Oil for Fools

If you wander around the true-believer right-wing of the blogosphere enough, you will find that the "Oil for Food" scandal still ranks as the most favored energy topic. Rare that you will find a mention of Peak Oil, energy alternatives, or conservation, because it does not fit any of the fundamental 'minionist talking points frames, which remain that of gOD's bountiful harvest and the power of the free-market.

Well, now we see that Chevron Seen Settling Case on Iraq Oil

Chevron, the second-largest American oil company, is preparing to acknowledge that it should have known kickbacks were being paid to Saddam Hussein on oil it bought from Iraq as part of a defunct United Nations program, according to investigators.

The admission is part of a settlement being negotiated with United States prosecutors and includes fines totaling $25 million to $30 million, according to the investigators, who declined to be identified because the settlement was not yet public.

The penalty, which is still being negotiated, would be the largest so far in the United States in connection with investigations of companies involved in the oil-for-food scandal.

The $64 billion program was set up in 1996 by the Security Council to help ease the effects of United Nations sanctions on Iraqi civilians after the first gulf war. Until the American invasion in 2003, the program allowed Saddam’s government to export oil to pay for food, medicine and humanitarian goods.

Using an elaborate system of secret surcharges and extra fees, however, the Iraqi regime received at least $1.8 billion in kickbacks from companies in the program, according to an investigation completed in 2005 by Paul A. Volcker, the former chairman of the Federal Reserve.

By imposing surcharges on the sale of crude oil, the Iraqi regime skimmed about $228 million from its oil exports.

A report released in 2004 by an investigator at the Central Intelligence Agency listed five American companies that bought oil through the program: the Coastal Corporation, a subsidiary of El Paso; Chevron; Texaco; BayOil, and Mobil, now part of Exxon Mobil. The companies have denied any wrongdoing and said they were cooperating with the investigations.

As part of the deal under negotiation, Chevron, which now owns Texaco, is not expected to admit to violating the U.N. sanctions. But Chevron is expected to acknowledge that it should have been aware that illegal kickbacks were being paid to Iraq on the oil, the investigators said.

The fine is connected to the payment of about $20 million in surcharges on tens of millions of barrels of Iraqi oil bought by Chevron from 2000 to 2002, investigators said.

These payments were made by small oil traders that sold oil to Chevron. But records found by United Nations, American and Italian officials showed that they were financed by Chevron.

The negotiations, which might take several weeks to conclude, follow an agreement reached in February by El Paso, the largest operator of American natural gas pipelines, to pay the United States government $7.73 million to settle allegations that it was involved in illegal payments under the oil-for-food program.

The settlement discussions are a result of months of work by a joint task force of the United States attorneys of the Southern District of New York and the Manhattan district attorney, Robert M. Morgenthau, with help from Italian authorities. Kent Robertson, a spokesman for Chevron, said “regarding the oil-for-food program generally, Chevron purchased Iraqi crude oil principally for use in its U.S. refineries and the United Nations approved the initial sale of all cargos ultimately purchased by Chevron.”

He said Chevron has cooperated with inquiries into the program “and we will continue to do so.”

The United States attorney’s office and the office of the New York district attorney both declined to comment.

Thus far, only former United Nations officials, individual traders and relatively small oil companies have come under scrutiny in the United States.

According to the Volcker report, surcharges on Iraqi oil exports were introduced in August 2000 by the Iraqi state oil company, the State Oil Marketing Organization. At the time, Condoleezza Rice, now secretary of state, was a member of Chevron’s board and led its public policy committee, which oversaw areas of potential political concerns for the company.

Ms. Rice resigned from Chevron’s board on Jan. 16, 2001, after being named national security advisor by President Bush.

Sean McCormack, a State Department spokesman, referred inquires to Chevron.

According to Chevron’s Securities and Exchange Commission filings, the public policy committee met three times in the course of 2000. Chevron declined to comment about the private deliberations of its board.

On Jan. 26, 2001, Patricia Woertz, then president of Chevron Products, stated in an internal communication that “the payment of such a surcharge is prohibited by U.N. sanctions against Iraq,” according to documents provided by Chevron to the Volcker committee.

In any transaction involving Iraqi oil, Ms. Woertz wrote that the company should consider the “identity, experience and reputation of the selling company,” as well as “any deviation of the proposed pricing basis or margin for the transaction from historical practice.”

According to American and Italian investigators, however, a list of Iraqi oil transactions from June 2000 to December 2002, which Chevron provided to the Volcker committee, showed that the premium Chevron was paying to third parties went up after August 2000, when the illegal surcharges began — and continued to be paid even after Ms. Woertz’s warnings.

The company also did not carry out Ms. Woertz’s demand for what amounted to a credibility check on companies that sold Iraqi crude to Chevron. Chevron bought tens of millions of barrels of Iraqi oil from companies that included previously unknown players with no record in the oil business, investigators say.

One such company was Erdem Holding, which sold Chevron 13 million barrels of oil, according to Chevron’s list. This company was owned by Zeynel Abidin Erdem, a Turkish businessman who sat on the board of the Turkish-Iraqi Business Council.

On Feb. 15, 2001, about two weeks after Ms. Woertz’s internal memo was sent, Chevron bought 1.8 million barrels from Erdem, the Turkish company, at “OSP plus 36 cents.” OSP stands for the official selling price approved by the United Nations for Iraqi oil.

On other occasions, the extra payment went as high as 49.5 cents a barrel, according to the Chevron list.
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Figures.