[casi-analysis] Illicit billions: Anything new? Anything exculpatory for the West?

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Everyone,

Some comments on recent reports of monetary assets held by the Hussein family
and the Government of Iraq (GoI) ...

To summarize what follows: Iraq's illicit revenue was primarily due to
off-the-books oil trade with Coalition allies. Revenue increased sharply
beginning in 2000, but much of the money may have remained unspent, perhaps due
to the arms embargo and border controls.

Recently published details of the value of GoI illicit assets is in line with
pre-war estimates of such wealth (and in fact, pre-war estimates of such wealth
may have been high).  The latest reports shed light on the GoI's financial
network and confirm purchases of conventional armaments.  However, the larger
questions (where did the money come from, how much money was there, and where
did it go?) remain unanswered.  As such, the reports (see below) add little to
the debate surrounding sanctions.

"Illicit" here refers to Iraqi trade revenue that was generated outside the
control of the Oil-for-Food program (OFF). Note, though, the preponderance of
this trade was condoned by Britain and the U.S. as it benefited their allies
(more below).

PRE-WAR ESTIMATES OF IRAQ'S NON-OFF REVENUE
In May 2002, the General Accounting Office (GAO - the investigative arm of the
U.S. Congress) released a report that concluded the Iraqi government had earned
an estimated $6.6B in illicit revenue from 1997 through 2001. Primary revenue
sources were a) oil smuggling ($4.3B), and b) oil contract surcharges and
commodity contract commissions (kickbacks) ($2.3B).

In September 2002, the Coalition for International Justice (CIJ - an advocacy
group) concluded similarly that from 1996 through 2001 the GoI had earned an
estimated $6.5B in non-OFF revenue (Table VI; page 60).

Both the GAO and CIJ concluded that oil smuggling generated the bulk of Iraq's
illicit revenue.  The most lucrative smuggling routes were via oil tanker trucks
(to Jordan and Turkey) and via pipeline to Syria.  In each case, the smuggling
was accepted by Britain and the U.S.  In the case of Jordan and Turkey, smuggled
oil was vital to our allies' economies (including Iraq's Kurds, who benefited
from the border traffic).  In the case of Syria, continued viability of the
Iraq-Syria pipeline was crucial to securing Syria 's collaboration in the war on
terror (and - if memory serves - helping secure Syria's support for 'smart
sanctions').

The observation that allies condoned smuggling to Jordan, Turkey, and Syria is
widely (perhaps universally) accepted.  In fact a good discussion of the
rationales appears on the U.S. State Department's own web site ("Iraq:
Compliance, Sanctions, and U.S. Policy" by Kenneth Katzmann of the Congressional
Research Service; see http://fpc.state.gov/documents/organization/9041.pdf).

SOURCES OF NON-OFF INCOME
Following is a partial list of sources for illicit GoI wealth that have been
mentioned by various authorities:
> Oil Smuggling - Oil smuggling generated the bulk of the GoI's illicit revenue.
 Off-the-books trade between Iraq and Turkey, Jordan, and Syria was condoned by
the allies (above); a fourth smuggling route (along the Iranian coast) was
actively impeded by allied (and sometimes Iranian) vessels.
> OFF Kickbacks - During the last years of sanctions, the GoI grew increasingly
aggressive in demanding kickbacks from vendors who obtained OFF contracts.
> Oil Contract Surcharges - During the last years of sanctions, the GoI grew
increasingly bold in demanding surcharges from purchasers of their oil.  To stop
this practice, the UN instituted a US inspired retroactive pricing scheme that,
for a time, seriously disrupted Iraqi oil sales.
> Cigarette Smuggling - The Hussein family was believed to control cigarette
smuggling into Iraq.
> Antiquities - The muckraking film, 'Uncle Saddam', claimed that Arshad Yassin
(Saddam's brother-in-law) trafficked heavily in Iraqi antiquities.
> Oil Futures - UN SecGen Boutros-Ghali has written of mid-1990s speculation
that Saddam was timing oil production announcements so as to manipulate oil
futures.   Boutros-Ghali himself discounted these rumors, due to the isolation
of the regime.
> Other - Funds pre-dating the Kuwait invasion(?)

WHEN WAS NON-OFF MONEY EARNED?
The question of "when" Iraq earned the bulk of its illicit revenue is important
for a number of reasons (esp. as relates to sanctions' effects).  Revenue
estimates (uncontradicted by recent reports) indicate income was generated at
relatively low levels until 2000.  At this time income rose because (a) oil
prices increased dramatically and (b) the Iraq-Syria pipeline reopened.

