text:
Regime Finance and Procurement
We have said with certainty that the embargo will not be lifted by a Security Council resolution, but will corrode by itself. -- Saddam speaking in January 2000 to mark the 79the anniversary of the Iraqi armed forces.
Key Findings
Directing and Budgeting Iraq's Illicit Procurement
Financing Iraq's Illicit Procurement
Executing Illicit Procurement in Iraq: Ministries, Commissions, and Front Companies
Supplying Iraq With Prohibited Commodities
Importing Prohibited Commodities
Deceptive Trade Practices Supporting Illicit Procurement
Use of Illicit Smuggling and Transportation Networks
A. Translations of Iraq's Bilateral Trade Protocols
B. Known Oil Voucher Recipients
C. Iraq's Budgetary Process
D. Iraq Economic Data
E. Illicit Earnings Sources and Estimation Methodology
F. Iraqi Oil Smuggling
G. Iraq's Banking System
H. UN Security Council Resolutions Applicable to Iraq
I. Suspected WMD-Related Dual-Use Goods and Procurement Teransactions
J. The Procurement of Conventional Military Goods in Breach of UN Sanctions
K. Suspected Intermediary and Front Companies Associated With Iraq
L. Procurement Acronyms
Regime Strategy and WMD Timeline Events
A Word on the Scope of This Chapter
This chapter of the Comprehensive Report details the evolution of Iraq's campaign to evade and overcome the UN ban on its import of material related to Weapons of Mass Destruction and conventional military forces. It also describes Iraq's effort to use the sale of its oil to hasten the end of the entire sanctions Regime. Because this chapter deals with Iraq's international trade and finance, half of the picture rests with entities outside Iraq—countries, companies, and individuals.
To tell the story, we had to describe—usually naming—Iraq's trade partners or entities Iraq thought sympathetic to its plight. Most of those individuals or entities are clearly identified in Iraqi documents, some of which were substantiated through interviews with former Iraqi Regime officials. We name those individuals and entities here in the interest of candor, clarity, and thoroughness. But it is not in ISG's mandate or capabilities to investigate or judge those non-Iraqi individuals or entities. And in many cases, the Iraqi documents and detainees stop short of confirming that a particular transaction was consummated, or that a courted foreign government official said "yes" to Iraqi blandishments.
We also must point out that some Iraqi trade was legal and legitimate under the UN Oil-For-Food Program. It is important to understand that the Iraqi Regime used both sanctioned and unsanctioned trade to buy influence and gain allies. But Iraq's intent to circumvent sanctions by no means incriminates those who may have in some cases unwittingly provided unsanctioned commodities to Iraq. We would like to emphasize that this report does not intend to analyze or assess the legal implications for non-Iraqis.
Key Findings
Throughout the 1990s and up to OIF (March 2003), Saddam focused on one set of objectives: the survival of himself, his Regime, and his legacy. To secure those objectives, Saddam needed to exploit Iraqi oil assets, to portray a strong military capability to deter internal and external threats, and to foster his image as an Arab leader. Saddam recognized that the reconstitution of Iraqi WMD enhanced both his security and image. Consequently, Saddam needed to end UN-imposed sanctions to fulfill his goals.
Saddam severely under estimated the economic and military costs of invading Iran in 1980 and Kuwait in 1990, as well as underestimating the subsequent international condemnation of his invasion of Kuwait. He did not anticipate this condemnation, nor the subsequent imposition, comprehensiveness, severity, and longevity of UN sanctions. His initial belief that UN sanctions would not last, resulting in his country's economic decline, changed by 1998 when the UNSC did not lift sanctions after he believed resolutions were fulfilled. Although Saddam had reluctantly accepted the UN's Oil for Food (OFF) program by 1996, he soon recognized its economic value and additional opportunities for further manipulation and influence of the UNSC Iraq 661 Sanctions Committee member states. Therefore, he resigned himself to the continuation of UN sanctions understanding that they would become a "paper tiger" regardless of continued US resolve to maintain them.
Throughout sanctions, Saddam continually directed his advisors to formulate and implement strategies, policies, and methods to terminate the UN's sanctions regime established by UNSCR 661. The Regime devised an effective diplomatic and economic strategy of generating revenue and procuring illicit goods utilizing the Iraqi intelligence, banking, industrial, and military apparatus that eroded United Nations' member states and other international players' resolve to enforce compliance, while capitalizing politically on its humanitarian crisis.
- From Saddam's perspective, UN sanctions hindered his ability to rule Iraq with complete authority and autonomy. In the long run, UN sanctions also interfered with his efforts to establish a historic legacy. According to Saddam and his senior advisors, the UN, at the behest of the US, placed an economic strangle hold on Iraq. The UN controlled Saddam's main source of revenue (oil exports) and determined what Iraq could import.
- UN sanctions curbed Saddam's ability to import weapons, technology, and expertise into Iraq. Sanctions also limited his ability to finance his military, intelligence, and security forces to deal with his perceived and real external threats.
- In short, Saddam considered UN sanctions as a form of economic war and the UN's OFF program and Northern and Southern Watch Operations as campaigns of that larger economic war orchestrated by the US and UK. His evolving strategy centered on breaking free of UN sanctions in order to liberate his economy from the economic strangle-hold so he could continue to pursue his political and personal objectives.
One aspect of Saddam's strategy of unhinging the UN's sanctions against Iraq, centered on Saddam's efforts to influence certain UN SC permanent members, such as Russia, France, and China and some nonpermanent (Syria, Ukraine) members to end UN sanctions. Under Saddam's orders, the Ministry of Foreign Affairs (MFA) formulated and implemented a strategy aimed at these UNSC members and international public opinion with the purpose of ending UN sanctions and undermining its subsequent OFF program by diplomatic and economic means. At a minimum, Saddam wanted to divide the five permanent members and foment international public support of Iraq at the UN and throughout the world by a savvy public relations campaign and an extensive diplomatic effort.
Another element of this strategy involved circumventing UN sanctions and the OFF program by means of "Protocols" or government-to-government economic trade agreements. Protocols allowed Saddam to generate a large amount of revenue outside the purview of the UN. The successful implementation of the Protocols, continued oil smuggling efforts, and the manipulation of UN OFF contracts emboldened Saddam to pursue his military reconstitution efforts starting in 1997 and peaking in 2001. These efforts covered conventional arms, dual-use goods acquisition, and some WMD-related programs.
- Once money began to flow into Iraq, the Regime's authorities, aided by foreign companies and some foreign governments, devised and implemented methods and techniques to procure illicit goods from foreign suppliers.
- To implement its procurement efforts, Iraq under Saddam, created a network of Iraqi front companies, some with close relationships to high-ranking foreign government officials. These foreign government officials, in turn, worked through their respective ministries, state-run companies and ministry-sponsored front companies, to procure illicit goods, services, and technologies for Iraq's WMD-related, conventional arms, and/or dual-use goods programs.
- The Regime financed these government-sanctioned programs by several illicit revenue streams that amassed more that $11 billion from the early 1990s to OIF outside the UN-approved methods. The most profitable stream concerned Protocols or government-to-government agreements that generated over $7.5 billion for Saddam. Iraq earned an additional $2 billion from kickbacks or surcharges associated with the UN's OFF program; $990 million from oil "cash sales" or smuggling; and another $230 million from other surcharge impositions.
Analysis of Iraqi Financial Data
The Iraqi revenue analysis presented in this report is based on government documents and financial databases, spreadsheets, and other records obtained from SOMO, the Iraqi Ministry of Oil, and the Central Bank of Iraq (CBI), and other Ministries. These sources appear to be of good quality and consistent with other pre- and post-Operation Iraqi Freedom information. All Iraqi revenue data and derived figures in this report have been calculated in current dollars.
Saddam directed the Regime's key ministries and governmental agencies to devise and implement strategies, policies, and techniques to discredit the UN sanctions, harass UN personnel in Iraq, and discredit the US. At the same time, according to reporting, he also wanted to obfuscate Iraq's refusal to reveal the nature of its WMD and WMD-related programs, their capabilities, and his intentions.
- Saddam used the IIS to undertake the most sensitive procurement missions. Consequently, the IIS facilitated the import of UN sanctioned and dual-use goods into Iraq through countries like Syria, Jordan, Belarus and Turkey.
- The IIS had representatives in most of Iraq's embassies in these foreign countries using a variety of official covers. One type of cover was the "commercial attaches" that were sent to make contacts with foreign businesses. The attaches set up front companies, facilitated the banking process and transfers of funds as determined, and approved by the senior officials within the Government.
- The MFA played a critical role in facilitating Iraq's procurement of military goods, dual-use goods pertaining to WMD, transporting cash and other valuable goods earned by illicit oil revenue, and forming and implementing a diplomatic strategy to end UN sanctions and the subsequent UN OFF program by nefarious means.
- Saddam used the Ministry of Higher Education and Scientific Research (MHESR) through its universities and research programs to maintain, develop, and acquire expertise, to advance or preserve existent research projects and developments, and to procure goods prohibited by UN SC sanctions.
- The Ministry of Oil (MoO) controlled the oil voucher distribution program that used oil to influence UN members to support Iraq's goals. Saddam personally approved and removed all names of voucher recipients. He made all modifications to the list, adding or deleting names at will. Other senior Iraqi leaders could nominate or recommend an individual or organization to be added or subtracted from the voucher list, and ad hoc allocation committees met to review and update the allocations.
Iraq under Saddam successfully devised various methods to acquire and import items prohibited under UN sanctions. Numerous Iraqi and foreign trade intermediaries disguised illicit items, hid the identity of the end user, and/or changed the final destination of the commodity to get it to the region. For a cut of the profits, these trade intermediaries moved, and in many cases smuggled, the prohibited items through land, sea, and air entry points along the Iraqi border.
By mid-2000 the exponential growth of Iraq's illicit revenue, increased international sympathy for Iraq's humanitarian plight, and increased complicity by Iraqi's neighbors led elements within Saddam's Regime to boast that the UN sanctions were slowly eroding. In July 2000, the ruling Iraqi Ba'athist paper, Al-Thawrah, claimed victory over UN sanctions, stating that Iraq was accelerating its pace to develop its national economy despite the UN "blockade." In August 2001, Iraqi Foreign Minister Sabri stated in an Al-Jazirah TV interview that UN sanctions efforts had collapsed at the same time Baghdad had been making steady progress on its economic, military, Arab relations, and international affairs.
- Companies in Syria, Jordan, Lebanon, Turkey, UAE, and Yemen assisted Saddam with the acquisition of prohibited items through deceptive trade practices. In the case of Syria and Yemen, this included support from agencies or personnel within the government itself.
- Numerous ministries in Saddam's Regime facilitated the smuggling of illicit goods through Iraq's borders, ports, and airports. The Iraqi Intelligence Service (IIS) and the Military Industiralization Commission (MIC), however, were directly responsible for skirting UN monitoring and importing prohibited items for Saddam.
Chapter Summary
The Illicit Finance and Procurement chapter focuses on the economic means, key actors and organizations, foreign suppliers, and procurement mechanisms used by Saddam to pursue his set of objectives: survival of himself, his Regime, and his legacy. The first section of the chapter provides an historic background divided into key economic phases. The chapter then examines Saddam's major revenue streams outside the UN sanctions regime: bilateral trade Protocols, UN OFF oil surcharges, commodity kickbacks, and "cash sales" or oil smuggling activities. ISG estimates the total amount of revenue earned between 1991 and 2003, while paying special attention to money earned after the introduction of the OFF program. ISG also addresses how the Regime used its oil assets to influence non-Iraqi individuals by means of an institutionalized, secret oil voucher program.
Following the illicit revenue section, the chapter identifies the Iraqi Regime's key individuals, ministries, organizations, and private entities within the Regime that were involved in Saddam's procurement and revenue activities. Next, the section identifies foreign suppliers—governments, state-owned and private firms, and/or individual agents that engaged in the export of goods in contravention of UN resolutions. In some cases, ISG has uncovered foreign government activity and knowledge that ranged from tacit approval to active complicity. In other cases, firms engaged in the illegal activities without their government's consent or knowledge. Moreover, ISG's investigation exposed Iraqi and foreign trade intermediaries' deceptive methods used to purchase, acquire, and import UN-banned items.
Finally, this chapter provides several annexes that give more detail on the spectrum of issues examined in the procurement chapter of ISG's report. Annex A consists of translations of Iraq's major trade Protocols; Annex B is an oil voucher recipient list that ISG obtained from Iraq's State Oil Marketing Organization (SOMO). Annex C relates Iraq's normal governmental budgetary process, while Annex D provides general Iraqi economic data. Annex E outlines ISG's illicit earnings sources and estimation methodology, and Annex F provides an illustrative oil smuggling case study. Annex G explains Iraq's banking system, and Annex H lists Iraqi-related UN Security Council Resolutions. Annexes I and J reveal suspected Iraqi dual-use and conventional weapons procurement transactions, while Annex K lists suspected companies engaged in military-related trade with Iraq. Finally, Annex L provides a list of procurement acronyms found throughout this section.
The Regime Timeline
For an overview of Iraqi WMD programs and policy choices, readers should consult the Regime Timeline chart, enclosed as a separate foldout and in tabular form at the back of ISG report. Covering the period from 1980 to 2003, the timeline shows specific events bearing on the Regime's efforts in the BW, CW, delivery systems and nuclear realms and their chronological relationship with political and military developments that had direct bearing on the Regime's policy choices
Readers should also be aware that at the conclusion of each volume of text, we have also included foldout summary charts that relate inflection points—critical turning points in the Regime's WMD policymaking—to particular events, initiatives, or decisions the Regime took with respect to specific WMD programs. Inflection points are marked in the margins of the text with a gray triangle.
Ambition (1980-91)
During the Ambition phase in Iraq, Saddam and his Regime practiced open, traditional procurement of conventional weapons and developed clandestine methods for obtaining WMD materials and dual-use items. Iraq's oil wealth allowed Saddam to overcome the inherent inefficiencies of a centrally planned economy. After the costly war with Iran, Saddam's procurement efforts focused primarily on restocking Iraq's war materials. These defense-related procurement goals, however, were hindered by economic weakness. In the later part of this period, the Iraqi economy began to falter, saddled with a high international debt from the war, rising costs of maintaining a generous welfare state, low international oil prices, and the high cost entailed in weapons and WMD programs. Saddam's ill-conceived, shortsighted economic reforms in 1987 and reactionary price controls, nationalization, and subsidies in 1989 pushed the Iraqi economy further into crisis. Capping the Ambition phase, Saddam chose to fight his way out of economic crises by invading Kuwait.
Decline (1991-96)
In the post-Gulf war decline phase, the possession of WMD remained important to the Regime. Saddam's procurement of conventional weapons and WMD, however, was hindered severely by a potent combination of international monitoring and a collapsing oil-based economy. These constraints were compounded by the decision not to make full WMD disclosures and the subsequent attempt to remove WMD signatures through unilateral destruction. The poor handling of the WMD disclosures further hardened the international community. UN sanctions, resulting from Saddam's refusal to comply with UN resolutions, froze the Regime's export of oil and import of commodities—cutting off Saddam's ability to generate the revenue needed for illicit purchases on international arms and dual-use markets. The Iraqi economy also suffered under UN sanctions during this period as gross domestic product (GDP) per capita fell from $2304 in 1989 to an estimated $495 in 1995. The decline in the street-value of the Iraqi Dinar rendered the average Iraqi citizen's savings worthless, casting the Iraqi middle-class into poverty. Simultaneously, this period of decline exhibited an increase in corruption, incompetence, and patronage throughout Saddam's Regime.
Husayn Kamil's flight to Jordan in 1995 and Saddam's handling of the issue led to further WMD disclosures and subsequent international opprobrium. Saddam retained a desire for WMD, but economic growth and the ending of sanctions became the overriding concern as the economy hit rock bottom in late 1995. The combination of these factors motivated Saddam's decision to accept UNSCR 986, the UN OFF in 1996.
Recovery (1996-98)
The Recovery phase was ushered in by Saddam's acceptance of UN SC 986 and the UN OFF Program. Trade fostered under the OFF program starting in 1997 allowed Saddam to pursue numerous illicit revenue earning schemes, which began generating significant amounts of cash outside of the auspices of the UN. With the legitimate side of the OFF program providing the Iraq population with economic relief, Saddam was free to develop illicit procurement programs to arm his Regime against perceived and real threats. By the end of this period, Iraq had developed a growing underground network of trade intermediaries, front companies, and international suppliers willing to trade oil or hard currency for conventional weapons, WMD precursors, and dual-use technology. After 1996, the state of the Iraqi economy no longer threatened Saddam's hold on power in Iraq, and economic recovery underpinned a more confident Regime posture.
Transition and Miscalculation (1999-2003)
The Transition and Miscalculation phases opened with Iraq's suspension of cooperation with UNSCOM and IAEA. The subsequent lack of effective monitoring emboldened Saddam and his procurement programs. The Regime successfully manipulated Iraq's oil production and sales policies to influence international political actors and public opinion. However, during this period, Iraq's long-neglected oil infrastructure began to falter, resulting in an inability to meet demand. As a result, the growth in the legitimate side of the Iraq economy slowed. Meanwhile, Saddam's increasing illegitimate revenue and profits from UN oil sales compensated for legitimate revenue loses. Illicit oil revenue provided Saddam with sufficient funds to pay off his loyalists and expand selected illicit procurement programs. From 1999 until he was deposed in April 2003, Saddam's conventional weapons and WMD-related procurement programs steadily grew in scale, variety, and efficiency. Saddam invited UNMOVIC and IAEA back into Iraq in September 2002, in the face of growing international pressure, calculating that a surge in cooperation might have brought sanctions to an end.
Directing and Budgeting Iraq's Illicit Procurement
Throughout the 1990s and up to OIF (2003), Saddam continually directed his advisors to formulate and implement policies, methods, and techniques to terminate the UN's sanctions and obtain prohibited conventional military and WMD-related goods.
- Saddam directed and approved illicit procurement by his Regime.
- The Diwan and Presidential Secretary facilitated Saddam's procurement directives by processing nonbudget funding for conventional military and WMD programs.
- The Iraqi budget process was divided into two different systems: a formal budget that served as a common governmental budget and a supplemental or secret budget that was controlled by Saddam and the Economic Affairs Committee (EAC). This supplemental process, which emerged in its most efficient form after 1995, used illicit hard currency to finance prohibited procurement programs.
President and Presidential Secretary's Role in Illicit Procurement
The highest levels of the government, including the President and the Presidential Secretary, used trade Protocols and other cooperative agreements after 1991 as vehicles to circumvent UN sanctions and to facilitate the continued arming of Iraq. Iraq negotiated bilateral trade agreements called "Protocols" with Syria, Jordan, Turkey, and Egypt and less formal cooperative trade agreements with several East European countries such as Belarus, Poland, Ukraine, and Russia.
- The Syria, Jordan, Turkey, and Egypt Protocols were official bilateral cooperative agreements approved by officials of the countries involved (see Annex A: Translations of Iraq's Bilateral Trade Protocols).
- According to press reporting, Aziz traveled to Moscow on 25-26 January 2002. Recovered documents also indicate that Tariq Aziz delivered a letter to Moscow in person, and he met with senior Russian leaders.
- Belarusian President Lukashenko and Saddam developed a special relationship in which Lukashenko agreed to support Saddam because of the Iraqi President's support of the 2001 Belarusian Presidential elections.
Saddam approved and directed the illicit procurement relationships that Iraq had with other countries in order to improve Iraq's military capabilities against regional threats. The Presidential Secretary, Abid Hamid Mahmud al-Tikriti, was a member of the committee that was formed to task the IIS via IIS Director Tahir Jalil Habbush al-Tikriti to procure technology for the MIC. In accordance with Saddam's instructions to Huwaysh to improve Iraq's missile capabilities, the MIC-IIS joint effort was to emphasize the support to Iraq's missile programs.
The oil vouchers that the Regime would give to those who supported his Regime goals further emphasized Saddam's influence over these trade agreements. The Presidential Secretary along with Vice President Taha Yasin Ramadan al-Jizrawi facilitated the issuance of these vouchers and approved other trade arrangements by handling the paperwork involved and giving approval on behalf of Saddam for allocation of the oil shares.
Reportedly, Russian, Ukrainian, and Belarusian individuals, who in Baghdad's view, had contributed in some special way to Iraq's security, received oil shares at the request of Saddam (for the full list, see Annex B: Known Oil Voucher Recipients). Some of these persons have also been identified in Iraqi military procurement efforts (see Table 1).
Presidential Diwan's Role in Illicit Procurement
The Presidential Office of Saddam comprised two sections: the Presidential Secretary, and the Presidency Office or Presidential Diwan. The Diwan was created in July 1979 to research and study specific issues requested by the President, the Council of Ministers, the Economic Affairs Committee (EAC), and the Revolutionary Command Council (RCC). The Diwan was purely an administrative presidential bureau with no policymaking authority. It had several departments representing a variety of issues (see Figure 1). There was also an Administrative Department and a Financial Accounts Department.
Diwan's Role in Supplemental Funding of Government Ministries
Military and security service entities such as the IIS and the (MIC) could submit requests for additional funds to the Presidency. The information on this procedure is often contradictory.
- According to the Minister of Finance, the Iraqi security organizations submitted written requests for additional funds either to the chief of the Presidential Diwan, or to the head of the Presidential
Secretariat. The latter, who was also the Secretary of the National Security Council (NSC), probably handled all requests from any security organization and may have been preferred by some organizational heads as he was considered to be closer to the President.
- The head of the MIC, the Minister of Defense and the Governor of the Central Bank of Iraq (CBI) have also described approaching the Diwan for supplementary funds. The Chief of the Diwan and Presidential Secretary were sometimes unaware of requests made to one another. Saddam reportedly did this to limit the number of people who had access to expenditure data. Requests sent to the Presidential Diwan were sometimes sent to the Diwan's Financial Accounts Department for study. The chief of the Presidential Diwan sometimes directed the head of the Financial Accounts Department to discuss the request with the concerned minister. (Both Khalil Mahudi, the Secretary of the Council of Ministers (CoM), and Muhammed Mahdi Al Salih, the Trade Minister, were former heads of the Financial Accounts Department.)
- Organizations seeking budget supplements could also schedule a personal appointment with Saddam.
|Table 1
A Selection of Oil Vouchers Awarded by Saddam Husayn
|Barrels of Oil Per Year
|Ruslan Khazbulatov
|Speaker of the Supreme Soviet Parliament under President Boris Yeltsin's administration
|Gennadiy Zuganov
|Head of Communist Party of the Russian Federation
|Sergey Rudasev
|Chairman of the Russian Solidarity With Iraq organization
|Vladimir Zametalin and Nikolai Yevanyinko
|Chairman of the Federation of Trade Unions and Former Presidential Administration Deputy Chief
|Dr. Victor Shevtsov
|Director of Infobank and Head of Belmetalenergo (BME) a major Belarusian foreign trade company
|Yuri Shebrov
|Director of BELFARM enterprise
|Aleksandr Roboty
|Officer in the Belarusian security network (possibly the Belarusian KGB)
|Oleg Papirshnoy
|Director of private Ukrainian company
|Professor Yuri Orshaniskiy
|Director of MontElect, a Ukrainian firm
|Olga Kodriavitsev
|Leonid Kozak
|Belarusian Federation of Trade Unions
Extent of Knowledge of the Former President of the Diwan
The Chief of the Diwan, Ahmad Husayn Khudayir al-Samarra'i, maintains that he authorized payments to bodies such as the MIC only on the orders of the President through the Presidential Secretary without knowing the details of the projects being financed. However, the head of the MIC and Minister of Finance identified him as having been involved in the processing of requests for extra-budgetary payments to the military and security services. Moreover, the Minister of Finance stated that documents containing details of the request, such as project information or justification, were kept at the Chief of the Diwan's office, or with the Presidential Secretary, depending on where the request had been submitted. In addition, captured documents suggest the Chief of the Diwan had at least some knowledge of military and security matters.
- In April 1996, al-Samarra'i provided a cover note for paperwork covering Protocols with a Georgian entity for a military aircraft industrialization complex.
- In April 2002, al-Samarra'i provided a cover note for paperwork concerning problems with a contract between the MIC and the Moldavian company Balcombe for an assault rifle (7.62 x 39mm) ordinance production line.
Budgeting Iraqi Procurement
Off-budget and secret budget planning bypassed large government forum and was processed directly between the Ministry of Finance (MoF) and the Presidency, between the requesting organization and the Presidency, or between the requesting organization and Saddam. The former Regime relied heavily on liquidating assets (forcing the Central Bank of Iraq to print more money) to meet its yearly budget shortfalls.
General Government Budget
The general government budget, made up of current and capital spending, however, does not represent the total Iraqi budget because sensitive issues, such as defense, intelligence, and security were excluded. As a result, government expenditures and debt probably were higher than what was listed in the budget.
- In 2001, according to statistics from the CBI, the former Regime spent over $1.1 billion (constant 2001 dollars). This represents an increase of 49.5 percent over 2000.
- Complete data about Iraqi government budget spending after 2001 are unavailable. A common refrain among government officials and detainees is that many of these records perished during looting and fires after the US invaded Baghdad.
Because of the economic constraints following the war with Iran (see Economics Section), it became difficult for the Regime to draft and adhere to an accurate budget. Figures estimated in January diverged considerably by the end of the fiscal year. Also, because of Saddam's patronage policies, the Presidential accounts were reportedly routinely overdrawn by 15 percent, and about 50 percent of the infrastructure expenditure was spent by Saddam.
Sources of Government Revenue
On-budget revenue—revenue included in the general government budget—came from sources such as:
- Income and property taxes.
- Customs duties and tariffs.
- A percentage of the profits from government-owned institutions and businesses such as banks and insurance companies.
- The revenues of leased state properties.
- The municipalities.
Not all-Iraqi government revenue was accounted for in the general government budget. Some of these off-budget fundsincluded income earned through:
- The Syrian, Turkish, and Jordanian trade Protocols.
- Kickbacks on UN OFF Program import contracts.
Supplemental Budgetary Process
The procurement programs supporting Iraq's WMD programs and prohibited conventional military equipment purchases were financed via a supplemental budget process that occurred outside of the publicized national and defense budgets (for details on the development, approval, and execution of the common national budgets, see Annex C: Iraq's Budgetary Process). The approval process and disbursement of funds from the supplemental budget illustrate who was distributing the money into the illicit procurement programs and reflect, in quantitative terms, the intent of the Regime.
Supplemental Budget Submission Procedure
There were two methods for ministries and organizations to obtain fundraising for specific projects or procurement activities that were over and above the scope of their annual budgets:
- One method was through the (EAC).
- The other was to go directly to the Presidential Diwan or the Presidential Secretariat.
The first method, which was common for most ministries and organizations, was to apply for approval from the EAC for the allocation of additional funds (see Figure 3).
- These requests may have been submitted to the chief of the Presidential Diwan or the Secretary of the Council of Ministers (CoM), who would submit the requests to Saddam. It is unclear how much control Saddam exerted during this phase of the process.
- If the EAC voted positively, the Minister of Finance would send a directive to the CBI to send the prescribed amount to the domestic or overseas account or accounts of the concerned ministry.
- If there were a dispute regarding the approval, the issue would be elevated to the CoM for approval. If the dispute were resolved in the requestor's favor, the Minister of Finance would direct the CBI to complete the transaction.
The second method was reserved for the military and security service entities such as the IIS, the MoD, MIC, and other security organizations that submitted requests for additional funds to the President. The information on this procedure is often contradictory (see Figure 4).
- According to the MoF, the Iraqi security organizations submitted written requests for additional funds to the President, through either the Chief of the Presidential Diwan or the head of the Presidential Secretariat. The latter, who was also the secretary of the NSC, probably handled all requests from any security organization, and may have been preferred by some organizational heads as he was considered to be closer to the President.
- The head of the MIC, the Minister of Defense, and the Governor of the CBI have also described approaching the Diwan for supplementary funds. The Chief of the Diwan and Presidential Secretary were sometimes unaware of requests made to one another. Saddam reportedly did this to limit the number of people who had access to expenditure data. Requests sent to the Presidential Diwan were sometimes sent to the Diwan's Economic Department for study. The Chief of the Presidential Diwan sometimes directed the head of the Economic Department to discuss the request with the concerned minister. Both Khalil Mahudi, the Secretary of the Council of Ministers (CoM), and Muhammed Mahdi Al Salih, the trade minister, were former heads of the Economic Department.
- Organizations seeking budget supplements could also schedule a personal appointment with Saddam.
Approval and Authorization of Supplemental Funding
While Saddam was the primary approval authority for requests for extra funds, signed authorizations were also issued from the Chief of the Presidential Diwan or the Presidential Secretary (both were authorized to represent Saddam).
If the supplement request were made during a personal meeting between Saddam and the head of an Iraqi security organization, Saddam would immediately approve or disapprove the additional funds.
- This verbal approval was put in writing and sent to the requesting ministry, and a disbursal order was sent to the MoF.
- Confirmation of these payments would usually be presented as an order from the Presidential Secretary to the Chief of the Diwan.
Approvals for all other ministries would be issued in writing to the concerned ministry and the MoF (It is unclear whether this includes the IIS, MOD, MIC, and Iraqi security organizations).
- Disbursal orders sent to the MoF contained the date, signature of approving authority, amount, but no information about the request. Documents containing details of the request, such as project information or justification, were kept at the Chief of the Presidential Diwan's office or the Presidential Secretary's office, depending on where the request had been submitted.
Iraq's National Budget 1991-2002
As illustrated in Figure 2, from 1991 to 1995, Iraqi revenues decreased by an average of 34.3 percent. From 1996 to 2001 revenues increased by an average of 42.3 percent. The reason for the 143.7-percent increase in revenues in 1996 is unclear because signifi cant oil revenues from the UN Oil-for-Food Program (OFF) would not have been realized until early 1997. Some of this increase, however, is probably a result of revenues rising from such a low base. In 1997, there was a 66.8-percent increase in revenues over 1996—a large increase that would be consistent with an increase in revenues from OFF. Expenditures also decreased from 1991 to 1995, but by an average of 28.2 percent. From 1995 to 2001, expenditures increased by an average of 16.8 percent—highlighted by a 49.5-percent increase in 2001. At the same time, over the 10 years since 1991, the government budget defi cit decreased from $1.6 billion to $410 million (see Annex C: Iraq's Budgetary Process).
The Economic Affairs Committee (EAC)
In late 1995, Saddam reestablished the EAC to handle economic issues that would have normally gone to the Presidential Diwan (the EAC existed in the 1980s but was abolished at an unknown date). The EAC had influence over fiscal and monetary policy issues such as government spending, taxation, and importation and interest rates. Only the head of the committee, rather than presenting them to the other committee members, handled some presumably sensitive issues.
ISG has collected information concerning the nature of payments sought by the military and security services through the Diwan. However, this information generally lacks detail.
- For example, the IIS successfully sought additional funding of nearly 48.5 million Iraqi dinars ($2.5 million—a conversion rate of 1,950 ID to the dollar was used to convert 48.5 million ID to $25,000) to provide weaponry and ammunition for the Jalal Al-Talibani Group in early 2002.
According to MIC Director and Deputy Prime Minister, Abd al-Tawab Mullah Huwaysh, the MIC would approach the Diwan for additional hard currency funds. Examples of such occasions occurring from 2000-2002 included:
- A payment of $42 million for an unsuccessful deal to purchase the Belarusian S-300 Air Defense System, with payment split evenly between the Ministry of Finance and President Diwan.
- $25 million for the purchase of 7.62-mm ammunition from the Former Federal Republic of Yugoslavia (FRY) and Syria.
- $25 million for the purchase of light weapons and ammunition (including RPG-7 and KORNET ATGMs) from Russia via a Syrian company.
- $20 million for a maintenance facility for helicopters and the purchase of Mi-17 and Mi-25 helicopter engines.
- $8.5 million for a contract with the FRY company ORAO for a maintenance facility for MiG-21 engines.
- The purchase of 3,000 night-vision goggles from Ukraine.
Disbursal of Supplemental Funds
As stated by the Minister of Finance, the preferred method used to disburse requests for extra-budgetary funds was for the EAC to add the additional funds to the requesting ministry's budget. However in exceptional cases, such as when requests were time sensitive, the funds would be paid directly to the ministry. Most transactions were conducted using accounts at the Rafidian bank. Additional accounts were located at the CBI.
Financing Iraq's Illicit Procurement
Iraq developed four major mechanisms for raising illicit funds outside the legitimate UN OFF program. These included the sale of Iraqi oil to neighboring and regional states via trade Protocols, the imposition of surcharges on oil sold through the UN OFF program, and the receipt of kickbacks on UN-approved contracts for goods purchased under the UN OFF program, and so-called "cash-sales" or smuggling.
- From 1996 through 2000 a combination of the UN OFF Program, bilateral trade, and illicit oil profiteering allowed the Iraqi economy to recover from the post-1990 depression. This recovery ended the threat of economically induced Regime instability and provided Saddam with sufficient resources to pursue costly procurement programs.
- After the economic recovery waned in 2000, Saddam's revenues continued to amass via increasingly efficient kickback schemes and illicit oil sales. ISG estimates Saddam generated $10.9 billion in hard currency through illicit means from 1990 to 2003 (see Figure 5).
The 1996-2003 UN OFF Program opened many opportunities for Saddam's Regime:
- It provided $31 billion in needed goods for the people of Iraq, relieving the economic pressure on Regime stability.
- Saddam was able to subvert the UN OFF program to generate an estimated $1.7 billion in revenue outside of UN control from 1997-2003 (see Figure 6).
- The UN OFF oil voucher program provided Saddam with a useful method of rewarding countries, organizations and individuals willing to co-operate with Iraq to subvert UN sanctions.
Iraqi Economy's Role in Illicit Procurement
During Saddam's rule, Iraq adopted the Soviet Union's centrally planned economic model. Saddam sought to centrally plan all facets of the state economy and utilized "Five Year Plans" to optimize the use of national resources. Viewing the Iraqi economy from Saddam's perspective, we assess it underwent distinct phases from 1980 through OIF: "ambition," "decline," "recovery," "transition," and "miscalculation." Readers may find it useful to refer to the Timeline summary chart at the end of the chapter.
Economic Ambition (1980-91)
Given Iraq's large oil revenues of the 1970s and early 1980s, Saddam was able to ambitiously pursue a state-controlled economy without having to choose between solvency and other priorities, such as health and welfare programs, infrastructure development and development of his armed forces (see Annex D: Iraq Economic Data (1989-2003). Iraq's oil wealth allowed Saddam to overcome the inefficiencies of the economy until the war with Iran. Even with the war, his cash reserves and borrowed money from friendly Arab states allowed Saddam to continue his ambitious policies into the mid-1980s.
The Iran-Iraq war, however, exhausted and crippled the Iraqi economy:
- Iraq had been free of foreign debt and accumulated $35 billion in foreign reserves by 1980. These reserves, however, could not bear more than the opening salvos of the war with Iran, which over 9 years cost an estimated $54.7 billion in arms purchases alone.
- Following the war, Iraq was under pressure to pay off high-interest, short-term debts to Western creditors estimated between $35-45 billion. Saddam, however, never paid off this debt [see Annex D: Iraq Economic Data (1989-2003)].
The economic burdens resulting from the Iran-Iraq war led Saddam to abandon Ba'ath-socialist economic policies that dominated in the 1960s and 1970s. In 1987, Saddam attempted to turn the Iraqi economy around with abrupt economic reforms, including abolishing universal employment labor laws and privatizing key government industries.
- As a result, thousands of government workers were jobless.
- Bus companies, gas stations, department stores, agricultural businesses, and factories were left outside the responsibility of the government.
Rather than shocking the Iraqi economy into performing, these measures, by 1989, deepened the economic crisis and accelerated the collapse of living standards for most Iraqis. Sensing a threat to the viability of the Regime, Saddam again imposed price controls, renationalized some former state enterprises, and raised industrial and agricultural subsidies. The Iraqi economy was pushed to crisis by Saddam's inability to address or resolve a number of economic realities:
- The rising cost of maintaining the Iraqi welfare state, which was among the more generous and comprehensive systems in the Arab world.
- Low oil prices on the international markets, which Saddam associated with Kuwait and its conducting "economic warfare" against Iraq.
- The lingering debt from the war with Iran.
- The cost of rebuilding his military and expanding his WMD programs.
Saddam chose to fight his way out of economic crisis by invading Kuwait.
Economic Decline (1991-96)
Rather than rescuing the Iraqi economy, the invasion of Kuwait resulted in even greater fiscal strains as Saddam found himself in a second costly war, this time facing a US-led Coalition. After Saddam's defeat in Kuwait, the UN trade sanctions placed on Iraq following the invasion remained in place. These sanctions, supported by over 150 nations, cut Iraq's ability to export oil, its main revenue generator. After Desert Storm, Saddam also had to contend with compensation claims made for reparations of damage inflicted during the invasion and occupation of Kuwait.
As Saddam stubbornly refused to comply with UN Resolutions in the early 1990s, the Iraqi economy crashed to a low point in 1995.
- From 1989 to 1995, Iraq's GDP per capita fell from $2304 to $495. Some estimates reveal that the Iraqi per capita GDP never rose above $507 from 1991 to 1996.
- Inflation between 1989 and 1995 increased from 42 percent to 387 percent.
- Simultaneously, the street dinar exchange rate rose from 10 ID per $1 in 1991 to 1674 ID per $1 in 1995.
- During this same period, income inequality became a larger problem because the limited wealth was concentrated in the hands of Regime loyalists and elite traders, while the average Iraqi subsisted on much less income. Equally significant, by 1995 the plummeting dinar consumed the savings of the average Iraqi, causing the Iraqi middle class to virtually cease to exist.
This period of economic decline also resulted in a dramatic increase in corruption, incompetence, and patronage in all facets of government. A good example of the Regime's incompetence in economic matters was illustrated when the government set up a Directorate in 1992 to combat economic crimes under Ibrahim al-Battawi, who reported directly to Watban Ibrahim Hasan al-Tikriti, the Interior Minister and Saddam's brother. The task of the Directorate was to punish merchants and traders guilty of "profiteering." In July 1992, the Regime summarily executed 42 merchants in front of their shops in Baghdad's market district. Saddam felt that the duty of the private sector was to provide goods and services to the Iraqi people while constraining price increases. These merchants were found to be shirking their "duty."
Collecting Compensation for the First Gulf War
The United Nations Compensation Commission (UNCC) was responsible for processing and collecting such claims as authorized by UN Security Council Resolution 692. With the insistence of Moscow, the UN readdressed the revenue allocation of Iraqi oil revenue. In June 2000 it voted for the UNSC-adopted UNSCR 1330 that changed the percentage of oil allocated to the UNCC from 30 percent (UNSCR 705) to 25 percent. The UNCC estimated that the reduction to 25 percent would generate an extra $275 million in Phase XII of the OFF program for the Iraqi Regime. As of 7 May 2004, claims totaling $266 billion have been adjudicated, and claims worth $48 billion have been awarded by the UNCC. Additional claims worth $83 billion need to be resolved.
Economic Recovery (1997-99)
We judge that the harsh economic conditions from 1995 to 1996 were the primary factors in Saddam's decision to reluctantly accept the UNSCR 986 (see United Nations OFF Program section).
- Saddam wanted to perpetuate the image that his people were suffering as "hostages" to the international community under the UN sanctions.
UN-approved oil exports from Iraq began in December 1996. The trade fostered under the UN OFF program opened the door for Iraq to develop numerous kickback and illicit money earning schemes, possibly beginning as early as 1998. These legitimate and illegitimate revenue streams bolstered the Iraqi economy enough to raise it out of depression, at least for the Iraqi leadership and the elite.
- In the 1996 to 2000 period, Iraq's GDP increased from $10.6 billion to $33 billion.
- According to the UN International Children's Emergency Fund (UNICEF), Iraq's chronic malnutrition rate dropped from 32 percent in 1996 to just over 20 percent in 1999.
- Iraqi oil production jumped from under 1 million barrels per day (bbl/d) in 1997 to 2.5 million bbl/d in mid-2000.
Economic Transition and Miscalculation (1999-2003)
After 2000, Iraq's economic growth slowed for a number of reasons, most involving the production and sale of oil. As the Iraqi economy improved, Saddam began to restrict oil production to influence the price of oil in the world market and to leverage political influence. Additionally, Iraq's oil sector could not meet demand because of years of poor reservoir management, corrosion problems at various oil facilities, deterioration of water injection facilities, lack of spare parts, and damage to oil storage and pumping facilities. These petroleum infrastructure problems limited Saddam's ability to export oil and hampered the Regime's ability to sustain the economic growth shown in 1997 to 2000.
- Iraq's GDP slipped from a peak of $33 billion in 2000 to $29 billion in 2001.
- Iraqi oil production dropped from 2.5 million bbl/d in mid-2000 to under 2 million bbl/d in 2002.
