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20–921PDF 2005

THE ROLE OF BNP-PARIBAS SA IN THE UNITED

NATIONS OIL-FOR-FOOD PROGRAM

HEARING

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND 

INVESTIGATIONS

OF THE

COMMITTEE ON 

INTERNATIONAL RELATIONS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

APRIL 28, 2005

Serial No. 109–72

Printed for the use of the Committee on International Relations

(

Available via the World Wide Web: http://www.house.gov/international—relations 

(II)

COMMITTEE ON INTERNATIONAL RELATIONS 

HENRY J. HYDE, Illinois, Chairman 

JAMES A. LEACH, Iowa 

CHRISTOPHER H. SMITH, New Jersey, 

Vice Chairman 

DAN BURTON, Indiana 

ELTON GALLEGLY, California 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

EDWARD R. ROYCE, California 

PETER T. KING, New York 

STEVE CHABOT, Ohio 

THOMAS G. TANCREDO, Colorado 

RON PAUL, Texas 

DARRELL ISSA, California 

JEFF FLAKE, Arizona 

JO ANN DAVIS, Virginia 

MARK GREEN, Wisconsin 

JERRY WELLER, Illinois 

MIKE PENCE, Indiana 

THADDEUS G. MCCOTTER, Michigan 

KATHERINE HARRIS, Florida 

JOE WILSON, South Carolina 

JOHN BOOZMAN, Arkansas 

J. GRESHAM BARRETT, South Carolina 

CONNIE MACK, Florida 

JEFF FORTENBERRY, Nebraska 

MICHAEL MCCAUL, Texas 

TED POE, Texas 

TOM LANTOS, California 

HOWARD L. BERMAN, California 

GARY L. ACKERMAN, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

DONALD M. PAYNE, New Jersey 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

BRAD SHERMAN, California 

ROBERT WEXLER, Florida 

ELIOT L. ENGEL, New York 

WILLIAM D. DELAHUNT, Massachusetts 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

JOSEPH CROWLEY, New York 

EARL BLUMENAUER, Oregon 

SHELLEY BERKLEY, Nevada 

GRACE F. NAPOLITANO, California 

ADAM B. SCHIFF, California 

DIANE E. WATSON, California 

ADAM SMITH, Washington 

BETTY MCCOLLUM, Minnesota 

BEN CHANDLER, Kentucky 

DENNIS A. CARDOZA, California 

THOMAS E. MOONEY, SR., Staff Director/General Counsel 

ROBERT R. KING, Democratic Staff Director 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

DANA ROHRABACHER, California, Chairman 

EDWARD R. ROYCE, California 

JEFF FLAKE, Arizona, Vice Chairman 

MARK GREEN, Wisconsin 

MIKE PENCE, Indiana 

JOE WILSON, South Carolina 

WILLIAM D. DELAHUNT, Massachusetts 

HOWARD L. BERMAN, California 

EARL BLUMENAUER, Oregon 

ADAM B. SCHIFF, California 

GREGG RICKMAN, Subcommittee Staff Director 

GREGORY MCCARTHY, Professional Staff Member 

CLIFF STAMMERMAN, Democratic Professional Staff Member 

TOD HULL, Special Assistant 

(III)

C O N T E N T S 

Page

WITNESSES 

Mr. Everett Schenk, Chief Executive Officer, BNP-Paribas SA of North America .......................................................................................................................... 60

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

The Honorable Dana Rohrabacher, a Representative in Congress from the 

State of California, and Chairman, Subcommittee on Oversight and Investigations: Documents provided to the Committee ............................................. 3

Mr. Everett Schenk: Prepared statement .............................................................. 65

(1)

THE ROLE OF BNP-PARIBAS SA IN THE 

UNITED NATIONS OIL-FOR-FOOD PROGRAM 

THURSDAY, APRIL 28, 2005

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON INTERNATIONAL RELATIONS, Washington, DC. 

The Subcommittee met, pursuant to call, at 2:30 p.m., in room 

2200, Rayburn House Office Building, Hon. Dana Rohrabacher 

(Chairman of the Subcommittee) presiding. 

Mr. ROHRABACHER. This Subcommittee will come to order. The 

Subcommittee on Oversight and Investigations will come to order. 

And, Howard, are you going to join us today? 

This afternoon, we will examine the role of Banque Nationale de 

Paris (BNP) and the operation of the finances of the Oil-for-Food 

Program. The Full Committee, under Chairman Hyde, examined 

BNP last November. The responses we received then were not satisfactory, which has become even more evident as this scandal has 

unfolded. At that hearing, for example, BNP witnesses denied any 

problems with payments in the program. This just does not seem 

consistent with what has been disclosed since that November hearing. 

In that November hearing, we found that one recipient of misdirected payments in the program was a shadowy company called 

East Star Trading. According to BNP’s contract with the United 

Nations, this company was not authorized to receive these payments as they were not the original party to the transaction. This 

is a third party being paid for what someone else is doing. The payment was supposed to go to a company called Al-Riyadh International Flowers. According to the terms of BNP’s contract with 

the United Nations, only financial institutions could have funds reassigned to them. I want to stress that East Star Trading is not 

a financial institution, and even BNP recognizes that. 

While we initially believed that there were only three improper 

transfers to East Star, we now believe that there were at least dozens of such transfers. We have also learned that there were, in 

fact, at least 400 payments like this to other companies. We still 

do not fully understand what kind of company East Star Trading 

is, and we are anxious to find out. We are told by BNP that East 

Star is part of a consortium that has participated in other Oil-forFood transactions. There are some allegations that East Star has 

conducted itself in a way that is a little bit more disconcerting than 

conduct that is simply part of the consortium. These charges will 

require some research and we will be doing just that. 

2

As to the company that was supposed to get the payments, AlRiyadh International Flowers, we know a bit more. We now understand that the company was owned by Prince Bandar bin Mohammad, a member of the Saudi royal family. Let me note that he is 

not the same Prince Bandar who is the Ambassador from Saudi 

Arabia to the United States. Prince Bandar is, of course, not someone who would be involved in this type of operation, or at least we 

do not have any evidence of that. But let me note, this is not the 

same Prince Bandar who is the Ambassador, and his integrity has 

not been called into question by this investigation. 

In 2003, the Defense Contract Audit Agency, DCAA, received 

some remaining Oil-for-Food contracts for potential overpricing. 

They reviewed these for some of the potential overpricing that we 

thought was happening. Some of these contracts were suspicious, 

and overpricing was evident in some of these contracts. Apparently, 

some of them belonged again to Prince Bandar’s company. The 

auditors found at least three instances in which Al-Riyadh overpriced goods destined for Iraq in the Oil-for-Food Program. It was 

through overpricing of goods that kickbacks were made to Iraq—

by inflating the price of goods and kicking back the difference to 

Saddam’s henchmen. 

DCAA found that over $8 million of such examples of overpricing 

could be found in these transactions. BNP suggests that all of this 

was normal practice—and we will be talking about that today—and 

that all of these funds were fully accounted for, causing no loss to 

the program. 

In his prepared statement, Mr. Schenk admits that mistakes 

were made by BNP, but contends that they were in fact avoidable, 

and this is good. The question remains, however: Why were these 

payments made, period? More importantly, there are still 80 such 

transactions being reviewed, and BNP does not fully understand 

exactly what was going on in these 80 transactions. We want to 

talk about that as well. Moreover, the Committee has obtained documents from BNP concerning internal audits the bank prepared for 

itself on the program. In two audits from 2000 and 2001, BNP 

auditors reported that the bank’s operating procedures were out of 

date as of January 1997, soon after the program began and that 

the flow of paperwork, according to these audits, was even at that 

time irrational. 

At this time, I would like to ask unanimous consent that I submit for the record several documents provided to the Committee 

concerning these payments, including the report prepared by BNP 

on the hundreds of third-party payments made by the bank as well 

as the two internal audits I just mentioned. Without objection, so 

ordered. 

[The information referred to follows:]

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Mr. ROHRABACHER. On top of all of this, we have BNP’s own 

auditors warning that the bank was unprepared to run the program from the beginning. This only reinforces Paul Volcker’s findings that BNP did not qualify according to the original bidding 

process created by the United Nations in 1995. How much more is 

out there that we do not know yet about BNP’s performance and 

the Oil-for-Food scandal, especially in terms of this specific contract 

that BNP had with the United Nations? 

We are going to ask a lot of questions, and there is a lot more 

we have to find out. I must say, what we have already found out 

about BNP in the past months is disturbing. It shows the bank’s 

operations for the Oil-for-Food Program; basically its operation was 

insufficient for the task, and it makes me wonder if the bank cared 

at all about the risk that it placed on its investors by running the 

Oil-for-Food Program in the manner that it did. This afternoon, we 

hope to obtain some answers to these and other questions when we 

hear testimony from the various BNP directors present: Mr. 

Schenk, BNP’s North American CEO; Patricia Herbert, the Director of the Oil-for-Food Program; William Vassallo, BNP’s auditor 

for the program; and Harold Lehmann, former Director of BNP’s 

Trade and Finance Department and the person who authorized 

some of the reassignments of payments from Al-Riyadh International Flowers to the East Star Trading Company, which we will 

be asking him about today. 

I want to thank the witnesses for being with us today. Our Republicans should be joining us after the Republican Conference is 

over. And I will turn now to Mr. Delahunt for any opening statement he would like to make. 

Mr. DELAHUNT. Thank you, Mr. Chairman. 

I am going to use my time to express my frustration. I understand that, today, an Administration representative came to brief 

staff about the Administration’s thoughts on reform of the United 

Nations. This Subcommittee had a public hearing on U.N. reform 

scheduled a few weeks ago, but the Administration would not testify, so the hearing was canceled. Are we ever going to have hearings on the Administration’s thoughts on U.N. reform, let alone 

other policies in the United States Government? I am going to 

make a request right here that a representative of the Administration come before the Subcommittee in public session and respond 

to our questions and explain their position on U.N. reform. 