WHERE WAS NON-OFF MONEY SPENT?
Current reports -- while sketchy -- point to the possibility that much of the
illicit money is stashed away and remains unspent.   Small amounts have been
tracked to weapons purchases (conventional, let it be stressed, though still a
violation of the arms embargo).  The WashPost (below) notes that charges have
already been filed in one arms purchase case (patrol boats).

Following is a recap of sectors where the GoI is rumored to have spent non-OFF
money:
> Savings - Surprisingly large amounts of cash (and bank accounts with large
balances) have been uncovered by investigators.  Perhaps the funds were set
aside to buy flexibility in budgeting and bargaining; or perhaps the reserves
merely reflect the constraints imposed on purchasing and importing by the
embargo and by border controls.
> Security - Just as the bulk of the US $87B appropriation went to security
concerns, so perhaps did the lion's share of the GoI's pre-war budget.  Illicit
funds could have been used to supplement security force salaries, or (more
likely) off-the-books funds could also have been used to:
... Buy weapons (replenish conventional stocks and possibly buy dual-use
material)
... Garner political support among Iraqi tribal groups
> Luxuries -  Palace-building had long since peaked by the time non-OFF revenue
began rolling in, but perhaps it funded other regime niceties?
> Humanitarian goods - I've seen isolated reports of off-the-book funds being
used for humanitarian purchases, though sanctions and import restrictions would
have sharply limited the GoI's options here.

RECENT REPORTS ON GOI ILLICIT WEALTH
Captured GoI financial records are being intensively audited by the Coalition,
primarily toward the goals of a) detecting any funding of proscribed WMD
purchases or research programs, and b) identifying assets used to fund the
insurgency. As such the analyses don't directly concern the humanitarian
implications of the GoI's assets.  Following are the most significant recent
reports.

The Washington Post in a wide-ranging story reported [1]:
(1) "Saddam Hussein's government diverted at least $1.8 billion from ...
oil-for-food"
     ["Diverted" is maddeningly imprecise.  I assume the diversion entailed
smuggling, kickbacks, and/or surcharges -- not re-sale of OFF goods.]
(2) "Investigators said they have identified $3.3 billion Hussein generated
since June 2000 in violation of U.N. sanctions."
(3) "officials have tracked $495 million in funds ... to more than 30 banks in
Lebanon, officials said, and they believe $800 million to be in banks in Jordan
... U.S. officials believe the biggest cache, $2 billion, was socked away in
banks in Syria"
(4) "The biggest amount of money recovered was found in Iraq in May, when the
U.S. military and ICE agents discovered $788 million -- money Hussein authorized
his son Qusay to withdraw on March 19 from the central bank. In a letter to the
bank's governor, Saddam Hussein asked for the release of $920 million U.S.
dollars and $90 million euros to his son and a companion ... officials are
preparing to learn whether $750,000 of Qusay Hussein's money was taken off the
street with his father's arrest last week ... Either way, $132 million of Qusay
Hussein's cache is still missing ..."

MSNBC documented OFF kickbacks[2]:
"Iraqis demanded that a 10 percent surcharge be added to the price ... Guilles
Munier spoke through a translator: “Businessmen from every country had to pay,
transfer 10 percent to bank accounts in Jordan and Lebanon”

Finally, in an interview that I discount because the numbers come seemingly from
outer space, Iyad Allawi of the Iraqi Governing Council claimed that Saddam was
revealing to his captors details of $40-billion he'd hidden. "Saddam has started
to give information on money that has been looted from Iraq and deposited
abroad," Mr Allawi said, adding that the amount stolen was put at $40bn."[3]

The story of the GoI's finances will continue to unfold slowly.  At this point,
while still hazy, the view that emerges is that a) Iraq's illicit revenue was
primarily due to off-the-books oil trade with Coalition allies; b) revenue
increased sharply beginning in 2000; and c) much of the money remained unspent,
likely due to the arms embargo and border controls.

Regards,
Drew Hamre
Golden Valley, MN USA

===
[1] http://www.washingtonpost.com/ac2/wp-dyn/A17883-2003Dec20?language=printer
More Than $1 Billion in Iraqi Assets Found in Foreign Banks

By Susan Schmidt
Washington Post Staff Writer
Sunday, December 21, 2003; Page A26

U.S. authorities have identified more than a billion dollars in Iraqi assets in
banks in Syria, Lebanon and Jordan and are pursuing hundreds of leads in the
United States concerning possible illicit financial transactions with the former
Iraqi government.

Treasury, Internal Revenue Service and Immigration and Customs Enforcement (ICE)
officials have spent nine months poring over financial records recovered from
the vault of the Central Bank of Iraq, including records they say show how
Saddam Hussein's government diverted at least $1.8 billion from the United
Nations' humanitarian oil-for-food program and moved some of that money to
foreign banks or used it to buy weapons components.