Nevertheless, from the late 1990s until Operation Iraqi Freedom, Saddam steadily strengthened the fiscal position of the Regime while investing, as he wished, in development, technology, industry, and defense. Saddam also had enough revenue at his disposal to keep his loyalists in the Regime well paid. In short, after 1996 the state of the Iraqi economy no longer threatened Saddam's hold on power in Iraq.
- The budget for the MIC, a key illicit procurement organization, grew from $7.8 million in 1996 to $500 million in 2003.
- Despite Iraq's economic problems, MIC Director Abd al-Tawab Mullah Huwaysh stated that Saddam went on a palace and mosque building spree in the late 1990s that employed 7,000 construction workers.
Iraq's Revenue Sources
During UN sanctions on Iraq, from August 1990 until OIF in March 2003, Saddam's Regime earned an estimated $10.9 billion utilizing four primary illicit sources of hard currency income. The UN OFF program became Saddam's sole legitimate means to generate revenue outside of Iraq (see Figures 7, 8, and 9):
- Illicit barrel surcharges on oil sold through the UN OFF program, hereafter referred to as surcharges.
- Ten-percent kickbacks from imports authorized under the UN OFF program, hereafter referred to as kickbacks.
- Exports, primarily petroleum, to private-sector buyers outside the Protocol and UN systems, hereafter referred to as private-sector exports.
The Regime filtered the majority of the illicitly earned monies through foreign bank accounts in the name of Iraqi banks, ministries, or agencies in violation of UN sanctions. According to senior Iraqi officials at SOMO, oil suppliers and traders, who sometimes brought large suitcases full of hard currency to embassies and Iraqi Ministry offices, so that the payments would be untraceable, filled these illegal bank accounts.
During 1997 to 2003, Saddam generated enough revenue to procure sanctioned military goods and equipment, dual-use industrial material, and technology as well as some legitimate uses. These sanctioned goods transactions will be described in detail in later sections. He used those funds to slow the erosion of his conventional military capability in contravention of UN SC resolutions. Available information also indicates Iraq used trade Protocols with various countries to facilitate the delivery of some dual-use items that could be used in the development and production of WMD.
Bilateral Trade Protocols
Iraq's bilateral trade Protocols with neighboring states provided Saddam with his largest source of illicit income during UN sanctions. The Protocol with Jordan ensured the Regime's financial survival until the UN OFF program began in December 1996. Total income from the Protocols is estimated at $8 billion.
- Baghdad coordinated Protocols with Syria, Turkey, Jordan, and Egypt. These governments were full parties to all aspects of Iraq's unauthorized oil exports and imports (see Annex A: Translations of Iraq's Bilateral Trade Protocols).
- According to SOMO records, Iraq earned approximately $3.5 billion from illicit oil sales to Syria, Turkey, and Egypt under the Protocols from 2000 until the recent war, exclusive of trade with Jordan. We estimate Protocol trade with Jordan added an additional $1.4 billion since 2000 and $3 billion from 1991 through 1999.
Jordan Trade Protocol.Jordan was the key to Iraq's financial survival from the imposition of UN sanctions in August 1990 until the implementation of the UN's OFF program. Jordan was Iraq's largest single source for income during the sanctions period. Oil sales to Jordan under Protocols began as early as 1983. Terms were negotiated annually, including 1991 and every year thereafter during sanctions. The UN Sanctions Committee "took note" in May 1991 of Jordan's oil imports from Iraq. Essentially, the Committee neither approved nor condemned Jordan because of its dependence on Iraqi oil at the time (see Annex A: Translations of Iraq's Bilateral Trade Protocols).
- Iraq trucked both crude oil and oil products—fuel oil, gas oil, LPG, base oil, and gasoline—to Jordan under the agreement, according to SOMO records. Crude shipments rose from about 45,000 barrels per day (bbl/d) in 1990 to 79,000 bbl/d by 2002. Oil product shipments rose from 13,000 bbl/d to 20,000 bbl/d over the same period.
- Jordan was to receive up to 90,000 bbl/d of crude oil that year. The difference between this number and the 79,000 bbl/d figure announced in 1993 for what they imported in 1992, probably was the roughly 20,000 bbl/d that Iraq shipped to Egypt through Jordan during the first half of 1992.
Analysis of Iraqi Financial Data
The following revenue analysis is based on government documents and financial databases, spreadsheets, and other records obtained from SOMO, the Iraqi Ministry of Oil, and the Central Bank of Iraq (CBI), among others. These sources appear to be genuine, of good quality, and consistent with other pre- and post-Operation Iraqi Freedom information. This hard data are augmented, put into context, and explained by statements from former and current Iraqi government officials, particularly from SOMO, the Ministry of Oil, the Ministry of Trade, and the CBI (for more details, see Annex E: Illicit Earnings Sources and Estimation Methodology).
- Jordanian officials also agreed to import nonpetroleum Iraqi products in 2001, including sulfur, urea, and barley, but we do not know if these goods were actually imported or what Iraq's earnings were from them.
We do not have complete Iraqi data for Iraq's effective earnings from the Jordan Protocol during the sanctions period but estimate them at $4.4 billion (see Annex E, Illicit Earnings Sources and Estimation Methodology).
- We judge Iraq's earnings amounted to about $400 million annually from 1991 through 1995 for a total of $2 billion. This estimate includes trade approved under the Protocol averaging about $200 million annually and Iraq's debt to Jordan increasing by $1 billion, which accounts for additional Iraqi imports averaging another $200 million a year (see Figure 10).
- We used announced trade Protocol levels to estimate earnings in 1996 to 1998 amounting to $730 million.
- A combination of SOMO invoice and collections data was used to estimate earnings from 1999 to 2003 totaling $1.7 billion.
- Iraq's earnings under the Protocol primarily were deposited in an Iraqi Ministry of Trade (MoT) account in the Central Bank of Jordan (CBJ) (see Figure 10).
Jordan deposited its credit payments for Iraqi oil, into an account at the CBJ on behalf of the CBI. Funds were then disbursed to suppliers by the CBJ by order of the CBI.
- In March 2003, prior to Operation Iraqi Freedom, Iraq had an estimated $444 million dollars in its trade account in Jordan. With total deposits to the trade account during the sanctions Regime estimated at about $4.4 billion and $444 million remaining at the end of the war, Iraq would have spent almost $4 billion on Jordanian origin goods and reexports under the Protocol agreement.
The Jordan Protocol is generally referred to (by Jordanian and Iraqi officials) as a 100 percent credit account, with no cash being provided to Iraq. SOMO information and a senior MoT official, however, indicated a small portion of the trade was 60 percent credit and 40 percent cash.
- SOMO Documents list oil sales to the Jordanian Ministry of Energy and Minerals on a 60-percent credit, 40-percent cash basis. Contracts of this type are listed only for 2002 and are valued at only $6.2 million.
- A high-level Iraqi Trade Ministry official stated that Jordan's payments to Iraq for the cash portion of the trade Protocol was negotiated between the CBI and Jordan and provided specific written instructions about how to transfer the funds to Iraq. We have no further information on this aspect of the Jordan-Iraq trade Protocol.
- A MoO official stated his ministry had two accounts in Jordan funded by the Protocol. This could refer, in part, to the 40-percent cash portion of the trade, although the accounts held almost $80 million while this trade only earned $6.2 million.
- According to SOMO's database, the 60-percent earnings were deposited in the Jordan National Bank. The 40-percent cash earnings were deposited in the Ahli Bank, where much of Iraq's cash earnings from other Protocols were deposited. These, along with cash earnings from other sources, could account for the funds in the Ministry's accounts.
- It is possible, maybe even likely, that Iraqi oil sales under the 60/40 arrangement, sales to the Jordanian military, and purchases that resulted in $1 billion in debt owed to Jordan are not technically part of the trade Protocol. Nevertheless, given the government to government nature of these transactions, they were accounted for here instead of as private-sector exports.
Syria Trade Protocol. Iraq's trade Protocol with Syria was Iraq's primary illicit income source from 2000 until OIF in March 2003. With Syria facing increased political pressure from the US, opening relations with Iraq seemed attractive for both political and financial reasons. Negotiations began, and the Protocol was signed before Hafiz al-Assad died on 10 June 2000. The relationship probably accelerated when al-Assad's son, Bashar al-Assad, became President on 17 July 2000. For Baghdad, the relationship was attractive because Syria could buy significantly more oil at better financial terms than Iraq's other available illicit markets and Damascus was more willing than any other neighboring state to allow military goods to be shipped to Iraq through its territory.
- SOMO and the Syrian Oil Marketing Office negotiated the bilateral trade Protocol in Baghdad from 27 to 29 May 2000. Contracts were written under the Protocol from June 2000 through March 2003 (see Annex A: Translations of Iraq's Bilateral Trade Protocols).
- Under the agreement, Iraq exported crude, gas oil, fuel oil, gasoline, base oil, LPG and asphalt to Syria by pipeline and/or tanker truck.
Iraq's total earnings over the life of the Protocol were about $2.8 billion (see Figure 11).
- Iraq charged Syria roughly $6 less than the authorized price for crude under the UN OFF program. Gas oil was sold for $75 per metric ton and fuel oil was sold for $20 per metric ton, both significantly discounted from world prices. These shipments allowed Syria to export its own crude oil at market prices instead of having to use it for domestic consumption.
- Under the Syrian Protocol, 60 percent of Iraq's earnings were deposited in a SOMO account in the Commercial Bank of Syria for use in buying Syrian goods or foreign-made items purchased through Syria.
- Iraqi sources' statements concerning the disposition of the remaining 40 percent cash payment are not clear. The best information, however, seems to indicate the cash was first deposited in a Commercial Bank of Syria cash account. Once this account reached $1 million, the funds were transferred to an account at the Syrian Lebanese Commercial Bank in Beirut, Lebanon. One source states this account was in Lebanon, another in Damascus. SOMO eventually transferred the money to CBI accounts in Baghdad, possibly by courier.
- According to SOMO records, $1.18 billion in contracts were written drawing on the SOMO (presumably credit) account with Syria. If 60 percent ($1.68 billion) of Iraq's total earnings of $2.8 billion were deposited in that account during the existence of the Protocol, there would be $500 million remaining in unspent funds at the end of the war. All of these contracts probably had not been completed before OIF. This, and the possibility of other small accounts, probably explains the $842 million in total Iraqi funds remaining in Syria at the outbreak of OIF.
Turkey Trade Protocol. Trade under the Turkey-Iraq Protocol was a significant source of illicit income for Iraq from 2000 until OIF in March 2003. The Protocol was a rationalization and expansion of preexisting Iraqi-private-sector contracts. Iraq was able to increase the volume of its exports and earnings.
- The main details of the Turkish Protocol were agreed to at meetings between Iraqi and Turkish delegations in early 2000. Minutes of meetings were signed on 16 January 2000, 29 February 2000, and 16 May 2000. The 16 January document was signed by Amir Rashid Muhammad al-Ubaydi, MoO, Republic of Iraq, and by a Turkish trade official, Republic of Turkey. It was decided a joint team of experts from the two sides would meet every three months to review the progress of the implementation of the Protocol (see Annex A: Translations of Iraq's Bilateral Trade Protocols).
- For 2000, Iraq agreed to export 2.75 million tons (54,247 bbl/d) of crude oil to four Turkish buyers: Oz Ortadobgu, Ram Dis, Tekfen, and the Turkish Petroleum International Company (TPIC) during 2000. TPIC was the trading arm of the Turkish National Oil Company and was granted the right to contract for additional oil above the 2.75 million metric tons.
- Contracts were written under the Protocol from July 2000 to February 2003.
Iraq's total earnings over the life of the Protocol were $710 million (see Figure 12)
- Iraq charged Turkey roughly $6 less than the authorized price for crude under the UN OFF program. The low price served as an incentive for Turkey to participate in the scheme.
- Under the Turkish agreement, 70 percent ($497 million) of Iraq's earnings were to be deposited into an account at the Turkey Halk Bankasi A.S. The account was under the name of TPIC, but the control of SOMO. This account was to be used by SOMO to pay Turkish companies for goods and services delivered and rendered to Iraqi organizations.
- According to a senior SOMO official, some of these funds were transferred to interest bearing accounts. As of January 2004, SOMO held $157 million in these accounts and had earned almost $7.7 million in interest since October 2000.
- Iraqi statements about the amount of cash deposited are inconsistent, but the best information indicates the remaining 30 percent in cash ($213 million) was deposited in a SOMO account at the Saradar Bank in Lebanon. Some of these funds may eventually have been transferred to a CBI account at the Syrian Lebanese Commercial Bank. SOMO eventually transferred the money to CBI accounts in Baghdad, possibly by courier.
- Iraqi statements about cash deposits are again inconsistent, but a SOMO foreign account balance sheet showed the TPIC (70 percent) account containing over $195 million just prior to OIF. Another report states Turkish entities owes Iraq $265 million but also mentions an account balance in January 2004 of $234 million. At least in the case of the $234 million, the accounting included both the Protocol credit account ($52 million) and some savings accounts ($182 million). If 70 percent ($497 million) of Iraq's total earnings of $710 million were deposited in this account, and $195 million (assuming the lower figure) was remaining at the end of the war, Iraq would have spent about $302 million on Turkish goods and reexports under the Protocol agreement. The value of contracts signed using SOMO accounts amounted to $303.5 million according to SOMO records. Some of these contracts almost certainly were not completed prior to OIF.
Egypt Trade Protocol. Iraq and Egypt participated in a relatively short-lived Protocol from late 2001 to early 2002. We do not have access to documents outlining this agreement, but, according to a senior Iraqi official, the deal involved the MIC-related company, Al-Husan.
- The first contract under the Protocol was signed in August 2001 and the last contract in June 2002.
- The trade involved primarily crude oil, but the last two contracts were for fuel oil.
- The trade reached an estimated peak of 33,000 bbl/d in May 2002. The cargo was shipped by truck from Iraq to Aqaba, Jordan, where it was loaded on ships for transport to Egypt or Yemen.
Iraq's total earnings over the life of the Protocol were $33 million according to SOMO records. All but $1 million was earned in 2002.
- Iraq generally charged Egypt about $7 per metric ton less than the authorized price for crude under the UN OFF program. The first two contracts were $15 per metric ton off the UN price.
- The Protocol was 60-percent credit and 40-percent cash. The credit account was under SOMO's name at the National Bank of Egypt and the cash proceeds were deposited in the Ahli Bank (Jordan National Bank) in Jordan.
United Nations OFF Program
The UN OFF program saved the Iraqi Regime from financial collapse and humanitarian disaster. When Iraq began exporting oil under UN OFF in December 1996, the Regime averted economic conditions that threatened its survival. The program also provided Iraq with unprecedented opportunities to earn significant amounts of hard currency outside the control of the UN.
Phases of the UN OFF Program
The UN OFF Program was run in phases. Each phase was approved by a UNSCR and was designed to last for 180 days, although the length was adjusted at times as deemed necessary. Phase 1 ran from 10 December 1996 to 7 June 1997. The first oil was exported on 15 December 1996, and the first contracts financed from the sale of oil were approved in January 1997. The first shipments of food arrived in Iraq in March 1997 and the first medicines arrived in May 1997. The final oil exporting period (phase 13), authorized by UNSCR 1447 (2002), was in effect from 5 December 2002 through 3 June 2003 (see Figure 13).
Disposition of UN OFF Funds
As of 19 November 2003, Iraq's oil exports under the program had earned over $64 billion. After deducting the costs of the UN's administering the OFF program and WMD monitoring mission, as well as, the Compensation Fund, $46 billion was available for Iraqi humanitarian imports. Of this amount:
- $31 billion worth of humanitarian supplies and equipment were delivered to Iraq including $1.6 billion of oil industry spare parts and equipment.
- $3.6 billion was approved for projects to be implemented by UN agencies.
- $8.1 billion had been transferred to the Development Fund for Iraq as of 19 April 2004.
- The remainder of this revenue was uncommitted and in the UN-Iraq accounts awaiting further distribution.
- In addition to the $46 billion, an additional $8.2 billion in approved and funded humanitarian goods were in the production and delivery pipeline and under review by the UN and Iraqi authorities.
Oil Vouchers and Allocations
Throughout the UN OFF Program, Iraq used a clandestine oil allocation voucher program that involved the granting of oil certificates to certain individuals or organizations to compensate them for their services or efforts in undermining the resolve of the international community to enforce UNSC resolutions. Saddam also used the voucher program as a means of influencing people and organizations that might help the Regime. By the end of the final phase (13) of the UN OFF Program, Iraq had allocated 4.4 billion barrels of oil to approved rec1pients. However, only 3.4 billion barrels were actually lifted (loaded and exported)—the same figure reported by the UN.
- The oil allocation program was implemented through an opaque voucher program overseen and approved by Saddam and managed at the most senior levels of the Iraqi Regime.
- Starting in Phase 3 of the UN OFF program, until OIF, the Iraqi Regime began to politicize the allocations process by giving quantities of oil to individuals and political parties it favored.
- According to Tariq Aziz, Taha Yasin Ramadan al-Jizrawi, and Hikmat Mizban Ibrahim al-Azzawi, the oil voucher program was managed on an ad hoc basis by the Regime officials listed in Figure 14.
- The Iraqi Intelligence Service, Ambassadors, and other senior Iraqi officials also commonly made nominations for oil allocations.
Oil Voucher Process
The MoO normally distributed the secret oil allocations in six-month cycles, which occurred in synchronization with the UN OFF phases (see Figure 15). Senior Iraqi leaders could nominate or recommend an individual or organization to be added or subtracted from the voucher list and an ad hoc allocation committee met to review and update the allocations (see Annex B: Known Oil Voucher Recipients). However, Saddam personally approved and removed all names on the voucher recipient lists.
This voucher program was documented in detail in a complete listing maintained by Vice President Taha Yasin Ramadan al-Jizrawi and the Minister for Oil, Amir Muhammed Rashid Tikriti Al Ubaydi. If a change was requested by telephone by Saddam or any other top official, either the MoO or SOMO rendered a detailed memo for the record of the conversation. A senior Iraqi official, ambassador, the IIS, or Saddam himself would recommend a specific recipient (i.e. company, individual, or organization) and the recommended amount of the allocation. That recommendation was then considered by the ad hoc committee and balanced against the total amount of oil available for export under the UN program disbursement. When former Vice President Ramadan finalized the recipient list, it was sent to Al Ubaydi. The official at SOMO in charge of issuing the final allocation vouchers (making the disbursements) stated that Tariq Aziz would give the final list to him. He believed that it was Aziz that finalized the list upon the direction of Saddam.
Secret Voucher Recipients
In general, secret oil allocations were awarded to:
- Traditional oil companies that owned refineries.
- Different personalities and parties, which were labeled "special allocations" or "gifts." This group included Benon Sevan, the former UN Chief of the Office of Iraq Program (OIP), numerous individuals including Russian, Yugoslav, Ukrainian, and French citizens.
- "The Russian State" with specific recipients identified (see Annex B: Known Oil Voucher Recipients).
Recipients could collect their allocation vouchers in person at SOMO or designate someone to collect them on their behalf. The oil voucher was a negotiable instrument. Recipients, especially those not in the petroleum business, could sell or trade the allocations at a discount to international oil buyers or companies at a 10 to 35 cent per barrel profit. Frequent buyers of these large allocations included companies in the UAE as well as Elf Total, Royal Dutch Shell and others.
Figure 16 reflects the general proportion of the nationalities targeted to receive Iraq's oil allocations by volume of oil allocated, according to a former government official with direct access to the information. The top three countries with companies or entities receiving vouchers were Russia (30%), France (15%), and China (10%)—three of the five permanent members of the UNSC, other than the US and UK.
Iraqi Oil Vouchers Provided to International Leaders
The following select individuals (see Figure 17) include world leaders, senior politicians and corporate officials, were approved by the ad hoc committee as recipients of oil vouchers under this program (see Annex B: Known Oil Voucher Recipients for a more complete listing).
Millions of
Barrels Allocated
Millions of
Barrels Lifted
Mr. Zierbek
Communist Party
Mr. Azakov and
Mr. Velloshia
|Rus Naft Ambix and the Russian Presidential Office
Vladimir Zhirinovsky and LDPR Companies
|A former senior official in the Iraqi government stated that Zhirionvsky visited Iraq on a regular basis
"Russian Foreign
Patrick Maugein
|Iraq considered Maugein a conduit to French President Chirac, according to a former Iraqi official in a claim we have not confirmed.
|Allocations were made to an individual listed as Raomin who is further described in the voucher allocation list as the son of the former Russian ambassador in Baghdad.
Mr. Nikolayi Ryzhkov and Mr. Gotzariv
|Members of the Russian
Parliament (Duma)
Charles Pasqua
|Businessman and former French
Interior Minister
Benon Sevan,
UN Chief of the Oil for Food Program
|Former Iraqi officials say he received his illicit oil allocations through various companies that he recommended to the Iraqi government including the African Middle East Company.
Government of Namibia
Government of Yemen
President of Indonesia
|Iraqi documents list President Megawati as a recipient of oil allocations.
Figure 17. Selected secret oil voucher recipients.
The voucher list provided by SOMO includes Russian members of government, politicians, and businessmen. The former Iraqi Vice President Ramadan stated that he believed the Russian Government was sympathetic to the plight of Iraq and strongly against the sanctions imposed upon it and that most of the parties of the Russian Parliament (Duma) supported Iraq's position. He stated that many Russian companies were dealing with the Iraqi ministries in charge of exports, and that this was no secret because many of the Russian Ministers visited Iraq regularly to aid this activity.
American and British Oil Voucher Recipients
According to a former high-ranking Iraqi official with direct access to the information, there are two Americans and one UK citizen listed as recipients on the list of Iraq's illicit oil allocation program (although at least three names are annotated "American" on the Iraqi lists). Deputy Prime Minster Tariq Aziz was the principal point of contact for handling all high profile foreign recipients, all American recipients and most other non-Arab voucher recipients, called "internationals", who lived in countries outside of the Arab world.
Benon Sevan's Use of Iraqi Oil Vouchers
At the center of the day-to-day operations of the UN's $64 billion OFF program, Sevan who spent his entire career at the UN, received oil allocations through various companies that he recommended to the Iraqi government . This arrangement reportedly began soon after the OFF program started in December 1996. An investigation by the Iraqi Governing Council has uncovered a letter linking Sevan to a Panamanian-registered company called African Middle East Petroleum Company. The letter, dated 10 August 1998, from Saddam Zayn Hasan, the executive manager of SOMO, and addressed to Amir Muhammad Rashid Tikriti Al Ubaydi, then the Iraqi Oil Minister implicates Muwafiq Ayyub in playing a role in setting up the deal. The letter says: "Muwafiq Ayyub of the Iraqi mission in New York informed us by telephone that the above-mentioned company has been recommended by his Excellency Mr. Sevan, director of the Iraqi program at the UN, during his recent trip to Baghdad." A second page detailed the "Quantity of Oil Allocated and given to Mr. Benon
Sevan," listing a total of 7.3 million barrels of oil as the "quantity executed."
A Source at SOMO confirmed that Sevan received allocations by way of a Cypriot company or the Panamanian registered, The African Middle East Petroleum Company. According to the source, when the Chairman of the Iraqi UN OFF Committee, Vice President Taha Yasin Ramadan al-Jizrawi, saw any company with Sevan's name in parenthesis next to it (and there were a lot of them, according to the source) on the proposed voucher recipient list, Ramadan automatically gave approval to issue the vouchers associated with that account.
- SOMO voucher documents only list Sevan in relation to the African Middle East Petroleum Company. We have no further information on the role of a Cypriot company or any other company.
According a high-level source at SOMO, Sevan never received his oil allocations in person. Sevan's vouchers were always picked up by Fakhir Abdul Noor, an Egyptian now residing in Switzerland and connected to the African Middle East Petroleum Company, who would sign documents on Sevan's behalf and pick up his allocations at SOMO. Noor conducted this business for Sevan for each phase of the UN OFF MOI starting in the fourth phase and ending in the ninth phase. Sevan's allocations ended after the ninth phase when SOMO representatives informed Noor that the African Middle East Petroleum Company owed money under the oil surcharge program and the payments were in arrears.
Iraqi Intelligence Service Nominations for Oil Vouchers
Those who were nominated by the IIS and placed on the master voucher list were most likely placed there for their service in an intelligence capacity for the former Regime. The following two individuals were nominated by the IIS and approved for inclusion on the list (see Figure 18).
Millions of Barrels Allocated
Millions of Barrels Lifted
Fa'iq Ahmad Sharif
|A former senior Iraqi official with direct access to the information believed Sharif to be a Malaysian resident and an owner or high level executive of the company Mastek.
Hamad Bin Ali Al Thani
|A Qatari national and owner of the private airline Gulf Eagle (not a regular commercial enterprise) Al Thani was responsible for opening an air link between Baghdad and Damascus.
Oil Export Surcharges
In addition to income from the trade Protocols and the UN OFF program Iraq demanded a surcharge fee for each barrel of oil it exported under the UN OFF program because of the relatively large built-in profit margin allowed by the UN Oil Overseers. Buyers were willing to pay Iraq a surcharge, usually 25 to 30 cents per barrel of oil, because they made sufficient profit to do so. Iraq reduced the amount it charged in 2002 as the Sanctions Committee gradually eliminated the profit margin; the last SOMO invoice for a surcharge was dated September 2002.
- The surcharge system began in the 8th phase of the UN OFF program. According to SOMO records, the surcharge was charged on 1,117 million barrels of oil between phases 8-12. The total contract value for the surcharges was $265.3 million.
- Iraq actually collected only $228.6 million in surcharge payments from September 2000 until March 2003 (see Figure 19). Iraq was unable to collect $36.7 million in surcharges. (see Annex E: Illicit Earnings Sources and Estimation Methodology)
- Payments were usually made to SOMO bank accounts in Jordan and Lebanon, but $61 million was delivered in cash to Iraqi embassies, usually Moscow by Russian entities, according to SOMO documents. Ten other Iraqi embassies were used in this way including: Hanoi, Vietnam, Ankara, Turkey and Geneva, Switzerland.
Iraq's Oil Allocation Voucher Process
The UN allowed Iraq to sell a certain amount of oil under the Oil For Food Program and the proceeds would go to Iraq through an UN approved bank, the BNP. The UN did not monitor Iraq's oil voucher system and, according to senior Iraqi officials at SOMO, Baghdad made every effort to keep the details of the system hidden from the UN. During Iraq's negotiations with the UN concerning the OFF program Baghdad fought hard for the right to determine to whom it could sell its oil and Baghdad considered the UN's concession on this point an important victory. The UN approved the final contract between Iraq and the lifting company, ensured the company was on the register of approved lifting companies, and monitored the actual lifting of the oil to make sure the amount lifted fit within the approved contract amount. The UN also made sure that the total amount lifted matched the OFF allocation.
The Legality of Oil Voucher Allocations
The Oil Voucher Allocation system was set up by the former Regime of Iraq in order to allocate their exports under the UN Oil-For-Food (OFF) Program to entities that would gain Iraq the greatest benefit. Using the voucher program as a method of rewarding and/or influencing entities or countries really did not begin until about Phase 3 of the OFF Program. Phase 3 ran from 5 December 1997 to 29 May 1998. At the time, this internal Iraqi process was unknown to the UN and was not addressed in any UN resolutions.
The UN approved all companies lifting oil under the OFF program and accounted for all the Iraqi oil lifted by authorized oil lifting firms. However, some entities and individuals may have abused this system by using an intermediary to lift and sell the oil allocated to them by Iraq under the voucher system. For example, according to oil voucher registers recovered from SOMO and statements by Iraqi authorities, several private individuals and political organizations were listed as a voucher recipient. However, an intermediary (a UN registered oil lifter) was used to pick these vouchers and actually lifted the oil under a UN approved contract. In this example, the UN was not aware that an individual or political organization was involved in, and was profiting from, the transaction. Consequently, if individuals or organizations knowingly received profits from these oil sales they were taking part in actions which were not sanctioned by the UN OFF program. ISG has no direct evidence linking these individuals or political organization to actually receiving the proceeds from these oil allocations. However, individuals and organizations are named as being on the list for oil allocations, statements from Iraqi officials support the fact that these entities received oil allocations, and evidence that Iraq entered into contracts with the intermediaries that actually lifted these allocations exist. In conclusion, the Oil Voucher Allocation program is another example of how Saddam's Regime strove to undermine UN sanctions and the OFF process while garnering favor with well placed individuals and entities that would be able to favorably act on Iraq's behalf on the political scene.
- Some companies preferred to pay Iraqi embassies directly out of fear for public disclosure of the illegal arrangements. This may explain the preference to conduct such business with cash.
- Payments were mostly made in US dollars, but a few times they were made in Euros. The cash was later moved to Baghdad from the embassies via diplomatic pouch and deposited in the SOMO accounts at the CBI or Rafidian banks.
A former senior Iraqi official with direct access to the information stated that Saddam first ordered companies be charged a flat rate of 15 percent of their profits as the surcharge, but the companies refused to pay. Saddam then pursued a 50-cent per barrel surcharge that his advisors warned him was not workable. When Saddam realized they were right, he allowed the surcharge to be dropped to 30 cents and then finally to 10 cents. Ten cents was the amount first charged by SOMO in September 2000.
- Some companies, particularly the French, refused to pay the surcharge.
- However, some companies used a 'middleman' to hide the link between the originating company and Iraq.
Iraq tolerated the refusal of some companies to pay the 10-cent per barrel surcharge until the end of the 8th phase (5 December 2000) in order to avoid their refusal to ship the oil and reduce Iraq's projected exports.
- The 10-cent surcharge was increased in January 2001 during the 9th phase to35 cents a barrel for sales to the US and 25 cents per barrel for sales to other countries. The surcharges continued into phase 12 at 15 cents per barrel to all customers (see Figure 20).
The surcharge system was an open secret. The subject was discussed by the media and by worldwide oil market. It was known the former Regime received income from its sales that were deposited in special accounts outside of Iraq.
- The system continued until October 2001 when the UK and US took unilateral action to eliminate the excess profit that allowed surcharges to be paid.
How Surcharges Were Collected
The buyers agreeing to the surcharges did so with a written personal pledge to pay. Iraq's main leverage to enforce payment was to deny the buyer future contracts until he made good on his debt. Iraq exercised this option in the case of the African Middle East Petroleum Company, according to SOMO documents. By the 12th phase, there were 42 entities receiving oil export allocations that were not allowed to sign contracts because they had not fully paid their surcharges.
Kickbacks on Commercial Goods Import Contracts
The fourth revenue source for Saddam's Regime was kickbacks from UN OFF program commercial goods contracts being imported into Iraq. According to a former senior MoT official, beginning with the 8th phase in June 2000, Iraq began to demand a kickback on all UN OFF program import contracts to generate illicit income. The amount of the kickback could vary, but generally was around 10 percent. ISG suspects, however, that Iraq had been receiving similar types of kickbacks since the beginning of the UN OFF program to varying degrees.
Contracts were written for 10 percent above the actual price and the supplier company would deposit this amount into Iraqi accounts. The fee was often included for spare parts or after sales service. The fee was often applied, particularly in Jordan, through the mechanism of the supplier providing a 10 percent performance bond in advance, which was then automatically transferred to an Iraqi account when the supplier was paid for the goods.
- A source described how it often worked for one front company. For instance, the Al-Eman Group (a Jordanian Company) would sign a contract with Iraq and deposit the 10 percent performance bond in an escrow holding account. When the goods were delivered to Iraq, the UN Iraq account would pay the full contract price to Al-Eman. At that point, the Jordan National Bank would automatically kick back the performance bond to an Iraqi account instead of returning it to Al- Eman, as would normally be the case.
- ISG does not have information from Iraqi sources regarding the revenue earned from these kickbacks; but we estimate, using a 10 percent average, that these kickbacks totaled approximately $1.512 billion from late 2000 until OIF (see Figure 21). For more information on the methodology used to generate this estimate, see Annex E: Illicit Earnings Sources and Estimation Methodology.
According to senior MoT and official sources, kickback payments were deposited into temporary accounts controlled by the Iraqi ministry involved with the contract at banks in Jordan and Lebanon. These "bridge" accounts were not in the name of the ministry, but used false names to disassociate the Iraqi government from the transaction. Within 24 hours, the funds were transferred to a CBI account at the same bank. At the end of each day, the ministry bridge accounts had a zero balance. Kickback payments also were made to at least two Iraqi front companies: Alia in Jordan and Al-Wasel & Babel in the UAE. Ultimately, the kickback funds were couriered back to the CBI in Iraq.
Each individual ministry that engaged in the import kickback contract scheme had copies of their respective contracts or deals. The MoT was responsible for monitoring these contracts but was not involved in negotiating the terms. Each of the following ministries (see Figure 22) engaged in the 10 percent fee scheme:
Although the kickback was paid to the particular ministry that entered into the contract, those ministries were not able to use the funds—they usually were transferred to the CBI as mentioned above.
- In order to encourage kickback collections by the ministry, and in order to compensate the ministry for the difficulties involved with the scheme, the CBI returned 5 percent of the 10 percent kickback to the ministry collecting the kickback.
- These funds were distributed to the employees of the particular ministry as an incentive to collect the kickbacks.
Another method of generating kickbacks from UN OFF import contracts emerged in the later years of the UN OFF program. This method was based on deceiving the UN over the quality of the items being imported to Iraq. For this illicit revenue scheme, Iraq arranged for a co-operative supplier to obtain a legitimate UN OFF contract specifying "first-quality" humanitarian goods. Iraq would then be authorized under UN OFF to pay top quality prices for the items via the UN OFF-controlled accounts. In reality, however, the co-operative supplier substituted cheap, poor-quality goods for the contract. This generated very high profits for the co-operative supplier. Saddam then arranged for the excess profits to be returned to Iraq via diplomatic channels, after the co-operative supplier took its "fee." This revenue scheme was particularly nefarious since it left the people of Iraq with second-quality, sometime useless, humanitarian goods. (see the Use of Foreign Banks sections.)
Private-Sector Oil Sales
Iraq's trade with private-sector businessmen during the sanctions period provided a $1.2 billion supplement to illicit money earned from kickbacks and surcharges related to the UN OFF program and
Protocols with neighbor states (see Figure 23). Iraqis also refer to this trade as "border trade" or "smuggling." (see Annex F: Iraqi Oil Smuggling for a case study on this topic.)
- These sales began almost immediately after sanctions were implemented, with examples dating back to at least 1993.
- Iraq exported crude oil, petroleum products, and dry goods such as dates and barley. ISG has very little information about the volume or earnings from the dry goods portion of the trade.
ISG estimates Iraq earned about $30 million annually from 1991 through 1997 for a total of $210 million during the period.
Private-sector sales were made by SOMO, but outside the UN OFF oil export program and the trade Protocols with Jordan, Syria, Turkey, and Egypt. SOMO information on these sales covers from 1998 until OIF. Payment for these sales amounted to $992 million, and was made in three ways:
- Some contracts were listed as "cash." According to the SOMO Invoice and Contract Data Base, these contracts were signed from June 1997 through March 2003 and were for all types of petroleum products (gas oil, fuel oil, asphalt, etc.) as well as small amounts of crude oil. These cargoes were shipped through the Arabian Gulf, Turkey, Jordan, Syria, and possibly Lebanon. The contracts were valued at $560 million and $523 million was actually collected.
- Another category of contracts was "goods/barter." These contracts were signed from January 1998 through March 2003 and were primarily for fuel oil and gas oil. Like the cash contracts above, these cargoes were shipped through the Arabian Gulf, Turkey, Jordan, Syria, and possibly Lebanon. The contracts were valued at $469 million. Because these were barter contracts as payment for goods to be received by specific Iraqi ministries, SOMO received no cash in payment.
- The final category of contracts was "Iraqi Dinars." These contracts were signed from May 1999 through December 2002. They were all for fuel oil and all were sold to the "North," probably the Kurds. The income was in dinars and when translated into dollars at prevailing exchange rates only amounted to about $2 million. Because this was not hard currency income, it is not counted in the total hard currency income mentioned elsewhere in this section.
SOMO lists its cash, barter, and dinar contracts as being destined for the "North," "West," or "South."
- Based on the buyer's names, shipments to the North almost certainly were mostly destined for Turkey. One of the major purchasers paying with cash was the Asia Company, which bought almost 11 million barrels for $174 million from May 1999 through January 2003. According to Amir Muhammad Rashid Tikriti Al Ubaydi, Iraq's Oil Minister, Barzani, the leader of the Kurdish Democratic Party, controlled this company. The dinar contracts probably were destined for the Kurds in the three Northern Governorates. Some of the shipments to the North could have found their way to Iran. The total value of private-sector trade with the North was $538 million.
- Based on the buyers listed, shipments for the West were destined at least for Jordan and Syria. Some of these shipments probably also found their way to Lebanon. The total value of private-sector trade with the West was $95 million.
- Based on the buyers listed, shipments for the South were destined for export by small vessels through the Arabian Gulf, with most probably destined for the UAE and other nearby bunkering markets. Some probably wound up in India and perhaps other destinations. The total value of private-sector trade with the South was $359 million (see inset).
According to a number of Iraqi officials, the money earned from private sector border trade was primarily deposited into accounts in Lebanon and Jordan controlled by the CBI (see Figure 24).
- The accounts were kept in US dollars, except for one account in Euros that was closed after one month.
- One account was maintained in the Rafidian Bank, Mosul, Iraq branch. This account handled earnings from the private-sector trade through the North.
- The "SOMO Office" in Basrah handled earnings from private sales through the South. ISG does not know if this means there was a corresponding Rafidian Bank account to handle these earnings in the South.
|Figure 24. Total amounts received in Iraqi bank accounts under private sector "cash sales".a
|a This SOMO information is different by less than $1 million from the SOMO data base information cited above. The reason for the discrepancy is unknown.
Role of the SOMO
Iraq's SOMO is the state-run monopoly that controls all of Iraq's crude oil exports. It is overseen by the Iraqi MoO and functions as the Ministry's marketing arm. SOMO maintained all records for sales under the UN OFF program; cash border sales, sales through the Protocol agreements, and oil allocation (vouchers) arrangements.
- According to the procedures agenda approved by the UNSCR 986, SOMO was responsible for the marketing process of Iraqi oil and was eventually permitted to sell as much oil as it could. However, these sales contracts were only allowed to companies registered with the UN as approved buyers of Iraq's crude oil. These companies were only to make payments to Iraq into the UN supervised escrow account in the Banque Nationale de Paris in New York.
According to SOMO officials,Saddam demanded that Iraq keep the price of its oil as low as possible in order to leave room for oil traders to pay Iraq the illegal surcharges. A sales director at SOMO stated that they were instructed by the government to get the lowest price. Under normal circumstances, SOMO would have sought the highest price for Iraq's oil, its only legal source of real revenue.
Among the companies listed in SOMO's records as having paid illegal surcharges are some of the world's largest refineries and oil trading companies. SOMO maintained detailed financial records listing invoices and collections for each contract. These companies, when questioned about surcharge payments, deny they were the parties that made them.
- For example, according to SOMO records, one of the most active purchasers of Iraqi crude was a Swiss-based company named Glencore. It paid $3,222,780 in illegal surcharges during the period of the program. The company denies any inappropriate dealings with the Iraqi government outside of the UN OFF program.
- According to SOMO records and senior MoO officials, oil surcharges were deposited into Iraq's bank accounts. Only designated, trusted Oil Ministry employees withdrew the cash and brought it to Baghdad on a regular basis.
- An estimated $2 billion is believed to be left from the illicit funds deposited in foreign Iraqi bank accounts.
- As of February 2004, over $750 million had been recovered from these accounts and returned to Iraq, according to the US Treasury Department.
Saddam directed SOMO to set up accounts at the National Bank of Jordan, also known as the Ahli Bank of Jordan. SOMO created separate accounts both for surcharge payments and for Protocol-generated revenue. Three surcharge accounts were created, one each for the deposits of US dollars, Francs, and eventually Euros. The two required signatories on these accounts were SOMO employees.
Funds from SOMO accounts had to be released by a SOMO order. Payments from accounts holding the credit portion of earnings from the Protocol with Syria (at Syrian Commercial Bank) and the credit portion of earnings from the Protocol with Turkey (the TPIC account on behalf of SOMO at the Halk Bank) required authorizations from various ministries and the Presidential Office (Diwan). When SOMO received the appropriate approvals, it generated a letter directing the banks to make payments.
- SOMO had at least thirteen accounts that were used to receive and/or hold the 10 percent fee amounts received from the various ministries.
- The MoO had no authority over these accounts and they were located in Jordan, Syria, Lebanon, and the UAE.
SOMO's Relationship to the MoO
While SOMO's role was to sell Iraq's oil and handle some of the funds derived from those sales, the MoO's role was primarily to procure goods and services needed by the oil sector. As part of this effort the MoO would collect the 10 percent fee on import contracts.
- A former Oil Ministry official in charge of contracting for maintenance equipment and spare parts stated they would accept a low bid and require another 10 percent be added to the contract. Iraqi officials believed 10 percent could be easily hidden from the UN. For example, if the bid were for $1 million, the supplier would be told to make it $1.1 million. This scheme was quite effective for generating illicit revenue.
