U.S. and Britain To Stop Kickbacks on Iraqi Oil

UNITED NATIONS - The United States and Britain want a U.N. panel monitoring sanctions to reduce the list of operators purchasing Iraqi oil in an attempt to stop alleged kickbacks to Baghdad, diplomats reported on Wednesday.

At the moment some 600 oil companies and middlemen have permission from the United Nations to buy Iraqi oil. Revenues are put in an escrow account for the purchase of food, medicine and other supplies to alleviate the impact of decade-old U.N. sanctions on ordinary Iraqis.

But Baghdad is widely reported to be imposing surcharges on buyers of its crude so it can get revenue directly, in violation of trade embargoes imposed after Iraq invaded Kuwait in August 1990.

"We want to eliminate the middlemen and others who feed off the surcharge," one envoy involved in the process said. "Some just have a fax machine, a company director and a phone."

British ambassador Sir Jeremy Greenstock told reporters that "Iraq has virtually announced to the oil industry that they are looking for kickbacks from oil traders. But exactly who is doing what and what money is being paid" was not clear.

Greenstock said an enormous number of small traders were involved in exporting Iraqi oil. "Iraq is dealing with several hundred and some of those are not acting legitimately," he said. "So we are looking for those."

The issue is expected to be discussed next week in the Security Council's Iraqi sanctions committee.

France wants the end-purchaser of the oil to be responsible for checking on the surcharge, saying that American firms recently bought most of Iraq's crude. But Britain and the United States feel that those who pay the surcharge directly should be tackled first.

U.N. Secretary-General Kofi Annan in a Tuesday report on the "oil-for-food" humanitarian program for Iraq, included a warning on the surcharge, saying buyers had been informed that the United Nations had not approved "a surcharge of any kind on Iraqi oil" and they should not pay it.

Diplomats believe the government of Iraqi President Saddam Hussein is engineering the surcharges for a private slush fund to gain control of revenues outside of the U.N. program, the lifeline for 23 million Iraqis suffering under sanctions.


But Annan did not touch on the broader problem of kickbacks on supplies ordered by the government. Reuters reported last month that sources in Baghdad alleged Iraqi ministries had attempted to collect 10 percent on goods ordered under the U.N. humanitarian program. The New York Times spelled out the kickbacks for specific items on Wednesday.

"There's not a lot of hard evidence but there is evidence it is happening. We don't know to what degree," U.S. ambassador James Cunningham told reporters in answer to queries.

But Russia's ambassador Sergei Lavrov said such reports, without proof, usually arose as the council was discussing Iraq. The same was true of mysterious weapons discoveries.

Annan's quarterly report also noted a substantial drop in Iraqi oil exports since December and said this could jeopardize the oil-for-food program. He called on Baghdad to increase sales to previous levels "given its proven capacity."

Iraq's official oil exports in the program have fallen to 1.35 million barrels per day (bpd) in the past month from around 2.2 million bpd in the last sales phase.

The program's fund has lost about $2.2 billion due to lower oil sales since early December. U.N. officials say that total oil sales in the current six-month phase of the program that ends in June will be about half of the $9.6 billion in the previous six months unless Baghdad increases crude shipments.

Annan also said Iraq had informed the United Nations it was not seeking alternative oil export routes and that Baghdad saw no need for a U.N. team to study its pipeline to Syria.

Industry sources said Syrian exports have increased to more than 100,000 barrels a day since November when Iraq and Syria admit testing the pipeline but deny any oil sales.

U.S. Secretary of State Colin Powell, during a recent visit to the Middle East, broached the subject with Syrian President Bashar al-Assad and said Syria agreed to put the pipeline under the oil-for-food program. Discussions are continuing.