Now maybe they are consulting with individuals in the Majority 

Party, but I am unaware of anything beyond today’s staff meeting. 

My point is that part of this panel’s mandate is investigations. But 

additionally, we are required to conduct oversight of the Executive 

Branch within the jurisdiction of the Full Committee. But all of our 

efforts to date have been to investigate the United Nations or 

multi-lateral banks or companies that employ Kofi Annan’s son. 

Now that is fine, and that is good, but we seem to avoid examining 

the role of the Administration when it comes to the issues involving 

the United Nations and, in particular, its role in the so-called Oilfor-Food Program and what occurred over the course of the past 10 

years. 

I want to have hearings on why the Administration allowed Saddam to continue with trade protocols with Jordan and Turkey and 

55

Egypt and Syria. According to the report by Charles Duelfer, the 

President’s hand-picked inspector, those trade protocols and oil 

smuggling earned Saddam $9 billion—as can be seen over by that 

chart that is sitting on the easel—six times as much money as he 

was able to skim from the Oil-for-Food Program. Where did that 

money go? Some have said that allowing those protocols, or looking 

the other way, was a policy decision. But we have yet to hear from 

anybody from the Administration to come before us and to explain 

the rationale for that policy. Whatever the reason, it certainly—and 

I think this is indisputable—facilitated Saddam Hussein’s oppression of the Iraqi people and reinforced his hold on power. And we 

should look into the reason why the Security Council, of which we 

are a member, approved at least 70 Oil-for-Food contracts that the 

United Nations warned the Security Council were overpriced. Why 

didn’t the U.S. mission raise objections in these instances? Why? 

And I would submit that we owe it to the American people and 

Iraqi people to provide a full and complete answer. And what kind 

of message does this send? We are willing to look at others and 

scrutinize them, but not review our own actions? 

Additionally, we should investigate why, in February 2003, just 

before the invasion of Iraq, the Administration allowed 14 supertankers filled with millions of barrels of Iraqi oil to sail away under 

the noses of our interdiction effort even after the U.N. directly 

warned the Bush Administration about the operation in time for us 

to stop it. And we should be investigating the findings by the inspector general for Iraq’s reconstruction that the Coalition Provisional Authority managed to lose track of over $8 billion of Iraqi 

money in a single year. Here we are accusing the U.N. of incompetence and corruption for losing $1.5 billion over 8 years, and we 

cannot account for $8 billion that was in our custody. Maybe because, as this photo graphically demonstrates, the Administration 

was handing out Iraqi Oil-for-Food money in cash. In cash. What 

kind of message does that send? If you are a foreign bank that 

keeps good records and are transparent about it, we will look at 

you. But if you are the U.S. Government and doing your business 

in cash, we will give you a pass? 

There are other issues, Mr. Chairman, that we could look into. 

I know you have an interest in what occurred in the aftermath and 

prior to the Oklahoma City bombing. For my part, a couple of 

weeks ago, I sent a letter to you and the Chair of the Full Committee about a notorious terrorist, whose name is Luis Posada 

Carriles, responsible for the bombing of a civilian Cuban airliner 

resulting in the deaths of some 73 civilians, and allegedly, he is 

here in the United States, and he is even seeking political asylum. 

Let us have a hearing on that. 

Rather than focus on any oversight of the Government that we 

are actually part of, we are here today to discuss the role of BNP 

Paribas in the Oil-for-Food Program, even though it is anticipated 

in the Volcker Commission’s final report; they will address BNP’s 

conduct. I understand that there are allegations that BNP did not 

fully investigate who they were giving the money to, and they violated the terms of their contract. That very well may be the case, 

but I am not a banking expert, which is understandable because 

this is not the Financial Services Committee. But I think it is imVerDate Mar 21 2002 14:47 Oct 14, 2005 Jkt 000000 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 F:\WORK\OI\042805\20921.000 HINTREL1 PsN: SHIRL
56

portant to keep in mind that all of the contracts that BNP fulfilled 

were reviewed by the 661 Committee. In fact, if BNP was giving 

money to bad people, then we should have known about it because 

of our presence on the Security Council. But having said all that, 

let me conclude by saying, welcome to the witnesses that are testifying here today. 

Mr. ROHRABACHER. This Chairman intends to have a policy of 

permitting the opening statements of the Chair and Ranking Member, but also a very brief, perhaps 1 minute, opening statement. 

Mr. ROYCE. If Howard did not make an opening statement——

Mr. ROHRABACHER. Would you like to make a 1-minute opening 

statement? 

Mr. BERMAN. Give me 1 minute of thought. 

Mr. ROHRABACHER. Mr. Royce for 1 minute and then Mr. Berman. 

Mr. ROYCE. One of the reasons this Committee is pursuing BNP 

on this issue is, according to the Independent Inquiry Committee 

for the United Nation’s Oil-for-Food Program chaired by Paul 

Volcker—because of opposition by the United States to the choice 

of the Swiss bank, despite the fact that the bank had not been included on the U.N.’s list of qualified banking vendors and not meeting the U.N. treasurer’s criteria—somehow Banque Nationale de 

Paris was chosen by former Secretary-General Boutros BoutrosGhali. Iraq had shown a preference for this particular bank as the 

bank had been used by the Iraqi Central Bank for its corresponding banking needs in Europe. Despite these deficiencies, 

Banque Nationale de Paris was awarded the contract, and it began 

providing banking services to the United Nations, administering 

the Letters of Credit Program. And the process, complicated as it 

was, necessitated interaction between the companies supplying the 

goods to Iraq and BNP. And it is in this part of the process that 

this Subcommittee is concerned. 

At the Full Committee hearing into BNP’s activities on November 17 in which we participated as Members of Congress, it was 

disclosed at that time that a company participating in the program, 

Al-Riyadh International Flowers, asked BNP for permission to reassign the proceeds for its payments from the letters of credit to 

an unauthorized third party, East Star Trading. According to the 

contract between BNP and the U.N., this practice was forbidden 

except if the reassignment was made to a financial institution, and 

East Star Trading is not a financial institution. And everyone understood that. And BNP conceded that point during the hearing. 

The Committee was told by the U.S. mission to the U.N. that the 

U.N. did not give BNP permission to reassign the proceeds from 

these letters of credit. 

In the hearing on November 17, BNP was unable to provide a 

satisfactory explanation as to why they went ahead with the reassignment. Since that time, the Committee has subpoenaed BNP for 

the documents that detailed these and other deals between Al-Riyadh International Flowers and East Star Trading in an effort to 

determine why the reassignment occurred, who authorized these 

improper transfers to an unauthorized company, and details involving both companies. I think it is important we get to the bottom 

of this. And we can do it if we get cooperation. Frankly, if we are 

57

going to clean up the type of corruption that we have seen in programs like this, rather than turn a blind eye, I think when we find 

indications of kickbacks of this magnitude, it is important to find 

out who exactly is involved. That is what we are trying to find out. 

Mr. ROHRABACHER. Thank you, Mr. Royce, for your focus. 

And Mr. Berman. 

Mr. BERMAN. Mr. Chairman, I do not have any prepared statement, but I would like to just reconcile a couple of the points I have 

heard. I certainly do not think there is anything wrong with us reviewing one aspect of the Oil-for-Food Program and having a hearing and hearing the issues and hearing if there are answers to the 

concerns we have. 

But I do want to say that in the context of creating an appearance of objectivity, Mr. Delahunt makes, I think, some important 

points. The issue of how two Administrations—one Democratic and 

one Republican—dealt with their review of the contracts on the 661 

Committee—and there are legitimate arguments for why their 

focus was on proliferation issues and perhaps—I mean there are 

arguments that deserve to be heard and there are some good arguments for why Jordan and Turkey got special treatment, notwithstanding the sanctions. Syria, I do not quite understand as well. 

But the notion of at least having that discussion as part of our 

oversight responsibilities, once we are getting into the mess that 

occurred as a result of our very understandable decision—and I 

was a strong supporter of our effort to limit Saddam’s ability to get 

the currency which would allow him to pursue the re-arming of his 

country and, as we thought at the time, a program of weapons of 

mass destruction. So the only thing I would argue for, as you contemplate scheduling hearings, I think it is appropriate to have the 

Administration come forward and just make the case why they continued policies started in the previous Administration regarding 

those countries and what the 661 Committee was doing. And it creates a dynamic that says: We are out here wherever the chips fall 

where they may; we are looking at this thing from an evenhanded 

point of view. And we can have that discussion. 

I remember going to Jordan before the Iraq war and hearing Jordan talk about what the economic consequences of sanctions on 

Iraq were to Jordan. And I can understand that it may not have 

been the right call, but I can also understand the foreign policy 

reasons why you might want to give Jordan some flexibility at that 

particular point given the general role that Jordan was playing in 

terms of its own policies. 

Mr. ROHRABACHER. Very wise of you, Mr. Berman. 

Mr. BERMAN. Let us bring it out and discuss it and check it out. 

Mr. ROHRABACHER. Thank you, Mr. Berman. 

And Mr. Wilson. And these are supposed to be 1 minute—little 

thoughts. 

Mr. WILSON. Thank you, Mr. Chairman. 

I just want to restate my appreciation for your leadership. I have 

the highest regard and faith in the integrity and the abilities of 

Congressman Dana Rohrabacher to be our leader. I am particularly 

very hopeful, as we learn about the Oil-for-Food Program and as 

additional articles and media coverage are published and indictments are made, that all of us will be working together to do all 

58

that we can to possibly assist in the recovery of funds as was intended by the Oil-for-Food Program to benefit the people of Iraq. 

