How Saddam Hussein Abused the United Nations Oil-for-Food Program

There are several sections of this document besides the excerpts. See also the View PDF , Duelfer Report by Charles A. Duelfer, Special Advisor to the Director of the Central Intelligence Agency for Strategy Regarding Iraqi Weapons of Mass Destruction Program, Central Intelligence Agency

How Saddam Hussein Abused the United Nations Oil-for-Food Program Nov. 4, 04. The original pdf file is STMTZarate-Terrorist Financing and Financial Crimes, Nov15, 04.

Testimony of Juan Carlos Zarate,
Assistant Secretary Terrorist Financing and Financial Crimes
U.S. Department of the Treasury
Before the Senate Permanent Subcommittee on Investigations of the Committee on Governmental Affairs

[. . . . ] thank you for inviting me to testify today about allegations of fraud pertaining to the United Nations Oil-For-Food Program (OFF), and the U.S. government’s continuing efforts to identify, freeze and repatriate Iraqi assets around the world. . . .

[. . . . ] In the process of facilitating the finding and freezing of nearly $6 billion in Iraqi assets outside of Iraq, the return of over $2.7 billion of that, and the recovery of over $1 billion in cash inside Iraq, we have seen and uncovered the vast corruption of the sanctions regime by Saddam Hussein. The scandal now surrounding the corruption of the economic sanctions on Iraq and the Oil-For-Food Program was the direct result of the treachery and thievery of Saddam Hussein, his sons, and his regime. It was Saddam Hussein who transformed the goodwill of the international community and the international humanitarian effort represented in the OFF Program into a global criminal enterprise. [. . . . ]

As Mr. Duelfer noted during his October 2004 testimony before the Senate Armed Services Committee, “After the 1991 war, [. . . . ] “the steps the Regime took to erode sanctions are obvious in the analysis of how revenues, particularly those derived from OFF, were used.”

One of Mr. Duelfer’s main points [. . . . Saddam Hussein] used the implements of the State – the Central Bank, commercial enterprises, and his diplomatic and intelligence assets – to help skirt international restrictions and bring profit to his regime.

[. . . . ] unattended assets could very well be used to fuel the insurgency or terrorist attacks against our soldiers, our Coalition partners, and innocent civilians.

[. . . . ]

The Iraqi Asset Recovery Mission

[. . . . ] While our asset recovery efforts continue, the primary lead for much of the Iraqi asset recovery has now passed to the IIG [Iraqi Interim Government ], with U.S. and international assistance. U.S. government efforts are now concentrated on supporting those efforts to identify, freeze, and repatriate looted Iraqi assets that have been concealed in the international financial system behind a maze of front companies and straw men. [. . . . ]

U.S. Leadership in the Asset Hunt

[. . . . ] Our efforts to identify and recover Iraqi assets targeted three basic groups of assets:

• Assets frozen in 1990 . . .

• Assets that exist in . . . (called “trading states”) — Jordan, Lebanon, Syria, and Turkey;

• Assets looted and hidden outside Iraq by Saddam Hussein and senior members of his former regime, their immediate families, agents, and front companies. Identifying, tracing, and recovering these funds involves numerous tools – investigatory, diplomatic, and intelligence. [. . . . ]

Saddam Hussein’s Abuse and Avoidance of International Sanctions [. . . . ]

Uncovering Hussein-Era Smuggling, Kickback, and Skimming Schemes

[. . . . ] A May 2002 GAO report “conservatively” estimates that from 1997 to 2001, the Hussein regime obtained $6.6 billion from oil smuggling and kickbacks from UN-sanctioned oil sales alone. As Mr. Duelfer noted in the Key Findings of his report, the former Iraqi regime used “illicit revenue streams” to amass “more than $11 billion from the early 1990’s . . . .”

The following is a summary of the types of schemes the Hussein regime used to avoid the international sanctions regime and to take advantage of the OFF Program.

Unauthorized Surcharge on OFF Oil Sales

[. . . . ] Some . . . was used to buy military equipment and other goods prohibited by international sanctions, without the knowledge of the UN.

