A Saudi businessman who operates a consulting firm in McLean put Ashland Oil Co. in a bind in 1981, when it badly needed crude from the Middle East.

On one hand the businessman, Hassan Y. Yassin, was demanding nearly $5 million a year to increase Ashland's access to oil -- a demand that some Ashland senior executives judged to be excessive.

Beyond attending a couple of meetings a year, under a previous arrangement, Yassin "has done almost nothing to help us," said John R. Hall, the vice chairman and chief operating officer. "He's mainly a contact man," said Orin E. Atkins, whom Hall would succeed as chairman and chief executive.

On the other hand, company officers believed that Yassin, who had been director of the Embassy of Saudi Arabia Information Office, had an influential contact: Sheikh Ahmed Zaki Yamani, who was the powerful Saudi Arabian petroleum minister until last year. So, they speculated, it could be risky to anger Yassin.

Atkins summed up the quandary in an April 1981 memo to Hall. "In light of the importance of Saudi crude," Atkins wrote, "it is my feeling {that} we definitely need access to Yamani and that Hassan may be our best contact."

The dilemma was not an unfamiliar one for Ashland.

In the mid-1970s a former Saudi minister of defense, Prince Mishal Ibn Abdul Aziz, demanded large sums for help he said he had given to get Saudi crude. Yet, Atkins said, he had done nothing -- and his sole oil business expertise was that he was a son of the late King Ibn Saud, founder of modern Saudi Arabia.

Ashland felt that unless it paid him he could make things difficult for the company in Saudi Arabia. Prince Mishal had been "giving some of our people {in Saudi Arabia} indirectly a bad time," Atkins told Internal Revenue Service agents in 1978.

In late 1981, Yassin walked away with an agreement giving him $1.25 million over five years, and in 1974-1975 the prince got $480,000. Ashland's relationships with them are the principal focus of this article, which also examines an estimated $2 million in fees for Iranian oil paid to All Patents Corp., chartered in the Cayman Islands, a tax haven. These dealings were among those engaged in by Ashland to get Middle Eastern oil, as reported earlier in this series.

Neither Yassin nor Mishal could be reached for comment.

The payments to Yassin and Prince Mishal came while Ashland -- the nation's largest independent refiner -- was thirsting for oil as a result of the 1974 Arab embargo and the 1979 U.S. embargo on Iranian crude. One key supplier was Petromin, the oil company owned by the Saudi Arabian government.

Ashland's dealings with Yassin and other consultants emerge mostly from discovery documents produced in U.S. District Court in Covington, Ky., where two former Ashland employes, vice presidents Bill E. McKay Jr. and Harry D. Williams, filed lawsuits that are set for trial next April. They allege that they were wrongfully dismissed for opposing what they said were illegal or wasteful activities by Ashland.

The suits were consolidated with a stockholder lawsuit that alleged that Ashland officers mismanaged corporate assets and committed illegal acts. Ashland denied the allegations and the shareholder's suit was settled in May with no finding of liability.

Chairman Hall called McKay and Williams "disgruntled ex-employes" and denied any wrongdoing by Ashland.

One of the documents submitted to the court is an unofficial transcript of an IRS interview with Atkins in connection with an audit of Ashland for the 1974-1975 tax years that inquired into whether certain deductions, including consultant payments, were deductible business expenses. A person who was present has authenticated the transcript.

Ashland retained Yassin in July 1971, initially for about $50,000 a year. Company records for 1973-1974 list his fees at $69,423, including $25,000 to his brother, Abdel Aziz Yassin. The brother, Ashland vice president J. Dan Lacy said in an interview, "arranged services for us in Saudi Arabia -- visas, lodging, travel."

In 1973, Petromin signed a contract to provide 23,000 barrels a day to Ashland. Subsequently, the state-owned oil company agreed to a series of annual extensions of the contract. Yassin "helped us in our negotiations with Petromin for more oil," Atkins said in the IRS interview five years later.

"He's mainly a contact man," Atkins told the agents. He "advises oil companies {some in the United States, including Occidental Petroleum, and some in Italy}, makes arrangements with people over in Saudi Arabia.

"If you want a passport to Saudi Arabia," Atkins continued, "he helps you to get it through the embassy. He'll make arrangements at the other end and will arrange appointments for you with Petromin."