Thank you, Mr. Chairman. 

Mr. ROHRABACHER. Several questions were directed toward the 

Chairman in the opening statements, so I thought I would certainly answer them before we proceed. 

First of all, Mr. Delahunt, could you tell us who these people are 

again in this picture here? 

Mr. DELAHUNT. Frank Willis to the left. He is a senior Coalition 

Provisional—sorry, Frank Willis in the middle. 

Mr. ROHRABACHER. Who is on the left? 

Mr. DELAHUNT. Darrell Trent. 

Mr. ROHRABACHER. You are not sure who is who? 

Mr. DELAHUNT. Darrell Trent is in front of the pile of the money 

at some undisclosed location in Iraq in this 2003 photograph provided by Willis. 

Mr. ROHRABACHER. Somewhere in Iraq in 2003? 

Mr. DELAHUNT. Right. In Baghdad. 

Mr. ROHRABACHER. This is supposed to represent what, in giving 

that away? 

Mr. DELAHUNT. There is a lot of cash there. 

Mr. ROHRABACHER. Is that possibly a stash of cash that was 

found? Is it Saddam Hussein’s cash? Is that possible? 

Mr. DELAHUNT. It is DFI (Development Fund for Iraq) dollars; 

money that went to the Development Fund for Iraq from the CPA 

(Coalition Provisional Authority). 

Mr. ROHRABACHER. That money was shipped from the United 

States to these fellows? 

Mr. DELAHUNT. No. This money——

Mr. ROHRABACHER. You do not know who the guy on the left is, 

but there are some guys standing in Iraq. 

Mr. DELAHUNT. I would be happy to subpoena them in and have 

a full hearing on it and get their names and find out what happened so we begin to discover what happened to the $9 billion that 

the inspector general——

Mr. ROHRABACHER. Let me note, being the Chairman of the Committee, you certainly are welcome to bring pictures. I do hope that 

next time you will know who they are in the picture and exactly 

where the money came from and all that. I would hope that you 

do not take offense, as we move forward now, having had a chance 

to explain the picture, and take the picture down rather than having it dominate the ambience of the hearing. 

Mr. DELAHUNT. I have no objection. 

Mr. ROHRABACHER. In terms of the other points raised by Mr. 

Delahunt, we will certainly be asking Administration officials to 

come here and to explain the policies that we all should know 

about—what policies they are and whether they deal with Iraq or 

with other areas of the world. I certainly hope that the Administration can explain to your satisfaction and my satisfaction why it permitted certain things to happen. 

In regards to the charges about Jordan and Turkey receiving this 

ability to have oil shipments given to them, we would have to call 

the representatives of the Clinton Administration who thought up 

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59

retary Albright to come here and explain those to us because they 

were the ones who established the policy that we are talking about. 

This Subcommittee will be happy to invite various expert witnesses from the past Administration and this Administration to get 

them on the record. This is a very legitimate question—why the 

Clinton Administration came up with this idea of letting Jordan 

and Turkey——

Mr. DELAHUNT. And Syria. 

Mr. ROHRABACHER. Let us find out why President Clinton felt 

that was a good thing to do. I do not believe, as your colleague, Mr. 

Berman, has suggested, that it is wrong for us to look at a very 

specific issue, namely the integrity of the United Nations, at a time 

when we are trying to determine what America’s long-term relationship is going to be and how much trust we will have in the 

United Nations. 

The American people faced a choice during the last election between two groups of people politically advocating how much or how 

little we are going to rely on multilateral organizations like the 

United Nations in order to protect our interests and protect the interest of freedom in the world. It is totally within that context to 

try to find out information for the American people to make their 

own decisions as to the integrity of a project that was run by the 

United Nations. 

This project, let me note, exemplified the strategy that I heard 

being advocated during the last Presidential election—let us not 

use force, let us go through a multilateral organization and try to 

put pressure on people rather than using military force. If we have 

an example of that, the Oil-for-Food Program, in front of us, it 

makes it very relevant for us to determine whether or not—and 

focus on this specific issue until we move on to another—the 

United Nations was capable of doing this and would be thus capable in the future of involving itself in this type of program dealing 

with billions of dollars and pressures, international pressures coming at them from all sides. It does not appear to me at this point 

that the United Nations has passed its test, but let us get into it 

and ask for the details. 

Mr. Schenk. 

Mr. BERMAN. Would the gentleman yield on that point? 

Mr. ROHRABACHER. If we could get to the testimony now. 

But yes, I yield to you for 1 minute. 

Mr. BERMAN. Oil-for-Food was not an effort to put pressure on 

Iraq. Multilateral sanctions at the end of the Gulf War were the 

effort to put pressure on Iraq. Oil-for-Food was the program that 

was put in place when some people were arguing that the sanctions 

on Iraq were causing a great deal of suffering. 

Mr. ROHRABACHER. The Oil-for-Food Program was designed specifically to make the sanctions on Iraq work in a way that would 

not cause collateral damage among the people of Iraq, children, 

women, et cetera. 

Anyway, with that said, Mr. Schenk, you were a witness here before and let me commend you for coming back. Let me commend 

you for your testimony before, even though, as I say, some of the 

things we found out since have caused some questions. We want 

to ask further questions of you, but we do appreciate the fact that 

60

you were willing to testify and that you are here and you have 

brought some experts with you to make sure that, if we ask some 

questions, that you will be able to adequately answer all the questions. So we appreciate that and if you can summarize somewhat, 

but I am not going to leave you to one time period because you 

ought to express your testimony and give your case fully. You may 

proceed. 

STATEMENT OF MR. EVERETT SCHENK, CHIEF EXECUTIVE 

OFFICER, BNP-PARIBAS SA OF NORTH AMERICA 

Mr. SCHENK. Thank you, Chairman Rohrabacher, Congressman 

Delahunt. 

My name is Everett Schenk and since May 2000, I have been 

CEO of BNP Paribas’ North American Corporate Investment Banking Operations. You did appropriately introduce my colleagues. But 

as it is one of my privileges to introduce my colleagues, I will do 

it for BNP. Patricia Herbert, to my left, is head of our Banking Operations activities, New York branch. William Vassallo, to her left, 

is a Director of Corporate Banking Operations. And to my right is 

Harold Lehmann, who, prior to October 2001, supervised the 

bank’s processing of Oil-for-Food Program letters of credit. Harold 

is no longer an employee at the bank and is, in fact, a fifth-grade 

teacher in New Jersey. And we thank him for joining us. I have 

provided a full opening statement, which includes much background information for the record, and I have a shorter oral statement, but it is along the same lines. 

Mr. ROHRABACHER. You may proceed. And your full statement 

will be made part of the record. 

Mr. SCHENK. From the program’s inception, it was contemplated 

that the Humanitarian Letter of Credit beneficiaries might well 

need financing in connection with their U.N.-approved transactions. Beneficiaries were therefore permitted under the Oil-forFood Program to assign proceeds under their letters of credit to secure financing to obtain required items. An assignment of proceeds 

is a traditional means of securing such financing and commonly 

takes various forms. These include an assignment to a bank to obtain a direct cash loan from which the beneficiary can pay its supplier, or an assignment to a bank making funds available to the 

supplier, or an assignment to the supplier providing financing to 

the beneficiary in the form of goods supplied on open account. 

When I appeared before the Full Committee last November, 

questions were raised about a Humanitarian Letter of Credit that 

had been issued to a U.N.-approved beneficiary, named Al-Riyadh 

International Flowers Company, where it appeared that several 

payments had been made at the request of the beneficiary to an entity named East Star Trading Company. At that time, having no 

advance notice from the Committee that it was interested in those 

payments, the bank had not the time to fully prepare to address 

that issue on that occasion. 

Since then, however, and in response to the Committee’s inquiries in these regards, the bank has been engaged in a comprehensive review of approximately 54,000 payments that were made pursuant to Humanitarian Letters of Credit issued under the program 

utilizing a systematic approach that has required the expenditure 

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of approximately 8,000 man hours. As a result of that process, 

which is ongoing, we have considerably more information today 

than we did in November about payments that were made to certain persons other than the letter of credit beneficiaries. 

As you know, we have shared that information with the Committee in the form of an interim report that was prepared specifically for the Committee’s use in anticipation of this hearing. Let 

me say at the outset that nothing in our investigation to date has 

led us to believe that any letter of credit proceeds that were assigned or paid to anyone other than a bank making loans directly 

to the beneficiaries were causally related to any corruption which 

may have occurred in the Oil-for-Food Program. But we have 

found, in the course of processing assignments and payments, some 

mistakes were made. Although mistakes are perhaps inevitable in 

the context of a program of this magnitude, they should not have 

occurred. We certainly appreciate the Committee’s concerns regarding the handling of the Humanitarian Letter of Credit transactions 

and hope that the Committee will find our interim report and testimony helpful in addressing the issues that were raised here at the 

last hearing. 

To return then to the subject of East Star, we understand that 

East Star is an affiliate of a large international export group called 

Pacific InterLink that was incorporated in Malaysia in 1988. Pacific InterLink exports a wide variety of goods from the Far East 

to the Middle East to Africa and Europe. Pacific InterLink and 

seven of its affiliates were awarded numerous U.N.-approved humanitarian supply contracts in almost every phase of the program, 

totaling approximately $270 million in value. East Star was a supplier to Al-Riyadh and a number of other Humanitarian Letter of 

Credit beneficiaries under the program. 

