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97–048 PDF 2005

S. Hrg. 108–761

HOW SADDAM HUSSEIN ABUSED THE UNITED

NATIONS OIL-FOR-FOOD PROGRAM

HEARING

BEFORE THE

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

OF THE

COMMITTEE ON 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

NOVEMBER 15, 2004

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Counsel 

AMY B. NEWHOUSE, Chief Clerk

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

NORM COLEMAN, Minnesota, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

RAYMOND V. SHEPHERD, III, Staff Director and Chief Counsel 

LELAND B. ERICKSON, Counsel 

MARK L. GREENBLATT, Counsel 

STEVEN A. GROVES, Counsel 

JAY JENNINGS, Investigator 

ELISE J. BEAN, Minority Staff Director and Chief Counsel 

DAN M. BERKOVITZ, Minority Counsel 

MARY D. ROBERTSON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Coleman .............................................................................................. 1

Senator Levin .................................................................................................... 6

Senator Collins ................................................................................................. 9

Senator Lieberman ........................................................................................... 11

Senator Pryor .................................................................................................... 14

Senator Bennett ................................................................................................ 28

WITNESSES 

MONDAY, NOVEMBER 15, 2004

Charles Duelfer, Special Advisor to the Director of Central Intelligence on 

Iraq’s WMD, Central Intelligence Agency, accompanied by Stephen C. Zidek 

and Christopher N. Johnsten .............................................................................. 15

Hon. Lindsey O. Graham, a U.S. Senator from the State of South Carolina ..... 31

Mark L. Greenblatt, Counsel, U.S. Senate Permanent Subcommittee on Investigations ................................................................................................................ 39

Steven Groves, Counsel, U.S. Senate Permanent Subcommittee on Investigations ....................................................................................................................... 44

Juan Carlos Zarate, Assistant Secretary, Terrorist Financing and Financial 

Crimes, U.S. Department of the Treasury ......................................................... 55

ALPHABETICAL LIST OF WITNESSES

Duelfer, Charles: 

Testimony .......................................................................................................... 15

Prepared statement .......................................................................................... 67

Graham, Hon. Lindsey O.: 

Testimony .......................................................................................................... 31

Greenblatt, Mark L.: 

Testimony .......................................................................................................... 39

Prepared statement .......................................................................................... 73

Groves, Steven: 

Testimony .......................................................................................................... 44

Prepared statement .......................................................................................... 81

Zarate, Juan Carlos: 

Testimony .......................................................................................................... 55

Prepared statement .......................................................................................... 85

EXHIBITS 

1. a. Estimate of Total Illicit Iraqi Income During UN Sanctions (1991–

2003), chart prepared by the Permanent Subcommittee on Investigations .............................................................................................................. 102

b. Methodology for Estimate of Total Illicit Iraqi Income During UN 

Sanctions (1991–2003), chart prepared by the Permanent Subcommittee on Investigations ...................................................................... 193

2. Oil for Food Timeline, chart compiled from the Comprehensive Report 

of the Special Advisor to the DCI on Iraq WMD ........................................... 107

3. Selected Secret Oil Voucher Recipients, chart (Figure 17, Vol 1) from 

Regime Finance and Procurement Section of the Comprehensive Report 

of the Special Advisor to the DCI on Iraq’s WMD ......................................... 108

Page

IV

4. Oil for Food Contracts Issued to Front Companies & Military Suppliers, 

chart compiled from the Comprehensive Report of the Special Advisor 

to the DCI on Iraq’s WMD; Banque National DeParis records .................... 109

5. Step-by-Step Process for Award and Use of Oil Allocations, chart prepared by the Permanent Subcommittee on Investigations ........................... 110

6. Internal correspondence within the Iraqi Ministry of Oil regarding an 

oil allocation provided to a Syrian journalist reflecting the in-depth, personal involvement of high-ranking members of the Hussein regime in 

the granting of oil allocations .......................................................................... 111

7. Correspondence between an oil allocation holder and a prospective oil 

purchaser stating: During last week a high ranked [sic] Iraqi delegation 

lead [sic] by his Excellency Mr. Tariq Aziz visited Moscow. The allocation 

holder of the above quantity had a personal meeting with him and we 

are informed that the discrepancies regarding this allocation will be 

solved very soon. ................................................................................................ 112

8. Certificate which appears to indicate that Saddam Hussein personally 

ordered an allocation of 6 million barrels of oil to journalist Mahmud 

Al-Tamimi in recognition of his pro-Saddam articles during the first 

Gulf War: The President leader . . . has ordered . . . as follows: six 

million barrels of petroleum will be allocated to . . . journalist Mahmud 

Al-Tamimi in appreciation of his nationalist positions which he has adopted since the thirty-nation aggression . . . in the year 1991 in confronting 

the unjust blockade of our dear country. ......................................................... 113

9. Correspondence from Vladimir Zhirinovsky, the leader of Faction of the 

Liberal—Democratic Party of Russia, to an oil company, extending an 

invitation to Moscow for negotiations ............................................................. 114

10. Correspondence to oil company from representative of an oil allocation 

recipient offering 2–4 million barrels of oil under the OFF Program .......... 116

11. Correspondence reflecting negotiations between an allocation holder and 

a prospective oil buyer concerning the amount of the commission to 

the allocation holder ......................................................................................... 117

12. Correspondence of allocation holder and prospective oil purchaser regarding Acceptance of cmmission and attaching correspondence addressed to 

SOMO assigning the allocation to the prospective oil purchaser ................. 123

13. Correspondence from allocation holder to SOMO ceding allocation holder’s 

quota to Devon Petroleum, Ltd. ...................................................................... 124

14. Documents regarding the contract between SOMO and Devon Petroleum 

Limited for the purchase of oil which arose from the allocation of oil 

to Hamidah Na’na that was assigned to Devon Petroleum and reflecting 

the UN’s approval ............................................................................................. 125

15. Invoice from Al Wasel & Babel (a well-known front company for the 

Hussein regime) to an oil purchaser for sale of Iraq oil allocation ............... 130

16. Surcharge Payments, chart prepared by the Permanent Subcommittee 

on Investigations ............................................................................................... 131

17. Correspondence to SOMO which reflects recipient of an oil allocation 

committing to payment of oil surcharge ......................................................... 132

18. Documents related to transaction between Al-Hoda International Trading 

Company and an oil company for the purchase of oil under OFF Program 

which reveal payments outside the letter of credit ........................................ 133

19. Ministry of Oil, List of Surcharges Per Agreement, excerpt of chart prepared by SOMO (Iraqi State Oil Marketing Organization), February 2004 139

20. Map of Weir subsidiaries in France (EnviroTech Pumpsystems) and the 

United Arab Emirates (WESCO Dubai), and relevant Iraqi entities ........... 140

21. Chart depicting transactions between Weir Engineering and South Oil 

Company, on Contract #1030484, from initial tender offer to submission 

and approval of contract by the U.N. .............................................................. 141

22. First Tender Offer (Aug. 15, 2001): Original offer of Weir Engineering 

Services to Iraq for an oil project for the South Oil Company ...................... 142

Page

V

23. Revised Tender Offer (Sept. 18, 2001): Revised tender offer from WESCO 

Dubai (a Weir subsidiary) to Iraq, modifying first tender offer of August 

15, 2001 ............................................................................................................. 149

24. Contract (Dec. 8, 2001): Contract between WESCO Dubai and Iraq ........... 155

25. Submission to the U.N. (Jan. 7, 2002): The completed contract between 

WESCO Dubai and Iraq as submitted to the Office of the Iraq Program 

for review and approval ................................................................................... 161

26. U.N. Approval for Contract #1030484 (Mar. 22, 2002): Documents indicating contract has been reviewed and approved by the Office of the 

Iraq Program ..................................................................................................... 164

27. Map showing shipment of goods by Weir on Contract #1030484 and 

confirmation of arrival in Iraq ......................................................................... 166

28. Map showing payment from BNP Paribas to Weir and payment from 

Weir to Corsin Financial Ltd. .......................................................................... 167

29. Amendment to Contract #1030484: After Operation Iraqi Freedom, Weir 

and hundreds of other suppliers agreed to reduce their contracts by 

10% to remove so-called ‘‘after sales service fees.’’ ........................................ 168

30. Total Kickbacks Paid by Weir to Corsin Financial Ltd. (2001–2004), chart 

prepared by the Permanent Subcommittee on Investigations ...................... 173

31. Iraq Military Expenditures 1980–2002, chart prepared by the Permanent 

Subcommittee on Investigations (Minority Staff) .......................................... 174

32. Illicit Iraqi Revenue During Sanctions 1991–2003, chart prepared by the 

Permanent Subcommittee on Investigations (Minority Staff) ...................... 175

33. U.S. Department of State waiver of prohibition on foreign aid to Jordan 

and Turkey for violating United Nations sanctions on Iraq, December 

1998 .................................................................................................................... 176

34. U.S. Department of State waiver of prohibition on foreign aid to Jordan 

and Turkey for violating United Nations sanctions on Iraq, October 2002 . 181

35. Excerpt from Report of the United Nations Security Council Committee 

established by Resolution 661, August 26, 1996. In paragraph 110, the 

U.N. Committee ‘‘take[s] note’’ of Jordan’s resumption of oil imports from 

Iraq in violation of the U.N. sanctions. (Full 31 pages of the report 

is retained in the files of the Subcommittee) ................................................. 188

36. a. ‘‘Containing Iraq: Sanctions Worked,’’ Foreign Affairs, July-August 

2004 ............................................................................................................... 190

b. ‘‘Were Sanctions Right?,’’ The New York Times, July 27, 2003 ............... 198

37. Comprehensive Report of the Special Advisor to the DCI on Iraq’s WMD, 

September 30, 2004 (Volumes I, II and III), prepared by Charles Duelfer, 

Special Advisor to the Director of Central Intelligence ................................. *

38. a. Responses to supplemental questions for the record for Juan Carlos 

Zarate, Assistant Secretary, Office for Terrorist Financing and Financial Crimes, U.S. Department of the Treasury .......................................... 208

b. SEALED EXHIBIT: Responses to supplemental questions for the 

record for Juan Carlos Zarate, Office for Terrorist Financing and 

Financial Crimes, U.S. Department of the Treasury. (Includes ‘‘For 

Official Use Only’’ materials.) .................................................................... *

* Retained in the files of the Subcommittee. 

(1)

HOW SADDAM HUSSEIN ABUSED THE UNITED 

NATIONS OIL-FOR-FOOD PROGRAM 

MONDAY, NOVEMBER 15, 2004

U.S. SENATE, PERMANENT SUBCOMMITTEE ON INVESTIGATIONS, OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS, Washington, DC. 

The Subcommittee met, pursuant to notice, at 12:04 p.m., in 

room SD–342, Dirksen Senate Office Building, Hon. Norm Coleman, Chairman of the Subcommittee, presiding. 

Present: Senators Coleman, Levin, Collins, Bennett, Lieberman, 

Pryor, and L. Graham. 

Staff Present: Raymond V. Shepherd, III, Staff Director and 

Chief Counsel; Joseph V. Kennedy, General Counsel; Leland 

Erickson, Counsel; Mark Greenblatt, Counsel; Steven Groves, 

Counsel; Jay Jennings, Investigator; Katherine English, Counsel; 

Mary D. Robertson, Chief Clerk; Katherine Russell, Detailee, FBI; 

Phillip Thomas, Detailee, GAO; Gregory Coats, Detailee, IRS; Jeffrey James, Detailee, IRS; Sean Gray, Intern; Elise J. Bean, Staff 

Director and Chief Counsel to the Minority; Dan Berkovitz, Counsel to the Minority; and Zack Schram, Professional Staff to the Minority. 

OPENING STATEMENT OF SENATOR COLEMAN 

Senator COLEMAN. This hearing of the Permanent Subcommittee 

on Investigations is called to order. Good morning, and thank you 

all for being here. 

Today’s hearing represents the first findings from our investigation into the United Nations Oil-for-Food (OFF) Program. The Permanent Subcommittee on Investigations began this bipartisan investigation in April. After 7 months of investigating, 8 subpoenas, 

13 Chairman’s letters, numerous interviews with key participants 

and the receipt of over a million pages of evidence, we are just beginning to understand the behind-the-scenes machinations of participants in the Oil-for-Food Program. 

The magnitude of fraud perpetrated by Saddam Hussein in contravention of UN sanctions in the Oil-for-Food Program is staggering. The Majority staff estimates that Saddam generated personal profits of over $21.3 billion, in contravention of UN sanctions, 

from 1991 to 2002. 

Today, we examine in more detail how it occurred. But why it 

was able to occur and flourish over the course of a decade is still 

not fully understood. The extent to which member states were motivated by Saddam’s influence-peddling to ignore the fraud and lack 

2

of oversight has not been fully explored. The question that hangs 

out there is how high up does the corruption go? 

The extent to which UN officials personally benefited from 

Saddam’s influence-peddling has not been fully explored. We need 

substantially greater cooperation from the United Nations to answer these and other questions. Senator Levin and I have joined 

together and requested access to the United Nations’ investigative 

reports and personnel. To our dismay, those requests have to date 

been denied. 

In addition, I am angered by the proactive interference of the 

United Nations with our efforts to question groups contracted by 

the United Nations to oversee parts of this program. I believe the 

credibility of the United Nations to monitor any future sanctions 

programs hangs in the balance unless the corruption and mismanagement in Oil-for-Food is identified and rooted out. 

In the end, my goal, and I believe the goal of all of us on this 

Subcommittee is to reach conclusions based on facts, to ask questions to which answers must be given, and hopefully when candor 

and fairness return, end the quagmire of doubts about the Oil-forFood Program and the United Nations’ role in it. 

The Oil-for-Food Program was intended to allow the Government 

of Iraq to provide for humanitarian aid and assistance for its people. Instead, under the Oil-for-Food Program, Saddam Hussein generated massive amounts of money that had one sole purpose—to 

keep him in power. He used the money to cultivate international 

support to avoid being responsive to UN resolution after UN resolution. The Iraqi people suffered, the world is more dangerous, and 

Saddam laughed at world opinion and UN sanctions. 

And the failure of the program wasn’t just in providing food, 

medicine and comfort to the Iraqi people, but the failure of the program was also in not having strong oversight and checks and balances that would have prevented a small group of people and nations from reaping billions and billions of dollars from the people 

of Iraq. 

Finally, the question must be raised as to what happened to 

Saddam’s billions, and are they being used today to fuel an insurgency that has taken the lives of over 1,000 American and Coalition servicemen and women and thousands of our Iraqi allies? The 

clear inference can be drawn that the failed management of the 

Oil-for-Food Program has cost the lives of many innocent individuals. 

We have an obligation to more fully understand how this massive 

fraud was able to thrive for so long, who benefited from it, and 

what has been its past and ongoing costs in dollars and in lives. 

So how much money did Saddam generate, in contravention of the 

UN sanctions, from 1991 to 2002? 

As stated earlier, the Majority staff estimates the figure to be 

$21.3 billion. That figure builds upon previous estimates of the 

General Accounting Office, $10.1 billion, and the figure contained 

in the Duelfer report, $10.9 billion. This $21.3 billion estimate is 

based upon evidence discovered during our investigation and was 

formulated with the assistance of experts from the Joint Economic 

Committee, the Congressional Budget Office, and GAO. 

3

1See Exhibit No. 1a., which appears in the Appendix on page 102. 

2 Comprehensive Report of the Special Advisor to the DCI on Iraq’s WMD, September 30, 2004

(Volumes I, II, and III), prepared by Charles Duelfer, Special Advisor to the Director of Central 

Intelligence, retained in the files of the Subcommittee as Exhibit No. 37. 

The estimate of $21.3 billion includes—and I would refer to a 

chart to my left, Chart 1a. 1—it includes oil smuggling facilitated 

through trade protocols with Iraq, as well as unauthorized smuggling, including topping-off of oil tankers, $13.5 billion; surcharges 

on oil purchases, $241 million; kickbacks on humanitarian goods, 

$4.4 billion; sub-standard goods purchased under the Oil-for-Food 

Program, $2.1 billion. I believe that is a new category that had not 

been included in other estimates, as are the abuses in the Northern 

Kurdish region, $405 million, and investment of illicit revenues, 

$403 million. 

Today, the Subcommittee will unveil evidence that will show how 

Saddam used vouchers to peddle influence and reward friends 

around the world, how Saddam extracted illegal surcharges from 

oil purchases, and how blue chip international corporations gave 

Saddam millions in illegal kickbacks. 

Our first witness today is Charles Duelfer, Special Advisor to the 

Director of Central Intelligence on Iraq’s WMD. We look forward 

to his testimony about the report he prepared for the Administration detailing Iraq’s abuse of the OFF Program.2

The Duelfer report concludes that Saddam Hussein’s primary 

goal was to have UN sanctions lifted. In addition, he found that the 

introduction of the OFF Program was a key turning point for the 

regime. This program provided additional illicit billions of dollars 

in revenue streams of kickbacks and surcharges. 

More importantly, the program rescued Iraq’s economy from UN 

sanctions by increasing economic activity and reducing international support for UN sanctions. It appears that OFF abuses, 

particularly vouchers to well-placed individuals and entities favoring Iraq, and kickbacks and surcharges which went unhindered by 

the UN Security Council despite their knowledge of them, 

emboldened Saddam Hussein to finance and procure missile delivery systems, dual-use items and military munitions. As we know, 

Saddam Hussein devised a myriad of ways to violate the OFF Program. 

On the second panel, investigative counsels from the Subcommittee will present new evidence that describes three of the 

principal ways that Hussein abused the sale of Iraqi oil under the 

OFF Program. 

First, we will hear testimony that illustrates how Saddam converted oil into influence. In that segment, we will examine how 

Saddam gave so-called oil vouchers to foreign officials, journalists 

and possibly even terrorist entities in order to peddle influence and 

reward friends. In doing so, we will reveal previously undisclosed 

evidence that indicates what oil vouchers were and how the voucher process worked. 

For instance, we will introduce a number of documents that illustrate how high-ranking officials in Saddam’s regime, such as Tariq 

Aziz, were personally involved in handing out these favors. We will 

present a step-by-step review of how voucher recipients turned 

these favors into cash. For instance, we will see evidence of how 

4

Vladimir Zhirinovsky, a prominent Russian politician, invited an 

American oil company to negotiate the sale of an oil voucher. 

We will show how vouchers which translated into formal oil contracts were then approved by the UN. As an example, we will trace 

a voucher given to a Syrian journalist named Hamidah Na’na, and 

see how that voucher ended up as a formal contract for the sale 

of oil under the Oil-for-Food Program. In the end, our presentation 

will reveal how Saddam turned UN sanctions on their head and actually used the Oil-for-Food Program to his own advantage. 

Aside from our analysis of Saddam’s oil vouchers, we will examine a second method that Saddam used to abuse the sale of oil 

under the OFF Program, namely oil surcharges. While the voucher 

scheme was employed to peddle influence, the surcharge was simply a way to generate under-the-table revenue for Saddam’s cashstrapped regime. We will explore how Saddam managed to generate roughly $230 

million in revenue through the oil surcharges. Our presentation 

will include new evidence of who made under-the-table payments 

to the regime. We will also explore how they made those payments. 

For instance, we will trace one transaction that involved an American oil company in which more than $1 million in illegal payments 

were made to the Hussein regime. Finally, we will present an excerpt of a document created by the Government of Iraq that details 

each and every surcharge payment. 

In addition to influence-peddling and generating illicit revenue 

from oil vouchers and surcharges, Saddam Hussein concocted a 

separate scheme to siphon off billions of dollars for himself by demanding kickbacks on contracts for humanitarian goods. Saddam 

used his freedom to contract with whomever he pleased to cut deals 

that were in his own best interests and not for the humanitarian 

needs of his people. 

We will also hear testimony describing the kickbacks paid by a Scottish company called The Weir Group, which did over $80 million worth of business under the Oil-for-Food Program. The story 

of Weir is particularly disturbing, since it demonstrates that legitimate, reputable corporations were complicit in enriching the regime of Saddam Hussein. 

Our investigation revealed that in June 2000, the Iraqi regime 

demanded kickbacks from Weir. Rather than reject the demand, 

Weir agreed to enter into an arrangement to pay a portion of every 

subsequent contract back to Saddam. We will hear testimony detailing this arrangement and a step-by-step description of how 

Weir inflated its contracts by marking up the price of its products 

and by overstating the quantity of parts shipped. 

At the direction of the Iraqi regime, and over the course of 4 

years and 15 contracts, Weir paid over $8 million into a secret 

Swiss bank account in the name of a non-existent corporation 

called Corsin Financial Limited. Weir and Iraq were able to transact business in this manner with impunity under the nose of the 

United Nations and without regard of the sanctions imposed by the 

international community. The Office of the Iraqi Program, the UN 

entity that oversaw the Oil-for-Food Program, approved Weir’s contracts even though the prices of the contracts were sometimes inflated by 30 to 40 percent. 

5

Assistant Secretary of the Treasury Juan Zarate is the perfect 

witness to wrap up the hearing today. As head of the Interagency 

Iraqi Asset Tracking Task Force, Mr. Zarate will provide valuable 

information on the efforts of the U.S. Government and its Coalition 

partners to identify, locate and repatriate the assets of the Iraqi 

people. 

Although the Department of the Treasury’s primary mission is 

recovery of Iraqi assets, one tangent of this recovery effort has been 

the uncovering of information pertaining to the illegal kickbacks, 

surcharges and other fraudulent activities committed by the former 

Iraqi regime under the UN Oil-for-Food Program. How much of the $21.3 billion, as estimated by this Subcommittee, has been channeled into the hands of terrorists or is 

currently funding the insurgency in Iraq? I don’t know if Mr. 

Zarate can answer this question, but he will provide examples of 

Treasury’s efforts in undermining terrorist activities through the 

identification and freezing of assets, as well as the designation of 

terrorist individuals and organizations. Again, the question of how 

much of this $21.3 billion is fueling insurgency today is one that 

ultimately has to be answered. 

The weaknesses in the Oil-for-Food Program raise serious questions about the United Nation’s ability to enforce sanctions and administer a humanitarian aid program in the future. American taxpayers pay close to 22 percent of the UN’s operating costs. They 

need assurances and deserve assurances that their tax dollars are 

being well spent, especially in light of the fact that sanctions will 

likely be imposed upon other nations in the future. 

The mal-administration—and I submit to you this is an understatement—of the program has also undermined the infrastructure 

and the economy of Iraq, which has led to a substantially greater 

level of U.S. money needed for the reconstruction of Iraq after the 

war. 

The Iraqi people were harmed by sub-standard food and medicine, severely affecting the quality of life of innocent Iraqis. 

Finally, allegations have been raised by credible sources that 

money diverted from the OFF Program has been diverted to the 

Iraqi insurgency and to terrorist activities both in Iraq and elsewhere around the world. If these allegations are true, then the failure of the OFF Program can be tied directly to the loss of American 

lives, Coalition lives and the lives, as I said before, of thousands 

of our Iraqi allies. 

I anticipate that our investigation will lead to many more disclosures over the next several months. The Subcommittee will continue to work diligently to uncover the truth, and when we feel 

confident that we have found it, we will schedule additional hearings. I especially want to thank Mr. Duelfer and Mr. Zarate for 

their cooperation in helping us get to the truth. I hope that others 

will be equally forthcoming. 

Before I turn it over to the Subcommittee’s Ranking Member, 

Senator Levin, I do want to acknowledge the presence of our Committee’s Chairman, Senator Collins, and the Ranking Member, Senator Lieberman. Thank you both very much for being here. 