- The MoO has bank accounts at several different locations and in several different countries. SOMO's 13 accounts were separate from the MoO. According to a high-level source at the MoO, the Ministry had only basic information relative to the SOMO accounts, such as the name of the financial institution, the account holder's name, and the name of the person who had signatory authority on the account.
- The source stated that the MoO had this information so that they could transfer funds to the accounts when oil was sold. According to a source at the Ministry, the MoO is currently trying to recover funds from some of these accounts, particularly in Jordan, and return the money to Baghdad.
Iraq's MoO currently has two active bank accounts at the Jordan National Bank, Queen Nor Branch, Amman, Jordan. These are the same accounts that the MoO has used for the last several years. The first account is a joint account held in the name of the MoO and Jordan Petroleum Refinery Co., Ltd. Its balance on 30 November 2003 was approximately $78.4 million. The second account is called the Ministry personal current account. Its balance on the same date was $3.9 million.
- The source of these funds was from the sale of crude oil and oil products to Jordan under the Trade Protocols.
- The Oil Ministry claims that the funds in these accounts were to be used to purchase engineering and chemical materials necessary to keep Iraq's oil industry operating at a minimum production level.
Official Oil Accounts
SOMO held a variety of bank accounts to manage and control Iraq's legal and illegal oil revenues. These accounts have been categorized as non-surcharge accounts (including Protocol revenues), oil surcharge accounts, and cash sales accounts. Figure 25 shows the bank accounts that SOMO opened for non-surcharge purposes.
- The first five SOMO accounts are individually named accounts at the Ahli Bank in Jordan. For more detail on those names, see Figure 26.
- The fifth account listed at the Ahli Bank in the name of Ali Rijab & Yakdhan was a Protocol trade account set up to receive payments related to the Iraq-Jordanian Protocol and was opened just a few months before the start of OIF. This trade account allowed 60 percent of oil proceeds to remain in the trade account and 40 percent of the proceeds to be utilized elsewhere. The signature authority on this account was Ali Rijab and Yakdhan Hassan Abrihim.
SOMO Account Balances Outside of Iraq
Account Name
Bank Name
Account Type
Balance in US $
Saddam Zibin, Ali Rijab &
Yakdhan Hassan Abrihim
Ahli Bank, Jordan
Cash Account
Saddam Zibin, Ali Rijab &
Yakdhan Hassan Abrihim
Ahli Bank, Jordan
Cash Account
Saddam Zibin, Ali Rijab &
Yakdhan Hassan Abrihim
Ahli Bank, Jordan
Cash Account
Saddam Zibin, Ali Rijab &
Yakdhan Hassan Abrihim
Ahli Bank, Jordan
Cash Account
Ali Rijab & Yakdhan
Ahli Bank, Jordan
Trade Account
Fransabank, Lebanon
Cash Account
Fransabank, Lebanon
Cash Account
Fransabank, Lebanon
Cash Account
National Bank of Egypt
Trade Account
Commercial Bank of Syria
Trade Account
Iraqi Embassy in Syria
Cash Account
Syrian Lebanon
Commercial Bank
Cash Account
Halk Bank, Ankara
Trade Account
Iraqi Embassy, Moscow
Cash Account
Iraqi Embassy, Hanoi
Cash Account
Iraqi Embassy, Kuala Lumpur
Cash Account
Iraqi Embassy, Geneva
Cash Account
Figure 25. SOMO accounts balances outside of Iraq (data provided by SOMO in January 2004).
- There are two different cash accounts listed at the Sardar Bank in Lebanon, both with the name "Rodolphe" listed as the bank point of contact.
- SOMO established another account at the National Bank of Egypt that was used as a Protocol trade account, similar to the one set up for Syria. Again, a 60/40 split allowed 60 percent of oil proceeds to remain in the trade account and 40 percent of the proceeds to be deposited into Ahli Bank account in Jordan.
- The Commercial Bank of Syria cash account received the 40 percent of the oil proceeds. The bank was instructed that when the account balance exceeded $1 million, it was to instantly transfer the extra amount to the Syrian Lebanon Commercial Bank account.
- The Turkish Petroleum International Company (TIPC) is a trading arm of the Turkish National Oil Company and the SOMO equivalent in Turkey. SOMO funds were deposited at the Halk Bank located in Ankara Turkey.
- The account was actually in the name of TPIC "in the favor" of SOMO. Currently SOMO is requesting to have funds still held at the Halk Bank released.
- The SOMO amounts listed at the Iraqi Embassies were received directly from oil contract holders. These payments were sometimes delivered directly to the Embassies and other times deposited first into an Ahli Bank account.
As noted in Figure 25, the accounts at the Ahli Bank in Jordan are in the names of Saddam Zibin, Yakdan Hasan Abrihim al-Karkhi, and Ali Rijab Hassan. The accounts all have the same prefix of 501333 and suffix range from 02 to 12. Senior sources at SOMO were not sure of the reason for this.
Figure 27 shows the SOMO non-surcharge accounts through TPIC maintained at the Halk Bank in Turkey. The cumulated interest earned for these accounts, according to SOMO, was $7,678,946.70. Seven ofthese accounts (shown in green) remain open. The current Iraqi Embassy in Turkey has been in contact with the TPIC representatives about the current account balance of SOMO with TPIC. The embassy was informed that TPIC believes that the amount due to SOMO is only $100 million. A source at SOMO stated that TPIC must have allowed unauthorized withdrawals from these accounts.
In the eighth phase of the UN OFF program, Iraq began to impose a 10-cent per barrel illicit surcharge on all oil sales contracts to foreign entities with the exception of Syria (see the Oil Surcharge section). A summary of the surcharge amounts due collected, and left outstanding for phases eight through twelve are displayed in the chart below (see Figure 28).
These oil surcharge payments were deposited into several accounts at banks located in Jordan and Lebanon. Names of these banks included the Jordanian National Bank (Ahli Bank), the Sardar Bank, and the Fransabank in Lebanon (see Figure 29). Escrow accounts were opened in the name of SOMO however these other numbered accounts were opened by Director General of SOMO, Rafid Abd al-Halim or his Deputy and the Director of Finance or his Deputy for the deposit of surcharges.
- The various accounts at the Ahli Bank were created to receive cash, which flowed in from surcharges, the Protocol accounts, and from payments received through border trade cash sales.
- The amounts listed for the CBI and the Rafidian Bank are accounts that were still open in early 2004.
- The two al-Wasel & Babel accounts were for US Dollars and Euros. They were only open for one or two months before being closed out. Al-Wasel & Babel is a partially state owned oil and banking enterprise in the UAE 51 percent of which is state owned while UAE investors own the other 49 percent. This business was used to move goods outside of the UN MOU and is still in operation.
- Three accounts are shown at the Fransabank in Lebanon. They were Euro accounts, however, the balances have been converted to US Dollars for this chart.
- Two of these accounts were set up to receive oil surcharge amounts while the third account (marked with an *) shows the total proceeds received by Iraq for the sale of crude oil outside of the UN MOU and not just for the surcharge amounts.
Figure 30 is a graphic representation of the data in the chart above. It illustrates how the surcharge revenues were distributed among the associated SOMO bank accounts.
Figure 31 lists the Iraqi bank accounts, which were established to receive cash payments from illegal border sales of crude oil.
- Sources at SOMO explained that the account at the Jordan bank was set up for Euros and was closed after just one month. The balance of this account was shifted over to the Ahli Bank accounts.
- The Rafidian "Filfel"/Iraq account represents a SOMO account at the Rafidian Bank branch office located in Mosul which collected surcharge amounts from the border sales of oil to the areas to the north. The SOMO office in Basra handled the areas to the south.
Figure 32 depicts the allocation of the cash sales revenue in the various banks.
Banking and the Transfer of Financial Assets for Procurement
Iraq manipulated its national banking structure to finance the illicit procurement of dual-use goods and WMD-related goods, as well as other military goods and services prohibited by the UN. Through its national banking system, Iraq established international accounts to finance its illegal procurement network. Iraq's international accounts, mainly located in Jordan, Lebanon and Syria, were instrumental in Iraq's ability to successfully transfer billions of dollars of its illicitly earned oil revenues from its various global accounts to international suppliers, front companies, domestic government and business entities, and foreign governments (see Annex G: Iraq's Banking System for more details on the origins of the Iraqi banking system).
The CBI was responsible for issuing and storing currency of the government, protecting against counterfeit currency and disbursing funds based on directives from the Minister of Finance. Individuals and companies doing business with the government of Iraq would have to go through the CBI, which handled all official government transactions and funds. The CBI is composed of three domestic branches, including its headquarters in Baghdad as well as one office in Basra and one office in Mosul. The Governor of the CBI before OIF was Isam Rashid al-Huwaysh.
According to a senior Iraqi financial official, the CBI established overseas accounts in 24 Lebanese banks, seven Jordanian banks, and one Belarusian bank to deposit cash from the ten percent system of kickbacks from foreign suppliers of goods and foodstuffs. CBI did not maintain overseas accounts in other countries because senior bank officers feared that such accounts would be frozen by the United States. The financial official said that other Iraqi government ministries also maintained overseas accounts of funds provided from the CBI overseas accounts. CBI did not maintain any overseas holdings in real estate, stocks, bonds, or diamonds.
CBI's Role in Licensing Money Exchangers
Prior to OIF, the Exchange Department of the CBI was responsible for licensing the approximately 250 licensed money exchangers in the business of converting currency of one country into the currency of another country. Money exchangers were required to obtain a license from the MoT, and present it to the CBI in order to register as a money exchanger. Some money exchangers mark their currency for identification purposes and to assist in the prevention of counterfeiting.
Statements by 'Isam Rashid al-Huwaysh, Former Director of the CBI
Custodial debriefings revealed that:
- The CBI funded government departments through payments to the Ministry of Finance. The Presidential Diwan was the only department that received money directly from the CBI.
- The CBI distributed cash only on the instruction of the Minister of Finance to the Rafidian and Rashid Banks. The Diwan transferred money to their accounts. On instruction from the Minister of Finance, Treasury Bonds were issued to cover cash taken from the CBI.
CBI's Role in Tracking Foreign Accounts for Iraq
The CBI Investment Department maintained a book that contained all foreign accounts opened by the bank, including the numbered or bridge accounts opened in Lebanon and Jordan. The bridge accounts concealed the fact that foreign companies were making payments to Iraq. Under this system, illicit foreign payments appeared to be going to an account opened in a personal or numbered account. Then the foreign banks immediately transferred proceeds from the bridge account to a CBI account.
CBI maintained accounts in foreign countries specifically for the transfer and distribution of funds to third parties. The Investment Department of the CBI did not conduct normal banking activity after the United Nations imposed sanctions on Iraq in 1990 because its access to overseas accounts, and investment opportunities in particular were tightly limited and controlled. However, the Foreign Accounts section of the Investment Department still maintained vigilance over the CBI accounts that had been frozen around the world in order to track the accrual of interest in these accounts.
- This section also maintained the hidden overseas accounts in Lebanon and Jordan, which the former Regime used for earnings from the ten percent contract kickback scheme and oil surcharges payments. An Investment Department officer of the CBI was directly responsible for transferring foreign currency funds from the CBI's hidden overseas accounts in Lebanon and Jordan to separate accounts held by the former Regime leadership and the IIS in overseas banks.
In late 1999, the state-owned Rafidian Bank took over the CBI's role in managing Iraqi government funds abroad, mostly through Rafidian's Amman branch.
The Central Bank of Iraq did not possess any authority for auditing the foreign currency account activities of overseas assets of the Rasheed Bank, the Rafidian Bank, or the Iraqi government ministries. In 1994, the Cabinet of Ministers decided to give the Rasheed and Rafidian Banks as well as Iraqi government ministries the authority to open their own overseas accounts independent of CBI controls or authority. As a result, the CBI was no longer able to determine the foreign currency holdings of these institutions.
When directed by the EAC, CBI would transfer foreign currency funds from its overseas accounts in Jordanian and Lebanese banks into ministries' accounts, often those held at the Rafidian Bank in Amman, Jordan or Beirut, Lebanon. In theory, the EAC would only direct CBI to transfer funds into another government bank or ministry overseas account to fund an import purchase. The EAC transfer of funds' request, however, only indicated the recipient Iraqi organization, the amount, and the bank account number to which the funds were sent. CBI officials had no means for establishing the end use or final destination of the transferred funds.
- CBI did not transfer any funds into personal accounts from its overseas accounts. Any transfer of government funds into personal accounts would have been possible only if conducted through the overseas branches of the Rafidian and Rasheed banks or other government ministries' accounts.
CBI Governor al-Huwaysh wrote several letters to the cabinet ministers requesting increased controls, or at least auditing capability, over foreign currency transactions conducted by the Rafidian and Rasheed banks and government ministries. In early March 2003, with the imminent threat of war, the cabinet ordered government ministries with overseas accounts to transfer all their foreign currency funds to CBI accounts in overseas banks. This was done in order to provide greater security for government funds that had been dispersed in these various overseas accounts, but not yet utilized.
- In early 2003, Saddam convened a meeting during which he ordered the removal of $1 billion from the CBI in order to avoid the risk of all the money being destroyed in one location in the event of an allied attack. Present at the meeting were the Minister of Finance, the Minister of Trade, the Director of the MIC, the Presidential Secretary, the Chief of the Presidential Diwan, and the Governor of the CBI.
- Two weeks before the outbreak of the war in March 2003, Saddam formed a committee that was responsible for the distribution of funds. The committee consisted of the Minister of Finance, the Chief of the Presidential Diwan, the Presidential Secretary and Saddam's son, Qusay Saddam Husayn al-Tikriti. The group visited the CBI and inspected the boxes that contained the $1 billion. The money was stored in 50-kilogram boxes that contained either $100 notes or 500 notes.
- According to multiple Iraqi officials, including CBI Director Huwaysh, Qusay, along with SSO Director Hani 'Abd al-Latif Tilfa al-Tikriti, and approximately 50 other people, appeared at the CBI on 19 March 2003 and removed the boxes of money. The money was then distributed to different ministries, including the MoT, which received eight boxes of money. After the war, the MoT boxes were turned in to the proper authorities through 'Adnan al-Adhamiya, head of the MoT Legal Department. Overall, all the money was recovered except for about $130 million.
Iraqi Bank Holdings
The following chart (see Figure 33) summarizes the total assets accumulated by Iraqi's banks before OIF (for more details, see Annex G: Iraq's Banking System).
Funding of the Ministries
Prior to the sanctions resulting from the August 1990 invasion of Kuwait, the Iraqi government would finance its international trade and operations using letters of credit, secured or non-secured and recoverable or non-recoverable, in accordance with international banking laws and regulations. The imposition of the sanctions forced the Iraqis to seek alternative methods to avoid having their assets frozen in accounts in the name of their government or ministries. The two primary methods used to circumvent the sanctions were to pay cash to intermediaries and the use of nominee named letters of credit.
The Finance Minister authorized individuals to take currency out of Iraq. This was against the law for both Iraqi citizens and non-citizens without the consent of the Finance Minister. The Finance Ministry would receive an order from Saddam, authorizing an individual to take a certain amount of currency outside of Iraq. The Finance Minister would then arrange with Iraqi customs for that individual to be allowed safe passage through the border, with the currency. Typically, the funds authorized were not very large. Funds ranged between $2,000 and $3,000, occasionally as high as $5,000. Those authorized to take the currency abroad were friends of Saddam and supporters of the Iraqi cause.
At the beginning of 2000, each ministry and governmental agency established accounts with banks in Syria, Jordan and Lebanon, in the names of selected employees within each of their respective organizations. The Iraqi government used its Rafidian and Rasheed banks in these countries because of their direct links to Baghdad. After MIC contracted for the procurement of goods or materials they would send instructions to the bank to transfer the amount of the contract value into an account for the supplier or middleman. The recipient would be credited with the funds, but the funds would not actually be released until after delivery of the products.
The Use of Foreign Banks
Before the 1991 Gulf War, the Regime had funds in accounts in the US, Europe, Turkey and Japan. After 1991, the Regime shifted its assets into accounts in Jordan, Lebanon, Belarus, Egypt and Syria. An agreement was drafted with Sudan but never completed. Accounts appeared in the names of the CBI and the SOMO.
The CBI's Investment Department Director General, Asrar 'Abd al-Husayn was responsible for management of these overseas accounts and maintained signatory power of the accounts, up to a limit of $1 million. CBI Governor Isam Rashid al-Huwaysh had final responsibility and supervisory authority over these accounts. There were no restrictions on the amounts al-Huwaysh could transfer or withdraw from the accounts. The CBI Investment Department retained information on account numbers and account activities at its office in Baghdad on computer discs, and the overseas banks forwarded account statement to the Investment Department on a monthly basis. CBI's paper records of these accounts were burned, either during OIF or afterwards when the bank offices were looted. CBI did not maintain records of other ministries' overseas accounts or records of Regime leaders' personal overseas accounts.
Since 1993, as a result of the financial obligations and economic strains of two consecutive wars and the freezing of its accounts in Western Europe and the United States, CBI had virtually no foreign currency in overseas accounts or its own vault in Baghdad. CBI then began increasing the number of its overseas accounts in Jordan and Lebanon after Iraq accepted and implemented the UN OFF Program and oil exports started to flow in December 1996. CBI only began accumulating large amounts of foreign currency in these accounts in 2001 after the introduction of a formal system of illegal kickbacks from foreign suppliers in 2000, according to a senior Iraqi financial officer.
Prior to 2001, the amount in these accounts was minimal. CBI selected Jordanian and Lebanese Banks for the establishment of overseas accounts based upon prior relations with the bank or based upon competitive bids tendered by various banks that sent representatives to Baghdad seeking the Regime's banking business. When selecting a new bank, CBI would consult international banking records and consider the additional level of interest the foreign bank would offer above the international bank interest rate. Usually, this interest rate would be between 0.5 and 0.8 percent above the international bank rate, usually the London rate.
According to a senior Iraqi finance officer, when CBI planned to open a new account, the bank would send two investment department officials to either Jordan or Lebanon with an official letter. When the Regime requested CBI draw upon the accounts to transfer foreign currency cash to Baghdad, CBI would send a delegation of three CBI officials, one with account signatory power, to the foreign bank with an official letter from the CBI. It usually took a week to ten days for the banks to prepare the cash, since the banks usually did not maintain large amounts of foreign currency cash on the premises. Then, the cash, the amounts of which usually ranged between $5-10 million, was delivered to the Iraqi Embassy and put in diplomatic pouches for transport back to Baghdad by vehicle. CBI governor al-Huwaysh himself once carried $10 million in his vehicle on his return trip from Beirut to Baghdad.
Use of Banks in Lebanon
16 Lebanese banks were used to hide Iraqi cash, which was physically trucked to Baghdad by the IIS when accounts reached a predetermined level, according to a high-ranking Iraqi official. A committee consisting of the Ministers of Trade, Treasury, Commerce, the governor of the CBI and the Diwan secretary sent CBI officials abroad to collect this cash, according to the former head of the Diwan.
Use of Banks in Jordan
Much of Iraq's money in Jordan was held in private accounts operated by the Iraqi Embassy in Amman or the Iraqi Trading Office. It was standard practice to have two signatories for the accounts as a security measure to prevent theft. Double-signatory Iraqi accounts in Jordan could only be government accounts. Of particular interest was the Jordanian Branch of the Rafidian Bank, which was established purely for use of the Iraqi government; the United Bank for Investment was also important, because of its establishment for use by Saddam's family. Transactions were never made by telex or electronic transfer, because it was feared these would be detected by the US or UK. Instead, those wishing to buy oil, or other commodities such as sheep, outside of the OFF program would pay cash to an account at Rafidian Bank in Amman. Further cash transfers would then be made to other banks, including the Hong Kong and Shanghai Banking Corporation (HSBC) in Amman, where Regime money remained. Transfers of cash to other countries would be hand-carried using the diplomatic bag to avoid the need to send money electronically. Money was sent to Europe in order to procure goods for Iraq, but was never sent there for secrecy, as the controls over the financial system made it too difficult.
According to a former high-ranking Iraqi government official, when Jordanian officials approved a transaction, the Jordanian Ministry of Industry and Trade notified the Central Bank of Jordan to verify the availability of funds. Jordanian suppliers were then required to post a performance bond and the Iraqi importers were required to obtain a letter of credit from the Rafidian Bank. The Letter of Credit required specification of payment terms according to the Iraqi-Jordanian Protocol. After the receipt of goods, the Iraqi importer would verify acceptance so payment could be released.
In order to make payments to Iraq for the cash, an arrangement was negotiated annually between the Central Banks of Iraq and Jordan. There were written instructions concerning the process for transferring funds to Iraq. In order to transfer funds, the Rafidian Bank served as an intermediary between the Central Bank of Jordan and the CBI. Jordan was a unique case; trading with Iraq was ongoing since the early 1980s so the trade credits Iraq earned from this Protocol were controlled by the Central Bank. Funds were dispersed by the Central Bank of Jordan by order of the CBI or by specific Protocol designed for payment for goods and services. This Protocol included automatic payments to Jordan for Iraqi air travel and Iraqi telephone calls as well as salaries for the employees of the Iraqi embassy in Jordan.
According to a high-ranking Jordanian banking official, the CBI had no accounts with the Central Bank of Jordan and the only relationship between the two was through the implementation of the bilateral oil for goods barter Protocol. The CBJ worked diligently with the MoT and Industry and the Customs Directorate to ensure proper valuation of Protocol shipments, because over-valuation had been a problem.
Use of Banks in Syria
The Syrian connection became much more widely used after the February 1999 ascension of King Abdullah Bin Hussein in Jordan and the June 2000 ascension of Syrian President Bashar Assad. King Abdullah's government began to create more problems for the Iraqi Regime with regard to importing products from Jordan. Consequently, Iraq turned to Damascus who offered a much friendlier atmosphere for goods not sanctioned by the UN.
The Commercial Bank of Syria was the repository of funds used by the Iraqi government to purchase goods and materials both prohibited and allowed under UN sanctions. The fair market value of oil and oil products would be deposited by Syrian buyers into an account in the Commercial Bank of Syria. Each ministry in the Iraqi government had use of these funds; however, there were quotas set for the amounts they would be able to use. The top four ministries with access to these funds in descending order included the MoO, the MoT, the Ministry of Industry (MoI) and the MIC. The orders to disburse funds through this account would come from the Iraqi Minister of Oil. It is estimated that there could be $500 million held inthis account.
Use of Banks in Turkey
SOMO and the Turkish Petroleum International Company (TIPC) had an agreement to maintain a 70 percent account in the Halk Bank in Turkey and interest bearing accounts.
Use of Banks in Egypt
A high-ranking official in Iraqi Banking stated that this trade agreement began around 2001 and continued through 2002. SOMO set up bank accounts at the Al Ahli Bank in Egypt through which payment was made for the purchase of oil from Iraq. SOMO officials had signatory authority over the accounts. This trade agreement was set up by the MoT and Oil and was not within the guidelines of the UN OFF program.
Some Egyptian government officials helped the government of Iraq to obtain hard currency illegally via the UN OFF program. It is unclear whom in the Egyptian Government was providing the assistance and who was aware of this activity. Under this illicit system, the Egyptian government officials would sign a contract with the Government of Iraq to purchase a certain amount of approved humanitarian goods for a set price under the UN OFF Program. The contract would specify that the goods shipped would be first-quality merchandise. In actuality, the goods shipped would be second-quality goods. When the UN paid the Egyptian Government officials for the first-quality goods, the Egyptian Government officials would distribute the funds for the second-quality products, take a small margin of profit for them, and convert the remaining money into US dollars or gold bullion and deposit the money into the Rafidian Bank or directly into the CBI. When this hard currency was received in Baghdad, the Iraqi government would pack bundles of US one hundred dollar bills into bags and boxes and distribute them to the Iraqi embassies abroad. However, after the arrest of the Iraqi IIS Chief of Station in Amman, the Iraqi government moved their primary transit point to Damascus out of fear that the couriers would be arrested while crossing the Jordanian border.
Use of Banks in Belarus
The CBI used Infobank in Belarus to hide Regime assets in employee-named accounts. These accounts held funds accumulated through the kickback of funds from import contracts under the UN OFF program. Huwaysh, former Director of the MIC, estimated that there was $1 million in this account and the Iraqi MIC had $1.5 million for procurement of Belarusian goods in this account. However, that actual total was $7.5 million (see Iraq's Illicit Revenue section).
Regime Attempts To Recover Funds Prior to OIF
A high-ranking government official stated that Saddam ordered all funds located in foreign banks brought back to Iraq in 2001. ISG judges that Saddam took this action to prevent his assets from being frozen or seized by the international community. This order indicates that Saddam knew he might come under international pressure in 2001, possibly as a reaction to the Al-Samud missile project or the illicit profiteering from the OFF program.
- A committee was formed to accomplish the transfer of these Iraqi funds. The committee consisted of the Finance and Trade Ministers, the Chief of the Presidential Diwan, and the Governor of the CBI.
- The role of the Diwan Chief was mainly to provide funds to those individuals, known as "couriers", selected by the Finance and Trade Ministers and CBI Governor to travel to retrieve the funds. Most couriers were trusted employees of their respective government entities.
- At the committee's second meeting, the Governor of the CBI stated that Iraq had already brought back to Iraq up to $200 million worth of gold. The gold was purchased through an unidentified bank in Beirut and secured in CBI vaults.
The Role of Cash Transactions
The CBI provided foreign currency in cash to Saddam through an official funding mechanism established to release cash from CBI reserves to the Presidential Office. The Presidential Office did not have a fixed budget, and CBI often received messages requesting foreign currency for release to the Presidential Office. The amounts ranged from thousands of US dollars up to $1 million, which were always paid in cash in foreign currency. The Presidential Office was the only entity that would ever request money in cash from the CBI, but the requests never exceeded $1 million. The Presidential Office stated that the cash was used for overseas travel, for government business, and medical reasons. The CBI Credit Department accounted for the cash sent to the Presidential Office in the same way that it accounted for funds used by Iraqi ministries. The ministries, however, never received foreign currency cash. If the ministries needed Iraqi dinars for domestic purposes, they would obtain it from their respective Rafidian bank accounts.
Saddam seldom interfered in the affairs or business of the CBI. As a standard practice, CBI intra-governmental relations focused on the Cabinet of Ministers, the Ministry of Finance, and the Presidential Office Staff. The authorization for CBI to release cash to the Presidential Office usually came from either the Presidential Office Chief of Staff or the Vice Chairman of the Cabinet of Ministers. Some notable exceptions were Saddam's post-1993 annual special requests for cash and his last request for cash on 19 March 2003, when he authorized Qusay to withdraw $1 billion from the CBI.
Iraq's Gold Reserves
The CBI vaults contained four tons of gold reserves as of early June 2003. The value of these gold reserves was insignificant in comparison to the bank's level of cash reserves. CBI began accumulating these gold reserves in 2001 by purchasing gold in relatively small quantities on a frequent basis from Lebanese banks in which the former Iraqi Regime had large foreign currency deposits. As a standard purchase procedure, the respective Lebanese banks supplying the gold would deliver it to the Iraqi Embassy in Beirut for shipment to CBI vaults in Baghdad via diplomatic pouch. The CBI bought gold in amounts ranging from 100 to 500 kilograms per purchase. This amount of gold could be shipped easily by diplomatic pouch. Also, CBI bought gold in small quantities in order to avoid raising the market level of gold in Lebanon and to avoid scrutiny by the US. The Regime did not remove any of the gold from CBI vaults during the war with coalition forces.
- The CBI Investment Department Director General Asrar 'Abd al-Husayn was directly responsible for management of the gold purchases using cash from the overseas accounts in Lebanon. CBI Governor Dr. Isam Rashid al-Huwaysh, however, retained final responsibility for supervision of the gold purchase program.
- The Regime implemented the gold purchase in 2001 upon the recommendation of al-Huwaysh and against the opposition of Minister of Finance Hikmat Mizban Ibrahim al-Azzawi. Al-Huwaysh was concerned that Saddam and his sons could easily remove cash reserves whenever they wanted or could easily use the cash reserves in purchasing weapons from foreign suppliers.
- Gold, on the other hand, was heavy and could not be easily removed, ensuring that the CBI would retain these reserves, even if the Regime decided to remove the cash reserves. Al-Huwaysh, however, could not use this argument to convince Saddam to begin a gold purchase program, and he instead argued that the gold reserves could not be destroyed in the event of bombing and fire at the bank during a war.
- Saddam accepted this latter argument and authorized the gold purchased beginning in 2001. Prior to the outbreak war with coalition forces, the Regime did not have any plan for dispersing the gold upon commencement of hostilities.
The Rafidian Bank central office in Baghdad had an unknown but relatively small quantity of gold in its vault as of 19 March 2003. Under the former Regime, Iraqis were not allowed to sell their gold overseas, but many people attempted to smuggle their personal gold out of Iraq to take advantage of the higher prices in overseas markets and to secure foreign currency. When these smugglers were caught, the government confiscated the gold and put it in the vault of the Rafidian Bank. Iraqi ministries did not retain any gold.
Executing Illicit Procurement in Iraq: Ministries, Commissions, and Front Companies
Saddam used his complete control over the Iraqi Government to facilitate his illicit procurement programs. Almost every Ministry in the Regime assisted with procurement in some way. Directed by Saddam, the Ministries of Foreign Affairs, Oil, and Trade helped the former Regime orchestrate its primary foreign objective of ending UN sanctions (see Annex H: UN Security Council Resolutions Applicable to Iraq).
- The MFA curried favors at the UN. Among other techniques and tactics used by the MFA, it bestowed oil allocations to nationals of the UNSC permanent members to influence and divide the council in order to erode sanctions. For additional details on the MFA role in influencing the UNSC, see the RSI chapter.
- The MoT established bilateral trade Protocols that were used to hide prohibited trade. The ministry used commercial attaches to pay for illicit procurement.
- The MoD developed requirements, hosted and conducted foreign visits, and procured conventional military goods, the export of which breached UN sanctions.
- The banking system established foreign accounts to hold illicit hard currency until it could be used for procurement or smuggled into Baghdad.
- The Ministry of Higher Education an Scientific Research (MHESR) conducted dual-use research; procured and developed technical expertise in WMD-related fields and procured key technologies through university systems.
Saddam, however, relied on three organizations in particular for the procurement of prohibited materials to include potentially-WMD related or dual-use items (see Annex I: Suspected Iraqi Dual-Use Procurement Transactions):
- The MIC, headed by Huwaysh since 1997, and its associated front companies led Iraqi efforts to obtain prohibited military hardware and dual-use goods.
- The IIS was directed by Saddam to assist the MIC with procurement in 1998.
- The Iraqi Atomic Energy Commission (IEAC) pursued its own illicit procurement goals, occasionally with MIC assistance.
Ministry of Foreign Affairs
Directed by Saddam, the Ministries of Foreign Affairs, Oil, and Trade helped the former Regime orchestrate its primary foreign objective of ending UN sanctions. To pursue those objectives, the MFA implemented a foreign economic strategy first aimed at ending UN sanctions (established since 1990) and subsequently eliminating the UN's OFF program. Another important MFA mission focused on supporting the Regime's illicit procurement mechanism. In particular, the MFA played a critical supporting role in facilitating Iraq's procurement of military goods, prohibited dual-use items, transporting cash and other valuable goods earned by illicit oil revenue, and forming and implementing a diplomatic strategy to end UN sanctions and the subsequent UN OFF program by nefarious means. The MFA facilitated, established, and maintained foreign government and business contacts and provided Iraqi officials involved in illegal international trade with financial and political sanctuaries.
The MFA also assisted the implementation of financial transactions and provided physical sanctuaries and political/diplomatic/commercial covers for other Iraqi intelligence officials involved in procurement activities across Iraq's borders. According to a former Charge d'affaires at the Iraqi interests section in Syria, it was common practice for embassies to forward foreign cash from the CBI overseas accounts in Lebanon, to its vault in Baghdad via diplomatic pouch and courier system.
- He specifically mentions the Iraqi embassy in Beirut, Lebanon and the Iraqi interests section at the Algerian embassy in Damascus, Syria, undertaking such activity.
- The Iraqi embassy in Beirut would transfer cash to Damascus by diplomatic-plated vehicles.
- The Iraqi Embassy in Moscow assisted, among other deals, a Russian company called Alfa Echo in signing contracts for importing oil from Iraq.
Moreover, the MFA possessed an indigenous intelligence capability, its Research and News Analyzing Office (RNA) that kept senior Iraqi leadership, such as the President, Deputy Prime Minister and Foreign Minister informed about global events. The MFA managed this office and had branches in many of its key embassies. It is not certain whether personnel in the MFA's Research and News Analyzing Office were IIS agents or actual MFA officials. Nonetheless, the RNA focused primarily on collecting information of economic and political consequence to Iraq by means of open sources and other news reporting. MFA's RNA paid special attention to political, military and economic developments in the Middle East (special attention to Israel), global oil production and market developments, Eastern Europe, and the United States.
Acting as Iraq's plenipotentiary, Tariq Aziz (see Figure 34) often facilitated business meetings between foreigners and Iraqi officials. Foreign business representatives and government officials would contact him in order to gain access to key Iraqi officials that were in charge of approving oil and arms contracts.
- On 27 December 2002, the president of the Russian company Russneft, Michail Gutserviev, informed Aziz and the former Oil Minister Amir Rashid that he planned to travel with a five-man delegation to Iraq via private plane to negotiate with the Iraqi Oil Minister for oil and gas contracts. The Russian business delegation was supposed to fly into Iraq in a Tupolev 134 (flight number AKT 135/136) and expected to stay in Iraq on January 13-15, 2003.
- In 2002, Baghdad sent a scientific delegation to Belarus and China in order to stay current on all aspects of nuclear physics and to procure a Chinese fiber optics communication system.
MFA-IIS Connections
The MFA also supported IIS operations by offering its agents political and economic cover to conduct economic and political espionage. Besides providing traditional covers for IIS agents, the MFA cooperated closely with the IIS on other functions. A former IIS officer also stated that all MFA diplomatic couriers were IIS officers and were controlled by the IIS's Internal Security (M6) Directorate. Moreover, at Iraqi consulates and embassies where IIS officer presence was absent, MFA personnel filled in as their representatives. While we do not know the full extent of MFA's role in assisting the IIS in conducting illicit activity, we have found other indicators of the breadth and nature of the IIS' activities from captured documents.
- According to one document on MFA letterhead, the MFA transferred two known IIS agents to its embassy in Belarus under pseudonyms in June 2002. Another document in the same file, an IIS "Ministerial" Order, acknowledged the transfer, the agents' job descriptions, their salaries, as well as sent copies of IIS order to other directorates.
- One month prior to OIF, at least seven IIS officers were reassigned to the MFA to cover up their true positions in the government. They were given new identities and positions. This activity was similar to giving agents cover stories operating outside of Iraq, according to one former IIS agent.
- Outside of Iraq, Iraqi embassies provided the IIS with the only means of secure communications outside of the diplomatic courier services. Iraqi embassies transmitted ciphered faxes to foreign posts. However, the majority of posts had manual codebooks while major posts like Washington, Paris, Moscow and South African were given machines necessary to accommodate the large amount of incoming faxes. The IIS personnel deciphered all faxes, according to a former IIS officer.
MFA's UN Sanctions Counter-Strategy
The MFA formulated and implemented a strategy aimed at ending the UN sanctions and breaching its subsequent UN OFF program by diplomatic and economic means. Iraq pursued its related goals of ending UN sanctions and the UN OFF program by enlisting the help of three permanent UNSC members: Russia, France and China. Iraq believed it managed to varying degrees of success to influence these permanent UNSC members from strictly enforcing previously agreed UN resolutions and from initiating additional resolutions that further debilitated the Iraqi economy. By offering permanent and non-permanent Security Council members economic "carrots and sticks," Iraq belived it managed to partially influence voting at the UNSC. Iraq's economic "carrots" included offering companies from those countries lucrative oil, reconstruction, agricultural and commercial goods, and weapon systems contracts. In contrast, the Iraqi "sticks" included not only redirecting those contracts to other more "pro-Iraqi" companies, but held the threat of forfeiture of foreign debts – totaling between approximately $116-250 billion. Saddam expressed confidence that France and Russia would support Iraq's efforts to further erode the UN sanctions Regime.
- According to one source, using "semi-diplomatic cover," the IIS attempted to recruit agents from the UN headquarters in New York to provide information or influence public opinion and their national policy toward Iraq.
- Besides attempting to co-opt certain permanent UNSC members, under cover of MFA sponsored international conferences, Iraq tried to recruit sympathetic eastern European politicians by publicly lauding their pro-Iraqi sentiments and support in the UN.
Iraqi-Russian Relations. Saddam's Regime needed both Moscow's political clout in the UN and its economic expertise and resources to sustain his Regime from the 1990s until OIF Numerous trips taken by then Iraqi Deputy Prime Minister Tariq Aziz to Moscow served as a good indicator of the Russians' opinion of Iraq's dependence on Russia.
- According to news reports, in July 2001, Tariq Aziz expressed gratitude to Russia for its efforts to pass UNSCR 1360 which continued the UN's OFF program for a tenth phase. Moreover, Iraq promised to economically reward Russia's support by placing it at the head of the list for receiving UN contracts under the UN OFF program.
Iraqi-Chinese Relations. ISG judges throughout the 1990s, the PRC consistently advocated lifting Iraqi sanctions while privately advising Baghdad to strengthen cooperation with the UN. In October 2000, Baghdad continued to seek Chinese support for the removal of UN imposed economic sanctions. By November 2000, Chinese Vice Premiere Qian Qichen stated that China would support Iraq's efforts to end the sanctions, and work for an early resolution to the Iraqi issue according to press reporting.
- According to diplomatic reporting, Chinese Premier Zhu Rongji and Vice Premier Qian Qichen met with Iraqi Deputy Prime Minister Tariq Aziz on 27-28 January 2002. Softening Beijing's earlier stance for ending sanctions, Premier Zhu Rongji reportedly told Aziz that China was willing to continue its efforts toward an early solution to the Iraqi issue and that it had been advocating that the sanctions issue be settled at an early date. China also hoped that Iraq would strengthen its cooperation with the UN and improve relations with its neighbors.
Smart Sanctions
In early July 2001, the US and the UK withdrew their joint-proposal to revamp the UN existing sanctions Regime, called "Smart Sanctions," because of Russian, Chinese, and French opposition. The US/UK proposal attempted to restructure two key elements of the existing sanctions Regime: illicit procurement of weapons and dual-use goods and illicit generation of revenue from Iraqi oil sales outside the UN's OFF program. In contrast, the Russian draft resolution proposed to reduce the current percentage to the Compensation fund another 5 percent to 20 percent of total value of Iraqi oil exports – and increase the total amount in Iraq's escrow account to $600 million to pay other expenses in accordance with UNSCR 1175(1998) and 1284 (1999) (see Annex H: UNSCR Applicable to Iraq). The UN estimated that each 5 percent reduction in payments to the United Nations Compensation Commission (UNCC) added about $275 million in Iraq's coffers per each UN OFF six-month phase.
- Iraq indirectly threatened to end trade relations with China if Beijing agreed to the goods review list (see Annex H: UN Security Council Resolutions Applicable to Iraq).
Iraqi-France Relations. Unlike the relatively predictable relationships with China and Russia, the Iraqi-French relationship was more tumultuous. Saddam recognized the important role that France played on the international stage, and in particular in the UNSC. Consequently, Saddam ordered the MFA and other ministries to improve relations with France, according to recovered documents. The documents revealed that the IIS developed a strategy to improve Iraqi-Franco relations that encompassed inviting French delegations to Baghdad; giving economic favors to key French diplomats or individuals that have access to key French leaders; increasing Iraqi embassy staff in Paris; and assessing possibilities for financially supporting one of the candidates in an upcoming French presidential election.
Moreover, the IIS paper targeted a number of French individuals that the Iraqi's thought had close relations to French President Chirac, including, according to the Iraqi assessment, the official spokesperson of President Chirac's re-election campaign, two reported "counselors" of President Chirac, and two well-known French businessmen. In May 2002, IIS correspondence addressed to Saddam stated that a MFA (quite possibly an IIS officer under diplomatic cover) met with French parliamentarian to discuss Iraq-Franco relations. The French politician assured the Iraqi that France would use its veto in the UNSC against any American decision to attack Iraq, according to the IIS memo.
From Baghdad's perspective, the MFA concluded that the primary motive for French continued support and cooperation with Iraq in the UN was economic. According to Tariq Aziz, French oil companies wanted to secure two large oil contracts; Russian companies not only wanted to secure (or lock in) oil contracts, but also sought other commercial contracts covering agricultural, electricity, machinery, food, and automobiles and trucks products.
- France competed with Russian agricultural products for Iraqi contracts.
- In May 2002, a representative from a French water purification company requested projects for his company in Iraq.