Yassin also "keeps us supplied with information about something done on a tanker, like a tanker loading over there and if they are having trouble with the loading," Atkins said. "Quite often he can get a hold of the right man to get in Petromin to get this straightened out."

An IRS agent asked Atkins how Yassin managed to help Ashland in Saudi Arabia while living thousands of miles away in Washington.

"He spends a lot of time in Saudi Arabia," Atkins replied. "Two or three years ago he had a brother that was there, he still has an office there and he has contacts back and forth." Asked if Yassin's "contacts would be with Petromin," Atkins replied, "That's right." The IRS did not contest deductions for the payments to Yassin.

The summer after the interview, Yassin gave a party at his home in Potomac for the Saudi ambassador-designate. "It is a small country, really, when it comes to friends," Yassin told a reporter. "Everybody knows everybody."

Yassin's annual fees rose to $80,000 in April 1976, to $100,000 in November 1978, and to $200,000 in April 1980.

In 1981, Yassin claimed credit for getting Saudi Arabia to increase crude sales to Ashland by 10 percent. In exchange, he was -- in Hall's word -- "demanding" a 1 1/2 percent commission on all Saudi crude sales, which the company estimated would result in paying him fees of nearly $5 million a year.

Yassin phoned Atkins several times. The calls led Atkins to alert Hall in a memo. Yassin "will be asking for an increase in his fee," Atkins wrote on April 9. "He called me from the airport and again expressed dissatisfaction with our past dealings with him ... "

A month later Atkins told Hall, "As a matter of general philosophy, I think our record will show that while commissions appear to be expensive. ... If they aid us in getting fair crude contracts then they are worth paying."

Then, on Sept. 1, Hall told Atkins that he saw "no justification" for meeting Yassin's demand. "Hassan Yassin is calling and I am sure he will want to meet with us soon," Hall said in the memo, which was cosigned by Richard P. Thomas, Hall's executive assistant.

Hall continued: "You will recall that he desires a fee equivalent to 1 1/2 percent on all barrels of Saudi crude which we receive, which for the year 1981 would amount to $4,584,000.

"Currently, he is receiving an annual retainer of $200,000 from us with a firm obligation to pay through April 1983. This extension and increase in his contract was the way we settled the situation last year.

"While we all have good hindsight, anything we pay Yassin almost represents a loss to the company for this year because the spot market has been approaching the official government price for Saudi crude since the time the increase was obtained."

Hall said Yassin had indicated in a meeting that "he wants to be paid through a consulting fee or some form of construction services. Yassin's representatives have visited Ashland and so far we have not been able to develop any interesting projects for him.

"His latest demand is that we pay a $1 million bonus, increase his annual retainer to $500,000, and make up the remainder through financing some real estate projects for him. This obligation is to continue for an unspecified number of years.

"While Yassin might be able to hurt us, he has done almost nothing to help us. ... About all he does for us is apparently have meetings on our behalf regarding the crude oil contract, normally about two times per year."

Hall went on to say, "I think it is questionable as to what degree of harm Yassin can do us." He cited the conversations of two Ashland consultants with Abulhady H. Taher, who was the Saudi governor of Petromin and minister of state. Both consultants "are confident that so long as we are reasonable, he {Yassin} cannot damage us," Hall told Atkins.

Petromin did increase Ashland's oil supply, but Lacy, Ashland's spokesman, said Hall "felt Yassin had nothing to do with" the decision because Hall had heard of it from Petromin before he heard of it from Yassin.

In the months of negotiations over Yassin's demand, the participants included Yassin's negotiator, Washington attorney Michael D. Costelloe, as well as Atkins and Thomas.

According to a Thomas memo to Hall on July 30, 1981, an agreement reportedly was struck with Yassin "following several meetings with Mr. Atkins." The memo said that "Costelloe's understanding {was} that an agreement has been reached ... that Mr. Yassin would be paid approximately $4.8 million." A lawyer for Atkins denied that he had agreed to pay Yassin $4.8 million.

Costelloe was not "particularly interested in the means by which this money is to be transferred," Thomas told Hall. Costelloe did not return a reporter's phone calls.