With that, I turn it over to the Subcommittee’s distinguished 

Ranking Member, Senator Levin. 

6

1 Comprehensive Report of the Special Advisor to the DCI on Iraq’s WMD, September 30, 2004

(Volumes I, II, and III), prepared by Charles Duelfer, Special Advisor to the Director of Central 

Intelligence, retained in the files of the Subcommittee as Exhibit No. 37. 

OPENING STATEMENT OF SENATOR LEVIN 

Senator LEVIN. Thank you, Mr. Chairman. Today, the Permanent 

Subcommittee on Investigations is conducting the first of several 

hearings examining efforts by Saddam Hussein to undermine the 

United Nations Oil-for-Food Program and to misuse its humanitarian aims to obtain illicit revenues. 

It is important that we take some time to understand what 

worked and what didn’t work in the Oil-for-Food Program, how the 

program succeeded and how it failed, and how Saddam Hussein 

worked to undermine the sanctions. Sanctions are a club which can 

have an impact, as they apparently are doing today in Iran. It is 

useful to learn from the Iraqi experience, in which sanctions basically achieved their goals but were weakened in a number of ways, 

so that we can make sanctions work as effectively as possible. The 

Subcommittee’s investigation can contribute to that learning process. 

Much of the testimony today will concern how Saddam Hussein 

attempted to circumvent the UN sanctions program to obtain revenues that helped perpetuate his regime’s iron grip on power in 

Iraq. A major focus of today’s hearing will be the Duelfer report.1

This report provides extensive detail on how Saddam Hussein 

gamed the system, including the use of so-called trade protocols, oil 

vouchers, contract awards, surcharges and kickbacks in an attempt 

to undermine the sanctions, while simultaneously obtaining illicit 

revenues and prohibited military equipment. 

The objective of the UN sanctions was to prevent Saddam Hussein from developing weapons of mass destruction and rebuilding 

Iraq’s conventional military forces. The sanctions were not intended to stop all international trade with Iraq, but to prevent Iraq 

from re-arming and threatening regional stability. 

While Saddam had some success in circumventing sanctions, for 

the most part the UN sanctions achieved their intended objective 

of preventing Saddam from re-arming and developing weapons of 

mass destruction. In testimony before the Senate in 2001, Secretary of State Colin Powell testified that the sanctions had been 

successful and should be continued. 

He explained as follows, ‘‘Saddam Hussein has not been able to 

rebuild his army, notwithstanding claims that he has. He has 

fewer tanks in his inventory today than he had 10 years ago. Even 

though we know he is working on weapons of mass destruction—

we know he has things squirreled away—at the same time we have 

not seen that capacity emerge to present a full-fledged threat to 

us.’’ Referring to sanctions, Secretary Powell added, ‘‘So I think 

credit has to be given for putting in place a regime that has kept 

him pretty much in check,’’ referring again to the sanctions regime. 

Earlier this year, our new Ambassador to Iraq and former U.S. 

Ambassador to the UN John Negroponte testified before the Senate 

that the sanctions had largely achieved their purpose, ‘‘The U.S. 

Government supported the program’s general objective of creating 

a system to address the humanitarian needs of the Iraqi civilian 

7

1See Exhibit No. 31, which appears in the Appendix on page 174. 

population, while maintaining strict sanctions enforcement of items 

that Saddam Hussein could use to rearm or reconstitute his WMD 

program.’’ And Negroponte concluded, ‘‘We believe the system the 

Security Council devised by and large met those objectives.’’

Most recently, the Duelfer report provided a detailed analysis of 

how UN sanctions constrained Saddam’s efforts to re-arm. The 

Duelfer report states, ‘‘Sanctions imposed constraints on potential 

WMD programs through limitations on resources and restraints on 

imports. The sanctions forced Iraq to slash funding that might 

have been used to refurbish the military establishment and complicated the import of military goods. Rebuilding the military, including any WMD capability, required an end to sanctions.’’

The Duelfer report also found that sanctions had prevented Iraq 

from significantly rebuilding its conventional forces, confirming 

Secretary Powell’s 2001 assessment, as well as a report by the General Accounting Office in 2002. 

The GAO report stated the following, ‘‘According to U.S. and UN 

officials, there is no indication that Iraq has purchased large-scale 

weapons systems, such as aircraft, ships or armor. Iraq’s conventional rearmament efforts are limited to purchases of small arms 

and spare parts to keep weapons and vehicles not destroyed during 

the Gulf War operational. Most importantly, according to State Department arms experts, conventional weapons systems such as aircraft and ships are expensive and UN controls have limited the 

amount that Iraq can spend on arms.’’

Now, the chart that I am putting up which was compiled from 

data recently updated by the GAO shows how effective the UN 

sanctions were in reducing Iraq’s ability to develop weapons of 

mass destruction and large-scale conventional forces.1

The data shows that Iraq’s military spending after sanctions 

were imposed in 1991 fell to a small fraction of what it had been 

prior to sanctions. It indicates that despite Saddam Hussein’s relentless efforts to circumvent the sanctions, once they were imposed Iraq’s military spending plummeted. 

The fact that the sanctions were basically meeting their objective 

was the main reason that Saddam Hussein tried so hard to get 

around them. The Duelfer report surmises that had Saddam Hussein succeeded in ending the sanctions, he would likely have resumed re-arming Iraq, with potentially dangerous results. Whether 

Saddam Hussein would have succeeded in ending sanctions will 

never be known. What we do know is that the sanctions, in fact, 

largely prevented Iraq from re-arming. 

We also know that the Oil-for-Food Program weakened the sanctions by allowing Saddam to pick the winners of the contracts 

issued under the program. The proceeds from the oil sales went 

into an escrow account for humanitarian use, but Saddam repeatedly inflated the dollar amount for humanitarian contracts and obtained kickbacks from these contracts and the oil sales to the tune 

of about $1.7 billion. 

Saddam’s abuse of the Oil-for-Food Program, however, provided 

only a fraction, about one-sixth, of Iraq’s total illicit income. According to the Duelfer report, the vast majority, which is in blue 

8

1See Exhibit No. 32, which appears in the Appendix on page 175. 

there, nearly three-quarters of Saddam’s illicit income during the 

sanctions period, was generated through publicly-disclosed trade 

agreements, called protocols, to sell Iraqi oil to its neighbors, primarily Jordan, Syria, and Turkey. 

Those protocols constituted a far greater subversion of the sanctions because Iraq, instead of the UN, controlled the estimated $8 

billion in proceeds. The world, including the United States, knew 

of these contracts between Iraq and its neighbors, but winked at 

them, even though they represented the vast majority of Saddam 

Hussein’s illicit income. 

Now, the chart, which uses data in the Duelfer report, depicts 

the amounts and types of illicit income earned by Iraq during the 

sanctions period.1 It shows that the trade agreements which were 

not part of the Oil-for-Food Program were the largest single source, 

about 75 percent, of Iraq’s illicit income, generating $8 billion out 

of a total that was estimated in the Duelfer report of $10.7 billion. 

According to the Duelfer report, the Oil-for-Food Program generated about $1.7 billion, or about 16 percent of Iraq’s total illicit 

income. 

Iraq also used the trade protocols to obtain illicit income; also, 

not only that, but military items prohibited by the UN sanctions. 

The Duelfer report provides extensive information about how Iraq 

used the protocols, those sales agreements, to obtain equipment for 

its conventional military forces, including missile, jet engine and 

radar components. Indeed, it appears from the Duelfer report that 

the vast majority of Iraq’s illegal military equipment was procured 

through the trade protocols rather than through abuse of the Oilfor-Food Program. 

Iraq’s ongoing oil sales to its neighbors was no secret. Both the 

United Nations and the United States knew of it and deliberately 

let the trade continue, presumably to maintain the support of 

Iraq’s neighboring countries for the overall sanctions regime and to 

obtain other foreign policy objectives. 

In the United States, successive Administrations, both the Clinton Administration and the Bush Administration, acknowledged 

the existence of the Jordanian and Turkish trade deals, and routinely waived provisions of U.S. law that would have prohibited 

U.S. foreign aid to these countries for violating the UN sanctions 

on Iraq. 

According to the Duelfer report, Jordan and Syria were the major 

sources of illicit income for Iraq during the sanctions regime and 

the major sources of prohibited military equipment as well. The 

failure of U.S. Administrations to take forceful action to stop Iraq’s 

illicit dealings with Syria, a nation branded by the State Department as a major sponsor of terrorism, is perhaps the most troubling. 

The illicit oil trade between Iraq and Syria began in late 2000 

with the opening of a pipeline and it quickly expanded. In February 2001, Secretary of State Powell said that he had obtained 

personal assurances from the Syrian president that he would place 

the Syrian-Iraqi trade under the UN Oil-for-Food Program. 

9

According to a contemporaneous press report, ‘‘Mr. Powell said 

that he had won agreement from Syria to place into a United Nations escrow account revenues that Mr. Hussein was receiving from 

oil flowing through Syrian pipelines. In the last few months, those 

revenues have been going into Mr. Hussein’s pockets, illustrating 

the fraying of sanctions. The commitment from Syria was so firm 

that President Assad stated it three times during the meeting, Secretary Powell said, that the Secretary said that he telephoned 

President Bush to tell him.’’

But Syria not only failed to keep its promise; it increased its oil trade with Iraq, paying Saddam more than $1 billion annually. 

This trade continued right up to the outbreak of war, when the 

U.S. military finally cut off the illegal flow of oil from Iraq to Syria. 

Iraqi oil sales to Syria supplied Saddam Hussein with billions of 

dollars in illicit revenue. Yet, the United States and other nations 

apparently did little to stop it. In February 2002, The Washington 

Post reported, ‘‘U.S. officials have applied little direct pressure on 

Damascus, even though this revenue is one of the few ways Iraqi 

President Saddam Hussein can pay to maintain his military and finance any efforts to acquire weapons of mass destruction.’’ 

It then quoted an Administration official who acknowledged the 

trade but expressed little, if any, determination to curtail it, ‘‘Make 

no mistake about it, the pipeline issue is a serious topic and a point 

of contention. Are we willing to make it a sticking point so that it 

affects the relationship between our two countries? No. We have to 

be pragmatic.’’ 

The bottom line is the United States and other nations tolerated 

the trade protocols and the Iraqi oil sales which, according to the 

Duelfer report, produced billions of dollars in unaccounted revenue 

for Saddam, as well as prohibited military equipment for Iraq. 

Evaluating whether this policy of acquiescence was the right course 

of action is a key issue not only in drawing lessons from the Iraqi 

sanctions, but also in designing future international sanctions programs. 

The Oil-for-Food Program abuses themselves were presumably 

not acquiesced in. These abuses included awards of oil vouchers 

and allocations to curry favor, contract surcharges to generate kickbacks, and the use of front companies and bank accounts in countries with corporate and bank secrecy laws. 

We will hear not only about Saddam Hussein’s demand for corrupt payments, but also about the willingness of some companies 

and individuals to go along with those demands. Oversight was 

supposed to be provided not only by the United Nations Security 

Council and its 661 Committee, including the United States, which 

took on the responsibility of reviewing Oil-for-Food contracts, licensing U.S. companies to do business with Iraq and monitoring 

Iraq’s compliance with UN sanctions. 

We need to examine the shortcomings in oversight, with the 

same goal of ensuring that future sanctions regimes will be tighter 

and more effective. That is what this hearing and subsequent hearings before this Subcommittee are about, helping the world design 

more effective international sanctions, and I commend Chairman 

Coleman for his strong leadership in that effort. 

Thank you. 

10

Senator COLEMAN. Thank you, Senator Levin. Chairman Collins. 

OPENING STATEMENT OF CHAIRMAN COLLINS 

Chairman COLLINS. Thank you, Mr. Chairman. Let me begin by 

commending you for conducting this much-needed investigation 

into Saddam Hussein’s abuse of the United Nations’ Oil-for-Food 

Program. I know that you have worked extraordinarily hard during 

the past several months to unravel the strands of this corrupt 

scheme. 

We should remember during the course of this investigation that 

the Oil-for-Food Program was created out of a genuine desire by 

the members of the United Nations Security Council to meet the 

humanitarian needs of the Iraqi people while the UN sanctions 

worked to force compliance with Security Council resolutions. But 

what happened was that the effort quickly mutated into what the 

Wall Street Journal has called ‘‘the largest bribery scheme in the 

history of the world.’’

One of the most disturbing aspects of this scandal is its sheer 

size. While the world may never know exactly how much money 

was plundered by Saddam Hussein’s regime, the Government Accountability Office estimated in July that Saddam amassed more 

than $10 billion in illegal revenues between 1997 and 2002. That 

is $10 billion out of a total of $67 billion during that time period. 

The Subcommittee’s estimate, which looks at a longer time frame, 

is more than $21 billion. 

It is deeply troubling that the UN sanctions could be circumvented by Saddam Hussein on such a massive scale. Moreover, 

the evidence suggests that the Oil-for-Food Program was manipulated by Saddam Hussein to erode the international community’s 

resolve to enforce the sanctions against his regime. 

Just one example of how this money was stolen can be found in 

Saddam Hussein spending $2 billion during the 1990s to build nine 

lavish presidential palaces. As former General Tommy Franks said 

during a visit to one such palace, perhaps the Oil-for-Food Program 

should have been dubbed the Oil-for-Palaces program instead. 

But far worse, much of Saddam Hussein’s illicit revenue was 

used for the more sinister purpose of undermining sanctions and 

rebuilding the Iraqi war machine. I view what happened a little 

differently than my friend and colleague from Michigan, Senator 

Levin. 

One of today’s witnesses, Charles Duelfer, will tell us, as he reported in September, that ‘‘The billions of dollars of revenue generated by the various protocols, illicit surcharges and oil smuggling 

schemes drove the explosive growth in Iraq’s military imports.’’ 

This allowed the Iraq Military Industrialization Commission, which 

was the agency responsible for overseeing the Iraqi military-industrial infrastructure, to smuggle millions of dollars’ worth of military 

equipment into Iraq, in contravention to the UN sanctions. Mr. 

Duelfer’s report explains that this commission’s budget grew from 

$7.8 million in 1996, to $350 million in 2002, to $500 million in 

2003, all during a period when Iraq was supposed to be under 

strict UN sanctions. 

I look forward to hearing the testimony of today’s witnesses and 

the light that they will shed on this very complex course of events. 

11

I think this investigation and series of hearings is extraordinarily 

important. I commend the Chairman and Senator Levin for investigating the scope of this scandal and for identifying what steps 

need to be taken to ensure that this kind of blatant wrongdoing 

and corruption never again occurs in any future humanitarian programs. 

Thank you, Mr. Chairman. 

[The prepared statement of Senator Collins follows:]

PREPARED STATEMENT OF SENATOR COLLINS 

Let me begin by commending you for conducting this much-needed investigation 

into Saddam Hussein’s abuse of the United Nations Oil-for-Food Program. I know 

that you have worked extraordinarily hard for months at unraveling the strands of 

this corrupt scheme. 

The Oil-for-Food Program was created out of a genuine desire by the members of 

the United Nations Security Council to meet the humanitarian needs of the Iraqi 

people while UN sanctions worked to force compliance with Security Council resolutions. But this effort quickly mutated into what the Wall Street Journal has called 

‘‘the largest bribery scheme in the history of the world.’’

One of the most disturbing aspects of this scandal is its sheer size. While the 

world may never know exactly how much money was plundered by Saddam Hussein’s regime, the Government Accountability Office estimated in July that Saddam 

amassed more than 10 billion dollars in illegal revenues between 1997 and 2002. 

That’s 10 billion dollars in a 67 billion dollar program. The Subcommittee’s estimate 

over a longer period is a staggering 21 billion dollars. I am deeply troubled that UN 

sanctions could be circumvented by the former Iraqi regime on such a massive scale. 

Moreover, the evidence suggests that the Oil-for-Food Program was manipulated by 

Saddam to erode the international community’s resolve to enforce the sanctions 

against his regime. 

Just one example of how this money was stolen can be found in Saddam spending 

two billion dollars during the 1990s to construct nine lavish presidential palaces. As 

General Tommy Franks said during a visit to one such palace, perhaps the Oil-forFood Program should have been dubbed the ‘‘Oil for Places’’ program instead. 

But far worse, much of Saddam Hussein’s illicit revenue was used for the more 

sinister purpose of undermining sanctions and rebuilding the Iraqi war machine. 

One of today’s witnesses, Charles Duelfer, reported in September that, ‘‘The billions 

of dollars of revenue generated by the various protocols, illicit surcharges, and oil 

smuggling schemes drove the explosive growth in [Iraq’s] military imports. This allowed [Iraq’s Military Industrialization Commission] to smuggle millions of dollars 

worth of military equipment into Iraq in contravention of UN Sanctions.’’

The Military Industrialization Commission, incidentally, was the agency in Iraq’s 

government responsible for overseeing the Iraqi military-industrial infrastructure. 

Mr. Duelfer’s report explains that this Commission’s budget grew from 7.8 million 

dollars in 1996 to 350 million dollars in 2002 to 500 million in 2003, all during a 

period when Iraq was supposed to be under UN sanctions. 

I look forward to the testimony of today’s witnesses, and the light they will shed 

on this very complex course of events. And I again commend Senator Coleman and 

Senator Levin for investigating the scope of this scandal and what steps need to be 

taken to ensure that the same kind of wrongdoing never occurs in future such humanitarian programs.

Senator COLEMAN. Thank you, Chairman Collins. Senator Lieberman. 

OPENING STATEMENT OF SENATOR LIEBERMAN 

Senator LIEBERMAN. Thanks, Mr. Chairman. I thank you and 

Senator Levin for initiating this critically important investigation. 

Mr. Chairman, this investigation is not only important insofar as 

we learn lessons from it that will help us and the United Nations 

and the international community in the application and implementation of sanctions. I think it may be important in terms of our understanding, and perhaps even the American people’s understanding, of the history of what was going on in Iraq. 

12

I am pleased to see Mr. Duelfer here. I must say that the bottom 

line here is that this investigation, Mr. Duelfer’s and now the Subcommittee’s, has shown us the way in which a supposedly humanitarian program, certainly a program adopted for humanitarian reasons, in part as a result of a cunning international marketing campaign by the Saddam Hussein regime to develop concern about people suffering in Iraq as a result of the sanctions—that humanitarian program was corrupted and exploited by Saddam Hussein 

not only illicitly, but for the most horrible and aggressive of purposes. 

Mr. Duelfer’s report in this regard and the Subcommittee’s investigation, I think, shows that Saddam Hussein was guilty of the 

grandest larceny in pursuit of a grand plan to re-arm, including the 

reconstitution of his program of weapons of mass destruction. 

I must say, Mr. Duelfer, I appreciate that the Subcommittee has 

brought you back because I feel that your initial report was a superb piece of work and, in my opinion, may have been the most 

mis-reported and misinterpreted governmental document in my 16 

years in the Senate of the United States. 

The reason I say that is that too many people jumped on your 

conclusion that you did not find weapons of mass destruction, even 

though in your report—and I have read every word of it and I have 

read every public statement of yours on the report that I could 

find—you caution that readers not reach definitive conclusions 

based on your inability to find WMD, and certainly not to conclude 

that Saddam didn’t have them at the time the war began, or perhaps even that there were not some there. In fact, your report documents a network of clandestine laboratories involved in work related to both biological and chemical weapons. 

But more to the point of this investigation, what you make 

clear—and this is based not on any pre-war intelligence which we 

now have so much doubt about—it is based on the Iraq Survey 

Group which you headed, more than 1,500 people, as I recall, with 

full range, as much as you could throughout Iraq, and access to 

people that, needless to say, in Saddam Hussein’s government, we 

had no access to prior to the war. 

I think you reach some very clear and compelling conclusions, 

and I want to just read from the report. ‘‘Saddam Hussein wanted 

to recreate Iraq’s WMD capability after sanctions were removed. 

Saddam aspired to develop a nuclear capability, but he intended to 

focus on ballistic missile and tactical chemical warfare capabilities 

in the short run.’’

I continue to quote, ‘‘Saddam recognized that the reconstitution 

of Iraqi WMD enhanced both his security and his image. Consequently, Saddam needed to end UN-imposed sanctions to fulfill 

his goals. Saddam continually directed his advisers to formulate 

and implement strategies, policies and methods to terminate the 

UN sanctions regime established by UNSCR 661.’’

I am continuing to read selectively from the report. ‘‘Under 

Saddam’s orders, the Ministry of Foreign Affairs of Iraq formulated 

and implemented a strategy aimed at these United Nations Security Council members and international public opinion, with the 

purpose of ending UN sanctions and undermining its subsequent 

Oil-for-Food Program by diplomatic and economic means.’’

13

Then you say, ‘‘Once that undermining,’’ by the various forms 

that we have heard described already today—‘‘Once the money 

began to flow into Iraq, the regime’s authorities devised and implemented methods and techniques to procure illicit goods from foreign suppliers. To implement its procurement efforts, Iraq, under 

Saddam, created a network of Iraqi front companies, some with 

close relationships to high-ranking foreign government officials, to 

procure illicit goods, services and technologies for Iraq’s WMD-related conventional arms and/or dual-use goods programs,’’ so again 

WMD-related. The regime financed these government sanctions 

programs by several illicit revenue streams that we will describe 

here today. 

‘‘Saddam used the Iraq Intelligence Service to undertake the 

most sensitive procurement missions. Consequently, the IIS facilitated the import of UN-sanctioned and dual-use goods into Iraq 

through countries like Syria, Jordan, Belarus, and Turkey. The 

Ministry of Foreign Affairs played a critical role in facilitating 

Iraq’s procurement of military goods and dual-use goods pertaining 

to weapons of mass destruction, transporting cash and other valuable goods earned by illicit oil revenue and forming and implementing a diplomatic strategy to end UN sanctions and the subsequent Oil-for-Food Program by nefarious means.’’ ‘‘Nefarious’’ is the 

right word. 

So I conclude from this section of your report that Saddam Hussein was doing everything he could to both evade and abuse the 

sanctions program, the Oil-for-Food Program, with the purpose of 

protecting the intellectual and other capacity he had for a WMD 

program, including the development and delivery systems like longrange missiles, much of it with the intent of breaking out of the 

sanctions program for a primary purpose of reconstituting at full 

pace his WMD program, with an emphasis on long-range delivery 

systems and chemical weapons, but also returning to his biological 

and nuclear weapons programs, which says to me—and I apologize 

for this, but to me it is central—that those who argue that the war 

to overthrow Saddam was a mistake because WMD was not found, 

do not allow for the many other good reasons to overthrow Saddam 

because he was a brutal dictator and murdered hundreds of thousands of his people and he supported terrorism. 

But based on your report, after the war, talking to people who 

weren’t available before the war, and based particularly on these 

sections that document his cruel, merciless evasions of the sanctions program, it is clear to me that had we not overthrown Saddam Hussein, by this time he might have broken out of sanctions. 

He certainly would have been on the way to doing so, and therefore 

reconstituting his WMD program, which says to me, as many of us 

have said many times before, the world is a lot safer with Saddam 

Hussein in prison and not in power. 

I want to just add a final word about the United Nations and 

complimenting the Chairman and Ranking Member of this Subcommittee on their persistence. For many of us who continue to 

hold dear the ideals which motivated the formation of the United 

Nations, too much of its behavior too much of the time has eaten 

away at what I believe are those ideals. 

14

Your report here, and the Subcommittee’s investigation unfortunately holds another cloud, a dark cloud over the United Nations 

and our hopes for its constructive peace-making and peace-keeping 

role in the world, because it is clear here that the UN not only mismanaged the Oil-for-Food Program, but that United Nations officials themselves may have participated in Saddam’s efforts to undermine the very controls they were charged with enforcing. 