MFA and Iraq's Bilateral Protocols
Concurrent with Iraq's overarching strategy to break UN sanctions, the MFA, with the approval of Saddam, attempted to mitigate the economic effects of UN sanctions and at the same time to by-pass the scrutiny of the UN's OFF program by arranging various types of economic bilateral agreements. These countries, in particular, Syria, Turkey, and Jordan (see Figure 35), were willing to enter into such agreements.
Geographic proximity, cultural affinity, and a historical and interdependent economic relationship with Iraq explain why Turkey, Jordan, and Syria reached formal Protocols with Iraq outside the UN OFF program and in contravention of UN resolutions. Iraq would sell oil and oil products to these countries in exchange for cash and goods. Kuwait, Saudi Arabia, and Iran did not enter into any economic arrangements with Iraq, but Iran had reportedly assisted Iraq's oil smuggling operations in the Arabian Gulf region throughout the 1990s and up to OIF.
Ministry of Trade
The MoT coordinated economic activities between other Iraqi government ministries as well as foreign companies and foreign ministries. The MoT accomplished these tasks by consolidating the import requirements from all ministries, obtaining approval expenditures by the MoF, and negotiating overseas trade agreements. The MoT generally accomplished trade for Iraq through:
- Legitimate channels under the auspices of the UN sanctions Regime and the UN OFF.
- Cooperative preferential trade protocol agreements with Syria, Jordan, Turkey, and Egypt.
- Common trade agreements, albeit in contravention of UN sanctions, with other partners.
In addition to these traditional procurement roles, the MoT provided a limited role in the procurement of illicit goods such as military weaponry or WMD technologies for the Regime. To supplement this procurement activity, the MIC and MoD used their own methods to procure communications systems, ammunition, security equipment, and computers. Abd al-Tawab Mullah Huwaysh, Director of the MIC, however, stated that the MIC was able to import the raw materials it needed and did not need to use any other ministry's funds to purchase goods and services abroad.
Nevertheless, the importance of the MoT in illicit procurement should not be dismissed. The MoT's trade deals with willing countries and foreign companies provided Iraqi military and security entities, such as the MoD, SRG, IIS, and the Diwan, with the access and connections needed to ultimately procure dual-use and sanctioned goods and services. In contravention of UN sanctions and resolutions, the MoT provided "cover" contracts for ammunition, communication systems, and other military materiel for the MoD, SRG, IIS, and the Diwan.
MoT's Role in Procurement
For the most part, the MoT procured legitimate civilian goods both legally under UN OFF, as well as illicitly through bilateral trade protocols and other unregulated trade agreements. The MoT played one of its most important roles in the execution of the UN OFF Program, including:
- Coordinating other ministries' import requirements into a "Distribution Plan." After UN approval, this consolidated plan served as the basic import schedule for goods and services imported under each six month UN OFF phase.
- A few non-ministerial organizations, including the MIC and Iraqi Atomic Energy Commission (IAEC), were not permitted to purchase items under UN OFF. These Ministries or departments relied on the MoT to procure common goods for them via UN OFF.
Muhammad Mahdi Al Salih, the former Minister of Trade, claimed the MoT supported the Iraqi military through the OFF program only with legitimate civilian items. Typical goods procured by the MoT for the MIC and MoD via OFF included: stationery, office computers, generators, civilian trucks, water tankers, fuel tankers, and building materials. For example, Al Salih recalled that the MoT had purchased 100,000 uniforms for the Iraqi police and vehicles for the SSO. Al Salih, however, later admitted to importing ammunition, communication systems, and other military items for MoD, IIS, SRG, and the Diwan outside the UN framework.
The MoT also played an important role in executing the Jordanian trade protocol. Under this agreement, the MoT gathered and forwarded all Iraqi contracts to Jordan for approval. These records were, however, inadvertently destroyed with the rest of the MoT building in the opening hours of OIF. Both the MoT and MoO shared responsibility for negotiating the bilateral Protocol agreements with Syria, Turkey, and Jordan. The MoO, however, was the prime negotiator in the case of Syria and Turkey, and controlled the trade under these Protocols.
- The MoT purchased goods under the Syria and Turkey trade Protocols, particularly for military and security services that did not have their own allocation of funds under the agreement.
- Captured documents reveal the MoT paid for "goods and services" through these protocols for the Directorate of General Security, General Police Directorate, Military Intelligence Division, MoD and SSO.
- There are no indications of the nature of the items procured by the MoT for these organizations other than a reference to MoD contracts with the General Company for Grain Manufacturing, which suggest that the MoT was procuring for food.
According to Al Salih, in addition to the UN OFF and the trade protocols, the MoT coordinated trade outside of UN sanctions with a number of other countries, including UAE, Qatar, Oman, Algeria, Tunisia, Yemen, and Sudan. These were essentially frameworks for cooperation and free trade that allowed for the import and export of domestically produced products without license or tax.
Facilitating Illicit Procurement With Cover Contracts
There is some debate among Iraqi sources regarding the MoT's role in providing false cover contracts for sensitive imports. According to one former official, the MoT provided "cover" contracts for military-related goods, such as communications equipment, computers, and military clothing obtained via the Jordan, Syrian, and Turkish trade Protocols. Considering the political sensitivity surrounding these agreements, none of Iraq's neighbors wanted to be scrutinized by the international community for doing business with the Iraqi military, either for civilian (dual-use) or overtly military goods. False cover contracts would have been easier to hide in the flow of trade occurring over Iraq's borders with Syria, Jordan, and Turkey.
- This source is corroborated by annotations on captured tables of Syrian and Turkish trade contracts, which reveal that every entry listing the MoT as the sponsoring government agency was concealing the MIC and MoD as the true end users for the goods.
- Captured records also show that MoT contracted with the Syrian firm SES International (a known provider of military and dual-use goods to Iraq) for $11.3 million of goods from December 2000, over 80 percent of which was for goods and services for two MIC manufacturing companies.
- Muhammad Mahdi Al Salih, the former Minister of Trade, recalled that the MoT had conducted business with SES, but only for civilian goods, including deformed bars and timber under UN OFF, and for Mitsubishi pickups under the Syrian trade Protocol. He denied that the MoT ever procured goods for MIC manufacturing companies.
- The former head of the MIC, Huwaysh, who did not believe that the MoT had ever procured goods for these two companies, later corroborated Al Salih's denial.
Facilitating Illicit Trade Through Commercial Attaches
According to Al Salih, the MoT's commercial attache (CA) program began in 1983. CA's were eventually posted in Jordan, Syria, Turkey, Egypt, Sudan, Algeria, Moscow, Belarus,and China. In many of these offices, there was only a single employee, but the office in Jordan ultimately employed four individuals, headed by a Commercial Counselor and included a CA and a dedicated accountant. According to a former high-ranking Iraqi Government official, these individuals were managed and paid for by the MoT, but reportedly acted independently and were not required to report back to the MoT.
CAs worked from Iraq's embassies abroad and served as special trade ambassadors working in Iraq's interest. Common roles for CAs included:
- Working in the Iraqi Embassy to register foreign companies for trade with Iraq.
- Checking to see whether foreign companies should be blacklisted for dealings with Israel.
- Facilitating trade with foreign suppliers.
- According to reporting, some IIS officers worked under cover as CA. ISG assesses that it is possible the MoT was not aware of this IIS presence in its ranks.
- According to Al Salih, CA in the trade protocol states (Jordan, Syria, and Turkey) were aware of the bank accounts used to transfer protocol cash profits (30 to 40 percent of all contracts) into Iraq.
- CAs in Jordan, and to a lesser extent, Syria and Turkey, also followed up on all Iraqi Government financial transactions from the trade Protocols.
In the mid-1990s, the Jordan desk was the most important CA for Iraq. The Amman Commercial Counselor and his deputy were responsible for facilitating all UN OFF contracts, the trade protocol business (the Syria and Turkey protocols did not exist until after 1999), and any additional private trade from the military and security service entities. Facilitating these contracts focused on opening letters of credit in Jordanian banks and following up with payment when receipt of the goods was confirmed in Baghdad. The CA accountant followed contract implementation, tax collection, and tracked any fees.
- As an example, captured documentation details that individuals at the CA's office in Amman opened letters of credit for the payment of $2.275 million to a Lebanese company in 2000.
- Supporting documentation shows that this was for BMP-2 IFV 30-mm cannon barrel-manufacturing technology from the Former Federal Republic of Yugoslavia (FRY).
- There is no indication, however, from the documentation that the CA staff was aware of the exact nature of the contract.
- In the late 1990s the importance of the CA's office in Jordan declined. A year before OIF, the MIC removed cash from the CA's office in Jordan because of weak activity, and appointed a military representative to represent its interests.
According to the former Minister of Trade, the MIC, and SOMO arranged contracts with Syria directly through the CA in Syria and the Commercial Bank in Syria. It is more likely, however, that the CA in Syria had a less active role with MIC and SOMO, particularly in the payments process, because business in Syria was conducted through payment on supply rather than letters of credit.
- Supporting intelligence shows in one case that SOMO authorized the 5th Syrian Commercial Bank in Damascus to transfer funds directly to a Syrian middleman working for the Syrian-based SES with no mention of the CA.
- In May 2002 Iraq's Al-Basha'ir Trading Company instructed the Syrian firm where and how to distribute funds received from Iraq's Oil Ministry (probably on behalf of Iraqi military).
As with the Syrian Protocol, the January 2000 Turkish Protocol operated on a payment on supply basis, and therefore probably did not involve the CA in Turkey.
Jordanian Case Study
Commercial attaches worked on behalf of the MIC to make purchases and transfer money for payment in foreign countries. The timeline in Figure 36 shows the events related to a purchase of and payment transfer for materials from Jordan, according to translated documents.
Ministry of Defense
UN sanctions after Operation Desert Storm severely hindered the MoD's overt procurement of weapons, ammunition, and other military goods. The Regime, however, did not abandon conventional military procurement, developing instead an illicit procurement program based on supplemental budgeting, the MIC, and the use of other ministries to conceal the procurement of dual-use goods.
- The Presidential Diwan, Presidential Secretary, and Saddam Husayn developed a supplemental process to fund numerous programs outside of the state budget, including the MoD's illicit conventional procurement.
- Saddam empowered the MIC to pursue his continuing illicit procurement, using front companies and trade intermediaries to avoid international scrutiny.
- As the UN OFF program opened additional trade opportunities, non-security ministries would purchase dual-use items and redirect them to the MoD.
- This mutually supporting relationship between the MoD, MIC, and Saddam's illicit funding mechanism also supported the procurement needs of the RG and SRG.
MoD Procurement Leadership
The Minister of Defense reviewed all MoD procurement and, in coordination with the Presidential Diwan, could approve MoD procurement requirements up to $2 million. The MoD Chief of Staff (CoS) and subordinate supply directors processed and coordinated procurement requirements for approval at higher levels, but could not approve MoD procurement. For procurement requirements greater than $2 million, the Minister of Defense was required to participate in a more deliberative process involving the MIC, Presidential Secretary, and the President. The MoD did not have final approval authority for these high cost procurement programs.
MoD Procurement Directorates
According to Sultan Hashim Ahmad Al-Ta'i, the former MoD, the Ministry of Defense was divided into directorates, the two largest being the Directorate of Armament and the Directorate of Weapons and Supplies.These two Directorates were the MoD's primary procurement organizations (see Figure 37).
Directorate of Armament and Supplies.According to Al-Ta'i,the Directorate of Armament and Supplies procured non-weapons related supplies necessary for the military to carry out its missions. These consumable items included, but were not limited to, office supplies, military rations, and military uniforms.
Directorate of Weapons and Supplies. According to Al-Ta'i and Abid Hamid Mahmud al-Tikriti, the former presidential secretary, the Directorate of Weapons and Supplies had two key procurement-related roles: acquiring weapons and ammunition and supporting foreign procurement delegations. Prior to 1990, the Directorate of Weapons and Supplies directly procured weapons and materials for the MoD from both domestic and foreign sources. After the imposition of UN sanctions with UNSCR 661 in 1990, the directorate was no longer able to obtain weapons abroad and depended on the MIC to execute foreign procurement.
MoD's Procurement Leadership at the Onset of Operation Iraqi Freedom
Minister of Defense: Staff Gen. Sultan Hashim Ahmad Al Ta'i. As the Minister of Defense, he approved all MoD procurement proposals submitted by the Chief of Staff. Sultan was also a member of the "Committee of Three" which had oversight and control over the Iraqi defense budget.
Chief of Staff: Staff. Gen. Ibrahim Ahmad 'Abd-al-Sattar Muhammad. Ibrahim was directly responsible for MoD procurement activities. He could reject, but not grant final approval on MoD procurement decisions.
Director of Weapons and Supplies: Staff Maj. Gen. Taleb 'Uwayn al-Juma'a Al Tikriti. Taleb was responsible for coordinating MoD weapons procurement via the MIC from 1999 to 2003.
Director of Armaments and Supplies: Brig. Nabil Rahman. Nabil was responsible for the procurement of products such as military uniforms, supplies, and other consumable items used to support military operations.
- According to Al-Ta'i, the MIC was responsible for 95 to 99 percent of MoD procurement. Data from the Syrian trade protocols; however, indicate that this percentage was probably closer to 70 percent. In any case, the MIC negotiated contracts, identified foreign and domestic sources for prohibited items (often via its front companies), and arranged the delivery of goods for the MoD.
- After 1997, Al-Ta'i dealt directly with the head of the MIC, Abd al-Tawab Mullah Huwaysh, and his two deputies, Dagher Muhammad Mahmud and Muzahim Sa'ab Al-Hasan, on substantive procurement issues.
- The Directorate of Weapons and Supplies coordinated with the MIC on MoD procurement projects via regular meetings. These meetings addressed a range of day-to-day procurement issues, including the mechanics of requesting and delivering items, financing procurement contracts, addressing complaints over late deliveries, and adjudicating problems related to poor quality equipment.
According to Al-Ta'i, the Directorate of Weapons and Supplies participated in several MIC-coordinated defense procurement delegations each year, providing expertise in weapons pricing and how foreign systems could best improve Iraq's defense capabilities.
- When Iraq hosted these delegations, the MIC handled, negotiated, and signed procurement contracts on behalf of the MoD.
- Taleb Uwayn Al-Juma'a, the Chief of the Directorate of Weapons and Supplies, usually served as the MoD delegate for these visits. When accompanying the MIC abroad Uwayn was subordinated to the MIC leadership.
- The only time MoD procurement was not coordinated by the MIC was when the Minister of Defense or his Chief of Staff headed the Iraqi delegations.
- Uwayn developed some overseas procurement contacts from MIC sponsored travel to Yugoslavia and Russia. Uwayn also traveled to Syria two or three times, on one occasion with Huwaysh.
Budgeting and Financing Military Procurement
As with the other Iraqi ministries, the MoD operated two budgetary processes: one deliberate and the other supplemental. The formal MoD budget was small, preplanned, and approved via a deliberative process involving multiple ministries and commissions. The MoD's formal budget was used to purchase non-sanctioned items and fund the basic operation of the force.
- According to data from a captured general government budget document, containing only operating expenditures, Iraqi defense spending was $124.7 million in 2002. This figure, however, does not represent true Iraqi defense spending, as the former Regime did not list defense spending in its general budget during the 1990-2003 sanctions Regime.
In sharp contrast to the MoD's formal budget, the supplemental MoD budget was controlled by Saddam and was used for illicit procurement of prohibited items.
- Typically, Iraqi military units identified requirements and forwarded them up the chain of the command to the directorate head.
- The director reviewed and forward procurement requirements to the Chief or Deputy Chief of Staff who would review the procurement recommendations and forward them to them to the Minister of Defense, Al-Ta'i.
Although other Iraqi ministries were required to work within their formal budgets, Al-Ta'i could request more money from the Presidential Diwan. On some occasions, however, the MoD supplemental budget requests were routed through Saddam's secretary, Abid Hamid Mahmud, who could make decisions more rapidly than the Diwan.
- Although Mahmud has stated that he had no role in MoD procurement, we judge that he played a role in high-priority procurement for the MoD, based on his position and statements by another high-level Iraqi military officer. This officer asserted that a September 2002 supplemental request for Internet satellite communications for the MoD was routed through the Presidential Secretary. The Secretariat subsequently arranged for the purchase through a Syrian company.
Ultimately, Saddam personally approved the funding for classified MoD, MIC, and IIS projects; informed the governmental bodies of his approval via Mahmud, and used Mahmud to distribute supplemental funding for the projects.
MoD Procurement Process
After 1991, MoD procurement depended on the nature of the item required. If the UN prohibited the goods, the illicit procurement process accomplished the procurement. If the items were dual-use goods, they were procured via the channels described elsewhere in the chapter.
Illicit Procurement for the MoD. After the UN imposed sanctions in 1990, member states were prohibited from exporting conventional military goods to Iraq. As a result, Saddam tasked the MIC to obtain prohibited materials and equipment on behalf of the MoD. According to al-Sattar, the former MoD CoS, the Minister of Defense coordinated all foreign illicit procurement directly with the MIC.
- The MIC and MoD negotiated specific weapons procurement requirements at a "Coordination Conference" held every three months at the MIC headquarters in Baghdad.
According to a former high-ranking MIC offcial, a Special Committee for Procurement for the MIC, MoD, and SRG was established in mid-2002 (see Figure 38). The Special Committee reviewed and recommended security-related procurement requirements, which were then approved by Huwaysh, and ultimately passed to Qusay for approval.
- The committee's first task was to develop Iraq's air defense system.
- ISG has found very little corroborating evidence of the existence of this committee. Even if it coordinated significant procurement in the nine months before the regime was removed, it is likely Saddam still retained the final approval on expensive or politically sensitive procurement projects.
Dual-Use Goods Defined
"Dual-Use Goods" are items that might be of use to the military, but were not specially or originally designed or modified for military use. The term "goods" includes equipment, chemicals, materials, components (including spare parts), technology, and software.
The term "dual-use goods" can be contrasted with "military goods" that were specially or originally designed for use by the military.
UN Sanctions on the Procurement of Conventional Military Goods
All member states of the United Nations were prohibited from exporting conventional military goods to Iraq by UNSCR 661, 670, and 687. Some countries, however, failed to abide by these international agreements and permitted their nationals to participate in the sale of conventional military goods to Iraq. Some nationals involved in this illicit arms trade were associated with, or in some cases directly related to, their national leaders. For more detailed information see and Annex H, UN Security Council Resolutions Applicable to Iraq and Annex J: The Procurement of Conventional Military Goods in Breach of UN Sanctions
Dual-Use Goods Procurement for the MoD. For routine procurement requirements, the Diwan reviewed the Minister of Defense's requisitions and identified an appropriate ministry to prepare the contract to purchase the items domestically or through foreign sources.
- Most Iraqi ministries served as false end-users for MoD dual-use goods procurement. For example, the Building Ministry purchased engineering equipment and heavy machinery, the Health Ministry procured medical equipment, and the Transportation Ministry obtained trucks for the MoD.
- When possible, the MoD initiated contracts in coordination with the MIC. For example, if the MoD needed vehicles it would go directly to the MIC vehicle supplier.
- Once the items were purchased and the delivery made, the purchasing ministry would notify the MoD that its equipment had arrived. The MoD would then arrange to deliver the shipment to its subordinate units.
The MoD reimbursed these other government ministries, via the Diwan, with money from the general MoD budget—concealing the source of the money. The MoO, through SOMO, also helped the MoD by funding purchases via the UN OFF program or with illicit oil revenue schemes.
Procurement for the Republican Guard and Special Republican Guard
The RG and SRG requested weapons systems and other military goods via the MoD. The MoD and MIC, in turn, used their associated front companies and trade networks to procure conventional military equipment for the RG and SRG from foreign sources. Qusay Husayn, as the "Honorable Supervisor" of the RG and SRG, ensured they received the most modern military equipment in the Iraqi Army (see Iraq's Security Services Annex for additional information on the RG and SRG).
RG and SRG Procurement Leadership and Budget. From 1996 until the fall of the Regime, Mahmud Rashid Ismail Al-Ani served as the Director of Electrical and Mechanical Engineering in the RG and the chief procurement adviser to both the RG and SRG. He reported directly to the RG Chief of Staff, General Saif Al-Din Al-Rawi.
- Al-Ani also monitored the manufacture of supplies for the RG. Consequently, he attended a monthly meeting at the MIC with the Commander and Directors of the RG.
- Qusay reportedly respected Al-Ani's technical expertise as evidenced by choosing him to represent the RG in overseas delegations.
- Al-Ani also enjoyed a close relationship with Abd al-Tawab Mullah Huwaysh, the head of the MIC, most likely because they were related.
From 2000 onwards, the RG's annual budget was derived from the national military budget. Although the mandated budget at the MoD-level fluctuated yearly, the RG budget never exceeded 40 percent of the overall Iraqi Armed Forces budget. The SRG budget never exceeded 10 percent of the overall RG budget. The RG budget was Qusay's responsibility, but the Office of the Secretariat submitted requisitions to the Chief of Staff's office to obtain funds for the RG.
RG and SRG Procurement Process. According to Kamal Mustafa, the former RG Secretary, RG commanders met with the RG Headquarters staff twice per fiscal year to prepare a requisition list for equipment shortages and spare parts. This list was then forwarded to the Office of the Secretariat, via the Office of the RG Chief of Staff for action. The SRG sent its shortage list directly to the Secretariat for inclusion in the overall RG requirements list. The Director of the Office of the Secretariat managed the flow of resources for the RG and SRG. He also coordinated budgetary matters between the RG and the rest of the Iraqi military community. After the Office of the Secretariat approved the procurement requirements, the MoD Directorate of Weapons and Supplies, led by Staff Major General Taleb Uwayn Juma'h, obtained the items in accordance with standard MoD procedures.
- According to a former high-ranking MIC official, the RG and SRG had their own additional procurement channels after 1999 and had wide authority to procure items on their own. Qusay's prominent role in the RG organizations gave them a predisposition for obtaining illicit goods via Syria, according to one source.
- Between 2000 and 2002, the Iraqi Government purchased thousands of supply and personnel transport vehicles for the RG and SRG by the Ministry of Transportation and Communication (MoTC). Turkey, Russia, France, Germany, and South Korea supplied these vehicles, according to a former senior Iraqi cabinet minister.
According to captured documents and other evidence the MoD, MIC, and its associated front companies obtained conventional goods for the RG and SRG from Russia, Syria, and Belarus. (For more details on these breaches of UN sanctions see Annex J: The Procurement of Conventional Military Goods in Breach of United Nations Sanctions). The RG and SRG most likely used their operational budgets to purchase common military supplies and consumable materials. As with the rest of the MoD, the RG and SRG also benefited from other ministries purchasing dual-use goods on their behalf.
After the requested equipment was delivered to Iraq, the MoD Directorate of Weapons and Supplies sent the Office of the Secretariat an official letter notifying that the equipment was available. Once the goods were delivered to the RG and deemed acceptable, the Secretariat authorized the MoO to pay the appropriate ministry or commission.
Military Industrialization Commission
By the late 1990s, Iraq was eagerly trying to acquire foreign military by goods and technical expertise for its conventional military and missile programs using a network of Iraqi front companies, some with close relationships to high-ranking foreign government officials. The billions of dollars of revenue generated by the various protocols, illicit surcharges, and oil smuggling schemes drove the explosive growth in military imports. This allowed MIC to smuggle millions of dollars worth of military equipment into Iraq in contravention of UN sanctions.
Procurement Leadership in the MIC
From its founding in 1987, the MIC was directly subordinate to the office of the presidency. It eventually consisted of 10 research companies, 36 manufacturing companies, eight training centers, two stand-alone units; three front companies and the headquarters office (see Figure 39). The headquarters, located in Baghdad had two deputies and nine directorates: administrative and financial, commerce, research and development, projects, technical, internal monitoring, legal, training and procurement, and the National Monitoring Directorate. The Minister's office consisted of the secretary's office, the secret correspondence office, the special correspondence office handling mail between MIC and the ministries and between the headquarters' directorates and the individual companies.
MIC: Beneficiary of Illicit Funds
Revenues from oil protocols with Jordan, Syria, and Turkey increased the MIC budget by approximately 6,400 percent between 1996 and 2003. During this period, MIC Director and Deputy Prime Minister, Abd al-Tawab Mullah Huwaysh (see Figure 40), transformed the MIC into a more efficient and profitable bureaucracy.
- According to a high-level MIC official, the MIC budget grew from $7.8 million in 1996 to $350 million in 2002 to $500 million in 2003. The MIC covered its operating costs through internal ministry-to-ministry sales of goods and services, including a 3 percent surcharge on items imported for the MoD by Al-Basha'ir—a MIC front company.
- According to the same official, the MIC also had a hard currency budget of approximately $365 million, of which $300 million came from illicit oil trade with Syria, Jordan and Turkey. The remainder of the hard currency budget came from the Presidency, sales to foreign companies in Iraq, profits from the Arab Company for Detergent Chemicals (ARADET), and foreign investment (see Figure 41 below for more detail).
The MIC budgeting process started at the company level every June and continued through September. Companies gathered their plans for production, procurement, and salaries for the upcoming year and submitted them to the Directorate of Administration and Finance in the MIC headquarters. The Directorate of Administration and Finance compared the figure with the historical figures and tried to reduce the size of the budget. Then the Technical, Project, Trade, and Research Directorates were asked to review and comment on the company figures.
When the Directorate of Administration and Finance had processed the companies' budgets, the 21 directors-general of MIC discussed them during budget meetings. These budget meetings were conducted much like court proceedings, and the group made decisions on each proposed budget. The budget figures were adjusted accordingly, and a final budget for each company was issued.
The company budgets for the 51 subordinate MIC companies, for MIC headquarters, and for the eight MIC training centers were consolidated into one budget. Unlike other ministries, the MIC did not have to submit its budget to the Finance Ministry, but it did send a summary report to the Secretary of the CoM. The summary report did not contain detailed figures or descriptions. Abd al-Tawab Mullah Huwaysh had the discretionary authority to reallocate funds within the budget, as he felt necessary.
MIC Banking and Financing
The MIC had its own bank accounts—two each in Jordan, Lebanon and Baghdad—that it used to store hard currency. Rather than having the purse strings controlled by many people in the organization, there were actually only three men most responsible for the transfer of funds from the Iraqi Government to the supplying companies: Jasim Ahmad Hasan, Muhammad Salih Abd al-Rahim, and Hashim Karim 'Abbas, of whom were all members of the MIC's Commercial Directorate. The Commercial Directorate was concerned mainly with payment and payment methods, and with delivery of the contracted items after MIC and the supplier signed contracts. The MIC could authorize payments for small contract amounts, but for larger amounts Huwaysh sought permission from Presidential secretary Abid Hamid or through the Presidential Diwan.
- According to captured documents, Hasan and 'Abbas are listed on hundreds of bank accounts throughout Jordan.
- Captured documents also include bank statements and correspondence directing MIC to release funds to suppliers.
- According to two sources in the Commercial Directorate, their department was funded with a monthly budget of approximately $2 million.
Funds originated at the Presidential Palace and were authorized to be transferred by Saddam. On behalf of Saddam Husayn, Ahmad Husayn Khudayir al-Samarra'i, President of the Diwan, authorized the funds to be sent to the CBI. The Governor of CBI, Isam Rashid al-Huwaysh (no relation to Abd al-Tawab Mullah Huwaysh), forwarded the funds to the MIC accounts at the Rafidian Bank in Baghdad. Abd al-Tawab Mullah Huwaysh controlled the Rafidian accounts. He determined how much was to be sent to each foreign bank account based on project funding, and ordered transfers of exact amounts to specific banks and account numbers. Huwaysh was responsible for authorizing each transfer to each account in Jordan and Lebanon. Following the transfers, al-Rahim, 'Abbas, and Hasan then controlled the funds in the Jordan and Lebanon bank accounts.
All of these accounts were related to Iraqi trade contracts, for the payment of foreign suppliers to the Iraqi government. When a contract was signed with a supplier, a bank letter-of-credit was opened on behalf of the supplier. The goods were delivered to a company owned by MIC or working for the MIC. The goods were inspected, and then Huwaysh was notified. Huwaysh then notified the Commercial Department at MIC, and then the Commercial Department sent a memo to 'Abbas, al-Rahim, and Hasan. The three of them then sent a memo to the Jordan or Lebanon bank to release the funds in the form of a letter of credit to the supplier.
The MIC used accounts in the Al-Itihad and Al-Ahay banks in Beirut. According to a high-level official with the MIC, approximately one month prior to OIF, Huwaysh dispatched Hasan and Munir Mamduh Awad al-Qubaysi, Director of Al-Basha'ir, to Beirut on a mission to recover MIC funds still held in Beirut banks. Their instructions were to travel to Beirut, secure the funds, transfer them to the Iraqi embassy in Damascus and then return to Baghdad. Huwaysh had ordered a review of outstanding contracts more than a year old and as a result was able to identify $100 to $150 million in these banks that had not been disbursed.
- According to two sources in the Commercial Directorate, prior to the war there was a meeting in Baghdad with members of the Commercial Section and the Legal Section of the MIC. They claim that Hasan and al-Rahim were ordered to remove $47 million from the banks in Lebanon and Jordan.
- They attempted to withdraw funds from the Jordan National Bank but were informed that they did not have that amount of funds available because of unauthorized withdrawals from suppliers.
- One of the two sources in the Commercial Directorate stated that Hasan and Ali Jum'a Husayn Khalaf canceled approximately 60 lines of credit and were able to withdraw $6 million in currency from the Jordan National Bank, which they then took to the Iraqi Embassy in Syria.
The information provided by these two sources contradicts Huwaysh's statement that in early April 2003, he traveled to Syria to determine why Hasan and al-Qubaysi had not returned to Baghdad. According to Huwaysh, he had not been able to determine what had happened to the two gentlemen or the funds.
Items Procured by the MIC via Front Companies
Iraq's MIC had two primary avenues for procuring materials and manufacturing equipment outside of UN OFF channels. One avenue involved the use of import committees and the other a straightforward contracting process to purchase items from foreign suppliers. The MIC obtained large amounts of imported materials and production equipment through a process described by a senior Iraqi:
- During the annual budget formulation process, managers of MIC facilities identified imported products that their enterprises needed to support their production plans for the following year. After the MIC approved the annual budget at the beginning of each calendar year, the managers prepared tenders for the required imports. The MIC then distributed the tenders at the annual Baghdad Trade Fair and advertised them in Iraqi trade papers.
- The MIC received bids on the tenders from potential suppliers indicating price, terms; for example, 'X' offered to provide some equipment for $1 million. Bids on the tenders from potential suppliers were submitted to a MIC import committee. Originally there was just one import committee, but the volume of imports grew in later years to the point where a second import committee was established to handle the volume. The import committees met every night at the Baghdad International Trade Fair site.
- The import committees would then take the original tenders and subject them to a rebidding process. For example, company 'Y' could offer to supply the same equipment as company 'X,' but for $500,000 less than its competitor's bid, a large saving compared to the original price. Through this process, the import committees saved the MIC millions of dollars. The committees issued quarterly reports on the amounts of money saved. Huwaysh was very proud of this bidding process and often gave the committee members bonuses based on the amount of money saved.
- The MIC issued a contract when the import committee accepted a bid on the goods. We speculate that the contracted companies were then responsible for obtaining the goods—importing them from Jordan, Syria, Turkey, or elsewhere as necessary—and delivering them to the MIC customer.
- Engineers from the MIC Technical Directorate always headed the import committees. Other members of the committees included representatives from the MIC Commercial, Administration and Finance, and Legal Directorates, along with an IIS representative from MIC security.
Items Procured via the MIC's Link to Iraqi Intelligence
The other procurement avenue operated through the MIC "Special Office" and enlisted the IIS to locate suppliers of particularly sensitive or obviously military items, such as weapons and ammunition (for more details see the IIS procurement section of this chapter and the RSI IIS annex). Items purchased through the Special Office were then shipped to Iraq via third countries using front companies as buyers. MIC procurement companies played a key role in these import activities, as did several front companies with ties to top Syrian leaders. During the annual budget formulation process, managers of MIC facilities identified imported products that their enterprises needed to support their production plans for the following year.
The MIC and the IIS formed a special channel for importing sensitive goods and services—dual-use or related to weapons and munitions manufacturing—particularly those that required the assistance of foreign government officials. A source within the MIC Commercial Directorate of stated that the IIS was "involved in everything." The IIS was the final authority on MIC contracts due to its direct relationship with Saddam.
In November 1997, Saddam approved a MIC proposal to enlist the IIS to develop new procurement, technology transfer, and technical assistance channels to supplement the existing MIC Commercial Directorate channels, according to a source with direct access.
- Huwaysh formed the MIC-IIS relationship to support Iraq's missile program after Saddam instructed him to improve Iraq's missile capabilities.
- Ties flourished after the death of IIS Director Rafi' Dahham al-Tikriti in October 1999 and the subsequent appointment of Tahir Jalil Habbush al-Tikriti as IIS Director. A Joint MIC—IIS nomination group initially directed the joint effort.
Dr. Hadi Tarish Zabun, the head of the MIC Research and Development Office, led the MIC end of this second procurement channel. Senior MIC officials have described Dr. Zabun as very capable and powerful. Dr. Zabun is clearly one of the key figures in the Iraqi clandestine procurement story.
- Dr. Zabun's office handled all of the secret, special contracts with Russia, Belarus, Yugoslavia, Ukraine, and Bulgaria.
- Dr. Zabun attended all meetings related to these contracts, and managing these contracts became a huge task for the Special Office.
According to an Iraqi official, the IIS's procurement activities operated through the IIS Scientific and Technical Information Office, designated M4/4/5. . The Research and Development Office cooperated closely with M4/4/5 to find sellers of the sensitive materials and equipment sought by the MIC.
- Dr. Zabun coordinated MIC—IIS business dealings, with much of the coordination occurring directly between the Director of M4/4/5 and Dr. Zabun.
- M4/4/5 desk officers worked closely with IIS officers in overseas stations to find the suppliers. Desk officers had specific country responsibilities.
- Directives and other communications with the IIS stations in embassies abroad were transported via diplomatic pouch.
An Iraqi official described the coordination process (see Figure 42).
- MIC requirements—for information, materials, technology, or technical assistance—were sent upward from MIC manufacturing establishments to Huwaysh.
- Huwaysh then sent an official "Secret, Confidential, and Immediate" communication through Zabun to IIS Director al-Tikriti. Dr. Zabun strictly controlled all communications on MIC-IIS dealings. A special IIS courier element actually carried the correspondence back and forth.
- The request then descended through the IIS M4 Directorate chain-of-command to the director, who sent it to the appropriate desk officer for action.
- The desk officer then made arrangements with the field stations, issued tenders, and so on.
When the field officer located potential sellers or received bids, the Director of M4/4/5 would work with Dr. Zabun to broker a meeting between principles in MIC and the desk officer and others involved in the procurement effort.
- Typical participants in these meeting included Dr. Zabun, the M4/4/5 director, their deputies, the M4/4/5 desk officer who was involved in setting up the transaction, personnel from the MIC establishment seeking the procurement, the heads of the MIC Commercial and Finance Directorates, and often Munir Mamduh Awad al-Qubaysi, head of the MIC procurement company Al-Basha'ir.
- This group probably considered the terms of the proposed deal and discussed methods of transport and payment for the goods.
- Huwaysh probably made the final decision on most major procurement actions.
Dr. Hadi Tarish Zabun: The MIC's Procurement Expert
MIC Director Huwaysh considered Dr. Hadi Tarish Zabun as his right-hand man for conducting foreign procurement deals. Dr. Zabun was the acting Director General of the Al Milad Company (MIC's largest domestic research and development company) prior to taking over the MIC Directorate of Research and Development and the MIC Special Office. He also served as Huwaysh's expert on the missile industry.
MIC Front Companies
The MIC used front companies to accomplish those business transactions it could not conduct amid UN scrutiny. Front companies handled the tasks of smuggling oil, funneling UN OFF revenues, and importing weapons and dual-use materials sanctioned by the UN. The MIC formed many of these companies in 1991 to bypass UN sanctions and spread the transfer of funds through a wider variety of companies to avoid international attention (for a full list see Annex K: Suspected Front Companies Associated With Iraq).
- The MIC operated three primary procurement front companies that were critical to Iraq's clandestine import activities: Al-Basha'ir, Al-Mafakher, and ARMOS.
- These companies also had a close association with the IIS and used connections that the IIS had in foreign countries to procure goods.
- The IIS was also heavily involved in the operation of these companies by having IIS personnel in middle and upper management and in security operations.
The most important of these companies was Al-Basha'ir, which was formed by Husayn Kamil and managed by Munir Mamduh Awad al-Qubaysi. The companies ARMOS and Al-Mafakher were created later by the head of MIC, Abd al-Tawab Mullah Huwaysh, to help facilitate competition among MIC front companies in importing banned goods and to improve productivity. Apparently, Huwaysh deemed these companies to be so important to MIC that around 1998 he moved responsibilities for the companies from one of his deputies to the Commercial Directorate. This allowed him to exert greater control over the operation of the companies, according to a former Regime official.
- There was a large network of international companies and banks with which these front companies traded. Some were merely banks or holding companies, primarily in Syria and Jordan that purchased items from the manufacturer and acted as cutouts before sending the items to Iraq under false documents.
The networks of these companies still exist through their former employees, even as the old offices now stand empty. The owners and employees of former front companies may be seeking to become a part of the post-Saddam Iraqi business community.
Bidding Process With MIC Committees. According to a former civil engineer, the MIC bidding process began when a MIC facility generated a requirement, called a tender. There were two kinds of tenders, regular or invitation.
- Regular tenders were open and could be bid upon by any contractor or private company approved by MIC security, including foreign contractors.
- Invitation tenders were issued when specialty items were required that could only be supplied by specific companies. In addition to MIC security approval, it is most likely the IIS and/or MFA also vetted these companies. The invitation tenders were issued directly to company agents in Iraq and Jordan, not to the foreign companies directly.
- This approval process was a result of Iraqi officials' concerns over foreign companies with hidden connections to Israel. According to captured documents, the MIC blacklisted a Bulgarian company because a Russian-Israeli businessman owned it.
Interested foreign and domestic supply companies then offered bids for the tenders through the MIC legal department. The MIC Procurement Committee, an informal seven-member panel, selected the best bid based on the offered price and the preference rating of the particular supply company. After a tender was awarded to a specific supplier, the MIC facility that originated the tender passed the contract to a MIC trading company such as Al-Basha'ir, ARMOS, or Al-Mafakher. These companies worked through the approved supplier to conduct the actual procurement.
The Al-Basha'ir Trading Company. The MIC established the Al-Basha'ir front company in 1991. The company's names has been discovered on hundreds of contracts for weapons and dual-use materials, as well as legitimate day-to-day goods and supplies. The company traded in items such as construction materials, foodstuffs, and power generators to cover its real activity, which was coordinating with neighboring countries to facilitate the purchase of illicit military equipment. The company was headed by Munir Mamduh Awad al-Qubaysi, a former 15-year employee of the IIS. Because of his connections, relations between Al-Basha'ir and the IIS were especially close from the time he became Director of the company in the late 1990s.
- Contrary to some sources, Al-Basha'ir was owned and operated by the MIC. Al-Qubaysi's history with the IIS and the fact that many other members of the Al-Basha'ir staff were also IIS officers, led many to assume Al-Basha'ir was an IIS front company.
- The last chairman of Al-Basha'ir's board of directors was the head of the MIC's Administration and Finance Directorate, Raja Hasan Ali Al-Khazraji.
ISG judges that several Regime members exerted varying degrees of influence over the Al-Basha'ir procurement process. There is, however, conflicting reporting of who was in control of Al-Basha'ir procurement. Several sources have stated that it was the MIC Director, Abd al-Tawab Mullah Huwaysh. Reportedly, Qusay Saddam Husayn al-Tikriti and a committee comprised of senior officials of the SSO met with Al-Basha'ir trustees to direct the procurement of prohibited materials and to authorize payments.
- Trustees included al-Qubaysi, Jasim Ahmad Hasan, and Muhammad Salih Abd al-Rahim. Qusay and his advisers would tell the Al-Basha'ir trustees what items they wanted purchased about twice a month.
- Qusay made all final decisions on procurement and expenditures.
- Prior to Qusay, Husayn Kamil, Saddam Husayn's, son-in-law held this position.
Al-Basha'ir participated in the bidding process for the MIC by splitting the company into foreign and domestic sections. The split allowed Al-Basha'ir to increase its ability to communicate within the company and its offices abroad and for the import of military and security-related equipment. One set of documents would show the actual items to be procured and then the Al-Basha'ir trustees would prepare a second set of procurement documents with benign end-use items to conceal the true nature of the illicit activity.
- For example, Al-Basha'ir described spare tank parts as air conditioning systems. Al-Basha'ir would then prepare the bank transfers for the seemingly innocuous items.
