As trade sanctions on Iran are tightened, a similar programme of restrictions imposed 15 years ago on its neighbour Iraq continues to serve as a lesson to governments and companies alike.
Abuses of the oil-for-food programme by prominent western companies are still bubbling to the surface several years after they were committed. The cases illustrate the commercial challenges in enforcing sanctions on a country whose main export, oil, is as good as liquid cash. Last week, General Electric (GE) of the US agreed to pay US$23.4 million (Dh85.9m) to settle an enforcement action, the US Securities and Exchange Commission (SEC) announced.
This was based on allegations that two of its subsidiaries and two divisions of companies it later acquired made illegal kickback payments in cash and kind to obtain contracts in Saddam Hussein's Iraq. It brought to 15 the number of actions the SEC has taken against companies that allegedly abused the UN programme allowing Iraq, at a time of strict UN sanctions, to export limited oil volumes to raise money for food, medicine and other humanitarian supplies for its civilian population.
The SEC said it had so far recovered more than $204m from alleged abusers of the $65 billion programme that ran from 1995 until the US invaded Iraq in 2003. GE has neither admitted nor denied the allegations. Unlike defendants in similar cases, it was not subject to a parallel criminal prosecution. GE agreed to use $18.4m of profits and pay a penalty to end the controversy. "In this case, the SEC has identified 18 contracts under the oil-for-food programme that it alleges were not accounted for or controlled properly," GE said. "This conduct did not meet our standards."
The settlement closely follows fresh allegations by a group of Iraqi families that have filed a civil action in the US district court in Manhattan. The complaint alleges Saddam received $228.8m from surcharges on 9.5 million barrels of oil sold to the US oil company Chevron. The "illicit funds" were used to pay for the Iraqi regime's "campaign of human rights abuses against its people", the document claims.
The plaintiffs also name the French bank BNP Paribas as a defendant and are seeking damages for torture, genocide, wrongful death and negligence. In 2007, Chevron agreed to pay $30m in combined civil and criminal penalties to settle charges by the SEC and the justice department of receiving kickbacks in Iraq. "To suggest that Chevron bears responsibility for the Iraqi government's actions lacks all credibility," a spokesman for the oil company said of the new lawsuit. "This case is meritless and we will seek its dismissal as quickly as possible."
Billions of dollar in oil-for-food payments passed through the vaults of BNP Paribas between 1995 and 2001, but the bank has consistently denied wrongdoing. In January, Iraq said it would file lawsuits in the US against 93 foreign companies it claims defrauded the UN scheme. Baghdad was reported to be seeking $10bn in compensation. "We have asked an American lawyer to prosecute the companies that violated the law regarding the oil-for-food programme," said Safaldin al Safi, the Iraqi commerce minister.
Other companies recently prosecuted by the SEC and US justice department include Innospec, a UK chemicals company that in March paid $40.2m in fines and penalties to settle charges that its agent in Iraq paid bribes and kickbacks to obtain contracts under the oil-for-food programme. The bribes allegedly included about $150,000 paid to Iraqi oil officials to ensure a competitor's product failed a field trial.
Innospec is alleged to have reimbursed the agent more than $700,000 for illicit expenses including $13,000 to send an Iraqi official and his wife on a holiday in Thailand. The company, like all others pursuing similar courses, settled the case brought by the SEC without admitting or denying the allegations against it. Last September, AGCO, a US agricultural equipment supplier, agreed to pay $18.3m to settle SEC allegations that it paid Iraqi officials $5.9m in fake fees to secure about $14m of contracts.
The company also paid the justice department $1.6m to defer criminal prosecution. Fifteen months ago, Novo Nordisk, a Danish pharmaceuticals company, paid $9m to settle charges of inflating prices for goods sold to Iraq. Many other companies that dealt with Saddam's regime face corruption charges in the US and elsewhere. In February, the French energy group Total was placed under formal investigation over bribery charges related to Iraqi oil deliveries after the Paris prosecutors' office unexpectedly reopened an eight-year-old probe.
The office alleges politicians received vouchers for Iraqi oil ultimately bought by Total, in exchange for lobbying governments to loosen sanctions. "The company believes that its activities related to the oil-for-food programme have been in compliance with this programme," Total said. The UN scheme was designed to mitigate the impact of sanctions on ordinary Iraqis, but it was full of loopholes. According to its critics, abuse of the programme enriched Saddam and his henchmen while strengthening their grip on power.
The UN was severely embarrassed by revelations implicating a number of its officials including Benon Sevan, the Cypriot who headed the programme, in receiving skimmed profits. Kojo Annan, the son of the then UN secretary general Kofi Annan, was also implicated. Both men have denied any wrongdoing. A US warrant issued through Interpol for Mr Sevan's arrest and extradition is still outstanding. He is believed to have fled to Cyprus.
The Houston-based oil trader Bayoil, now registered in the Bahamas, was a linchpin in a plot that cast suspicion on several of the world's biggest oil companies. They bought Iraqi crude from Bayoil at prices that included illegal surcharges, but it has not been shown that the buyers knew they were part of a fraudulent scheme. A US Senate enquiry heard that Bayoil imported at least 102 cargoes of Iraqi oil into the US on which the total surcharges exceeded $37m.
David Chalmers, who ran two Bayoil units, in 2007 admitted making millions of dollars from kickbacks. He was sentenced in the US to a two-year prison term. A year earlier, the Swiss commodities trader Trafigura pleaded guilty in a US District Court in Texas to charges that it fraudulently sold more than 500,000 barrels of Iraqi oil in 2001 to US energy companies. The company agreed to pay nearly $20m in penalties.
Many Russian companies and individuals were also implicated in the scandal after a Russian intelligence officer who worked undercover in the UN reportedly sabotaged the programme in 1998 by setting artificially low prices for Iraqi crude. That allowed Saddam to issue oil vouchers as bribes. High-ranking Russian, French and Chinese officials and 46 Russian organisations were among the recipients.
Other lines of inquiry have linked money syphoned from the oil-for-food programme to funding for Al Qa'eda, the Palestine Liberation Organisation and the 2005 re-election campaign of Barack Obama, who was then the US Democrat senator for Illinois. But in April a US judge dismissed a lawsuit accusing Bayoil and others of funding terrorism. firstname.lastname@example.org