How the oil-for-food programme was exploited

The riveting confrontation yesterday between George Galloway and the Congressional panel probing the scandal of the United Nations oil-for-food programme for Iraq proves one thing - that few emerge with any credit in the maelstrom left by Saddam Hussein's elaborate scheme to smuggle oil, enrich himself and grease the palms of potential allies abroad and at the UN.

The riveting confrontation yesterday between George Galloway and the Congressional panel probing the scandal of the United Nations oil-for-food programme for Iraq proves one thing - that few emerge with any credit in the maelstrom left by Saddam Hussein's elaborate scheme to smuggle oil, enrich himself and grease the palms of potential allies abroad and at the UN.

Over the last five days, the Senate Permanent Subcommittee for Investigations has issued three reports on the scandal, showing how Saddam reaped over $10bn manipulating Iraq's oil sales for the seven years it operated, between 1996 and 2003.

It is now clear the former Iraqi dictator found two distinct ways of exploiting his country's oil exports, in the process reaping income that helped keep his regime afloat despite tight international sanctions.

The first method - outlined in the first two reports issued by the whole committee - was aimed at officials and influence-wielding figures abroad. These latter were awarded vouchers to buy the oil at below-market prices.

They could then sell it on at a hefty profit.

"The plan was simple," Norm Coleman, the Republican chairman of the committee, declared as he opened proceedings. Iraq especially rewarded foreign officials, journalists and even Ôterrorist entities.' The aim was to build international support for the regime, and to erode backing for sanctions.

These, in essence, are the allegations against Mr Galloway, the former French minister Charles Pasqua and various senior figures in Russia. All are from countries with veto powers at the UN, which could block further measures against Iraq.

All have denied the charges, none more vehemently and caustically than the British MP, who was allotted 20m barrels of oil, according to Iraqi documents and testimony from former Saddam regime officials interviewed by the committee. But "If I'd bought or sold a drop of Iraqi oil, you'd know about it already," Mr Galloway said after his bravado performance.

In sheer terms of money however, the third report, issued by the Democratic minority on the Committee alone, is even more shocking. It alleges that the US government turned a blind eye as Bayoil, a Texas oil company, imported Iraqi oil and paid $37m of kickbacks to the Saddam regime. Also, as a member of the Security Council, Washington did nothing to prevent Saddam sellling oil worth a claimed $8bn, to Jordan, Syria, Egypt and Turkey, in violation of sanctions.

"On the one hand, the United States was at the UN trying to stop Iraq from imposing illegal surcharges on oil-for-food contacts," Carl Levin, the panel's senior Democrat said as the hearing began yesterday. "On the other hand, the US ignored red flags that some US companies might be paying those same illegal surcharges." America, he said, "should look in the mirror."

Mr Levin's charges are a bipartisan embarrassment, implying that both the Democratic administration of Bill Clinton and the current Bush administration bore some responsibility. But the fact that they were issued only by Democrats, suggests that arguments between the parties, in what is the most bitterly divided Senate in memory, could affect the Committee's work.

Bayoil - an alleged central player in the Russian end of the vouchers scam and whose founder David Chalmers was indicted in April on kick-back charges - offers a case-study of how the system worked, prosecutors say.

Setting out the "Russian connection," the subcommittee says that Bayoil strove to be a buyer of Iraqi oil under the UN-administered programme. But it was initially blocked by a ban by Saddam on direct sales to oil companies from the US and Britain, the two allies operating the no-fly zones in Iraq, and the strongest backers of sanctions.

Bayoil, it is claimed, on occasion arranged deals between Baghdad and Vladimir Zhironovsky, one of the Russians named, a former Russian presidential candidate and a fierce critic of the West. The oil was made over to a Russian third party, which never took delivery but sold it on to Bayoil.

The report says that the company paid "an agreed premium" to Mr Zhirinovsky. Documents suggest that Iraq itself received $4m in connection with these deals. In one case it is said to have "facilitated" a $2m surcharge payment, in other words a kick-back, to the regime in Baghdad.

According to the Democratic minority report, these dealings flourished in large part thanks to "minimal attention" from the Office of Foreign Asset Control (OFAC) - the Treasury's department supposed to monitor US application of UN sanctions - as Bayoil handled over 200m barrels of Iraqi oil imports into the US between 2000 and 2002.

The US government not only did not try to stop the shipments, Mr Levin's report said. "It appears to have facilitated them," despite widespread recognition that they were "a blatant violation" of sanctions, and an alert from the UN itself in mid-2001 that Bayoil could be abusing the oil-for-food programme.

Mr Coleman has earned himself a high profile by demanding the resignation of Kofi Annan, the UN Secretary General, over the Iraqi oil scandal. If Democrats are right, blame belongs much closer to home.