Thomas said Costelloe understood that Ashland would pay the $4.8 million to Yassin by:

Paying him "$1 million by way of commission." Thomas said "the vehicle for this figure is not clear. ... I am not certain what method could be used to convey these funds."

Increasing his consulting fee "to approximately $500{000}-$700,000 per year."

Investing the balance of the $4.8 million in a joint venture with Raden Establishment, a Saudi enterprise solely owned by Yassin that was the conduit for his previous consulting fees.

Thomas said there were "minor areas in which Raden could probably benefit" Ashland. "It was suggested that an office building or warehouse or compound of some type be built in Jeddah or Al-Khobar," he said.

Thomas cited another possibility: Ashland could pay a "small premium and take a larger equity interest" in Saudi Industrial Resins (SIR), a company that makes resins for fiber glass pipe.

Thomas wrote that Costelloe and a representative of Raden mentioned another idea: subscribing -- for $400,000 a year -- to a Raden newsletter "concerning news, politics and business in Saudi Arabia." Raden apparently had at least one other subscriber, which was paying about that much for the newsletter, Thomas said.

"The difficulty I see with this is unless the newsletter is of tremendous assistance to us, I see no way we can rationally justify a $400,000 service of this type in view of the other publications we receive," Thomas said. The idea was dropped.

Hall, while saying Yassin had done "almost nothing to help us," nevertheless suggested in the Sept. 1 memo to Atkins that Ashland increase Yassin's consulting fee by another $100,000 to $300,000 per year.

"In addition, we can agree to consider utilizing the services of Raden Establishment in Saudi Arabia at any time it is advantageous for us to do so.

"I recognize that the above will not satisfy Yassin," Hall continued. "However, I believe it is as far as we can go without legal exposure and hopefully it will be sufficient to keep him from trying to hurt us."

Hall also told Atkins that "I am particularly anxious that whatever we do this year not be considered an ongoing annual obligation." He added: "I see no justification to pay Yassin $5 million a year for his limited activities and, in my opinion, this would be difficult to justify from a legal standpoint."

Hall had told an Ashland lawyer, "I wanted to pay a commission only on the extra oil he was going to get for us," not on the entire Saudi supply as Yassin demanded. "I also questioned Yassin's influence on the transaction," he said.

The outcome was a new $1.25 million package proposed by Hall: A five-year increase in Yassin's annual "marketing consultant" fee from $200,000 to $350,000, for a total of $750,000, and a finder's fee of $500,000 to Abdul Aziz Yassin, his brother in Jeddah.

The agreement, which called for Ashland to pay the annual fee through Raden, was retroactive to Jan. 1, 1981, and continued through Dec. 31, 1985.

Spokesman Lacy said the finder's fee was paid because the brother "had brought to us the opportunity to become involved in SIR." Abdul Aziz had been seeking a fee since 1977, the year before SIR began operations.

Hall's plan to pay Yassin came before the board on Nov. 5, 1981, seven weeks after Atkins had been forced to resign, primarily because of transactions involving oil from the sultanate of Oman. Director Samuel C. Butler, presiding partner of Cravath, Swaine & Moore, Ashland's outside counsel, asked his fellow directors to approve the plan, and they did.

Lacy said that Hall "felt this was a good settlement, because he believed Mr. Yassin might prevail . . if the case were to be litigated."

Hall's plan recently drew criticism from John R. McCall, an attorney for McKay, one of the two Ashland executives suing for wrongful dismissal. In a court hearing last May, McCall argued that Hall's plan for paying Yassin was a way "to effect payments that were not warranted in the terms that they were reflected on the books and records ... "

Asked about McCall's statement, Ashland spokesman Lacy said, "We don't know what he's talking about, but that's not unusual because we've had different understandings of a lot of what he's been saying throughout the case. But I will say that the payments were proper and legitimate, and were properly recorded on our books."

In the early 1970s, Yassin chartered a consulting firm, Yassin Associates of McLean, in Panama. Ashland says that when it started to pay Yassin in July 1971, it did so with checks made out to Yassin Associates.

In 1975, Yassin registered under the Foreign Agents Registration Act (FARA), listing his client as the Saudi Embassy. Ashland records say that Yassin "resigned from Yassin Associates {and} accepted a position as a member of the staff of the Saudi Arabian diplomatic mission to the United States" on Dec. 1, 1976.