Now, it goes without saying that those are extremely serious 

charges, and until the facts are in it would be premature and unfair to reach any conclusions. In fact, the UN has opened its own 

investigation, headed by Paul Volcker, former Chairman of the 

Federal Reserve. But that is no excuse for the United Nations not 

to have cooperated with this Subcommittee’s investigation. 

I wanted to join with Senators Coleman and Levin in urging the 

United Nations to cooperate fully and promptly with this Subcommittee’s requests, or to risk further diminishing the support 

that does still exist in this Congress for the important work of the 

United Nations. 

I thank the Chairman. 

Senator COLEMAN. Thank you, Senator Lieberman. Senator 

Pryor. 

OPENING STATEMENT OF SENATOR PRYOR 

Senator PRYOR. Thank you. I just wanted to really say thank you 

to Chairman Coleman and Senators Levin, Collins, and Lieberman, 

for your great leadership not just on this issue, because you have 

been great on the Oil-for-Food Program, but also on a variety of 

issues over the last couple of years since I have been in the Senate 

that relate to Iraq, homeland security, national defense and national security. They relate to intelligence, and the list goes on and 

on. 

I want to thank you all, and if we don’t accomplish anything else 

today other than to get a clear and accurate picture of what was 

going on in Iraq during the Oil-for-Food Program, this hearing 

would be worth doing. But I think there is a larger and more significant piece to this. That in and of itself is very important, but 

maybe more significant than that is to look to the future because 

we know it won’t be long—we don’t know when, but at some point 

the United Nations or some other organization will impose sanctions on some other country. 

In fact, there are sanctions that exist today around the world, 

but to learn from what was going on in Iraq will help us to do a 

better job in the future to make sure that sanctions are most effective and that they actually accomplish the goals that they set out 

to accomplish. 

So, again, I want to thank the Chairman and everyone for their 

leadership on this issue. 

Senator COLEMAN. Thank you, Senator Pryor. Senator Pryor, let 

me return the compliment by saying I don’t know if there is another single Member of this Subcommittee who has been as active 

in all our investigations and all the work we have done. So we 

greatly appreciate your deep involvement in all the matters that 

have come before us. Thank you. 

15

1The prepared statement of Mr. Duelfer appears in the Appendix on page 67. 

We would now like to welcome our first witness at today’s hearing, Charles Duelfer, the Special Advisor to the Director of the 

Central Intelligence Agency who prepared the comprehensive report of the Special Advisor to the DCI on Iraq’s WMD. This recently released report provides an overview and some examples of 

the abuses related to the Oil-for-Food Program. 

Mr. Duelfer, I want to express my personal appreciation for the 

extraordinary service you have rendered this Nation in your search 

for Saddam Hussein’s conventional, radiological, chemical and biological weapons, and for your evaluation of the Oil-for-Food Program. 

According to press accounts, I understand that an assassin 

sought to take your life during your recent visit to Baghdad, which 

resulted in the death of two American soldiers and the wounding 

of three others. I am glad that you were not injured and can be 

with us today. I also want to express my condolences to the families of those who gave their lives in service to this Nation and wish 

a speedy recovery for those who were injured in the attack. 

I appreciate your attendance at today’s important hearing and I 

am looking forward to hearing your observations about the Oil-forFood Program. I note, Mr. Duelfer, that you have two of your colleagues with you. Would you identify them for the record, please? 

Mr. DUELFER. Steve Zidek to my immediate left and Chris 

Johnsten next to him. 

Senator COLEMAN. Thank you very much. 

Gentlemen, before we begin, pursuant to Rule VI, all witnesses 

who testify before this Subcommittee are required to be sworn. At 

this time, I would ask you to please stand and raise your hand. 

Do you swear that the testimony you give before this Subcommittee will be the truth, the whole truth and nothing but the 

truth, so help you, God? 

Mr. DUELFER. I do. 

Mr. ZIDEK. I do. 

Mr. JOHNSTEN. I do. 

Senator COLEMAN. We will be using a timing system today. 

Please be aware that approximately 1 minute before the red light 

comes on, you will see the lights change from green to yellow and 

it will give you an opportunity to conclude your remarks. Your 

written testimony will be printed in the record in its entirety. We 

ask that you limit your oral testimony to no more than 10 minutes. 

Mr. Duelfer, you may proceed. 

TESTIMONY OF CHARLES DUELFER,1 SPECIAL ADVISOR TO 

THE DIRECTOR OF THE CENTRAL INTELLIGENCE ON IRAQ’S 

WMD, CENTRAL INTELLIGENCE AGENCY, ACCOMPANIED BY 

STEPHEN ZIDEK AND CHRISTOPHER JOHNSTEN 

Mr. DUELFER. Mr. Chairman and Senators, thank you very 

much. It is customary to thank the Subcommittee for the opportunity to be here, and I do that. But again, as you noted, as a personal note I have to declare my thanks to three individuals who are 

not here. 

16

As you noted, there was a suicide bomb attack on a convoy I was 

in and we lost two of the protective details, a staff sergeant, Clinton Wisdom, and Specialist Donald Cleary. And Specialist Nathan 

Gray was badly injured. Without their actions, I doubt whether I 

would be here today. 

And in a way, I think that lends even more gratitude that you 

are taking this interest in this material because the report and the 

facts we tried to assemble were not done without significant cost. 

And I think they merit debate; they merit a lot of attention in 

terms of lessons learned. This has been a long tragedy for many 

decades, and my experience last week was only just the most recent. So, as with your colleagues, Mr. Chairman, I think it is good 

that this investigation take place. 

My report and the supporting analysis aimed at providing a synthetic view of the former regime’s decisions and strategies as it related to WMD. It was one of my objectives to describe the context 

within which Saddam made his decisions about WMD. 

WMD did not happen in a vacuum. To understand what happened to Iraqi and WMD, and perhaps to learn lessons that might 

inform future policies, I felt it was important to examine the surrounding factors that impinged on Saddam’s decisions. 

At different times, Saddam opted to have, and then to have not, 

WMD. It was my hope to try to illuminate the conditions that led 

to these different courses. I also tried to analyze the regime’s relationship with WMD over time. We have been wrestling with the 

prospect of the Iraqi Nation with Saddam and WMD for almost 

three decades. It would have been grossly deficient to simply tally 

up the remnants of the WMD program. My goal was to understand 

the dynamics behind the decisions that Saddam made. To this end, 

we delved into the nature of Saddam’s objectives and his perspectives on the world. 

A significant part of the report addresses the manner of 

Saddam’s rule and his vision for himself and Iraq. Unlike previous 

reports on the regime, we had access to primary sources, Saddam’s 

top advisers, as well as to Saddam himself. 

Understanding and analyzing WMD in Iraq is in one way simplified because the regime was basically one person—Saddam Hussein. This certainly bounded the analysis. The second way we found 

of bounding the problem was to consider the limited amount of resources available to the regime. Sanctions and the oil embargo put 

strict limits on Iraq’s disposable income. 

It struck me that if we could account for the resources available 

to the regime and examine how the regime allocated them, we 

could learn a great deal about its objectives and actions related to 

WMD. This line of investigation quickly highlighted not just the 

tangible resources available to Iraq, but also the influence that the 

regime accrued through the potential to allocate future resources. 

Examination of the resource decisions and actions that the regime 

took to disburse its favors proved an excellent way of highlighting 

the objectives and intentions of Saddam. 

We identified several key inflection points in this history. One 

was the summer following the 1991 war. The UN Security Council 

had taken a decision to link the lifting of sanctions and oil embargo 

imposed in August 1990, when Iraq invaded Kuwait, to Iraq’s ridVerDate 0ct 09 2002 11:25 Apr 08, 2005 Jkt 097048 PO 00000 Frm 00022 Fmt 6633 Sfmt 6601 C:\DOCS\97048.TXT SAFFAIRS PsN: PHOGAN
17

ding itself of WMD. The new inspection organization was created 

for this purpose. Initially, all thought it would be short-lived, Saddam amongst them. 

However, during the summer, early inspections proved more 

meddlesome than Saddam anticipated. And while he made early 

decisions to offer partial compliance, it became obvious that this 

would not suffice. 

Saddam then established as his top priority to get out from the 

web of international sanctions, and other matters would be pursued on a non-interference basis with this prime objective. His policies, his actions, his tactics and strategies from that point all had 

the objective of getting rid of sanctions. 

The evolution of his approach toward the UN Security Council 

reflected his usual dual approach of reward and threat. In the 

same way he ruled at home, he dealt with the international community and the UN Security Council, in particular. Saddam offered 

partial compliance combined with defiance. He always wanted to 

bargain. He exerted pressure on the Security Council and tried to 

divide it. He would acquiesce to their demands only when unavoidable, and usually he would acquiesce only partially. He preferred 

confrontation. His lieutenants criticized this approach as having 

prolonged the sanctions. 

Saddam’s goal of getting out of sanctions was prime and shaped 

all his relations with the Security Council and its members. The 

Security Council recognized from the start that sanctions were a 

penalty imposed on all Iraqis, not just the leadership. 

From 1991 on, the Security Council had made available the option for Iraq to sell oil, under condition that the revenues would go 

only for humanitarian purposes. The Council was very sensitive to 

accusations that their actions—imposing the sanctions—were the 

cause of the suffering of the Iraqi people. 

A pair of resolutions, UNSCR 706 and 712, first provided this option of humanitarian relief to the regime. Saddam understood this 

pressure and the leverage it conveyed to him. He understood that 

if he exercised the option of exporting oil under the condition that 

only humanitarian aid could be delivered, then it would relieve the 

pressure on the Council to lift sanctions in their entirety. He steadfastly refused to accept this option and at every opportunity chose 

to link the Security Council and the problems with the inspectors 

with the deaths of thousands of Iraqi children. In essence, he held 

his population hostage. 

Saddam sustained this position for 5 years, during which time 

conditions in Iraq decayed. Infrastructure collapsed, health care diminished. Aid agencies such as UNICEF reported the statistics of 

decay. The middle class was wiped out. The value of one Iraqi 

dinar was over $3.00 before the 1991 war. By 1996, the value was 

on the order of 1,500 dinars to the dollar. In effect, the entire savings of the middle class vanished. Jobs vanished. Iraqis tried to 

leave to find work elsewhere. 

In mid-1995, Saddam’s son-in-law, Hussein Kamal, defected to 

Jordan. Hussein Kamal was the key figure who had been in charge 

of the development for Saddam of all the WMD programs. When 

he left, the regime was forced to acknowledge it had not been fully 

18

forthcoming with the UN inspectors and WMD documents, materials and programs had been concealed. 

The sympathy and support that had been building in the Security Council for the Iraqi position dissipated. Even Iraq’s friends in 

the Security Council backed off. Suddenly, Baghdad realized sanctions would not soon be lifted. At the same time, their effect continued to grind down Iraq’s people. 

In 1995, a new resolution, Security Council Resolution 986, was 

passed to offer relief again to the Iraqi civilian population. This 

resolution, which became known as the Oil-for-Food Program, was 

not accepted by Saddam until December 1996, and only after several months of negotiations between the Office of the Secretary 

General and Baghdad. Saddam only accepted this program when 

the damage of the sanctions on the civilian infrastructure became 

regime-threatening. 

The initiation of this program turned out to have many benefits 

for the regime. The program did achieve the higher objective of reducing the suffering of the Iraqi population. However, it also had 

unanticipated collateral benefits for the regime. 

First, there began a large flow of businessmen to Baghdad in 

search of contracts. While the UN held the checkbook, in effect, 

Baghdad still made the decisions on who would get the money. 

This provided a lever that empowered Saddam to reward or punish 

those seeking OFF contracts. 

The flow of commerce expanded quickly to include the refurbishment of the decayed oil infrastructure. Baghdad shrewdly played 

various parties off against one another to win their favor. They 

made it clear that sanctions would not last forever, and when they 

were lifted, Baghdad would remember who their friends were. This 

attitude permeated all transactions, and the attitude grew that 

sanctions were eroding and, ‘‘everyone else was making money.’’ 

This effect was intangible, but powerful nevertheless. 

The report describes the nature of income that Iraq was able to 

generate during this period. We broke them into largely four types. 

As some of you have mentioned, there were protocols with neighboring countries, there was smuggling of oil products, there were 

kickbacks associated with the OFF contracts, and there were surcharges on oil exported through the OFF Program. 

The report describes in illustrative cases how transactions occurred, estimated their magnitude and, more to the point of the report, where the funds were directed. It has shown, for example, 

that the budget of the Military Industrial Commission surged from 

$7.8 million in 1998 to $350 million in 2001. In 2003, Iraq had 

budgeted $500 million for this organization. Saddam’s priorities 

were quite clear. 

The process of allocating oil liftings was also instructive in terms 

of the strategy and tactics of Saddam regarding escaping sanctions. 

We began obtaining data last winter from the oil ministry and the 

state oil marketing organization, SOMO. The objective was to review the resources that were available to Iraq and determine if 

they led to any WMD activities. 

Combined with our investigation of the procurement mechanisms 

for sanctioned goods, we developed a fairly robust picture of the 

systems the regime used. It is not an all-inclusive picture. We 

19

made no attempt to unearth all activities, but rather the illustrative examples that were supported by the testimony of Iraqis we 

debriefed. 

It is important to emphasize that our work took as a point of departure the Iraqi perspective. We sought to understand what Iraq 

was doing. We were not investigating the countries that supplied 

sanctions to Iraq, nor were we investigating the judgments or culpability of any party. I will note a couple of major points from this 

examination. 

We found that there was a momentum shift in late 1998, when 

Iraq terminated cooperation with UN inspectors. To that point, 

Iraq had been pursuing two tracks to getting out of sanctions. They 

participated in the inspection and monitoring process at the same 

time they worked to erode support for that process, and also the 

sanctions. 

The decision by Baghdad to terminate cooperation and focus 

strictly on a policy of erosion of sanctions began in August 1998. 

The full cessation of cooperation with inspections provoked a limited 4-day bombing campaign by the United States and the United 

Kingdom in December 1998. Other Council members, including 

Russia and France, were furious at what they declared to be an unauthorized military action. This left the Security Council deeply divided. 

At the same time, the OFF Program was continuing and commerce growing in Iraq. The inspectors were gone. As Tariq Aziz, 

the former Deputy Prime Minister, commented, Baghdad could 

have sanctions with inspectors or sanctions without inspectors. 

They chose the latter. 

Throughout 1999, the Security Council debated how to address 

Iraq. The sanctions remained, but were fraying, and Iraq applied 

whatever tools it could to generate support for its position. Ultimately, the Council agreed upon a new resolution, 1284, in December 1999. This replaced the former inspection organ, UNSCOM, 

with a new one, UNMOVIC, and changed certain other provisions 

related to the prospects for lifting of sanctions based upon progressive steps of compliance by Iraq. Nevertheless, Iraq chose to ignore 

the resolution and did not permit inspection. 

By 2000, funds from the four general revenue streams I noted 

earlier made life much better for the regime. I would observe that 

the Jordanian protocol created in the early 1990s now began to be 

replicated in this period. It was a model Iraq and its neighbors 

used to open and increase commerce. 

The infusion of funding allowed Iraq to begin efforts to refurbish 

conventional military capabilities, among other things, such as palace construction. In 2000, we found Saddam made a decision to invigorate his long-range ballistic missile programs. This was directly 

keyed to the availability of resources and material and expertise, 

in spite of sanctions. 

The view for Iraq was good in 2000 to 2001. Businessmen filled 

Baghdad’s hotels. Flights were restored into Saddam International 

Airport. The Baghdad International Fairs were bursting with foreign companies and representatives soliciting business with the regime. Saddam was looking like a winner in many places. 

20

1See Exhibit No. 2, which appears in the Appendix on page 107. 

Attention at OPEC meetings was riveted on the prospects for increased Iraqi oil production. Baghdad derived substantial international leverage from the speculation about its future decisions 

and their potential effect on markets. Oil analysts and traders were 

solicitous, if not groveling, with the Iraqi delegations. 

It was also apparent to Baghdad that the American effort to revise sanctions with so-called Smart Sanctions was an indication of 

weakness. Baghdad was hearing from other Security Council members that these steps were all favorable to Iraq. It is also important 

to appreciate that Baghdad was never an easy friend to its supporters. The regime kept making more demands of its friends and 

often ignored their advice on how to relate to the Security Council. 

True to form, Saddam made one last strategic blunder. He failed 

to grasp the effect of the attacks of September 11, 2001. He did not 

understand how this radically changed the international environment. Only following the January 2002 State of the Union Message 

did Saddam begin to realize he could no longer stonewall on weapons inspections. He realized too late that his friends on the Security Council were limited in what they could or would do. 

Yet, he still insisted upon attempts to bargain. He would not 

simply accept inspections, but rather opened a long process of negotiation with the UN. Ultimately, this worsened the conditions 

under which Saddam finally accepted inspectors. 

During 2002, while Saddam tried to negotiate conditions for accepting inspections, the United States pressed for a new resolution 

with tougher measures than the Council agreed previously, in December 1999. That was in Resolution 1284. This was as reverse 

from the trend in the Security Council of loosening constraints on 

Iraq. The tougher U.S. line found more traction in the Council following September 11. Saddam did not understand the changed environment. 

In conclusion, the portion of this report devoted to the Oil-forFood Program and the regime’s finances is aimed at supporting assessments about WMD programs. It is also a vital indicator of the 

direction and intentions of the former regime. We were not conducting an investigation of the OFF Program, per se, the United 

Nations or other nations’ actions. Our goal was to delve into the 

interior of a very opaque and dangerous regime. Much of what we 

found was ugly. The regime depended not on bringing out the best 

in people, rather on promoting the worst. It poisoned everything it 

touched, including the UN. 

Thank you very much. 

Senator COLEMAN. Thank you very much, Mr. Duelfer. 

If we could put up Exhibit 2.1

Exhibit 2 is a timeline. Just to make sure I understand kind of 

the impact of Oil-for-Food, what I heard from you, Mr. Duelfer, is 

that with the implementation of the Oil-for-Food Program, there 

was almost a change in the whole atmosphere with Saddam. 

We have had the Jordanian protocol, for instance, since 1991. 

But in 1996, we have Oil-for-Food. And if you look, UN actions in 

blue, and actions by Iraq in yellow. Illicit earnings in 1997 allow 

them to pursue military procurement, and I think in your testiVerDate 0ct 09 2002 11:25 Apr 08, 2005 Jkt 097048 PO 00000 Frm 00026 Fmt 6633 Sfmt 6601 C:\DOCS\97048.TXT SAFFAIRS PsN: PHOGAN
21

mony you indicated—are you making reference to the MIC, the 

Military Industrialization Commission, that their budget grew from 

$7.8 million in 1996 to $350 million in 2002, to $500 million in 

2003? 

Mr. DUELFER. Yes. 

Senator COLEMAN. First of all, what was the MIC responsible 

for? What were they spending that money on? 

Mr. DUELFER. The Military Industrial Commission or Corporation, depending on the translation, is basically the government-run 

military industrial complex. It is the entire defense industry. 

Senator COLEMAN. So we see a huge increase in their military industrial complex from the time Oil-for-Food gets started until the 

end of Saddam’s regime? 

Mr. DUELFER. Correct. 

Senator COLEMAN. And in 1997, Phase III—it is on the bottom 

of the chart, vouchers to favorable political parties and individuals. 

And we are going to have some more discussion of vouchers later 

on, but I think it is fair to say that Saddam—and you indicated 

that folks were now dealing directly with Saddam in the capacity 

to do the contracts, a direct relationship. 

But vouchers, in effect, gave individuals the option and opportunity to buy Iraqi oil at less than market price, is that correct? 

Mr. DUELFER. That is correct, yes. 

Senator COLEMAN. I think in your report you may even have provided some approximation of where those vouchers went. Thirty 

percent to Russia, China 15 percent, and 10 percent France—is 

that from information in your report? 

Mr. DUELFER. We presented the raw data that we received from 

Iraq in terms of the assigning of those vouchers, yes. 

Senator COLEMAN. And then in 1998, Iraq weaponized VX gas, 

missile and warheads. Is that from your report? 

Mr. DUELFER. No. There was a debate in 1998 where UNSCOM 

raised evidence that Iraq had weaponized VX prior to that time, 

which they had not admitted. This was a serious issue because it 

would have thrown off all of the declarations that Iraq had made 

with respect not only to its chemical weapons program, but also its 

missile program. This was a huge issue of debate between the UN 

and Iraq. It was never resolved. 

Senator COLEMAN. Did the inspectors, in fact, find VX nerve gas 

in the summer of 1998? 

Mr. DUELFER. What we found, or what the inspectors found, was 

degradation products in remnants of warheads that Iraq had declared has no VX in them. So what they found was evidence that 

there was VX where there should not have been. 

Senator COLEMAN. If I can just touch upon the WMD capabilities, 

I want to touch upon that. At the onset of Operation Iraqi Freedom, can you just briefly talk about Saddam’s WMD capabilities 

when it came to developing missile technology? How would you 

characterize that? 

Mr. DUELFER. At the beginning of OIF, he had a very substantial 

program in something called the Al-Samood program, which was a 

missile developed from technology largely derivative of an SA–II, 

which is a surface-to-air missile. It had a range which exceeded the 

150-kilometer limit by the UN. 

22

I believe they had in their inventory at that time close to 80 missiles, and a couple of them were used during OIF. 

Senator COLEMAN. A capable delivery system for nuclear weapons, chemical, and biological weapons? 

Mr. DUELFER. What Iraq declared was simply conventional warheads. But, of course, in a WMD program the long pole in the tent 

is the ballistic missile. So we were concerned about what the potential was. 

Senator COLEMAN. And it was fair to say that Saddam successfully acquired all the equipment and supplies necessary to begin 

manufacturing of biological weapons? 

Mr. DUELFER. Iraq had the equipment, the intellectual capacity 

totally indigenously to create biological weapons, should it make 

that decision. But we did not see evidence that it had biological 

weapons at that time. 

Senator COLEMAN. What I am trying to understand is, and what 

I heard in the testimony and read in the report, a sense that at 

one point Saddam was waiting for the end of sanctions, perhaps, 

to be able to move forward. On the other hand, it appears that with 

the Oil-for-Food Program Saddam had achieved a lot of his goals. 

He had hard currency with kickbacks and surcharges, is that correct? 

Mr. DUELFER. Yes. 

Senator COLEMAN. Hard currency that was used to finance weapons procurement? 

Mr. DUELFER. Absolutely. 

Senator COLEMAN. He had influence-peddling, vouchers to politicians, vouchers to journalists who were supportive of the Iraqi 

cause. He had increased economic activity that you have outlined 

in your testimony that allowed a cover for smuggling. Smuggling 

included military weapons. 

In fact, as you have laid out in your report, he had front operations for this smuggling. And is it correct to say that some of 

those front operations had Oil-for-Food contracts? 

Mr. DUELFER. Yes, that is true. 

Senator COLEMAN. So they could be profitable by Oil-by-Food at 

the same time they were involved in smuggling of weapons? 

Mr. DUELFER. That is true. 

Senator COLEMAN. And then the Oil-for-Food—I will move on. If 

I can, in your report, I want to get to some of the individuals who 

benefited from the vouchers, one in particular. You indicate that 

Benon Sevan got 13 million barrels. He was the Executive Director 

of the Oil-for-Food Program, is that correct? 

Mr. DUELFER. That is correct. What we are reporting simply is 

what the Iraqis—their own data showed, because again we were 

not investigating the UN. We were simply reporting what the Iraqi 

data itself showed. 

