UPDATE: Iraq Sues Oilmen, Cos Over Oil-For-Food Corruption
Monday June 30th, 2008 / 23h24
(Adds "no comments" from companies, statement from Wyatt lawyer and additional details of the allegations beginning in the first paragraph.) By Chad Bray Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- Iraq's new government has sued two Texas oilmen and dozens of companies for alleged corruption under the U.N.'s scandal-ridden oil-for-food program. The lawsuit, filed Friday in U.S. District Court in Manhattan, alleged the companies engaged in a conspiracy with members of Saddam Hussein's regime to corrupt the program "in order to reap the economic benefits of trading" under it, including paying billions of dollars in kickbacks to Hussein's government. "Billions of dollars were lost, all of which were directly translatable into food, medicine and other humanitarian goods that were supposed to reach the Iraqi people," the lawsuit said. "The resulting damage in human suffering caused to the Republic of Iraq and to the people of Iraq is virtually incalculable." The lawsuit, filed by the Republic of Iraq on behalf of the Iraqi people, names Oscar S. Wyatt Jr., former chairman of Coastal Corp., and David B. Chalmers Jr., the sole shareholder of Houston oil company Bayoil (USA) Inc., as defendants. The complaint also names dozens of companies as defendants, including units of Chevron Corp. (CVX), El Paso Corp. (EP), Ingersoll-Rand Co. (IR), Eli Lilly & Co. (LLY), AWB Ltd. (AWB.AU), GlaxoSmithKline PLC (GSK), Boston Scientific Corp. (BSX), Eastman Kodak Co. (EK) and BNP Paribas. Spokespersons at Boston Scientific, Eastman Kodak and El Paso Corp., Ingersoll-Rand and GlaxoSmithKline didn't immediately have a comment when reached late Monday. Spokespersons at the other companies couldn't be reached for comment late Monday. Wyatt and Chalmers are among seven people who have either pleaded guilty or been convicted of criminal charges in a kickback scheme to obtain oil under the oil-for-food program. Criminal charges are pending against several other individuals, including the program's former executive director, Benon V. Sevan. "I think this is a ridiculous lawsuit on so many levels," said Gerald Shargel, a lawyer for Wyatt. "I think this is a publicity stunt someone in this administration put them up to." A lawyer for Chalmers wasn't immediately available to comment late Monday. The oil-for-food program was designed to allow Hussein's regime, which was facing international sanctions, to sell oil in exchange for food, medical supplies and other humanitarian needs. Payments under the program were supposed to be made to a U.N.-controlled escrow account, not directly to the Iraqi government. An independent investigation headed by former Federal Reserve Chairman Paul A. Volcker in 2005 found that Hussein's government was able to pocket billions of dollars by manipulating the program, and kickbacks were paid to U.N. officials. The program began in 1996 and ended in 2003. The alleged kickback scheme included several fees that allegedly went directly into the pockets of Hussein's government, instead of going to the escrow account. One was a "transportation fee" that was required to be paid before goods could enter Iraq, which allegedly diverted about $500 million from humanitarian aid, the lawsuit said. Another was a "after-sales-service fee" that could range from a 10% to 30% surcharge and improperly diverted more than $1 billion to Hussein's government, according to the complaint. Iraq's government under Hussein also imposed surcharges on the sale of oil, which resulted in about $228.8 million taken from the Iraqi people, the lawsuit said. The lawsuit further alleged that companies sold substandard or overpriced goods under the program, causing $7 billion in damages; and another $1.9 billion in humanitarian goods were diverted to Iraqi ministries ineligible to participate in the program, including the Ministry of Defense and the offices of Iraq's then-president and vice president. The amount of the alleged kickbacks ranged from a few thousand dollars to several hundred million dollars, according to the lawsuit. Australian wheat exporter AWB, the largest provider of humanitarian goods under the program, allegedly paid more than $221 million in kickbacks to Iraq's government - the highest amount of alleged kickbacks paid under the program, according to the suit. "AWB is unaware of any lawsuit filed by the Iraqi government against the company," said Peter McBride, an AWB spokesman. "If one has been filed, AWB will study the motion and respond accordingly." In November, Swiss oil-trading firm Vitol SA - also named as a defendant in Iraq's lawsuit - pleaded guilty to first-degree grand larceny in state court in connection with a scheme to pay kickbacks through associated entities or third parties in exchange for oil. Vitol agreed to pay restitution of $13 million to the Development Fund for Iraq and will make a payment of $4.5 million to the city and state of New York. A lawyer for Vitol couldn't immediately be reached for comment late Monday. Chevron in November agreed to pay $30 million to settle civil and criminal charges related to secret surcharges paid by third-party merchants in exchange for oil under the program. Last year, El Paso Corp., which acquired Coastal Corp. in 2001, agreed to pay $7.7 million to settle civil and criminal charges that it indirectly paid $5.5 million in illegal surcharges to Iraq through purchases of crude oil from outside parties under the oil-for-food program. -By Chad Bray, Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=3lGBWWahUFfXD%2FiXfjAf1g%3D%3D. You can use this link on the day this article is published and the following day.
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