After Sale Service Fee Scheme

[. . . . ] Vendors selling goods to the Iraqi government were required to inflate the contractual purchase price typically by 10% and kick back the excess charge to the Iraqi government. [. . . . ]

Trade Protocol Funds

A third scheme involved the sale of oil in violation of UN sanctions under “trade protocols” with neighboring countries. . . . with Jordan, Turkey, and Syria . . . the proceeds of the oil sales were split between a trade account and a cash account. Most of the funds (60%-75%) were placed in the “trade account.” [. . . . ]

Front Companies

[. . . . ]

Following are three examples of Treasury actions to designate, under EO 13315 and the UNSCR 1483, regime elements that illegally abused OFF and engaged in other illegal activity to obtain illicit military materiel. These designations occurred on April 15, 2004, and have been adopted by the UN.

• AL-WASEL AND BABEL GENERAL TRADING LLC

Information available to the U.S. indicates Al Wasel and Babel was controlled by, and acted for or on behalf of, senior officials of the former Iraqi regime, including Iraqi Deputy Prime Minister and Finance Minister Hikmat Mizban Ibrahim al-Azzawi. [. . . . ]

• AL-ARABI TRADING COMPANY

Al-Arabi is the ultimate holding company for a variety of Iraqi front companies that engaged in military procurement for the former regime. Al-Arabi owns 99 percent of the UK-incorporated company technology and Development Group Limited (TDG), which in turn owns TMG Engineering Limited. TDG and TMG were involved in Iraq’s arms procurement network during the late 1980s.

• AL-BASHAIR TRADING COMPANY

Al-Bashair, directed by Munir Al-Qubaysi, reportedly acted as the largest of Iraq’s arms procurement front companies and was involved in a range of sanctions busting and corruption schemes on behalf of the regime. Al-Bashair reported directly to the Organization of Military Industrialization, which was responsible for Iraq’s military procurement programs and was headed by former Deputy Prime Minister Abd-al-Tawab Mullah Huwaysh. [. . . . ]

Reporting based on documents removed from Al-Bashair’s headquarters describes a variety of deals involving sham contracts, kickbacks, falsified export documentation and money laundering designed to deceive U.N. inspectors and deliver, among other things, missile components, surveillance equipment and tank barrels to the former Iraqi regime. The company also allegedly helped seniors officials of the former regime launder and hide Iraqi government funds.

[. . . . ] the United States government, working with the IIG and its successor, intends to continue its mission to identify and recoup hidden funds with all the tools at our disposal -- which include freezing actions, designations, and providing enhanced assistance to the Iraqis in their forensic accounting and asset investigatory efforts.

Important Progress to Date

[. . . . ] • Since March 20, 2003, with U.S. leadership, over $2 billion of Iraqi assets have been newly identified and frozen outside the U.S. and Iraq.

• Since March 20, 2003, approximately $847 million have been transferred by other countries to the Development Fund for Iraq (DFI). In total, the U.S., foreign countries, and the Bank for International Settlements have transferred back to Iraq over $2.7 billion in frozen Iraqi funds;

• Approximately $1.3 billion in cash and valuables has been recovered in Iraq.

• We continue to identify key individuals and entities who acted as operatives for Saddam Hussein. As of today, the Department of the Treasury has designated 30 immediate family members of senior officials of the former Iraqi regime pursuant to Executive Order 13315. The U.S. has submitted these individuals, as well as the identities of 191 Iraqi parastatal (quasi-government) entities, to the United Nations, and requested that they be listed by the UN 1518 Committee under UNSCR 1483. The 1518 Committee added these submissions to a list of senior Iraqi officials and entities that we previously joined with the UK and France in submitting to the UN for listing under UNSCR 1483;

• In Iraq, our financial investigators have conducted over 85 interviews of key individuals who have information relating to Iraqi assets or possible insurgency financing, ranging from the top ministers of the State Oil Marketing Organization (SOMO), to the laborers who buried Saddam’s U.S. currency. [. . . . ]

• In Iraq, we are working closely with the Department of Defense, the Federal Reserve Board, and the Bureau of Engraving and Printing to trace U.S. currency seized in Iraq, in order to determine the flow of funds that may support the insurgency.