Senator COLEMAN. And when you say their data, what are you 

talking about? 

Mr. DUELFER. Their listings of the oil vouchers and who got 

them. 

Senator COLEMAN. And the way the oil vouchers work is if you 

had an oil voucher, you, in fact, could sell it to a legitimate oil trader and you would get a commission. In other words, the price set 

23

by the UN for oil was below market price, so you could go to a legitimate oil trader and get a percentage commission, and you could 

still sell it to somebody at below cost of what the world price for 

oil was. Is that correct? 

Mr. DUELFER. That is correct. I mean, the voucher had monetary 

value. You don’t have to exercise it yourself. 

Senator COLEMAN. And we are talking about tens of thousands, 

and perhaps in some cases hundreds of thousands of dollars that 

individual could profit from having these vouchers? 

Mr. DUELFER. It obviously depended on the number of barrels 

that the voucher was for and the price discount, but they tended 

to be between 10 and 30 cents per barrel discounts, or profit that 

you could make off of it, which would mean each voucher was a 

substantial amount of money. 

Senator COLEMAN. Now, you indicated in your report that Vladimir Zhirinovsky and the Liberal Democratic Party of Russia received 53 million barrels of oil. Now, that is one of the largest parties in the Duma? 

Mr. DUELFER. Ask me a question about Iraq. I will feel more 

comfortable. 

Senator COLEMAN. A lot of money you can make from 50 million 

barrels of oil, though. 

Mr. DUELFER. It is, but again that is the Iraqi data. I can’t tell 

you for sure that——

Senator COLEMAN. You found Iraqi data indicating that 

Zhirinovsky has got 53 million barrels. Do you know if Zhirinovsky 

is a known Iraqi sympathizer? Do you have any information about 

him? 

Mr. DUELFER. Well, what I can tell you is what the Iraqis 

thought, and the Iraqis were quite pleased when he came and visited Baghdad. I mean, they saw him as a favorable influence. 

Senator COLEMAN. Was it also correct—and I don’t have a name 

here—that among those listed in Iraqi data as getting these vouchers were the son of a Russian ambassador to Iraq? 

Mr. DUELFER. That was listed in their listing of oil vouchers. 

That is correct. 

Senator COLEMAN. Russian presidential office? 

Mr. DUELFER. That is correct. 

Senator COLEMAN. Russian foreign ministry, no name? 

Mr. DUELFER. Yes, that is correct. 

Senator COLEMAN. Ukraine Communist Party? 

Mr. DUELFER. Yes. 

Senator COLEMAN. In France, Iraqi-French Friendship Society? 

Mr. DUELFER. This is as they are listed in the Iraqi document. 

Senator COLEMAN. Mr. Charles Pasqua, a former interior minister of France? 

Mr. DUELFER. As listed by the Iraqis, that is true. 

Senator COLEMAN. Syrian journalist Hamidah Na’na, author of a 

biography of former Iraqi Deputy Prime Minister Tariq Aziz? 

Mr. DUELFER. I didn’t know the latter part of that, but I will 

take your word for it. 

Senator COLEMAN. There was a Samir Vincent, apparently a U.S. 

citizen—Samir Vincent. 

Mr. DUELFER. That was on the list. 

24

Senator COLEMAN. Do we know whether any organizations with 

specific terrorist ties were included as getting vouchers, such as 

Popular Front for the Liberation of Palestine? 

Mr. DUELFER. I don’t know off the top of my head. We looked at 

that question and to the extent—I don’t know how thoroughly we 

could—we didn’t go into every possible path, but we didn’t see anything obvious. 

Senator COLEMAN. I have a lot more to discuss with Mr. Duelfer, 

but would like to note the presence of Senator Graham, from South 

Carolina, who is not a Member of this Subcommittee. 

Senator Graham, I do want to welcome you here today and give 

you the opportunity later to make a statement for the record, and 

certainly participate in the hearing. 

Senator GRAHAM. Thank you, Mr. Chairman. 

Senator COLEMAN. I will defer any further questions perhaps to 

the next round and go to the Subcommittee’s Ranking Member, 

Senator Levin. 

Senator LEVIN. Thank you very much, Mr. Chairman. 

Mr. Duelfer, your report discusses the tactics which were used by 

Saddam Hussein to undermine UN sanctions on Iraq, including 

selling oil to his neighbors under the so-called trade protocols, and 

then offering oil vouchers and contracts under the Oil-for-Food Program to win favors from recipients—two different streams of illicit 

income, as you have pointed out in your report. 

Why was Saddam trying to undermine the UN sanctions? 

Mr. DUELFER. Well, I mean they were the largest constraint on 

his freedom of movement and in achieving what he envisioned as 

his grand future. 

Senator LEVIN. Did they constrain his ability to rebuild his military? 

Mr. DUELFER. They constrained his ability to do almost everything, but, of course, including the military. 

Senator LEVIN. When Secretary Powell testified before the Senate Foreign Relations Committee that those sanctions then had 

been successful, at least to that degree or in that sense that they 

constrained him from rebuilding his military—as he put it, the 

sanctions regime kept him pretty much in check—do you agree 

with Secretary Powell? 

Mr. DUELFER. Well, that is a judgment beyond, I think, what we 

were looking at because to determine whether sanctions are successful or unsuccessful is a very broad question because the sanctions have effects far beyond just limiting WMD or limiting conventional military. And, I think it is a vital question, it is an important debate, but it is much broader than the context of this report. 

Senator LEVIN. Let’s go back, then, to your testimony and your 

report. A number of times in your report you indicate that the 

sanctions were truly biting on Saddam and that his major goal, besides his own survival, was to get rid of those sanctions. Is that 

correct? 

Mr. DUELFER. That is true. 

Senator LEVIN. Weren’t they then useful at least to that extent 

that they——

25

1See Exhibit No. 32, which appears in the Appendix on page 175. 

Mr. DUELFER. That became clear in 1991 that his highest priority, aside from survival, was to figure out a way of getting rid 

of the sanctions. 

Senator LEVIN. And the fact that he couldn’t get rid of the sanctions, does that not lead anyone reasonably to the conclusion that 

those sanctions were useful? 

Mr. DUELFER. Well, the report again tries to not look at just a 

static point in time, and this is where the trends, and so forth, are 

important and we tried to identify the trends. And, certainly, the 

sanctions were in place up until OIF. 

Senator LEVIN. You discuss a number of sources of illicit income 

for Hussein during that sanctions period, including now the trade 

protocol funds, which were those sales agreements that he had 

with a number of neighboring countries which were open. Is that 

correct? 

Mr. DUELFER. That is correct. 

Senator LEVIN. And they produced the bulk of his illicit income, 

did they not? 

Mr. DUELFER. Certainly, they provided most of the revenues, as 

the charts have indicated, and the Jordanian one provided the most 

because that started the soonest. 

Senator LEVIN. Those are your numbers, I believe. 

Mr. DUELFER. Correct. 

Senator LEVIN. Looking at that chart 1 and adding up your numbers, then, would you conclude that the blue [Trade Protocols] represents the bulk of his illicit income? 

Mr. DUELFER. Yes, that is correct. 

Senator LEVIN. Now, he openly entered into those agreements 

and the UN, including the United States, acquiesced in those 

agreements, did they not? 

Mr. DUELFER. Well, I don’t know whether they formally said they 

are OK. They took note of them, particularly the Jordanian one in 

1991. I am not sure that anybody ever said, oh, that is OK. I suspect far from that. 

Senator LEVIN. But we ignored them, didn’t we? 

Mr. DUELFER. Well, I am not——

Senator LEVIN. We allowed them to happen? 

Mr. DUELFER. I am not in a position to answer that. I am not 

sure about the exchanges which went on. 

Senator LEVIN. Well, let me then tell you what the law was. The 

law was that in order to maintain our aid agreements or our aid 

activities with Jordan and with Turkey that the President, whether 

it was President Clinton or President Bush, would have to sign a 

waiver. And they signed a waiver saying that they knew that these 

deals between Iraq and Turkey and Iraq and Jordan occurred. 

Nonetheless, despite those deals and despite the fact that they 

provided the bulk of his illicit income, they said continue the aid. 

Is that not correct? Are you aware of that fact? 

Mr. DUELFER. I am aware of it, sir. But, again my line of inquiry 

is focused on Iraq. 

Senator LEVIN. But you were with UNSCOM at that point? 

Mr. DUELFER. I was in UNSCOM, yes. 

26

1See Exhibits No. 33 and 34, which appear in the Appendix on pages 176 and 181. 

Senator LEVIN. Did you bring to the attention of the U.S. Government that why are you not putting pressure on countries which are 

getting around the sanction program? Why are you continuing to 

waive any action against countries that are producing the bulk of 

his illicit income? Did you ever express that opinion to the U.S. 

Government? 

Mr. DUELFER. Sir, I was working at the United Nations at that 

time, and so that wasn’t my job. 

Senator LEVIN. Did you express it to the United Nations? 

Mr. DUELFER. No, because, again we were looking for weapons 

of mass destruction at that point. I mean, it is a very legitimate 

point that you are making, but that was not my position. 

Senator LEVIN. There are two exhibits, 33 and 34, Mr. Chairman, 

that I would ask be made part of the record at this point.1

Senator COLEMAN. Without objection 

Senator LEVIN. These are the waivers that both President Clinton and President Bush’s Administration filed with the Congress 

that were required if we were going to continue our aid programs 

to both Turkey and to Jordan, and indicating explicit awareness of 

the fact that these activities, in violation of the sanctions program, 

were going on. 

For instance, the first exhibit (Exhibit No. 34) which is dated October 18, 2002, to then-Chairman Biden of the Foreign Relations 

Committee, signed by the State Department, says on page 4, ‘‘Despite UNSC [U.N. Security Council] resolutions banning Iraqi oil 

imports (except under the terms of ‘oil-for-food’ resolutions . . . 

Jordan has continued since 1991 to import oil from Iraq. The UN 

Sanctions Committee, with USG [U.S. Government] support, has 

‘taken note of’ Jordan’s imports of Iraqi oil and its lack of economically viable alternatives. That said, we have consistently urged Jordan to seek alternative energy sources.’’

So other than urging Jordan to look for other energy sources, we 

were very well aware of the fact that they were buying Iraqi oil in 

violation of the UN sanctions program. Is that correct? 

Mr. DUELFER. Sir, that is not my mandate. 

Senator LEVIN. I understand, but is that correct? Did I read that 

correctly? 

Mr. DUELFER. Yes. 

Senator LEVIN. And the vouchers, which is a different issue because here, under the Oil-for-Food Program, the UN allowed the 

sale of Iraqi oil to other entities, individuals and countries—they 

had to be reported, but Saddam was allowed to pick and choose 

who would get those vouchers. Is that correct? 

Mr. DUELFER. That is correct. 

Senator LEVIN. And it is your estimate that those vouchers and 

kickbacks produced about how much money? 

Mr. DUELFER. Well, the $1.5 billion. I mean, that is an estimate. 

Senator LEVIN. That is your estimate? 

Mr. DUELFER. Correct. 

Senator LEVIN. And your estimate is that that money then was 

a clear violation of UN law, UN regulations, because there was no 

27

provision in the Oil-for-Food Program that anybody would get a 

kickback. Is that correct? 

Mr. DUELFER. That is right, and largely the methodology there 

was it was based on discussions with Iraqis in specific cases and 

we averaged it out to about 10 percent the value of a contract, was 

what they had to kick back to get the contract. 

Senator LEVIN. That is your estimate. Now, you have an Annex 

B on your report which lists all of the voucher recipients, and I 

don’t know how many thousands of—do you know about how many 

there are that are on that annex? 

Mr. DUELFER. The number of the vouchers? 

Senator LEVIN. Yes, approximately. 

Mr. DUELFER. No, I’m sorry. I don’t know. 

Senator LEVIN. It’s in the thousands, though? 

Mr. DUELFER. No. I think it is hundreds. 

Senator LEVIN. In the hundreds, all right. Whatever the number 

is, have you——

Mr. DUELFER. It was a lot. 

Senator LEVIN [continuing]. Have you compared that—well, first 

of all, do you know that everybody on that list actually received a 

voucher or are you basing that on Iraqi documents? 

Mr. DUELFER. We are going by Iraqi data, and the Iraqi data 

tends to indicate those—and it is pretty good; they are pretty methodical about this, but who received the voucher and if a lifting 

actually occurred. 

Senator LEVIN. All right, but——

Mr. DUELFER. And that is reflected in those charts. 

Senator LEVIN. Right, but the chart or the annex is based on 

Iraqi documents. Is that correct? 

Mr. DUELFER. That is correct. 

Senator LEVIN. You don’t know that those vouchers were received, do you? 

Mr. DUELFER. We did not check that, no. 

Senator LEVIN. So you don’t know that those vouchers were received? You base your statements that they were allocated on Iraqi 

documents, but you personally, for instance, have not concluded, 

have you, that those——

Mr. DUELFER. I have not gone through it and checked every 

voucher, but clearly the SOMO data is—money appeared in banks, 

oil left the terminals. 

Senator LEVIN. Therefore, for instance, that that UN person who 

is named here, Benon Sevan——

Mr. DUELFER. We did not investigate individual cases, but certainly what happened was that vouchers were given, oil was lifted. 

Senator LEVIN. We know that, but I am just trying to be very 

specific because my time is up. You have in your annex a title, 

‘‘Known Oil Voucher Recipients.’’ Do you know that Benon Sevan 

received a voucher? That is my question. 

Mr. DUELFER. The Iraqi firmly believe that. 

Senator LEVIN. Do you know that he did? This is your document. 

This isn’t a document which says Iraqi documents that state the 

following. This is your——

28

Mr. DUELFER. I would conclude with high confidence from the 

data that the Iraqis provided from all that we saw that that happened. 

Senator LEVIN. All right, so that you have concluded based on 

Iraqi documents that this UN representative has——

Mr. DUELFER. I certainly did not see——

Senator LEVIN. I understand that, but you have concluded that 

he has done that, because it is a very serious allegation. And that 

is one of the allegations this Subcommittee is looking at and it is 

one of the allegations we are determined to find out if it is true, 

and so Kofi Annan determined to find out whether it is true. It is 

critically important that UN officials not receive kickbacks. We are 

all interested in that. 

And so my question is to you, have you concluded that, in fact, 

this person received an allocation of vouchers? That is my question 

to you. 

Mr. DUELFER. But my response, Senator, is that was not our job 

to investigate these individuals. Our job was to investigate the approaches that Iraq was using to use its influence and whether or 

not these resources were funding WMD programs. 

There is the Volcker Commission which is looking at this in excruciating detail. There are other investigations, such as this Subcommittee, which are going into that. I apologize, that was not our 

mandate to go look into these individual cases. 

Senator LEVIN. Well, except your annex says that he is a known 

recipient. 

Mr. DUELFER. We are conveying the data that we received from 

Iraq and when we had confidence in it, that is what we said. 

Senator LEVIN. Thank you. 

Senator COLEMAN. Thank you, Senator Levin. Senator Bennett. 

OPENING STATEMENT OF SENATOR BENNETT 

Senator BENNETT. Thank you, Mr. Chairman. I don’t have an extended line of questions here. I am impressed by the 40,000-foot 

view that you have of this situation, and let me just go over that 

so that I understand it correctly. 

This was a very carefully constructed program to evade UN resolutions. Is that correct? 

Mr. DUELFER. A lot of thought went into it and a lot of testing 

and response to those tests, yes. 

Senator BENNETT. So it wasn’t a haphazard, lower-level kind of 

bureaucratic graft going on. It was centrally controlled and directed 

from the highest levels in Iraq? 

Mr. DUELFER. Yes, it was run from the highest levels, but there 

was a lot of trial and error in how it evolved. 

Senator BENNETT. But when it did evolve and got to its final status, would you describe it as a fairly well-oiled, shake-down kind 

of operation that ran rather smoothly? 

Mr. DUELFER. Parts of it went fairly regularly in terms of the 

Oil-for-Food and how the oil liftings were allocated, and so forth. 

I could not conclude that they knew that they were going to derive 

these benefits when they signed up for the program in December 

1996. I think they discovered this as they went along. 

29

Senator BENNETT. I understand that, but when it reached its maturity, it would require not only a degree of coordination and shaken-down trial and error, but we have got it working properly. On 

the Iraqi side, would it not also require a degree of sophistication, 

trial-and-error experimentation and shaken down to a smooth-running operation on the other side; that is, those that were participating in it? 

Mr. DUELFER. That is a fair statement, sir. 

Senator BENNETT. So if there was something illicit and illegal 

going on, it would have to have been understood by the people on 

the other side that this wasn’t just a one-time opportunity, this just 

wasn’t something they had stumbled into, but it was a coordinated 

thing that they had made adjustments in order to keep it going on 

a continuing basis. 

Mr. DUELFER. Well, of course, on the buy side, as it were, I mean 

they had to operate under whatever national rules and regulations 

that they operated. The Iraqis were providing the opportunity and 

they certainly did that with a great deal of thought. But how systematic the other side was, I really can’t comment on that. That 

was not my line of inquiry. 

Senator BENNETT. I see. Well, that is the impression that we get, 

and that is one of the areas, Mr. Chairman, that we want to look 

at here. The Iraqi put together a smoothly-functioning operation 

which was illegal and the question is were the people on the other 

side of the transaction equally aware of the fact that what they 

were doing was in violation of UN resolutions and that they themselves did a trial-and-error, shake-down kind of cruise so that when 

it was finally functioning on a regular basis, they had worked 

themselves into a system of regular violation of UN law. 

That is not your charge to be in a position to comment on the 

other side. 

Mr. DUELFER. Well, we certainly looked at, along the lines of an 

existence theorem, the way many of these transactions took place. 

For example, in the import of conventional munitions or weapons 

systems which could be applied to WMD, we would watch how 

those transactions took place. 

They did become fairly systematic in terms of the front companies that were used and in terms of the funding, the bankings, who 

were provided false end user certificates, and so forth. And that became fairly systematic and we did lay that out in some detail in 

the report. 

Senator BENNETT. So that which is fairly systematic on the part 

of those that are supplying weapons—would they have known that 

they were in violation of UN sanction requirements as they provided weapons? 

Mr. DUELFER. Oh, absolutely. 

Senator BENNETT. I see. 

That is all I have, Mr. Chairman. Thank you. Thank you for convening this hearing. I think it is very important that we keep the 

spotlight on this issue and that it not be allowed to die. 

Senator COLEMAN. Thank you, Senator Bennett. Senator Lieberman. 

Senator LIEBERMAN. Thanks, Mr. Chairman. 

30

Mr. Duelfer, as we have said, your report uncovered a lot of infuriating information about individuals, governments, groups that 

were cooperating with Saddam in undermining the UN sanctions 

program, including the Oil-for-Food Program, which obviously was 

intended to benefit the people of Iraq. 

I should ask it in the form of a question. Am I correct that you 

do not consider it within the purview of the Iraq Survey Group to 

pursue investigations of those who were involved in these illicit efforts by Saddam to evade the sanctions program? 

Mr. DUELFER. No, that was not our writ. 

Senator LIEBERMAN. I simply raise the question rhetorically here, 

and perhaps when Secretary Zarate is on, we can ask him. 

I wonder whether there is some kind of legal action, based on 

your work, by the United Nations, by the current Iraqi Government 

on behalf of the people of Iraq who lost the benefit of billions of 

dollars as a result of Saddam’s illicit behavior, which benefited the 

people that you have itemized in this report, whether there may be 

some legal action to recover that money for the UN, or more directly, really, for the intended beneficiaries, which are the people 

of Iraq. But I leave that as a question. 

I was interested because in our staff review—and this is also in 

Volume 1 of 3 of your report, and I am sure you know every single 

word in it—in our staff review of the oil allocation recipient list, 

there is a listing for the Popular Front for the Liberation of Palestine. And I was curious—and obviously you can’t remember everything in this—whether you want to refresh your memory on 

that. I find it on page 195 of Volume 1. 

It indicates that the Popular Front for the Liberation of Palestine, working through Awad Ammora and Partners, a Syrian 

group—is that in barrels, 2,000 barrels, oil allocation for 2,000 barrels? 

Mr. DUELFER. Two million. 

Senator LIEBERMAN. Two million, because we drop the zeroes, 

right? 

Mr. DUELFER. Yes. 

Senator LIEBERMAN. So that is a hefty number. Now that you 

look at it, does that sound right? 

Mr. DUELFER. Yes. 

Senator LIEBERMAN. There is obviously no way you would remember everything in here, but I wanted to point that out based 

on our staff review. 

The staff review also found the name Abu Abbas on the list of 

recipients. Abu Abbas is an international terrorist who was the 

mastermind of the 1985 hijacking of the Italian cruise ship Achille 

Lauro, on which a wheelchair-bound American was killed. And he, 

in fact, was picked up in Iraq in April of last year, as I recall. 

I don’t know to what extent you can verify that. Obviously, there 

may be more than one person whose name is Abu Abbas, but do 

you know whether that is the terrorist Abu Abbas? 

Mr. DUELFER. Sir, that one I did see, and just out of curiosity I 

asked that question. There is a lot of data in this report which I 

think should be looked at further by others. But I could not get a 

firm answer, because as you point out, Abu Abbas is not a very definitive name, but it certainly got my attention when I saw that. 

31

Senator LIEBERMAN. Right, so that also would bear further investigation by somebody else. Thank you. 

Let me ask you a very different kind of question. With the possible exception of Mr. Volcker and his staff and ongoing investigation, you probably know as much about the way in which Saddam 

Hussein corrupted and stole and abused and evaded the sanctions 

Oil-for-Food Program. 

Based on what you know, if the UN came to you, or the Secretary of State of the United States came to you, and asked what 

mistakes were made here in this sanctions program, because sanctions programs are an important element of our foreign policy and 

international relations, what would you have done differently to 

avoid Saddam’s nefarious behavior, what would you say? 

Mr. DUELFER. Sir, the dilemma, I think, that the Security Council and the whole world faced was the dilemma which is faced by 

anyone who is confronting someone who has taken a hostage. The 

pain that the Iraqi people were enduring because of sanctions 

was—we are still learning it. When we see the devastation in Iraq 

today, some of it is because of the war. A great deal of it is because 

of a decade of sanctions. So the dilemma which the Security Council, I think, with honor, tried to address, was how do you separate 

the punishment between the people and the decisionmakers. 

I would say that one of the key things that was taken advantage 

of by Saddam was the fact that he could pick the contracts. Yes, 

the Security Council kept their hands on the checkbook, but by giving the discretion to Saddam to pick who would get the check, that 

to me is one of the largest levers which we offered to him. That 

would be one thing. But I think this study by your Subcommittee 

and others—I think that is exactly the right question to ask. 

Senator LIEBERMAN. Thanks, Mr. Duelfer. Let me just say that 

the point you make is a very important point. It seems obvious, but 

it wasn’t so obvious then that the UN could have had an Oil-forFood Program, but retained the right to approve all of the contracts, the agreements that Saddam was making so as to prohibit 

exactly what happened here, because what we did was give him billions and billions of dollars to play with, essentially, for his own 

benefit, including the re-armament of his country. Thank you for 

drawing that lesson. Thank you for your extraordinary work. 

I cannot resist, Mr. Chairman, in a burst of very parochial pride 

to point out for the record that the first time I met Mr. Duelfer he 

gave full disclosure, which was that he and I went to the same 

high school, Stamford High School. As is evident, I am sure, to you, 

he went considerably after I did. 

The Stamford High School Black Knights are very proud of your 

work, Mr. Duelfer. 

