Iraqi oil greasing..
The UN “Oil for Food” program has become quite notorious. The UN Security Council established the Oil-for-Food program in 1995 “as a temporary measure to provide for the humanitarian needs of the Iraqi people” while economic sanctions remained in place. In 2004, NY Times reported that “In its final years in power, Saddam Hussein’s government systematically extracted billions of dollars in kickbacks from companies doing business with Iraq, funneling most of the illicit funds through a network of foreign bank accounts in violation of United Nations sanctions. Millions of Iraqis were struggling to survive on rations of food and medicine. Yet the government’s hidden slush funds were being fed by suppliers and oil traders from around the world who sometimes lugged suitcases full of cash to ministry offices, said Iraqi officials who supervised the skimming operation.”
So what was the core of the Oil For Food program? Iraq was allowed to sell oil but the proceeds could only be used to buy food or medicine. The UN oversaw the program. The proceeds of the Iraqi oil sales were deposited in a bank account, also overseen by UN. The total Iraqi oil revenue rose to around $15 billion a year. Quite a large operation to oversee.
The core of the financial crime problem is that Iraqi officials are suspected to have sold Iraqi oil at rock bottom prices and paying a premium on import of food and relief goods. On both sides, Iraqi’s expected kickbacks for their gracious financial quotes. Some oil middlemen made a fortune by buying cheap Iraqi oil, although they had to bring a suitcase full of cash to their businesspartners in Iraq every now and then. Same for the companies that took their products to Iraq.
Last week the latest allegations were dropped against Danish pharmaceutical Novo Nordisk. The company agreed to pay $9 million to the US government to avoid criminal prosecution (and another $9 million to repay the illicit gain and in civil suits). In an agreement with the Department of Justice Novo Nordisk admitted it paid $1.4 million in bribes to Iraqi government official between 2001 and 2003 to obtain contracts with the Iraqi Department of Health.
Novo Nordisk allegedly inflated the invoice price by 10% before submitting them to the UN Oil for Food program office. Some of that 10% was used to pay the kickbacks. Novo Nordisk also admitted that the corruption payments were written in the books as “commission” against the truth.
By the way: how did a Danish company end up being chased by US DoJ? Novo is listed on the NY stock exchange and therefor needs to comply with the Foreign Corrupt Practices Act (FCPA). According to DoJ: “In recognition of Novo’s thorough review of the illicit payments and its implementation of enhanced compliance policies and procedures, the Department has agreed to defer prosecution of criminal charges against Novo for a period of three years. If Novo abides by the terms of the agreement, at the end of the three-year period the Department will dismiss the charges”.
The focus on these corrupt practices is understandable given the UN involvement and the humanitarian nature of the well intended Oil For Food program. Any ideas on how “business as usual” practices outside the Oil for Food program have been in Iraq? No problems there? For sure: creating scarcity or tough regulations in any market will push market participants to the limit to get the most money out of it. Better get your financial crime controls in place.
http://online.wsj.com/article/BT-CO-20090511-713968.html
http://www.nytimes.com/2004/02/29/international/middleeast/29FOOD.html
