Iraq Survey Group Final Report
Throughout the 1990s and up to OIF (March 2003), Saddam focused on one set of objectives: the survival of himself, his Regime, and his legacy. To secure those objectives, Saddam needed to exploit Iraqi oil assets, to portray a strong military capability to deter internal and external threats, and to foster his image as an Arab leader. Saddam recognized that the reconstitution of Iraqi WMD enhanced both his security and image. Consequently, Saddam needed to end UN-imposed sanctions to fulfill his goals.
Saddam severely under estimated the economic and military costs of invading Iran in 1980 and Kuwait in 1990, as well as underestimating the subsequent international condemnation of his invasion of Kuwait. He did not anticipate this condemnation, nor the subsequent imposition, comprehensiveness, severity, and longevity of UN sanctions. His initial belief that UN sanctions would not last, resulting in his country’s economic decline, changed by 1998 when the UNSC did not lift sanctions after he believed resolutions were fulfilled. Although Saddam had reluctantly accepted the UN’s Oil for Food (OFF) program by 1996, he soon recognized its economic value and additional opportunities for further manipulation and influence of the UNSC Iraq 661 Sanctions Committee member states. Therefore, he resigned himself to the continuation of UN sanctions understanding that they would become a “paper tiger” regardless of continued US resolve to maintain them.
Throughout sanctions, Saddam continually directed his advisors to formulate and implement strategies, policies, and methods to terminate the UN’s sanctions regime established by UNSCR 661. The Regime devised an effective diplomatic and economic strategy of generating revenue and procuring illicit goods utilizing the Iraqi intelligence, banking, industrial, and military apparatus that eroded United Nations’ member states and other international players’ resolve to enforce compliance, while capitalizing politically on its humanitarian crisis.
- From Saddam’s perspective, UN sanctions hindered his ability to rule Iraq with complete authority and autonomy. In the long run, UN sanctions also interfered with his efforts to establish a historic legacy. According to Saddam and his senior advisors, the UN, at the behest of the US, placed an economic strangle hold on Iraq. The UN controlled Saddam’s main source of revenue (oil exports) and determined what Iraq could import.
- UN sanctions curbed Saddam’s ability to import weapons, technology, and expertise into Iraq. Sanctions also limited his ability to finance his military, intelligence, and security forces to deal with his perceived and real external threats.
- In short, Saddam considered UN sanctions as a form of economic war and the UN’s OFF program and Northern and Southern Watch Operations as campaigns of that larger economic war orchestrated by the US and UK. His evolving strategy centered on breaking free of UN sanctions in order to liberate his economy from the economic strangle-hold so he could continue to pursue his political and personal objectives.
One aspect of Saddam’s strategy of unhinging the UN’s sanctions against Iraq, centered on Saddam’s efforts to influence certain UN SC permanent members, such as Russia, France, and China and some nonpermanent (Syria, Ukraine) members to end UN sanctions. Under Saddam’s orders, the Ministry of Foreign Affairs (MFA) formulated and implemented a strategy aimed at these UNSC members and international public opinion with the purpose of ending UN sanctions and undermining its subsequent OFF program by diplomatic and economic means. At a minimum, Saddam wanted to divide the five permanent members and foment international public support of Iraq at the UN and throughout the world by a savvy public relations campaign and an extensive diplomatic effort.
Another element of this strategy involved circumventing UN sanctions and the OFF program by means of “Protocols” or government-to-government economic trade agreements. Protocols allowed Saddam to generate a large amount of revenue outside the purview of the UN. The successful implementation of the Protocols, continued oil smuggling efforts, and the manipulation of UN OFF contracts emboldened Saddam to pursue his military reconstitution efforts starting in 1997 and peaking in 2001. These efforts covered conventional arms, dual-use goods acquisition, and some WMD-related programs.
- Once money began to flow into Iraq, the Regime’s authorities, aided by foreign companies and some foreign governments, devised and implemented methods and techniques to procure illicit goods from foreign suppliers.
- To implement its procurement efforts, Iraq under Saddam, created a network of Iraqi front companies, some with close relationships to high-ranking foreign government officials. These foreign government officials, in turn, worked through their respective ministries, state-run companies and ministry-sponsored front companies, to procure illicit goods, services, and technologies for Iraq’s WMD-related, conventional arms, and/or dual-use goods programs.
- The Regime financed these government-sanctioned programs by several illicit revenue streams that amassed more that $11 billion from the early 1990s to OIF outside the UN-approved methods. The most profitable stream concerned Protocols or government-to-government agreements that generated over $7.5 billion for Saddam. Iraq earned an additional $2 billion from kickbacks or surcharges associated with the UN’s OFF program; $990 million from oil “cash sales” or smuggling; and another $230 million from other surcharge impositions.
Analysis of Iraqi Financial Data
The Iraqi revenue analysis presented in this report 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), and other Ministries. These sources appear to be of good quality and consistent with other pre- and post-Operation Iraqi Freedom information. All Iraqi revenue data and derived figures in this report have been calculated in current dollars.