• Our designation of Wasel and Babel as an Iraqi front company, and successful submission of this name to the United Nations for listing under UNSCR 1483, resulted in the UAE taking action against Wasel and Babel and freezing its assets.

• While searching for Iraqi assets abroad, IRS-CI agents determined that the former Iraqi Ambassador to Russia had stolen $4 million in Iraqi assets that had been entrusted to him. [. . . . ]

• While continuing to work closely with the governments of Liechtenstein, Switzerland, and Jordan, we have taken aggressive action to recover one of Saddam’s Falcon 50 corporate jets and to uncover a financial network that had been used by the Iraqis to move money and people in the heart of Europe. [. . . . ]

• [. . . . ] We identified bank accounts and other assets held in over twenty countries, including Switzerland, France, Germany, Liechtenstein, Russia, Spain, Egypt, Thailand, Indonesia, Lebanon, Belarus, Iran, South Korea, Malaysia, Japan, Morocco, Saudi Arabia, UAE, British Virgin Islands, Jordan, Syria and Yemen. [. . . . ]

• [. . . . ] the Departments of Treasury and State have provided identifying information on over 570 identified Iraqi bank accounts in 41 countries for review and follow-up. Those accounts were identified as belonging to the Central Bank of Iraq, Rafidain Bank, and Rasheed Bank. [. . . . ]

Treasury Resources Dedicated to the Mission [. . . . ]

International Cooperation and Challenges

The United Nations Role in the Asset Recovery Process

The United Nations has played an important role in the Iraqi asset recovery process. UNSCRs 1483 and 1546 require all member countries to identify, freeze, and promptly transfer to the Development Fund for Iraq (DFI) Iraqi assets in their jurisdictions, including assets held in the name of the Iraqi government, and assets held by or on behalf of Saddam Hussein, his regime cronies and their immediate family members, front companies, or agents. [. . . . ]

To date, the U.S. has submitted the names of 232 Iraqi-related entities and individuals, comprised of 191 parastatals (quasi-government entities), 30 individuals, and 11 front companies, to the United Nations, with the request that they be listed under UNSCR 1483 by the 1518 Committee. To date, the UN 1518 Committee has adopted 228 of these submitted names, including 191 parastatals, 27 individuals, and 10 front companies.

The UN 1518 Committee has not yet designated the names of three individuals and a front company that the U.S., along with the U.K and the Interim Government of Iraq, submitted to the 1518 Committee on August 2, 2004. The names proposed for designation on August 2 inclued two former Iraqi ambassadors, one of which is the former Iraqi ambassador to Russia I referenced already, who used their senior positions to engage in a variety of illicit activities, ranging from financing foreign anti-Coalition fighters during Operation Iraqi Freedom, to the embezzlement of regime funds.

The proposed designations also included a Bangkok-based company serving as a front for the Iraqi Intelligence Service (IIS) during the former regime, along with its owner and director, a former IIS officer suspected of planning attacks in January 2003, against U.S. citizens in Thailand. The UN 1518 Committee has not yet adopted these names because Russia has placed a hold on them and prevented Committee action. [. . . . ]

Indeed, as a direct result of UN designations, Switzerland has frozen and is in the process of transferring $140 million in Iraqi assets held by designated front companies and individuals, and the UAE has taken action against Wasel and Babel, a designated front company.

European and other governments have stated that they have been hampered in implementing UNSCR 1483, which calls for the identification of Iraqi-related accounts and blocking and return of assets, because under their domestic laws, nations cannot freeze assets in the absence of a specific listing of individuals and entities at the United Nations. [. . . . ]

The General International Effort [. . . . ]

• Sanctions Implementation. [. . . . ]

• Legal Difficulties. [. . . . ]

• Claims. [. . . . ]

Interagency Cooperation

Financial Component at DIAC Fusion Center

OFF (OFF) Program – Treasury’s Role

Terrorist Financing Connections

Insurgency Finance Task Force in Iraq

Working with the Iraqi Interim Government to Focus on Asset Recovery