Officials are pressing the hunt for many billions more Hussein is believed to
have moved out of Iraq, worried that those funds are going to terrorist groups
or are financing Hussein loyalists' attacks on U.S. troops. "There was a
staggering amount of plunder as a result of the oil-for-food program and other
schemes," said the Treasury Department's recently departed general counsel,
David Aufhauser, who until this month helped direct the search. "While some was
spent on ostentatious palaces, most is unaccounted for."

Investigators said they have identified $3.3 billion Hussein generated since
June 2000 in violation of U.N. sanctions.

ICE agents who set up shop in the vault of the largely demolished central bank
found records showing the diversion and movement of funds, agency officials
said. Iraqi officials, they said, did not bother to disguise illicit money
transfers or weapons purchases. "They weren't worried about covering up with
front companies," one ICE official said.

The result is that investigators have launched about 40 ongoing probes of U.S.
entities or individuals suspected of exporting weapon components or dual-use
technology, as U.S. News & World Report first reported Thursday, in violation of
export laws and U.N. sanctions barring trade with Iraq. In the first criminal
case to result, two U.S. men were charged in October with brokering the
manufacture of six armored patrol boats for the Iraqi military -- a transaction
detailed in a contract ICE agents recovered at the central bank.

A special Iraqi ICE task force in Washington is pursuing hundreds of other leads
generated in Baghdad about possible illegal business transactions by U.S.
individuals and entities.

ICE agents also have been teamed with the U.S. military to recover Hussein's
weapons arsenals and try to learn their provenance, an effort that dovetails
with the search for Iraq's missing billions.

Michael T. Dougherty, ICE director of operations, said ICE agents have
interviewed captured Iraqi officials and developed informants, adding that it is
"the first time civilian investigative teams have been deployed with combat
teams." Among those interviewed by financial investigators are former senior
Baath Party members and Iraqi military officials.

Treasury and ICE officials have tracked $495 million in funds belonging to four
Iraqi entities, including a bank and an oil company, to more than 30 banks in
Lebanon, officials said, and they believe $800 million to be in banks in Jordan.
Those countries have frozen the accounts, and negotiations are underway to
return the money for the rebuilding of Iraq.

U.S. officials believe the biggest cache, $2 billion, was socked away in banks
in Syria, which remains on the State Department's list of state sponsors of
terrorism. In October, Syria allowed a team of Iraqi and U.S. investigators to
examine records in Damascus, where they found $260 million. Syrian officials
have maintained the Iraqi funds there totaled $175 million, and have not agreed
to return the funds to Iraq.

But some in the United States involved in the hunt said they believe that
individuals close to the Syrian government have plundered much of the $2
billion. Syria did a large amount of unsanctioned commerce with Iraq and is
suspected of having controlled billions of Iraqi funds banked in Lebanon,
according to a source familiar with U.S. investigative efforts.

Other Iraqi assets were stashed in accounts around the world, officials said,
with significant sums in Japan, Europe and Southeast Asia as well as the Middle
East.

The biggest amount of money recovered was found in Iraq in May, when the U.S.
military and ICE agents discovered $788 million -- money Hussein authorized his
son Qusay to withdraw on March 19 from the central bank. In a letter to the
bank's governor, Saddam Hussein asked for the release of $920 million U.S.
dollars and $90 million euros to his son and a companion, "to protect and save
them from American aggression."

U.S. financial investigators have been tracing the serial numbers on those
bills, as well as on millions more in currencies found under the central bank
vault. The information may help them trace the funds' origin and learn which
banks, entities and nations did business with the Iraqi government.

ICE officials are preparing to learn whether $750,000 of Qusay Hussein's money
was taken off the street with his father's arrest last week. They will compare
serial numbers from the money recovered in May with the numbers on Saddam
Hussein's bills.

Either way, $132 million of Qusay Hussein's cache is still missing -- an amount
that U.S. officials worry could keep the insurgency well armed.

===
[2] http://www.msnbc.msn.com/id/3969512/
Price of doing business in Saddam’s Iraq
10 percent ‘service fee’ sent to private bank accounts
By Lisa Myers
Senior investigative correspondent
NBC News
Updated: 6:49 p.m. ET Jan. 15, 2004There are new details on how deposed Iraqi
President Saddam Hussein got his wealth and how that money is being used now.
The United Nations oil-for-food program was supposed to keep food on the table
for hungry Iraqis and choke off funds to Saddam. But officials now tell NBC News
that kickbacks to Saddam under the U.N. program were even more extensive than
rumored. And NBC has learned that money from the scheme may now be helping fund
Iraqi insurgents’ attacks on U.S. troops.

