US: Democrats Tie BayOil to Saddam Hussein's Purchase of Bombs

Houston's BayOil played a key role in helping Saddam Hussein's government purchase cluster bombs during Iraq's bloody war with Iran, Democrats on a Senate panel contend.

These oil-for-arms deals, Senate investigators say, helped cement a relationship that would later enable the little-known oil trader to emerge as the largest supplier of Iraqi crude to the U.S. market under the United Nation's oil-for-food program.

BayOil's Iraqi oil trades are at the heart of the controversy over the United Nation's handling of the humanitarian program. The Senate's Permanent Subcommittee on Investigations is scheduled to hold a hearing today on these issues.

In a report made public Monday night, Democratic investigators on the subcommittee traced BayOil's relationship with Saddam's regime back to the mid-1980s, during the brutal, 8-year Iran-Iraq War. The United States provided support for Iraq during the war because of fears about Iran's growing power in the region.

Cluster bombs bought

The report, which Republicans were still reviewing Monday, says Saddam's regime purchased hundreds of millions of dollars worth of cluster bombs from Carlos Cardoen, a Chilean arms maker, racking up massive debts in the process.

To help produce his bombs, Cardoen hired Augusto Giangrandi, a one-time resident of Florida with dual Italian-Chilean citizenship, to ship zirconium from the United States to Chile, the report said.

Because Saddam could not pay cash, Giangrandi traveled to Baghdad to work out a deal and brought in BayOil owner David Chalmers Jr.

The pair negotiated a deal where Iraq's oil marketing company would supply oil to BayOil. The Houston company paid for part of the value of the barrels and sent the remainder to Cardoen.

"This arrangement, in effect, allowed Iraq to trade oil for cluster bombs," the report said.

Giangrandi and Chalmers' relationship with Baghdad would prove highly lucrative years later, investigators say, when Saddam's regime was permitted to sell crude under the U.N. oil-for-food program.

Bart Dalton, an attorney for Chalmers and BayOil, called the report "just part two of the Senate's assault on Mr. Chalmers and BayOil's right to a fair trial.

"The Senate will make its headlines for its own purposes," Dalton said. "We will then be left to go about the serious business of undoing the harm they created and getting a fair trial, where Mr. Chalmers and BayOil will be vindicated."

Italian connection

Under the rules established by the U.N. Security Council to run the oil-for-food program, Saddam was permitted to select crude customers.

Giangrandi's Italian oil company - Italtech - soon became a large buyer of Iraqi oil, purchasing 37 million barrels of crude that it sold to others, the report said. Over a six-month period, Giangrandi sold about 34 million of those barrels to BayOil.

Giangrandi would later show up as chairman of BayOil's operation in the Bahamas, the report noted.

BayOil also bought crude from a number of Saddam's other select customers, including prominent Russian politicians. During this period it purchased more than 200 million barrels of Iraqi oil, the Senate report said.

But Saddam began to demand his oil customers pay kickbacks ranging from 10 cents to 30 cents per barrel. Investigators contend both Italtech and BayOil paid these illegal surcharges.

Federal indictments

Last month, a federal grand jury indicted Chalmers, his colleague Ludmil Dionissiev - both of Houston - as well as BayOil trader John Irving of London of scheming with Baghdad to both pay kickbacks and fix oil prices in an effort to hide these surcharges.

The report calculates BayOil paid at least $37 million in surcharges. The cost of these illegal kickbacks were passed along to BayOil's customers, Democratic investigators say.

San Antonio-based Valero Energy Corp. was listed in the report as BayOil's largest named customer, buying 44.8 million barrels of crude.

Investigators estimate a purchase of that size would have entailed nearly $12 million in surcharges, or nearly 27 cents per barrel.

Democratic staffers said they have seen no evidence to show that Valero or any other U.S. company purchased crude knowing that a surcharge had been paid. Reports that Saddam was imposing surcharges circulated widely in the news media during that era.

Valero spokeswoman Mary Rose Brown noted that the company's contracts "contained a specific stipulation that BayOil would pay no surcharges. ... Obviously, we would have no way of knowing if they violated that warranty."

Investigation stymied

While the U.N. has been much-criticized for the oil-food-scandal, Democrats on the subcommittee said the U.N.'s efforts to examine BayOil were stymied by the U.S. government.

After failing to get information it wanted about BayOil's dealings with Iraq directly from the company, the United Nations appealed to the U.S. State Department, which contacted the Treasury Department's Office of Foreign Assets Control.

That office, which enforces the nation's trade sanctions rules, did not consider the issue a top priority, Democrats on the subcommittee say.

"We did not respond to the U.N. when they asked for information about BayOil - over and over and over again," said Sen. Carl Levin of Michigan, the ranking Democrat on the subcommittee.

Eight months after receiving the initial request for help getting information about BayOil, Foreign Assets Control wrote the company a letter asking about its transactions in Iraq.

The letter, however, did not request the specific information sought by the United Nations. Molly Millerwise, a spokeswoman for the Office of Foreign Assets Control, declined to comment on BayOil specifically. She did note, however, that the office had completed more than 300 investigations of U.S. financial institutions, corporations and individuals involving possible violations of sanctions against Iraq, and criminal charges had been brought against 13 for unlicensed transactions.

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