Saddam directed the Regime’s key ministries and governmental agencies to devise and implement strategies, policies, and techniques to discredit the UN sanctions, harass UN personnel in Iraq, and discredit the US. At the same time, according to reporting, he also wanted to obfuscate Iraq’s refusal to reveal the nature of its WMD and WMD-related programs, their capabilities, and his intentions.
- Saddam used the IIS to undertake the most sensitive procurement missions. Consequently, the IIS facilitated the import of UN sanctioned and dual-use goods into Iraq through countries like Syria, Jordan, Belarus and Turkey.
- The IIS had representatives in most of Iraq’s embassies in these foreign countries using a variety of official covers. One type of cover was the “commercial attaches” that were sent to make contacts with foreign businesses. The attaches set up front companies, facilitated the banking process and transfers of funds as determined, and approved by the senior officials within the Government.
- The MFA played a critical role in facilitating Iraq’s procurement of military goods, dual-use goods pertaining to WMD, transporting cash and other valuable goods earned by illicit oil revenue, and forming and implementing a diplomatic strategy to end UN sanctions and the subsequent UN OFF program by nefarious means.
- Saddam used the Ministry of Higher Education and Scientific Research (MHESR) through its universities and research programs to maintain, develop, and acquire expertise, to advance or preserve existent research projects and developments, and to procure goods prohibited by UN SC sanctions.
- The Ministry of Oil (MoO) controlled the oil voucher distribution program that used oil to influence UN members to support Iraq’s goals. Saddam personally approved and removed all names of voucher recipients. He made all modifications to the list, adding or deleting names at will. Other senior Iraqi leaders could nominate or recommend an individual or organization to be added or subtracted from the voucher list, and ad hoc allocation committees met to review and update the allocations.
Iraq under Saddam successfully devised various methods to acquire and import items prohibited under UN sanctions. Numerous Iraqi and foreign trade intermediaries disguised illicit items, hid the identity of the end user, and/or changed the final destination of the commodity to get it to the region. For a cut of the profits, these trade intermediaries moved, and in many cases smuggled, the prohibited items through land, sea, and air entry points along the Iraqi border.
By mid-2000 the exponential growth of Iraq’s illicit revenue, increased international sympathy for Iraq’s humanitarian plight, and increased complicity by Iraqi’s neighbors led elements within Saddam’s Regime to boast that the UN sanctions were slowly eroding. In July 2000, the ruling Iraqi Ba’athist paper, Al-Thawrah, claimed victory over UN sanctions, stating that Iraq was accelerating its pace to develop its national economy despite the UN “blockade.” In August 2001, Iraqi Foreign Minister Sabri stated in an Al-Jazirah TV interview that UN sanctions efforts had collapsed at the same time Baghdad had been making steady progress on its economic, military, Arab relations, and international affairs.
- Companies in Syria, Jordan, Lebanon, Turkey, UAE, and Yemen assisted Saddam with the acquisition of prohibited items through deceptive trade practices. In the case of Syria and Yemen, this included support from agencies or personnel within the government itself.
- Numerous ministries in Saddam’s Regime facilitated the smuggling of illicit goods through Iraq’s borders, ports, and airports. The Iraqi Intelligence Service (IIS) and the Military Industiralization Commission (MIC), however, were directly responsible for skirting UN monitoring and importing prohibited items for Saddam.
The Illicit Finance and Procurement chapter focuses on the economic means, key actors and organizations, foreign suppliers, and procurement mechanisms used by Saddam to pursue his set of objectives: survival of himself, his Regime, and his legacy. The first section of the chapter provides an historic background divided into key economic phases. The chapter then examines Saddam’s major revenue streams outside the UN sanctions regime: bilateral trade Protocols, UN OFF oil surcharges, commodity kickbacks, and “cash sales” or oil smuggling activities. ISG estimates the total amount of revenue earned between 1991 and 2003, while paying special attention to money earned after the introduction of the OFF program. ISG also addresses how the Regime used its oil assets to influence non-Iraqi individuals by means of an institutionalized, secret oil voucher program.
Following the illicit revenue section, the chapter identifies the Iraqi Regime’s key individuals, ministries, organizations, and private entities within the Regime that were involved in Saddam’s procurement and revenue activities. Next, the section identifies foreign suppliers—governments, state-owned and private firms, and/or individual agents that engaged in the export of goods in contravention of UN resolutions. In some cases, ISG has uncovered foreign government activity and knowledge that ranged from tacit approval to active complicity. In other cases, firms engaged in the illegal activities without their government’s consent or knowledge. Moreover, ISG’s investigation exposed Iraqi and foreign trade intermediaries’ deceptive methods used to purchase, acquire, and import UN-banned items.
Finally, this chapter provides several annexes that give more detail on the spectrum of issues examined in the procurement chapter of ISG’s report. Annex A consists of translations of Iraq’s major trade Protocols; Annex B is an oil voucher recipient list that ISG obtained from Iraq’s State Oil Marketing Organization (SOMO). Annex C relates Iraq’s normal governmental budgetary process, while Annex D provides general Iraqi economic data. Annex E outlines ISG’s illicit earnings sources and estimation methodology, and Annex F provides an illustrative oil smuggling case study. Annex G explains Iraq’s banking system, and Annex H lists Iraqi-related UN Security Council Resolutions. Annexes I and J reveal suspected Iraqi dual-use and conventional weapons procurement transactions, while Annex K lists suspected companies engaged in military-related trade with Iraq. Finally, Annex L provides a list of procurement acronyms found throughout this section.
