In November 1979, Ashland Oil Co. agreed to pay a consultant a commission of $2 a barrel -- several times the normal fee -- in an effort to preserve an existing contract for scarce crude with the government-owned oil company of Abu Dhabi.

The contract was broken anyway, but not before Ashland had paid $17 million to the consultant, Sadiq Attia.

Attia had worked at various times for both the Petroleum Department of Abu Dhabi and the Abu Dhabi National Oil Co. (ADNOC) and was considered well connected. Soon after Attia was hired, an Ashland subsidiary in Bermuda issued checks to two corporate entities chartered by Attia in Panama.

As a condition of the consulting contract, Ashland required Attia to provide official certifications by Abu Dhabi that the fee agreements were legal in that state. The company routinely sought such assurances as part of its efforts to comply with the antibribery section of the U.S. Foreign Corrupt Practices Act (FCPA).

In March 1980, Attia sent certification to Ashland on Abu Dhabi Petroleum Department letterheads confirming that his agreements with the company complied with all applicable laws of Abu Dhabi and of the United Arab Emirates. The letters said, "Such commission fee method of doing business for the U.A.E. is commercially acceptable and a common arrangement condition of doing business in the U.A.E." The name signed to the document was that of H. Abdul-Majid, the legal adviser of the Petroleum Department.

In 1981, another consultant offered ADNOC crude oil for lower per-barrel fees than Attia's, also through a Panama-chartered entity. By late July of that year, under a new agreement, Ashland had paid $4.8 million to Haeri & Associates Co. Ltd. S.A., owned by Fadhlalla Haeri of San Antonio, Tex.

As before, Ashland received a certification of legality on the letterhead of the Abu Dhabi Petroleum Department apparently signed by Abdul-Majid.

Abdul-Majid claims his signature was forged on both occasions. Someone, he said, "forged my name. The signature is not mine -- never," he said in a telephone interview from Cairo. "I always sign in Arabic. I never sign in English." Abdul-Majid, according to his attorney, cannot write in English.

Abdul-Majid said he also included his family name, Khan, on such official documents as well as a reference number and official departmental stamp. None was on the documents sent to Ashland.

The 1981 certification was dated July 17, which was a Friday, when government offices in Abu Dhabi are closed for the Islamic holiday.

In 1983, Abdul-Majid, an Iraqi, was arrested by Abu Dhabi officials and detained for nearly a year. He said his detention was never explained, but the officials asked him about the certifications that appeared over his name, and he was released when he persuaded them he had no connection with the oil deals.

Abdul-Majid said he doesn't know who the forger was and believes Ashland was "duped." He said he reported the forgery to Ashland's outside counsel in 1985.

Neither Attia, who lives in England, nor Haeri returned phone calls.

The $17 million Ashland paid to Attia ultimately led to controversy on several fronts, including three lawsuits in a federal court in Kentucky and legal action in Switzerland. In those lawsuits, questions were raised about whether the payments violated the Foreign Corrupt Practices Act and whether parts of the payments went into the pockets of Ashland officials in the form of kickbacks. Finally, the issue triggered a sometimes bitter fight between two of the nation's most prestigious corporate law firms as they sought to deal with a routine "slush fund" inquiry from the Internal Revenue Service.

Ashland's arrangements with consultants grew out of the company's desperate need to replace crude supplies lost because of turmoil in the Middle East in the 1970s. As reported last Sunday, a $25 million transaction to obtain crude from the sultanate of Oman led to a complaint from the Securities and Exchange Commission, which was settled, and figured in the lawsuits, which were brought in U.S. District Court in Covington, Ky., by two former Ashland vice presidents and a stockholder.

The former Ashland executives, Bill E. McKay Jr. and Harry D. Williams, allege in their lawsuits that the company wrongfully dismissed them because they opposed what they said were illegal or wasteful activities by Ashland. Ashland Chairman John R. Hall called them "disgruntled ex-employes" and denied that Ashland had done anything wrong.

The shareholder's suit alleged that Ashland officers committed illegal acts and mismanaged corporate assets. Ashland denied any impropriety, and the suit was settled in May with no finding of liability.