We understand that these beneficiaries typically assigned a substantial portion of the proceeds they are entitled to receive under 

their letters of credit to a financing facility that a major international banking institution had extended to East Star. The financing facility enabled East Star to carry out its supply obligations to 

the beneficiaries. For those unfamiliar with trade finance practices, 

a financing facility is a common arrangement under which a bank 

extends a revolving line of credit to a borrower through an account 

that permits the borrower to draw a specified maximum loan 

amount. As funds are deposited back into such account, they are 

applied by the financing bank to reduce the outstanding balance 

and thus repay the loan. So when the letter of credit proceeds were 

paid to East Star’s financing bank, we understand that these payments would have served in the first instance to repay the bank 

for the loans it had made to finance the underlying U.N.-approved 

goods transactions. 

I will say more in a moment how such payments comported with 

the procedures that the bank had put in place for processing of 

payments and the payments for the Oil-for-Food Program. But I 

want to emphasize, as I noted earlier, that financing arrangements 

such as these are commonplace in the world of trade finance and 

are entirely legal and integral to the free flow of goods in the global 

marketplace. 

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The bank’s review identified comparable financing arrangements 

involving other suppliers to the beneficiaries of Humanitarian Letters of Credit, including, in particular, a financing facility maintained at another large international bank by a major supplier of 

goods named Al Douh Jordanian Establishment. Significantly, a 

number of Al Douh affiliates were U.N.-approved suppliers of approximately $88 million worth of goods under U.N.-approved contracts throughout the various phases of the program. As with East 

Star, letter of credit beneficiaries assigned proceeds to the financing facility maintained by Al Douh, which in the first instance 

would have been available to repay the bank for financing it provided for the underlying U.N.-approved humanitarian goods transactions. 

As I already indicated, the review that the bank has undertaken 

is ongoing. We expect to provide this Committee with a final report 

of our findings when it is completed, but to date there has been no 

indication that any so-called third party payment has served as a 

means to corrupt the Oil-for-Food Program. That is not to say, however, that these payments, while totally consistent within normal 

trade finance practice, were also consistent with the procedures 

which the bank had put in place for processing letters of credit 

under the program. Under the bank’s contract with the U.N., beneficiaries of Humanitarian Letters of Credit were permitted to assign proceeds of those credits, but only to a bank providing financing for the underlying transaction. It is far from clear, however, 

whether the contract meant to further limit assignments only to a 

bank providing such financing directly to the beneficiary and to 

foreclose such financing if it was provided by a bank through the 

beneficiary’s supplier. 

In any event, as its operational procedures evolved, the New 

York branch of BNP and then BNP Paribas took a conservative approach in deciding that assignments of proceeds as a general matter should be limited to banks providing financing directly to the 

letter of credit beneficiaries. 

As I said earlier, our review has identified some instances reflected in our interim report in which assignments or payments 

were made to persons other than beneficiaries or banks making direct loans to them contrary to the bank’s procedures. Based upon 

the review we have conducted to date, the bank has determined 

that in some—but by no means all—of these instances the information that was available to the letter of credit processing personnel 

at the time would have indicated the possibility that the assignments or payments were being made to financing facilities extended by banks to suppliers rather than to the beneficiaries themselves. The bank has determined that, in these instances, the processing of those assignments or payments constituted avoidable errors. 

Although the bank did take steps over the course of the program 

to enhance management, strengthen, and reinforce its policies and 

procedures for processing letters of credit under the program, we 

believe, with the benefit of hindsight, that still more should have 

been done. In particular, numerous clerical employees had to be 

hired on extremely short notice to deal with the sudden sharp upsurge in the volume and complexity of the humanitarian supply 

63

contracts that occurred in the 1999–2000 time frame, greatly complicating the processing of letters of credit. Better training of these 

employees could have minimized the incidence of such assignments 

and payments. In addition, enhanced monitoring of the performance of those employees could have resulted in corrective actions 

being taken that further could have reduced their incidence. Still, 

to evaluate these assignments and payments properly, we believe 

a number of observations are in order. 

I would first begin by observing that the beneficiaries in the 

transactions involving assignments all made representations to 

BNP Paribas that they were assigning proceeds to banks that were 

providing them with financing for those transactions; and, second, 

that the banks providing the financings and the transactions involving assignments that I described earlier confirmed this on a 

number of occasions. 

In fact, the assignment of proceeds in the transactions I described earlier were in favor of banks, and we understand that the 

payments that were made under those assignments would have 

served in the first instance to repay the banks for the financing 

they made available to the underlying U.N.-approved transactions. 

Moreover, the fact that the financing banks in those transactions, 

which are large international institutions, evidently were comfortable stating on various occasions that they were providing financing for the transaction to the beneficiary, albeit through the 

supplier, underscores the fact that this distinction is, at best, one 

of form. 

It is also worth noting that any legal claims with respect to the 

proceeds that have been assigned in these circumstances would 

have belonged to the financing banks that were designated as payees and not to the suppliers to which the financing had been extended. 

Another point I would like to make is that assignments of this 

type that I have described are legitimate commercial arrangements, quite apart from any limitations that may have existed 

under the procedures adopted by the bank for processing Humanitarian Letters of Credit under the program. 

Furthermore, the bank has not identified any instance where a 

letter of credit itself along with its corresponding obligations was 

transferred or assigned by a beneficiary to a third party in violation of the Banking Services Agreement. 

The Committee also should be aware that the bank is in possession of a notice of arrival with respect to the goods that are the 

basis for 100 percent of the payments we are addressing here 

today. 

It is also highly significant as well that the suppliers who were 

involved in a substantial majority of the dollar value of the transactions to which I referred earlier were either directly, or through 

their affiliates, U.N.-approved beneficiaries under other Humanitarian Letters of Credit worth hundreds of millions of dollars. Nor 

should we lose sight of the fact that where the proceeds of a letter 

of credit are paid directly to a beneficiary, the beneficiary is free 

to use some of those proceeds to repay any bank that provided financing for the transaction, whether the funds were advanced by 

64

the bank to the beneficiary or the supplier, or to pay a supplier directly or to pay others. 

I would call the Committee’s attention to the fact that even today 

none of the so-called third parties that have been identified appears on the United States Department of Treasury Office of Foreign Asset Control’s List of Specially Designated Nationals. 

Finally, and most important, I want to emphasize again that the 

bank has seen no indication that any assignment of proceeds or 

payment to any so-called third party is causally linked to any corruption that may have occurred in connection with the Oil-for-Food 

Program. 

In closing, I would reiterate that, in order to be fully responsive 

to the Committee’s inquiries, the bank is continuing its review and 

that it intends to provide this Committee with a final report at the 

conclusion of this process, just as it did on an interim basis here, 

to assist the Committee in its own assessment of this matter. 

I am going to deviate from my text for 1 minute. And I listened 

very carefully to the opening remarks, Mr. Chairman, and I am 

sure that we are going to address a number of the issues which you 

raised. But I can’t let go of one comment that you made, and that 

was a question about whether the bank cared about its investors. 

That is a comment that I can’t let stand in this kind of a public 

forum. And today I want to assure you that the bank has exercised 

in good faith all of the responsibilities that it has under this contract and all of its other activities that we engage in, and that we 

are a bank in good standing not only in the United States but in 

all the jurisdictions in which we operate, which is over 80 countries 

around the world. And we take very seriously our obligations, and 

we think very carefully about those. 

I would also like to make a comment to Mr. Royce. Congressman 

Royce, you suggested that one of the ways to proceed here is if we 

get cooperation, and I want to assure you and this Committee that 

BNP Paribas will continue to cooperate in this investigation, and 

we are pursuing our investigation such that we can complete this 

and provide you with additional information. 

So, at this point my colleagues and I, I guess, would be pleased 

to respond as best we can at this stage in the process to any questions the Committee may have. Thank you. 

[The prepared statement of Mr. Schenk follows:]

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Mr. ROHRABACHER. Well, thank you very much, Mr. Schenk, and 

let me just note that your bank has been fully cooperative and they 

are very lucky to have a spokesman like yourself who can present 

a case like this to Members of Congress, and we appreciate you 

being here. 

With that said, we do have some pointed questions to throw in 

your direction. Of course the number one question, which you admitted in your testimony, is that making payments to third parties 

was obviously not consistent with the program as agreed to by the 

United Nations and as part of your contract. Why, then, did your 

bank decide to go ahead with it? I know that something may be a 

standard practice, but if it is not within the agreement that you 

reached with someone, why would you then go right ahead and do 

it? 

Mr. SCHENK. As I referred to in my opening remarks, we have 

operated in good faith in our understanding of that agreement. 

While I am not an attorney and certainly not an expert in contract 

law, the contract is ambiguous on this point. I am knowledgeable 

about the bank’s procedures and can tell you that we put in procedures that we believe were designed to ensure compliance, and in 

some instances these procedures were not adhered to. These departures should not have occurred. I am sorry that they did. I am personally disappointed that they did. However, we do not believe that 

any of these departures from procedures that we have identified to 

date have caused or contributed to any corruption under the program. 

Mr. ROHRABACHER. Now, we do understand that when you are 

talking about what is common practice for a bank in dealing with 

regular business, but when you are dealing with something as supercharged as the Oil-for-Food Program, something dealing with 

the powers, the international power plays that are going on here, 

the regular rules don’t apply. This is not just a regular program 

and this is not just a regular client. This is something that is extraordinary. Your bank did not really take the time and effort to 

get the approval of just, let us say, veering off of the agreement 

that you had. You say it is ambiguous. But it would seem to me 

that with something as highly charged as this you wouldn’t want 

to move forward operating with ambiguity. 

I guess I would put it this way. Didn’t Harold Lehmann, who 

was working for your bank at the time, sign off on some of these 

payments? So this was done intentionally? 

Mr. SCHENK. Well, the answer is that, based on the procedures 

that we had put in place, we believe that an assignment of proceeds was appropriate in some instances where we had what we 

thought was evidence of supplier financing arrangements. Those—

they were agreed to. 