Mr. DUELFER. My record, I am sure, was far inferior to yours. 

Senator LIEBERMAN. Thank you. 

Senator COLEMAN. Thank you, Senator Lieberman. Senator 

Graham. 

TESTIMONY OF SENATOR LINDSEY O. GRAHAM, A U.S. 

SENATOR FROM THE STATE OF SOUTH CAROLINA 

Senator GRAHAM. Thank you, Mr. Chairman. I appreciate your 

letting me participate. I have been on the Armed Services ComVerDate 0ct 09 2002 11:25 Apr 08, 2005 Jkt 097048 PO 00000 Frm 00037 Fmt 6633 Sfmt 6601 C:\DOCS\97048.TXT SAFFAIRS PsN: PHOGAN
32

mittee and other committees following this issue, and I am very 

proud of what you are trying to do here in a bipartisan fashion. 

I think there are 270 entries of where people were receiving 

units of oil we call vouchers. I think that is the number of people. 

Every transaction is illegal? 

Mr. DUELFER. No. The voucher system was the system which 

Iraqis used to allocate the oil that was going to be lifted. The Oilfor-Food Program—lifting oil from Iraq under the Oil-for-Food Program is not illegal or illicit. 

The method by which Saddam selected those who would benefit—that was legal from his perspective. I mean, it was quite natural. I talked at length with Naji Sabri and he said, well, of course 

we rewarded our friends. Wouldn’t you? 

But the way they tried to leverage it was to try to reward those 

who would support him in the Security Council. Those who would 

break the sanctions he would reward because, again, his goal was 

to cause an erosion. He wanted to create the aura that everybody 

else is doing it, and so there is an intangible but very important 

element of this that is sort of the image that Iraq is going to come 

out of this. 

And what Saddam was trading on was the future, in a sense. If 

you want to be my friend tomorrow when the sanctions are gone, 

if you want to be my friend and get a concession on oil-lifting or 

a concession on oil development, you better be my friend now. And 

that was the greed that he played up to. I mean, this is a guy who 

really understood how people worked at their basic level. 

Senator GRAHAM. So the UN program would allow this dictator, 

if he wanted to, to give money to a terrorist organization by assigning units? 

Mr. DUELFER. Well, that was the allocation that Saddam made, 

and the approval of who was authorized to lift was by the UN. 

Now, if you are referring to the previous point on the Palestinian 

issue, the person who got the—I am just looking at the chart—the 

person who got the allocation and the person who lifted—the entities were two different ones. And the UN approved the entity lifting the oil. 

Senator GRAHAM. Well, let’s see if we can explain this a little bit. 

The man who is overseeing the program—what was his name, 

Sevan? 

Mr. DUELFER. In the UN? 

Senator GRAHAM. Right. 

Mr. DUELFER. Benon Sevan was the head of the——

Senator GRAHAM. The allegation is—and that is what Senator 

Levin is trying to say—that basically this guy who is overseeing 

the whole operation—because of Iraqi data, they have him receiving units of oil. Is that right? 

Mr. DUELFER. It is certainly the case that Iraq allocated him 

vouchers and oil was lifted. 

Senator GRAHAM. Once the contract was approved for that unit, 

would the people who write the checks know that Sevan was involved at all? 

Mr. DUELFER. Not the way it was done because there was an 

intermediary organization which actually did the lifting, and I 

think it was the——

33

1See Exhibit No. 11, which appears in the Appendix on page 117. 

Senator GRAHAM. So there are no fingerprints on this guy’s involvement, is what you are saying? 

Mr. DUELFER. Well, not unless you start walking backwards a 

few steps. 

Senator GRAHAM. Well, why would they even put his name 

down? 

Mr. DUELFER. Well, I don’t think the Iraqis—they weren’t anticipating being invaded and then having to cough up all these documents to people like me. 

Senator GRAHAM. Yes, but why would they put down an illegal 

transaction? 

Mr. DUELFER. Well, because they do keep a lot of records. And, 

if you look at the Muquabarat records, there is a lot of documentation on who they were paying off in various places. 

Senator GRAHAM. So, basically, you found books that you think 

show who the Iraqis were paying off? Long story short. 

Mr. DUELFER. Yes. 

Senator GRAHAM. OK, and one of the groups we are looking at 

as to who they paid off is the guy running the program? 

Mr. DUELFER. That certainly is what it indicates. 

Senator GRAHAM. Thank you. 

Senator COLEMAN. Thank you, Senator Graham. 

We are going to do another 5-minute round. 

Senator LEVIN. Thanks. 

Senator COLEMAN. Just a couple of follow-ups. Senator 

Lieberman asked about the Popular Front for the Liberation of Palestine, and also asked about Abu Abbas. And though we don’t know 

who he is, we know that is the name of a known terrorist. 

It is correct to say, if you look at your document listing who received the vouchers, that both the Popular Front for the Liberation 

of Palestine and Abu Abbas both contracted with the same company, a company out of Syria called Awad Ammora and Partners 

Company. Is that correct? 

Mr. DUELFER. That says it is listed as a lifter. 

Senator COLEMAN. In regard to the question that Senator 

Graham asked about documenting who they paid off—and I think 

our staff exhibits will show this—in fact, we have the vouchers in 

which a political favor was received. We then have the kickbacks 

on the Oil-for-Food Program, the humanitarian goods. And I take 

it you have looked at some of the documents there in which they 

list the exact contract and then the commission. 

Mr. DUELFER. That is correct. 

Senator COLEMAN. And just literally piece by piece, here is the 

contract, here is the kickback, and then here is the new total 

amount that is presented to the UN? 

Mr. DUELFER. There is a lot of data on that and we have had access to some of it. Steve Zidek, my colleague here, has been 

through stacks and stacks of these. 

Senator COLEMAN. Can I just walk you through Exhibit 11,1 if 

you have a copy of that in front of you? We have blocked out who 

this is to and where it is from, but Exhibit 11 is a letter and it says 

‘‘Thank you for the opportunity to meet with . . . and you during 

34

1See Exhibit No. 12, which appears in the Appendix on page 123. 

2See Exhibit No. 2, which appears in the Appendix on page 107. 

our recent visit to your offices in Moscow.’’ Then it summarizes our 

proposal for future cooperation. 

In the third paragraph, it says, ‘‘Firstly,’’ again named blocked 

out, ‘‘is prepared to assist and/or cooperate with . . . on oil development project opportunities in Iraq, which are being offered to . .

.’’ and again blanked out, ‘‘for completion after sanctions are lifted.’’ 

And then this document lays out some of the things after sanctions 

are lifted, and then it goes into the—‘‘Secondly’’ is talking about 

the purchase, allocation of Iraqi oil and the price. If you go to the 

second page, ‘‘. . will pay SOMO’s’’—let me back you up. What 

is SOMO? You have made reference to that. Can you tell us for the 

record what SOMO is? 

Mr. DUELFER. SOMO is the state organization for the marketing 

of oil. It is the marketing arm. The oil ministry develops the oil 

fields. These are the guys that sell it. 

Senator COLEMAN. And they set the price, the SOMO price? 

Mr. DUELFER. This is actually—under the Oil-for-Food Program, 

there were two individuals at the UN called the oil overseers and 

they would actually set the price, but SOMO did the other contracting. 

Senator COLEMAN. And here on page 2, this document says, 

again blanked out who it is, ‘‘. . . will pay SOMO’s official selling 

formula price applicable for the month of lifting plus $0.07/barrel.’’ 

So what they are saying is we will pay here 7 cents. 

And if you go then to the next page, it is another letter. It says, 

‘‘I refer to the portion . . . which includes the purchase of,’’ again 

not saying who has got the allocation, ‘‘. . . allocation under the 

fourth period U.N. . . ., we are pleased to increase our premium 

to S.O.M.O.’s official selling price from $0.07/barrel to $0.09/barrel.’’ So now they are saying we will actually go up a little bit. 

And then if I can go forward, what these documents show—actually, right before Exhibit 12,1 the last thing in this series of correspondence. ‘‘Dear Sirs: Thank you for time spent with . . ., we 

confirm once again the bid of USD 0.13 premium . . . ’’ So the 

price still involved—now, it is 13 cents. 

But the bottom line is this doesn’t strike you as unusual that, in 

effect, there is a bidding process going on here until they decide 

how much of a premium or kickback they want to get. Is that a 

fair reading of these? 

Mr. DUELFER. Correct. That is correct, absolutely. 

Senator COLEMAN. Let me just touch, if I can, one other area, 

and if I can have Exhibit 2 again,2 please, put back up there. There 

were a couple of decisions that the United Nations made after the 

Oil-for-Food Program. One of them is that the UN decides to raise 

the revenue ceilings on oil exports and then completely remove the 

ceiling on Iraqi oil exports. So at a certain point in time, the UN 

removed the ceilings. Iraq could sell as much oil as it wanted, Saddam deciding who to sell it to. Is that correct? 

Mr. DUELFER. That is right. 

Senator COLEMAN. So he can get more money from the surcharges associated with oil exports. Is that correct? 

35

Mr. DUELFER. Yes. That was part of Resolution 1284. As I mentioned, there was a period of a year during which the Council was 

in a lot of turmoil. 

Senator COLEMAN. And you found that by June 2000, French 

companies had Oil-for-Food contracts totaling $1.78 billion and 

Russia had received 32 percent of the total amount of Oil-for-Food 

contracts under Oil-for-Food? 

Mr. DUELFER. Yes. Those proportions tended to shift as Iraq 

tried to play off one against the other. They wanted to keep a tension between those who were trying to do favors for them. 

Senator COLEMAN. And are you aware that with regard to 1284, 

the United Nations Security Council resolution that removed the 

ceiling, Russia insisted on language for the suspension and ultimate elimination of sanctions in the same resolution? Is that correct. 

Mr. DUELFER. Well, as part of my previous job at the UN, I sort 

of witnessed that evolution, and I wouldn’t disagree with your 

characterization. 

Senator COLEMAN. Would it be fair to say that, in addition, Russia and France pushed to reduce the Kuwaiti Compensation Fund, 

lowering that from 30 percent to 25 percent of the oil revenues in 

UN Security Council Resolution 1330, which also increased 

Saddam’s revenue? 

Mr. DUELFER. Sir, again I wasn’t—that is not part of my WMD 

mandate. It is a fact that that proportion was reduced at that time 

and that had a sizable effect on what Iraq was able to generate in 

terms of revenues. 

Senator COLEMAN. Because some of the legitimate money from 

Oil-for-Food was supposed to go into the Iraqi Compensation Fund? 

Mr. DUELFER. That is correct. 

Senator COLEMAN. So if you lessened that, then there is more 

money available for Saddam. 

Mr. DUELFER. I believe it was on the order of $250 million a year 

difference in terms of what they were able to receive. 

Senator COLEMAN. And I think it is then fair to pull all this together. What happened is that we had a situation where the Iraqi 

people were suffering and Oil-for-Food was put together for a humanitarian purpose. There is absolutely no question about that. Is 

that correct? 

Mr. DUELFER. That is correct. 

Senator COLEMAN. And I think this was a question that you responded to from Senator Lieberman. By putting Saddam directly in 

charge of who he deals with, who he contracts with, he then had 

the capacity to line his pockets from any number of ways under the 

purview of Oil-for-Food. 

Mr. DUELFER. That is correct. I would observe that part of the 

nature of this dynamic was played out when you saw that the Oilfor-Food benefits to the northern part of Iraq, to Kurdistan, were 

handled separately because they were concerned that that was an 

area which the regime did not have control over. They were concerned that the benefits also go there, so they set out a separate 

process to handle that. I am not an expert on that, but it was for 

exactly those kinds of reasons. 

36

Senator COLEMAN. We can have an argument that there are 

some differences perhaps in the total amount. You saw the figure 

that the Majority staff put together, and they calculated, by the 

way, smuggling from 1991 to 1996. That calculation is not included 

in your report, is it? 

Mr. DUELFER. No. We do have a calculation on smuggling from 

that time, but it is evidently smaller. I mean, we tried to err on 

the conservative side of much of this. 

Senator COLEMAN. The bottom line is that Saddam was able to 

pilfer untold billions, while the UN supposedly was managing, 

overseeing and trying to enforce an Oil-for-Food Program. 

Mr. DUELFER. He certainly was able to generate a lot of money 

around OFF and through the leverage that the OFF Program offered him. 

Senator COLEMAN. And Mr. Zarate, our last witness, can answer 

this and I am not sure what expertise you have, but do we know 

whether that money today is being used to fuel an insurgency? 

Mr. DUELFER. I don’t know, but it is well worth going after. 

Senator COLEMAN. And we clearly don’t know where all the 

money is, though, do we, as we sit here today? 

Mr. DUELFER. That is true. 

Senator COLEMAN. Thank you. Senator Levin. 

Senator LEVIN. Thank you. 

You separate in your four-part stream of illicit income smuggling 

from these vouchers. Is that correct? 

Mr. DUELFER. Yes. Smuggling we had as a separate category, 

and we had kickbacks as a separate one as well. 

Senator LEVIN. So you have four categories. 

Mr. DUELFER. Right. 

Senator LEVIN. You have got smuggling, kickbacks, vouchers—I 

am sorry——

Mr. DUELFER. Protocols. 

Senator LEVIN. Protocols—I am sorry—protocols, which are the 

sales that were openly arrived at or openly known about, right? 

Mr. DUELFER. Right. 

Senator LEVIN. And the fourth category? 

Mr. DUELFER. Well, it was the kickbacks. 

Senator LEVIN. Smuggling, kickbacks, protocols. 

Mr. DUELFER. And there was the surcharges on the——

Senator LEVIN. And the surcharges. 

Mr. DUELFER. Yes, which didn’t really amount to that much. 

Senator LEVIN. All right. On Annex B which has a couple hundred names, which are the people that were the recipients of the 

vouchers, have you compared that annex, your annex, with the UN 

list? 

Mr. DUELFER. No, we have not. It would be a very interesting exercise, for other reasons. 

Senator LEVIN. Why have you not compared the list of the recipients shown on the Iraqi documents with the UN list of vouchers 

that they have in their possession? 

Mr. DUELFER. Well, on the UN side they had people who were 

contracting to provide under OFF. On the UN side, they had their 

list. The OIP, the Office of Iraqi Programs, had a list of who lifted. 

But, frankly, while it would be interesting to see if those match up, 

37

that wasn’t—we were looking for WMD and what we were trying 

to do is just get a sense of what revenues were available which 

could be used for the MIC corporation and what this indicated 

about the regime’s intentions. 

Senator LEVIN. You have looked for WMD, but you have also 

reached certain conclusions that certain people were engaged in illicit conduct. 

Mr. DUELFER. This is as a result of our investigation of what 

were the regime’s long-term goals and objectives, and how it was 

going about to achieve them. We had to draw a line someplace, sir. 

Senator LEVIN. I understand, but you reached a conclusion that 

certain people, including a very highly-placed person at the UN, 

engaged in illicit conduct. 

Mr. DUELFER. We certainly concluded that the Iraqis were working that and that is what they were doing. That was part of 

the——

Senator LEVIN. You have also said here today that you have concluded that he was the recipient. 

Mr. DUELFER. Based on the Iraqi data. 

Senator LEVIN. Right, but that is your conclusion. I am just simply saying that that is not just looking for WMD. And by the way, 

you may be right, and if you are, we ought to root this out and get 

to it and the UN ought to take appropriate action. That is clear, 

but you have gone beyond WMD. You have reached certain conclusions that certain individuals have engaged in illicit conduct. You 

have reached that conclusion. 

Mr. DUELFER. Sir, we are looking at where the regime was headed over time, what were its directions and how was it planning on 

getting there. The question of the existence or non-existence of 

WMD at any point in time is interesting, but to me I felt that a 

more dynamic analysis of it was important, and that caused us to 

look at things that you might not consider to be strictly WMD. 

Senator LEVIN. Are you aware of the fact that some of the named 

oil voucher recipients in your annex deny receiving vouchers? 

Mr. DUELFER. I am unaware of that, but again it is Iraqi data. 

Some of them, the Iraqis indicate that oil was not lifted. Someone 

may have received a voucher, but never have—or the Iraqis may 

believe they have issued one, but the oil was never lifted. 

Senator LEVIN. You are not aware of the fact that some of the 

people listed in your annex as having received vouchers by the 

Iraqis deny receiving those vouchers? You are not aware of that 

fact? 

Mr. DUELFER. No. 

Senator LEVIN. In late 2000, Syria opened up that oil pipeline I 

referred to to Iraq and began importing large amounts of oil from 

Iraq, which would be a clear violation of UN sanctions. And here 

is what your report says, ‘‘Syria was Iraq’s primary conduit for illicit imports from late 2000 until Operation Iraqi Freedom. Military and security entities openly contracted with Syrian companies 

under the auspices of the Iraq-Syria trade protocol.’’ Is that correct? 

Mr. DUELFER. That is true. 

Senator LEVIN. Now, Secretary Powell received a pledge three 

times from the President of Syria in 2001 that Syria would come 

38

into compliance with the sanctions by putting its trade with Iraq 

under the Oil-for-Food Program and UN oversight. Are you aware 

of that? 

Mr. DUELFER. I hadn’t followed that, no. 

Senator LEVIN. So you don’t know whether or not they made that 

pledge or not? 

Mr. DUELFER. No. 

Senator LEVIN. Thank you. Thank you, Mr. Chairman. 

Senator COLEMAN. Senator Graham. 

Senator GRAHAM. Senator Levin always intrigues me because he 

asks great questions, and now I am a bit confused. 

Senator LEVIN. On my question or the answer? 

Senator GRAHAM. By both, actually, but not so much by the question, but by the answer, to be honest with you. 

Let’s break this simply. Saddam gives me a unit, a voucher. 

Since I don’t own any oil tankers or refineries, I am eventually 

going to have to get this in the hands of somebody who does, right? 

Mr. DUELFER. That was the practice. 

Senator GRAHAM. So the bottom line is that when you look at 

names, some of those people are end users and some of those people are just individuals who could not have possibly done this without turning around and selling the voucher or giving it to someone 

with the capacity. Is that correct? 

Mr. DUELFER. That is correct, because the lifters also had to be 

approved by the UN. 

Senator GRAHAM. And the likelihood of the lifter being the director of the program on a UN book is probably zero? 

Mr. DUELFER. According to the Iraqi data, that person did not lift 

it, but it was transferred to someone else who could. 

Senator GRAHAM. So within the data, there is likely recording of 

transactions that were clearly illegal because it was not legal for 

Saddam Hussein to pick someone without UN approval. Is that correct? 

Mr. DUELFER. No. Well, the procedure was that lifters—in other 

words, if you were going to go to Umm Qasr and lift oil, you had 

to be approved by the UN. 

Senator GRAHAM. Right. 

Mr. DUELFER. And there were UN people there who assured that 

that took place. 

Senator GRAHAM. Well, why would you ever give a voucher to 

somebody who didn’t have the capacity to lift the oil? To buy favor, 

right? 

Mr. DUELFER. Well, you are looking for something in return. 

Senator GRAHAM. Right, and one of the people that allegedly got 

those vouchers was the director of the program, and Senator Levin’s question is a great question. I think this person has denied it. 

What could we do, what could the Congress do, what could this 

Subcommittee or any other committee do to go find out whether 

that is a fact? 

Mr. DUELFER. I would start, Senator Graham, by having the opportunity to question them. That would probably be a good start. 

Senator GRAHAM. Yes, and I know you are frustrated, but I mean 

from your point of view, what could we do? 

39

1The prepared statement of Mr. Greenblatt appears in the Appendix on page 73. 

Mr. DUELFER. Well, you could talk to Iraqis. The Iraqis have 

been very candid. 

Senator GRAHAM. Could you give the names to the Chairman of 

who you think might help solve this riddle? 

Senator COLEMAN. We are pursuing many of these routes, Senator Graham. 

Senator GRAHAM. Well, I applaud the Subcommittee for your effort because without you, I don’t think we are ever going to get to 

the bottom of this. And so I am glad you let me come. 

Senator COLEMAN. Thank you. 

Mr. Duelfer and gentlemen, I thank you for your testimony. I 

thank you for your service. I thank you for your sacrifice. This 

panel is excused. 

Mr. DUELFER. Thank you. 

Senator COLEMAN. I would now like to call Mark Greenblatt and 

Steven Groves, investigative counsels for the Majority on the Permanent Subcommittee on Investigations. 

I appreciate all of the staff’s hard work in this investigation. 

Today, they will present a portion of the evidence that has been 

gathered so far. Mr. Greenblatt will testify on how Saddam Hussein curried favor with oil allocations, colloquially referred to as 

vouchers, that were granted to individuals, companies and government officials. Further, Mr. Greenblatt will present evidence that 

Saddam Hussein gained almost $230 million by imposing illegal 

surcharges on oil sales under the Oil-for-Food Program. Mr. Groves 

will testify about the kickbacks that were required as a condition 

for receiving a contract to provide humanitarian goods to the Iraqi 

people. 

Gentlemen, as you are well aware, pursuant to Rule VI, before 

we begin, all witnesses who testify before this Subcommittee are 

required to be sworn. At this time, I would ask you both to stand 

and raise your right hand. 

Do you swear the testimony you are about to give before this 

Subcommittee is the truth, the whole truth and nothing but the 

truth, so help you, God? 

Mr. GREENBLATT. I do. 

Mr. GROVES. I do. 

Senator COLEMAN. As you are also well aware, your full written 

presentation will be presented in the record in its entirety. Mr. 

Greenblatt will be allocated 15 minutes. Mr. Groves will be allocated 10 minutes. 

Mr. Greenblatt, I understand that you are to testify first and 

then we will proceed with Mr. Groves. Mr. Greenblatt, you may 

proceed. 

TESTIMONY OF MARK L. GREENBLATT,1 COUNSEL, U.S. 

SENATE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

Mr. GREENBLATT. Mr. Chairman, Ranking Member Levin, and 

Senator Graham, thank you for this opportunity to testify before 

you concerning the Subcommittee’s investigation into the UN Oilfor-Food Program. 

40

1See Exhibit No. 5, which appears in the Appendix on page 110. 

2See Exhibit No. 6, which appears in the Appendix on page 111. 

3See Exhibit No. 7, which appears in the Appendix on page 112. 

The purpose of my testimony is to examine two ways in which 

the Hussein regime abused the program and present evidence obtained by the Subcommittee that illustrates our conclusions. 

First, I will discuss what have been called oil vouchers, namely 

how Saddam Hussein turned oil into influence. The second portion 

of my presentation will illustrate how Saddam Hussein exacted 

millions of dollars through illegal surcharges under the Oil-forFood Program. 

We just heard Mr. Duelfer explain the oil vouchers, which could 

also be called oil allocations. I hope to explain the process by which 

those oil vouchers became cash in the hand of a recipient. 

In the beginning of the Oil-for-Food Program, SOMO allocated oil 

to traditional oil companies throughout the world. Those companies 

then contracted with SOMO to purchase oil and then lifted the oil 

themselves. Starting roughly in 1998, however, Saddam Hussein 

attempted to manipulate that typical oil allocation process. His 

plan was simple. Rather than giving allocations to traditional oil 

purchases, he gave allocations to foreign officials, journalists, and 

even possible terrorist entities, who then flipped their allocations 

to traditional oil companies in return for a sizable commission. In 

doing so, Saddam could give a foreign official or a journalist hundreds of thousands of dollars without ever paying a dime. 

So how did these allocations get translated into cash? That 

monetization involved a simple three-step process which we have 

illustrated in Exhibit 5.1 This three-step process is the basic framework for the sale of allocations, but I should note that each instance varied slightly. I will now explore each of these steps and 

present evidence to illustrate them. 