All three lawsuits alleged that Ashland and its officials violated the FCPA by paying $17 million to Attia. Under the FCPA it is unlawful for an executive to try corruptly to influence the official acts of a foreign official by paying him directly -- or through "any person" -- to get or keep business for the company. Ashland contends Attia was not a foreign official and thus there was no FCPA violation.

McKay, in his suit, also cited reports by Ashland officials that portions of the Attia payments may have gone to one or more of Ashland's employes or officers. Documents produced in the suit show Ashland investigated whether money went to Gillian P. Saycell, who was personal aide to Charles H. Dougan, president of Ashland Oil International in London, and to Dougan himself. Both have denied receiving payments and the investigation was inconclusive.

A private investigator hired by Ashland in London conducted a surveillance that led to a secret Swiss bank account in which Ashland alleged $900,000 had been deposited in the name of Belinda Ann Barnard, Saycell's daughter. Ashland, in a separate legal proceeding in Switzerland, then sought unsuccessfully to freeze the account, saying Attia had paid $900,000 as a kickback to Saycell.

Saycell, now living in the Bahamas, did not respond to inquiries. In a 1982 interview with Ashland counsel James G. Stephenson, a company spokesman said, she denied that she received "any money, directly or indirectly, from Attia or any organization of which he was a part in connection with Ashland's purchases of crude oil from Abu Dhabi."

A source who questioned Saycell said she emphatically denied, too, that either she or her daughter ever had a Swiss bank account. Present and former Ashland officials and lawyers said they do not know the whereabouts of her daughter.

Saycell, after working nine years for Dougan, resigned in September 1980 and went to work for Attia for about a year. Dougan has since taken early retirement from Ashland.

In a June 1983 letter to Ashland directors, Hall implied that one of the subjects of the company's investigation was Dougan. Dougan denied in an affidavit that he received kickbacks. He declined to to be interviewed for this report.

On Jan. 5, 1982, after Dougan had returned to the company's home city of Ashland, Ky., he received a cable, now a court document, in which Hisham O. Alwan, a self-described "free lance businessman" in London, threatened to expose the alleged kickbacks. In a follow-up phone call on Feb. 1, Dougan said in a notarized statement for Ashland, "Alwan named Gill {Saycell} and me as receiving money from Attia. I told him I didn't care, it wasn't true.

"I would stake my life on it that she did not" receive "anything from Sadiq Attia while she was still an employe of Ashland," Dougan said. To his knowledge, he added, "Attia never gave or promised to give Gill any money or anything else of value while she was still an employe of Ashland." He said "Gill did go to work for Attia" after leaving Ashland.

Dougan himself left Ashland on March 1, 1982. Under his early retirement agreement, Ashland would pay his pension -- starting at $68,975 a year -- so long as it concluded that his conduct was not "contrary to or inconsistent with corporate policy." He also had to agree to cooperate, and subsequently gave a notarized statement.

Ultimately, Ashland Vice President J. Dan Lacy said, "all of the investigative work ... did not clear Mr. Dougan" but "was inconclusive."

Meanwhile, Ashland sought access to a secret account that it said was in Barnard's name in the main office of Union de Banque Suisses in Geneva. In late May 1982, in papers filed with a Swiss magistrate, the company alleged that in 1980 Saycell, "nothwithstanding her obligations of loyalty to her employer," accepted from Attia's two Panamanian entities "bribes ... amounting to the sum of U.S. $900,000."

The payments "coincide curiously with the three first payments made as commissions to" the Panamanian entities, Ashland said. The company alleged that Saycell violated Britain's Prevention of Corruption Act. This 1906 law, the company said, covers "all infractions of the obligation of loyalty of employes ... "

Three months after receiving the final surveillance report, Ashland asked the magistrate to freeze the account. But Ashland said Barnard was not notified of the legal action, and it failed. In any event, Hall said in the June 1983 directors' letter, the attempt was "too late as most of the funds had been withdrawn." The cupboard being bare, he wrote, "we decided to drop the investigation unless and until additional information becomes available."

Alwan said in the January 1982 cable to Dougan that he had "complete information and evidence of misappropriation of funds arising out of the commission agreement between your company and Metronome {one of Attia's Panama entities} which resulted in improper payment to two company personnel at the start of the deal in November 1979."

"Attia promised me a fixed percentage of the commission and this percentage representing my share was later rerouted to two people in the company of whom you are well aware," Alwan also said in the cable.

