The Iraqi Oil for Food Program
By Hakim Joe
The Oil for Food (OFF) Program is basically a UN sanctioned action which allowed Iraq to sell limited quantities of oil in the world market to finance the purchases for food, medicine and humanitarian aid for its war torn citizens in place of cash. It was monitored by the UN Office of the Iraq Program that was established by the UN Security Council in August 1990 under Resolution 661.
The Oil for Food Program Office was set up under UN Resolution 986 on April the 14th, 1995 specifically stating that it is intended to be a “temporary measure to provide for the humanitarian needs of the Iraqi people, until the fulfilment by Iraq of the relevant Security Council resolutions, including notably Resolution 687 (1991) of 3rd April 1991.”
Initially, the Iraqi government declined this offer even though its people were dying due to the embargo imposed by UN Security Council but was forced to accept it in 1996 as conditions began deteriorating badly. Losers can’t be choosers anyway. Officially, the OFF Program started only after the signing of the Memorandum of Understanding (MOU) between the United Nations and the Government of Iraq on the 20th of May 1996, one year after Resolution 986 was adopted. The first Iraqi oil was exported in December 1996 and the first shipments of food arrived in March 1997.
The OFF Program provided for Iraq to sell USD 2 billion worth of oil every six months with two-thirds of that amount earmarked to meet its humanitarian requirements. This was raised to USD 5.26 billion every six months by 1998 and the limit completed removed by December 1999.
Overall, 72% of these proceeds funded the humanitarian program (59% for the 15 central and southern governorates and 13% for the three northern governorates). 25% were used to set up a Compensation Fund for war reparation payments and the remainder 3% were for UN administrative and operational costs (2.2%) and the UN weapons inspection program (0.8%).
By the end of May in 2003, some USD 28 billion worth of humanitarian supplies and equipment had been delivered to Iraq under the OFF Program, a month which also marked the beginning of the end for Saddam Hussein. (Operation Iraqi Freedom started at 0533 hours Baghdad time on Thursday, the 20th of March 2003.)
After winning the war, the UN Security Council lifted sanctions against Iraq (Resolution 1483) on the 22nd of May and this was the call for the dismantling of the OFF Program.
Because of the war, more aid was now urgently required and owing also to the fact that the Office of the Iraq Program is due to be discontinued by the 21st of November, a massive approval agenda was implemented where 3,168 contracts worth about USD 8.5 billion were identified and authorised.
The program was officially terminated on the 21st of November 2003 and its functions and responsibilities henceforth transferred to the Coalition Provisional Authority of Iraq.
On the 19th of March 2004, the then Secretary-General of the United Nations, Mr. Kofi Annan wrote to the President of the UN Security Council, formally informing them of his intention to establish a high level independent inquiry to investigate the allegations of wrongdoing related to the OFF Program.
On the 21st of April 2004, the UN Security Council unanimously passed a resolution, inter alia, for the establishing of the Independent Inquiry Committee (IIC) and calling upon the Coalition Provisional Authority of Iraq and all member states of the UN to cooperate fully with the enquiry.
Paul A. Volcker, the former Chairman of the US Federal Reserve was appointed as Chairman of the IIC together with Justice Richard J. Goldstone of South Africa and Professor Mark Pieth of Switzerland as its committee members. Three offices were set up (New York as HQ, Paris and Baghdad) and Senior Management staff were recruited to supervise the many investigative and forensic staff that were needed.
On the 27th of October 2005, the fifth and final 623-paged Volcker Report was submitted to the UN with the following results: Under the OFF Program, the Government of Iraq sold USD 64.2 billion worth of oil to 248 companies and in return, 3,614 companies sold USD 34.5 billion worth of humanitarian goods to Iraq.
Investigations also showed that 139 out of the 248 companies (56%) that bought oil from Iraq under the OFF Program were involved in illegal payments (kickbacks amounting to USD 228.8 million) to the Government of Iraq whilst 2,253 out of the total 3,614 companies (62%) that sold humanitarian goods are also implicated with illegal payments (kickbacks amounting to USD 1.55 billion) amounting to almost USD 1.8 billion.
