Volcker's greed report

Now the Volcker catalogue of Iraqi oil corruption is final, everyone is talking about the money and the companies. I want to get down to the nitty gritty and look at how all the schemes involved really worked, the mechanics of the corruption.
In 1996 the world community, through the UN modified sanctions, on Iraq’s shipment of oil to address a growing humanitarian need in that country. Cut off from oil income the people of the country desperately needed food and medicine.
While the UN was to oversee sales and shipping of oil, and the purchase of bona fide food and medicines, Iraq had control over buying and selling.
It is this control which allowed the regime to turn a humanitarian plan into a vast money grab. Saddam’s regime received $1.8 billion in illicit income from surcharges and kickbacks on the sales of oil and humanitarian goods during 1996-2003.


International Intermediaries
First up, Iraq used a system of little known intermediaries companies to affect the initial sales. These companies then sold the oil on to established industry players. The process was a smoke screen to make monitoring of sales as difficult as possible. The oil went from A to B, but the paperwork went through a confusing chain of people.
For Iraq, the benefit of this method was in their ability to impose an illicit surcharge, which could not be easily spotted.
Those manipulating the program ranged from established trading companies to front companies set up for the purpose, and included some companies of international reputation as well as many well known in their home countries.
The scheme came to the UN’s notice at the end of 2000 when the Iraqis got greedy and demanded as much as 50c a barrel surcharge. When many buyers balked at paying the extra, Iraq concentrated on four buyers who would play their game.

War Profiteering
All the oil companies’ contracts included a no premium clause. This, despite the well know fact that Iraq would not deal unless the extra payments were made.
As the premiums were illegal, the companies needed to find ways of hiding them.
These payments were often disguised as items such as ‘commissions’ and ‘loading fees’.
The companies saw these charges as simply ‘commercial transactions’ despite the fact that the money was being used for military rather than humanitarian purposes. In other times these actions would have been called ‘war profiteering’.


Smuggling
Two other oil companies devised a scheme, in 2001, to smuggle oil out under the noses of the UN. The scheme basically revolved around ‘topping’ up ships which had already taken on a load of authorized oil.
Apparently it was easy to bribe the UN ‘contracted’ inspector to go for a coffee while this extra oil was loaded. The scheme came under very quickly when a tanker captain complained to authorities outside Iraq.

Aide profiteering
The other side of the coin was the ‘foods and medicines’ being purchased with the oil money. To a great degree, these were legitimate purchases. The Iraqi regime developed ‘kickback’ schemes, often paid into Iraqi controlled, offshore bank accounts. The schemes were simple enough, suppliers were obliged to pay the extra secretly or lose the deal. Other schemes to defraud the humanitarian program include:

Transport
The regime would instruct suppliers to use certain trucking companies whose prices were wildly inflated. The difference was funneled back into the regime’s banks to fund for armaments. While Iraq could have claimed these ‘extra’ costs directly from the UN they preferred to have the money deposited secretly in off shore accounts.

A web of agents
Like the oil sales, purchases were often handled through a web of agents and third parties. In this way, although brazen, the trail was difficult to follow or disrupt. They used ‘front companies’ partly owned or controlled by the government or compliant suppliers and agents overseas.
Inspection contractors, rather than overseeing the proper working of the program, are alleged at times, to be involved in the illicit trade and payments

I’m going to keep reading this fascinating document. There are sure to be some gems of malpractice still to come. I’ll keep you posted.