August 18, 2005
by Claudia Rosett
Since the Oil for Food program came to an end in 2003, it has been described -- accurately enough -- as oil for palaces, oil for terror and oil for fraud. Now it turns out the U.N. relief program in Iraq was also oil for Enron.
Among the great scams of our time, there's a near-poetic inevitability to the convergence of the twain. When I first wrote about Oil for Food, almost three years ago, the analogy that came instantly to mind was Enron. Lo! Much scandal and many questions later, investigators for Rep. Henry Hyde's International Relations Committee have unearthed documents showing that shortly before Enron imploded in late 2001, the company, among its other deals, was shelling out millions, some of it into Swiss bank accounts, to buy Iraqi crude exported by Saddam under Oil for Food.
Not that Enron did business directly with Saddam's regime in violation of U.N. sanctions, or even did anything clearly illegal. Rather, the tale of its guest appearance in Oil for Food illustrates why in some ways the U.N. scandal dwarfs even Enron. Under cover of Oil for Food, Saddam's system of bribes, payoffs and kickbacks, ultimately totaling billions, ran through chains of often obscure middlemen in places such as Cyprus and Switzerland. Enron shows up on one of the outer spokes of Oil for Food's global web, dealing with a trans-Atlantic crew of companies and characters engaged not only in fraud, but allegedly linked to arms traffic, payoffs to the Kremlin and kickbacks to Saddam's regime. Along the way, this gang did its bit to comply via Oil for Food shipments with Saddam's policy of enforcing the Arab League boycott against Israel.
One of the most telling documents the Hyde committee investigators have come across is a fax addressed to Enron Reserve Acquisition Corp., dated March 27, 2001, and accompanied by U.N. approval papers needed to clear through U.S. customs two shipments of Iraqi oil, worth millions. Named on this fax are three companies that have in recent times become infamous on the Oil for Food investigations circuit: Russia-based Rosnefteimpex; Italy-based Italtech; and Bahamas-based Bayoil Supply and Trading Ltd., owned by a U.S. citizen, David Chalmers, who was also the sole shareholder of a Texas-based company, Bayoil (USA). The arrangement outlined in the fax shows that despite a mandate to minimize middlemen, U.N. Oil for Food officials had approved the sale of oil by Saddam's regime to Rosnefteimpex and Italtech. These companies in turn had sold their oil allocations to Bayoil, which was busy in this instance completing one of several onward sales to Enron.
Larded into such deals were rich opportunities for corruption. Under Oil for Food, U.N. officials set the price for Iraq's oil artificially low, and the U.N. let Saddam pick the oil buyers. From this mix flowed the scams in which Saddam's chosen dealers made fat profits, which effectively translated into payoffs. Out of these, some of the buyers paid kickbacks to Saddam's regime.
Rosnefteimpex was accused in May by Senate investigators of having served as a conduit for Saddam to send payoffs to members of the Russian Presidential Council, which advises Vladimir Putin. Russian officials have denied this. Italtech was run by a Chilean-Italian, Augusto Giangrandi, whose history included procuring cluster bombs for Saddam's regime in the 1980s. During the Oil for Food era, Mr. Giangrandi's connections in Baghdad were good enough that Italtech ranked among the top 20 out of the more than 160 select buyers of Saddam's oil under the program, clocking up $846 million in purchases. Mr. Giangrandi had as a business partner the owner of Bayoil, Mr. Chalmers, who also did business with Saddam's regime via Oil for Food. In April, Mr. Chalmers, along with his Bayoil companies in both Texas and the Bahamas, was indicted by the U.S. attorney for the Southern District of New York for "Conspiracy to Commit Wire Fraud and Engage in Prohibited Financial Transactions with Iraq." He has pleaded not guilty.
The trio of Rosnefteimpex (with its alleged kickback links to the Kremlin), Italtech (with its niche in Baghdad and history in the weapons trade) and Bayoil (later indicted for fraud and sanctions busting) were a conduit for the sale in 2001 of Iraqi oil into the U.S. And about the time Mr. Chalmers was peddling some of this oil to Enron, he was also -- according to the federal indictment -- paying kickbacks, via a "foreign company," to Saddam's regime. These kickbacks allegedly went to an Oil for Food contractor, Al Wasel & Babel, based in Dubai, which was designated last year by the U.S. Treasury as a front company for Saddam's regime. Al Wasel & Babel, along with handling hundreds of millions worth of Oil for Food relief sales in which the regime basically did business with itself, also tried to procure a surface-to-air missile system -- which could have been used to target U.S. and British planes patrolling the no-fly zones over Iraq.
Layered into this scene is collaboration by Bayoil with Saddam in treating democratic Israel as a pariah state. Mr. Hyde's investigators have discovered a letter, signed by Mr. Giangrandi on Sept. 9, 1999 -- and duly notarized -- which appears to be a document solicited by Saddam's regime as part of the deal for lucrative rights to buy underpriced oil via the U.N. program. "For and on behalf of Bayoil," wrote Mr. Giangrandi. "We herewith confirm never to have sold directly or indirectly to Israel and further confirm that this policy will remain permanently in force during the entire validity of our contract." A fax out of Houston from one of Mr. Chalmers's associates now under indictment, a Bulgarian, Ludmil Dionissiev, stipulates in reference to a 1998 shipment of Iraqi oil that the vessel used "had never traded in Israel."
Overseeing all this was a U.N. where the former head of Oil for Food, Benon Sevan, was evidently on the take from Saddam, and where investigators are still exploring a growing list of Secretary-General Kofi Annan's family and crony business connections to the program. And among those waiting to buy the Kirkuk crude and Basrah light thus filtered in the name of humanitarian aid out of Saddam's Iraq was -- could anyone make this stuff up? -- Enron.
This article appeared in the August 18, 2005, Wall Street Journal Europe.
Claudia Rosett was formerly an adjunct fellow with the Hudson Institute.
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