US Ignored Warning On Iraqi Oil Smuggling

By Claudio Gatti

For months, the US Congress has been investigating activities that violated the United Nations oil-for-food programme and helped Saddam Hussein build secret funds to acquire arms and buy influence.

President George W. Bush has linked future US funding of the international body to a clear account of what went on under the multi-billion dollar programme. But a joint investigation by the Financial Times and Il Sole 24 Ore, the Italian business daily, shows that the single largest and boldest smuggling operation in the oil-for-food programme was conducted with the knowledge of the US government.

“Although the financial beneficiaries were Iraqis and Jordanians, the fact remains that the US government participated in a major conspiracy that violated sanctions and enriched Saddam’s cronies,” a former UN official said. “That is exactly what many in the US are now accusing other countries of having done. I think it’s pretty ironic.”

Overall, the operation involved 14 tankers engaged by a Jordanian entity to load at least 7m barrels of oil for a total of no less than $150m (€113m) of illegal profits. About another $50m went to Mr Hussein’s cronies. In February 2003, when US media first published reports of this smuggling effort, then attributed exclusively to the Iraqis, the US mission to the UN condemned it as “immoral”.

However, FT/Il Sole have evidence that US and UK missions to the UN were informed of the smuggling while it was happening and that they reported it to their respective governments, to no avail. Oil traders were told informally that the US let the tankers go because Amman needed oil to build up its strategic reserves in expectation of the Iraq war.

Last week Paul Volcker, head of the independent commission created by the UN to investigate failures in the oil-for-food programme, confirmed that Washington allowed violations of the oil sanctions by Jordan in recognition of its national interests. However, only a fraction of the oil smuggled out of Iraq reached the Jordanian port of Aqaba. Most was sold to the Middle East Oil Refinery, in Alexandria, Egypt; to a refinery in Aden, Yemen; and to Malaysia and China. “This operation was not permitted under the Security Council resolutions dealing with the oil-for-food programme,” said Michel Tellings, one of the two UN inspectors responsible at the time for the implementation of the programme. “The volume of oil was not inspected and payments were not made to the UN escrow account, as required by the programme.”

In January 2003, Millennium, a little-known Jordanian company, asked Odin Marine, a shipping broker based in Stamford, Connecticut, to find tankers to load millions of barrels of Iraqi oil. Odin declined to comment. “The ship owners were very wary,” recalled another broker involved in the deal. “They received papers from Jordan with all kinds of government stamps claiming it was legitimate,but never actually received anything from the UN.”

In fact, no UN papers could have been provided since Millennium was not allowed to lift oil from Iraq, and the port of loading, Khor al-Amaya in southern Iraq, did not have UN authorisation to operate. Nevertheless, shipping companies willing to take the cargo were found. “One of the vessels I fixed was the Argosea, which was owned by the Greek shipping company Tsakos,” the broker said. At the same time, Millennium chartered a couple of supertankers, including the Empress des Mers, to hold its oil in the Gulf.

According to a spokesman for the Bahamian-based company that owned the Empress des Mers, the vessel was to be loaded at sea from other tankers and sit in the territorial waters of the United Arab Emirates off Fujairah, a port at the entrance of the Gulf. The operation was too big to go unnoticed. In the middle of February 2003, UN inspectors began receiving calls from companies that were lifting oil from Mina al-Bakr, the only UN-authorised port in southern Iraq.

The companies complained that tankers had suddenly appeared a few miles away in Khor al-Amaya. Their activities had halved the pace of loading in Mina, which was served by the same pipeline, leading to delays that were causing demurrage fees. Furious because the Iraqis had a history of refusing to reimburse those costs, the lifters informed Mr Tellings who in turn notified the US and UK missions to the UN.

Mr Tellings provided detailed information, including the names of some of the ships spotted by inspectors in the area. He believed the tankers would be challenged by the Multinational Interception Force (MIF), the force led by the US navy that had been enforcing the embargo on Iraq. “Three or four days later, I chased [the US and UK representatives] and asked them what had happened with my information. They told me that they had communicated it to their capitals and that they were puzzled themselves by the lack of action.”

US mission spokesman Richard Grenell said: “We were tireless advocates to bring to the attention of the committee any and all oil smuggling and illegal activity. But while the [oil-for-food] investigation is going on we are not going to talk about specific issues.” Mr Tellings was not the only one who informed US authorities. Saybolt, the Dutch company hired by the UN to oversee oil loading operations in Iraq, reported the incident to the MIF.

On February 21 2003, when reports of the smuggling first appeared in the US press, Jeff Alderson, spokesman for the Maritime Liaison Office (MLO), the US navy office in Bahrain that co-ordinated the MIF activities, was quoted as saying that he had “no information” about it. His successor, Jeff Breslau, confirmed to Il Sole/FT that “we have no record that we were warned” about the smuggling. But Il Sole/FT has discovered that on February 17 2003, Saybolt sent an e-mail to the MLO about smuggling that specifically mentioned the Argosea. The same day, the MLO sent a reply to Saybolt acknowledging that notification.

For months, international traders looked for ways to make the cargo legal. “There were plenty of letters from the Jordanian ministry claiming that the oil was legitimate,” saidone trader. “But we concluded that there was no way that it could be legally bought.” Eventually, however, customers willing to take a chance were found. “After six months, we were asked to discharge the oil,” said the spokesman for the Empress des Mers. The cargo was taken to Egypt, he added.

Out of this operation, traders estimate, Iraqis pocketed about $50m, all off the UN books, while subsequent sale of the oil netted $150m in profits. Millennium, the company that arranged the operation, is owned by Khaled Shaheen, a Jordanian magnate who is president of Shaheen Investment & Business (SBIG), and his two brothers, according to a company search. However, Millennium clearly operated with the approval of the Jordanian government. Papers exchanged with the shippers, and e-mails from Odin Marine describe the company as “Millennium, for the trade of raw materials and mineral oils for and on behalf of the Ministry of Energy and Mineral Resources”. An e-mail sent on March 6 2003 by Odin Marine to confirm the fixing of one of the vessels mentioned that “the Jordanian government through the Ministry of Energy and Mineral Resources empowered Millennium to conduct this transaction on their behalf, as per the attached power of attorney”.

About the Author: Claudio Gatti is a New York-based investigative reporter for Il Sole 24 Ore, the Italian business daily.

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