Oil-for-Food Benefited Russians, Report Says

Under the program, Iraq bypassed traditional oil traders, giving influential businessmen, politicians, dignitaries and terrorist groups the right to buy millions of barrels of oil, U.S. investigators have said. These individuals would then sell their rights at a profit of 3 cents to 30 cents a barrel to oil traders supplying major refineries in the United States, Europe and Asia. Hussein eventually started charging a kickback of 10 cents to 50 cents a barrel, which was deposited in secret bank accounts.

The Senate documents quote an unidentified senior official in Hussein's government as saying "the whole point" of providing the allocations to individuals was to allow them to profit personally.

The Senate reports, based in part on interviews with former Iraqi officials and hundreds of pages of documents, said Russia topped the list of Security Council members whose support Hussein sought. More than 30 percent of Iraqi oil allocations ended up going to Russian officials, political parties and businessmen.

One of the new Senate reports said Hussein granted oil allocations -- the opportunity to buy discounted oil -- to a group identified as the Russian Presidential Council, made up of advisers appointed by the Russian president to devise presidential policy, draft presidential decrees and coordinate policy among agencies.

Two people were listed as receiving allocations on the council's behalf -- Alexander Voloshin, the highly influential chief of staff to Putin and Yeltsin, who also headed the council, and Voloshin's friend and confidant Sergey Issakov.

The report said the pair hired companies to handle the transactions and estimated that they made profits of almost $3 million total between 1999 and 2003.

Voloshin, known as one of the most powerful Kremlin officials, resigned in 2003 over a scandal involving Russian oil giant Yukos.

Voloshin managed Putin's first campaign and helped to create the pro-Kremlin Unity Party. The report said the party also received oil allocations, along with the country's Ministry of Foreign Affairs, the Communist Party and the Liberal Democratic Party.

The Senate report said that Issakov was deputy chairman of Vnukovo Airlines and traveled regularly to Iraq to reestablish airline service between Moscow and Baghdad.

A second Senate report said that Zhirinovsky, a former presidential candidate who espouses an ultranationalist agenda, also received allocations that he cashed for profits of as much as $8.7 million between 1997 and 2002.

Senate investigators obtained letters signed by Zhirinovsky that discussed the oil allocations and documents from Iraq's oil ministry that linked him and his political party, the Liberal Democratic Party, to the allocations.

In 1997, Zhirinovsky wrote to Iraq's ambassador to Russia describing how his party "stood firmly against the enforcement of the United Nations economic sanctions" and had used its influence to persuade the Russian Duma, or parliament, to facilitate more economic cooperation with Iraq. It went on to request contracts under the oil-for-food program.

A spokeswoman for Zhirinovsky said he did not have any immediate comment and would respond after he has an opportunity to read the report. Voloshin did not respond to a request for comment, and Issakov could not be located for comment.

The Senate documents said Hussein personally approved the Russian oil allocations to curry favor or provide "compensation for support."

At one point, Hussein ordered that Russians be rewarded for threatening in 2000 to veto a Security Council resolution to restrict illicit trade at Iraq's borders, the Senate reports said. The veto threat killed the resolution before it was formally considered, prompting more oil allocations for Russia as well as contracts for humanitarian goods, the documents said.

The oil transactions involved a complex web of financial arrangements and middlemen, all of whom received a piece of the profits.

Bayoil played a key role in a number of transactions, the report said. The company had conducted an "aggressive campaign" to buy Iraqi oil under the oil-for-food program, but its efforts were stymied by a Hussein policy forbidding direct contracting with U.S. or British companies. Iraq also required the company that purchased the oil to be in the same country as the recipient of the allocation.

The report described cases in which Bayoil orchestrated transactions between Iraq and Zhirinovsky. The company arranged for a Russian entity to purchase the oil and, without ever taking possession, sell it to Bayoil. A letter from Bayoil described how the company paid an "agreed premium" to Zhirinovsky for his allocation.

The report also described Iraqi documents showing that surcharges, or kickbacks, amounting to more than $4 million were paid to Iraq in connection with Zhirinovsky's transactions. The documents say Bayoil "facilitated" surcharge payments of more than $2 million to Hussein.

Catherine M. Recker, a lawyer for Bayoil and its founder, David B. Chalmers Jr., said she could not comment before seeing the report. "Bayoil and David Chalmers stand by their previous statement that they have done nothing illegal and will vigorously defend against these reckless accusations," Recker said in a statement.

In April, a federal grand jury in New York indicted Chalmers, his two companies -- Bayoil USA Inc. and Bayoil Supply & Trading Ltd. -- and two foreign associates on charges that they funneled millions of dollars in kickbacks through a foreign front company to an Iraqi-controlled bank account.

Told of details of the Senate reports, Russia specialists said the findings reflect deep government corruption.

"It's another piece of evidence showing how the Russian leadership operates and how corruption is endemic within the Russian leadership -- even within the highest levels," said Celeste A. Wallander, director of the Russia program at the Center for Strategic and International Studies in Washington.

Correspondent Peter Finn in Moscow contributed to this report.