- One set of papers for the actual items were either given to the SSO, or in some cases taken to the homes of some of the Al-Basha'ir officials.
- The company would offer small contracts to the Iraqi companies, while large contracts would be based on a recommendation from the director of the IIS, 'Uday Husayn, Qusay, Vice President Taha Yasin Ramadan al-Jizrawi, or Saddam.
Al-Qubaysi was largely responsible for Al-Basha'ir's success, according to an Iraqi official with direct access to the information. He ran the company well and maintained a close relationship with the IIS. As a result of this relationship, Al-Basha'ir could use its IIS liaison, Majid Ibrahim Sulayman, to facilitate purchases with IIS field stations around the world.
Al-Qubaysi also had a close relationship to the Shalish family and with other prominent personalities in Syria, and he opened the connection with the SES International in Syria. Dr. Asif Shalish was head of the Syrian firm SES, while his uncle, Dhu Al-Himma 'Isa Shalish, owned the company and is the Chief of Presidential Security for his cousin, President Bashar al-Asad. Close relations with the Syrians allowed Al-Basha'ir to garner the bulk of the trade through Syria, which became the primary route for Iraq's illicit imports over the last years before the war.
- The SES and Lama companies are two of the major holding companies for Al-Basha'ir goods in Syria.
- Fifty-four percent of all MIC purchases through the Syrian Protocol were through Al-Basha'ir, according to captured SOMO documents.
The IIS used the Al-Basha'ir front company to facilitate a deal with the Bulgarian JEFF Company to obtain T-72 tank parts and Igla MANPADS, according to a former MIC senior executive. The goods were either flown to Baghdad under the guise of a humanitarian mission or they were delivered via Syria. If coming via Syria, illicit military goods typically arrived via the Latakia Port and then were then trucked to Iraq in SES company vehicles.
Information from contracts found and data derived from the records of the SOMO indicates that the Al-Basha'ir Company was also a major broker in Iraqi oil smuggling(see Figure 43).
- The Jordanian branch of Al-Basha'ir signed contracts for the export of oil and oil products from Iraq, according to SOMO records.
- SOMO records indicate Al-Basha'ir signed 198 oil contracts from November 1999 through March 2003. The contracts were for fuel oil, usually at $30 per ton, and gas oil, usually at $80 per ton. Almost all were for export by ship through the Arabian Gulf, although the destination of two contracts was listed as "North," which usually meant Turkey.
- The value of the contracts totaled $15.4 million. This is the amount to be paid to SOMO. We do not have information about the amount of money Al-Basha'ir earned from the trade.
ARMOS Trading Company. ARMOS, a joint Iraqi MIC—Russian venture, was initially proposed by a Russian general named Anatoliy Ivanovich Makros. Makros, a former Soviet delegation leader in the 1980s, MIC, and IIS founded ARMOS in 1998. Makros' original scheme was to bring Russian technical experts into Iraq with cooperation from MIC and IIS through ARMOS. Despite the Russian ties, however, MIC officials dominated the company (see Figures 44 and 45).
- Dr. Hadi Tarish Zabun, head of the MIC Special Office, was chairman of the ARMOS Board of Directors.
- Siham Khayri al-Din Hassan, a Romanian-educated economist who had worked in the MIC Commercial Directorate, was the manager of ARMOS.
- Munir Mamduh Awad al-Qubaysi, manager of Al-Basha'ir, was also on the board of directors, along with a representative of the IIS M23 Directorate (MIC Security). (see the IIS procurement section of this chapter and the RSI IIS annex.)
ARMOS had a much smaller staff than Al-Basha'ir. But despite its size, the company achieved good results, according to an Iraqi official with direct access to the information. ARMOS conducted approximately 5 percent of the amount of business of Al-Basha'ir, but five times more than Al-Mafakher. In comparison to al-Qubaysi, however, Hassan wielded relatively little power.
- ARMOS served as the conduit for many Russian contracts, including contracts for aircraft engines for the Iraqi Air Force, according to another official.
- Captured documents show that ARMOS was involved in a deal to import MI-8 helicopter engines from Russia through Syria in 2001.
Captured documents detail an agreement in 2002 between Iraq and Russian experts, Mr. Shakhlov and Mr. Yusubov for the procurement of Russian missile technology and equipment in which ARMOS acted as a liaison between them. The documents also mention how the Iraqis used the Russian organization for victims of nuclear disasters as a cover for the operation. The use of a charitable organization in this transaction highlights the variety of methods used by the Iraqi front companies to conceal their activities. The contract reads, "as for the second party (the Russian Nuclear Disaster Victims Fund Institution) blockade imposed on Iraq will not be considered a forceful circumstance."
- The value of the contracts was for a total of $600,000.
- Some $100,000 for the Russian Standard Military Specifications system.
- Another $500,000 for the Schematic Diagram System.
According to Huwaysh, although the company was organized primarily to do business with Russia, in 2002 the MIC granted ARMOS access to other potential markets, including Bulgaria and Ukraine. This new access was similar to that of Al-Basha'ir.
- In May 2002, ARMOS was offered Bulgarian electro-chemical gun-barrel machining (ECM) from a Cypriot gray arms broker, Green Shield.
Al-Mafakher for Commercial Agencies and Export Company. The MIC established the Al-Mafakher for Commercial Agencies and Export Company, Ltd in 2001. Adil Nafik, a former Al-Basha'ir Deputy Director, managed Al-Mafakher. According to a former MIC employee, the company was considered ineffective, mainly because of its inefficient staff and the fact that it was a newly established business.
- Al-Mafakher was much smaller than Al-Basha'ir—with just six employees—and conducted only 1 percent of Al-Basha'ir's business.
- Al-Mafakher had investment abroad, including a 50-percent share in Elba House in Jordan and a 25-percent stake in a Tunisian company, possibly named Parabolica, which manufactured leaf springs for automobiles.
Iraqi Intelligence Service
Saddam used the IIS to undertake the most sensitive procurement missions. Consequently, the IIS facilitated the import of restricted dual-use and military goods into Iraq through Syria, Jordan, Belarus, and Turkey. The IIS had representatives in most of Iraq's embassies in these foreign countries using a variety of official covers. One type of cover was the "commercial attaches" that were sent to make contacts with foreign businesses, set up front companies, and facilitate the banking process and transfers of funds as determined and approved by the senior officials within the government (see MoT Section, Facilitating Illicit Trade through Commercial Attaches). In June 2002, two IIS employees were transferred to the MFA and sent to work at the Iraqi Embassy in Belarus under the cover title of "attache," according to a letters written between the IIS and MFA.
- From 1994-1997, the IIS M19 Directorate of Commercial Projects used front companies to import prohibited items, according to reporting.
- A general order by Saddam in 1998 to collect technology with military applications led to the formation of a committee consisting of the Presidential Secretary Abid Hamid Mahmud al-Tikriti, IIS Director Tahir Jalil Habbush al-Tikriti, MIC Director Abd al-Tawab Mullah Huwaysh, and the head of the Directorate of General Military Intelligence. This committee tasked Habbush to procure technologies when Huwaysh deemed the items to be of a sensitive nature.
- In 1998, after Saddam Husayn issued a general order for the use of IIS in developing new procurement relationships, the IIS dissolved M19 and transferred procurement efforts to the M4 Directorate of Foreign Intelligence who had more direct access, infrastructure, and developed relationships with foreign countries, according to multiples sources.
IIS Procurement Leadership and Mission
IIS Procurement under the direction of Tahir Jalil Habbush al-Tikriti (see Figure 46) was part of a collaborative effort headed by the MIC to obtain equipment, materials, and expertise for Iraq despite UN sanctions. In 1997, Saddam approved a MIC proposal to enlist IIS to develop new procurement, technology transfer, and technical assistance channels outside of Iraq. Within the IIS, primary procurement activities took place in the Scientific and Technical Information Office (M4/4/5).
- Prior to 1998, the IIS M-19 Directorate had both a Domestic Branch that dealt with Iraqi companies and a Foreign Branch that dealt with foreign trade, according to a former IIS officer with direct access. The Foreign Branch was headed by Sadak Shaban.
- In accordance with a 1997 mandate from Saddam to improve Iraq's missile capabilities, the MIC and IIS formed a joint effort to accomplish this goal, according to a senior MIC official. The participants included head of the IIS Scientific Intelligence Section and the head of the IIS, al-Tikriti.
The IIS officers stationed outside of Iraq were in a good position to carry out the mission of the MIC and IIS procurement without drawing the attention of the international community. IIS officers generally reported back to the Scientific and Technical Intelligence Section, designated M4/4/5. Dr. Zabun's "Special Office" cooperated closely with M4/4/5 to find sellers of the sensitive materials and equipment sought by MIC. M4/4/5 desk officers worked closely with IIS officers in overseas stations to find the suppliers. Desk officers had specific country responsibilities.
- After reorganizing the M19 Directorate into the M4/8 Division in 1998, the IIS operated several front companies in Syria, according to a former high-ranking IIS officer. The Director of M4/8 was Hasan al-'Ani.
- Dr. Zabun coordinated the entire MIC—IIS business dealings, with much of the coordination occurring directly between the Director of M4/4/5 and Dr. Zabun.
- For example, one officer was responsible for all Syrian and Bulgarian procurement; another was responsible for Russian and Yugoslav procurement, while others handled actions with North Korea, Egypt, and elsewhere. Directives and other communications with the IIS stations in embassies abroad were transported via diplomatic pouch.
- The IIS, along with an Armenian-Iraqi named Ohanes Artin Dosh, established a front company in Switzerland with several subsidiaries, according to a high-ranking Iraqi official with direct access. Jaraco SA, a firm operated by Esfandiar and Bahman Bakhtiar was another IIS Front Company. The Iraqi Government gave the Bakhtiars 150,000 Swiss francs to establish this company. An unwritten agreement allocated equal shares of Jaraco to the IIS and to the Bakhtiars.
In some instances the sensitivity of the relationship between Iraq and the foreign country was such that it was easier for the company to set up a branch within Iraq to broker deals rather than for Iraq to operate within the foreign country. Most reporting suggests that IIS did place officers in foreign countries to operate companies; however, one former IIS officer with direct access stated that the IIS dealt with foreign companies through branches located in Iraq and exploited the employees of these companies.
- According to a high-level MIC official, Neptun Trading Company had an office in Baghdad up until OIF. An alleged Russian military intelligence officer suggested Neptune would be a good company for the IIS to cooperate with to supply the Iraqi army with Russian items. Colonel Yevgeniy Turskiy, a Russian Military Attache to Iraq directed the company in Baghdad. A source from the DMI Section 6 stated that Neptun was run by Russian intelligence and was a cover company run out of the Russian Embassy in Baghdad.
IIS M16 Directorate of Special Logistics. The IIS M16 Directorate of Criminology has been a major concern to ISG because of its work with poisons and toxins. ISG does not know the full scope of M16's activities, and we do not know the degree to which the Technical Consultation Company's procurement efforts contributed to these activities. There is conflicting evidence that suggests M16 did procure banned items for its labs through illicit channels. The Director of M16, Nu'man Muhammad al-Tikriti, and other reports suggest that M16 was only involved in research and development and that it did not possess prohibited chemicals after 1997, according to multiple sources.
- In late 2001 or early 2002, IIS M16 Officer Khalid 'Alawi met the director of M4/4/5 to discuss procuring goods, including equipment used to analyze chemical materials. M4 was unable to obtain the equipment, and it was never delivered to M16.
IIS Procurement Cooperation with Foreign Intelligence Services
IIS also used its connections within foreign government intelligence services to facilitate the transfer of illicit goods into Iraq. Before the end of 2000, the Iraqi and Syrian Ministers of Transportation met to establish the Iraqi Organizing Office in the Syrian port of Tartus to facilitate the shipment of goods to Iraq via land, according to a former IIS officer with direct access. The operating manager was an IIS officer from the M5 Syria Directorate. The predecessor of the Iraqi Organizing Office was the Al-Noras Company operated by Muhammad Talad al-'Isa and a Syrian intelligence officer. Iraq used this arrangement to deliver heavy equipment transport vehicles, but ISG did not detect any weapons shipments.
- In 1999, secret exchanges occurred after Iraq sent intelligence delegates from the IIS, represented by Abid Hamid Mahmud al-Tikriti, the MIC, and the Presidential Bureau to Syria. The discussions yielded an agreement that Syria would facilitate the transportation of material coming to Iraq by changing shipping documents to make the military equipment look like ordinary civil items, as well as changing end-user certificates to the Syrian Ministry of Defense.
- Iraq had contracts with a Belarusian company—Belmetalenergo (BME)—and a joint Russian-Belarusian firm—Electric-Gaz-Com (EGC)—to import missile technology, parts and expertise. All contracted goods with Belarus were sent through Syria. The SES International would implement contracts for transportation of the goods to Iraq under the protection of Syrian intelligence for a fee of 10 percent of the contract price.
Items Procured by the IIS
In accordance with Saddam's instructions to MIC Director Abd al-Tawab Mullah Huwaysh, the MIC-IIS relationship was formed to support to Iraq's various missile programs. Although missile programs may have been the reason for the cooperative effort, the IIS also procured for the telecommunications industry, scientific research and development community, and the military. The following are examples of IIS deals that involved the procurement of such items:
- In February 2003, Saddam ordered Al-Basha'ir Head Munir Mamduh Awad al-Qubaysi, Al-Milad Company Director General Sa'ad Abbass, and IIS M4/4/5 procurement officer for Syria and Bulgaria Majid Ibrahim Salman al-Jabburi to travel to Damascus, Syria to negotiate the purchase of SA-11 and Igla surface-to-air missiles, according to a source with good access. This team negotiated with 'Abd al-Qadir Nurallah, manager of the Nurallah Company, to purchase the missiles from a Bulgarian firm, to provide end-user certificates, and to ship the weapons to Iraq.
- In mid-2001, the Technology Transfer Department of the IIS procured between 10 and 20 gyros and 20 accelerometers from a Chinese firm for use in the Al-Samud ballistic missile, according to a former high-ranking official in the MIC. At approximately the end of 2001, the IIS also arranged for Mr. Shokovan from China to teach a course on laser and night-vision technology.
- The IIS completely controlled all procurement from North Korea, according to a senior MIC official. Iraq signed a contract with North Korea to add an infrared-homing capability to the Volga missile to provide jamming resistance in 1999. Iraq also sought to improve the accuracy of its Al-Samud and Al-Fat'h ballistic missiles by obtaining inertial navigation systems, gyros, and accelerometers from North Korea. The IIS also completely controlled procurement via a Russian and Ukrainian company named Yulis that supplied small arms, Kornet antitank guided missiles, and night-vision equipment between 1999 and 2000.
- Iraq sought assistance from the Russian company Technomash in developing a test bench for missile engines, missile guidance and control systems, and aerodynamic structures. The ARMOS Company signed a contract with a company in Poland to obtain Volga missile engines. The IIS completely controlled this transaction, which sought approximately 250 Volga engines.
- The IIS facilitated a visit by a delegation from the South Korean company Armitel, and contracts were signed to procure fiber-optic equipment for military communications between 1997 and OIF, according to a former MIC senior executive. The contracts were valued at $75 million, and Iraq received more than 30 containers during two shipments, the first via Syria and the second via Lebanon. Middle companies in Syria and the UAE covered these contracts.
- From 2000 until OIF, the IIS used the MIC Al-Basha'ir front company to facilitate a deal with the Bulgarian JEFF Company to obtain T-72 tank parts and Igla MANPADS, according to a former MIC senior executive.
IIS Front Companies
The IIS ran a number of front companies that were used to procure specialized items for its own use and for other security elements. The primary IIS Directorate handling these transactions was the M4/8 Directorate, previously known as the M19 Directorate. As of 1994, M4/8 was organized into three different sections, the domestic section, the foreign section, and the trading section (for more information on the IIS structure see the RSI IIS annex).
The Domestic Section, also known as Section One, was primarily responsible for creating front companies inside Iraq and facilitating trade with these companies to import/export oil, batteries, copper and food products. Section One also maintained front companies in the restaurant and retail businesses on behalf of the IIS Directorate of Counterintelligence (M-5). These M-5 front companies included the Al-Zaytun and Al-Amhassi restaurants (see Figure 47). Although M-5 owned these business establishments, they were leased to Iraqi nationals who were not associated with the Iraqi Government. Section One managed a total of eight companies within the trade, travel, and hauling industries, but as of June 2003, Al-Dala and Al-Yarmuk travel companies were the only front companies still operating in Baghdad.
The Foreign Section, also known as Section Two, conducted covert trade with overseas companies. Sadiq Sha'ban was the director of this section from 1994 to 1995 Salih Faraj was director in 1995, Sadiq Sha'bi from 1995 to 1997, and Husayn al-Ani from 1997 to 2003.
The Trading Section, also known as Section Three, dealt with the import and export computers, electronic equipment, listening devices, copper, and industrial products for use within the IIS and other government agencies. Starting in 1995, this section, while it was housed within the Projects Department, operated directly under the management of the IIS General Director. According to a former high-level official at the IIS, Walid Hadi, who served as the section's director from 1989 until 2003, basically became a figurehead from 1995.
In 1997, M-19 Director Mana 'Abdallah Rashid ordered a halt to all the activities of Section Two, because of the failure of one of the sections companies to deliver spare parts, tires, batteries, electronic equipment, and vehicles to the Office of the Presidency. During this same period, Hassan Khushnaw, the manager of a Section One front company, Al-Wadi Al-Akhad Trading, was caught attempting to smuggle copper out of Iraq. Khusnaw was subsequently arrested and jailed, along with the previous director of M-19, Sami Hanna. These incidents resulted in the permanent closure of the companies, except for Al-Yarmuk and Al-Dala. Sections One and Two were removed from M-19 and placed within the Counterespionage Directorate (M-5) and Directorate of Secret Service (M-4), respectively (see Figure 48). Section Three remained under the IIS Director's office.
- The term "Trade Office" was used internally, but when dealing with the outside world, the name "Technical Consultation Company" was used.
- The Trade Office fell organizationally under Khudayir al-Mashadani, the head of the Special Office, M1, but Walid Hadi reported directly to Tahir Jalil Habbush al-Tikriti, the head of the IIS, according to an Iraqi official.
The M4/8 directorate operated several front companies in Syria. To manage these companies, the directorate was broken down into three sections, including commercial, accounting, and liaison sections. The liaison section coordinated activities between the commercial and the accounting offices. Some of the cover companies operated by the directorate included Al-Riat, Al-Manuria, and Al-Enbuah.
The IIS used companies that had contact with the outside world as a means of collecting foreign contact intelligence. The organization owned and operated a front company called Al-Huda Religious Tourism Company. Al-Huda was also known as the Al-Dhilal Religious Tourism Company, and was established after the conclusion of the Iran-Iraq war and subsequent exchange of prisoners.
- The company's ostensible purpose was to transport religious tourists to holy places in Iraq, such as Samara, Karbala and Najaf.
- The IIS created the company as a way to gain access to the Iranian tourists once they were within Iraq and collected information through casual illicitation.
- All of the employees of the company were IIS employees.
Special Security Organization
ISG has found little evidence that the SSO was used to procure WMD materials, prohibited or dual-use goods. This finding is consistent with the SSO's mission of domestic only operations and inherent primary mission of securing Regime sites and leaders and monitoring the citizenry to ensure loyalty. The SSO associated laboratory, the Food Examination and Analysis Laboratory (FEAL), conducted food stuff testing but there is no evidence to date that FEAL used illicit channels to procure equipment for Iraq.
- Amir Ibrahim Jasim al-Tikriti, a member of the SSO and a relative of Saddam, was sent to Poland in 2000 to work on his doctorate in mathematics. Although there he procured Volga engines and batteries on behalf of the IIS for Iraq, according to claims. The same source stated that this procurement relationship was largely a result of Amir's relationship to Saddam and not because of his SSO affiliation.
- After Abd al-Tawab Mullah Huwaysh became MIC Director in 1997, he decided that the SSO had no technical expertise and therefore had no procurement role with the MIC.
SSO Procurement Leadership and Mission
Although the SSO, under the direct supervision of Qusay Saddam Husayn al-Tikriti, may have played a small role in procurement outside of the country, it is more likely that the SSO's role in the procurement process was limited to securing illicit shipments once inside Iraq. Senior members of the Regime, such as Abid Hamid Mahmud al-Tikriti, the former presidential secretary, were probably aware of this role for the SSO, but were most likely not directly involved in the process. SSO officials were also in charge of monitoring those involved in the procurement process, like the RG and SRG, to ensure their loyalty to the Regime was maintained.
- According to authorization and shipping documents, between 1993 and March 2003, the State Company for Marketing Drugs and Medical Appliances, Kimadia, shipped dual-use chemicals and culture media to Iraq's SSO. The items were supplied to SSO's Walid Khalid.
Iraqi Atomic Energy Commission
According to multiple Iraqi sources, the IAEC was responsible for the development and retention of nuclear expertise in Iraq. The IAEC most likely relied on its own procurement department for acquiring materials and technology.
- A foreign intelligence service revealed in 2002 that the IAEC was pursuing procurement contracts from a South African company for HF communications systems and 16,000 channel receivers.
- Captured documents dated 2002 show direct negotiations with several Indian institutions for medical and chemical technology transfers.
- Other documents dated 2002 reveal contracts to obtain vacuum furnaces manufactured in Russia.
Documentary evidence and debriefings, however, reveal that the IAEC also used the MIC, MIC front companies, and the IIS to procure foreign materials and technologies.
- Internal memoranda dated January 1995 reveal that the IAEC was reviewing procurement contracts with the Al-Basha'ir Company, the Latif Company, and the Al Jubayl Office. These contracts were based on oil bartering—common practice before the UN OFF Program was accepted in 1996.
- In July 1996,MIC, Al-Basha'ir Company, Ministry of Industry, and IAEC were passing correspondence regarding overdue debts to Al-Basha'ir totaling $14.2 million.
- According to a former Iraqi scientist, the IAEC asked the MIC to obtain $3.5 million worth of computer cards in 1998.
In January 2002, according to a detained senior MIC official, Saddam directed the MIC to assist the IAEC with foreign procurement. On a few occasions the IAEC used MIC to procure goods, ostensibly as part of the IAEC modernization project. At this time, Saddam Husayn also directed the IAEC to begin a multi-year procurement project called the IAEC Modernization Program. This program, which was still functioning up to the Coalition invasion in 2003,strove to revitalize the IAEC capabilities. The chief improvements under the program included:
- Creation of new machine tools workshop at Tuwaitha outfitted with new generic machine tools, including CNC machines (see Figure 49).
- Improvement of the IAEC's nonnuclear technical and manufacturing capabilities.
- Budget increases that resulted in ten-fold salary increases and new recruiting efforts for IAEC scientists.
The IAEC's procurement relationship with the IIS dates back to the late 1990s. The IIS procurement channel was reportedly reserved for sensitive foreign technical information and items prohibited by the UN sanctions. March 2002 IIS internal documents describe the creation of a committee to obtain resources for the IAEC.
Ministry of Transport and Communication
The Ministry of Transportation and Communication (MoTC) also facilitated and participated in the procurement of prohibited items for the former Regime. The MoTC transshipped sensitive commodities into Iraq using a range of deceptive practices designed to foil international monitoring efforts. The MoTC also served as a benign cover end user for the acquisition of dual-use items for the MoD and other Iraqi security services. The MoTC procured prohibited fiber-optic materials to improve the Iraqi telecommunications infrastructure. By evaluating thesecontributions, we judge that the MoTC played a small but important role in Iraq's illicit procurement programs.
Mission and Key Procurement Companies under the MoTC
The MoTC was responsible for all internal movement of commercial goods in and out of Iraq. The MoTC accomplished this mission through 14 state-owned enterprises known as "General Companies". Three of these stand out as playing key parts in facilitating illicit procurement for Iraq.
- The Iraqi Land Transportation General Company (ILTC), which controlled all surface transport in and out of Iraq with the exception of fuel transport and railways.
- The Iraqi-Syrian Land Transportation Company had offices near customs points at Tartus port in Syria to assist in the movement of goods into Iraq. This ILTC subordinate company seems to have been established to handle the increased transactions resulting from the Syrian Trade Protocol.
- The Iraqi-Jordanian Land Transportation Company, an OFF shipping company run by MoTC, had an office in Aqaba, Jordan, and performed a similar role as the Syrian Land Transportation Company. ISG also suspects that the Iraqi-Jordanian Land Transportation Company was probably set up to accommodate trade from the Jordan Protocol.
Ministry of Higher Education and Scientific Research
Throughout the 1990s, Saddam Husayn used the Ministry of Higher Education and Scientific Research (MHESR), through its universities and research programs to retain, preserve, and protect Iraq's indigenous scientific and WMD-related capabilities, including its research projects and knowledge base. The MHESR had close working ties with MIC, which supported the ministry by coordinating, directing, and implementing the Regime's critical research and development activities, according to former MIC director Huwaysh. ISG also has uncovered one case where Iraq used the cover of its student exchange program to procure goods.
University Collaboration With MIC
The MIC maintained close working ties with the MHESR, links that entailed financial support for academic research and the provision of academic experts for MIC projects. These ties shaped MHESR academic priorities, provided an opportunity for MIC to directly commission academic research, and facilitated an exchange of personnel between the two entities.
The MHESR Research and Development Directorate, headed by Hasin Salih (and later by Al-Jabburi) developed a close working relationship with the MIC Research and Development Directorate (headed by Dr. Hadi Tarish Zabun) and the MIC General Director for Teaching. Salih was responsible for all research and development activities and would frequently meet with the Research and Development Directors from all the ministries to discuss work and research problems. The MIC's interests were considered particularly important in the selection of research projects at the universities.
- According to one source, prior to OIF, approximately 700 to 800 academics were regularly sent to work at the MIC or its companies for a few hours per week.
- The MIC Director claimed that he increased the number of contracted university instructors working with the MIC from a handful in 1997 to 3,300 by 2002.
- Twenty professors assisted the Al-Samud factory. They worked to solve technical problems and provide training for staff members at the factory. According to one source, however, many Iraqis considered the overall effort of limited value.
- MIC missile experts also worked closely with the universities, in some cases supervising students with graduate research and in other cases teaching students at the universities.
Huwaysh involved himself in each phase of MIC-sponsored projects with the MHESR, including project applications, planning, development, and implementation. Huwaysh reviewed and approved all project proposals submitted by university deans, department heads or faculty advisers within Iraq. After receiving Huwaysh's approval, the company and the university staff would discuss and agree to the parameters of the project. Then MIC opened the project up to a normal bidding process, inviting different institutions, including foreign nationals from Jordan and Syria, to tender bids for the project proposals. After scrutinizing incoming bids, university department heads conducted and then submitted a feasibility assessment of the proposal to the MIC. The MIC chose the final bidder; the contract price would be discussed when the contract had been finalized.
- MIC closely monitored its research projects.MIC leadershipbiannually held "conferences" where university staff conducting MIC-sponsored research briefed the MIC leadership on the progress of their work. These conferences afforded the MIC opportunities to monitor progress on research projects, identify problems, and offer solutions to the researchers.
MIC Research Support at Universities
Documentary evidence reveals that MIC and its companies divided their research projects among Iraq's major universities.
- Baghdad University and Mustansiriyah University provided general multi-discipline support to MIC projects.
- Mosul University provided support to the MIC in the areas of remote sensing and chemistry.
- In another case, Basrah University provided support in polymer chemistry.
Other examples of specific projects sponsored by MIC companies include:
- The Al Rashid State Establishment financed polymer research on thermal insulators for the Sahm Saddam ("Saddam's Arrow") missile.
- The Al Huttin Company subsidized research on replacing brass shell casings with polyethylene.
- The Al Huttin Company also funded research on heating rate problems in induction furnaces.
- The Al Shahid Company financed research focusing on energy loss from the safety dump of copper from the furnace.
- The Al Qa'Qa'a Company sponsored nitrocellulose research.
- The Al Samud company paid for research on an inexpensive method to produce spherical iron molds.
Exploitation of Academic Exchanges for Procurement
Iraq's academic exchange program—for both students and professors—was used to facilitate the transfer of dual-use technology, using home universities as false end users to illicitly acquire goods in support of Iraq's WMD programs. By sending students and professors abroad, Iraq may also have been using both students and professors to transfer, support and advance Iraq's intellectual and WMD "infrastructure."
- In 2000, Amir Ibrahim Jasim al-Tikriti, a member of the SSO, was sent to Poland to continue his mathematics doctorate on the assumption that he would return to the SSO upon completion of his studies. During that time in Poland, we judge that the IIS recruited or tasked al-Tikriti to facilitate the purchase of Volga missile engines for the Iraq's Al-Samud II missile program. ISG has corroborating evidence that the MIC trading company ARMOS signed the contract(s) with a Polish firm for the Volga engines, and that the IIS controlled the entire acquisition.
- According to reporting, approximately 250 Volga engines were purchased from a stock of old missiles and sent back to Iraq possibly with complicity of the Iraqi Embassy in Warsaw. Al-Karamah purchased the engines and originally stored them at the Samud factory, and then moved them to Ibn Al-Haytham.
Ministry of Agriculture
Throughout the 1990s, the Ministry of Agriculture (MoA) procured controlled items outside UN sanctions and then later outside the UN OFF Program for special projects as well as legitimate agricultural projects. The Iraqi front company Al-Eman Commercial Investments owned by Sattam Hamid Farhan al-Gaaod had a special relationship with the Agricultural Supplies Committee of the MoA. According to an Iraqi businessman, Al-Eman Commercial Investments from 1990 to 2003 supplied MoA with seeds, pesticide, veterinarian medicine, harvesters, tractors, water pumps and spare parts of machinery.
- Before OIF, Al-Eman periodically sent shipments from Jordan to Iraq via the Iraqi Embassy. Jordan allowed the shipment of one container a month under diplomatic cover that did not require inspection.
- In 1995, Al-Eman purchased a kit of reagents worth $5,000 from the Swiss firm Elisa for an organization named Al-IBAA, a special unit in the Iraqi MoA. Al-IBAA was connected to Saddam, had a special research facility and was granted an unlimited budget. Al-IBAA was able to obtain any equipment and support within Iraq that it needed and paid cash for all its orders.
- According to a high-level Iraqi civilian official with direct access, the MoA took control of one of the food testing labs, which was used to test Saddam Husayn's food. Equipment for the lab was purchased through the Iraqi–Jordanian Protocol. Dr. Sabah of the Veterinary College was instrumental in these purchases (see Figure 50).
The MoA also used the MIC to obtain goods that were deemed especially difficult to procure given the restrictions of UN sanctions. At the same time, the MIC would occasionally identify the MoA as a false end user to obtain restricted dual-use goods.
- Between 1992 and 1998, the MIC was responsible for all chemical procurement in Iraq. The MIC brought active ingredients into the country using false bills of lading, formulated the product, and then distributed the final product to the appropriate ministry. For example, the MIC smuggled insecticides—probably Malathion and Parathion—into Iraq, formulated them at Al-Tariq, and subsequently provided them to the MoA.
- In late 2002, the MIC and IIS directed Iraqi businessman, Sattan Al Ka'awd (who may also be known as Sattam Al-Gaaod), to approach a Croatian engineer, Miroslav, and other Croatians to purchase restricted precursor chemicals from Croatia. According to an Iraqi businessman with direct access, Al Ka'awad was tasked for this activity due to his close working relationship in the past with the Iraqi Government. The end user of the chemicals was reportedly the MoA but the actual recipient was said to be involved in CW activities, according to the same source.
Ministry of Interior
ISG has not discovered evidence that the Ministry of Interior (MoI) was involved in the procurement of WMD materials, prohibited items, or dual-use goods. This finding is consistent with the MoI internally focused mission. In addition, prior to OIF, the MoD not the MoI administratively controlled security groups that may have been involved in illicit procurement activities.
Front Company Conglomerates: Al-Eman and Al-Handal
In addition to the major front companies already mentioned in this report, the Iraqi Government and its citizens set up hundreds of other front companies both within the country and around the world for the purpose of smuggling prohibited items into the country. We now know of over 230 of these front companies, many of which were created for a single transaction and never used again. There were, however, several major front companies that participated in the majority of this illicit business, some of which were government-sponsored and one large conglomerate, Al-Eman, which was privately owned.
The term "Iraqi front company" has become pervasive in terms of Iraq's procurement networks. One definition of an Iraqi front company is an Iraqi company or Iraqi controlled company, operating either within Iraq or abroad that knowingly partakes in international commerce with the intent to acquire goods or services for an Iraqi client using deceptive trade practices. Deceptive practices could include misleading or colluding with suppliers, intermediaries, or others involved in the acquisition, shipping, or payment processes. This would include such actions as misrepresenting the origin or final destination of goods, or misidentifying the goods, the end user, or end use. Complicating matters, many of these companies were involved in legitimate trade, with illicit activity playing a less significant role. The association of the IIS with a company also suggested Iraqi influence and front activity.
The assumption and general appearance was that many Iraqi companies involved in international trade, as a norm, were aware of deceptive trade channels and took advantage of them in dealing with both routine and sensitive acquisitions. However, the government's association and influence with trade companies varied. Some companies may not have had a choice, but others found it in their financial interest to get involved, and therefore approached and competed for government contracts.
Al-Eman, directed by Sattam Hamid Farhan Al-Gaaod (see Figure 51) had its start in the early 1990s, and up until OIF, was the largest network of Iraqi front companies with a number of subsidiaries operating in Baghdad, Iraq, Dubai in the UAE, and Amman, Jordan. Al-Eman companies have been observed for the last 10 years as they procured dual-use and military goods for the Iraqi Government, and were heavily involved in the UN OFF kickback scheme. Al-Gaaod used his relationships with Saddam and 'Uday Saddam Husayn al-Tikriti, and Husayn Kamil to both acquire contracts for supplying the various ministries with sanctioned materials, smuggling oil, and he used those relationships to intimidate others.
- Al-Eman is essentially a family-run business, with strong family ties linking most of the subsidiary firms.
- The accountants in Al-Eman are key figures with the best overall knowledge of the company's activities.
- Al-Eman did considerable business with Syria through the "Syrian Protocol," an arrangement of false purchases and kickbacks that laundered funds for Iraqi purchases.
The Al-Eman Group was also involved in the OFF kickback scheme through the Jordan National Bank and embassy commercial attaches. Upon completion of services under UN OFF, the Banque Nationale de Paris deposited payments in the National Bank of Jordan, which provided banking services to Al-Eman. The National Bank of Jordan automatically deducted a 10-percent performance/kickback from the UN OFF payment. The National Bank of Jordan then deposited the kickback amount into accounts controlled by the Iraqi Regime. The CAs in the Iraq embassies played a key role in orchestrating procurement and financial activity. The attaches arranged collection and transferred kickbacks, and Al-Eman worked very closely with them.
The Al-Eman Network
Dozens of companies were included in the Al-Eman network, most of which were either owned or operated by members of the Al-Gaaod family. The following table (see Figure 52) is a sampling of some of the Al-Eman companies and their role in acquiring materials for the Iraqi government:
Key Al-Eman Owners: Sattam Hamid Farhan Al-Gaaod and His Family. Extended family plays a key role in Al-Eman operations. As of March 2003, three of Sattam Hamid Farhan Al-Gaaod's cousins ran subsidiary or affiliated companies in the network.
- Jalal Al-Gaaod owns the subsidiary Sajaya.
- Talal Al-Gaaod functions in a public relations role for the family.
- Hamid Al-Gaaod is owner of the Al-Yanbu Company.
Al-Gaaod's Ties to Iraqi Leadership
Al-Gaaod was one of Saddam's most trusted confidants in conducting clandestine business transactions, often traveling abroad using an Ecuadorian passport. Just prior to March 2003, he traveled to Sweden and Ukraine on behalf of Qusay.
- Al-Gaaod also had a close partnership with 'Uday and Husayn Kamil, and was a key player in the MIC.
- He assisted As'ad Al Ubaydi Hamudi, the brother of Dr. Nazar Al 'Ubaydi Hamudi, a scientist involved in producing chemical weapons, in obtaining contracts with the Al Qa'qa'a General Company, The Atomic Energy Company, the Al-Karamah State Establishment the Al Basil General Company, the Al Muthanna State Establishment and over 25 other companies within the MIC from 1992 until 2002.
- Al-Gaaod, Dr. Nazar, and Assad are all linked to the Al Abud network described in the CW section of this report.
The Iraqi Regime arrested both Talal and Hamid Al-Gaaod in 1996 as a result of unspecified financial and contractual problems related to deals with the MoA. As of late 2001, Sattam Hamid Farhan Al-Gaaod's brother, Abd al-Salam Farhan Al-Gaaod was running a firm called Al-Arab Agencies. This company was used for shipping, operating primarily out of Basrah. Al-Arab handled many of the firm's transport requirements and petroleum exports via the Gulf.
- Another of Sattam's brothers, Najib Al-Gaaod, was involved in the procurement of spare parts for Russian-made tanks as late as 2001. According to captured documents, Najib Al-Gaaod's company, Al-Talh Office Co. provided an offer to the MIC for 12 T-72 tank engines, dated 1 February 2000 for a net price of 900,000 Euros.
- The same documents also included an offer dated 1 February 2001 for spare parts of T-55 tanks.
- The company letterhead stated that it had offices in Moscow, Yugoslavia, and Jordan.
Although Sattam Hamid Farhan Al-Gaaod has admitted to an Iraqi who was interviewed by ISG that he would smuggle oil out of Iraq and foodstuffs into Iraq in violation of the UN OFF agreement, he has stated that he believed this to be legitimate business. According to the interviewee, it was unnecessary to alter the packaging of the goods to conceal the true nature of the contents, because it was only food. ISG judges that Al-Gaaod's statements have routinely been designed to overly downplay his role in the former Regime.
Sattam Al-Gaaod's Relationship With the IIS. Al-Gaaod has denied being involved in the IIS, while other sources have claimed that he was an active member at least since 1993.
- His brothers, Abd al-Salam Farhan Al-Gaaod, Abd al-Salam Farhan al-Gaaod, Abd al-Salam Farhan al-Gaaod, and Najib Hamid Farhan al-Gaaod were all members of the IIS.
- Sattam Hamid Farhan Al-Gaaod was able to use his connections with the IIS to import items prohibited by the UN, including chemicals.
The IIS frequently used businessmen with international connections to import goods, including nonmilitary goods, into Iraq. Al-Gaaod associates suspected he had IIS links based on a number of factors.
- A high-level government official observed that Al-Gaaod must have had government contacts to avoid Regime interference. He believed Al-Gaaod was in the IIS because he was not a Ba'ath Party member and was not in the government, yet he was a "powerful man."
- The source asserted that, generally, IIS connections allowed Iraqi businesses to contact the best suppliers in other countries to obtain sanctioned items.
Al-Handal General Trading Company
Closely tied to Saddam's family and to the IIS, the firm Al-Handal Trading received preferential treatment in the issuance of Iraqi procurement tenders. The head of the firm, Wadi al-Handal, has established several subsidiary companies under the firm to facilitate acquisition of sensitive goods for Iraq. All of the Al-Handal connections are based in Baghdad.
The Al-Handal General Trading Company was established originally in Dubai to import car parts and accessories into Iraq, but in the wake of the Gulf war, Wadi al-Handal quickly recognized that broadening his business line could make enormous profits. Wadi established several subsidiary companies under Al-Handal (see Figure 53). The company used two primary means to move proscribed equipment into Iraq. The first was using ships leaving Dubai, and smaller items were carried on board in personal luggage and off-loaded in Basrah. Al-Handal had at least one vessel berthed in Alhamriya Port, Dubai. Wadi's preferred method was to use his brother in Amman, Sabah al-Handal, who owned a plastic pipe company. Equipment would be delivered to Sabah's company, be labeled as plastic pipe or related equipment, and then shipped onward into Iraq overland.
- Al-Huda is the main holding company for Al-Handal General Trading.
- Al-Huda is the mechanism Wadi used to establish and control other front companies, and much of the firm's acquisition business was conducted through Al-Huda.
There are at least three different front companies in Iraq that use the name Al-Huda. Al-Huda Religious Tourism Company is an unrelated, well-known IIS front that oversees and monitors tourists coming into Baghdad to visit holy sites. Another Al-Huda company was owned by 'Uday Saddam Husayn al-Tikriti. According to a cooperative source, the company, however, Al-Huda Industrial Holdings, owned by Wadi al-Handal, made use of the similarity in the names to the company's benefit. Reportedly, al-Handal used these "IIS ties" to intimidate competitors in Baghdad and may also have used the perception that he was associated with the IIS while competing with other companies for contracts.
Supplying Iraq With Prohibited Commodities
Despite UN sanctions, many countries and companies engaged in prohibited procurement with the Iraqi regime throughout the 1990s, largely because of the profitability of such trade.
- Private companies from Jordan, India, France, Italy, Romania, and Turkey seem to have engaged in possible WMD-related trade with Iraq.