Step 1: Numerous sources, including senior officials of the Hussein regime, have stated that Saddam Hussein personally approved 

the people and/or entities that received oil allocations, and would 

even delete those who had fallen out of favor. The Subcommittee 

has obtained evidence that senior officials, such as Tariq Aziz, were 

also intimately involved in the allocation process. 

If I could direct your attention to Exhibit 6,2 this document is a 

letter from SOMO to the Minister of Oil concerning an allocation 

provided to a Syrian journalist named Hamidah Na’na. This letter 

illustrates the in-depth, personal involvement of high-ranking 

members of the Hussein regime. 

For example, the first paragraph of the letter refers to a telephone call between the Minister of Oil and the Vice President of 

Iraq concerning an allocation to Ms. Na’na. In addition, on the bottom left-hand corner of the letter, you can see that the Minister of 

Oil personally ratified this letter. 

If I could direct your attention to Exhibit 7,3 I should note before 

we describe the content of this letter that the Subcommittee has redacted out the names of some of the individuals and/or entities 

mentioned in the letters when they are part of the Subcommittee’s 

ongoing investigation. 

This exhibit is a letter from a prospective oil purchaser to a Russian voucher recipient. In the letter, the oil purchaser discusses a 

41

1See Exhibit No. 5, which appears in the Appendix on page 110. 

2See Exhibit No. 9, which appears in the Appendix on page 114. 

3See Exhibit No. 10, which appears in the Appendix on page 116. 

4See Exhibit No. 13, which appears in the Appendix on page 124. 

5See Exhibit No. 14, which appears in the Appendix on page 125. 

face-to-face meeting in Moscow between the allocation holder and 

Tariq Aziz, one of Hussein’s closest aides. The meeting related to 

a problem that the allocation holder was having with respect to its 

voucher. 

Moving on to step 2 on the chart,1 once the recipients learned 

they had been allocated oil, they would negotiate with an oil company to sell the secret voucher. That is step 2. The primary issue 

of the negotiations was the commission paid to the allocation holder. I will present two exhibits that shine some light on these negotiations. 

First is Exhibit 9.2 This letter was written by Vladimir 

Zhirinovsky, the leader of the Liberal Democratic Party of Russia. 

On official party letterhead, Zhirinovsky invites an American oil 

company to Moscow to ‘‘negotiate’’ with him. He says: ‘‘It is my 

honor to invite you for negotiations to Moscow from the 18th to the 

25th of January, 1999. Will be happy to meet with you.’’

The date on this letter, or the date of the invite, January 1999, 

is crucial because the Subcommittee has obtained evidence that 

Zhirinovsky received an oil allocation from Hussein at some point 

in late 1998 or early 1999. 

If I could direct your attention to Exhibit 10,3 this document is 

a fax from a representative of a secret voucher holder who is offering, ‘‘a full corporate offer’’ for two shipments of 2 million barrels 

of oil apiece. The key aspect of this offer is that the representative 

demands, ‘‘a seller’s fee’’ of 75 cents per barrel. 

After these negotiations, once the voucher holder sells the allocation to an oil company, the voucher holder would then inform 

SOMO that that oil company will be buying the allocation. One example of that is Exhibit 13.4 In this letter, Hamidah Na’na, the 

Syrian journalist we discussed earlier in Exhibit 6, informs SOMO 

that Devon Petroleum will lift the oil in connection with her allocation. 

The third step of the process, which is at the bottom of the 

chart—the third step is once the voucher has been sold, the oil purchaser would then execute a formal contract with SOMO. Only 

after the contract was executed would the parties notify the UN 

and request its approval of the contract. 

As a result, the moment the contract is submitted to the UN for 

approval is the first time that the UN would get involved. Therefore, the entire transfer of the voucher between the allocation holder and the oil buyer is conducted completely under the table. To 

show how this step works, we will once again revisit the case of 

Syrian journalist Hamidah Na’na to show how her allocation became a formal UN-approved contract under the Oil-for-Food Program. 

If I could direct your attention to Exhibit 14,5 if you will recall, 

Ms. Na’na sold her allocation to Devon Petroleum and Devon’s contract with SOMO was numbered M/13/26. These documents relate 

to that very contract, M/13/26. They are the first page of the conVerDate 0ct 09 2002 11:25 Apr 08, 2005 Jkt 097048 PO 00000 Frm 00047 Fmt 6633 Sfmt 6601 C:\DOCS\97048.TXT SAFFAIRS PsN: PHOGAN
42

1See Exhibit No. 15, which appears in the Appendix on page 130. 

tract—if I could direct your attention to the first page of the exhibit, you will see it is a contract between SOMO and Devon Petroleum. 

Next is the signature page of the contract. You will see a signature from a representative of SOMO and a signature from the 

buyer, Devon Petroleum. The next page of the exhibit is the application from Devon Petroleum to the UN for approval of that very 

contract, M/13/26. 

Once this contract has been approved, as we will see on the next 

page, which is the UN letter to Devon approving that contract, M/

13/26—once that approval comes through, Devon would lift the oil 

from SOMO. Once that lifting happens, the next document comes 

into play, and that is the invoice for that lifting. This is an invoice 

from SOMO to Devon Petroleum, and on the right-hand side of the 

exhibit you will see contract number M/13/26. Note that the name 

of Hamidah Na’na, the journalist who received the voucher, is nowhere to be found on any of these documents. All the transactions 

related to Na’na and Devon Petroleum are under the table. 

Moving on, once the oil was lifted, the commission to the allocation holder would become due. We have an exhibit of an invoice related to this commission debt as Exhibit 15.1 This is an invoice 

from Al Wasel and Babel Company for, ‘‘selling of Iraqi oil allocation.’’ The Subcommittee has learned that the purchaser prepared 

this invoice itself. The key point, however, is that the purchaser 

will be paying a 17-euro-per-barrel commission to Al Wasel and 

Babel. I should further note Al Wasel and Babel is perhaps the No. 

1 front company of the Hussein regime. 

So that is how the process of Iraqi oil allocations or oil vouchers 

would be monetized. In short, this is the method by which Saddam 

Hussein could give hundreds of thousands of dollars without actually paying a dime. 

I will now move on to a different topic related to the oil side of 

the program, namely how Saddam extracted millions of dollars of 

illegal surcharges from oil purchasers. I should emphasize that 

while the oil allocations were the way that Saddam used oil to reward friends and influence world leaders, the surcharge scheme 

was solely designed to generate illegal revenue. 

In mid-2000, Hussein directed SOMO to generate additional revenues outside the Oil-for-Food Program. Pursuant to that directive, 

on September 1, 2000, SOMO began lowering the price of oil and 

demanding a ‘‘surcharge’’ of 10 cents a barrel for each barrel exported from Iraq. 

Over the succeeding months, the rate of the surcharge fluctuated 

widely, reaching a peak of roughly 30 cents a barrel. Exports to the 

United States had a higher surcharge than shipments elsewhere in 

the world. These surcharges were to be paid by the oil purchaser 

directly to the regime, illegally bypassing the UN-controlled escrow 

account at BNP Paribas. 

As a result, many of the traditional oil companies refused to pay 

the surcharges. Out of the shadows, however, came numerous unknown middle-men that were quite eager to participate in the 

scheme. The scheme continued on for 2 years, until the United 

43

1See Exhibit No. 16, which appears in the Appendix on page 131. 

2See Exhibit No. 17, which appears in the Appendix on page 132. 

3See Exhibit No. 18, which appears in the Appendix on page 133. 

States and the UK, as members of the Subcommittee overseeing 

the program, took action to end it. The device they used was called 

retroactive pricing. 

For the sake of brevity, I will not get into detail concerning what 

retroactive pricing is, but suffice it to say that retroactive pricing 

was completely effective in ending the surcharges. Over that 2-year 

period that the surcharges were in effect, Saddam amassed more 

than $230 million in the scheme. Every single one of those dollars 

was obtained under the table, outside the OFF Program. I will now 

present a behind-the-scenes look at how those dollars went into 

Saddam’s coffers. 

The Subcommittee has learned that oil purchasers generally paid 

surcharges to the regime in two ways which are reflected in Exhibit 16.1 First is Method A, which illustrates direct payments from 

the oil purchaser to bank accounts controlled by the regime. The 

second is Method B, which goes through a third party that would 

facilitate the transaction. 

The simplest method for the surcharge payment was a direct 

payment from the oil purchaser to the regime-controlled account. 

To that end, the Hussein regime maintained numerous accounts at 

banks throughout the Middle East, in particular Jordan and Lebanon. 

Some companies were willing to comply with Saddam’s demand 

for surcharges, but they wanted to hide the payment as much as 

possible. As a result, they would make payments to a third party, 

a middle-man, as reflected in Method B. Sometimes, the voucher 

recipients, the folks whom we discussed, the journalists, the officials that we discussed in the first presentation, would be willing 

to be that very conduit. They would transfer the money on behalf 

of the oil buyer. 

The next two exhibits present evidence of how those voucher recipients would facilitate the transaction. If I could direct your attention to Exhibit 17,2 this is an example of a surcharge payment 

going through an allocation recipient, a voucher holder. In this 

case, we revisit Hamidah Na’na, the Syrian journalist we have discussed earlier. Here, she commits to paying the oil surcharge on 

behalf of Devon Petroleum, the company that purchased her oil allocation. 

If I could direct your attention to Exhibit 18,3 Exhibit 18 is a set 

of documents which is another example of how a voucher recipient 

would act as a middle-man to facilitate the surcharge payment. 

These documents relate to a contract between Al-Hoda International Trading and an American oil company. 

Al-Hoda purchased 4 million barrels of oil in connection with contract M/09/15 under the Oil-for-Food Program and sold half of that 

oil, 2 million barrels, to the American company. According to page 

2 of the contract between Al-Hoda and the American company, 

which is page 2 of the exhibit, there was a 40-cent markup on the 

official selling price per barrel. 

Interestingly, the payment mechanism for this oil contract was 

divided in three parts. I will direct your attention to the last paraVerDate 0ct 09 2002 11:25 Apr 08, 2005 Jkt 097048 PO 00000 Frm 00049 Fmt 6633 Sfmt 6601 C:\DOCS\97048.TXT SAFFAIRS PsN: PHOGAN
44

1See Exhibit No. 19, which appears in the Appendix on page 139. 

graph on the bottom of page 2. That paragraph describes a payment ‘‘inside the letter of credit,’’ which refers to the approved letter of credit within the Oil-for-Food Program where the funds 

would go to BNP Paribas. 

Moving up to the next paragraph, the second to last paragraph 

on the page, there is a payment of 10 cents a barrel ‘‘outside the 

letter of credit’’ at the instruction of Al-Hoda. 

Moving up to the third paragraph from the bottom, there is another payment outside the letter of credit, this one for 30 cents per 

barrel. The Subcommittee will demonstrate how that 30-cent payment outside the letter of credit was, in reality, an illegal surcharge to the Hussein regime. 

Moving on to the third page of this exhibit, it is a handwritten 

sheet of paper by the oil buyer which confirmed that the 40-cent 

fee is broken down into two separate payments, a 10-cent letter of 

credit to Al-Hoda and an identified 30-cent payment. The question 

remains, where is that 30-cent payment going? 

The next document in the exhibit is an invoice from Al-Hoda requesting payment for the 40-cent markup which amounts to roughly $836,000. This $836,000 includes the mystery 30-cent-per-barrel 

fee. 

The next document in this exhibit is the order from the oil company to its bank, which just happens to be the Geneva affiliate of 

BNP Paribas, to make the payment of $836,000. 

The next document in this exhibit is an excerpt from the oil company’s accounting ledger that confirms that a payment to Al-Hoda 

for $836,000 from the company’s BNP Paribas account was actually 

paid. So how do we know that the $836,000 payment included a 30-

cent surcharge to Iraq? The Subcommittee has obtained SOMO 

records that provide detailed information about each surcharge 

payment that was received. Included in this chart is a 30-cent payment from Al-Hoda for this very contract. 

If I could direct your attention to Exhibit 19,1 this is an excerpt 

of the chart created by SOMO in February 2004 that details each 

oil contract in which a surcharge was paid. The column headers, 

which are in Arabic and therefore read from right to left, are as 

follows: Phase, contracting company, contract number, amount of 

oil lifted, amount of surcharge owed—I am sorry—amount of oil 

lifted, and then that is the surcharge rate is the fifth column, the 

amount of surcharge owed, the amount of surcharge paid, and finally is the difference, the balance owed on the surcharge. 

If we look at the entry on the chart for Al-Hoda’s contract M/09/

15, which falls roughly in the middle of the page, we see that AlHoda agreed to pay a surcharge of 30 cents per barrel. Therefore, 

it appears that the mystery 30-cent fee did indeed reflect an illegal 

surcharge payment to the Hussein regime. 

From the remaining columns, we see that Al-Hoda actually paid 

more than $1.2 million in connection with this contract. To reiterate, such a payment bypassed the UN-controlled account and 

went straight into Saddam’s coffers. What he did with that money 

we do not know. 

45

1The prepared statement of Mr. Groves appears in the Appendix on page 81. 

With that, I will end my presentation and I would be happy to 

answer any questions the Subcommittee may have. 

Senator COLEMAN. Mr. Groves. 

TESTIMONY OF STEVEN GROVES,1 COUNSEL, U.S. SENATE 

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

Mr. GROVES. Thank you, Chairman Coleman and Members of the 

Subcommittee, Ranking Member Levin, and Senator Graham. You 

have just heard from my colleague how Saddam Hussein peddled 

influence and generated illicit revenue by granting oil vouchers and 

demanding surcharge payments on oil sales. Not satisfied with the 

extra cash that he was skimming from these oil sales, Saddam concocted a separate scheme to siphon off billions of dollars for himself 

by demanding kickbacks on contracts for humanitarian goods. 

Under the terms of Security Council Resolution 986, Saddam was 

permitted to contract with whomever he pleased. Theoretically, this 

freedom to contract would have allowed Iraq to negotiate contract 

terms that were in the best interests of the Iraqi people. In practice, however, Saddam used that freedom to negotiate contract 

terms that were in his own best interests and the interests of his 

brutal regime. He did this by demanding kickbacks. 

Now, a kickback is defined as a bribe paid by a seller of goods 

to a purchasing agent in order to induce the agent to enter into a 

contract. Kickbacks are normally a victimless crime, simple graft. 

But under the Oil-for-Food Program, kickbacks had a direct impact 

on the Iraqi people. You must understand that for every dollar that 

was kicked back to Saddam on a contract was a dollar that did not 

go to buy humanitarian goods, food or medicine or anything else, 

for the Iraqi people. 

Hundreds, and possibly up to 1,000 companies paid kickbacks to 

the Hussein regime. My testimony this afternoon details the kickbacks paid by one such company, a company called The Weir 

Group, and we will walk through one specific kickback transaction 

to see exactly how it was done. 

The business of The Weir Group is the manufacture and sale of 

industrial valves and pumps for the oil industry and the water and 

sewer industry. Weir is hardly what you would call a fly-by-night 

company. Rather, it is a reputable, publicly-traded, blue chip engineering company based in Glasgow, Scotland. Weir subsidiaries 

span the globe, including ten locations here in the United States. 

In short, Weir is not the type of company one would normally associate with shady Iraqi middle-men and with secret Swiss bank 

accounts. Unfortunately, that was the case here. The Weir Group 

did over $80 million worth of business under the Oil-for-Food Program mainly through two of its subsidiaries, Wemco Enviro-Tech 

Pumpsystems in France and Wesco Dubai in the United Arab 

Emirates. 

Weir also utilized an Iraqi agent who was based in Baghdad to 

help secure the rights to these contracts. And for completed contracts, Weir would pay this Iraqi agent between 17 and 27 percent 

commissions. Now, for the first 7 phases of the program, Weir executed 16 contracts with the government of Iraq without incident. 

46

1See Exhibit No. 21, which appears in the Appendix on page 141. 

2See Exhibit No. 22, which appears in the Appendix on page 142. 

3See Exhibit No. 23, which appears in the Appendix on page 149. 

That changed, however, at the beginning of Phase VIII of the program in June 2000. 

At that time, Weir had three pending offers with Iraq, one each 

with the mayor of Baghdad, the North Oil Company and the South 

Oil Company. As was the normal protocol on these contracts, the 

Weir sales representative traveled to Iraq to put the final completion on the contracts. But when he arrived on this trip, he was informed by the Iraqis that they would no longer enter into contracts 

with Weir unless the contract price was inflated, unless it was 

raised by a certain percentage, and that Weir would be required to 

pay that percentage back to Iraq. 

Now, this was the critical moment in time for Weir. It could have 

refused to inflate its contracts. It could have refused to pay back 

any money to the government of Iraq. It could have decided to take 

its business elsewhere. Unfortunately, Weir agreed to comply with 

the new Iraqi demands, and for the remainder of the Oil-for-Food 

Program, Weir inflated each of its 15 contracts by between 11 and 

14 percent and deposited that inflated amount into a bank account 

in Geneva in the name of Corsin Financial Limited, a company 

that appears to have no existence other than being the holder of 

that particular bank account. 

Now, you may ask why and how Weir and the Iraqis were able 

to get away with this while Iraq was supposedly under sanctions, 

and for answers we are going to take a closer look at one of the 

particular transactions. This chart, which is Exhibit 21 in your 

books,1 displays each step in contract number——

Senator COLEMAN. Do me a favor. With the exhibits, if we can 

just kind of separate them out so I can see the back exhibit. Why 

don’t you just move that over? That would be helpful. 

You are certainly welcome if you want to move over. 

Senator GRAHAM. Fine. Thank you. I am fine. 

Mr. GROVES. Thank you, Senator. 

This chart displays the key documents in a particular transaction 

for contract number 1030484. The first document, which is Exhibit 

22 in your book,2 is the original tender offer that Weir made to the 

Iraqis. The total price of the offer is about 2.15 million euro, or 

about $2.6 million, and represents what the actual cost of this contract would have been. 

After the Iraqis received that first offer and the Weir sales representative traveled to Basra, they met with the Iraqis, and the 

Iraqis demanded a 13-percent kickback. There is no record of this 

meeting. These were verbal agreements entered into at least as far 

as Weir was concerned. There is no paper trail. 

At that point, as in the prior contracts where they had agreed 

to pay kickbacks, they entered a second tender offer. They had to 

manufacture a tender offer that would now meet the 13-percent 

kickback price. And if you do a side-by-side comparison of the two 

documents on the top of the chart and the second document—that 

is Exhibit 23;3 that is the inflated offer, the revised offer—you will 

see that each line item on the two offers has been inflated by exactly 10 percent. And the quantities on some of the line items have 

47

1See Exhibit No. 24, which appears in the Appendix on page 155. 

2See Exhibit No. 25, which appears in the Appendix on page 161. 

3See Exhibit No. 26, which appears in the Appendix on page 164. 

been increased in order so that the total tender offer amount on the 

second offer is exactly 13-percent higher than the first, a total of 

2.44 million euro. And in that way, The Weir Group agreed to the 

13-percent demand. 

With that kickback in place, the Iraqis in turn agreed to sign the 

contract with Weir, which they did on December 8, and that is at 

Exhibit 24.1 Weir submitted this completed contract with the inflated price to the UN Office of the Iraq Program for review and 

approval. And if you turn to Exhibit 25,2 that is their submission 

to the UN. And if you go to the purchase order that is attached to 

the submission, you will see that the total amount is 2.44 million 

euro. That is the submission on January 7. 

At this point in the proceeding, the UN Office of the Iraq Program is tasked to discover whether or not this contract is reasonable for its price and value. Now, despite that the contract had a 

17-percent commission built into it, and despite the fact that there 

was a 13-percent kickback amount built into it, for a total of over 

30 percent inflated price, the Office of the Iraq Program concluded 

that the item price and value have been examined and appear to 

be within a reasonable and acceptable range. 

And you can see the UN’s approval of the contract at Exhibit 26.3

And if you scroll down on Exhibit 26 to the part where it says 

‘‘Pricing,’’ you will find that the Office of the Iraq Program stated 

that the 30-percent inflated contract is reasonable and within an 

acceptable range. 

With the UN’s approval in place, the goods were shipped from 

Scotland to Iraq, and this presents a second opportunity for this 

contract to be caught there because at the port of Umm Qasr, the 

UN has hired Cotecna Inspection, which is an inspection company 

who is there to make sure that the goods that are contracted for 

actually arrive. 

If an actual customs inspection had occurred at this point, they 

would have realized that there were only two of a particular item 

in the shipment, where the contract calls for 20. There were only 

5 in the box that got shipped to the port, whereas in the contract 

it called for 50. But as we have learned, this review process was 

not an actual customs inspection, as you and I would know it, but 

rather just an authentication that a particular set of goods had arrived on a particular day. So, indeed, the goods were not caught at 

that point in the process and this contract went forward. 

Now that the goods had arrived in Iraq, Cotecna Inspection sent 

their certificate of arrival to BNP Paribas, which makes Weir eligible for payment. Now, once they are eligible for payment, BNP 

makes the contract payment to Weir in Glasgow. And then Weir, 

making good on its verbal agreement with the government of Iraq, 

enters a kickback amount into the Swiss bank account. And you 

can see that particular item itemized on the last part. For contract 

1030484, there was a $111,000 kickback that was put into the 

Corsin account. 

48

1See Exhibit No. 30, which appears in the Appendix on page 173. 

2See Exhibit No. 8, which appears in the Appendix on page 113. 

And this chart, Exhibit 30,1 itemizes each of the 15 contracts 

that Weir agreed to inflate for a kickback amount and then made 

a separate payment into the Corsin Financial account in Geneva, 

Switzerland. And the contract value is represented in euro and 

pounds, and the amount of kickbacks which were all made in 

pounds in the fourth column. And then the final column is a conversion into today’s exchange rates from pounds to dollars. In total, 

there were just over $8 million worth of deposits made into the account of Corsin Financial. The Subcommittee has been in touch 

with the Swiss authorities in regard to this particular account, in 

the hopes that the money may still be there and can be repatriated 

to the Iraqi people. 

Thank you for allowing me to testify about these issues and I 

would be pleased to answer any questions. 

Senator COLEMAN. Thank you, Mr. Groves, and thank you, Mr. 

Greenblatt. 

Mr. Greenblatt, if I can just direct attention to Exhibit 8,2 and 

it is the exhibit that says ‘‘Oil Coupons.’’ It is in Iraqi on the lefthand side and then English on the right-hand side. It reads, ‘‘In 

the name of Allah the Most Merciful, The Republic of Iraq, Presidency of the Republic, the Secretary.’’ It says, ‘‘Top Secret and most 

urgent, Number 9525/K.’’ Are these coupons numbered? 

Mr. GREENBLATT. They are numbered. We have heard testimony 

from witnesses, including individuals who have actually received 

allocations under the program, and they have informed us—and 

others in the oil industry—that the identification mechanism for 

each oil allocation was a number designation. 

Senator COLEMAN. So let me go through this further. It says, 

‘‘Comrade Amer Muhammad Rashid Minister of Petroleum.’’ It 

says, ‘‘The President . . . (may Allah preserve him) has ordered in 

connection with a letter from the Iraqi embassy in Cairo of 18 August, 2002, as follows: six million barrels of petroleum will be allocated to Mr. Ustadh,’’ which is honorary title for professors, lawyers and journalists, ‘‘journalist Mahmud Al-Tamimi in appreciation of his nationalist positions which he has adopted since the 

thirty-nation aggression,’’ which is the Iraqi designation for the coalition which expelled Iraq from Kuwait, ‘‘in the year 1991 in confronting the unjust blockade of our dear country,’’ etc., etc., signed 

by the Secretary of the President of the Republic. 