The IIC identified four oil traders (under the IX phase) that were primarily involved in this illegality. The four companies i.e. Bayoil Supply & Trading Ltd., the Taurus Group, Glencore International A.G. and Vitol Group used intermediary entities to purchase Iraqi oil (and paying surcharges to the Iraqi Government of Saddam Hussein) that were subsequently resold in the international market.
Even with this surcharge, these four companies together with their intermediaries were making tonnes of money from this “venture” as the total price was still way below international trading prices (and its higher premiums).
The Iraq Survey Group later estimated a US 65 cents profit per barrel of oil within the OFF Program. Bayoil used Italtech SRL, Taurus used Fenar Petroleum Ltd. and Alcon Petroleum Ltd., Glencore used one of its subsidiaries together with Petrogaz Distribution S.A. and Vitol used Mastek Sdn. Bhd.
As the oil surcharges were labelled as either “Port” fees or “Loading” fees on the humanitarian supply front, the USD 1.55 billion in kickbacks were traced to the Iraqi charging of “Inland Transportation” fees and “After Sales Service” fees.
Each and every one of the 2,253 companies had to agree to pay a 10% fee from mid-1999 onwards before they are awarded supply contracts. Reluctant suppliers were dropped from the list unless their products are essential and unobtainable elsewhere (which was rare).
Malaysia’s involvement came about when Mastek Sdn. Bhd. (50717-A) agreed to act as the intermediary for Vitol Group in the purchase of the Iraqi oil.
Mastek is owned by Noor Asiah Dato' Mahmood (AAB’s sister-in-law & Endon’s sister) with 108,000 shares together with Obata-Ambak Holdings Sdn. Bhd. (379,200 shares) which were jointly owned by Faek Ahmad Shareef (Noor Asiah's ex-husband and an Iraqi immigrant) and Jaya Sudhir (businessman).
Mastek was listed as a saw-timber company at that particular time. Another trading company, Tradeyear Sdn. Bhd. (361316-K), which was also involved in the OFF Program scam, had 2 shares that named AAB and Faek Ahmad Shareef as its “Non-Contractual Beneficiaries”.
Mastek was allocated 45 million barrels of oil (largest single allocation for the entire OFF Program) in the IX phase, which they lifted 43,614,685 barrels (worth USD 884,919,027) and Tradeyear was allocated 9.2 million barrels of oil, which they lifted 9,094,996 barrels (worth USD 171,771,487). With a commission of almost US 65-cents a barrel, both Mastek and Tradeyear made more than USD 34 million.
Two other Malaysian companies were also involved but on a smaller scale. Petmal Oil Corporation Sdn. Bhd. lifted 1,978,313 barrels (contract number: M/08/62) in December 2000 as an intermediary for Glencore AG. Jawala Corp. Sdn. Bhd. lifted 2,051,590 barrels (contract number: M/09/46) in July 2001 and another 2 million barrels (contract number: M/11/12) in May 2002.
Petmal Oil is owned by Dato’ Paduka L.M.N Affendi bin Long Ibrahim (60%) & Singapore Petroleum Company Limited (40%), and Jawala Corp is owned by Dato’ Abdul Majid bin Ahmad Khan (former Malaysian Ambassador to China).
AAB was initially specifically implicated together with Mastek in the Volcker Report but was later cleared by subsequent UN investigators of complicity in October 2005 even though he penned the letter of recommendation in support of Mastek’s application for oil allocations under the OFF Program.
Investigation conducted by local authorities on the (then) DPM did not turn up incriminating evidence involving AAB in Mastek’s illegality.
The full IIC Volcker Report (all 623 pages in a 16MB .pdf file) can be accessed at: http://www.iic-offp.org/documents/IIC%20Final%20Report%2027Oct2005.pdf