- The Governments of Syria, Belarus, North Korea, former Federal Republic of Yugoslavia, Yemen, and possibly Russia directly supported or endorsed private company efforts to aid Iraq with conventional arms procurement, in breach of UN sanctions.
- In addition, companies based out of the following 14 countries supported Iraq's conventional arms procurement programs: Jordan, the People's Republic of China, India, South Korea, Bulgaria, Ukraine, Cyprus, Egypt, Lebanon, Georgia, France, Poland, Romania, and Taiwan.
- The number of countries and companies supporting Saddam's schemes to undermine UN sanctions increased dramatically over time from 1995 to 2003 (see figure 54).
- A few neighboring countries such as Jordan, Syria, Turkey, Egypt, and Yemen, entered into bilateral trade agreements with Iraq. These agreements provided an avenue for increasing trade coordination and eventually led to sanctions violations.
The countries supporting Iraq's illicit procurement changed over time. These changes reflected trends based on Saddam Husayn's ability to generate hard currency to buy items and the willingness of the international community to criticize those countries selling prohibited goods to the Regime. The following sections addressing each country have been grouped according to when evidence indicates they began supporting Saddam's illicit procurement programs.
Procurement Suppliers During the Decline Phase, 1991 to 1996
ISG has identified entities from three countries that began supporting Iraq with illicit procurement during the post-Gulf war "decline" phase in the Regime: Romania, Ukraine, and Jordan. Romania and Ukraine had just emerged from the Soviet bloc with an excess of military hardware and expertise and a need for hard currency. Jordan, which profited primarily from allowing transshipment, argued that Iraq was a major trading partner before 1991 and trade with Iraq was a necessity.
According to a high-level official of the former Iraqi regime, trade between Iraq and Romania flourished during the Ceauscescu era (1965 to 989). The IIS had an active presence in Romania throughout this period and MIC engineers were active in procurement programs directed from the Iraqi Embassy in Bucharest.
- In the mid-1990s, reporting indicated that the Iraqi MFA and MIC were both interested in changes to Romanian export controls over nuclear, biological, and chemical weapons and their associated technologies.
According to documents identified by UNSCOM in Operation Tea Cup, Iraq reestablished a procurement relationship with the Romanian firm Aerofina in February 1994. The Iraqis and Romanians conducted two to three delegation visits between Bucharest and Baghdad to discuss sending Romanian missile experts to Iraq to assist with design and guidance control problems in the Al Fat'h missile, later called the al Samud, and to obtain missile parts and related raw materials.
- By August 1994, several procurement contracts had reportedly been signed.
- In November 1995, the Iraqi's sent a letter to Aerofina requesting that the missile repair part shipments be temporarily stopped due to concerns over the quality of the goods.
- As a result of UNSCOM's operation (see inset), the Romanian Government acknowledged in 1998 that Aerofina sold Iraq weapons parts in 1994 via an intermediary company in Jordan.
According to a source with good access, a Romanian source provided analytical equipment and testing for SG-4 tank gyroscopes and gyroscopes intended for missile applications to Iraq in the late 1990s. This equipment may have been used to ascertain the quality of illicitly imported gyroscopes because Iraq could not manufacture them domestically. The name of the Romanian supplier was not specified.
In March 1998, Iraqi intelligence conducted an operation to smuggle weapons and military equipment from Romania in violation of UN sanctions, according to a reliable source. Walid al-Rawi, an IIS agent stationed in Romania, was sending pictures of tanks and military equipment available for sale from Romania back to Baghdad. An Iraqi diplomatic pouch was used to transfer the photographs. There is no further information concerning the type, number, or source of the conventional military goods purchased.
- Al-Rawi used Qatar and Dubai in the United Arab Emirates (UAE) as transshipment points for the illicit goods. Bribes were used to circumvent customs inspections at ports.
Al-Rawi obtained financing for the military goods by requesting money from Baghdad. If approved, the cash was reportedly sent to Romania via Geneva.
According to captured documents, Romania's Uzinexport SA was contracting in October 2001 to provide Iraq withequipment, machinery and materials linked to a magnet production line for an Iraqi V-belt drive project. This company worked with a mix of Iraqi front companies and intermediaries that were representing the MIC, the Iraqi lead for the project. The magnets—assembled by the Iraqis with Romanian help—could have been suitable for systems used to spin gas centrifuge rotors for the enrichment of uranium. Although there is no evidence that the magnets were employed in the production of gas centrifuges, the capability to indigenously produce magnets would have allowed Iraq to maintain knowledge and skill-sets in this area.
- The various front companies and trade intermediaries involved in the project included the Jordanian branch of the Iraqi firm Al-Sirat, the Jaber Ibn Hayan General Company, the Aa'ly El-Phrates company, and the Ali Al-Furat Trading Company. Jordan may have been used as a transshipment point for the magnet technology.
- Captured documents indicate that the total sum of the contract awarded to Uzinexport for the V-belt project was $4,607,546. This was paid though a combination of cash, letters of credit, oil, and raw materials.
Ukraine was one of the first countries involved in illicit military-related procurement with Iraq after the first Gulf war. Iraqi delegation visits to Ukraine were first evident in 1995. These visits were reciprocated in Iraq from 1998 to 2003. The highest-levels of the Ukrainian Government were reportedly complicit in this illicit trade as demonstrated by negotiations conducted in regard to the sale of a Kolchuga antiaircraft radar system to Iraq in 2000. In addition, Ukrainian state and private exporting companies independently facilitated the transfer of prohibited technologies and equipment, mainly in the missile field, to the embargoed Regime.
UNSCOM's Operation Tea Cup (1995 to 1998)
From 1995 to 1998, UNSCOM inspectors conducted "Operation Teacup," a sting operation designed to reveal Iraq's efforts to procure prohibited military and WM- related goods.
- The operation was launched after the defection of Saddam's son-in-law, Husayn Kamil, in 1995. Thousands of WMD-related documents were captured by the UN at Husayn Kamil's chicken farm, including the al Samud contracts (see the Husayn Kamil and The Saga of the "Chicken Farm" Documents insets in the Regime Strategic Intent chapter.)
- As a result of this sting mission, the UN videotaped Iraqi buyers (including Dr. Hashim Halil Ibrahim Al 'Azawi) negotiating with Romanians for prohibited gyroscopes.
According to IIS memos to the Iraqi Embassy in Kiev, Ukraine, was an important political ally for Iraq. After the initial business contacts in the mid-1990s, the government of Iraq embarked in a diplomatic exchange with Ukraine in 2001. ISG judges that Saddam's goal with this relationship was to gain access to Ukraine's significant military production facilities, including a large portion of the former Soviet space and rocket industry.
- The recovered IIS memos further indicated that the former MIC Director Huwaysh visited Ukraine in 2002 hoping to develop a closer industrial partnership.
- By 2001, the commercial exchange between the two countries reached $140 million. Captured documents indicate that Iraq strove to make "sure that the Ukrainian share from the oil for food program [got] bigger" to encourage further trade between the two countries.
ISG has recovered further documentation disclosing representatives from Ukrainian firms visited Iraq to coordinate the supply of prohibited goods from the early 1990s until on the onset of OIF. Information supplied by an Iraqi scientist indicates that Iraqi delegations visited Ukraine in 1995.
- By 1998, the Iraqi Al-Karamah State Establishment hosted numerous visits from Ukrainian suppliers seeking contracts assisting Iraq with its missile program.
- Mr. Yuri Orshansky, from the Ukrainian Company MontElect, led the Ukrainian visits. Orshansky's relationship with Iraq began in September 1993 when he arrived in Baghdad accompanied by Dr. Yuri Ayzenberg from the Ukrainian firm Khartron, a known company with missile guidance system design capability. Within 2 months, an Iraqi delegation reciprocated the visit to Ukraine.
- While in Ukraine, Orshansky, Ayzenberg, and General Naim (the head of Iraq's Scud missile guidance program) executed a "protocol" amounting to an outline of future cooperation between the parties for missile-related technologies.
Professor Yuri Orshansky and the MontElect Company
Yuri Orshansky, a professor of electronics and director of the Ukrainian MontElect Company, was the key facilitator between Saddam's Regime and Ukraine.
- He was a member of the Iraqi Ukrainian Committee for Economic and Trade Cooperation.
- In December 2000, he was made an honorary consul for Iraq in Kharkov.
- For his efforts, Orshansky was awarded 1.5 million barrels of oil by Taha Yasin Ramadan. From 1998 to 2000, he also received more than 6 million barrels from Saddam via the secret oil voucher system. Iraq's State Oil Marketing Organization (SOMO) estimated that Orshansky earned about $1.85 million in profit from these gifts (refer to the Known Oil Recipients, Annex B).
Between 1993 and 1995 Orshansky traveled to Iraq at least six times. During this period, Iraq sent at least four delegations to Ukraine.
Orshansky continued to visit Iraq in 1998 to 2003 and, through his company MontElect, he transferred a range of equipment and materials to the Al-Karamah State Establishment including:
- Engines for surface-to-air Volga 20DCY missiles in 2001.
- 300 liquid fuel motors to be used in al Samud I missiles.
- According to a former Iraqi government official, Iraq also signed a contract for Orshansky to design and build a plant to produce tiethylamine (TEA) and xlidene—the two components of TEGA-02 (missile fuel).
- The technology included guidance components for surface-to-air missiles, assistance in the development of batteries for the latest antiaircraft missiles, providing equipment for missile research and possibly assisting in the establishment of a college for training of missile expertise.
- Cooperation was initiated by Iraq requesting quotes on a test stand for rocket motors, a series of gyroscopes and accelerometers for missile-guidance systems and high precision machine tools for manufacturing missile components.
In 2000, Ukraine-Iraq relationship became public-knowledge when the Ukrainian Government was implicated in selling Iraq a Kolchuga antiaircraft radar system. President Leonid Kuchma was accused of personally approving the Kolchuga sale, worth $100 million, via a Jordanian intermediary.
- Evidence of Ukrainian Government complicity in the sale to Iraq was based on a secret 90-second audio recording made 10 July 2000 by Mykola Melnychenko, a former counter-surveillance expert in a department of the Ukrainian Security Service (SBU), according to press reports. The recorded conversation involved President Kuchma, Valery Malev, the head of Ukspectsexport, a state export agency, and Leonid Derkach, the former SBU Chairman. Kuchma allegedly authorized Derkach to export 4 Kolchuga radar systems to Iraq via Jordan. Kuchma also gave Malev permission to bypass export controls for the deal.
- Initially, Ukrainian Government denied the allegations but then changed its position on the issue several times. First, it denied that the meeting had ever taken place. Later it admitted that the meeting had taken place and that President Kuchma had authorized the sale, but argued that the sale had not been completed. (No Kolchugas have been found in Iraq.)
- It is interesting to note that the Government of Ukraine lifted export restrictions on Kolchuga radars four days after Kuchma authorized the sale to Iraq. After this deal, Ukraine and Iraq signed a trade and technical cooperation agreement in October 2000. Ukraine parliament ratified the agreement in November 2001.
The Iraqi IIS, MIC, and the associated MIC front companies also acquired military-related goods from Ukraine. According to information obtained in an interview with the former MIC Director 'Abd al-Tawab Mullah Huwaysh:
- In 2001, the IIS purchased five motors for unmanned aerial vehicles (UAVs) from the Ukrainian company Orliss for the MIC and Ibn Fernas. The Orliss company representative was by a female physician named Olga Vladimirovna. The motors were allegedly transported from Ukraine to Iraqi via Iraqi diplomatic pouch.
- In another instance an "Olga" (most likely Ms. Vladimirovna from Orliss) was known to have assisted the MIC with a carbon fiber filament winding and insulating material project. She was also the point of contact, in late 2002, for a contract with an unspecified Ukrainian supplier for missile engines and gyroscopes, but none of these items were ever delivered. The MIC only received some models of the gyroscopes.
Figures 55 and 56 further illustrate the activity between the MIC, and the MIC front companies such as ARMOS, and Ukrainian military supply companies in 2002.
In addition to gyroscopes and motors, Iraq sought missile fuel from private Ukrainian companies. Huwaysh stated that Iraq approached Ukraine for diethylene triamine (DETA) and AZ-11 (a mixture of 89 percent DETA and 11 percent UDMH). The MIC intended to use the fuel for the HY-2 missile system. Iraq reportedly had approximately 40 HY-2 missiles but only had sufficient fuel for 15 of them. Iraq, however, never received either the AZ-11 or its components.
By 2003, recovered documents and intelligence indicate that the ARMOS Trading Company was playing a greater role an intermediary between Iraq and Ukraine. ARMOS was a joint venture with a Russian company established by MIC to import technology and assist in the acquisition of materials and equipment for MIC and other Iraqi ministries.
- ARMOS specialized in bringing both Russian and Ukrainian experts into Iraq and represented Russia and Ukraine during business transactions, mainly for the financing of military goods transactions (See the MIC Front Company section for further details on ARMOS).
- Documents indicate that ARMOS and MontElect were involved in offers of military equipment for Al-Karamah in January 2003. Signatures on the recovered documents implicate ARMOS, Al-Karamah, Sa'ad General Company, the Trade Office of the MIC, and Dr. Sergey Semenov of MontElect. The documents also revealed the use of Syrian transportation companies and use of the Iraqi-Syrian Protocol to facilitate the transaction. Iraq made two payments of $405,000 for the equipment.
Jordanian companies performed a variety of essential roles from 1991 through 1999 that aided and abetted Iraq's procurement mechanism: transportation hub, financial haven, one of several illicit revenue sources, and overall illicit trade facilitator (see the Trade Protocol section).Firms from Jordan facilitated the transshipment of prohibited military equipment and materials to the Iraqi Regime. Iraqi front companies conducted the vast majority of this illicit trade. This trade included the following:
- Captured documents reveal that a company called Mechanical Engineers and Contractors shipped missile parts to Iraq. Payment was made through the Jordan Investment and Finance Bank according to the guidelines established by the Iraq-Jordan Trade Protocol.
- A high-level former Iraqi government official stated that during 2002, compressors used in nitric acid production and Russian missile control systems destined for MIC front companies were shipped through Jordan.
- A $50 million contract was signed for the Iraqi Electricity Commission in 2002, for the purchase of Russian-made cables designed to withstand explosions.
Multiple sources indicate that the former Iraqi Regime also received offers from Jordanian companies for items such as global positioning system (GPS) equipment, metrological balloons, gyroscopes, video gun sights, electronic countermeasures equipment, and communications equipment.
- In February 2003, Iraq's Abu Dhabi Company sought to purchase a large quantity of field telephones and some frequency hopping radios from Jordan.
- In February 2003, Iraq's Orckid General Trading Company sought details of solid-state gyroscopes available through a Jordanian company. High performance gyroscopes can be used in UAVs, avionics and platform stabilization.
- The Iraqi firm Al-Rabaya for Trading in Baghdad contracted with a Jordanian firm, for US manufactured GPS equipment. The parties of the contract were identified as Munir Mamduh Awad al-Qubaysi, Managing Director or Iraq's Al-Basha'ir Trading Company, and Dr. Sa'di 'Abass Khadir, Director General of the Al-Milad General Company, companies run by the MIC.
The Al-Eman Investment Group employed many private subsidiaries to procure goods through Jordan for Iraq. An Iraqi businessman with direct access to the information affirmed that both the UN OFF program and the trade Protocol were used as mechanisms for conducting illicit trade. Al-Eman's Vice President, Karim Salih, also acquired Al-Samud missile engine parts for the MIC.
- Iraqi businessmen stated that the Al-Eman Establishment conducted business with many Iraqi ministries and was a critical component of the Iraqi illicit procurement apparatus.
- According to an Iraqi businessman with extensive Regime contacts, a Jordanian company, with offices in Amman and Baghdad, delivered engine spares for turboprop trainer aircraft owned by the Iraqi military. This Middle Eastern firm also dealt with the Iraqi Ministry of Information and the MoT, and had extensive contacts with the Iraqi CA in the Iraqi Embassy to Jordan in Amman. The firm did not manufacture goods; it simply acted as a broker for Iraq.
- The MIC procured banned items with the assistance of the Iraqi CA in Jordan. In 2000, a former high-ranking Iraqi official stated that a payment of $2.275 million was made to a Lebanese company for BMP-2 (armored vehicle) 30-mm cannon barrel-manufacturing technology. This technology originated with an arms firm called Yugoimport-FDSP, a firm based in the former Federal Republic of Yugoslavia known for violating UN sanctions on Iraq.
Methods Used To Hide Illicit Procurement via Jordan. According to a high-level source from the Al-Eman network, the Jordanian Government aided Iraqi efforts to conceal its illicit trade activity through its decision announced in October 2000 to terminate an inspection agreement with Lloyd's Registry. This agreement, in force since 1993, permitted Lloyd's to inspect only non-OFF goods coming through the Port of Aqaba. All OFF goods were monitored at all points of entry. Lloyd's, however, was not required to report illicit cargo (see Ministry of Transport section).
- An Iraqi customs official with direct access believed that the IIS operated several front company offices at the Turaybil checkpoint on the Iraq-Jordan border. These included Al-Etimad and Al-Bashair. Any goods destined for these companies received special treatment at the border.
A Jordanian businessman with extensive business contacts with the former Iraqi Regime asserted that official Jordanian approval was required for all trade with Iraq. Individual shipments had to be approved by the Jordanian security committee; the goods were sometimes photographed. Fawaz Zurequat, a possible Jordanian intelligence officer, who may have been imprisoned after 1999 because of his involvement with trading with Iraq, was a key Jordanian contact in this process.
- An Iraqi customs official believed that the trade with Jordan was very useful for acquiring prohibited goods, particularly vehicles and computers. The Iraqi Directorate of Military Intelligence (DMI) had two shipments per week through Turaybil after 2000—Iraqi customs officials were not permitted to check these goods.
Transport Routes for Procurement via Jordan. Iraq had formal agreements with Jordan during the 1990s. Jordan was the primary route through which Iraqi material moved. The IIS had a presence at key Jordanian transport nodes.
- Abdul Karim Jassem (Abu Lika) was the IIS representative at Al-Aqaba Port for three years until OIF.
- Turaybil on the border of Iraq and Jordan was the main entry point for illicit trade. A former high-ranking government official asserted that the IIS, DMI, and the Directorate of General Security had large offices there and enjoyed close liaison relationships with their Jordanian intelligence counterparts. Maj. Gen. Jihad Bannawi was head of the IIS section at Turaybil.
- Al-Eman had its own shipping division to transport goods to Iraq. It shipped goods through the Jordanian, Syrian, and Turkish official border checkpoints according to an Iraqi businessman, the supplier shipped goods through Aqaba Port or Amman airport.
Financing Procurement via Jordan. After 1999, the most important Jordanian contribution in assisting Iraq's illicit procurement apparatus was access to Jordan's financial and banking systems. An Iraqi businessman assessed that before 1996, 95 percent of Iraqi trade was conducted through Jordanian Government-run banks. After 1996, Jordanian banks handled only 30 percent of that trade, mostly from Russia. Document exploitation reveals that the Central Bank of Iraq (CBI) and the Iraqi SOMO provided the funds to Jordanian banks, which were spent by MIC, Iraqi front companies, Iraqi intelligence organs, and the commercial and military attachés present in the Iraqi Embassy in Jordan.
The MIC maintained bank accounts in Jordan for the purpose of making foreign purchases. A senior executive in the MIC confirmed that the MIC Minister, Abd-al Tawab Mullah Huwaysh, directed the opening of accounts in Jordan. These accounts were in the name of the Iraqi CA in Jordan, Selman Kadurm Abd Ghidau, and an unidentified accountant. The accounts were at five different Jordanian banks, but most of the money was deposited at the Al-Ahli (or Jordan National Bank) (see the Revenue section and the Banking section).
Procurement Suppliers During the Recovery Phase, 1996 to 1998
After the onset of limited trade under the OFF program, during the "recovery" phase, the Regime was better suited to offer either oil or cash for its procurement needs. ISG has identified companies in the following seven additional countries willing to engage in unsanctioned trade with Saddam during this phase: Syria, Turkey, South Korea, China, France, the former Federal Republic of Yugoslavia, and Bulgaria. Syria began to emerge as a primary transshipment and procurement facilitation partner, although Turkey served as a transshipment point, presumably focusing on consumer goods via its trade Protocol with Iraq. South Korean private firms traded in high technology items such as computer and communications equipment. Companies from China and France began negotiating for key equipment sales in this period. The former Federal Republic of Yugoslavia and Bulgarian firms may have been willing to risk international scrutiny from trading with Iraq due to the lure of high profits, lack of effective government oversight, and government corruption in the wake of the collapse of the Warsaw Pact.
Syria was Iraq's primary conduit for illicit imports from late 2000 until OIF. Under the auspices of the Iraq-Syria Protocol, Iraqi ministries and other entities would sign contracts with Syrian companies for goodsand services prohibited by the UN OFF program. SOMO databases show that Iraq signed contracts worth $1.2 billion, with payment dates from October 2000 through April 2003. These contracts relate to Iraq's imports financed from SOMO accounts under the Iraq-Syria Trade Protocol. The funds most likely came from the protocol credit account controlled by SOMO.
Military and security entities openly contracted with Syrian companies under the auspices of the Iraq-Syria Trade Protocol, according to the SOMO database.
- The MIC, MoD, and the Presidential Diwan (the latter acting on behalf of the IIS, RG, and Military Intelligence Division) contracted for $284 million worth of goods—24 percent of the total procurement noted.
- Of this $284 million, 60 percent ($169 million) was signed with one company, SES International. When all Iraqi procurement entities are included, SES signed contracts worth a total of $187 million. Although the SOMO database does not include specific information about the goods contracted for, the beneficiary companies listed include MIC research centers and manufacturing companies.
- The MoT and the MoTC imported goods for the MoD and the security forces according to the SOMO database. The MoT imported goods valued at $2.9 million and the MoTC imported goods valued at $8 million for the MoD. The MoT and MoTC contracted for an additional $9.9 million in goods for Iraq's Military Intelligence Division, General Security Division, and General Police Division.
- The MoT often acted on behalf of other entities, including security and research entities such as the MIC and the IAEC, according to a former senior Iraqi government official. The MoT accounted for 25 percent of the imports from Syria listed in the SOMO database. It is possible some of the MoT transactions not specifically mentioned as being on behalf of MoD or security forces aforementioned also were destined for Iraqi security, industrial, and research facilities. How much of these other MoT imports may have been destined for these end users is not known. The SOMO database does not mention any MIC transactions that were not explicitly contracted for by MIC (see Figure 57).
Most of Iraq's military imports transited Syria by several trading companies, including some headed by high-ranking Syrian government officials, who competed for business with Iraq. Syrian traders were often paid under the auspices of the Syrian protocol, a government-to-government agreement, according to multiple sources.According to a captured letter dated 2 March 2002 and written on the letterhead of a MIC front company, Al-Basha'ir, a former MIC Deputy Director stated that the North Korean Tosong Trading Company would "be financed according to the Iraqi-Syrian Protocol…through SES International."
- The Central Bank of Syria was the repository of funds used by Iraq to purchase goods and materials both prohibited and allowed under UN sanctions.
- According to the MIC Director Abd al-Tawab Mullah Huwaysh, Syrian traders who imported weapons and materials for Iraq worked extensively with MIC front companies. The Syrian traders were also required to share their profits with the other traders. The owner of the Syrian trading company SES, for example, frequently complained that he had to give up too much of his profits to the other traders.
- Dhu al-Himma Shalish, head of Syrian Presidential Security and a relative of Syrian President Bashar al-Asad, owned the SES International, and were heavily involved in the Iraqi weapons trade, according to a source with direct access.
- Dhu al-Himma's nephew Assif Shalish managed SES and its subordinates.
SES International reportedly was the primary facilitator for the transshipment of weapons and munitions, as well as many other goods purchased outside of UN channels, through Syria to Iraq. ISG judges that this close relationship may have been based, in part, on Dr. Shalish's personal friendship with the former Presidential secretary, 'Abd Hamid Mahmud al-Tikriti. According to captured SOMO records, half of the goods paid for by the MIC through the goods component of the Syrian protocol between March 2000 and 2003 went through SES.
- According to those deals recorded in the SOMO records, SES transactions during this period amounted to $86.4 million.
- According to an interviewee, SES officials did not participate in any negotiations between Baghdad and the supplier and were not privy to the details of the contracts signed between these entities.
- Dr. Asif Shalish traveled to Baghdad to coordinate shipments of weapons and sometimes received cash payments. At other times, the Iraqis reimbursed Shalish by transferring funds from their overseas accounts to an SES account in Syria.
Syrian Government Complicity. Syrian front companies had links to high-ranking government Syrian officials because Syria became the primary route for Iraq's illicit imports over the last two years before OIF.
- Asif Shawkat, the deputy director of Syrian Military Intelligence, was involved in weapons trade with Iraq, according to a high-level Iraqi official. Shawkat is the brother in law of Syrian President al-Asad. Multiple reports indicate that Shawkat's brothers, Mufid Makmud and Muhammad Mahud, managed his smuggling business.
- The Al-Mas Group, one of the Syrian companies that worked with the MIC, is owned by Firas Mustafa Tlas, son of the former Syrian Defense Minister Mustafa Tlas. The Al-Mas Group was composed of six companies that officially handled civilian goods but also dealt in weapons and military technology. In middle to late 2002, Firas Tlas represented his father in a deal to sell weapons to Iraq, possibly including missiles with a range of 270 km, according to Huwaysh.
- A Syrian named Ramy Makluf, another relative of Bashar al-Asad, reportedly owned the Nurallah Company, another firm that worked with the MIC. Makluf was involved in an effort to procure IGLA man portable air defense systems, Kornet antitank guided missiles, rocket-propelled grenades (RPGs), heavy machine guns, and 20 million machinegun rounds for delivery to Iraq, according to a high-level Iraqi official. The contract for the delivery of these munitions was signed in 2002 with a six-month delivery deadline, but the war intervened before the delivery.
According to captured documents, the Iraqi MIC, and the Ministries of Trade, Defense, Industry, Transportation and Communication, and the Presidential Offices (Diwan) signed contracts with the Syrian front company, SES International Corporation, valued at approximately $186 million starting from December 2000 to March 2003. This figure differs markedly from the amount reflected in the SOMO records mentioned earlier. This particular document also indicates the degree of regularity under which these transactions occurred between Iraq and the Syrian company. SES signed 257 contracts with various Iraqi ministries during the three-year period. The document also reflects how the Iraqi ministries signed the contract with SES for a beneficiary company or other government organization.
- For example, the MoD signed one $185,780 contract with SES for the Presidential Office; the MIC signed another $1 million contract with SES for the Al-Qadisiyyah State Company.
Although not a direct source of illicit military goods, Turkey provided Iraq with significant revenue streams that permitted the Iraqi Regime to fund its illicit procurement activities. In addition to the UN OFF program, Turkey signed a trade protocol that provided substantial monetary and material resources for Iraqi state institutions and procurement authorities.
Since 1991, Iraqi-Turkish trade revolved primarily around the Turkish import of Iraqi oil products outside the UN OFF Program. Iraqi oil sales to Turkey were substantial. For instance, in March 2002, Iraq exported between 40,000 and 80,000 barrels of oil per day (bbl/d) to Turkey using approximately 450 to 500 Turkish trucks to transport the oil and oil products in spare fuel tanks. In February 2003, in the prelude to the war, this trade came to a halt. Illicit trade between Iraq and Turkey was built on the foundations of pre-Operation Desert Storm trade—Turkey had traditionally been one of Iraq's biggest trading partners. This was formalized by a trade agreement signed by the two governments in 1993 and their other trade agreement, the Iraq-Turkey Trade Protocol, in 2000.
Turkey was a secondary conduit for illicit purchases of civilian goods from 2000 until OIF. Under the auspices of the Iraq-Turkey Trade Protocol, Iraqi ministries and other entities would sign contracts with Turkish companies for goods and services prohibited by the UN's OFF program. Information from a SOMO database shows that Iraq signed contracts worth almost $304 million, with payment dates from April 2000 through April 2003. These contracts reflect Iraq's imports financed from SOMO accounts under the Iraq-Turkey trade Protocol. The funds most likely came from the protocol credit account controlled by SOMO. The CBI controlled the funds from the protocol cash account. ISG does not know if there were other expenditures for imports through Turkey from other SOMO or non-SOMO accounts (see Figure 58).
The MIC was the only military or security entity that openly contracted with Turkish companies under the auspices of the Iraq-Turkey trade Protocol, according to the SOMO database.
- The MIC contracted for $28 million worth of goods—9 percent of the total procurement noted.
- Of this $28 million, 137 contracts were signed with at least 24 different companies. The single largest Turkish supplier seems to be Ozgin Cinko Bakirve Metal Mamulleri, Imalat Sanayi, although the name was listed in seven different ways. This company accounted for a total of 30 contracts with MIC worth over $10 million—36 percent of MIC's total contract value. Although the SOMO database does not include specific information about the goods contracted for, the beneficiary companies listed include MIC research centers and manufacturing companies.
- In contrast to Iraq's arrangement with Syria, the MoD did not import goods from Turkey under its own name. It did, however, import goods through the Ministries of Trade and Transport, according to the SOMO database. The MoT imported goods valued at $2.7 million (10 percent of its total contracts) and the MoTC imported goods valued at $48.9 million (59 percent of its total contracts) for MoD. Therefore, MoD's share of total contracts was $51.6 million or 17 percent of the total contract value.
- Because the MoT sometimes acted on behalf of other entities, it is possible some of the MoT transactions not specifically mentioned as being on behalf of the MoD as mentioned above also were destined for Iraqi security, industrial, and research facilities. How much of these other MoT imports may have been destined for these end users is not known.
In addition to the Turkish demand for cheap Iraqi oil and oil products, the Turkish government also tolerated, if not welcomed, the flourishing, mainly illicit trade conducted in the northern Iraqi free trade zone. Turkey and Iraq engaged in direct military trade for common military use materials. For example, documentary sources reveal that in 1997 the IIS, the GMID, and the Iraqi Military Attaché in Ankara dealt with the Turkish firm Sigma Gida IAS SAN VE TIC Ltd for the sale to Iraq of fireproof military clothing; 150,000 meters of material were purchased for $27 per meter. In lieu of cash, Iraq paid in oil.
The Iraq-Turkey Trade Protocol also allowed Iraq to procure goods prohibited by the UN sanctions, although most of those goods were for nonmilitary uses. The Iraqi Finance Minister approved cash allocations to ministries from the Turkish trade protocol. According to captured documents, the Iraqi MoT procured 10,000 small generators, Mitsubishi pickup trucks, and assorted construction materials during 2002 through the Syrian SES International with money accrued by trade covered from the Turkish trade Protocol.
Methods Iraq and Turkey used to Hide Illicit Procurement. Turkey did not undertake any active measures to hide its illicit trade with Iraq. Indeed, this trade was conducted in a semi-transparent fashion. Multiple open sources frequently reported the illicit trade between Turkey and Iraq. The illicit oil trade and most of the protocol trade was conducted through the Habur bridge (or gate) near Zakho on the Iraq-Turkey border. Both secret and open sources describe this flow of trade.
Financial Flows Between Iraq and Turkey. High-level sources affirm that both Iraq and Turkey agreed to open a trade account denominated in US dollars in the name of TPIC (Turkish Petroleum International Company), but run for the benefit of SOMO, at the Turkiye Halk Bankasi A.S. (also known as Halkbank), a Turkish state-owned bank. This indicates a fair degree of complicity in illicit activity between Iraq and Turkish state institutions. According to the 16 January 2000 Protocol, 70 percent of the value of the crude imported by Turkey under the Protocol would be deposited in Halkbank. The remaining 30 percent would be deposited directly by the crude purchaser to accounts at the Saradar Bank in Lebanon or the Ahli Bank in Jordan that were designated by SOMO. Tekfen, a Turkish oil company, was the only company to deposit money into the Ahli Bank. Other Turkish oil companies paid into the Saradar Bank.
According to open sources, since 2000 the UN OFF program, the trade protocol and other illicit Turkish oil importation, generated over $1 billion per year for Iraq. This revenue, however, pales in comparison to the $2.5 billion in bilateral trade that took place in 1990. SOMO documents state $710.3 million was collected from the Turkish Protocol from contracts signed between July 2000 and February 2003. According to SOMO documents, it is estimated SOMO collected $538.4 million in barter goods and cash through private sector trade outside the Protocol between November 1997 and March 2003. We lack information about earnings prior to these periods.
Former Regime personnel indicate that the SOMO account at Halkbank was used exclusively for Iraq to pay Turkish companies for the sale of goods and services delivered to Iraq. The goods included oil sector equipment, industrial equipment and raw materials, communications and transport goods, and building materials. The total amount deposited in the account at Halkbank was $499,232,952. The total withdrawn equaled $302,305,033, leaving a balance before OIF of $196,927,919.
South Korea
Illicit trade between South Korean companies and Iraq was largely limited to contracts signed for high technologies, such as military computer equipment, sophisticated communications and radar systems. Although the South Korean Government was keen to promote South Korean companies to gain advantage in the international marketplace, there is no evidence to suggest that the South Korean Government was complicit in the transfer of prohibited goods.
- The earliest evidence detailing a military procurement deal with a South Korean firm was a 1998 negotiation between a Korean company and the Al-Basha'ir Company, trading petroleum products for six patrol boats.
- The evidence shows that from 2000 to 2001, South Korean companies provided technical components, software and expertise in the field of computerization and communications—assisting Iraq in its indigenous production of military computers and, thus, overall improvement of its conventional military power.
- As early as December 2002, delegates from the Iraqi Salah Al Din Public Company met with representatives of South Korean defense companies to finalize issues surrounding several contracts which had already been signed by both sides.
As with other suppliers, Iraq used a network of front companies and intermediaries to conceal its activity with South Korean companies. These companies refused to directly supply Iraq resulting in their use of third party intermediaries from India, Jordan, and Syria to facilitate trade.
- In 2000, the MIC signed a contract with a South Korean company for technical expertise in establishing an indigenous computer design and production facility in Iraq. The contract included South Korean technical assistance for the production of computers for military purposes and the manufacture of circuit boards. The contract for South Korean technical expertise was signed for $14.4 million.
- In 2000, the IIS technology transfer division used two front companies (the Iraqi company Galala and an Indian front company, United Commodities) to procure computers, technical expertise, and training on computer design and production. Upon completion of this training, the MIC established an indigenous computer design and production line. This example illustrates the use of multiple front companies to hide the IIS role in the transaction.
- Exploited documentation illustrated that the MIC Commercial Department, through Dr. Hadi Tarish Zabun, Director General of Scientific Research facilitated "special contracts" for computers for a radar system and fiber optics for the communications system in 2001.
- In 2000, the Iraqi company Al-Ezz represented MIC in negotiations with a South Korean company named LG Innotech, which specialized in optical fiber and digital exchanges. According to captured documents, LG Innotech agreed to provide the MIC a total of 530 notebook-type hardened CPU systems specially designed for military use. The Iraqi Regime planned to integrate the $11.35 million of CPUs into its air defense systems and artillery fire control mechanisms. According to the same document, LG Innotech ultimately fulfilled more than 80 percent of the contract. This contract also used a third party and negotiated in parallel with the LG Innotech military CPU contract.
Most of the illegal transactions involving prohibited goods between companies from South Korea and Iraq began in the summer of 2001, following a MIC visit to Seoul. The May to June 2001 visit was designed to develop contacts with South Korean firms for Iraqi companies. Subsequent meetings, reflected in recovered Salah Al-Din General Company documentation, reveal the following agreements:
- An agreement with the Shinsung Company to acquire production plans and technology transfers of crystal units, filters, and oscillators.
- An agreement with Salah Al-Din and the Korean company UNIMO Technology Co. Limited to acquire portables and mobile radio technology transfers and to upgrade the existing production facilities in Salah Al-Din Company for hybrid circuits.
- An agreement between Salah Al-Din and Techmate Corporation of Korea for production and technology transfer of hand generators, coils and transformers, hand crank generator (GN-720) cable tester, image still picture transmission equipment, and coastal radar.
- An agreement with Armitel in South Korea for the technology transfer for the local manufacturing (assembly & test) of STM -1 optical transmission system (AOM-1155) with Salah Al-Din.
Another element of illicit trade with South Korean companies focused on procuring fiber optics telecommunication technology with potential military applications.
- In 2001, the MIC's Commercial Department signed a contract for fiber optics with the South Korean company Armitel. Payment, however, was not made because the equipment provided did not meet Iraqi specifications.
- The IIS coordinated with one of its agents to bring a delegation of experts from a South Korean company called Armitel. Their senior expert, Dr. Lee, visited Baghdad and as a result, signed many contracts with the Iraqi MoTC, specifically in the field of fiber-optic communications and military communications. These contracts were valued at $75 million.
- The MoTC and Armitel executed a portion of these contracts, delivering two shipments of more than 30 containers. Delivery was conducted through Lebanon using Syrian and UAE trade intermediaries. The first contract was delivered through Syria and the second through Lebanon. These contracts were covered through Syrian and UAE middle companies.
People's Republic of China
Although China stated publicly on multiple occasions its position that Iraq should fully comply with all UN Security Council resolutions and cooperate with the Security Council and the Secretary General, firms in China supplied the former Iraqi Regime with limited but critical items, including gyroscopes, accelerometers, graphite, and telecommunications through connections established by MIC, its front companies, and the IIS. There is no evidence to suggest the Chinese Government complicity in supplying prohibited goods to Iraq It is likely that newly privatized state-owned companies were willing to circumvent export controls and official UN monitoring to supply prohibited goods. In supplying prohibited goods, Chinese companies would frequently employ third countries and intermediaries to transship commodities into Iraq. The Chinese-Iraqi procurement relationship was both politically problematic and economically pragmatic in nature, but it ultimately provided Iraq with prohibited items, mainly telecommunication equipments, and items with ballistic missile applications. This relationship allowed Iraq to improve its indigenous missile capabilities.
Chinese Assistance in Iraqi Telecommunications
One area of robust cooperation between Chinese firms and Iraq was telecommunications. These technologies had both military and civilian uses. Saddam's Regime used Chinese circuits and fiber optics to connect static command, control, and communication (C3) bases. UN sanctions impeded rehabilitation of the telecommunications sector. This equipment was sanctioned because of the nature of modern communications systems, which could be used both for civil or military purposes. These obstacles were overcome by the Iraqi Regime by acquiring materials for cash and procuring materials illicitly, outside the purview of the UN.
One Chinese company, illicitly provided transmission equipment and switches to Iraq from 1999 to 2002 for projects that were not approved under the UN OFF Program. Reporting indicates that throughout 2000, Huawei, along with two other Chinese companies, participated in extensive work in and around Baghdad that included the provision and installation of telecommunication switches, more than 100,000 lines, and the installation of fiber-optic cable.
In early January 2001, the Chinese company pulled out of a $35 million mobile phone contract in Iraq, citing difficulty it would face sourcing key components from a US firm. The company, which had been negotiating for two years on a Baghdad ground station module network, cited US Government pressure as the reason for its decision. Iraqi telecom official retaliated by putting all other contracts with this company on hold and cutting off contact with the firm. The company, however, in 2002 used Indian firms as intermediaries to illicitly supply fiber-optic transmission equipment for Iraqi telecommunications projects.
Other companies were also present in Iraq. A summary of their activity is given below:
- A Chinese company was one of the more aggressive firms selling equipment to Iraq outside the UN OFF Program, including major fiber-optic transmission projects.
- Another company agreed to provide switches to Iraq as part of a large switching project for Baghdad prior to Operation Iraqi Freedom. Working with a second Chinese firm, this company participated in a bid for a project in Iraq not sanctioned by the UN. In late 2002 this company submitted a bid for a large switching system for Iraq.
- Reporting indicated that a Chinese company, working through a second Chinese company, had supplied switches to Iraq. This company's switches were used for both unsanctioned and sanctioned projects in Iraq. This company illicitly supplied the switches for the Jordan Project, a fiber-optic network in Baghdad that was completed in late 2000. This company might have been involved in supplying switches with more capabilities than specified in an UN approved project.
Multiple sources clearly demonstrate that Iraq's procurement goal with Chinese firms was to overcome weakness in missile inertial guidance capabilities caused by a lack of technical expertise and components. Iraq had limited capabilities in indigenously manufacturing gyroscopes and accurate accelerometers, compounded by the inability to purchase high precision machinery and equipment. Chinese companies willingly supplied these types of items to the Iraqi Regime.
- In the fall of 2000, Iraq sought 200 gyros, suitable for use in Russian and Chinese cruise missiles, and machine tools with missile applications from NORINCO, a Chinese military supplier that has been sanctioned many times by the United States, twice in 2004. (No delivery established.)
- Contracts were initiated in 2000 between Al-Rawa and a Chinese firm, for test equipment associated with inertial guidance systems, including a one-axis turntable for testing gyroscopes. (No delivery established.)
