Iraq seeking kickbacks from oil-for-food program, diplomats say

From CNN's U.N. Producer Ronni Berke

UNITED NATIONS (CNN) -- Iraq has been trying to obtain illegal kickbacks from companies that sell humanitarian goods under the United Nations oil-for-food program, the chairman of the U.N. sanctions committee said Wednesday.

"Governments have been approached by their own companies and told there has been a request for a surcharge," Committee Chairman Ole Peter Kolby of Norway told CNN. This has happened with contracts for oil, as well as other goods, including food and medicine, Kolby said.

"When companies negotiate with their Iraqi counterparts, then there is a request for a surcharge. This is what I heard.... When they approach their governments it's either to seek clarification whether this is legal, or what they're going to do about it," Kolby added.

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"It's quite clear that this is not allowed. This is in violation of the regime, of the sanctions rules, Security Council resolutions, to make surcharges and then make payments," said Kolby.

James Cunningham, acting U.S. ambassador to the U.N., told reporters, "There's not a lot of hard evidence, but there is evidence that it is happening. We don't know to what degree. We're looking for people engaged in these activities... to try to correct the situation." He declined to elaborate.

A senior Iraqi diplomat refused to comment on the allegations Wednesday.

Diplomats say Iraq is charging up to 40-cents per barrel in kickbacks from oil companies with contracts under the program, in violation of sanctions imposed after Iraq invaded Kuwait more than 10 years ago.

Western diplomats have speculated that Iraq is using the illicit funds to build weapons or to enrich senior officials.

The U.S. and Britain want U.N. oil overseers to reduce the list of operators buying Iraqi oil in an attempt to stop the kickbacks, diplomats said. Diplomats believe some of the smaller traders are actually middlemen who procure the illegal oil surcharge from companies approved under the oil-for-food program and pass it onto Baghdad.

About 600 oil companies and middlemen have permission from the United Nations to buy Iraqi oil. Funds are put in an escrow account for the purchase of food, medicine and other supplies to offset the affect of sanctions.

The three U.N. oil overseers are only authorized to monitor the initial purchase of oil, but not on any transactions thereafter. "We want to see a more transparent system of oil purchasing and tougher criteria for getting on the register as a legitimate buyer," one diplomat told CNN.

British ambassador Jeremy Greenstock said, "Iraq has virtually announced to the oil industry that they are looking for kickbacks from oil traders. But exactly who is doing what and what money is being paid" was not clear.

"An enormous number of small traders are involved in exporting Iraqi oil," Greenstock said. "Iraq is dealing with several hundred and some of those are not acting legitimately," he said.

The sanctions committee had turned down Iraq's formal request to charge extra to buyers of its crude so it can get revenue directly, outside of the U.N. escrow account.

Russia, a strong supporter of Iraq within the Security Council, downplayed the kickback allegations. "We all keep hearing rumors, but we have no proof," Russian Ambassador Sergey Lavrov said.

In a report released this week on the four-year-old oil-for-food program, Secretary General Kofi Annan warned Iraq about the surcharges imposed on buyers of crude oil. Those buyers have been advised that the Security Council "had not approved a surcharge of any kind on Iraqi oil," Annan said, and that "payments for purchasing Iraqi crude oil could not be made to a non-United Nations account."

Annan's quarterly report also said there had been a substantial drop in Iraqi oil exports since December, which could jeopardize the program. Iraq's official oil exports in the program have fallen to 1.35 million barrels per day in the past month, from about 2.2 million barrels per day in the last sales phase.

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United Nations
Office of the Iraq Programme
The Iraqi Presidency
Iraqi National Congress
Iraq energy profile, U.S. Dept. of Energy

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