Mr. ROHRABACHER. Who was it that approved that? 

Mr. SCHENK. In this case—maybe I will pass it over to Harold. 

Mr. ROHRABACHER. Who was it that approved, to begin with, the 

whole idea of making these third-party payments? 

Mr. Lehmann. Well, the assignment of proceeds were allowed 

under the program. 

Mr. ROHRABACHER. Well, we just heard that that was ambiguous. 

Did you have a law firm then clarify it? 

78

Mr. SCHENK. I am sorry. Maybe my comments were not clear. It 

is very clear under the program that assignment for proceeds are 

permitted. 

Mr. ROHRABACHER. To third party people or to financial institutions? 

Mr. SCHENK. Assignment of proceeds directly to a bank providing—to a bank providing financing to the beneficiaries. 

Mr. ROHRABACHER. But this was definitely not within that parameter? 

Mr. SCHENK. No, but the contract—and here again I qualify remarks by saying I am not an attorney, I am not a contract specialist. But it specifically—it appears to be ambiguous as it relates 

to third-party——

Mr. ROHRABACHER. Well, if it does, what law firm or what lawyer 

in your institution then signed off on this? Would you have a document that indicates that you had legal opinion that suggested that 

that is the direction you could go? 

Mr. SCHENK. I am not particularly aware of that. I think it is 

worthwhile, and I would like to take a moment to remind the Committee about what the bank has done as part of its investigation 

to identify these third-party payments. 

Mr. ROHRABACHER. Before you go into that, I mean, because I 

would like to not be taken off just yet. But we will give you plenty 

of time to express the fact that your bank is bending over backwards to try to find out all the information and to try to lay out 

the scenario as you see the honest scenario to be. 

This East Star, who is East Star? Who is it? Could you give me 

a few names on who owns this company and, you know, they are 

a subsidiary of Pacific InterLink, which again has the right to do 

all of these other things. But East Star itself is its own company. 

Who owns East Star? Who runs it? Who is the President of East 

Star? 

Mr. SCHENK. I have to refer here to documents. We have outlined 

in attachment 2, the interim report that we have provided you, a 

description of East Star as we understand it. In that report it describes East Star as being incorporated as an affiliate of InterLink. 

East Star was incorporated in the Cayman Islands in 1990. 

Mr. ROHRABACHER. Incorporated in the Cayman Islands in 1990. 

Mr. SCHENK. That is what we have entered into the record. 

Mr. ROHRABACHER. So we have billions of dollars in this Oil-forFood Program, and there is all this money flowing—not billions of 

dollars—but there is all this money we are talking about today 

flowing to a company that you just know was formed in the Cayman Islands in the 1990s? 

Mr. SCHENK. I hate to go back to a point which we discussed in 

the first hearing, but I do have to emphasize at this moment in 

time that our client in the Oil-for-Food Program was the U.N. 

Mr. ROHRABACHER. Right. 

Mr. SCHENK. And, under the U.N., under the 661 Committee, 

these contracts were approved. 

Mr. ROHRABACHER. The payments to East Star? 

Mr. SCHENK. Well, we do know that East Star or its affiliates 

were approved beneficiaries under the program in various phases 

in the program. 

79

Mr. ROHRABACHER. Were they approved as a recipient for thirdparty payments? 

Mr. SCHENK. East Star or its affiliates were approved as a direct 

beneficiary. So I am just saying at one point in this program these 

names have been approved as a direct beneficiary under various 

phases of the program. 

Mr. ROHRABACHER. They are a——

Mr. SCHENK. So the 661 Committee did in fact approve East Star 

or its affiliates in various phases of the program. And when I 

misspeak——

Mr. ROHRABACHER. This is very murky. This is incredibly murky. 

Mr. DELAHUNT. Let him answer the question. 

Mr. ROHRABACHER. I am trying to figure out here who East Star 

is. 

You are telling me these things were approved, but not for East 

Star; it was approved for the company to which East Star was a 

subsidiary of. And what you know about East Star is only that it 

was a company that is incorporated down in the Cayman Islands? 

Mr. SCHENK. We provided some detail about East Star and its affiliates in the documents, and I would refer the Committee to those 

documents. What I am trying to mention is that, in the nature of 

our relationship from a—if you want, from a KYC (Know Your Customer) point of view, our customer was the United Nations. On 

that basis, we relied on the contracts that were approved by the 

United Nations by the 661 Committee. As part of that there are 

procedures in place which allow the beneficiary under an assignment of proceeds to pay a bank through a bank that may have provided financing. It also——

Mr. ROHRABACHER. This is not a bank that you are paying it to? 

Mr. SCHENK. We are paying the payments that have been made, 

in the case of East Star, through a bank. What we have discovered, 

based on our investigations—so I am not going to claim to you at 

the time we made them that we knew this—is that financing arrangements existed for East Star through major international 

banks, the names of which I think we have provided in the interim 

report, which confirm that there were financing arrangements and 

facilities in place for East Star as a supplier to the beneficiary. It 

is also a representation on our part that East Star or its affiliates 

were also approved beneficiaries under the letter of credit program 

through various phases of the program. 

Mr. ROHRABACHER. You don’t know who owns East Star? Who is 

Commodities House Investment, Incorporated? Apparently, it owns 

100 percent of East Star. Wait a minute. East Star and Pacific 

InterLink are both owned by Commodities House. Who is that? 

Mr. SCHENK. I guess—the extent of our knowledge at this point 

in terms of the ownership of East Star is outlined in our attachments here. And what we have done here for this Committee is, we 

have identified those situations where third-party payments may 

have been made. 

As it relates to the third-party payments that we have been able 

to investigate at this moment in time—and you referred in your 

opening remarks to some 80 transactions, I think, which are left 

to be investigated, that represents another 25 companies. Not 80 

companies, but 25 companies. And of the investigation that we 

80

have done at this point involving East Star, Al Douh, and another 

operation called Talfeet, we are aware that financing facilities were 

in place through banks, and that we believe that the payments that 

we made through those banks for the credit of East Star were related to a financing facility that was in place for East Star at that 

financial institution. 

Mr. ROHRABACHER. But you have already admitted that this was 

not specifically within the guidelines that you were supposed to be 

operating and that you felt there was some ambiguity there. 

Mr. SCHENK. We set up a procedure so—and as our procedures 

evolved—that a third-party financing arrangement would not 

occur. We had some exceptions to that procedure. We have identified those exceptions as of this moment. 

You know, I think one of the difficulties here, at a fundamental 

level, is that we have relied heavily on the U.N. as our client and 

the 661 Committee associated with the client—the beneficiaries of 

financing arrangements that were put in place. At this point—and 

it is a matter of contract interpretation, and my comment stands 

that I am not an attorney or contract specialist—there is ambiguity 

about this. But we are aware, based on our review, that supplier 

financing arrangements, you know——

Mr. ROHRABACHER. I would like to see the document from your 

company. If you could, we would like to see the internal document 

in which you ask your legal counsel about that issue so that you 

could present it to the Committee. Obviously if you decided to move 

forward even though there was an ambiguity, you had a legal decision within your company. Or, you could determine that that was 

made by nonlegal counsel, and you could show us that document 

as well, as to who made that decision to move forward even though 

it is clearly an ambiguous situation. 

[NOTE: The information referred to was not received by the Subcommittee prior to printing.] 

Mr. ROHRABACHER. I have so many questions, but we do have to 

move on. With respect to Al-Riyadh International Flowers, are you 

aware that it has been charged that this company was actually receiving a 20 percent overpayment for the humanitarian supplies 

that they provided to the Oil-for-Food Program? 

Mr. SCHENK. Actually, right now I am trying to remember. It 

was brought to my attention that one of the beneficiaries was accused or identified as overcharging. I don’t recall right now whether that was Al-Riyadh. 

Mr. ROHRABACHER. So just to reacquaint you with the fact that 

you have this very serious charge that Al-Riyadh International 

Flowers was charging, let us say, 28 percent more for the humanitarian commodities that was providing Oil-for-Food. That company 

is the company that then asked you to deliver its money that it was 

receiving for that overcharging to East Star, which then of course, 

as we can see now, was owned by Commodities House Investment. 

Who knows who owns Commodities House Investment? 

So we have an overcharging of the Oil-for-Food Program going to 

a third company under a contract whose rules you admit were, at 

best, ambiguous, and most of us seem to think it was pretty clear 

that you were not supposed to deliver these payments to third parties unless they were banks. But you went ahead and delivered it 

81

to that company, which was then owned by some other company in 

the Cayman Islands. This really smells. This stinks. That an international bank is involved with the United Nations may, you know, 

may be an excuse. You say, well, we are doing this for the United 

Nations. But that is no excuse. 

Let me ask you this. Your company deals with——

Mr. SCHENK. With all respect, Mr. Chairman, I have to comment 

about that, with all due respect. 

Mr. ROHRABACHER. Okay. Certainly. 

Mr. SCHENK. First of all, we have to remind the Members of this 

Committee that the bank had nothing to do with the approval of 

the contracts, the terms of the contracts, the pricing, and the commodities involved. 

Mr. ROHRABACHER. Who you delivered the money to was up to 

you. 

Mr. SCHENK. But you raised the question here related to price, 

and frankly, the terms and conditions of the contracts were not 

something that the bank evaluated or was engaged in. We relied 

exclusively on the 661 Committee associated with the approval of 

these contracts. We did not engage in——

Mr. ROHRABACHER. So, you found yourself a den of thieves, and 

then one of them told you to deliver the money to somebody else 

even though you knew——

Mr. SCHENK. Well, I am not so sure who the den of thieves is 

meant to be in this case. We relied on the 661 Committee. 