In an interview, Alwan said he was referring to Dougan and Orin E. Atkins, Hall's predecessor as chairman and CEO. "That's what Attia told me," he added. Dougan "had to have somebody higher up, otherwise it would not work," he said. He later made the accusation under oath -- in a deposition he supported with two diary entries, and in an affidavit given for the litigation in Kentucky. His testimony was based on what Attia had told him.

In the deposition, Alwan said Attia told him at a lunch that "he was paying 40 cents {a barrel} to Dougan. And I said, 'This is astonishingly enormous.' I said, 'Why do you have to pay so much?' He said, 'Well, Dougan had to take care of Mr. Orin Atkins.' "

Atkins denies he received kickbacks. Lacy, the Ashland spokesman, said the firm "is not aware of any reliable information that indicates {he} received any kickbacks." Attia said he did not give Dougan money.

In the affidavit, Alwan said that over 18 months in 1980 and 1981, the 40-cent payments added up to about $3.4 million. Out of that sum, according to Alwan's account of what he was told by Attia, Dougan told Attia he, Dougan, would "be 'taking care' of the chairman of Ashland Oil, Mr. Atkins."

A few days later, Alwan testified in the deposition, he was infuriated to learn that Ashland was paying Attia $2 a barrel -- not the $1 he had been led to believe. He explained that because he was supposed to be paid on a percentage basis, he believed he was being cheated out of 20 cents a barrel.

Alwan also testified that "a row" erupted in the second meeting when Attia "informed me that Saycell was being paid in the region of $300,000."

Last November, a lawyer Atkins chose to speak for him on condition he not be named disputed Alwan with an affidavit in which Attia said he had neither lunched nor had a row with him. Alwan subsequently produced a restaurant calendar from London's Capitol Hotel showing he had a luncheon guest on Jan. 7, 1980. He named the guest as Attia.

The Attia affidavit also said none of the money he got from Ashland was ever "paid, directly or indirectly, to Charles Dougan, or anyone purporting to be acting for him or at his behest ... "

Alwan is suing Attia for his claimed commissions.

The embargo on Iranian oil, imposed by President Carter in 1979 after hostages were taken at the U.S. Embassy in Tehran, cost Ashland nearly one-fourth of its crude supply. The squeeze tightened when Dougan, after meeting with Attia, sent a cable reporting the threat of a cutoff of Abu Dhabi crude.

Attia warned that "without assistance we would in all probability lose all or part of our contract," Hall said in the June 1983 directors letter. "Initially, we did not believe him and chose to continue to try to maintain the contract on our own."

Hall said ADNOC then tightened the noose by sending a telex "advising us that our contract had been cut from 55,000 B/D {barrels a day} to 20,000 B/D."

"After learning of the cut and in an effort to maintain and hopefully increase our supplies," Hall told the directors, "we agreed to pay $2 per barrel commission to this individual {Attia} with the understanding that he would exert maximum effort to attempt to restore to us at least some part of the quantity we had lost.

"In documenting that arrangement," Hall continued, "our lawyers were instructed not to make any payments until they had satisfied themselves that we were in compliance with the FCPA." The main issue is whether Attia was a foreign official at the time the payments were made. The available information is imprecise, and the conclusions drawn from it are conflicting.

Dougan, in a cable to Ashland in the late 1970s -- the date is disputed -- called Attia "the former marketing manager" of the government-owned oil company, but said he "is now working for Dr. Mana Al-Oteiba, the petroleum minister of Abu Dhabi," and is "an economic adviser to the petroleum ministry."

"Attia informs us that Otaiba has given permission for himself and two associates to form a consulting company specializing in advising and assisting companies in the U.A.E.," Dougan also reported. "At the same time, all three partners will be allowed to continue in their present positions in Abu Dhabi," the cable went on. "It is our understanding that his two associates are employed by ADNOC. This company will be formed in the very near future and Mr. Attia wishes to discuss with us the possibility of their representing Ashland."

Spokesman Lacy, denying any illegalities, said: "We have absolutely no evidence that any money was paid directly or indirectly to any government official to influence the purchase of oil from Abu Dhabi." Hall told the directors that "we remain confident our conduct in Abu Dhabi was strictly in compliance with law." A lawyer for Atkins said he did not believe Attia was a government official.