So this is a coupon. This is one of those that gives somebody who 

is not an oil trader an allocation that would allow them then to sell 

or to get a commission by giving it to someone who could translate 

this coupon into oil. 

Mr. GREENBLATT. That is my understanding, sir, yes. 

Senator COLEMAN. And we then do have documents. The Iraqis, 

in what I see as kind of a methodical, documented pillaging, have 

documented how a lot of these coupons were then translated into 

actually allocated oil. Is that correct? 

Mr. GREENBLATT. That is right. 

Senator COLEMAN. I raise this because of the questions of Senator Graham and Senator Levin regarding Mr. Sevan. And if we 

49

1See Exhibit No. 26, which appears in the Appendix on page 164. 

had actually coupon numbers, it would be possible then to see 

whether that oil was actually allocated and whether it was lifted 

and who did the lifting. Is that correct? 

Mr. GREENBLATT. That is right. 

Senator COLEMAN. This Corsin Financial Limited we saw payments going to—you said that is a shell corporation. What kind of 

investigation did we do to try to find out who these folks are? 

Mr. GROVES. Well, we found out about this particular account 

only about 2 weeks ago, and we have done an exhaustive search 

of all publicly available resources to see if any such company exists, 

and it doesn’t seem to exist on any continent where we could do 

research. 

We have contacted the Swiss authorities through the Subcommittee and we have also been in contact with representatives 

at the Treasury Department to see if we can track down how much 

money is still in that account. 

Senator COLEMAN. There is almost like what I would call an 

Alice in Wonderland quality to what is going on here. This is a 

world in which your second bid is higher than your first bid in 

order for you to get the contract. Is that correct? 

Mr. GROVES. Yes, Senator, it is. 

Senator COLEMAN. And the second bid then reflects the inflated 

price? 

Mr. GROVES. Yes, it does, unlike a normal contractual situation 

where you would be bargaining the seller down. 

Senator COLEMAN. They are bargaining up. The money then goes 

to a Syrian account, Jordanian account, some account somewhere 

which we believe then is at the disposal of Saddam Hussein? 

Mr. GROVES. Yes, Senator. In this case, it went to a Swiss account. 

Senator COLEMAN. I also note with some interest on Exhibit 

26 1—by the way, when we talk about Weir, they have admitted 

that they participated in this kickback scheme. Is that correct? 

Mr. GROVES. Yes, Senator, they have. 

Senator COLEMAN. And in Exhibit 26, I note that Weir is a Scottish company, but in the final what appears to be the UN document it says ‘‘Mission: United Arab Emirates.’’

Mr. GROVES. Yes, Senator. 

Senator COLEMAN. What does that reference? 

Mr. GROVES. Well, according to Weir, the Iraqis were loathe to 

contract with countries who were strong supporters of the sanctions, such as the United States and the UK. And so Weir did the 

bulk of its business through either its French subsidiary, or in this 

particular case through its subsidiary in the United Arab Emirates. 

They were nations who were more palatable to Iraq. 

Senator COLEMAN. By the way, in terms of the timing of this, do 

we know when Saddam began assessing the surcharges for this 

program? 

Mr. GROVES. The evidence that we have seen indicates that it 

was sporadic through various early phases, but then became systematic, more industry-wide in every ministry in roughly June 

2000, which was the beginning of Phase VIII. 

50

Senator COLEMAN. One of the things that I just have great difficulty in understanding is with the number of companies involved, 

those executing humanitarian contracts number, I think, over 

3,500. Is that correct? 

Mr. GROVES. That is correct. 

Senator COLEMAN. And is it fair to say that if you didn’t execute 

a kickback once Saddam put this in place, you probably weren’t 

going to get a contract? 

Mr. GROVES. It is, Senator. After June 2000, in Phase VIII, all 

evidence indicates that unless you agreed, you didn’t get the contract. 

Senator COLEMAN. Weren’t there folks who complained that they 

had to pay kickbacks? I mean, somewhere within the corporate 

world out there, there has got to be some sense of morality that 

says, hey, this is not the right thing to do. Did anybody raise a red 

flag? 

Mr. GROVES. We haven’t found a single complaint where kickbacks were demanded, mainly because they don’t appear to have 

been refused that often. And that is why the Weir example is so 

troubling because it is a very reputable, publicly-traded company 

that you think would reject these offers. 

Senator COLEMAN. There was a report in The Washington Post

yesterday that focuses on the activities of Mr. Sevan and it indicates that there were some whistleblowers, but that their requests 

or their concerns were dismissed. So they were actually sent back 

to their original country and said, do this internally. 

How does that relate to the stuff that we are discussing here 

today? 

Mr. GREENBLATT. Well, there were widespread complaints concerning the surcharges on the oil side of the deal and the UN Security Council and the overseers were somewhat slow to respond. It 

took 2 years for the 661 Committee, which is the committee that 

oversaw the UN Oil-for-Food Program—it took 2 years for any action to be taken that would end the surcharges, and that action 

was taken by the U.S. and the UK representatives. 

Senator COLEMAN. This was the retroactive pricing you talked 

about? 

Mr. GREENBLATT. That is right. 

Senator COLEMAN. And essentially what the retroactive pricing 

does is if you have retroactive pricing and afterwards you say this 

is the price, you take away the platform, you take away the opportunity to create a commission somewhere between the basic price 

and the market price at that time, which was what folks were allowed to do. 

Mr. GREENBLATT. That is right. 

Senator COLEMAN. If you go retroactive, then there is no room to 

maneuver. You simply pay a price and you can’t guarantee that the 

folks who were paying the kickback or the surcharge are actually 

going to make any money. 

Mr. GREENBLATT. That is right. 

Senator COLEMAN. So that effectively killed it at least on the oil 

side. 

Mr. GREENBLATT. That is exactly right. 

51

Senator COLEMAN. And you said it took 2 years. Can you tell me 

a little bit more about what the United States and the UK tried 

to do here? 

Mr. GREENBLATT. Well, sure. From what we have learned from 

the individuals who were intimately involved in that stage of the 

Oil-for-Food Program, the United States and the UK were typically 

more assertive about attempting to shut down those types of 

schemes, in particular the surcharge scheme, and they felt resistance for a significant amount of time to actually formally ending 

the surcharge payments. 

Senator COLEMAN. You indicated that Cotecna was the company 

that had some responsibility for, I am trying to understand what, 

for verifying that the goods sold were the goods that were actually 

part of the contract? Is that essentially what their responsibility 

was? 

Mr. GROVES. Yes, Senator. It turns out that their responsibilities 

were not to inspect every shipment that came through, but merely 

to authenticate that a shipment had arrived. 

Senator COLEMAN. And it is clear that there wasn’t the kind of 

authentication that would somehow have caught the misdeeds that 

were going on here. 

Mr. GROVES. Not in the case of Weir. They had 15 contracts that 

would have gone through with quantities having been shifted that 

weren’t caught. 

Senator COLEMAN. Do we know anything about the fees that 

were generated by Cotecna during their participation in attempting 

to oversee this program? 

Mr. GROVES. Well, we have reviewed their contracts and they 

were done on a per-phase basis and each contract is in the multimillions of dollars. 

Senator COLEMAN. Do you know about how many contracts they 

were involved with? 

Mr. GROVES. Well, they won the contract from Lloyd’s Register 

back in December 1998 and remained the inspection agents for the 

program up to Operation Iraqi Freedom, so a substantial period of 

time. 

Senator COLEMAN. You mentioned some of the prices. If you just 

look at it, there is a 30-percent kickback involved here, so you 

would think of some inflated prices. Do you know if any contract 

was ever rejected by Cotecna for over-pricing? 

Mr. GROVES. The body that would have had to have rejected for 

over-pricing would have been the Office of the Iraq Program, and 

we have heard information that at no time was a single contract 

under the Oil-for-Food Program denied or rejected for being overpriced. 

Senator COLEMAN. And I take it we haven’t had the opportunity 

to speak with UN personnel as to why nothing was rejected. We 

haven’t had the opportunity to get the information that we would 

like to get to be able to review how this was able to occur without 

anybody catching anything? 

Mr. GROVES. Not yet, Senator. 

Senator COLEMAN. Senator Levin. 

Senator LEVIN. Thank you, and thank you to both of our witnesses for their work and their testimony. 

52

1See Exhibit No. 3, which appears in the Appendix on page 108. 

I just had a few questions. One has to do with the question of 

whether or not—apparently, the United States, as I understand it, 

was the biggest end user of Iraqi oil during the sanctions period. 

Is that your understanding? 

Mr. GREENBLATT. It was certainly a significant purchaser. I don’t 

know if it was No. 1, but it bought a massive amount of oil from 

Iraq. 

Senator LEVIN. Now, how would the subsequent purchaser of 

Iraq oil know whether there were any kickbacks that had been 

paid? 

Mr. GREENBLATT. They may not have known. It is not necessarily 

a statement of fact that every end purchaser would know. I would 

note that during the surcharge period, it was somewhat wellknown, it was just well publicized that virtually every contract had 

a surcharge during those 2 years. 

Senator LEVIN. So there would be nothing on the paper itself, 

though, on the transfer documents, that would show that surcharge 

for the end user? 

Mr. GREENBLATT. No. That is right. 

Senator LEVIN. And there was no due diligence requirement? 

Mr. GREENBLATT. Oh, I don’t know that. I can’t answer that. 

Senator LEVIN. On Corsin Financial, Corsin Financial is the account that the money was deposited in, and you said, I think, 15 

contracts were inflated and then the inflated amount was deposited 

in that account. Is that correct? 

Mr. GROVES. Yes, Senator. 

Senator LEVIN. And we have tried to find out from the Swiss embassy, as you know, whether or not there is a pending investigation 

of that account and they have told us they don’t know of any investigation. Is that correct? 

Mr. GROVES. That is correct. 

Senator LEVIN. The Swiss are fairly opaque, are they not, when 

it comes to bank accounts? 

Mr. GROVES. That is one way to put it. 

Senator LEVIN. Non-transparent. That is going to be a real issue. 

We take that up with the next witness, I think, in terms of the 

transparency of bank accounts so that we can track the money 

which Saddam illicitly obtained here to various accounts. We need 

governments to cooperate and to be transparent relative to any illicit money which is deposited in accounts in their country and we 

will pursue that further with our next witness. 

Just two other questions. On our Exhibit 3,1 it is entitled ‘‘Selected Secret Oil Voucher Recipients.’’ As I understand it, that title 

is taken from the Duelfer report, as well as the contents of this 

chart. Is that correct? 

Mr. GREENBLATT. That is my understanding. 

Senator LEVIN. And so the Subcommittee has not yet reached its 

own conclusions about whether the listed individuals actually received vouchers or money. Is that correct? This is based purely on 

Duelfer’s——

Mr. GREENBLATT. This document, I believe, is taken strictly from 

the Duelfer report, yes. 

53

1See Exhibit No. 13, which appears in the Appendix on page 124. 

Senator LEVIN. Now, in terms of the listed individuals on that 

document, has the Subcommittee or the staff actually concluded 

that those vouchers were received or that money was received for 

them? 

Mr. GREENBLATT. I think the answer would be the same as Mr. 

Duelfer’s, looking at the documents from SOMO that the Subcommittee has obtained. We may be able to draw some conclusions, 

but those would again be solely from Iraqi documents. At this 

stage, we can’t comment on whether money flowed or anything of 

that sort. 

Senator LEVIN. Have those conclusions yet been drawn? 

Mr. GREENBLATT. I don’t believe so. 

Senator LEVIN. And finally, on the Weir contracts that were submitted to the UN for approval, those were inflated contracts. 

Should the 661 Committee at the UN have caught those inflated 

prices? 

Mr. GROVES. Senator Levin, the 661 Committee was tasked to do 

certain tasks in reviewing the contracts primarily for a review of 

dual-use items. But there are procedures in place that were set up 

to regulate the day-to-day operations of the program that explicitly 

tasked the secretariat to review all contracts under the program for 

price and value. 

Senator LEVIN. For pricing? 

Mr. GROVES. Price and value. 

Senator LEVIN. And value. And was that then part of the responsibility of the 611 Committee? 

Mr. GROVES. No, Senator. It was the responsibility of the Office 

of the Iraq Program under the secretariat. 

Senator LEVIN. All right, so they only had the one function, the 

dual-use function. They were not to look at the pricing and value. 

Mr. GROVES. That is correct. 

Senator LEVIN. Thank you. 

Senator COLEMAN. Senator Graham. 

Senator GRAHAM. I just want to compliment the Subcommittee 

and the work that you are doing. I just wish the whole Senate 

could be part of this. This is really fascinating. 

Some of the things are very open. The letter from the Iraqi journalist on Tab 13 1 where she writes to SOMO—was that a common 

occurrence where you would have someone say I am going to assign 

the voucher that Saddam gave me to a specific company? 

And the company had to know about this, Devon, right? 

Mr. GREENBLATT. Well, this is the way that SOMO would learn 

who the contract was going to. Whether it occurred in a letter or 

a telephone call or an E-mail, I have no idea. 

Senator GRAHAM. Well, would this put the company on notice 

that something illegal is going on? 

Mr. GREENBLATT. Well, the company would know that the voucher recipient was getting a voucher, and would know that SOMO 

would have to find out at some point because eventually they are 

going to have to contract directly with SOMO. So I don’t know how 

to answer your——

54

1See Exhibit No. 3, which appears in the Appendix on page 108. 

Senator GRAHAM. This company pays this journalist money for 

this unit, right? 

Mr. GREENBLATT. That is my understanding, yes. 

Senator GRAHAM. Did the company know that was illegal, or is 

that illegal? 

Mr. GREENBLATT. Well, under the rules of the Oil-for-Food Program, all payments for the oil purchased under the program were 

destined solely for the BNP Paribas account, the UN-controlled escrow account at BNP Paribas. 

Senator GRAHAM. So when this company wrote a check to this 

person, to the journalist, they had to know that was illegal. 

Mr. GREENBLATT. I don’t know. I can’t comment on that. I would 

assume that if an oil company were writing a check to a politician 

or a foreign official, that might raise an eyebrow. But I can’t speculate on what they would know or what they would think. 

Senator GRAHAM. And the journalist winds up being a middle 

person for a money transaction, is that right? 

Mr. GREENBLATT. It can be. 

Senator GRAHAM. In this case, that is what she did, right? 

Mr. GREENBLATT. In this case, she paid the surcharge, or at least 

she committed to pay the surcharge. The money for that surcharge 

would have had to come from the purchaser of the oil. 

Senator GRAHAM. Which is Devon, right? 

Mr. GREENBLATT. Which would be Devon in this case. 

Senator GRAHAM. Did they know that was illegal? 

Mr. GREENBLATT. They may not have known about the surcharge 

at all. I don’t know whether Devon knew about that. 

Senator GRAHAM. Why would they write a check if they didn’t 

know? 

Mr. GREENBLATT. Well, they could have viewed that as the commission to the voucher holder and not known anything about—

plausible deniability. I don’t know. I can’t speculate as far as what 

Devon knew at the time. All I can do is present the evidence as 

we receive it, and in this situation Na’na clearly committed to pay 

the surcharge. And I would assume that she wasn’t paying that 

just out of the goodness of her heart; she must have been getting 

the money from somewhere. 

Senator GRAHAM. When it comes to the UN inspector, the person 

in charge, has there been any evidence of an account number? 

There is an accounting procedure for the vouchers. Is that right? 

Mr. GREENBLATT. Oh, the number designations? 

Senator GRAHAM. Yes. 

Mr. GREENBLATT. I have not seen any designation for a voucher 

for—I assume you are talking about Mr. Sevan. 

Senator GRAHAM. Right. 

Mr. GREENBLATT. I have not seen any number directly related to 

any voucher for Mr. Sevan. 

Senator GRAHAM. OK, thank you. 

Senator COLEMAN. If I can, I am going to follow up on that question. Can I have Exhibit 3 again, please?1

Senator GRAHAM. And it really would apply to all these non-end 

users, I guess, that question. 

55

Senator COLEMAN. Again, Exhibit 3, the Senator Levin letter—

this comes clearly from Mr. Duelfer’s report, right? 

Mr. GREENBLATT. That is correct. 

Senator COLEMAN. But in Exhibit 3, at least what the report says 

is that the recipient is Benon Sevan; that the amount allocated—

that is what the voucher would be—would be 13 million barrels. 

But this exhibit does say that barrels were lifted. So somewhere 

there is documentation that says that this voucher was converted 

into oil. Again, just based on records, that is who the Iraqis say it 

is. But we do know that there is some documentation that that 

voucher was actually converted into barrels that were lifted. Is that 

what lifted means? 

Mr. GREENBLATT. That is exactly right. 

Senator COLEMAN. Thank you. Senator Levin, anything further? 

Senator LEVIN. No, thank you. 

Senator COLEMAN. Gentlemen, thank you for your outstanding 

work and testimony today. Thank you. This panel is excused. 

We will now call our third panel. We welcome our final witness, 

Juan Carlos Zarate, the Assistant Secretary for Terrorist Financing 

and Financial Crimes at the Department of the Treasury. 

Mr. Zarate, I appreciate your attendance at today’s hearing and 

look forward to hearing your views on the Oil-for-Food Program, including Saddam Hussein’s abuse of the program, the amount of 

money that was pilfered by the Iraqi regime, the amount of money 

that has been repatriated to the Iraqi people, and whether the remaining funds are being used to fund the Iraqi insurgency or terrorist groups. 

In addition, Mr. Zarate will discuss the extent to which the funds 

that were illicitly obtained under the Oil-for-Food Program were 

used for purposes that were prohibited under the UN sanctions regime. I am particularly interested in knowing what remedies may 

be available to assist in the further recovery of Iraqi assets. 

Again, before we begin, all witnesses who testify before this Subcommittee pursuant to Rule VI are required to be sworn. At this 

time, I would ask you to stand and please raise your right hand. 

Do you swear that the testimony you are about to give before the 

Subcommittee is the truth, the whole truth and nothing but the 

truth, so help you, God? 

Mr. ZARATE. I do. 

Senator COLEMAN. We will be using the timing system, Mr. 

Zarate. Before the red light comes on, a minute before you will see 

the light change from green to yellow, which will give you an opportunity to complete your remarks. Your written testimony will be 

entered into the record in its entirety. We ask that you limit your 

oral testimony to 10 minutes. 

Mr. Zarate, you may proceed. 

56

1The prepared statement of Mr. Zarate appears in the Appendix on page 85. 

TESTIMONY OF JUAN CARLOS ZARATE,1 ASSISTANT SECRETARY, TERRORIST FINANCING AND FINANCIAL CRIMES, 

U.S. DEPARTMENT OF THE TREASURY 

Mr. ZARATE. Chairman Coleman, thank you very much for the invitation to be here. Senator Levin and Senator Graham, it is an 

honor to be before you. It is an important issue, testifying with respect to the allegations of fraud pertaining to the UN Oil-for-Food 

Program, as well as the U.S. Government’s continuing efforts to 

identify, freeze and repatriate Iraqi assets around the world. 

Allow me, Mr. Chairman, to commend the work of this Subcommittee, as well as your staff, as well as Mr. Duelfer, who was 

on the first panel, for pursuing this issue so aggressively and so 

well. 

Since Secretary Snow’s call on March 20, 2003, to engage in a 

worldwide hunt to find and repatriate stolen Iraqi assets back to 

the Iraqi people, the Treasury Department and the entire U.S. 

Government have worked intensely to do just that. In the course 

of this work, we have seen and uncovered a vast corruption of the 

sanctions regime by Saddam Hussein. 

It is clear now, Mr. Chairman, that Hussein’s thievery was the 

economic twin to his tyranny. It was Saddam Hussein who transformed the goodwill of the international community, represented in 

the OFF Program, into a corrupt enterprise. Although there may 

have been many who engaged in sanctions-busting and OFF-related schemes, such enterprises were the making of a malevolent 

dictator. 

In essence, the Hussein regime created a system of kickbacks, as 

we have heard today, skimming schemes and smuggling operations 

to bilk the international sanctions regime of all of its potential 

value and profits. He used the implements of the State, the central 

bank, commercial enterprises and his diplomatic and intelligence 

assets to help skirt international restrictions. 

In some cases, he used this system to attempt to procure weapons and other banned goods, all in an effort to fortify his regime. 

While the Iraqi people suffered under Hussein’s oppression, he and 

his sons paid for pleasure palaces and armaments. 

Our role, Mr. Chairman, as set out by the President and Secretary Snow, has been to try to find, freeze and repatriate Iraqi 

assets from around the world, be they official Iraqi assets or the 

assets looted by Hussein and his family members. This has been 

and continues to be quite a complicated mission. Even so, on a 

daily basis, through interviews, diplomacy and analysis, we have 

unmasked the financial webs used by the regime. 

Mr. Chairman, if you will allow me, I would like to lay out some 

of the achievements since March of last year and some of the important successes in returning assets to the Iraqi people. 

We have frozen nearly $6 billion of Iraqi-related assets worldwide. Since March 2003, over $2 billion of Iraqi assets have been 

newly identified and frozen outside the United States and Iraq. 

The United States, foreign countries, and the Bank of International 

Settlements have transferred back to the Iraqi people over $2.7 bilVerDate 0ct 09 2002 11:25 Apr 08, 2005 Jkt 097048 PO 00000 Frm 00062 Fmt 6633 Sfmt 6601 C:\DOCS\97048.TXT SAFFAIRS PsN: PHOGAN
57

lion in frozen Iraqi funds. Approximately $1.3 billion in cash and 

valuables have been recovered in Iraq. 

We continue to identify key individuals and entities who acted as 

operatives for Saddam Hussein. The Department of the Treasury 

has designated now 232 individuals, parastatals and front companies that formed part of the Hussein financial network pursuant to 

Executive Order 13315. Almost all of these names have been listed 

by the United Nations 1518 Committee, which is responsible for 

maintaining the list of Hussein-related entities. 

Mr. Chairman, two such designated front companies bear mentioning in the context of this hearing. On April 15, 2004, the Treasury Department designated Al Wasel and Babel Company, a UAEbased company, as a front for the Hussein regime. This company 

was controlled by, and acted on behalf of, senior officials of the 

former Iraqi regime. The Iraqis used this company to engage in 

OFF-related transactions and kickbacks, and also to attempt to 

procure restricted items, including a sophisticated surface-to-air 

missile system. 

Another such company which we designated was the Al-Bashair 

Trading Company. Al-Bashair acted as the largest of Iraq’s arms 

procurement front companies and was involved in a range of sanctions-busting and corruption schemes on behalf of the Hussein regime. Al-Bashair reported directly to the Organization of Military 

Industrialization, which was responsible for Iraq’s military procurement programs. 

We know from documents removed from Al-Bashair’s headquarters that the company was involved in a variety of deals involving sham contracts, kickbacks, falsified export documentation 

and money laundering designed to deceive UN inspectors. The company was then used to deliver, among other things, missile components, surveillance equipment and tank barrels to the former Iraqi 

regime. 

In Iraq, Mr. Chairman, and throughout the world, our financial 

investigators have uncovered well over 1,000 relevant accounts and 

interviewed key detainees, as well as bankers, lawyers and accountants who acted as financial facilitators for the regime. These 

efforts have yielded countless leads. 

An example of this occurred when our agents determined that 

the former Iraqi ambassador to Russia had stolen $4 million in 

Iraqi assets. As a result, that amount has been frozen in Russia, 

and we are working to have it repatriated. The Departments of 

Treasury and State have provided identifying information on over 

570 identified Iraqi bank accounts to 41 countries for review and 

follow-up. 