Mr. ROHRABACHER. How about the people who were overcharging 

the Oil-for-Food Program for 28 percent of the humanitarian supplies. That is obviously who one of the thieves is. Perhaps the other 

people in the United Nations who were getting their relatives jobs 

with the various companies are included in this. But we know, at 

least, that this company was overcharging. Your responsibility was 

to see companies are paid so that they could be held accountable. 

Instead of paying that company, you put the money to another 

company who we cannot identify, and that company is owned by 

somebody else who you are not familiar with other than that they 

are from the Cayman Islands. 

Mr. SCHENK. You know, I think, again, with all due respect, Mr. 

Chairman, we did not have any involvement in the approval of the 

contracts or the pricing under those contracts. It was just not our 

business. We at this point have looked at the transactions as part 

of our investigation and have determined that there were 

financings—supplier financings in place for East Star through a 

major international bank associated with providing supplies to the 

beneficiary. 

I have to also say that we have in our possession today all of the 

certificates of arrival, the Notice of Arrival associated with the 

goods that are involved in any of the identified third-party transactions. And at this moment through the 43,000 transactions that 

we have investigated, we have identified a group—and you accurately described it as over 400—it is 403 transactions that involve 

approximately 30 companies. We have evaluated in detail a number of those but specifically three which represent more than 80 

percent of the dollar volume. We have 80 left to do. It is not that 

82

we don’t know anything about those 80; it is a continuing investigation. 

Mr. ROHRABACHER. You are under U.S. banking law, correct? 

Mr. SCHENK. Yes, sir. 

Mr. ROHRABACHER. Does U.S. banking law require you to be 

aware of the companies to which you are providing money? 

Mr. SCHENK. There is obviously some very specific regulation and 

law associated with Know Your Customer. In this case——

Mr. ROHRABACHER. In this case, you gave money to——

Mr. SCHENK. We are relying on our customer in this situation, 

which is the U.N. And we have——

Mr. ROHRABACHER. You are providing money to a company that 

you don’t know anything about that operates out of the Cayman Islands and is owned by another company that you don’t know anything about. Now, whether or not you are directed by your customer, that does not exempt you from the U.S. law of knowing who 

you are doing business with. For all you know, these could be the 

worst terrorists or drug dealers in the world. 

Mr. SCHENK. In this case we had the benefit of an approved beneficiary and a financing arrangement that we believe was in place, 

and that the KYC customer obligation in this case runs through 

the nature of our dealings with the United Nations. 

Mr. ROHRABACHER. I will not take up all the time here, and I 

apologize for taking too much time. Mr. Delahunt has been more 

than——

Mr. DELAHUNT. I have no objection to conceding to you as much 

time as you may consume. 

Mr. ROHRABACHER. You may proceed, and then we will go on to 

our other Members. 

Mr. DELAHUNT. Let me see if I can understand this. All of the 

goods that were implicated in the so-called third-party payment, we 

know they were delivered, according to the information that you 

have before you? 

Mr. SCHENK. Yes, sir. We can confirm that we have in our possession Notice of Arrival for all the goods involving the transactions, involving these so-called third-party payments. 

Mr. DELAHUNT. So all of the goods arrived? 

Mr. SCHENK. Yes, sir. 

Mr. DELAHUNT. The stuff got there? 

Mr. SCHENK. Yes, sir. 

Mr. DELAHUNT. And hopefully benefited the Iraqi people. 

Mr. SCHENK. I hope so, as well. 

Mr. DELAHUNT. Now, my friend, the Chairman, refers to the 20 

percent overpricing on a particular contract involving some company. According to the terms of the contract that you had with the 

United Nations, did you have the responsibility to determine 

whether the price itself was fair or not? Was that your responsibility? 

Mr. SCHENK. No, sir, it was not. 

Mr. DELAHUNT. It was not. Would you repeat that once more so 

we can be really clear about it? 

Mr. SCHENK. The terms of the contracts which were approved by 

the 661 Committee both in terms of price and quantity and subVerDate Mar 21 2002 14:47 Oct 14, 2005 Jkt 000000 PO 00000 Frm 00086 Fmt 6633 Sfmt 6633 F:\WORK\OI\042805\20921.000 HINTREL1 PsN: SHIRL
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stance, whatever was involved, we were not involved in any way 

in the approval process. 

Mr. DELAHUNT. Let me interrupt you, Mr. Schenk, because I 

want to try to be as focused as I can. So it was the responsibility 

of the 661 Committee? 

Mr. SCHENK. Yes, sir. 

Mr. DELAHUNT. Who is on the 661 Committee? 

Mr. SCHENK. Well, essentially the members of the Security Council. 

Mr. DELAHUNT. Does the United States of America have a seat 

on the Security Council? 

Mr. SCHENK. Yes, sir. 

Mr. DELAHUNT. That was the point that I was trying to make, 

Mr. Chairman, in terms of my opening comments. I would like to 

ask the Administration. I would like to ask the Administration, the 

head of the U.S. Mission. We have an Acting Ambassador to the 

United States currently in New York. You and I have met with her. 

I would hope that she could come down here, or maybe whoever 

sits on the U.N. desk, the U.N. Reform Desk in the Department of 

State, because I think it is a very good question. 

I think you are correct, but you are posing the question to the 

individual that had no responsibility for it. The oversight was the 

Security Council, the 661 Committee. That is the oversight. 

Mr. ROHRABACHER. Are we referring to the Committee that was 

kept in the dark, as we have found in our investigation here? 

Mr. DELAHUNT. No. 

Mr. ROHRABACHER. Is this the one——

Mr. DELAHUNT. Reclaiming my time here, Mr. Chairman. Thank 

you. No, I am talking about the 661 Committee that was notified 

about 70 contracts. Okay? Seventy contracts by the United Nations, 

I presume, the folks on the ground, that there was overpricing and 

that no action was taken. That is the 661 Committee that I am referring to. We are posing these questions to Mr. Schenk, and of 

course he doesn’t know the answers. 

Now, I agree with you. You know, you acted in terms of, it would 

appear, based upon the bank’s customary practices in terms of 

trade finance. 

Do we have a copy of the contract, by the way? Does the staff? 

Okay. I think Mr. Royce has it. You know, I am sure my colleague 

will share it with me afterwards. I think it comes down to a question of the interpretation of the language that you describe as ambiguous. But just to reassure myself again, all of the beneficiaries 

that received payments under the Humanitarian Letter of Credit 

were approved beneficiaries by the 661 Committee? 

Mr. SCHENK. Yes, sir. 

Mr. DELAHUNT. Okay. And the 661 Committee includes the Security Council? 

Mr. SCHENK. Yes, sir. 

Mr. DELAHUNT. Which includes the United States Government? 

Mr. SCHENK. Yes, sir. 

Mr. DELAHUNT. So as far as you knew, the people that you were 

dealing with were good guys? 

Mr. SCHENK. That is what we understood. Yes, sir. 

84

Mr. DELAHUNT. Okay. So purportedly, or presumably, the 661 

Committee, the Security Council of the United States—of the 

United Nations, rather, would have done its homework and vetted 

these people so that a conclusion would be reached as to their legitimacy in terms of the Oil-for-Food Program. Is that a fair statement? 

Mr. SCHENK. Yes, sir. 

Mr. DELAHUNT. Okay. Earlier my friend, the Chairman, indicated that you are the bank for Iraq. You know——

Mr. ROHRABACHER. That was at another hearing. 

Mr. DELAHUNT. Well, at another hearing he asked the question 

or suggested that you were the bank for Saddam, you were presumably his personal banker. But can you tell me the relationship of 

a correspondent bank in Europe with a government? What does 

that mean? And, if you know, how long did the relationship—if it 

in fact existed—last between your bank or any of its affiliates with 

the Government of Saddam Hussein or Saddam himself? 

Mr. SCHENK. I am going to make a couple of comments about the 

bank’s business in Iraq and then I will speak specifically to that 

point. 

The bank did have an office in Iraq until 1963. At that point, the 

Ba’ath Party took over the bank, arrested our branch manager, we 

were thrown out of the country, and we have not had an operation 

in Iraq since 1963. 

Mr. DELAHUNT. You weren’t there during the course of the 

1980s? 

Mr. SCHENK. No, sir. 

Mr. DELAHUNT. You couldn’t have visited the U.S. Embassy then 

in Baghdad during the 1980s that existed there up until 1990? 

Mr. SCHENK. You are outside my sphere of knowledge here. I 

would—you asked a couple of other questions, and here I want to 

comment on one thing. The answer is, given the extraordinary sensitivity to Saddam Hussein and his position in the world these 

days, we make an exception, frankly, for this Committee associated 

with bank privacy and confidentiality laws. And I want to confirm 

to this Committee that we do not have an account with Saddam 

Hussein. But I also want to——

Mr. DELAHUNT. Well, I have to—did you ever have an account, 

that you are aware of, with Saddam Hussein post-1963? 

Mr. SCHENK. I personally am not aware of any. But I don’t—I am 

not personally aware of that. 

Mr. DELAHUNT. Okay. 

Mr. SCHENK. What I can say now, and now I am—I want to 

make a comment as it relates to other customer relationships or relationships that the bank might have or have had, that—I want to 

repeat the notion that we are in good standing in the countries in 

which we operate, including the United States, and, to the best of 

my knowledge, that we are in compliance with all the sanction 

laws and regulations in all the jurisdictions that we operate. But 

on advice of my counsel, frankly, that I—and because of privacy 

laws and confidentiality issues, I should not identify customers of 

the bank in a public forum. And I would offer to you or staff that, 

if they want to give me the names of individuals or organizations 

85

that you are interested in, we will provide the information in executive session unless we are prohibited by law from doing so. 