A small company outside Paris, Tripette and Renaud, reached a deal in 2002 to
sell almost $1 million in laboratory equipment to Iraq. A company official tells
NBC News the Iraqis demanded that a 10 percent surcharge be added to the price —
which the company agreed to pay to private bank accounts controlled by the
Iraqis.

A French business consultant, who made 50 trips to Iraq, says this company was
not alone in agreeing to what amounted to payoffs of Saddam under the
oil-for-food program.  Guilles Munier spoke through a translator: “Businessmen
from every country had to pay, transfer 10 percent to bank accounts in Jordan
and Lebanon.”

It was often called an “after sales service fee.”  According to former U.S.
Treasury Department official Jim Gurule, “It’s a very diplomatic way of
describing a kickback. This money was a kickback to Saddam Hussein.”

For years, there have been rumors and anecdotal evidence about kickbacks to
Saddam.

What’s new is that U.S. officials tell NBC News they now have proof the
surcharge was virtually systematic — paid by hundreds of companies worldwide in
a violation of U.N. sanctions. Saddam was able to collect billions of dollars,
right under the nose of the United Nations.

“While before there was concern, there was smoke, now we see the fire, now we
see the picture more clearly.… It’s huge because of the amount of money
involved,” Gurule added.

The current Iraqi minister of trade — now allied with the United States —
charges there was a conspiracy of silence to overlook Saddam’s slush fund.

Iraq’s current Trade Minister Ali Allawi said, “I’m surprised that the United
Nations claims that it did not know. I mean, they were administering the
program.”

But Benon Sevan, who headed the U.N. food program, says all he heard were
rumors, adding, “We are not an investigative power.

“I’m not trying to justify it, but even if you take 10 percent of $65 billion,
the rest went to the food, the medicine.  Nobody talks about it,” said Sevan.

NBC News has learned that over the last few months, the United States and Iraqis
have been renegotiating many contracts and demanding a 10 percent reduction in
price.

But where is that money now?  Senior U.S. officials tell NBC News that some of
it is helping fund the violent insurgents in Iraq, who’re believed to have
access to hundreds of millions of dollars.

Lisa Myers is NBC News’ senior investigative correspondent.

===
[3] http://news.bbc.co.uk/2/hi/middle_east/3354765.stm

Saddam 'details stolen billions'
Iraq's ousted leader Saddam Hussein has given his captors information about
billions of dollars he stashed abroad while in power, an Iraqi official says.
Iyad Allawi of the Iraqi Governing Council told two Arabic newspapers that
Saddam Hussein had also named people who knew where the money was deposited.

Mr Allawi's comments have so far not been confirmed by other IGC members.

Saddam Hussein has been held at an undisclosed location since his capture by US
forces on 14 December.

Fictitious names

Mr Allawi told London-based newspapers Al-Hayat and Asharq al-Awsat that Saddam
Hussein had acknowledged sending money to foreign bank accounts before he was
deposed.

"Saddam has started to give information on money that has been looted from Iraq
and deposited abroad," Mr Allawi said, adding that the amount stolen was put at
$40bn.

"We have asked international legal and specialised companies to follow up the
money (Saddam Hussein) deposited in Switzerland, Germany and Japan and other
countries under fictitious company names," Mr Allawi told Al-Hayat.

Mr Allawi said that interrogators were now focusing on what links Saddam Hussein
may have with the militant groups attacking coalition forces and what funds were
being paid to "elements outside Iraq".

The former president has also revealed information about weapons being used by
insurgents, according to Mr Allawi.

"He gave names of those who have information on equipment and weapons
warehouses."

Another member of the US-appointed Iraqi Governing Council said he had
information that Saddam Hussein had begun to give the names of people inside
Iraq who were attacking coalition forces.

But he had not revealed anything about funds, Ahmed al-Bayak told the Associated
Press.

Attacks and arrests

Before Saddam Hussein's capture, US officials said that money the former
president withdrew from the Iraqi Central Bank may be funding attacks on
coalition forces.

Iraq's deposed leader is said to have authorised the removal of about $1bn in US
dollar notes on three trucks just hours before the US began its bombardment of
Baghdad in March.
It is not clear whether or to what extent Saddam Hussein was involved in the
attacks on coalition forces.

Guerrilla activity has not stopped in Iraq since his capture.

The US military says several hundred militants have been arrested as a result of
information gleaned following Saddam Hussein's arrest.

Speaking in a US television interview on 21 December, General Richard Myers,
head of the US Joint Chiefs of Staff, said "We've put our best interrogators on
him.

But he added: "The only word I have is that he is not being co-operative."

Published: 2003/12/29 15:53:20 GMT

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