UN's oil-for-food programme under scrutiny

By Claudio Gatti and Mark Turner in New York

THE FINANCIAL TIMES April 12 2004

A Detroit-based businessman of Iraqi origin who financed a film by Scott Ritter, the former chief United Nations weapons inspector, has admitted for the first time being awarded oil allocations during the UN oil-for-food programme.

Shakir Khafaji, who had close contacts with Saddam Hussein's regime, made $400,000 available for Mr Ritter to make In Shifting Sands, a film in which the ex-inspector claimed Iraq had been "defanged" after a decade of UN weapons inspections.

The disclosure is likely to raise further questions about the operation of the oil-for-food programme, which is already the subject of Congressional investigations and a separate high-level UN inquiry.

Congressional critics claim the Iraqi government manipulated the UN scheme in order to enrich members of the regime and buy influence abroad.

Mr Khafaji financed Mr Ritter's film in the same period as he received "allocations" for Iraqi oil, handed out by Baghdad on a discretionary basis as part of the UN oil-for-food programme between 1995 and 2002.

Recipients of the allocations were able to sell the oil to international traders for between 10 cents and 30 cents per barrel. A 1m-barrel allocation could net as much as $300,000 in profit.

The scheme was set up in such a way that beneficiaries' names were not recorded by the UN, and allowed them to claim they received no money from the Iraqi government.

Mr Khafaji says there was no connection between the oil allocations, which he says he sold on behalf of his "family", and his relationship with Mr Ritter, an ex-Marine who shifted from being one Saddam Hussein's toughest critics on weapons of mass destruction to being an opponent of the US-led invasion of Iraq.

In an interview with the Financial Times and Il Sole 24 Ore, the Italian business daily, Mr Khafaji admitted that he sold allocations to Italtech, a Tuscany-based company, which resold the oil to a Houston-based oil trading company called Bayoil, or its subsidiaries. But he says he never told Mr Ritter about his receipt of the oil allocations.

The relationship between Italtech and Bayoil was the subject of an Il Sole/FT investigation published last week.

Mr Ritter said he did not know that Mr Khafaji was involved in the oil-for-food programme. He denied receiving any money from the Iraqi government to help make his film.

He said he had an agreement with Mr Khafaji that his documentary would not be used in any deal with the Iraqis.

"To my knowledge Shakir has abided by this agreement, meaning that he has not been reimbursed by the Iraqi government for the money he put up for the movie," Mr Ritter said.

Asked what he would say if there was proof Mr Khafaji had received money from the regime, Mr Ritter replied: "I would agree that there's reason to believe there's a quid pro quo.

"I would agree that it's a suspicious thing; that Shakir al-Khafaji would have a responsibility to explain to me what happened. I'm not going to assume anything up front."