Mr. DELAHUNT. I welcome that offer, and I would ask the Chairman that, if he has particular questions as it would apply, that 

only he and I receive that information. Not staff. Obviously other 

Members. 

Mr. ROHRABACHER. We will submit some questions to you in 

writing, and then the Ranking Member and myself will go over 

that and/or meet with you and go over your answers. 

Mr. SCHENK. Okay. On advice of counsel, I am told that that is 

a procedure that will work for us. 

Mr. DELAHUNT. I want to make it very clear that I do not want 

there to be staff present. Myself and the Chairman. That would be 

fine. 

Mr. ROHRABACHER. Let me be very clear. The U.S. law says that 

you are supposed to know exactly who you are dealing with. U.S. 

law is trying to protect the United States and the people of the 

United States from having money go to criminal elements in the 

world or gangsters——

Mr. DELAHUNT. Reclaiming my time, Mr. Chairman. It is my 

time. 

Mr. ROHRABACHER. I thought that you had given up your time. 

Mr. DELAHUNT. No, I had not given up my time. 

Mr. ROHRABACHER. Then I will be happy to——

Mr. DELAHUNT. There is no indication that the implicit inference 

in your question is even appropriate in terms of what we have 

heard here from Mr. Schenk. He is not giving money away to criminal elements. 

Mr. ROHRABACHER. We have money being transferred to a company in the Cayman Islands that nobody even knows about. 

Mr. DELAHUNT. I found very interesting—again, reclaiming my 

time. I find it very interesting the Cayman Islands, because I can 

remember raising the issue about Halliburton Corporation having 

a place of business in the Cayman Islands, in Dubai, and I don’t 

hear you talking about——

Mr. ROHRABACHER. And you should be really concerned. 

Mr. DELAHUNT. Well, then let us conduct an investigation into 

that. Let us do that. Let us get Halliburton up here and find out. 

Mr. ROHRABACHER. That may be coming, but we shouldn’t poohpooh it right now. 

Mr. DELAHUNT. Well, I am not pooh-poohing it right now. But, 

I mean, come on. 

Mr. SCHENK. I think on that point, Mr. Chairman, if I could 

just—in my opening remarks I did mention that all of the third 

party payees that we have identified were not, are not on any 

OFAC (Office of Foreign Assets Control) list or listed as an SDN 

(Specially Designated Nationals). And that includes up to currently. So it is not at the time but it also is true today through the 

OFAC list. So in terms of identification of bad guys, which I think 

is the point that you alluded to, the third-party payees that we 

have provided on that list are not on any current list, and that includes whether the payments were made a while ago or in the last 

2 or 3 years. So——

86

Mr. ROHRABACHER. Can we proceed? Mr. Royce, you may proceed. 

Mr. ROYCE. Going back to one of your points, Mr. Schenk, the 

Iraqi Central Bank at least has a different view of the previous 

commercial relationship between Banque Nationale de Paris and 

the New York branch. I think that they have communicated, at 

least to our staff, that that previous relationship did exist, and that 

is why the Iraqi Government at the time desired the selection of 

that particular bank. At least that is the assertion of their Central 

Bank. 

Mr. SCHENK. I don’t want to be—maybe it is a misunderstanding 

of my comments. My comment was that we have not been physically present in Iraq since 1963. 

Mr. ROYCE. I understood that. 

Mr. SCHENK. And that I—as it relates to the nature of our relationships, I am not going further in this committee forum about the 

client relations that we have had. So I didn’t say we didn’t; I am 

just saying that I am not going further on that subject. 

Mr. ROYCE. Okay. I just wanted to point out that, at least from 

the standpoint of the Iraqi Central Bank, they felt they picked this 

bank because of prior relationships which Saddam Hussein’s Government had with this particular bank. That is the bank that they 

chose. 

Now, we knew at the time that there were bad actors in the process, and that is why the 661 Committee was set up in the United 

Nations; it was expressly set up with the idea that they, the U.N., 

would be able to monitor the companies on the list. As you know, 

over time the U.N. had to take companies off the list because companies can be bought, companies can be basically obtained by some 

of the bad actors. So companies actually were transferred off the 

list. But the specific desire, as I understand it, on the part of the 

United Nations with this agreement with your bank was to narrowly confine the transactions to those specific companies. So we 

have the Agreement for Banking Services between the United Nations and the Banque Nationale de Paris. And in that specific 

agreement, as we turn to the issue specifically of letters of credit:

‘‘The Central Bank of Iraq will forward to the bank requests 

from the appropriate Iraqi Government entities to open irrevocable, nontransferrable, non-assignable, except to the supplier’s bank for the repayment of financing for the purchase of 

the humanitarian supplies, letters of credit for the account of 

the Iraqi purchaser in favor of the supplier. Only the United 

Nations has the authority to give binding instructions to the 

bank concerning such letters of credit. When the bank receives 

such a request, it shall immediately forward it to the Deputy 

Treasurer of the United Nations for approval.’’

So, inasmuch as U.S. banking law says, under Know Your Customer, that you have to check out those companies that you deal 

with, and inasmuch as you are in that jurisdiction, you are dealing 

with this particular program in which this contract is fairly defined, and now you have the letters of credit being assigned to 

other entities—and this is not a normal commercial practice system 

that you are in—I just thought I would try to explore, and maybe 

87

with you, Mr. Lehmann, who gave you the direction to sign off? Because the statements appear ‘‘As Per Harold’’ in terms of these assignments. I wanted to ask if this was the only method by which 

reassignments were performed? Why was no formal process undertaken to authorize the reassignments? And did you permit other 

such reassignments? And, if so, was it done in a verbal method like 

this? 

Mr. LEHMANN. Yes. I am not familiar with the term ‘‘reassignment.’’ I am familiar with the term ‘‘assignment of proceeds.’’

Mr. ROYCE. Okay. 

Mr. LEHMANN. This is what we did. 

Mr. ROYCE. Okay. 

Mr. LEHMANN. We don’t assign a letter of credit; we assign the 

proceeds to an entity. And, as you just read from the contract, I 

believe——

Mr. ROYCE. Yes. 

Mr. LEHMANN [continuing]. That the letters of credit were assignable only to the bank providing the financing for the—to the supplier. 

Mr. ROYCE. Well, as we begin to ask the question, then, what 

kind of security checks were applied to the company when it was 

requested by Al-Riyadh International Flowers that the letters of 

credit were to be assigned or reassigned to East Star? Maybe I 

could explore that question. 

Mr. LEHMANN. Well, we would receive a standard form from any 

of the beneficiaries that they are assigning their proceeds to this 

bank, which would be the case in these letters of credit. Subsequent to that, we would have a documentary presentation. And if 

the documents were in compliance with the letter of credit, including a notice of the arrival of the goods in Iraq, we would proceed 

to make payment under the letter of credit. 

Mr. ROYCE. The question I have is: Why were those transactions 

allowed to be cleared when it appears this kind of transaction was 

not permitted in BNP’s contract with the U.N.? Why wouldn’t you 

go to the U.N.? You know, as I read the conditions here on letters 

of credit: ‘‘Only the United Nations has the authority to give binding instructions to the bank concerning such letters of credit. When 

the bank receives such a request, it shall immediately forward it 

to the Deputy Treasurer of the United Nations for the U.N.’s approval.’’

And that is what I am——

Mr. LEHMANN. That is referring to the request to issue the letter 

of credit, where they are giving us the binding instructions, the 

Central Bank of Iraq is contacting us with an application, if you 

will, for the letter of credit. We are providing to the United Nations 

that message and awaiting their approval to issue the letter of 

credit. That is what that is referring to. 

As far as the payment, when we receive documents from a beneficiary, they will have a cover letter perhaps, or perhaps it is a presenting bank overseas, and they will have payment instructions on 

how to remit proceeds to them. In these cases, the payment instructions would be the same as on the assignment of proceeds, pay 

such and such a bank; and, as is customary, to a specific account 

number on the bank’s books. 

88

So these were not felt by us to be inconsistent with each other 

nor with what the assignment itself allowed; that we were in fact 

paying a financing institution who has confirmed to us that they, 

in fact, financed the goods covered by that letter of credit. 

Mr. ROYCE. And the assertion that, under U.S. banking law, you 

have to check those companies——

Mr. LEHMANN. Correct. 

Mr. ROYCE [continuing]. That you are dealing with, under law, 

and determine—you have to know your customer. Arguably with 

this labyrinth of ownership as we go through the particular company we are discussing right now, it would appear that you certainly didn’t know that customer. I am not sure we still have figured out who that customer is. 

Mr. LEHMANN. We certainly did perform two checks on every 

party in every payment. First it was a check in the letter of credit 

department, a manual check against the OFAC list. The second 

check would occur automatically in a filter in the payment system 

of the automated payment. So every party in the payment under 

these letters of credit has been verified twice not to be on the 

OFAC list. Every single payment. 

Mr. ROYCE. Let us see. Did you check this one: Commodities 

House Investment Limited? 

Mr. LEHMANN. If their name had appeared as a party being paid 

on the letter of credit, we would have checked the name. 

Mr. ROYCE. Well, I guess—the reason the Know Your Customer 

law is important is because you need to know the customer. In this 

case, East Star is, in fact, owned by Commodities House Investment, Limited. And——

Mr. LEHMANN. That is something unknown to us. 

Mr. ROYCE. Well, it is unknown to you because you didn’t know 

this customer. I am just trying to point that out. 

Mr. LEHMANN. Our customer was the United Nations. 

Mr. ROYCE. Well, under banking law your customer is not just 

the United Nations. You are supposed to know the companies that 

you are dealing with, at least in U.S. jurisdictions, and you are in 

a U.S. jurisdiction. 