FARA filings by Dennis E. Winters and Winters, LeFurge & Associates, which Dennis Winters called "a small research firm for the Saudi Arabian government," showed Yassin paid the firm fees of $196,565 on behalf of the information office in the three years ended in October 1980.

According to documents of Saudi Industrial Resins and Ashland, Yassin was still with the Saudi information office in late 1982.

Ashland senior lawyer Robert H. Compton, in a letter in December 1981, recalled to Costelloe a conversation in which "You confirmed to me that Mr. Yassin was not a government official but rather was a private businessman," and he asked Costelloe to verify that in writing.

Compton wrote the letter in the course of satisfying internal auditing procedures designed to assure compliance with the Foreign Corrupt Practices Act. The FCPA makes it unlawful for a corporate executive to try corruptly to influence the official acts of a foreign official in order to assist the corporation to get or to retain business. The FCPA defines a foreign official as anyone who acts in "an official capacity for or on behalf of" a foreign government.

In January 1982, Costelloe told Compton, "I'm afraid that I do not recall having confirmed to you ... that Mr. Yassin was or was not a government official." But he forwarded a letter in which a Raden deputy manager assured Compton that "Mr. Yassin is not employed by the government of the Kingdom of Saudi Arabia."

In discovery proceedings, former Ashland executives McKay and Williams and their counsel have contended that payments to Yassin after the FCPA became law in December 1977 violated its antibribery and record-keeping provisions.

In response to a reporter's question, McKay's counsel said that the Yassin transactions already are a part of his client's claims, and that McKay may amend his complaint to expressly allege these violations.

Ashland denies any violation of the FCPA, and the government has not alleged any violation. Lacy said Ashland "is certain, comfortable, and believes that at any time we were paying him, {Yassin} was not an official of Saudi Arabia." Similarly, a lawyer for Atkins said Atkins "did not believe Yassin was a government official of Saudi Arabia at any time that Ashland was dealing with him."

A reporter who tried to interview Yassin was referred by Yassin Associates to M.E. International Services, also in McLean. But he responded neither to phoned requests for comment left with MEIS nor to a hand-delivered letter inviting him to discuss the multimillion-dollar demand and related issues. His secretary at MEIS said she told him about the letter.

The Virginia Corporation Commission granted Yassin Associates a license to do business in 1974, but lifted it -- for failure to file two successive annual reports, the VCC said -- in 1985.

In the IRS interview, agents looking into several business expenses claimed by Ashland asked Atkins about the 1973 contract with Petromin. He recalled a meeting in which Prince Mishal said "he had everything arranged so that we would be among the select few {independent refiners} to purchase crude oil" from Saudi Arabia.

"At this time, crude oil was in short supply," Atkins said. "We were successful in being allotted oil and our fellows felt that Prince Mishal had nothing to do with it, and we were so advised by Petromin.

"Prince Mishal alleged that he had been the principal reason for us getting the oil and wanted to be paid," Atkins continued. "We told him that we weren't going to pay him and then he started giving some of our people that went down there {to Saudi Arabia} indirectly a bad time."

Did the prince's "power to harass you come from his position as a member of the royal family?" IRS attorney Bob Roberts asked Atkins.

"Almost any Saudi can harass you if he has the position that says you owe him money," Atkins answered. "In fact, one of our men {who} doesn't scare very easily got so he didn't want to go to Saudi Arabia. In Saudi Arabia, if you think it's hard to get in, wait until you try to get out."

"Do they really have the power to hold you as a hostage over there?" Roberts asked. "Yes," Atkins replied.

Atkins went on to tell the IRS attorney: "So one time in New York, Prince Mishal's representative said in order to get him off our fellow's back we {should} immediately pay him {$240,000} and we paid him.

"We drew up some kind of letter of agreement in which we said we'd pay him {another $240,000} for something else but the conditions of that agreement were such that we would never pay him anything else but that ... " The second payment was made in 1975.

"We since found out he was 11th in line to the throne, whatever that means," Atkins said. "We have never seen him since."

He asked whether Mishal's "only expertise would be the fact that he is a member of the royal family?" Atkins replied, "As far as I know."

