illegibly on the shipping documents. Although against common trade practices, this ambiguity could provide sufficient deniability for those suppliers in the acquisition chain.
  

Disguising the Nature of Prohibited Goods

The Iraqi Regime skirted UN restrictions by using cover contracts under the trade Protocols or outright incorrect descriptions of items in transit. The MIC was known to use this method to purchase military equipment using funds from the UN OFF program. Military-use items would also be incorrectly described in the paperwork as dual-use items. ISG has uncovered numerous examples of Iraqi efforts to disguise the nature of illicit imports to skirt the UN sanctions Regime:

• Captured Iraqi documents verify that NEC provided restricted items to Iraq, although we have not found any evidence that NEC provided Iraq with chemicals that could be used to produce CBW agents.
  
• In 1999, the MIC imported Georgian T-55 and T-72 tank engines under cover contracts for agricultural equipment, according to documents corroborated by a high-level MIC official (see figure 64).
  
• Translated correspondence between the Iraqi front company Al-Rawa’a Trading Company and Al-Karamah detailed November 2000 plans to alter shipping documents for agricultural towing batteries (military use) to describe them as batteries for ambulances. Muhammad Talib Muhammad, director of Al-Rawa’a, was concerned because, if the batteries were discovered during inspection upon arrival in Iraq, it could create a “crisis.” The purpose of altering the documents was clearly to describe the batteries dual use rather than military use, thereby making it easier to bring them into the country.
  
• In February 2003, the Russian state arms export company, Rosoboronexport, and other Russian companies planned to sell advanced antiaircraft and antitank missile systems to Iraq, according to a document signed by the head of MIC security recovered at the IIS Headquarters in Baghdad. The Iraqis and Russians planned to ship the prohibited goods using UN OFF cover contracts to disguise the items as illumination devices, water pumps, and assorted agricultural equipment. We do not know if this equipment was shipped to Iraq before the start of Operation Iraqi Freedom.

Concealing the Identity of Commodities

In addition to disguising the identity of the item, trade intermediaries employed many techniques to hide the identity of the end user of the commodities. A common practice used by Middle Eastern trade intermediaries representing Iraq’s interests would routinely approach suppliers about requirements for “unidentified clients.” The international suppliers would either settle for incomplete end-user statements (part of the formal international trade documentation requirements) or accept false end-user statements from neighboring countries sympathetic to Iraq.

• After 1997, many of the illicit goods imported by MIC came through Syria using false end-user certificates provided by high-ranking Syrian officials. The former Syrian Minister of Defense, Mustafa Tlas, routinely signed false end-user certificates for weapons dealers, generally for a fee of 12 to 15 percent of the total contract amount.
  

• Documents from the Al-Basha’ir front company illustrate this method of deception. According to the documents, the Indian NEC Company complained to Al-Basha’ir in 2000 that the majority of the items requested by the MIC were seized before reaching Iraq, “despite the fact that most of it had documents with clauses mentioning the requirement of not shipping it to Iraq, Iran, North Korea, or Cuba.”

Disguising the Commodity’s Destination

Perhaps the most basic method for Iraq to skirt international scrutiny was to simply list a neighboring country as the final destination, when in fact the commodities were only held there until they could be smuggled to Iraq by Saddam’s agents. Because of the high amount of ordinary trade occurring under the bilateral trade protocols, and government complicity, Syria and Jordan were the most common transit countries used as false destinations for prohibited commodities bound for Iraq. The UAE also served as a transit location and, according to reporting, profiteers in Iran even took part in transiting Russian goods into Iraq. The MIC paid these transit services with the profits of oil sales under the trade protocols.

• According to a report, the Al Raya Company, an IIS front company, requested weapons from Syrian or Jordanian arms dealers. The merchant would acquire the goods in Syria or Jordan and move them into Iraq through the Jordanian Free Commercial Zone. This free trade zone was controlled by the Jordanian Ministry of Finance and Jordanian Intelligence Service and it served as an effective conduit for importing prohibited items through Jordan to Iraq. This report corroborates other reporting on the role of Jordan prior to 1999.
  
• After 1999, the MIC’s Al-Basha’ir Company served as a primary conduit for handling illicit shipments via Syria. At the MIC’s request, Syrian trade companies obtained specific items for Iraq, primarily from suppliers in Russia, Bulgaria, Ukraine, and other Eastern European countries. When delivered to Syria, Al-Basha’ir took delivery of the commodities under the oversight and assistance of Syrian government officials. These officials normally received a 12.5-percent mark-up as a kickback to ensure goods moved from Syria to Iraq without disruption. Al-Basha’ir then smuggled the items into Iraq and delivered them to MIC.
  
• In another case, seized documents reveal that in 2000 the Indian NEC Company delivered “100 explosive capsule units for the RPG-7” to the Al-Basha’ir Company in Iraq by leasing “a private plane which delivered the shipment directly to Syria with great difficulty.”