The Regime Timeline
For an overview of Iraqi WMD programs and policy choices, readers should consult the Regime Timeline chart, enclosed as a separate foldout and in tabular form at the back of ISG report. Covering the period from 1980 to 2003, the timeline shows specific events bearing on the Regime’s efforts in the BW, CW, delivery systems and nuclear realms and their chronological relationship with political and military developments that had direct bearing on the Regime’s policy choices
Readers should also be aware that at the conclusion of each volume of text, we have also included foldout summary charts that relate inflection points—critical turning points in the Regime’s WMD policymaking—to particular events, initiatives, or decisions the Regime took with respect to specific WMD programs. Inflection points are marked in the margins of the text with a gray triangle.
During the Ambition phase in Iraq, Saddam and his Regime practiced open, traditional procurement of conventional weapons and developed clandestine methods for obtaining WMD materials and dual-use items. Iraq’s oil wealth allowed Saddam to overcome the inherent inefficiencies of a centrally planned economy. After the costly war with Iran, Saddam’s procurement efforts focused primarily on restocking Iraq’s war materials. These defense-related procurement goals, however, were hindered by economic weakness. In the later part of this period, the Iraqi economy began to falter, saddled with a high international debt from the war, rising costs of maintaining a generous welfare state, low international oil prices, and the high cost entailed in weapons and WMD programs. Saddam’s ill-conceived, shortsighted economic reforms in 1987 and reactionary price controls, nationalization, and subsidies in 1989 pushed the Iraqi economy further into crisis. Capping the Ambition phase, Saddam chose to fight his way out of economic crises by invading Kuwait.
In the post-Gulf war decline phase, the possession of WMD remained important to the Regime. Saddam’s procurement of conventional weapons and WMD, however, was hindered severely by a potent combination of international monitoring and a collapsing oil-based economy. These constraints were compounded by the decision not to make full WMD disclosures and the subsequent attempt to remove WMD signatures through unilateral destruction. The poor handling of the WMD disclosures further hardened the international community. UN sanctions, resulting from Saddam’s refusal to comply with UN resolutions, froze the Regime’s export of oil and import of commodities—cutting off Saddam’s ability to generate the revenue needed for illicit purchases on international arms and dual-use markets. The Iraqi economy also suffered under UN sanctions during this period as gross domestic product (GDP) per capita fell from $2304 in 1989 to an estimated $495 in 1995. The decline in the street-value of the Iraqi Dinar rendered the average Iraqi citizen’s savings worthless, casting the Iraqi middle-class into poverty. Simultaneously, this period of decline exhibited an increase in corruption, incompetence, and patronage throughout Saddam’s Regime.
Husayn Kamil’s flight to Jordan in 1995 and Saddam’s handling of the issue led to further WMD disclosures and subsequent international opprobrium. Saddam retained a desire for WMD, but economic growth and the ending of sanctions became the overriding concern as the economy hit rock bottom in late 1995. The combination of these factors motivated Saddam’s decision to accept UNSCR 986, the UN OFF in 1996.
The Recovery phase was ushered in by Saddam’s acceptance of UN SC 986 and the UN OFF Program. Trade fostered under the OFF program starting in 1997 allowed Saddam to pursue numerous illicit revenue earning schemes, which began generating significant amounts of cash outside of the auspices of the UN. With the legitimate side of the OFF program providing the Iraq population with economic relief, Saddam was free to develop illicit procurement programs to arm his Regime against perceived and real threats. By the end of this period, Iraq had developed a growing underground network of trade intermediaries, front companies, and international suppliers willing to trade oil or hard currency for conventional weapons, WMD precursors, and dual-use technology. After 1996, the state of the Iraqi economy no longer threatened Saddam’s hold on power in Iraq, and economic recovery underpinned a more confident Regime posture.
Transition and Miscalculation (1999-2003)
The Transition and Miscalculation phases opened with Iraq’s suspension of cooperation with UNSCOM and IAEA. The subsequent lack of effective monitoring emboldened Saddam and his procurement programs. The Regime successfully manipulated Iraq’s oil production and sales policies to influence international political actors and public opinion. However, during this period, Iraq’s long-neglected oil infrastructure began to falter, resulting in an inability to meet demand. As a result, the growth in the legitimate side of the Iraq economy slowed. Meanwhile, Saddam’s increasing illegitimate revenue and profits from UN oil sales compensated for legitimate revenue loses. Illicit oil revenue provided Saddam with sufficient funds to pay off his loyalists and expand selected illicit procurement programs. From 1999 until he was deposed in April 2003, Saddam’s conventional weapons and WMD-related procurement programs steadily grew in scale, variety, and efficiency. Saddam invited UNMOVIC and IAEA back into Iraq in September 2002, in the face of growing international pressure, calculating that a surge in cooperation might have brought sanctions to an end.
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