Report Says Treasury Missed Iraq Oil Abuses

Sen. Carl M. Levin (Mich.), the ranking Democrat on the Permanent Subcommittee  on Investigations, released his party's report on the U.N. oil-for-food program.
Sen. Carl M. Levin (Mich.), the ranking Democrat on the Permanent Subcommittee on Investigations, released his party's report on the U.N. oil-for-food program. (By Lauren Burke -- Associated Press)
By Colum Lynch
Washington Post Staff Writer
Tuesday, May 17, 2005

The U.S. Treasury Department failed to adequately monitor U.S. companies that violated U.N. sanctions against Iraq, permitting a Houston-based oil company to avoid scrutiny as it paid Saddam Hussein's government more than $37 million in illegal kickbacks, according to a report released yesterday by Democrats investigating abuses in the U.N. oil-for-food program.

Bayoil, a Texas firm indicted by a federal grand jury last month for paying millions of dollars in illegal fees to Iraq, received "minimal attention" from Treasury's Office of Foreign Assets Control (OFAC) as it managed the import of more than 200 million barrels of Iraqi crude into the United States between 2000 and 2002, according to the report released by Sen. Carl M. Levin (Mich.), the ranking Democrat on the Senate Permanent Subcommittee on Investigations.

The report's release follows allegations in recent days by the subcommittee's chairman, Sen. Norm Coleman (R-Minn.), that the former Iraqi government used its oil wealth to curry favor with senior government officials, politicians and businessmen in Russia, France and Britain. A member of the British Parliament, George Galloway, is scheduled to answer allegations at a hearing of Coleman's subcommittee today that he supported Hussein's government in exchange for lucrative oil deals.

Treasury spokeswoman Molly Millerwise said that "OFAC took very seriously its responsibility to effectively and accurately administer and enforce the sanctions against Iraq." The agency has conducted "over 300 investigations and audits" of individuals and corporations that violated sanctions against Iraq, she said.

Catherine M. Recker, a lawyer for Bayoil, declined to comment yesterday.

But Levin said that "we've got to look in the mirror at ourselves as well as point fingers at others," Levin said yesterday.

The $64 billion U.N. oil-for-food program was created in December 1996 to offset the economic hardship brought on by U.N. sanctions imposed on Hussein's government. The program allowed Iraq to sell oil to buy food, medicine and other humanitarian goods. But the Iraqi government siphoned more than $2 billion in illicit proceeds from the program.

Yesterday's report contains documents that bolster previous allegations that the State Department and the U.S.-led naval force may have assisted efforts by a key ally, Jordan, to smuggle $53 million worth of oil from Iraq in seven supertankers in the weeks before the invasion of Iraq.

"The United States not only failed to exert an effort to stop the oil tanker shipments, it appears to have facilitated them, despite widespread recognition that the shipments were a blatant violation of U.N. sanctions," the report states.

Levin said the State Department and the Pentagon "have denied" the committee's requests for information and failed to "provide answers to our questions." Levin and Coleman, meanwhile, are considering issuing a subpoena to compel testimony by a senior U.S. naval officer who was responsible for interdicting oil smugglers in the Persian Gulf. They are also pressing the State Department to allow a U.S. diplomat who allegedly approved one of the oil shipments to testify.

A senior State Department official, who spoke on the condition of anonymity, said the administration had offered Levin a classified briefing on the Jordanian trade, but that Levin declined. A Pentagon spokesman, Lt. Col. Joe Richard, said he had not seen the report but insisted that "we're not complicit in illegal smuggling operations."

The report contrasts Treasury's "failure" to investigate possible violations with vigorous efforts by U.S. diplomats to devise procedures at the United Nations to prevent Iraq from charging illegal fees for buying its oil.

Bayoil is accused of paying kickbacks to Iraq to position itself as a major shipper of Iraqi oil to refineries in the United States and elsewhere. Levin's staff said that the United Nations first appealed to the United States for information on possible abuses by Bayoil in July 2001, citing the company's failure to respond to requests for comment. A month later, the State Department wrote to OFAC asking the agency to "contact Bayoil and urge the company [to] respond quickly and completely."

But it would be eight months before OFAC wrote to Bayoil, and the office never shared Bayoil's written response with the United Nations, according to the report.

"OFAC's failure to investigate Bayoil, review evidence of possible U.S. company involvement in Iraq's illegal surcharges, or actively monitor U.S. persons doing business in Iraq represented an abdication of responsibility," the report stated.

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