Firms that bought Iraqi oil from traders may be complicit

GENEVA -- Companies that bought Iraqi oil from traders who allegedly spent billions of dollars to bribe Saddam Hussein for contracts under the U.N. oil-for-food program now could be implicated in the vast web of corruption uncovered in the investigation by former Federal Reserve chairman Paul Volcker, a Swiss criminal lawyer said on Sunday.

The alleged payoffs to win Iraqi contracts amounted to as much as $2.5 billion, Mark Pieth said.

"We are trying to find out who paid the surcharges eventually," said Pieth, one of three commission members leading a probe into allegations of corruption in the program. Volcker heads the investigation and issued an interim report last week in New York. Pieth was interviewed by telephone in New York where he joined Volcker for the release of the report.

Pieth said companies that bought the oil from traders could face prosecution or penalties if they were aware that the middlemen had paid illegal surcharges, Pieth said.

"If the final buyer is aware of what is going on, they were in the role of guarantor, knowing that they were involved in paying the surcharge," Pieth said. "There is a risk to the end buyer."

Pieth said it would be up to national authorities to carry out any legal proceedings against firms which paid illegal kickbacks. The Swiss State Secretariat for Economic Affairs, which has already imposed a fine on a Swiss-based firm for paying an illegal surcharge, has said it will investigate the Iraqi dealings of several more trading firms, and punish any found to have paid kickbacks.

Pieth said he was not now able to disclose names of any companies, but insisted that investigators were certain some oil buyers had made illegal payments and tried to circumvent U.N. sanctions.

Because so many companies were involved in the program, the investigators' final report -- which is due to made public this summer -- will focus on naming those who committed the most serious offences, Pieth said.

But investigators are still encountering some problems in obtaining records from offshore tax havens, Pieth added.

"We're seeking help from places like Lebanon, Monaco, Jordan, Liechtenstein," Pieth said. "I'm very optimistic that we will get help from them, but the difficulty is that we need help soon."

Volcker's panel will continue to look into allegations against Benon Sevan, the director of the U.N. program, Pieth said. Sevan was singled out by Volcker for the appearance of engaging in a conflict of interest.

Sevan solicited oil allocations from Iraq on behalf of an oil trading company, Africa Middle East Petroleum, or AMEP, between 1998 and 2001, and it raised concerns he may have received kickbacks for the help, the Volcker investigators said.

"We are going to continue also on Mr. Sevan, especially on the money angles," Pieth said. "We believed the general public needed some information on what we're doing."

AMEP president Fakhry Abdelnour told the investigation that he paid an illegal surcharge of $160,000 to an Iraqi-controlled bank account in Jordan in October 2001, using some of the proceeds he had received from the sale of oil to the Royal Dutch/Shell Group.

Shell has denied knowing that Sevan was involved or of the payment of kickbacks on any Iraqi oil it purchased.

Pieth also said the Volcker panel will investigate potential improprieties committed by other United Nations officials.

"It's not just Benon Sevan," he said.

Regarding the employment of U.N. Secretary-General Kofi Annan's son by the Swiss firm Cotecna Inspection SA, Pieth said the only issue was whether there had been a "conflict of interest."

Cotecna had a U.N. contract to certify deals for humanitarian supplies imported by Iraq under the oil-for-food program. The company is under investigation in connection with suspected corruption.

Annan's son Kojo worked for Cotecna until 1998 and received $30,000 a year for over five years after that from the Geneva-based company. The United Nations hired the company on Dec. 31, 1998 to certify that food, medicine and other goods entering Iraq corresponded to a list of goods approved for import under the oil-for-food rules.

"There are certainly allegations, and we're certainly looking into them," Pieth said. "There's a potential conflict of interest, that's why we're looking at him and his father."