The Secretary of the Treasury has used Section 311 of the Patriot Act to identify two banks, the Commercial Bank of Syria and 

Infobank in Belorussia as ‘‘primary money laundering concerns,’’ in 

part because these institutions facilitated illicit financial activity 

with Iraq. Finally, we are working closely with others in the U.S. 

Government to trace U.S. currency seized in Iraq in order to determine the flow of funds that may support attacks within Iraq. 

All of these efforts are guided by the strong recognition that this 

mission is critically important for several reasons. Iraqi assets 

must first be recovered so that they can be used to pay pensioners, 

58

construct schools, equip hospitals and rebuild Iraq. It is equally imperative to recover Iraqi assets to prevent them from being used to 

fund the Iraqi insurgency and to keep them out of the hands of terrorists. The United States and the international community cannot 

permit these assets to be used against our troops, our Coalition 

partners and innocent civilians in Iraq. Finally, Mr. Chairman, our 

successful prosecution of this hunt serves as a strong warning to 

other rogue regimes which might seek to loot their countries and 

hide the stolen assets in the international financial system. 

Our commitment to the people of Iraq is unwavering. We are 

now working directly with them, with representatives from the 

Iraqi interim government, to help them take on many of the tasks 

we have previously led. Given the importance of this to the Iraqi 

people, I am confident that with time and training, the Iraqis 

themselves will be able to prosecute this asset hunt for as long as 

is necessary. 

Our domestic efforts and our U.S. efforts now have to be focused 

on finding sources of funding that are being used to foment violence and terrorism within Iraq. In coordination with others in the 

U.S. Government, that is precisely what we are doing. We owe a 

debt of gratitude, Mr. Chairman, to the civilians, especially the IRS 

Criminal Investigation Division agents in Baghdad who have 

served nobly, and our troops on the ground who are engaged in 

these worthy and important efforts. 

We appreciate the support of Congress and look forward to working with you. Again, Mr. Chairman, I thank you and the Subcommittee for your attention and for your diligent work on these 

very important issues. 

Senator COLEMAN. Thank you very much, Mr. Zarate. I want to 

get right into the question of terrorist financing. Before I do that, 

though, Saddam used front companies to hide illicit funds. Can you 

help me understand better how these companies were set up? And 

then I want to get to our ability to kind of track them down and 

get any of the money that they collected. 

Mr. ZARATE. Mr. Chairman, we have to date identified 11 classic 

front companies, and by front companies I mean those companies 

that were used and controlled by the regime itself, as opposed to 

companies that were simply doing business with the Hussein regime. 

What we have found is that certain companies were located outside of Iraq, companies like Al Wasel and Babel which I mentioned, 

which is based in the UAE. That company was used in part to engage in OFF-related contracts and deals, but at the same time it 

was engaged in operations to try to procure goods that were outside 

of the Oil-for-Food Program. 

There are other companies, some companies, for example, within 

Iraq that were established and controlled by Saddam Hussein, in 

some cases by Uday and Qusay. For example, there was one company, the Al-Hoda Tourism and Trade Company which was used as 

a front by Saddam Hussein’s sons to bilk religious pilgrims coming 

to Iraq to visit the Shiite holy shrines, to bilk them of upwards of 

$500 million—money that went into the hands of Saddam Hussein 

and his cronies. 

59

So there were a variety of different front companies located both 

outside of Iraq and within Iraq that were used to raise money, that 

were used to move money and ultimately to hide money as well. 

Senator COLEMAN. With the earlier witnesses, we had testimony 

about a Swiss account, Corsin Financial Limited, and our investigators have not been able to find any legitimate company with 

that name. Clearly, this company would have assets of tens of millions of dollars. 

What capacity do you have to track down that operation and to 

get access to Swiss accounts? 

Mr. ZARATE. Well, Mr. Chairman, we have since the start of this 

effort been working very closely with foreign counterparts around 

the world, including the Swiss. We, as the Subcommittee has done, 

and Subcommittee staff, have reached out to the Swiss Government 

with respect to this particular account and we are following up 

with the Swiss. 

We have several conduits to working with the Swiss. We certainly work very closely with their finance ministry and with their 

sanctions body, known as SECO. We also work with their prosecutorial bodies, and we have worked with them very closely, for example, in their freezing of over $140 million in Iraqi-related assets 

to date. So we have both official channels and powers of persuasion, as well, with our counterparts around the world, including the 

Swiss. 

Senator COLEMAN. Let me talk a little bit about terrorist funding. At the beginning of Operation Iraqi Freedom, the Bank of 

Syria, I believe, had over $1 billion of deposits on record from various Oil-for-Food abuses and smuggling protocols. Is that a fair 

statement? 

Mr. ZARATE. Yes, Mr. Chairman. It was approximately $1 billion 

that existed in what was then the combined account, the combined 

trade account and cash account that existed in Syria right before 

the commencement of the war. 

Senator COLEMAN. And the Syrians disbursed, I believe, $800 

million of that to what they claimed were bona fide, legitimate 

folks who they said were owed the money. Is that correct? 

Mr. ZARATE. Yes, sir. What we found was when we sent our investigators to Damascus upon review of the documents and review 

of the transactional data, it became clear that the Syrians had, in 

fact, paid out the vast bulk of the amount that had existed in that 

particular account. 

Senator COLEMAN. And they are claiming that these were legitimate brokers and traders. Have we had a chance to test the veracity of the Syrian claims? 

Mr. ZARATE. That is something we are working with the Syrians 

on as we speak. One of the things, and I mentioned it in my oral 

remarks, that we have done is to use the power that Congress gave 

us in Section 311 to pressure the Syrian government. It was the 

imposition of Section 311 actions against the Commercial Bank of 

Syria which have, in essence, opened the dialogue with respect to 

what was going on not only at the time of the war, but before the 

war, and what transactions have been facilitated by the Commercial Bank of Syria. 

60

Senator COLEMAN. Certainly, this Chairman, and I have no 

doubt this Subcommittee have deep concerns about this issue of 

terrorist financing, and the knowledge that there is $1 billion in 

Syrian accounts that have been disbursed without us getting information to verify, in fact, that there were legitimate traders or 

claims upon that. 

We have folks on the front line right now who are sacrificing 

their lives and who are under fire, and somewhere, somehow, there 

is money being used to fuel that insurgency. And I would just hope 

that a very strong message is delivered to the Syrians that we get 

their cooperation, that we track this down and we figure out what 

is what. 

Mr. ZARATE. Mr. Chairman, let me assure you that this issue has 

been front and center in terms of the dialogue with the Syrian government. It is front and center in terms of the Section 311 action 

taken. It has been part of the dialogue at the highest levels, so we 

are very much concerned, as you are, that the amounts paid out 

were either not paid out to legitimate claimants or were paid out 

to people who are attempting to do us harm now. 

Senator COLEMAN. Is there anything else that you can tell us 

about the possibility of the money that Saddam pilfered, stole from 

the Oil-for-Food Program or in violation of the UN sanctions—anything more you can tell us about whether that money is being used 

to fuel an insurgency right now? 

Mr. ZARATE. Mr. Chairman, I can’t speak in this forum to specific 

evidence, but it is certainly a concern of ours that assets that are 

not yet frozen, that are unattended to in a sense, could be used by 

former regime elements to fuel the insurgency. 

I think what we are concerned about are, in essence, three pools 

of money that could be fueling the terrorist attacks we see within 

Iraq. First are these unattended-to, former regime-related assets, 

and that is why we continue to work on it. We also have assets 

within Iraq, and that is why the Department of Defense, our soldiers on the ground, the FBI, and others are working so hard to 

try to find those caches of cash within Iraq. And then, finally, you 

have traditional sources of terrorist funding in the region which are 

mobilizing for the Iraqi jihad, in essence. So it is all three pots of 

money there that are of concern to us. 

Senator COLEMAN. And the amounts of money that are involved 

here are pretty overwhelming. You have indicated you have recovered about $6 billion? 

Mr. ZARATE. Six billion, worldwide. 

Senator COLEMAN. And if we have estimated over a 10-year period $21 billion, you could build all the castles you want, but that 

is not going to account for $21 billion, is it? 

Mr. ZARATE. That is right, sir. I think one of the challenges is 

nobody, including GAO, Mr. Duelfer, or even the Treasury Department, has been able to account for how much of that was spent, 

how much of that was used by agents abroad, how much of that 

was simply used as part of the ongoing governance of Iraq. So it 

is very hard to tell how much is still lingering out there. 

Senator COLEMAN. What can we do within this Congress to assist 

you in your ability to recover these stolen, pilfered funds and getVerDate 0ct 09 2002 11:25 Apr 08, 2005 Jkt 097048 PO 00000 Frm 00066 Fmt 6633 Sfmt 6601 C:\DOCS\97048.TXT SAFFAIRS PsN: PHOGAN
61

ting them back to the purposes that they were supposed to be used 

for? 

Mr. ZARATE. Mr. Chairman, I think continuing this investigation 

is critical. As I mentioned in my written testimony, as well as my 

oral testimony, our mandate has been to try to find and repatriate 

Iraqi assets abroad. It has not necessarily been our mandate to investigate the Oil-for-Food Program or activities of companies 

abroad that traded with Iraq. Your work in that respect and with 

respect to what was happening at the UN would be extremely beneficial to us and it is already bearing fruit, I would think. 

Senator COLEMAN. Anything legislatively that we need to do? 

Mr. ZARATE. Mr. Chairman, if I could, I would like to take that 

back and think about it a bit. Let me just emphasize again—and 

this is a credit to Senator Levin and to others—the power that 

Congress gave us in Section 311 of the Patriot Act is an incredibly 

helpful tool because it allows us to identify actual foreign institutions that present a money laundering concern. And sanctions-busting falls within the category of money laundering issues, so that 

has been an incredibly important power. 

Senator COLEMAN. Thank you. Senator Levin. 

Senator LEVIN. Thank you, Mr. Chairman, and thank you for 

your testimony, Mr. Zarate. When you just made reference to the 

amount of money which you have tracked down of Iraqi assets held 

abroad, that is from whatever source, correct? 

Mr. ZARATE. Yes. 

Senator LEVIN. That figure that you used does not necessarily 

flow from any of the subject matter of this Subcommittee’s current 

inquiry. Is that correct? 

Mr. ZARATE. That is correct, Senator. 

Senator LEVIN. Some of it may have come from that. 

Mr. ZARATE. Exactly. 

Senator LEVIN. But you haven’t identified what the source of 

those funds are, if they were Iraqi government funds. You are after 

them regardless of the source. 

Mr. ZARATE. Yes, Senator. 

Senator LEVIN. It could be oil, it could be humanitarian contracts 

with kickbacks. Whatever the source is—it could be totally different from that—you are after it. 

Mr. ZARATE. Yes, Senator. Actually, one of the issues I would 

clarify is that in terms of companies that were actually trading 

with Iraq and may have perhaps garnered profits or benefits from 

that trade, we are not necessarily looking at that. We are looking 

for assets that were controlled by the former Iraqi regime. 

Senator LEVIN. Now, the Chairman talked about Syria being a 

real concern for us, and it surely is. We at one point, according to 

Secretary of State Powell, received assurances that Syria would 

place its trade with Iraq under the UN Oil-for-Food Program. It did 

not meet that commitment. 

Do you remember that? 

Mr. ZARATE. Yes, Senator. 

Senator LEVIN. What was our response when they did not live up 

to the commitment that they made to Secretary Powell? 

Mr. ZARATE. Senator, I can’t speak for the Secretary or the State 

Department generally, but I will say that this Administration imVerDate 0ct 09 2002 11:25 Apr 08, 2005 Jkt 097048 PO 00000 Frm 00067 Fmt 6633 Sfmt 6601 C:\DOCS\97048.TXT SAFFAIRS PsN: PHOGAN
62

plemented vigorously the Syrian Accountability Act, and in coordination with that the Section 311 actions. And as I mentioned, at 

the core of the Section 311 decision by the Administration, by the 

Secretary of the Treasury, was the fact that not only had the Commercial Bank of Syria been used to facilitate the illicit financial activity that we are talking about here today, but the fact that the 

Syrians had not taken action to secure the assets that were rightfully the Iraqis and have failed to still transfer money that is frozen within the Syrian banking system. 

Senator LEVIN. You say that you are working now with Syria to 

try to identify the actual use of the money which has disappeared 

or moved out of the accounts. Is that correct? 

Mr. ZARATE. Yes, Senator. One of the things that we are trying 

to do is we are brokering a discussion between the Iraqis themselves and the Syrians to actually review the payments made out. 

Our figures are closer to about $600 million, but to review those 

payments and to verify who exactly received them, under what 

claims. 

Not only is it important in terms of the very important concerns 

the Chairman mentioned, but it also goes to the very integrity of 

the sanctions program itself and Security Council Resolution 1483 

which requires the repatriation of these assets. 

Senator LEVIN. How would you characterize Syria’s level of cooperation at this point in trying to identify where that money 

went? 

Mr. ZARATE. I would have to say poor, Senator. 

Senator LEVIN. I think we are going to need from the Administration, perhaps not from you, but for the record what the steps are 

going to be to improve that cooperation. Can you, if it is all right 

with the Chairman, supply that for the record? 

Mr. ZARATE. I am glad to get back, Senator. 

Senator COLEMAN. That request will be forthcoming. 

Mr. ZARATE. Absolutely. 

Senator LEVIN. You have indicated you are working with the 

Swiss on the Corsin Financial issue, or have you not yet begun 

that? 

Mr. ZARATE. Senator, just very recently—in fact, this is one of 

the fruits of your labor, actually, working with your staff. We are 

following up, as well, to try to help you and to help ourselves. 

Senator LEVIN. All right. I know all of the staff has been involved 

in a whole host of issues. That is one of the things we have taken 

on and it would be helpful to the Subcommittee if you can do what 

we have been unable to do, which is to get the Swiss to answer the 

question relative to that particular account. 

What about bank accounts in Jordan? What is the level of cooperation with that government? 

Mr. ZARATE. Cooperation with Jordan has been generally very 

good. The Jordanians have been fairly open with us in terms of 

sharing account information. We have had investigators out in 

Amman looking at accounts. There is always an issue with respect 

to looking behind certain transactions or accounts, so we are continuously working with the Jordanian government to try to get at 

some of the activity behind the accounts and transactions we have 

reviewed. 

63

I will note that the Jordanian government has been very cooperative in terms of returning Iraqi assets. They have repatriated now 

$250 million back into the Development Fund for Iraq. We consider 

that to be significant, especially in comparison to Syria which has 

transferred zero. 

Senator LEVIN. You have graciously made reference to my efforts 

on the Patriot Act to require some due diligence from U.S. banks 

when they open accounts for senior foreign government officials or 

their associates, or wealthy foreign individuals or foreign financial 

institutions. 

The regulations pursuant to that Act have not yet been issued. 

Can you tell us when they will be issued? 

Mr. ZARATE. Senator, that section of the Patriot Act, Section 312 

which you know well, is frankly the most complicated, I think, of 

the measures coming out of Title III of the Patriot Act. We issued 

the interim final rule in July 2002 which has the force and effect 

of law. In fact, Senator, I would note that there have been a couple 

of enforcement-related actions based on those very rules recently. 

I cannot give you a specific date, but I will tell you that this is 

at the top of the priority at the Treasury Department. But I will 

also tell you, Senator, that it is a very complicated rule, given the 

impact both on the banking system as well as on the enforcement 

community. 

Senator LEVIN. Well, obviously, we are looking forward to the 

final regulations. 

What is the role of the Office of Foreign Assets Control in the 

review of contracts which are submitted to the UN for the purchase 

of humanitarian goods? Is there a role at all? 

Mr. ZARATE. OFAC, the Office of Foreign Assets Control, is the 

body within the U.S. Government that administers all the economic 

sanctions. We currently administer 29 of the sanctions programs, 

varying from Burma all the way to the terrorist financing program 

which everyone is quite aware of. 

OFAC, once the OFF Program was instituted, had the responsibility of administering the regulations. With respect to executory 

contracts that were allowed with Iraq, OFAC on a case-by-case 

basis did review the contracts and did review to make sure that the 

UN 661 Committee had approved of the transactions. During the 

course of the OFF Program, OFAC issued over 1,000 licenses to 

allow for the legitimate commerce with Iraq under the Iraqi regulations that they administered. 

Senator LEVIN. Now, was OFAC responsible for reviewing the 

price of the contracts for reasonableness? 

Mr. ZARATE. I would have to go back and check, Senator, to see 

if on the case-by-case basis we would review the price. I would 

think that perhaps that was part of the process, but again I would 

have to check to make sure it was done in each and every instance. 

Senator LEVIN. Well, if it was done at all, because one of the big 

issues here is how was that not found out when there would be an 

increase in the price from the first bid to the second bid or where 

the price seemed to be out of keeping with what the market price 

was. Why wouldn’t the committee at the UN have been alerted or 

found out on its own that that discrepancy existed so it could have 

done an investigation? 

64

If you could go back and check your records and see whether or 

not that was your—when I say ‘‘your,’’ I am talking about the 

OFAC function which I understand is under your supervision. 

Mr. ZARATE. Yes, Senator. 

Senator LEVIN. If that was OFAC’s function or responsibility; if 

so, whether or not they ever identified contracts where there was 

that discrepancy, and if so, whether the secretariat at the UN or 

that committee, which is the 661 Committee, was notified of that 

discrepancy. That would be helpful for the record. 

Mr. ZARATE. Absolutely. 

Senator LEVIN. Thank you. 

Senator COLEMAN. Thank you. Senator Graham. 

Senator GRAHAM. Thank you, Mr. Chairman. 

These 1,000 licenses that were issued, are those to American 

companies by the American Government? 

Mr. ZARATE. Yes, Senator. Those were for delivery of humanitarian goods, as well as oil field parts and general commercial activity that was allowed under the Iraqi sanction regulations. 

Senator GRAHAM. So if you are an American-based company and 

you want to participate in this program, you have to get a license 

from our government? 

Mr. ZARATE. Yes, sir. 

Senator GRAHAM. Have you dealt with the UN at all in your investigation? 

Mr. ZARATE. Not in the context, Senator, of the Oil-for-Food Program and sort of the scandal surrounding it. We have certainly 

dealt with the UN in the context of designating front companies, 

designating the parastatals and some of the——

Senator GRAHAM. Have they been cooperative? 

Mr. ZARATE. The UN has been very cooperative. In fact, the 1518 

Committee which is responsible for this job, which is chaired by the 

Romanian ambassador, is very cooperative. We have certainly been 

working through potential problems that we have had with certain 

states, member states, that object to some of the designations, but 

we have generally worked through those and been able to designate the vast majority of nominees. 

Senator GRAHAM. What about Belarus? 

Mr. ZARATE. Belarus has been silent in the context of these 

issues. They certainly were not pleased when we issued the Section 

311 designation of Infobank. That designation, I think, is significant because it lays out pretty clearly that Infobank was being 

used quite obviously to help in terms of procurement of military 

equipment from Belorussia to Iraq. 

Senator GRAHAM. One last thing I might suggest. The Subcommittee has done a great job of identifying organizations that 

have very troubling names and that have a history of international 

connections to terrorism that have allegedly, by Iraqi documents, 

received various units of oil that could be converted to monetary 

benefit for these organizations. 

Have you looked into that aspect at all? 

Mr. ZARATE. We have started to look into that based in part on 

the work of this Subcommittee. And, again, what I said earlier I 

meant, which is your work is bearing fruit and the work of your 

staff is bearing fruit. And documents that you come up with—the 

65

PFLP reference in terms of the voucher is extremely significant to 

us and it is something that we plan on following up on, and frankly 

was not known to us before. 

Senator GRAHAM. Thank you. 

Senator COLEMAN. Thank you very much, Mr. Zarate. I appreciate your testimony and I appreciate the work that you are doing 

and will continue to do. It is very important to all of us. 

Senator COLEMAN. I am going to keep the record open for 2 

weeks. 

Before we close this hearing, I would defer to my Ranking Member for any closing comments. 

Senator LEVIN. Just very briefly, Mr. Chairman, first of all let 

me join you in thanking Mr. Zarate for the work that he and the 

Treasury are doing. And I want to thank you again, Mr. Chairman, 

for your very thorough and tenacious work in this area. 

It is an intriguing subject because we start with the premise that 

sanctions were working, UN sanctions were working, and then we 

had Saddam who was trying to get out from under them. But according to both Secretary Powell and others, we had a sanction regime which was in place which was succeeding in stopping Iraq 

from re-arming. And so you had Iraq trying to undermine that regime. They did it in a number of ways. 

First, they did it in a corrupt way, a secretive way, which we 

have heard about today. But, ironically, the bigger amount of 

money that they were able to obtain came from sales agreements 

that they had with neighbors that were open and which we acquiesced in. They are both a problem as far as I am concerned. Even 

though the corrupt amount is a smaller amount, in the few billions, 

and the amount of the open sales which were a way of circumventing the Oil-for-Food Program and were outside of the Oil-forFood Program represented about four times that amount, they both 

represented a problem because they both put money in Saddam’s 

pocket and they both were aimed at undermining a regime which 

was otherwise working. 

I would hope that we look, in addition, to what we are doing with 

the UN, which is, I think, very important. And I know the UN—

after talking with the head of the UN, it is something that they 

are very much interested in getting to the bottom of, too. I have 

to believe that when the Secretary General tells us that he wants 

to find out if there is truth to the allegation which is created by 

that document that the head of the UN program himself received 

these monies or these rights, that is extremely troubling thing. 

But we also have to keep our eye on another ball, which is what 

did we do or what did we fail to do as a country? And we decided 

that the amount of money which Saddam was getting from these 

oil sales to Syria and to Jordan and to Turkey, for instance, was 

something that we would acquiesce in. We knew about it. Two 

Presidents of both parties waived any action that would be taken 

in response to those sales even though they circumvented the Oilfor-Food Program. That represents a very intriguing kind of a dynamic which it seems to me we have to be willing to look at in 

terms of future sanction regimes. 

We want sanctions to work. It is important. It is one of the tools 

which we have. It is not a perfectly effective tool. It is not like takVerDate 0ct 09 2002 11:25 Apr 08, 2005 Jkt 097048 PO 00000 Frm 00071 Fmt 6633 Sfmt 6601 C:\DOCS\97048.TXT SAFFAIRS PsN: PHOGAN
66

ing military action in many ways, but it is a tool, and it is this 

Subcommittee’s determination, I think, that we make this tool 

work better and that we look at the failures and the flaws during 

the Iraq years so that we can see if we can’t have a stronger, 

tougher regime of sanctions that the world community can impose 

to try to change conduct short of war. 

With that comment, Mr. Chairman, I just want to again thank 

you and the staff that have been working so hard. Your staff, my 

staff, all of our staffs have been working hard on this matter, and 

I think they have produced some very important documents and 

material. 

Senator COLEMAN. Thank you. Senator Graham. 

Senator GRAHAM. Thank you for letting me come, Mr. Chairman. 

It has been an excellent job by your Subcommittee. Thank you. 

Senator COLEMAN. Thank you. I thank Senator Levin and the 

witnesses. This has been very helpful. This really is a start. We 

have got a lot more work to do. We need greater cooperation from 

the United Nations. They have an important stake in getting to the 

bottom of this. This Subcommittee can help and we are prepared 

to do that. We will get to the bottom of this. It may take a little 

while. 

With that, this hearing is adjourned. 

[Whereupon, at 3:30 p.m., the Subcommittee was adjourned.] 

(67)

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