By contrast, Alwan testified Attia was "an employe of the government of Abu Dhabi" no matter whether he was with ADNOC or in the Petroleum Department. He said Attia was an official of ADNOC until late 1979, when the state oil company detailed him to the petroleum minister.

McKay and Williams alleged that Attia was an employe of the government of Abu Dhabi when he got the $17 million, and that the FCPA was violated as a result. They also alleged violations of 1975 consent decrees that prohibit "materially false or fictitious" entries in corporate books. Atkins and Ashland denied any violations.

Legal questions aside, Hall defended the Attia fees as an economy, telling the directors in June 1983: "Over the period 1980 and 1981 the purchase of Abu Dhabi crude oil saved us approximately $1.69 per barrel or $17.721 million as compared to making purchases via the spot market which was our only other alternative."

In so large a ballpark, Attia's $2-a-barrel fee -- approved by the board in March 1980 -- was "peanuts," Lacy said. But it was more than 20 times what Ashland was paying some other consultants.

Only two years earlier, moreover, Hall himself had criticized the Abu Dhabi deals. Ashland is "losing approximately $5 per barrel there after you take the commissions that are being paid into account," he told Atkins in June 1981.

Senior vice president Charles J. Luellen, who now is president of Ashland, also expressed misgivings about the entire Abu Dhabi deal. In mid-1981, when Ashland was ending its $2-a-barrel contracts and negotiating the substitute agreement to pay Haeri & Associates $1.50 a barrel, Luellen told Hall in a memo, "I remain convinced that ... the payments were unnecessary and should be stopped."

Atkins, too, saw problems in the Haeri deal. "All in all we seem to have more than our share of difficulties in Abu Dhabi and whether Fadhlalla Haeri can be actually a constructive matter or just another mouth to feed is open to serious conjecture," he told Hall in a memo. "I do have great difficulty with a general philosophy which ignores enforceable obligations. Practices of this sort can do nothing but get us a black eye around the world."

Hall sounded an alert in his June 1983 directors' letter. The New York Times had contacted him about the Attia fees, he said. "The situation does give plenty of ammunition for the press to produce an interesting story."

A few days later, a Times story disclosed Attia's fee of $2 per barrel and pointed out that in 1981 -- while Ashland was still paying him -- ADNOC had cut in half and then terminated its contractual allocation of crude.

In the midst of Ashland's concern about its payments in connection with its Abu Dhabi oil supply, the company received a routine questionnaire from the Internal Revenue Service that was to further complicate the situation.

Each year, the IRS searches out possible tax evasion and avoidance schemes in about 1,200 big corporations by sending a "slush fund" questionnaire to officers and employes who may be aware of possible bribes, kickbacks or other illegal payments. They must reply to the five-question forms under penalty of perjury. In response to these questionnaires, a group of recipients sometimes files nearly identical coordinated responses, if only to protect themselves in the event a subordinate had without their authorization committed and concealed an illegal act.

In October 1982, in connection with an audit of Ashland for fiscal 1980 and 1981, the IRS sent the questionnaire to present and former officials, including Hall, Atkins and McKay. A key question asked about "any bribe, kickback" or similar payment:

" ... Did the corporation, any corporate officer or employe, or any other person acting on behalf of the corporation, make, directly or indirectly, any bribe, kickback, or other payment of a similar or comparable nature, whether lawful or not, to any entity, private or public, regardless of form, whether in money, property, or services, to obtain favorable treatment in securing business or to obtain special concessions, or to pay for favorable treatment for business secured or for special concessions already obtained?"

While noting transactions involving crude from Oman, the 13 men did not mention the $17 million in Abu Dhabi payments. The reason for not mentioning them, Lacy said, was that Ashland "did not then nor does it now believe that there was any difficulty with these transactions in terms of violations of the Foreign Corrupt Practices Act or any other law."

In coordinated responses, 13 executives said they understood they were expected to disclose any first-hand knowledge "as to any payments illegally made by the corporation or anyone acting for it to compensate the payee for business received or to be received from the payee ... or his business entity and which were deducted for tax purposes ... "

Each coordinated reply contained carefully fashioned qualifiers, starting with a statement that it was "based exclusively on my current recollection of events of which I have personal knowledge {and} solely upon facts I personally know to be true."