- In mid-2001, Abd al-Wahab, an IIS officer stationed at the Iraqi Embassy in China, procured 10 to 20 gyroscopes and 10 to 20 accelerometers from an unknown Chinese company for approximately $180,000. The gyroscopes and accelerometers were intended for the guidance and control system of the al Samud II and Al-Fat'h missiles.
Iraq also sought dual-use items with potential ballistic missile applications from Chinese firms. Iraq sought items such as fuel for propellants and graphite, a key component in reentry vehicle nose tips, directional vanes, and engine nozzle throats. Iraq's need for graphite-related products was heightened following severe damage inflicted during Operation Desert Fox to the Shahiyat Missile Facility, a known graphite production facility. Although this site was reconstructed, Western intelligence assessed that Iraq could not indigenously produce the quality of graphite necessary for ballistic missile components making it dependent on imports. Recovered documents from 2001 indicated a drive to acquire Chinese graphite-related products such as electrodes, powder, and missile-related fuel:
- Al-Najah Company, working through an Indian intermediary, purchased supplies of Chinese missile-grade graphite during August and September 2001.
- In January 2003, Al-Merbab General Trading Company and Al-Ramig sought a supply of chemicals, both of which have applications in liquid rocket propellants, from Chinese companies (see inset). The Chinese companies, however, refused to sell chemicals to the Middle East because of its potential weapons application.
From the Iraqi perspective, MIC and IIS attempts to illicitly acquire goods from Chinese firms were problematic. MIC and Chinese suppliers conducted many committee meetings and had other contracts, but most meetings never ended in any signed contracts. According to a high-ranking official in the MIC of unknown reliability, Chinese firms used its military and dual-use contracts with the MIC as leverage in its attempts to obtain discount-priced Iraqi oil.
- Documents recovered indicate that an Iraqi delegation was sent to China to reestablish a partnership with NORINCO, a Chinese arms manufacturer. NORINCO agreed to continue dealing with Iraq despite a debit of $3,067,951,841.47 but NORINCO specified that Beijing would not be informed of the deal. Iraq promised to repay NORINCO with crude oil and petroleum products, using the Iraqi front company Al-Basha'ir.
- These strained negotiations sometimes resulted in the use of alternative foreign suppliers. This was evident in procurement attempts to acquire gyroscopes from Chinese firms where MIC companies sought alternative suppliers in Belarus.
Although the Chinese Government promoted Chinese companies in commercial activity following defense reforms in 1998, ISG has found no evidence to suggest Beijing's direct involvement in illicit trade with Iraq. Indeed, we suspect that some contracts that were abruptly stopped may have been a result of Beijing's direct intervention. A delegation from a Chinese firm to Iraq in December 2000, suspended contract talks possibly according to Beijing's questioning of its activities with Iraq. Most transactions, however, were orchestrated through newly privatized state-owned companies competing in a bloated and highly competitive, newly founded commercial system where they were able to participate in illegal trade with little oversight.
As with other suppliers, Iraq procured illicit goods from Chinese companies behind a network of front companies and trade intermediaries. Turkish, Syrian, Indian, and Jordanian intermediaries were used in the procurement process for both seeking quotations of goods and in assisting delivery of prohibited goods. In all likelihood, the various trade protocols provided a legitimate trade cover under which these illicit transactions took place.
- As in many other cases, the Syrian-based SES International Corporation was used as an intermediary between Chinese companies and Iraq. In October 2001, Syrian technicians were dispatched to China on Iraq's behalf to contact influential Chinese air defense companies. Follow-on meetings were to be held in Beijing and Damascus. An Indian affiliated, UAE-based firm was also used as an intermediary to facilitate trade in graphite and ballistic missile-related goods from Chinese firms.
- In conjunction with the use of brokers and intermediaries, the IIS employed Chinese personnel as IIS agents to obtain prohibited goods and build relations between entities. In one case, the IIS tasked Professor Xu Guan, a member of the Chinese high committee for electronic warfare to collect information on laser-tracking systems, laser guidance systems and information on cooperation between Iran and China. The IIS also stationed its own officers at the Iraqi Embassy in China to manage the Iraqi-Chinese relationship and facilitate trade.
The French-Iraqi procurement relationship existed within a larger bi-lateral political relationship, which was turbulent and problematic throughout the 1990s up until OIF. From Saddam Husayn's perspective, the relationship was built on Iraq's hopes to influence a permanent membership on the UN Security Council against the United State and UK (see the Ministry of Foreign Affairs section).
- Illustrating Iraq's persistent efforts to curry favor in Paris, France, was one of the top three countries with companies or individuals receiving secret oil vouchers (see the Oil Voucher section). Iraq also awarded numerous short-term contracts under the UN OFF program to companies in France totaling $1.78 million, approximately 14 percent of the oil allocated under the UN OFF Program.
- In 2001, Tariq Aziz characterized the French approach to UN sanctions as adhering to the letter of sanctions but not the spirit. This was demonstrated by the presence of French CAs in Baghdad, working to promote the interests of French companies while assisting them in avoiding UN sanctions.
Behind this political maneuvering, ISG has found evidence that French companies, after 1998, sought and formed procurement relationships with Saddam's Regime. These relationships could have been renewed partnerships developed before 1991 when France was a major conventional arms supplier for the Iraqi Regime. These procurement transactions included offers and contracts for conventional weapons systems and negotiations for possible WMD-related mobile laboratories.
Recovered documents dated December 1998 and September 1999 indicate that the French company Lura supplied a tank carrier to the Iraqi MoD. A French expert, "Mr. Claude," arrived in Iraq in September 1999 to provide training and offer technical expertise on the carrier.
By 1999, recovered documents show that multiple French firms displayed a willingness to supply parts for Iraqi conventional military items, mainly related to aircraft.
- Documents from the Al-Hadhar Trade Company, dated November 1999, describe a delegation of French companies that had participated in an International Exhibition in Baghdad. One of the companies was willing to collaborate and supply spare parts for the French Mirage aircraft.
- IIS documents dated from December 1999 to January 2000 show that the Deputy General Manager of a French company called SOFEMA planned to visit Iraq on 15 January 2000 on behalf of a number of French military companies to "seek possible trading between the two countries." An accompanying top secret document from the GMID, M6 Section, corroborates this meeting and further ties the purpose to Iraqi air defense capabilities.
- Another recovered letter, dated September 1999, illustrated the approval of a meeting by the GMID M6 Section with the Head of the Iraqi-French Friendship Society, Mr. William Libras. Libras offered to supply Iraq with western manufactured helicopters. This was followed with a letter indicating contact between Al-Hadhar Trade and the French suppliers stating that the French companies "have the ability to update the aircraft and add any system you request."
ISG uncovered further conventional military trade in November 2002 when a French electronic warfare/ radar expert named "Mr. Cloud" (possibly Mr. Claude from the section above) met with representatives of the Al Kindi Research Facility. According to captured documents, the purpose of the visit was to facilitate military-related microwave, direction finding, and passive radar technology transfer. The recovered documents include military-related technology transfers and Iraqi contractual agreements with foreign manufacturers.
Beginning in late December 2002, the MIC initiated efforts to acquire replacement parts for the Roland II Surface to air missile system, valves for Iraq's air defense system, and various other high technology items with military and battlefield applications. These efforts were underway with Majda Khasem Al-Khalil (a Lebanese female) who in turn met with the French Thompson Company representatives. ISG found evidence of coordination on this procurement up until 23 days before OIF.
Former Federal Republic of Yugoslavia
According to captured documents, Iraq and FRY cooperated extensively both militarily and economically when the Milosevic Regime was in power. This cooperation ceased when a democratic government took power. For example, talks were held between Iraq and the former Yugoslavia on military and economic cooperation from 25 February to 2 March 1999. The Iraqi side was represented by the Minister of Defense, Sultan Hashim Ahmad al-Tai. Maj. Gen. Jovan Cekovic, the Director General of the Yugoslav company, Yugoimport, headed the Yugoslav side. The documents detail the Protocol resulting from the meetings.
- The two countries expressed their readiness to re-establish and continue the military-economic cooperation, which they considered one of the most co-operative bilateral endeavors.
- According to the documents, the two sides agreed to foster greater cooperation among all services of each country's military forces.
- During the meetings, Iraq informed the Yugoslavians that because of the current economic situation in the country, it is not able to provide funds for the future cooperation. To remedy this problem, the Iraqi side proposed the supply of crude oil and its product instead of currency as a viable solution.
- The two sides then agreed that the next session of the Joint Committee for Military and Technical Cooperation was to be held in Belgrade in April 1999.
A source that was a senior executive in the MIC stated that the former Federal Republic of Yugoslavia cooperated closely and extensively with the IAEC, the MIC, and the MoD. Representatives from Yugoimport Federal Directorate for Supply and Procurement (FDSP), a Yugoslav company, signed numerous business contracts with Iraq. Their Baghdad representative was Colonel Krista Grujovic. During the start of business with Iraq, which was sometime around early 1998, Yugoimport opened accounts in Amman, Jordan, for Yugoslav Federal under the trade name Yugoimport FDSP. However, after a period of time their name was changed to MIKA (also known as MEGA), a Lebanese company. Yugoimport FDSP was then effectively eliminated from all bank records and other documents.
- Reportedly, Mahud Muhammad Muzaffar was in charge of the Yugoslav procurement connection and was universally liked within the MIC. The Iraqi Government sent him under diplomatic cover to work as a scientific advisor at the Iraqi embassy in Belgrade. When Yugoslav companies spoke to Muzaffar about doing business with Iraq, he would connect their company contacts to MIC representatives.
- Yugoslav Federal was a military institution under the management of the Yugoslav Ministry of Defense.It was responsible for overseeing several Yugoslav military production companies.
- Yugoslav Federal signed the foreign trade contracts on behalf of these military production companies in exchange for a certain percentage of the profits.
- Yugoslav Federal also supplied materials and expertise directly to Iraq from the Yugoslav production companies.
A senior executive at the MIC stated that the financial transfers between Yugoslavia and Iraq were under the supervision of the Belarusian Infobank. Infobank also issued security bonds for the advance payment portions of the contracts.
- The contracts were signed pursuant to the Iraqi-Syrian Protocol where the payments were made through a third party, usually a Syrian-based company.
- This Syrian company would pay the contract amount to the Belarusian bank in exchange for a 10- to 12-percent cut of the value of the contract.
According to the senior executive of the MIC mentioned above, the former Yugoslavian Government was represented commercially through the use of experts and ex-military personnel to assist in the transfer of technology and technical expertise for new military projects. The coordination was under the direct supervision of the MIC Director, Abd al-Tawab Mullah Huwaysh, Dr. Hadi Tarish Zabun, head of special procurement at the MIC, and the Iraqi Deputy Minister of Defense. This source also stated that the President of Yugoslavia opened accounts in Amman, Jordan. under the Lebanese cover company MEGA.
In October 2002, Stabilization Forces (SFOR), Bosnia and Herzegovina, conducted an inspection of the ORAO Aviation Company, in Bijeljin, Bosnia and Herzegovina. Over 60 computer hard drives and a large number of documents were seized. Among the captured documents was a five-page memorandum that documents the discussions and agreements between ORAO, Al-Salafa, and the Iraqi Ministry of Defense concerning the illegal shipment of R13-300 and R25-300 jet engines for the MiG-21.
- Included in the memorandum is an agenda for the enlargement of existing capacities for overhaul of R13-300 and R25-300 jet engines.
- The agenda also included a realization of an old agreement for overhaul of the engines in the former Federal Republic of Yugoslavia. The time limit for the delivery and assembly of equipment was to be up to nine months.
- Other documents captured indicated that the MIC front company Al-Basha'ir was also involved in the deal, as well as Yugoimport. According to a contract between the two companies, the total amount of the deal was worth $8.5 million.
Al-Basha'ir was to be responsible for transporting the equipment from Syria to Baghdad for a total price of $300,000.
As of May 2000, 45 overhauled engines had been delivered; however, captured documents detail a dispute between ORAO and Iraq's Ministry of Defense over the price and delivery of 19 remaining engines.
Al-Salafa is an Iraqi company that is a part of the Al-Eman network of front companies.
Although the procurement relationship began in 1998, from 2000 until the start of OIF, the MIC conducted business with the Bulgarian JEFF Company, a company that the IIS recommended the MIC use. The JEFF Company's headquarters was located in Sofia, Bulgaria. According to a senior executive in the MIC, the Bulgarian government was aware of the dealings between the JEFF Company and Iraq. ISG cannot confirm this claim. The MIC used the Al-Basha'ir Company to coordinate contracts with JEFF. To establish a contract, JEFF personnel would travel to Iraq to meet with the Al-Basha'ir Company or vice versa. Al-Basha'ir would then deliver the contract to the Commercial Department of the MIC where an arrangement for the contractual payment would be made.
Reportedly, Bulgarian companies exported numerous military items to Iraq after 2000 in violation of UN sanctions (see figure 59).
- The MIC had contracts with the JEFF Company for engines and maintenance parts for the T-72 tank and Igla manportable air defense systems (MANPADS).
- The Bulgarian company ELMET provided components for Iraq's UAV programs.
- Captured documents detail the illegal procurement of missiles with tandem warheads, launcher units, thermal imagers, test units, and simulators. The deal was brokered between Al-Basha'ir, SES International in Syria, and the JEFF Corporation in Bulgaria for 175 Kornet antitank guided missiles (ATGMs). The contract specified that Al-Basha'ir was acting on behalf of the MIC of Iraq. Delivery of the ATGMs was to take place in March of 2003, but it is unclear whether the delivery actually took place.
In 1998, Bulgarian companies contracted with Iraq to provide numerous dual-use items such as ammonium perchlorate, aluminum powder, phenolic resin, carbon fiber, and machine tools. Recovered Iraqi documentation stated that the end use for these goods was for the Al Fat'h missile.
- Ammonium perchlorate is an oxidizer that makes up over 50 percent of the propellant weight of a modern solid propellant. Aluminum powder is mixed with the ammonium perchlorate and it acts as a fuel in the solid propellant. These two chemicals make up the bulk of the propellant mass. These basic items were used in the Iraqi Badr 2000 missile system, which was destroyed by UNSCOM. But the Ababil and the Ab'our missile system used these items in their propellant.
- Phenolic resin is a very special high-temperature resin used by Iraq to bind and hold in place the carbon fibers.
- The carbon fiber with the phenolic resin could be used in making lighter weight motor cases, nose tips, or nozzle throats. These areas experience high heat and using a light material lessens the overall weight of the missile, extending its range.
- Prior to 1991, the Iraqis had made missile parts from carbon fiber and had expressed a desire to UNMOVIC to again use carbon fibers. Carbon fibers could also be used in the fabrication of high-strength centrifuges for the enrichment of uranium. For these reasons both UNMOVIC and IAEA placed carbon fiber on their watch lists as a controlled material.
In 2001 Iraq used the Syrian Protocol to purchase numerous machine tools from Bulgaria. Some of these machines are numerically controlled (CNC) or are capable of being adapted for CNC. Such equipment was controlled under the Goods Review List (GRL) and would have needed to be approved by the UN before being exported to Iraq.
All of these dual-use machines could be used for the production of civilian goods. However, many of these machine tools can be used in producing conventional military items, CW, or nuclear programs, particularly the shaping of materials such as polytetrafluorethylene (PTFE) or metals.
- For example, rocket motor cases or propellant tanks start as a large sheet of metal that needs to be cut, shaped, rolled, drilled, milled, and welded to form the correct shape.
- CNC machines allow the operator to program exact instructions into the computer so it can precisely reproduce a pattern a thousand times over to the same specifications. This is critical for both missile and nuclear components. Figure 60 details these transactions.
Procurement Suppliers in the Transition and Miscalculation Phases, 1998 to 2003
For the final two phases in Saddam's Regime, "Transition" and "Miscalculation," ISG has identified eight new procurement partners. From the supply side, companies from Russia, North Korea, Poland, India, Belarus, Taiwan, and Egypt have become key trading partners in military or dual-use goods. Like Syria and Turkey in earlier phases, Yemen has become a transshipment facilitator for Saddam's procurement programs.
- This increase continues the trend observed in the previous phase. This increasing trend most likely occurred because of a lack of international condemnation, poor oversight of supplying companies by their governments, poor export controls, and the high profits to be had from Saddam's illicit revenue.
- ISG also observes an interesting trend over time as Saddam's international supporters shifted in the 1998 time-period from former-Soviet and Arab states to some of the world's leading powers, including members of the UNSC.
Although the Russian Government has denied being involved in supplying weapons to Iraq, there is a significant amount of captured documentation showing contracts between Iraq and Russian companies. In fact, because Russian companies offered so many military items, the MIC and a Russian general named Anatoliy Ivanovich Makros established a joint front company called ARMOS in 1998 just to handle the large volume of Russian business (see also the ARMOS section).The Russian-Iraqi trade was also assisted through bribes to Russian customs officials, according to a former Iraqi diplomat.
This former Iraqi diplomat further described how Iraq's embassy personnel smuggled illicit goods on weekly charter flights from Moscow, through Damascus, to Baghdad from 2001 until OIF. These prohibited goods included high-technology military items such as radar jammers, global positioning system jammers, night-vision devices, and small missile components. Some flights were not inspected, even though they were reported to the UN. Cash and equipment were reportedly also smuggled into or out of Iraq in bimonthly diplomatic courier runs to Moscow.
In early 2003, the Russian company, Rosoboronexport, offered to sell and deliver several weapons systems to Iraq. Rosoboronexport had Igla-S shoulder-fired SAMs and Kornet anti-tank missiles available for immediate sale to Iraq, and was prepared to sell larger medium-to-long range advanced (SA-11 and SA-15) air defense systems and T-90 tanks, according to the trip report and a high-level source in the former Iraqi Government.
- ISG has recovered documents detailing two trips related to these sales. The first round of negotiations with Rosoboronexport and other Russian companies occurred from 27 January 2003 to 6 February 2003, while the second trip took place from 12 February 2003 until 21 February 2003.
- The Iraqi delegation requested air defense equipment, antitank weapons, and night vision devices. Iraq also desired to upgrade existing air defense equipment (SA-6 and SA-8) and radars.
- According to the trip report, four contracts were signed between Rosoboronexport and four Iraqi companies: Hittin, Al-Karamah, Al-Milad, and Al 'Ubur.
According to Iraqi documents, Rosoboronexport executives demanded that they be permitted to ship the weapons through a third country with false end-user certificates. The Russian side emphasized that Rosoboronexport is a government agency and it cannot be involved with directly supplying Iraq with weapons. Other Russian officials offered to send equipment and technical experts to Iraq under the cover of OFF contracts. Before returning to Baghdad, the Iraqi delegation stopped in Damascus to obtain false end-user certificates from the Syrian Ministry of Defense for the first items to be shipped, the MANPADS and antitank missiles.
- Although some of the equipment was shipped, we do not know how much of the equipment was actually received in Iraq before Operation Iraqi Freedom.
- ISG has recovered documents detailing two trips related to these sales. The first round of negotiations with Rosoboronexport and other Russian companies occurred from 27 January 2003 to 6 February 2003, while the second trip took place from 12 February 2003 until 21 February 2003.
- The Iraqi delegation requested air defense equipment, anti-tank weapons, and night-vision devices. Iraq also desired to upgrade existing air defense equipment (SA-6 and SA-8) and radars.
- According to the trip report, four contracts were signed between Rosoboronexport and four Iraqi companies: Hutteen, Al-Karamah, Al-Milad, and Al-'Abur.
Many of the contracts signed with Russian companies, were for technical assistance, according to an Iraqi official with direct access to the information. These offers includedcontracts with TECHNOMASH employees for technical assistance in developing guidance and control systems, aerodynamic structures, and a test bench for missile engines. Iraq also signed a contract for the transfer of technology for the manufacture of laser rods to be used in laser range finders. The Mansur Factory in Iraq was to be the main recipient of this technology. Other contracts with Russian companies are detailed in the following:
- The Russian Company, Systemtech was run by a Russian missile scientist named Alexander Degtyarev. Most of the dealings with this company were connected with missile guidance and control, and contracts were valued at around $20 million.
- According to captured documents, in November 2002, the Umm Al-Ma'arik General Company negotiated two draft contracts with the Russian company Uliss, in support of the "Saddam The Lion" Tank Project. They notified the Commercial Directorate of the MIC that contract number 2002/AM/8 had been concluded. On 10 February 2003, MIC Deputy Director Daghir Muhammad Mahmud approved the contract.
- According to captured documents, four contracts with Russian firms were signed in December 2001. These are detailed in figure 61. A 25 January 2003 letter from the MIC front company Al-Basha'ir complained to the Minister of the MIC that these deliveries had not been completed as of January 2003.
North Korea
From 1999 through 2002, Iraq pursued an illicit procurement relationship with North Korea for military equipment and long-range missile technology. The quantity and type of contracts entered between North Korea and Iraq clearly demonstrates Saddam's intent to rebuild his conventional military force, missile-delivery system capabilities, and indigenous missile production capacity. There is no evidence, however, to confirm that North Korea delivered longer-range missiles, such as Scud or Scud-variants.
North Korean and Iraqi procurement relations began in 1999 when the MIC requested permission from the Presidential Secretary to initiate negotiations with North Korea. In a recovered memo the Secretary approved the plan and directed the MIC to coordinate negotiations with both the IIS and MoD. Recovered documents further suggest that orders for negotiations were also passed from Saddam directly to the Technology Transfer Office at the IIS. Related documents from this time period reveal that the North Koreans understood the limitations imposed by the UN but were willing "to cooperate with Iraq on the items it specified."
The Director of the MIC formally invited a North Korean delegation to visit Iraq in late 1999. The Director of North Korea's Defense Industry Department of the Korean Worker's Party eventually visited Baghdad in October 2000, working through a Jordanian intermediary. Multiple sources suggest Iraq's initial procurement goal with North Korea was to obtain long-range missile technology.
- August 1999 correspondence between the IIS Director and a North Korean company called the Changwang Group (variant Chang Kwang or Chang Gwang), a known company associated with weapons-related sales, discussed the supply of "technology for SSMs with a range of 1,300 km and land-to-sea missiles with a range of 300 km." The Changwang Group proposed a multitiered sale of weapons and equipment and "special technology" for the manufacture and upgrade of jamming systems, air defense radar, early warning radars, and the Volga and SAM-2 missiles.
- In a recovered transcript of a telephone conversation prior to the October 2000 meeting, senior officials at the MIC and the IIS noted topics for discussion with the North Korean delegation would be the development of SSMs. The Iraqi delegation at the meeting included SSM Commander Najam Abd'Allah Mohammad. Ensuing discussions during the meeting focused on the transfer of military equipment including a short-range "Tochka-like" ballistic missile that the North Korean firm said could be purchased from Russia.
- A captured MoD memo dated 12 October 2000 summarized the October 2000 meetings, stating that SSM Commander Najam Abd' Allah Mohammad had discussed Tochka, Scud, and No Dong missiles with a range of 1,500 km.
- Muzahim Sa'b Hasan al-Nasiri, a Senior MIC Deputy and a main player in procurement negotiations with North Korea, in interviews has adamantly denied the discussion of longer-range missiles with the North Koreans.
Documentary evidence shows that, by mid-2001, Iraq had signed $10 million of military- related procurement contracts with North Korean companies.
- The contracts from late 2000 included a deal with the Al-Harith Company, believed to be associated with Iraqi air defense development, and the Al-Karamah State Establishment, known to procure technology for missile guidance development, to improve Iraqi SSM guidance and control technology, and to upgrade the Iraqi Volga missile homing head by adding infrared sensors.
- The missile contracts in 2001 were designed to improve Iraqi missile systems using North Korean parts. These contracts were signed with the Al-Kamarah State Establishment, the Al-Harith Company, and the Hutteen Company, which is associated with the development of Iraqi heavy weaponry. Fifteen percent of this contract was reportedly completed and was paid for through a Syrian company to the North Korean Embassy in Damascus.
- According to documentary evidence, Muzahim Sa'b Hasan al-Tikriti visited North Korea in September 2001 to discuss procurement projects for the Al-Samud missile control system, radio relays for communications, and improvements to Iraqi antiaircraft systems. The trip resulted in four signed contracts with the Al-Karamah State Establishment for potentiometers (missile guidance and control-related technology), missile prelaunch alignment equipment, batteries, and test stands for servos and jet vanes. Ultimately, North Korea backed away from these agreements, informing the Iraqis that they would study the issue. ISG judges that this equipment was intended for use in the al Samud-2 ballistic missile program.
As the Iraqi-North Korean procurement relationship matured, it broadened from missile–related projects to a range of other prohibited military equipment and manufacturing technologies. Recovered documents from November 2001 describe numerous contracts between Hesong Trading Corporation, based in Pyongyang, and the Al-Karamah, Al-Harith, and Hutten Companies. These contracts included deals for:
- Ammunition, communications, potentiometers for short-range surface-to-surface missiles, powder for ammunition, and light naval boats.
- Laser range finders and fire-control systems for artillery, tank laser range finders, and thermal image survey systems.
This series of contracts also specified numerous technology transfers from North Korea to Iraq to allow Saddam to design and implement laser head riding for anti-tank missile applications and to manufacture:
- PG-7 rockets (an Egyptian variant of the Russian RPG-7).
- Night-vision devices.
- Six-barrel 30-mm guns.
- Laser rangefinders for guns.
- Thermo image survey systems and rifling tools for 122-mm and 155-mm barrels.
- Ammunition, jigs, fixtures, dies, parts, liquid-propellant rocket structures, liquid propellant rocket aerodynamics computations, guidance, and control systems.
As with its other suppliers, Iraq used its accustomed methods to obtain illicit goods from North Korea. In short, North Korea's illicit procurement relationship with Iraq was concealed behind a network of front companies, trade intermediaries, and diplomatic communications.
- The North Korean side of the relationship was represented by the Defense Industry Department of the Korean Worker's Party through the Changwang Trading Company. The Tosong Technology Trading Corporation and Hesong Company were also used to broker the negotiations.
- The Syrian-based SES International was used as an intermediary in this trading process. Many transactions from North Korea would be orchestrated by the North Korean embassy in Damascus, which would then endorse the shipment to an Iraqi agent in Syria for transshipment to Iraq.
- These intermediaries worked on a commission basis and assisted in facilitating delivery into Iraq for profit.
- Recovered documentation concerning the North Korean negotiations stated that all communications should be sent via the Iraqi embassy in Damascus. Secure communications also took place through the Economic Section of the North Korean Embassy in Damascus.
Transportation Routes From North Korea to Iraq
ISG has found evidence suggesting that North Korea planned to pass goods through Syria to Iraq. Captured documents reveal North Korean ships planned to use Syrian ports to deliver goods destined for Iraq. Occasionally, North Korea would insist on the use of aircraft to Syria to expedite delivery and reduce the risk of discovery of the illicit goods.
Payment Methods for North Korean Contracts
Recovered contracts and records of negotiations identify the use of financial routing via Beirut, Lebanon and Damascus, Syria to conceal Iraq as the end user of the goods. A recovered letter from the Al-Basha'ir to the Tosong Technology Trading Corporation, dated 2 March 2002 dictated that 'contracts' would be financed according to the Iraqi-Syrian Protocol. This bilateral trade Protocol used both cash and - credit to pay for commodities via Syria.
A Polish based front company engaged in illicit trade with Iraq played a limited, but important role in Saddam's efforts to develop Iraq's missile programs. Equipment supplied by this Polish based front company between 2001 and 2003, such as SA-2 (surface-to-air) Volga missile engines and guidance systems, were necessary for the al Samud-2 missile program.
Iraq acquired Polish SA-2 Volga missile engines for their al Samud II missiles. The Volga engines were the main propulsion system used in the liquid-propellant al Samud II missile, a weapon that exceeded the 150-km-range limit established by UNSCR 687 (1991). While there is some confusion regarding the exact number of Volga missile engines procured by Iraq, ISG estimates that Iraq obtained about 280 missile engines from Poland during this period. ISG has found no evidence that the engines were ever fitted to active missile systems.
- Iraq signed four contracts to acquire Volga SA-2 engines between January 2001 and August 2002.
- These engines were to be procured for the Al-Karamah State Establishment, through the ARMOS Trading Company (an Iraqi-Russian procurement organ) and a company located in Poland called Ewex, a front company supported by the IIS.
- Iraq paid approximately $1.3 million for 96 engines.
- Ewex used Polish scrap dealers and middlemen to gather Volga rocket components from scrap yards in Poland operated by the Polish military property agency.
Former Regime officials corroborate that ARMOS also signed a contract or contracts with the Iraqis to obtain Volga engines from individuals in Poland. The Volga engines were removed from missiles that had been decommissioned. The Volga missile engine procurement was entirely controlled by the IIS, according to debriefs of high-level former Regime officials.
- The MIC was also involved in contracting with Ewex for Volga engines. A high-level official stated that Iraq purchased approximately 200 Volga engines. Many of the Volga engines acquired in this way arrived damaged.
As mentioned in the Higher Education section, Amir Ibrahim Jasim al-Tikriti, a doctorate student in Poland linked to the IIS and SSO, facilitated the procurement of at least 50 more SA-2 engines and as many gyroscopes, missile sensors and acid batteries for missiles from a Polish front company called Ewex in early 2003. Al-Tikriti was the cofounder of Ewex and was supervised by Husan 'Abd al-Latif, an IIS officer working with the Energy Department of the IIS Scientific and Technical Information Office in Baghdad.
Methods Used To Hide Transshipment to Iraq
According to documentary evidence, dated Jun 2001, the Iraqi Government and the Ewex Company attempted to conceal the illicit procurement of missile engines from the international community. According to open sources, Polish authorities arrested Ewex company officials in 2003 on suspicion of illegal arms deliveries to Baghdad. Documents recovered by Polish police included Ewex contracts with the well-known Iraqi front company called Al-Bashair, shipping documents, extracts from the Polish trade register, payment orders, and letters from Ewex directly to its Iraqi business partners.
A high-level former Regime official stated that MIC Special Office Director Hadi Tarish Zabun, IIS Scientific and Technical Information Branch Officer Hadi 'Awda Sabhan, and Al-Karamah State Establishment Director General Dr. Muzhir Sadiq Saba' al-Tamimi met to discuss how to conceal this particular illicit transaction from the UN. Al-Tamimi had previously led the Iraqi long-range missile program. The documents regarding the deal were eventually transferred for safekeeping to Ayyab Qattan Talib, an officer from the IIS M23 directorate that oversees military industry security.
The parties to the transshipment of Volga missiles included personnel from the Iraqi embassy in Warsaw, Iraqi intelligence officers, and Iraqi businessmen. These parties clandestinely transported Volga missile engines through Syria, according to a high-level official in the former Regime. Ewex representative, Amir Ibrahim Jasim al-Tikriti during April 2002, requested an extension of the shipping time for illicit transfers because shipments would have had to proceed via many channels, particularly by circuitous transport routes, in order to conceal the contents from prying UN inspectors or foreign intelligence agencies. In 2002, three shipments of engines and spare parts were transferred; the third shipment arrived in Tartus, Syria, and was moved to Baghdad by the Al-Karamah State Establishment. The third shipment contained 32 Volga engines and 750 related materials. In addition, the MIC contracted to deliver Volga engines to Iraq, from Poland, via Jordan as insurance against the interdiction of Syria-bound shipments. According to multiple sources, Polish missile parts also entered Iraq at the Al-Walid border crossing (see also the border crossings map).
Polish-Iraqi Procurement Financial Flows
Numerous contracts, memoranda, and references detail the transfer of payments for the Volga missiles. In one contract, original date unknown, Ewex transferred $500,080 for the purchase of an unspecified number of Volga missile engines, which were delivered in June 2001. Raja Hasan Al-Khazraji, General Manager of the Commercial Affairs Department, wrote requesting the release of funds for final contractual payments. There are also letters written by Dr. Zabun to settle payment without deductions for damaged materials on condition that compensation will be included in future contracts. A contract also stipulates that ARMOS Trading Company received a commission of $3,750.
Dr. al-Tamimi, wrote a memorandum concerning contract number 2/2001, in which he requests that the MIC transfer $315, 840, equaling 25 percent of the total contract price for 96 engines to account number 500090, National Bank of Jordan, Special Banking Section. The authorized person in control of the account was Abd al-Jabbar Jadi 'Umar. There is also a MIC memorandum authorizing the payment of $200,690 to Ewex via account number 501133/12, which equals 25 percent of the total contract price for the 61 engines received at Syrian ports. Dr. Zabun approved a contract dated July 2001 with Ewex for 96 engines with the same value and terms as a previous contract for 38 engines.
Other correspondence exists between the Commercial Affairs Department General Manager, Raja Hasan Ali, the MIC and Al-Karamah discussing charging late penalties and compensation for damaged items. Further correspondence rejects the charges and authorizes full payment of the contracted amount of $1,263,360 million to Ewex for Volga engines shipped through Syria. Bank accounts used at the Jordan National Bank (Special Banking) to pay for SA-2 Volga missile imports up until at least June 2001, include 501083/14 and 12429.
ISG judges that the Government of India was not directly involved in supplying Iraq with military or dual-use items, but several Indian companies were active in illicit trade, particularly, NEC Engineering Pvt. Ltd. When Indian authorities discovered the company's activities in 2001, New Delhi launched an investigation to stop the NEC's trade with the Iraqi Regime. Despite the investigation, NEC continued to sell prohibited materials to Iraq and looked for ways to conceal its activities.
NEC was involved in numerous business agreements with Iraq that were contracted outside the UN OFF program. Several of these contracts with Iraq violated UN sanctions because the material or technology was in direct support of a military system, such as the Iraqi missile program.
Al-Najah was the primary front company in Iraq used by the MIC manufacturing company, Al-Rashid, to import from NEC. In March 2002, Muntasir 'Awni, Managing Director of Al-Najah Company, submitted several inquiries to Siddharth Hans. Hans has been identified as holding positions with companies in India, including director of NEC Chemicals and, at other times, several positions with NEC Engineers Pvt, Ltd. In each position, Hans has supported only Iraqi projects and inquiries for clients under Al-Najah. Among other things, the inquiries covered:
- A Teflon coating machine.
- Laser range-finding equipment.
- Precision machinery.
- Block and cylinder material.
Prior to the 1991 Gulf war, Iraq had experimented with the use of carbon fibers to provide high strength and light weight for some of its missile components. Al-Rashid was instrumental in missile development prior to the Gulf war and in the years that followed. In May of 2000 NEC contracted with the Al-Rashid General, Co., to provide 40 kg of "Grade A" carbon fibers. Carbon fibers, while dual-use material, have extensive use in missiles and nuclear equipment. Figure 62 is an excerpt from captured documents regarding this contract.
NEC engineers provided Iraq with crucial infrastructure development for its missile program and other programs. For example, NEC designed and built an ammonium perchlorate (AP) production plant for Iraq. AP is an essential ingredient for modern solid propellant production. It is the oxidizer for a solid propellant and constitutes over half of the propellant's weight.
- NEC imported solid-propellant ingredients for Iraqi surface-to-surface missiles, in addition to other materials.
The excerpt from captured documents in figure 63 details some of the contracts undertaken between the Iraqi front company, Al-Basha'ir, with India's NEC, on behalf of MIC companies Al-Rashid and 7 Nissan General Company.
When the Indian Government became aware of NEC's activities in 2001, New Delhi launched an investigation regarding the company's illicit business with Iraq. Both Hans Raj Shiv and his son Siddharth Hans were implicated in the investigation, which expanded overseas by September 2002. The Indian Government impounded the passports of NEC representatives. Siddharth Hans was taken into Indian custody when he returned to India in mid-June 2003. Pending further court hearings, Siddharth was released from custody in early July 2003.
- In August 2002, NEC was considering changing the name on Iraqi contracts from NEC to Nippon Industrial Equipment or Euro Projects International Limited. These changes were probably in reaction to the Indian Government's ongoing investigation of NEC.
Other Indian companies involved in supplying Iraq with prohibited items include the Arab Scientific Bureau (ASB) and Inaya Trading. ASB and Inaya Trading were involved in the procurement of chemicals associated with liquid-propellant missile systems and with chemical production and handling equipment. According to documents recovered during an ISG investigation of the ASB, there were numerous inquiries from Iraq and corresponding offers to supply liquid-propellant missile-associated components. Solicited or offered items included:
- Some 50 to 100 tons of 98 to 99 percent nitric acid.
- Hydrofluoric acid.
- One hundred nitric acid pumps for 99.99 percent nitric acid.
- Unsymmetric dimethylhydrazine (UDMH), a liquid fuel use for improved performance in liquid rocket propellants.
- Diethylene triamine (DETA), a liquid fuel used in liquid propellant missiles.
- Other chemicals sought by Iraq included hydrazine, hydrogen peroxide, xylidene, and triethylamine, which are chemicals commonly used for fuels and oxidizers by liquid-propellant missiles.
Belarus was the largest supplier of sophisticated high-technology conventional weapons to Iraq from 2001 until the fall of the Regime. Complicity in this illicit trade was exhibited at the highest levels of the Belarusian Government. Belarusian state establishments and companies implemented cooperation agreements with Iraq to transfer technology, equipment, and expertise to the embargoed Regime.
- The Iraqis constantly worked to improve the illicit trade relationship with Belarus despite the absence of a formal trade agreement between the two countries. The illicit trade relationship allowed Iraq to obtain high-technology military equipment. Belarus was relatively advanced in military research and development including air defense and electronic warfare.
- Belarus acquired hard currency and a market for its post-Soviet defense industry, according to a detainee.
- The intelligence services of both countries helped to facilitate this trade, according to a cooperative source with good access. A detainee debrief affirms that Belarusian aid in radars, laser technology, metallurgy, and electronic warfare systems were the key areas of cooperation.
In 2001 and 2002, two MIC delegations visited Belarus to discuss Belarusian assistance in upgrading Iraqi defense capabilities, particularly air defense and electronic warfare systems. Former MIC Director, Huwaysh, led the Iraqi delegations. The Iraqi delegations also included the former Director of Al-Kindi Dr Sa'ad Da'ud Shamma', the former Director of the Al-Milad air defense company, Brigadier General Husayn, and several high-ranking Iraqi air defense officials. Huwaysh, however, was the overall manager of the relationship between Iraq (especially MIC) and Belarus according to a detainee debrief.
A former high-ranking Iraqi government official says that diplomatic relations between Belarus and Iraq were so strong that an Iraqi-Belarusian Joint Committee was formed to promote illicit trade. The committee was cochaired by the Iraqi Minister of Finance, Hikmat Mizban Ibrahim al-Azzawi, and Vladimir Zamitalin of the Belarusian Presidential Office. Indeed, the President of Belarus, Aleksandr Lukashenko, consistently supported the political positions and defense needs of Iraq. In a September 2002 meeting, President Lukashenko met MIC and MFA officials to discuss military cooperation. During the meeting, President Lukashenko expressed his willingness to support Iraq and to send air defense experts to help Iraq fight the United States.
Key Belarusian Individuals Linked to Illicit Trade With Iraq
The following Belarusian individuals were instrumental in driving forward the illicit trade with Iraq:
- Vladimir Zamitalin. Ex-deputy to the head of the Presidential Bureau and former head of the Belarusian side of the combined Iraqi-Belarusian Committee for Commercial and Economic Cooperation. He was in charge of the special military cooperation with Iraq and functioned as a secret envoy between President Lukashenko and Saddam.
- Leonid Kozek. Ex-deputy to the head of the Presidential Bureau and member of the Iraqi-Belarusian cooperation committee.
- Nikolai Ivanenko. Current deputy to the head of the Presidential Bureau and last head of the Belarusian side of the combined Iraqi-Belarusian committee for economic cooperation. He had a role in the special military cooperation with Iraq, and is a relative of President Lukashenko. He visited Iraq twice and met with Saddam, carrying a written letter to Saddam from President Lukashenko.
- Vitali Kharlap. Belarusian Minister of Industry.
- Professor Kandrinko. Director of the communications department at a Belarusian concern called AGAT. He played a successful role in negotiations with Salah Al-Din state company and concluded many contracts concerning the manufacture of communication sets.
- Professor Kloshko. A scientist who led the department of telemetric systems for surface-to-surface missiles and had many contracts with the MIC.
- General Petr Rokoshevskiy. Deputy for arming and training in the Belarusian MoD. Rokoshevskiy had a role in activating military cooperation with Iraq. This involved working with the Iraqi MoD, SRG, and the MIC for supplying rocket propelled grenades (RPG-7), munitions, and laser-directed Konkurs antitank rounds. He played a major role in signing a contract with the Iraqi MoD and the MIC for training 20 officer engineers of the SRG in using the S-300 PMU-1 (SA-20) air defense system at the Belarusian military academy. Rokoshevskiy was also involved in signing contracts for supplying engines for T-72 and T-55 tanks, MiG-29 fighter jets, and BMP-1 mechanized infantry fighting vehicles.
Materials, Equipment and Services Provided by Belarus
Belarus exported a range of military goods to Iraq. This illicit trade was organized and executed by a number of Belarusian companies. Captured documents reveal that in December 2002, Balmorals Ventures Ltd.implemented contract 148/2002 with the Al-Kindi General Company to deliver electronic components to the value of $70,367. This price included the cost of delivery to Syria and onward shipment to Baghdad. The goods could have been components for a radar jamming system.
