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[casi] OFF and the cash syphon


The OFF scheme provided cash to the regime in a number of ways. As the
scheme developed in the late 1990s, trade was increasingly conducted by
quotas awarded to countries such as Egypt and Russia, or by contracts
awarded to friends. Thus for example, an Egyptian company had contracts for
supply of large quantities of steel which could not be sourced from Egypt.
They bought elsewhere, typically Russia or Ukraine, but issued a complete
new set of documents for the cargo showing its origin as loaded at Suez.

The unknown middlemen who appeared as purchasers of Iraqi oil also gained
contracts for supply of goods to Iraq. Since the OFF scheme managers did
not choose to question the invoice value of goods shipped, as did the US
and UK governments in respect of the oil prices which were easier to
monitor, unscrupulous suppliers were no doubt able to provide inflated
invoices. When the supplier was paid by OFF, kickbacks were payable to the
regime. The extent of this is not certain, but it is not difficult to
compare prices paid to OFF suppliers against typical prices available in
the commercial world.

There were pluses and minuses for the suppliers. For example, sugar prices
can move quite quickly. However, the process of OFF scheme purchase could
take so long before the cargo was actually loaded on board ship that the
supplier took the risk of serious loss if the market price moved against
him. In the hard commercial world, this is just tough. However, from my
enquiry, I understood that the regime was prepared to allow traders to
escape obligation to deliver. The delays might also explain occasional high
pricing. For example, if it took 6-9 months from the date of contract to
the date of delivery, the market price could drop for a particular
commodity, giving a supplier a large potential profit. However, such
fluctuations and delays do not explain consistent high pricing.

The "land transport" cost is another major unknown. The regime asked its
suppliers to quote a price inclusive of delivery to "All Iraqi
Governorates." The suppliers were unable to perform the actual delivery
since the regime controlled the land transport. Therefore, the regime
dictated the cost of the land transport to the supplier, who included this
in his invoice to OFF. Prior to discharge of the cargo at Umm Qasr, the
supplier was required to pay the land transport cost to an Iraqi controlled
company in Jordan. The basic principle was not unreasonable. Iraq had to
purchase and maintain an enormous fleet of trucks and provide the
warehousing for distribution. There were never enough trucks. Given the
idea of the "cash component" in the OFF scheme, it was reasonable for Iraq
to ask that they recover from OFF the cost of land transport and
distribution. However, there was no control of the land transport payments,
and I doubt it is easy now to establish how much Iraq was able to cream
from this system or how the cash which it produced was channelled.

There were other ways of making money from oil sales. Sale prices vary
according to destination. Thus the purchaser might declare a low price
destination in his purchase, but actually send the ship to a destination
where a much higher price could be obtained. There were also accusations
that ships loaded additional oil after Cotecna had completed their load
quantity check and issued documentation. The UN caught some of these

The complaints about quality and specification and lack of recourse against
suppliers require a mixed response. It is true that there were plenty of
instances of shipment of sub-standard or off-specification material.
However, the Iraqis generally refused to accept anything which they did not
consider to be 100% sound, and this led to many complaints from suppliers
that the Iraqis rejected cargo unreasonably. On many occasions, rejected
cargoes were taken back to the port of shipment or discharged at UAE ports,
leaving many of us scratching our heads to know why they had been rejected.
On occasion, rejections were blatantly political. The Australian government
suffered badly from this.

In normal trade,  problems of specification are invariably dealt with by
inspection and certification at the loadport. The Iraqi government
apparently refused to trust any inspection system at loading. It is wrong
to state that the Iraqis had no recourse. Normal trade letters of credit
put the consignee in exactly the same position as the Iraqi government. If
there is a dispute in respect of specification, the consignee claims
against the supplier in accordance with the terms of the sale contract.
Nothing prevented the Iraqi government from so doing.

Suppliers and insurers also lost from claims for shortage of cargo. It is
astonishing how many hundreds of thousands of bags of rice and sugar
allegedly went missing between the port of shipment and Umm Qasr.  Those of
us who dealt with Iraq before 1980 can recall that this was a major problem
at Basrah before the closure of the Shatt el Arab.

Any sanctions regime is likely to produce abuse. Witness South Africa,
Rhodesia and others. It is just one of the reasons for seeking their
removal. Iraqi sanctions effectively created a whole industry devoted to
their manipulation and control.

Mark Galloway

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