Each such reply also said: "I understand that I am not required to make any investigation or review prior to answering these questions. Accordingly, I have not sought to refresh my memory nor have I conducted any investigation or reviewed any files of other documents, nor have I requested anyone to review any files or documents for me."

A reporter proposed this response to IRS spokesman Scott D. Waffle without identifying the source and asked for his reaction. "It is obvious that this is an attempt to protect the respondee," he said. "They've left an awful lot of escape hatches there." He said the quotes were the sort that would incite an agent to seek more information.

Thomas L. Feazell, Ashland vice president and general counsel, has said he and senior attorney James G. Stephenson developed drafts of the responses in collaboration with James V. Marcum, vice president and tax counsel, and Laramie L. Leatherman, a Louisville tax lawyer.

McKay was told the responses would be collected by Leatherman and sent to the IRS in one package.

McKay balked, and his attorney, Michael R. Klein of Wilmer, Cutler, advised him not to accept Leatherman's draft response. "It was inconsistent with his previous position" that the $17 million payment violated the FCPA, and it was "really in my view not responsive to the questionnaire," Klein said in a deposition.

"The bottom line is that Bill does not feel comfortable subscribing to numerous features in the format," Klein wrote Feazell. McKay has adopted a format of his own and "has decided to mail the attached questionnaire response ... and asked me to so advise you," Klein said. In a separate letter, Klein told Leatherman that it would be best for McKay to respond to the IRS "directly" -- meaning independently.

McKay said in court papers in June 1986 that the coordinated responses Leatherman offered for his signature "would have provided false or misleading information to the IRS in an attempt to conceal illegal payments and activities." He and Williams also have alleged that the coordinated responses contained deliberate misstatements.

Lacy denied the allegations. For years, he said, Leatherman "has negotiated with the IRS the language of the responses individuals use," and "his form has been approved by the district and regional offices. There is nothing out of the ordinary or strained about the responses Ashland people have given to the IRS' five questions. It's just a normal procedure at Ashland."

Lacy and Atkins' lawyer also said it wasn't necessary to disclose the Abu Dhabi episode because Abdul-Majid had told Ashland Attia wasn't an Abu Dhabi official. It was long after the IRS filings that Abdul-Majid claimed the forgeries of his signatures.

The final 13 coordinated responses went to the IRS office in Louisville in November 1982. Soon afterward, Samuel C. Butler, presiding partner of Cravath, Swaine & Moore, and two partners at the New York law firm began a campaign to persuade Wilmer, Cutler & Pickering of Washington to get McKay to conform.

Butler, who declined to be interviewed for this report, is an Ashland director, and his firm is outside counsel to the company. Former White House counsel Lloyd N. Cutler is the top partner in the Washington firm. The effort created severe strains on the close personal and professional ties between the two men.

Cutler began his career at Cravath, and he and John H. Pickering, founding partner of their firm, are Cravath alumni. They have Cravath as a client and their firm is effectively its Washington office. Court documents reveal often bitter conversations between attorneys from the two firms as Cravath attempted to get McKay to go along.

The attempt began with a call to Klein from Cravath partner Alan C. Stephenson. "I took the substance of his call to be, Could I get McKay to go along with the proposed responses?" Klein said in his deposition, adding that he made it clear that McKay would not back down.

Cutler said in a deposition that he agreed with Klein that McKay shouldn't sign the Leatherman response and told Butler so. Another Wilmer, Cutler partner, Arthur F. Mathews, testified that Cutler told him in essence that "Sam Butler was particularly angered or incensed with Mike Klein," and "had stated he would never send me, Art Mathews, another piece of business again as long as he practiced law."

In the end, McKay provided a simple identification of the $17 million paid to Attia: "Payments to Metronome Enterprise S.A. and Senior Ventures S.A.," Attia's two Panamanian entities. Lacy said "not one bit of evidence" warranted listing the payments.

Klein gave Leatherman a copy of McKay's response, telling him that McKay intended to send it "directly to the IRS within the next two weeks ... " Klein also sent copies of his letter and McKay's response to Hall and Butler.

McKay, Williams, and their lawyers all say the IRS hasn't contacted them, suggesting that no investigation has been launched.

Next Sunday: Ashland and Saudi Arabia