Efforts to obtain comment from Mishal were unsuccessful.

U.S. Tax Court records show that a subsidiary, Ashland (Bermuda) Ltd., routed the entire $480,000 through Shula General Trading Co. Ltd., a Saudi Arabian firm, as payment to Mishal.

The IRS disallowed the 1975 $240,000 payment, saying it was not an "ordinary and necessary" business expense. "There is not sufficient evidence that {Mishal} performed services which would warrant this amount of commission," the IRS said in Tax Court.

Ashland had gone to Tax Court to contest the IRS' disallowance of deductions for multimillion-dollar bundle of payments in 1974 and 1975, including the $240,000 to Mishal in 1975, and $747,343 to All Patents Corp. on behalf of James J. Zand, a Naples, Fla., entrepreneur linked by Ashland to crude purchases from Iran before the shah's overthrow in 1979. Documents filed in Tax Court in June 1984 indicated that Ashland and the IRS settled the dispute on undisclosed terms.

In a memo to the IRS, Ashland listed about $2 million in payments to All Patents in fiscal years 1974 and 1975. Zand, asked in a phone interview about the $2 million, said that it was "not to me" that the payments were made. Moments later he modified his position. "I don't know they were made to me," he said. As for All Patents, he said, "I was not connected with it in any way, shape, or form."

Zand cut the interview short, urging a reporter to talk with David J. Curtin, his Washington attorney. But Curtin said that under his firm's "practice and policy, we just don't get into matters involving clients."

The IRS disallowed the $747,343 in payments to All Patents, on the ground that its true purpose was "to gain admittance to the oil-buying circles in Iran." By 1979, the National Iranian Oil Co. (NIOC) was supplying up to 100,000 barrels of crude a day to Ashland.

In a paper filed last March with two special masters presiding in a dispute about discovery, a McKay lawyer alleged that Ashland used All Patents as "a vehicle for indirect payments" in violation of a 1975 SEC consent decree. The decree prohibited false entries in Ashland books.

The special masters have ruled that Ashland must produce documents bearing on the allegation. Ashland has denied any violation of the consent decree and has taken the position that the Zand/All Patents matter is irrelevant to any issue in the litigation.

Zand emigrated from Iran in 1947 "after working for the United States government," Atkins said in the IRS interview. He became a naturalized U.S. citizen and won a graduate degree in business administration from Ohio State University. From the late 1960s until 1978, he was also a manufacturer's representative in Teheran for General Motors' Detroit Diesel Allison Division, GM said.

Zand and Atkins were introduced to each other in 1970 or 1971 by Darold I. Greek of Baker & Hostetler, a leading law firm in Columbus, Ohio, where Zand lived for many years. Greek "indicated that Mr. Zand had a strong organization in {the} Iran oil industry," Atkins told the IRS.

Atkins told the IRS interviewers that he met so often with Zand, a close friend, that "some weeks I saw more of Mr. Zand than I did of my wife."

Atkins described Zand's "approach" as one in which " 'if I perform I get paid; if I don't perform, I don't get paid.' ... There were a number of times when he was absorbing a tremendous amount of expenses himself.

"We'd send a team to Iran and he'd supply the cars, probably take the guys out to dinner or had them home for dinner; sometimes I'm afraid he'd pick up their hotel bills," Atkins said. He added that Zand did "a lot of work," and so Ashland had a "chance to pay him some money."

In 1975, Aviation Week and Space Technology reported that Lockheed Corp. described Zand "as a cousin of the Iranian prime minister {who} stood to gain $8 million in commissions if he could persuade the Imperial Iranian Air Force to buy the Lockheed C-5 Galaxy."

"The $8 million fee was offered to him by Lockheed President A. Carl Kotchian, after a 'Dear Carl' letter from Zand telling him of a meeting in San Moritz with Gen. Mohammed Khatami, then chief of the IIAF," the magazine said.

In 1978, Ashland agreed to hire Zand as a consultant for at least $150,000 annually until mid-1988. The contract provided for extra payments to Zand should he find "certain business opportunities" that Ashland would accept, and for expenses of up to $25,000 a year.

After Atkins retired in 1981, Ashland bought out Zand's contract, ending his ties to the company.