Viktor Shevtsov was the director of Infobank and of another Belarusian company involved in illicit trade with Iraq named BelarusianMetalEnergo (BME). Infobank helped finance deals with Iraq and, according to Huwaysh, may have been run by Belarusian intelligence. BME was involved in supplying castings and machinery for T-72 tanks, and modernizing SA-2 air defense missiles and associated radar systems. BME had many multimillion dollar contracts with Iraq and worked closely with Infobank to finance illicit trade. Shevtsov organized, at his own personal expense, trips on-board Belarusian airlines from Minsk to Baghdad. These flights transported experts and directors of Belarusian companies connected to Iraq as well as technical and military equipment destined for Iraqi ministries.
Alexander Degtyarev was also a major player in the illicit trade business with Iraq.Degtyarev was a Russian scientist whose specialty was missile guidance and control. Shevtsov introduced Degtyarev to the Iraqi MIC. Degtyarev owned the Belarusian companies named Systemtech and ElectricGazCom (EGC), which had contracts with Infobank and Iraq to supply radars plus control and guidance systems for SA-2 missiles. The latter equipment was transported through Syria and paid for through Syrian banking institutions. Degtyarev was a regular visitor to Iraq, traveling there every two weeks according to a high-level MIC official and a mid-level former Iraqi civil servant with direct access to the information.
A high-level MIC official stated that EGC signed contracts with the Iraqi Al-Karamah State Establishment to build a facility for the manufacturing and testing of control and guidance systems for surface-to-surface missiles such as al-Samud. This trade also included the sale of gyroscopes and accelerometer testing stages. In addition, ECG signed contracts with the Al-Batani State Company for the technology transfer of manufacturing systems for an Iraqi satellite research project.
A former Iraqi official revealed that President Aleksandr Lukashenko as a vehicle for illicit trade with Iraq promoted a joint Belarusian-Iraqi company. Lukashenko was anxious that illicit trade should continue on a regular basis and requested that a firm called Belarus Afta be established in Baghdad as a clearinghouse for illicit military trade.
- Radar technology and air defense were the most crucial export commodities to Iraq from Belarus. Captured documents and a mid-level Iraqi military officer with direct access to the information affirm that there was joint Belarus-Iraqi development of an improved P-18 (Mod Spoon Rest) early warning radar between November 2000 and March 2003. This radar was employed at Al-Habbaniyah Air Defense Center against Coalition aircraft during OIF.
- Systemtech provided assistance in the fields of research, testing, and project implementation. Dr Raskovka was the senior Systemtech official helping the Iraqis, visiting Iraq every 3 to 4 months for 3 years. The Iraqis wanted to purchase an S-300 air defense system. Contracts were signed and training undertaken, but the pure logistic problems of supplying the system without alerting the international community were insurmountable.
Other interviewees revealed that Belarus provided numerous supplies of illicit goods to Iraq. These included equipment for T-72 and T-55 tanks; Volga, Pechora (SA-3) and other air defense missile systems; Mi-17 helicopters; spares and repairs for MiG-23, -25 and -29 plus Sukhoi 25 jets; laser guidance systems; fiber optics; infrared spare parts; GPS jammers; and radios.
IAEC-MIC Cooperation for the Procurement of CNC Machines
Based on interviews with Fadil Al Janabi, former head of the IAEC, and 'Abd-al-Tawab Al Mullah Huwaysh, former Minister of Military Industrialization, it is evident that the MIC procured CNC machines for the IAEC as part of a "special project" for modernizing Iraq's scientific infrastructure in 2001.
- According to interviews with Fadil Al Janabi, presidential secretary 'Abd Hamid Mahmud Al Khatab Al Nasiri was approached in 2001with a proposal for a modernization program that included procurement of new machinery and equipment, enabling the IAEC to create molds and manufacture specialty parts in-house. Al Janabi wanted to procure these CNC machines through the MIC to bypass foreign supplier's reluctance to sell manufacturing equipment to the IAEC.
- Huwaysh recalled that in 2001, Al Janabi and Khalid Ibrahim Sa'aid contacted him with a presidential order to assist the IAEC with a "special project." The MIC was not to be involved with establishing technical specifications or providing funding, but was to serve as a functional link.
- During this initial meeting, which was also attended by Munir Al Kubaysi, Director General of MIC's Al-Basha'ir Company, Huwaysh claimed he was informed that he did not need to know what was being procured. He further remembered the relative high cost of the machines, costing approximately half the budget of the entire special IAEC modernization project.
IAEC scientists and employees, in contrast, have claimed that CNC machines procured from Taiwan were not high precision and were the same as those used at the Al Badr General Company.
- A source with access stated that the most precise machines were capable of 5-micron accuracy, but none of the machines were five to six axes because this would have "broken sanctions and all of the machines were declared to inspectors." The IAEC employee stated that these high-precision machines were installed at Tuwaitha and information regarding these machines was provided to the UN and IAEA in the declaration given in December 2002.
- ISG has found Iraqi documents that corroborate this assertion, showing that the IAEC had prepared UN forms (OMV Form 22.5/ MOD.2) for eight CNC machines, all of which were identified as three-axes machines. The descriptions in the declarations are consistent with the statements of the mid-level managers.
It is important to note, however, that these IAEC sources referred to the MIC manufacturing company Al Badr and not Al-Basha'ir, the MIC front company involved in negotiations with Huwaysh. In the interchange between the IAEC and the MIC, Al Janabi was explicitly ordered that all transactions and communications on this procurement project were to go through Munir Al Kubaysi and Al-Basha'ir. ISG judges it is probable that this "special project" procurement was carried out by Al-Basha'ir as a separate classified channel for IAEC precision machinery. This assessment supports Huwaysh's claim of the sensitivity surrounding the "classified" nature of the IAEC modernization project in 2001.
Even during the prelude to OIF, the illicit Belarusian military trade with Iraq did not stop as shown by captured documents. Belarus provided PN-5 and PN-7 night-vision devices for Iraq through the Al-Basha'ir front company. Three months before the onset of the conflict, President Lukashenko instructed the Belarusian Ministry of Defense to allow Iraq to purchase any goods from Belarusian military supplies.
Payments From Iraq to Belarus
The main revenue stream for funding illicit trade with Iraq came from the Iraq-Syria Trade Protocol. The amount of illicit military trade between Belarus and Iraq was significant according to captured documents, with Belarusian Governments receiving nearly $114 million in payments from Iraq.
According to a detainee, the critical financial element in the illicit trade process between Belarus and Iraq was Infobank. Belarus demanded to be paid 75 percent of the contract price in hard currency before delivery of any goods. Iraq did not agree to this. Therefore, Infobank agreed to provide bridging funds, including the 75 percent up-front fee, to finance illicit deals between Belarus and Iraq for a fee of 15 percent of any contract. According to a high-level Regime source with direct access, kickbacks paid to Iraq by Belarusian companies for exports to Iraq under the UN OFF Program were kept at the Infobank to fund future illicit Iraqi imports from Belarus. A senior former executive in the Iraqi MIC believes that Infobank had a total of $7 million of Iraqi money in its accounts before OIF. Infobank also financed illicit military trade between Iraq and Yugoimport-FDSP of Serbia, paying equivalent up-front fees, according to a former senior executive in the MIC.
Although a limited supplier of prohibited goods to Iraq, companies from Taiwan negotiated for conventionally military goods and provided critical CNC machines to the Regime from 2001 to 2003. These machines provided Iraq with a means to improve its military-related production.
The earliest evidence of Iraq's procurement relationship with Taiwan dates back to January 2001, when Iraq sought military equipment and dual-use goods from companies in Taiwan. In an apparent attempt to circumvent UN sanctions, Dr. Kahalid Sulaiman of the Iraq-based company ETIK for General Trading Limited approached the Taiwanese arms brokerage firm, Epnon International Limited, seeking 150 engines for T-72 and T-55 tanks, 200 engines for the T-62 tank, and 100 engines for the BMP-1 and BMP 2 armored personnel carriers.The engines were to be in complete and new condition.
Although Epnon's prices were higher than other sources, ETIK learned that it did business without the need for official papers. The deal was originally structured as cash only; however, under-the-table transaction with the payments made in advance occurred, and an agreement was eventually reached for half the payment for the engines to be in cash, and the other half in oil.
- ISG has found no evidence that these engines were delivered to Iraq.
There is limited information on the supply of CNC machines to Iraq, but during UNSCOM's tenure, UN inspectors confirmed Iraq had obtained CNC machines manufactured by companies in Taiwan.
- During an inspection in 1998 of the Al Rasheed General Company's Tho Al-Fekar Plant at the Taji Metals Complex, UNSCOM inspectors found four new Hartford vertical machining centers, with one machine installed and being used on Ababil-50 motor bulkheads. The four machines, made by the She Hong Machinery Company Limited, were three-axis vertical machining center with an indexing fourth axis and a 20-tool carousel.
- The inspectors considered these modern, standard quality CNC machines suitable for good quality aerospace and missile-related applications. Later in 1998, another inspection at the Tho Al Fekar Mechanical Plant reported another four Hartford CNC machines milling Ababil-50 rocket nozzles. The team identified that three of these machines possessed a computer-controlled turntable.
- ISG cannot confirm that these CNC machines were purchased directly from sources in Taiwan. It is equally likely that these machines were obtained from unknown third parties.
In 2001, the IAEC and MIC were working to obtain CNC machines to modernize Iraq's scientific infrastructure. By 2002, documentary evidence shows Iraqi front companies soliciting bids and contracting for CNC machines from companies in Tawian. The CNC machines procured from Taiwan by Iraq consisted of three or more axes, suggesting potential use in weapons production.
- In early May 2002, the Baghdad-based Iraqi firm, Aldarf Company, represented by Ali Albakri, sought tilting rotary tables for two machining centers. She Hong Industrial Company, one of Taiwan's largest manufacturers of machine tools, acknowledged the Iraqi company's need for accessories and stated that rotary tables manufactured by Taiwan's Golden Sun industrial Company Limited, Taichung could be added to both machines that Iraq already possessed.
- Recovered correspondence from the Al-Basha'ir Company revealed a deposit of $900,000 into the account of Mr. 'Abd al Razzaq Al Falahi and Brothers to execute a contract for importing machine tools from Taiwan. This money was then transferred into the account of She Hong Industrial Company.
- In July 2002, Iraq asked a Jordanian company to seek a new quote from a company in Taiwan for a gun-drilling machine, earlier quoted at a price of $146,000.
- January 2003 bids for CNC wire-cutting machines from Taiwan were also revealed in documentation from the Al Badr State Company, a subsidiary of the MIC.
Iraq took active measures to ensure that illicit trade for machine tools from Taiwan was concealed. Recovered correspondence from Al-Basha'ir expressed that the wording of the contract conducted by Mr. 'Abd al Razzaq Al Falahi should not make reference to Al-Basha'ir and that monies should be deposited in a static account for all transactions. Correspondence from a MIC-run company also indicated that bids from companies in Taiwan were under the auspices of the Iraqi and Syrian agreements, implying that goods obtained from Taiwan would be transshipped through front companies operating out of Syria or that Syrian front companies would act as intermediaries and facilitate delivery of the procured equipment.
Since 1990,illicit procurement activity between Iraq and Egypt provided Baghdad with a limited amount of materials that the Regime found difficult to acquire outside UN sanctions. Materials that Iraq acquired through its relations with Egypt, outside UN sanctions and resolutions, included nitric acid, stainless steel and aluminum alloys.
Egyptian and Iraqi procurement relations began in the early 1980s when Baghdad provided Cairo with $12 million in 1981 in return for assistance with production and storage of chemical weapons agents. At this time Baghdad also entered into a series of contracts with the Government of Egypt to procure the two-stage Badr-2000 missile and to provide the technological infrastructure to build the missile indigenously, before it attempted to extend the range of its Scud-B/8K-14 missiles.
Following Operation Desert Storm and UN sanctions, procurement from Egypt was limited. Nevertheless, Iraq used its ties with Egypt to procure key items that were difficult to procure elsewhere.
- The MIC, through its front company Al-Husan, had a $5 million contract with an Egyptian firm for stainless steel, forged steel, and aluminum in 2003.
Trade in nitric acid, a precursor in the manufacture of solid propellant also flourished following the destruction of the Al Qa'Qa State Company Nitric Plant in December 1998, during Operation Desert Fox.
- A senior official from the MIC stated that Iraq had a secret agreement with Egypt during 2001 to 2002 to have nitric acid shipped from Egypt through Syria to Iraq. It is unclear how many tons of nitric acid Iraq received from this secret agreement.
Many transactions for prohibited goods were orchestrated through a trade protocol sponsored by the Iraqi MoO. The second Deputy Director for the MIC, Dagher Mahmoud, was responsible for monitoring these transactions.
- A source with direct access estimated that there was approximately $50 million in the trade protocol account. Goods and materials were occasionally procured on a cash basis from Egypt, but the majority of the protocol was based on oil transshipped through Jordan.
- M-23 officers from Balad, Iraq often accompanied MIC personnel to Egypt and between 2000 and 2003. M-23 was responsible for the physical security of MIC facilities and personnel. Abd al-Hamid Sulayman Al Nasiri, the Director of M-23, personally went to Egypt under the auspices of the IAEC about six months before OIF.
According to a senior Iraqi official from the MIC, the Egyptian state was involved in illicit trade with Iraq. Known Syrian procurement agents for Iraqi front companies also assisted in some of these transactions. It is also apparent that the Syria-Iraq Trade Protocol facilitated illicit trade from Egypt. Individual brokers and Iraqi foreign nationals in Egypt may have also initiated illicit trade, motivated by the lure of corporate and individual profits.
- Nitric acid supplies were reportedly the responsibility of the Dr. Asif Shalish, Director of the Syrian SES International, who dealt regularly with Iraqi procurement companies. All payments of the nitric acid were handled under the Syrian protocol and the head of Al-Basha'ir, Munir Mamduh Awad al-Qubaysi.
ISG, however, judges that the most likely transshipment routes through Jordan and Syria were based on the ties to the trade protocols.
Improving bilateral relations between Sana'a and Baghdad in the late 1990s resulted in direct Yemeni participation in Iraq's illicit procurement schemes.
After 2000, Yemen became a state trade intermediary for Iraq, providing Baghdad with "end-user" cover for military goods prohibited by UN sanctions and resolutions. There is no evidence, however, that Yemen was complicit in the procurement of WMD-related commodities.
Throughout the 1990s, Yemeni President Ali 'Abdallah Salih publicly supported UN sanctions against Iraq, but he remained concerned about the humanitarian impact on Iraq's citizens. Starting in February 1997, senior members of the Yemeni Government privately argued that Yemen should unilaterally abrogate the UN sanctions on Iraq. They contended that lifting the embargo would help to provide the Iraqi people with much-needed humanitarian assistance and enhance regional stability. By 1999, President Salih was beginning to publicly criticize the United States and the UK for the imposition of no fly zones over Iraqi airspace and the UN embargo.
Opening Conventional Trade With Yemen for Oil and Cash
In addition to increasingly pro-Iraqi rhetoric, Yemen and Iraq also built closer trade ties in 1999. Through regularly scheduled Iraqi-Yemeni Joint Committee meetings, Iraq and Yemen had signed trade agreements and Memoranda of Understanding aimed at strengthening bilateral ties, sparking economic growth, and exchanging energy experts in the field of natural gas and petroleum exploration. The two countries also signed a customs treaty, whereby no duties would be paid on the transfer of goods between Iraq and Yemen. Although these agreements werewithin the guidelines set forth by UNSCR 986, they provided an avenue for increasing trade coordination and eventually led to sanctions violations.
- The Iraq Government signed a $9 million deal in November 2000 with the Yemeni Hayal Sa'id group of companies to provide Iraq with food and medical- related goods in exchange for hard currency derived from Iraqi oil sales.
- On 29 September 2000, President Salih authorized one of the first commercial airline flights to Baghdad. Salih had rejected earlier calls by Yemeni opposition parties for this action out of fear of a US government reaction. After a Royal Jordanian Airlines flight landed in Baghdad on 27 September, however, Salih decided he could deflect Western criticism by claiming the flight was on a humanitarian mission. It was expected that Yemen would allow additional flights to Baghdad in the future.
By November 2000, another session of the Yemeni Iraqi Joint Committee, led by 'Abd-Al-'Aziz Al-Kumaym, was held in Baghdad. The meetings again centered on improving bilateral relations, but mainly dealt with increasing economic activity between the two countries. The joint committee reached agreement in a number of areas, including the purchase of Iraqi oil at below market prices for cash using unnamed Yemeni businessmen instead of the Yemeni Government. This kind of transaction was very profitable for Yemen, but violated UN sanctions. In addition to the profits earned by this trade, Saddam's Regime also agreed:
- To provide 60 scholarships for Yemeni students to study at Baghdad University.
- To the exchange of experts to take place in the fields of agriculture and telecommunications.
Yemen Emerges as an Intermediary for Iraqi Illicit Imports
Several high-ranking Iraqi, Yemeni, and Syrian Government officials met to discuss the establishment of an illicit trade protocol between February and July 2001. The purpose of these particular meetings centered on formulating and implementing a plan that would allow Iraq to acquire Russian-manufactured military spares through a complicated supply chain and front company network. The main participants in the meetings were the Iraqi Ministry of Defense General Secretary, the Yemeni Ambassador, and Firas Tlas, the son of the former Syrian Defense Minister Lt. Gen. Mustafa Tlas. A Yemeni businessman named Sharar Abed Al-Haq brokered the illicit Yemeni business transactions.
- Lt. Gen. Mustafa Tlas, while absent from the meeting, provided a letter, which stated that he recently met Dimitrof Mikhail, president of Russian Company of Iron Export. Dimitrof, a former senior Russian intelligence official, had agreed to supply spare parts without requesting the identity of the end user.
- Al-Haq agreed to transport military supplies from Yemen to Iraq using the illicit trade networks.
- According to the letters, Iraq provided Al-Haq a list of requirements, signed by the Iraq Defense General Secretary. This list included spares for the following: MiG-17, MiG-21, MiG-23, MiG-25, MiG-29, Su-22, Iskandri missiles with a range of 290 kilometers, updated parachutes, L-39 combat capable trainers, Bell 214st helicopters, T-55 and T-72 tanks, armored cars, BMP-1 and BMP-2 armored personnel carriers, and other cars and trucks. The total value of the contract was $7,287,213. The contract outlined a transportation scheme to take the prohibited items from Singapore to Sana'a, Yemen to Damascus, Syria, to Baghdad with payment to be made through the International Bank of Yemen.
According to recovered documents, President Salih called his brother, the Yemeni Air Force Commander, after this meeting and told him to provide Iraq with spare parts even if they needed to take them from Yemeni stocks. He also ordered his brother to acquire more materials from Russia.
- Reportedly, in early December 2001, the Iraqi Air Force had received spare parts for MiG-29 fighter aircraft, mainly through Tartus, Syria. No further information is available as to the origin of the aircraft parts. It is likely that these items were purchased via the Russian/Yemen/Syria supply chain.
Importing Prohibited Commodities
Iraq under Saddam Husayn used various methods to acquire and import items prohibited under UN sanctions. Numerous Iraqi and foreign trade intermediaries disguised illicit items, hid the identity of the end user, obtained false end-user certificates, and/or changed the final destination of the commodity to get it to the region. For a cut of the profits, these trade intermediaries moved, and in many cases smuggled, the prohibited items to land, sea, and air border entry points along the Iraqi border.
- Companies in Syria, Jordan, Lebanon, Turkey, UAE, and Yemen assisted Saddam with the acquisition of prohibited items through deceptive trade practices. In the case of Syria and Yemen, this included support from agencies or personnel within the government itself.
- Numerous ministries in Saddam's Regime facilitated the smuggling of illicit goods through Iraq's borders, ports, and airports. The IIS and MIC, however, were directly responsible for skirting UN monitoring and importing prohibited items for Saddam.
Deceptive Trade Practices Supporting Illicit Procurement
Use of Trade Intermediaries
Trade intermediaries were a specific subcategory of front company that served as middle-men or agents for illicit procurement between the Iraq clients and international suppliers. On the surface they were transport-related businesses such as freight or shipping companies that disguised the routing, destination, or purpose of acquired goods. They were either foreign or domestic companies and charged a percentage of the contract fee for their services. There were three types of Iraqi trade intermediaries:
- Companies in full collusion with the former Regime (often these were owned or operated by the Regime).
- Intermediaries willing to overlook ambiguous or partially completed trade documents if the profit margin was sufficient.
- Companies that were unaware of the Iraqi involvement in the contract because of falsified paperwork or Iraqi deception.
The conditions for illicit trade via intermediaries was set by the reestablishment of normal trade under the 1996 UN OFF Program and the bilateral trade protocols with Jordan, Syria, and Turkey. These protocols provided effective cover for illicit trade to occur, establishing legitimate linkages between trading companies, and making it more difficult to monitor compliance with UN sanctions.
- Iraqi trade companies established branch offices in neighboring countries or to call on the support of affiliated/sister companies operating abroad. Sometimes these branch offices/sister companies represented the primary office for soliciting offers from foreign suppliers. These relationships gave the appearance that commercial business was being conducted with business clients in the neighboring country, rather than Iraq.
Iraqi trade intermediaries generally used several approaches to hide the illicit nature of their cargo. These approaches were used singly or in combination (depending on the sensitivity of the commodities) to get the items into a neighboring country where it could be easily smuggled into Iraq.
- Disguising the nature of the item.
- Hiding the ultimate end user.
- Changing the final destination.
- Nondisclosure. Alternatively, any of these three bits of information could simply be not provided or written illegibly on the shipping documents. Although against common trade practices, this ambiguity could provide sufficient deniability for those suppliers in the acquisition chain.
Disguising the Nature of Prohibited Goods
The Iraqi Regime skirted UN restrictions by using cover contracts under the trade Protocols or outright incorrect descriptions of items in transit. The MIC was known to use this method to purchase military equipment using funds from the UN OFF program. Military-use items would also be incorrectly described in the paperwork as dual-use items. ISG has uncovered numerous examples of Iraqi efforts to disguise the nature of illicit imports to skirt the UN sanctions Regime:
- Captured Iraqi documents verify that NEC provided restricted items to Iraq, although we have not found any evidence that NEC provided Iraq with chemicals that could be used to produce CBW agents.
- In 1999, the MIC imported Georgian T-55 and T-72 tank engines under cover contracts for agricultural equipment, according to documents corroborated by a high-level MIC official (see figure 64).
- Translated correspondence between the Iraqi front company Al-Rawa'a Trading Company and Al-Karamah detailed November 2000 plans to alter shipping documents for agricultural towing batteries (military use) to describe them as batteries for ambulances. Muhammad Talib Muhammad, director of Al-Rawa'a, was concerned because, if the batteries were discovered during inspection upon arrival in Iraq, it could create a "crisis." The purpose of altering the documents was clearly to describe the batteries dual use rather than military use, thereby making it easier to bring them into the country.
- In February 2003, the Russian state arms export company, Rosoboronexport, and other Russian companies planned to sell advanced antiaircraft and antitank missile systems to Iraq, according to a document signed by the head of MIC security recovered at the IIS Headquarters in Baghdad. The Iraqis and Russians planned to ship the prohibited goods using UN OFF cover contracts to disguise the items as illumination devices, water pumps, and assorted agricultural equipment. We do not know if this equipment was shipped to Iraq before the start of Operation Iraqi Freedom.
International Commodity Deception:
The Spherical Aluminum Powder Case Study The lure of high profits brought unscrupulous trade intermediaries to Iraq to offer their "services." Iraq's Al Badr Bureau Trading and Engineering Firm sought bids on spherical aluminum powder, a key component for solid rocket propellant, through a Pakistani trade intermediary. After three attempts to purchase the powder failed, the intermediary's managing director sought other means to obtain the powder for Al Badr. Throughout the trade negotiations, both Amanatullah and Dr. Farhan Ghazar, the Al Badr representative, were aware the powder was a prohibited military item.
- In late April 2002, the Pakistani intermediary proposed shipping the powder to Iraq through Pakistan and then Syria using "falsified shipping documents" listing a different material in the shipping containers. He requested Dr. Ghazar's assistance to create these false invoices.
- By mid-May, he had identified an unnamed British manufacturer that was prepared to ship the powder to Karachi and passed the company's end-user certificate to Dr. Ghazar, as a metallurgist, who should have no trouble falsifying the document.
- The Pakistani intermediary and Ghazar also sought possible nonmilitary end uses for the powder that could be listed on the British certificate.
- After completing the planning for the illicit shipment, he and Dr. Ghazar sought to assure his Iraqi clients that his Pakistani company was fully prepared to handle this sensitive project and any future requests for other Iraqi customers.
Throughout the summer and fall of 2002, the Pakistani intermediary continued to try to close the contract for spherical aluminum powder with Iraq. He made a trip to Iraq with samples in July and mailed samples to Dr. Ghazar in October 2002. Had Iraq agreed to the shipment in November 2002, the Pakistani intermediary's own delivery estimates would have had the powder delivered to Pakistan from a British firm no earlier than February 2003. Therefore, it is unlikely Iraq was able to obtain the aluminum powder before OIF. Nevertheless, this case illustrates the methods used by Iraq and its illicit trade intermediaries to evade UN sanctions and international monitoring.
Concealing the Identity of Commodities
In addition to disguising the identity of the item, trade intermediaries employed many techniques to hide the identity of the end user of the commodities. A common practice used by Middle Eastern trade intermediaries representing Iraq's interests would routinely approach suppliers about requirements for "unidentified clients." The international suppliers would either settle for incomplete end-user statements (part of the formal international trade documentation requirements) or accept false end-user statements from neighboring countries sympathetic to Iraq.
- After 1997, many of the illicit goods imported by MIC came through Syria using false end-user certificates provided by high-ranking Syrian officials. The former Syrian Minister of Defense, Mustafa Tlas, routinely signed false end-user certificates for weapons dealers, generally for a fee of 12 to 15 percent of the total contract amount.
- Documents from the Al-Basha'ir front company illustrate this method of deception. According to the documents, the Indian NEC Company complained to Al-Basha'ir in 2000 that the majority of the items requested by the MIC were seized before reaching Iraq, "despite the fact that most of it had documents with clauses mentioning the requirement of not shipping it to Iraq, Iran, North Korea, or Cuba."
Circumvention of UN Sanctions Importing Missile-Related Materials in 1998
To avoid UN inspectors' possible detection of sanctioned materials, Iraqi officials would instead find alternate methods to get what they needed. The Al Fat'h missile project illustrates how the Iraqis managed to avoid UN detection. Documents captured at the MIC Headquarters reveal the MIC's March 1998 plan to purchase dual-use materials, including: ammonium perchlorate, aluminum powder, carbon fiber, and phenolic resin for use in the Al Fat'h missile project. After discovery of these materials by the UN, Iraqi officials were instructed to submit a form B-1 by Richard Butler, Chairman of UNSCOM. This form detailed Iraq's plans to use 20 tons of ammonium perchlorate and 3 tons aluminum powder to manufacture composite solid propellant for the Al Fat'h motor. It also described a need for 350 kilograms of carbon fiber to insulate parts of the Al Fat'h motor. The materials were to be shipped through Jordan by the Iraqi company Al 'Ayan, with Al Wadha Commercial Agencies Company, possibly a subsidiary of Al-Eman, acting as an intermediary.
A letter, classified "Top Secret" by the Iraqi Government, from Al 'Ayan Trading Company to the MIC summarized the inability to ship the ammonium perchlorate, aluminum powder, carbon fiber, and phenolic resin because of the UN restrictions on Jordan in shipping those materials for the missile program. Al 'Ayan suggested the following solution:
- Advise the beneficiary to contact the supplier to publicize the "cancellation" of the contract with Al 'Ayan.
- All related communications and inquiries would remain strictly at the commission (possibly the MIC) office and not at the project site.
- Al 'Ayan would divert the shipment routing to avoid entering Jordan.
- Al 'Ayan would change the type of commodity on the bill of lading, alter the beneficiary's name at intended port of entry, and change the port name.
- The contract duration would be amended to add one month for delivery.
The contract would increase in value by 20 percent of the actual sum to compensate Al 'Ayan for aiding Iraq in acquisition of prohibited materials.
Disguising the Commodity's Destination
Perhaps the most basic method for Iraq to skirt international scrutiny was to simply list a neighboring country as the final destination, when in fact the commodities were only held there until they could be smuggled to Iraq by Saddam's agents. Because of the high amount of ordinary trade occurring under the bilateral trade protocols, and government complicity, Syria and Jordan were the most common transit countries used as false destinations for prohibited commodities bound for Iraq. The UAE also served as a transit location and, according to reporting, profiteers in Iran even took part in transiting Russian goods into Iraq. The MIC paid these transit services with the profits of oil sales under the trade protocols.
- According to a report, the Al Raya Company, an IIS front company, requested weapons from Syrian or Jordanian arms dealers. The merchant would acquire the goods in Syria or Jordan and move them into Iraq through the Jordanian Free Commercial Zone. This free trade zone was controlled by the Jordanian Ministry of Finance and Jordanian Intelligence Service and it served as an effective conduit for importing prohibited items through Jordan to Iraq. This report corroborates other reporting on the role of Jordan prior to 1999.
- After 1999, the MIC's Al-Basha'ir Company served as a primary conduit for handling illicit shipments via Syria. At the MIC's request, Syrian trade companies obtained specific items for Iraq, primarily from suppliers in Russia, Bulgaria, Ukraine, and other Eastern European countries. When delivered to Syria, Al-Basha'ir took delivery of the commodities under the oversight and assistance of Syrian government officials. These officials normally received a 12.5-percent mark-up as a kickback to ensure goods moved from Syria to Iraq without disruption. Al-Basha'ir then smuggled the items into Iraq and delivered them to MIC.
- In another case, seized documents reveal that in 2000 the Indian NEC Company delivered "100 explosive capsule units for the RPG-7" to the Al-Basha'ir Company in Iraq by leasing "a private plane which delivered the shipment directly to Syria with great difficulty."
Use of Illicit Smuggling and Transportation Networks
Iraq has been at the center of various trade routes for centuries. Historically, this trade involved illicit activity, or smuggling, to escape taxes or to evade governmental oversight. Despite the imposition of sanctions by the United Nations in 1990, Iraq managed to circumvent UN sanctions through long-established business relationships with its neighbors, cross-state tribal connections, and use of ancient smuggling routes. Contemporary smuggling methods used by Iraqi trade companies used the entire spectrum of smuggling methods: disguising illicit shipments as legitimate cargo; hiding illicit goods in legitimate shipments; avoiding customs inspections; and for high priority, low-volume shipments, using Iraqi diplomatic couriers.
Captured documents indicate that there were approximately 500 official and unofficial border crossing points between Iraq and Syria, Jordan, Saudi Arabia, Kuwait, and Iran. According to the documents, there were also other border checkpoints between Iraq and Turkey and between Iran under Kurdish control. Despite the number of possible crossings, almost all goods entered Iraq at just five major border crossings and the port of Umm Qasr.
- Only goods supplied under the UN OFF Program were subject to UN inspection at the four permitted border points; Turaybil/Al-Karamah on the Jordanian-Iraqi border, Tanf/Al Qaim on the Syrian-Iraqi border, Habur Bridge/Zakho on the Turkish-Iraqi border, Ar'ar on the Saudi-Iraqi border and the port of Umm Qasr on the Gulf.
A mid-level Iraqi official asserted that Iraq signed a formal transport agreement in the 1990s. These agreements ensured that before 1999 Jordan was the primary conduit of illicit trade with Iraq. The change in the Iraqi-Jordanian relationship was promoted by a combination of improvement in Iraqi-Syrian relations, and Jordanian concern over increased political scrutiny in the United States.
Syria's two primary transportation companies, SES International (previously known as Lama Trading Company) run by its General Manager, Asif Al-Shalish, and the Nurallah Transportation Company, had significant ties to the Iraqi MIC.
Smuggling by Air
A former Iraqi diplomat described how several times per month Iraqi diplomatic personnel would smuggle large quantities of money and prohibited equipment from Russia to Iraq. From 2001 until the fall of Baghdad, goods were smuggled out of Russia by Iraqi Embassy personnel. Equipment smuggled by this method included high-technology items such as radar jammers, GPS jammers, night-vision devices, avionics, and missile components of various types. A charter flight flew from Moscow to Baghdad every Monday, with a return flight on Wednesday. The flight was not inspected by the UN and was used to smuggle cash and other goods, which Iraq was not allowed to procure under UN sanctions, into Baghdad. Cash and equipment were smuggled two or three times a month by diplomatic courier, usually disguised as diplomatic mail. Bribes were paid to Russian customs officials to facilitate these illicit shipments.
- A former Iraqi MFA employee who worked as a diplomatic courier and had direct access to information reports that the Iraqi ambassador to Russia personally delivered GPS jammers to the Iraqi Embassy in Damascus during April 2003. The ambassador used a private jet for transport, with the GPS jammers concealed as diplomatic mail. The jammers were transferred to Al Qaim border checkpoint.
A senior executive in the MIC provided information detailing how direct frequent flights between Minsk and Baghdad were instituted in the summer of 2000. Belarus established a joint airline with Iraq that employed four Boeing-747s to transfer unspecified illicit items, experts, and officials direct to Baghdad under the cover of humanitarian aid missions.
Amman airport was also used as an air transshipment point. An Iraqi businessman declared that, a Jordanian company procuring illicit goods on behalf of Iraq shipped prohibited goods to Amman airport for onward transfer to Iraq.
Smuggling by Land
Iraq deployed many state institutions whose mission was to facilitate illicit trade by land. According to an Iraqi customs inspector with direct access, the IIS, the SSO, and the MIC used the border checkpoint system as a method of obtaining prohibited goods.
One such Border Check Point (BCP) facility was located at Turaybil. The activity at that BCP was representative of the smuggling infrastructure used to ship illicit goods into Iraq at other BCPs. Turaybil was part of the MoTC border checkpoint system that facilitated the movement of a large amount of contraband goods into Iraq. The Iraqi customs service was forbidden to inspect IIS shipments.
- Turaybil contained an IIS office, an ILTC office, an SSO office, and a Directorate of Military Intelligence office, according to information relayed by an Iraqi customs inspector with direct access. The "Orient Company" was often listed as the sender of equipment, with Iraqi front companies, including Al-Basha'ir, Al-Faris, Hatteem and Al-Faw, served as the consignees. The "Orient Company" was the most common cover name for illicit IIS-assisted shipments into Iraq—the company did not exist.
- The volume of traffic at the Turaybil border crossing meant that it would not be possible to adequately inspect traffic entering Iraq.
According to a captured document, days before OIF, the JEFF Corporation of Bulgaria offered and was prepared to export 500 Igla MANPADS missiles, 50 grip stocks, and two inspection platforms to Iraq. There is no evidence that the contract was fulfilled. The Iraqi front company named Al-Basha'ir, however, subcontracted the Nurallah Transportation Company of Damascus to ship the embargoed goods from a Lebanese port to Al-Basha'ir warehouses, and then on to Baghdad. The goods would take a total of three months to reach Baghdad from Bulgaria via the sea and multiple shipments by truck. An Iraqi businessman has confirmed that illicit equipment arriving in Damascus from Minsk, Belarus, was transferred to Baghdad via Syrian roads and railways.
Open sources detail how the Habur bridge or gate near Zakho on the border with Turkey was also a scene of illicit smuggling. The large volume of traffic across Habur bridge (see Figure 65) hindered the adequate monitoring of cargo. Recent open sources point to the fact that UN monitors were able to inspect only one in every 200 trucks that crossed into Iraq via this route.
Other sources suggest that Iraq may have also received goods smuggled in by truck from Dubai via Saudi Arabia. Illicit trade between Iraq and Iran was also problematic. Smuggling occurred on the road linking the Iraqi city of Al-Basrah and the Iranian city of Khorramshahr. Iran exported foodstuffs, luxury goods, and especially cement and asphalt along the 40-kilometer highway. A former employee of the MIC declared that the smuggling was under the protection of both the Iraqi SSO and the Iranian Revolutionary Guard Corps.
There are a dozen official entry points into Iraq from the neighboring countries (see figure 66) of Jordan, Syria, Turkey, Iran, Kuwait, and Saudi Arabia, three air entry points at Baghdad, Basra, and Mosul and two main ports at Umm Qasr and Al-Basrah. As indicated on the map, the UN monitored only five border crossings. The primary reason for the UN's oversight centered on the UN OFF Program. UNSCOM weapons inspectors seldom visited Iraq's border control points because they were based in Baghdad. The UN contracted two private companies from 1996 to 2003 (Lloyds Register and later a Swiss company called Cotecna) to authenticate and certify the arrival of humanitarian supplies under the UN OFF Program at three land border points. (A fourth was added just prior to OIF and the port of Umm Qasr (see figure 67).
This left at least two major border crossings and Baghdad's airport completely unmonitored. Even at the monitored crossings, cargo not approved by the UN could freely enter Iraq because UN monitors only dealt with UN OFF cargo. Any non-UN cargo could freely enter Iraq at either monitored or unmonitored entry points.
Smuggling by Sea
During the sanction years, traders used a pool of private dhows, barges, and tankers to smuggle oil out and commodities into and out of Iraq's southern ports with relative ease. It is possible that easily concealed military and dual-use items could have been transported by this method.
Smuggling via Jordanian Ports
The port of Aqaba in Jordan served as a maritime transshipment point. Beginning in the mid-1990s, Lloyds Register provided monitoring of goods arriving at Aqaba, but Jordan terminated the contract in 2000. The IIS had a representative in Aqaba, overseeing illicit trade including shipments made by a Middle Eastern firm.
From 1996 to March 2001, Mohammed Al-Khatib, a Jordanian businessman, became the most prominent intermediary for the Indian company NEC. Al-Khatib runs the Jordanian transport companies named MK-2000, Jordan Oil Services, and the Jordan Establishment for Transit, all located at the same Jordanian address. Al-Khatib facilitated the shipping of illicit goods to Iraq. Contraband was shipped by Pacific International Lines Ltd and Orgam Logistics PTE Ltd from India (Bombay and Madras) to Aqaba in Jordan. In all the deals:
- Al-Khatib was identified as the consignee.
- All voyages involved transshipment, at least one via Dubai.
- Goods were unloaded at Aqaba port by Al-Khatib and reloaded onto Al-Khatib company trucks for onward transit to Iraq.
- All payments by Iraq were made to Al-Khatib with Al-Khatib paying other players in the logistics and supply chain.
- Iraq submitted tenders to NEC through Al-Khatib.
Smuggling via Syrian Ports
Open sources reveal that a draft trade and security agreement existed between Iraq and Syria that covered a variety of economic and political arrangements. These included the opening of the Syrian ports of Al-Latakia and Tartus for Iraqi imports. It took approximately two weeks to deliver cargo to Al-Latakia or Tartus from Black Sea ports, according to a senior executive in the MIC.
Sources asserted that a heavy pontoon bridge set provided by the Ukrainian arms export firm Ukroboronservice to Syria was ultimately supplied to the Iraqi RG. It was initially delivered from Mykolayev on the Black Sea coast to Beirut in Lebanon on the MV Nicolas A, arriving in early October 2002. The equipment was imported by the Syrian firm SES International, probably covered by a Syrian end-user certificate. A delivery verification certificate signed by Syria's Customs Department, verified by SES, indicated that the shipment had reached Syria by mid-October. Sources further revealed that elements of the heavy pontoon bridge set had been delivered to RG forces at Fort Rashidiyah, near Baghdad by early November. Other elements were deployed to a river-crossing training site between late October and early November of 2002.
Smuggling via the Arabian Gulf
The Iraqi Regime frequently employed smugglers who used oil smuggling routes through the northern Arabian Gulf. The Iranian Revolutionary Guard Corps Navy facilitated this illicit trade by providing safe passage through the northern Persian Gulf for Iraqi oil smugglers in return for a fee. This arrangement allowed oil smugglers a safe passage through Iran's northern territorial waters, but smugglers remained subject to being interdicted by Iranian authorities farther south (see figure 68).
By calculating the $50 per metric ton of oil fee, the Maritime Interdiction Force (MIF) estimated in 2000 that Iran was taking about 25 percent of the profit from smuggled Iraqi oil (see figure 69). These high profits resulted from the difference between the market price for crude oil and the low prices Saddam was willing to charge to earn revenue that was not tracked by the UN.
The chart illustrates the facilitation role Iran played in Iraqi oil smuggling. On two occasions in 1998, Iran took actions to stop oil smugglers from using its territorial waters. The figure compiled by the MIF, clearly indicates the impact this action had on the volume of prohibited trade in the Gulf.
Iran and the UAE were the most frequent destinations for Iraqi smuggled oil. The MIF also found that the majority of the smuggling vessels were owned by entities from these countries.