RUSSIAN EMBASSY, BAGHDAD, NOVEMBER 1997
A claustrophobic panic room with beige, soundproof padded walls. Saddam’s ears could not reach us here. The Russians had made sure of that. Their Soviet-era embassy was built to sustain a siege. Merely penetrating into this room had involved passing through a series of thick doors with key codes and strange beeping locks.
The Russian envoy was tall, fit, and surprisingly young, with a crew cut of white hair and a wide wolflike grin on his face. He didn’t look like an ambassador at all. He looked like a karate instructor. And his assistant looked like he could bend metal bars over his knee. I decided these guys were from the KGB school of international diplomacy.
The ambassador offered us some tea and encouraged us to grab a cookie. The man had initially offered us vodka, but much to my regret, Pasha had declined.
I took out my notepad, and the ambassador’s eyes zoomed in on it. His smile dropped. Pasha saw that, and he told me that it was all right, I didn’t need to take notes.
“This is informal,” said Pasha, and the Russians nodded enthusiastically. The ambassador was smiling again. He leaned forward on his seat and said, “So!”
And that was it. He didn’t add anything. He just nodded, wringing his hands together, tapping his foot, and waiting for Pasha to speak. So Pasha eventually spoke, outlining various aspects of the program as he munched on his cookie, which didn’t make him too easy to understand. Eventually the Russian seized on a key word. Pasha had mentioned that there was a chance the Oil-for-Food program might be expanded.
“Expanded!” the ambassador repeated, leaning even further toward us, all ears, and still doing that nod of his to urge Pasha to elaborate.
“Well, obviously the Security Council has to approve it, but we’re going to do a review of the situation… with recommendations, you know, from the secretary general.”
“When will you submit this report?” asked the ambassador.
Pasha looked at me. We hadn’t thought that far ahead. But Pasha ventured that it might be ready in three to four months. The ambassador’s eyes went into REM mode for a few seconds, as he calculated his way to the date when an eventual expansion would come into force, then they settled, like dollar signs on a slot machine.
“So perhaps in the spring!” said the ambassador avidly, scanning Pasha for a reaction.
“Maybe,” said Pasha. “Inshallah!”
“Yes, inshallah, yes!” said the ambassador, with a nod to his deputy, who instead of saying “inshallah,” like the others, just blinked. An awkward silence ensued, during which Pasha opted to seize another cookie.
“The humanitarian situation here is very bad,” said the Russian, trying not to smile for just one second. It seemed hard for him. I think he was genuinely excited. His smile was not that of a selfless humanitarian, relieved at the prospect that a child might get more to eat. His smile was that of a guy who was about to eat a big fat juicy steak all by himself.
“What do you think of the security situation?” asked Pasha. He had just given the Russian some high-value information to report to his superiors in Moscow. So the least the Russian could do was throw us a bone. Since our meeting with Foreign Minister Sahaf we assumed the U.S. bombing campaign was off, for now. But with nothing other than news reports to work with, we had no idea what the future held in store.
The Russian told us with some assurance that the crisis would probably not reignite before a year’s time. His confidence surprised me. I had never thought of international crises as moments scheduled well in advance. I wondered how a Russian diplomat would know anything about future U.S. plans to strike Iraq. But in retrospect, it is not difficult to figure out how the ambassador arrived at this conclusion. He didn’t necessarily know about U.S. plans per se. But he knew what America’s policy was. It had been stated again and again on the Sunday morning talk shows. If Saddam blocked the work of the UN weapons inspectors, the United States would act militarily. The policy was clear, but it carried the disadvantage of giving Saddam the initiative in deciding when to produce a crisis. The challenge, from Saddam’s point of view, was to gauge correctly what types of actions would tip the scales, causing the United States to cease playing the diplomatic game and go into countdown mode for military action.
Saddam had a range of options at his disposal for sabotaging the work of the UN inspectors, and he was always testing how much he could get away with. From blocking UN convoys with sheep herds to actually expelling inspectors from the country, Saddam could pick and choose and then watch the reaction of the international community on CNN. While ambassadors would call for concerted action in New York, Saddam had various ways of wrecking the harmony in the UN Security Council. His latest test had involved singling out U.S. members of the inspection team for expulsion, while maintaining Russian, French, and Chinese inspectors in Iraq. The result was that all UN inspectors had withdrawn right before we had flown in. They would be allowed back in February 1998 under a deal brokered by Kofi Annan, then expelled again in August of that same year, sparking Operation Desert Fox some four months later. The whole process would indeed take a year, just as the Russian Ambassador had predicted.