Mr. LEHMANN. Well, again, from the stated names that were in 

front of us in these transactions—we only know of these names as 

they appear in the paperwork, and these are the only names we 

know of, the only names that we could check. 

Mr. ROYCE. Well, but indeed that is why we have evolved this 

law, Know Your Customer, so that you do find out who is behind 

the transactions, and in this case it is a different entity. 

Mr. ROHRABACHER. Thank you, Mr. Royce. 

Mr. Berman. 

Mr. BERMAN. Well, I don’t want this to be the main thrust of my 

comments. But Mr. Royce’s point is an interesting one. If someone 

on the OFAC list creates a subsidiary or an affiliate that doesn’t 

have that name, then you can check against the OFAC list all you 

want and the entity designated on the letter of credit will never appear. So, is your obligation to go beyond simply the literal matching of the name on the letter of credit with the OFAC list? Or is 

it OFAC’s responsibility to update their list constantly to see if 

dummy companies and names are being created by OFAC list entiVerDate Mar 21 2002 14:47 Oct 14, 2005 Jkt 000000 PO 00000 Frm 00092 Fmt 6633 Sfmt 6633 F:\WORK\OI\042805\20921.000 HINTREL1 PsN: SHIRL
89

ties? In other words, I am not even clear who the customer is in 

this case. But you are doing business with somebody; you are providing financing to some entity. To assert that they are not on the 

OFAC list when they could simply be a dummy affiliate of somebody who is on the OFAC list doesn’t give a lot of credit. 

I think it would be very wrong to try to indict you at the public 

hearing for things you are not responsible for. I certainly have no 

particular interest in defending you as an entity. You have an obstacle to overcome if it is in fact true that the Iraq regime wanted 

you to play the role you played here. But I have also been to the 

Cayman Islands and I am not a crook. In and of itself, it doesn’t 

convict you to say that the Iraq regime wanted you. I would think 

you would want to explain, because I bet you there are all kinds 

of explanations made for why that regime might have wanted you 

as the bank. That don’t necessarily mean you did anything wrong 

or corrupt. 

There was a time in the 1980s, against my wishes, that the 

United States was selling dual-use equipment, that France was involved in all kinds of transactions with Iraq, that we thought Saddam was the buffer against the Ayatollah, and we developed all 

kinds of relationships that in retrospect were clearly wrong. But 

hindsight is wonderful. 

What I am confused about most of all is your testimony, Mr. 

Schenk, you apologized for something. But it seemed like the 

Chairman took what you said and extrapolated it into something 

much more than you were apologizing for. So could you sort of simply state what is it that, in retrospect, based on your report, you 

thought you did that you probably now, in hindsight, wished you 

hadn’t done? Let us get that clear. 

Mr. SCHENK. Well, I think the issue, in that regard specifically——

Mr. BERMAN. I don’t know if you apologized, but you expressed 

some remorse or something. 

Mr. SCHENK. We, in fact, did admit to making some mistakes as 

it relates to the procedures that we had in place, and the procedures that we had in place were meant to identify those situations 

where there was not an assignment of proceeds in place. It was a 

procedural issue for us. It was not——

Mr. BERMAN. What does that mean, that there was not an assignment of proceeds in place? 

Mr. SCHENK. We have two issues here on trade finance, someone 

can set up an assignment of proceeds in advance of the letter of 

credit being issued and paid, and I yield here to Harold, when I 

make a mistake. We also have a situation where one can have financing arrangements which are established at a bank on behalf 

of a supplier. 

In this case, those are the situations that we are talking about. 

Here are third-party payments where, in fact, the payment from us 

would have gone to the bank in satisfaction for the benefit of, let 

us say, East Star, but it was in an account which was part of a 

financing facility that had been put in place by that bank on behalf 

of East Star, as East Star was providing goods to the beneficiary. 

90

I note, in normal trade, that third-party financing arrangement, 

that financing facility, would be treated similarly to an assignment 

of proceeds. 

In the situation that we are talking about, from a procedural 

matter we probably—we shouldn’t have made those payments. 

Those payments that were made on that basis are outlined. 

Mr. BERMAN. Is that because—those payments were made because——

Mr. SCHENK. Of a procedure that we established internally, 

which was more strict than we believe is embedded in the underlying Banking Services Agreement. 

Mr. BERMAN. I get it. So what you are saying is, the agreement 

was ambiguous, but you would set up an interim procedure that 

was both stricter and clearer than the agreement. You, in some 

cases, didn’t comply with your own internal procedure. 

Mr. SCHENK. Yes, sir. Thank you for that clarification. 

Mr. BERMAN. You are not conceding at this point, I take it, that 

you violated the agreement. 

Mr. SCHENK. We are not conceding that, no, sir. 

Mr. BERMAN. All right. Now, that is it. 

Mr. ROHRABACHER. Well, thank you very much. I think that 

what we will do now is just call this meeting to an end, and I 

just—let me just suggest again that this is a very special favor that 

we are doing for the Ranking Member here, and he said he would 

be brief. He has asked for just two more questions, if you would 

be very brief. 

Mr. DELAHUNT. I will. Let me just pose both of them. In terms 

of the contract itself, are you in communication with the United 

Nations relative to your performance under the contract? I mean, 

has the U.N. discussed with the bank or expressed their concern 

about your performance under the contract as your client in this 

case? 

Mr. SCHENK. Well, throughout the life of the program you might 

imagine that we had——

Mr. DELAHUNT. But subsequent. At this point, many of these 

questions are being posed by this Committee and others in Congress. Have you heard—has the U.N. expressed the same concerns 

to you? 

Mr. SCHENK. No, sir, they have not, to my knowledge. 

Mr. DELAHUNT. Has the United States Mission to the United Nations engaged you in discussions about your performance pursuant 

to the U.N., to the contract you had? 

Mr. SCHENK. To my knowledge, no, sir. 

Mr. DELAHUNT. Okay. Thank you, that is it. 

Mr. ROHRABACHER. Well, then the Chairman will also ask just a 

couple more questions. 

When we are talking about these third-party assignments, did 

your bank ever file a SAR (Suspicious Activity Report) for any of 

these requests to make these third-party payments? 

Mr. SCHENK. I know that my good attorney, Mr. Bennett, is 

going to advise me that I am really not at liberty to make any comment about a SAR filing. 

91

Mr. ROHRABACHER. Well, that is pretty telling. Maybe your lawyer isn’t the one that should be making the decisions on all of these 

things if you are——

Mr. SCHENK. No, I am following—this is U.S. regulation, sir, this 

is banking law. 

Mr. ROHRABACHER. There is banking law that you have to operate on, and we have already gone through the fact that, at least 

from my perspective, it is very questionable whether or not you followed the banking law. I am not someone who is a lawyer and can 

know all the details, but it seems to me you did not know who you 

were doing business with in the end. In the sense of who the 

money ended up with, you have no idea who that someone was. 

But if you are required by law to file a Suspicious Action Report 

and someone has asked you to make a payment to a third party, 

and that third party happens to be a bank owned by a company 

that is incorporated out of the Cayman Islands, and that is the 

only thing you know about it, that seems suspicious. 

We will leave that with the American people and with the people 

who are reporting this to whether they think that is suspicious. Let 

us give you 60 seconds to say anything you want. You will have 

the final word. 

Mr. SCHENK. Okay. Since you finished along the point that you 

did, I would like to continue along that line of reasoning. 

Mr. ROHRABACHER. Yes, sir, you have the final word. 

Mr. SCHENK. I would just like to say that in the situations we 

have described as third-party payments, we are making those payments to banks under what we understand are financing agreements in place or suppliers. We are not making the payment to the 

third party. It is under a financing agreement. So the payment is 

to the bank, and the payees are not the bank’s customers. 

So in this case we have relied on the bank. As I have indicated, 

those banks are substantial international institutions and they are 

named in the interim report. 

So we believe that payments that we have made are made based 

on financing arrangements that those suppliers, financing facility, 

those suppliers had in place, and that has been confirmed to us—

and I can’t say in all cases, but in most cases that the financing 

arrangement in place at those banks was for these suppliers. 

The other point I want to make is that in all cases we have Certificates of Arrival. These are good assurances, in terms of the 

product out there, being delivered. We have no evidence of anything in our investigation which would see any cause or effect for 

any corruption in the program. So I mean, in terms of our own 

sense—and we continue, and I want to assure, as my last 10 or 15 

seconds here, that we are continuing our investigation. 

We have another 13,000 payments to go through. We have these 

80 third-party payments to identify. As a result of that, we may 

have some additional third-party payments identified. I can’t tell 

you that we won’t, and those 80 really represent about 25 more 

counterparties. 

But at this point, the other comment that I would make is that 

we believe that in all cases, for all the payments under the program, that we will be able to assure this Committee that we have 

Certificates of Arrival for all the goods involved. 

92

Mr. ROHRABACHER. Do you want to make any general statement 

at all specifically? Anything else you would like to say? 

Mr. SCHENK. Well, we want to continue to cooperate. We are 

doing the best we can, and we are providing you with that information as we get it. I guess to the extent that there is additional information that this Committee would like to have, you obviously 

know where we are, so we will respond as best we can to that inquiry. I think as it relates to some of your opening remarks, hopefully we have clarified some of those issues for you. 

Mr. ROHRABACHER. Well, thank you very much. I would like to 

again compliment your bank for being cooperative, for being here 

today. I would like to compliment you as a witness and your 

backup here. You have been forthright. This has been a great exchange of information, and I appreciate that. I think that is something we just can’t take for granted. 

We may have some disagreements here. As you can see, there 

are even some disagreements up here, but we do appreciate this exchange. 

With that said, I call this hearing to adjournment. Thank you. 

[Whereupon, at 4:25 p.m., the Subcommittee was adjourned.]

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