Preferred bidder implicated in Iraqi oil-for-food bribery scandal
UN investigation lists Enemalta bidder B.B. Energy among oil companies that paid ‘surcharge’ to Saddam regime to get $37 million contract through UN’s oil-for-food programme
Matthew Vella The owners of the Lebanese oil company expected to be awarded the €100 million privatisation of Enemalta’s petroleum distribution operation, were implicated in the payment of kickbacks to Saddam Hussein’s regime in the United Nations’ scandal-ridden oil-for-food programme.
B.B. Energy, owned by Lebanese brothers Bahedine and Mohamed Bassatne, is the preferred bidder to take over Enemalta’s petroleum division for 30 years. The government has been in negotiations with the Dutch-registered firm since January 2009.
Government sources say internal investigations were supposed to have been carried out on B.B. Energy’s reputation, although the Lebanese firm’s role in the UN oil-for-food programme has so far not proved a stumbling block to privatisation talks.
According to the UN’s report into its investigation into the programme, a B.B. Energy shareholder, Walid al Bassatne, paid $50,000 into the National Bank of Jordan – money that was allegedly part of a $555,000 “surcharge” to be paid to the Saddam regime.
The surcharge was a standard kickback demanded by the Iraqi government for the purchase of $37 million worth of Iraqi oil. Under the UN’s oil-for-food programme, Iraq could sell oil to intermediaries, with the money being paid into an escrow account held by BNP Paribas. The money could only be used to buy food and humanitarian products for the Iraqi population.
Over the course of the programme – launched in 1995 to ease the burden of the sanctions on ordinary Iraqi people – the Saddam regime instituted a preference policy for companies and individuals perceived as “friendly” to Iraq. These companies were charged a standard 5-10% surcharge to buy the oil from the Iraqi government, money that was mainly deposited in an account at the National Bank of Jordan. Likewise, food suppliers had to pay a surcharge on contracts to sell food and humanitarian supplies to Iraq.
According to the report, Saddam Hussein embezzled $4.4 billion through pricing irregularities and an additional $5.7 billion through illegal oil smuggling.
According to the UN’s investigative report, the Iraqi State Oil Marketing Organisation (SOMO) only sold oil to companies with a go-ahead from higher officials. A committee formed by Saddam Hussein and his closest ministers set the surcharge amount, and the SOMO employees would inform each beneficiary that a surcharge was imposed on each barrel of oil sold under the programme.
“Surcharges owned on a contract were not always paid in full in one payment. Partial surcharge payments often were made in an effort to ensure that SOMO did not stop or delay future oil lifts,” the report states.
Following its investigation, the UN’s independent inquiry committee invited the companies it had identified with the Saddam bribery system to respond to the allegations. B.B Energy denied having made payments to the Iraqi government or its agents in violation of the programme.
This is the second instance in which B.B. Energy’s reputation is flagged throughout the privatisation process.
The Times had reported how the Bassatne brothers had been found guilty of a $15 million fraud in 1988 by a London court that also ordered the worldwide freezing of all their assets. In 1986, the court in London also found Bahedine Bassatne guilty of purchasing false passports.
According to the same newspaper, the government’s intelligence report in 2009 found that B.B. Energy had a “very poor reputation in the oil industry and had failed several times to honour agreements with Western banks.”
The report also pointed out that B.B. Energy would “inevitably create reputation risks”.
What was the Oil-for-Food program?
In a bid to ease the burden of sanctions on ordinary Iraqis, the Oil-for-Food Program (OFFP) allowed the Iraqi government to sell oil to pay for food, infrastructure, medicine and humanitarian goods. From 1997 to 2002, Iraq sold more than $67 billion in oil through Oil-for-Food and issued $38 billion in letters of credit to purchase commodities for the Iraqi people. The difference between these two amounts went toward Gulf War reparations to the Kuwaiti people, funding for weapons inspections in Iraq, and a small amount (2.2%) went toward the administrative costs of running the program.
Under the program, enough food was imported to feed all 27 million Iraqis.
It has been alleged that mismanagement of the Oil-for-Food Program allowed Saddam Hussein’s regime to embezzle millions of dollars through under-priced oil contracts and overcharging in contracts for some of the goods Iraq purchased under the program. According to a Government Accountability Office report, Saddam Hussein embezzled $4.4 billion through pricing irregularities. It is also estimated that Saddam acquired an additional $5.7 billion through illegal oil smuggling.
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