Ultimately, all sides understood that a clash was inevitable, because Saddam’s bottom line and Washington’s bottom line were not compatible. Saddam wanted the inspectors out of Iraq; Washington wanted them inside his palaces. The only question was when the next showdown would take place.
With the prospect of a massive expansion of the Oil-for-Food program, Saddam decided to wait about a year before halting cooperation with the inspectors completely.
Once UNSCOM was definitely out of the country (December 1998), the Russian Federation moved to secure this gain by making sure the inspection team wouldn’t return to Iraq anytime soon. Citing evidence that the United States had used UNSCOM to spy on Saddam (wasn’t that the whole point?), Russia moved to have Richard Butler, the chief UN inspector, removed from his position. UNSCOM was temporarily dismantled, only to be renamed UNMOVIC, a more Slavic-sounding name for a tamer organization that would remain barred from entering Iraq until right before the war, when Washington suddenly adopted a more aggressive stance toward Iraq, citing the four-year interruption in UN inspections as proof that Saddam had something to hide. Throughout what we might call a five-year “perma-crisis,” Moscow and Baghdad acted in collusion to prevent UN inspectors from resuming their work. As the years of sanctions wore on and the Oil-for-Food program expanded, what motivated Moscow to offer such dedicated support to Saddam’s policies?
Let’s follow the money. In total, Iraq would sell $19.1 billion worth of oil to Russian companies. Why is this significant? After all, oil is traded on the international market, and Russia could well have bought it from Venezuela. Only here’s what we didn’t know as we sat there chatting with Russia’s ambassador in Baghdad: Iraq was planning to sell its oil at below-market prices. And Saddam Hussein explicitly allocated a third of Iraq’s underpriced oil to Russia’s political leaders, meaning only they, or a company they approved of, had a right to purchase the below-market oil and resell it to an actual oil company at a profit. This would later become known as the “oil-voucher” system.
Saddam understood a thing or two about bribing people. In the case of Russia, he went right to the top. President Vladimir Putin’s chief of staff, Alexander Voloshin, was allocated millions of barrels of oil throughout the life of the program to do with as he pleased. According to the U.S. Senate’s Permanent Subcommittee on Investigations, the oil allocations to Putin’s chief of staff amounted to a total value of $2,982,984.28, which was paid directly to the benefit of the Russian Presidential Council, headed by Alexander Voloshin. Everybody won, except of course the Iraqi people.
As we would observe in coming years, one way Vladimir Putin consolidated absolute power in his own hands was by buying off other parties in the Russian Duma. Here, too, Saddam and our Oil-for-Food program would come in handy.
In addition to the bribes offered to the Kremlin, the Iraqis allocated oil to various Russian political parties, including seventy-three million barrels to the fascist (and misnamed) Liberal Democratic Party, headed by Vladimir Zhirinovsky, and 121.1 million barrels to the Communist Party, in the name of its leader, Gennady Zyuganov (who came in second during the Russian presidential elections of 1996 and 2000). Both men would often travel to Iraq and swear their allegiance to Saddam Hussein. In February 2003, Zyuganov met with Saddam, and when he returned to Moscow, he called on Russia to use its veto in the UN Security Council in order to avoid a war.
Not that the government of Vladimir Putin needed any encouragement from Zyuganov to protect the regime of Saddam Hussein. Iraq had done much better than distribute underpriced oil allocations to various political parties in Russia. It had handed over responsibility to the Russian government itself to choose which Russian private companies would be given allocations. This meant that Victor Kalyuzhky, the minister of fuel and energy, was enlisted to hand out Saddam’s bribes in Russia for him.
Here’s how this worked. Kalyuzhky would draw up a list, copies of which were subsequently found in the Iraqi Oil Ministry. This list would name the companies the Russian government felt should receive allocations of oil from Iraq. The Iraqis then sold the underpriced oil to these companies (which included Lukoil, Yukos, Sibneft—basically, all the companies owned by Russia’s Putin-friendly oligarchs).
For the price of $19.1 billion, Saddam Hussein had, essentially, bought himself Russia’s seat on the UN Security Council. It guaranteed that the United States would never again be able to attack Iraq with the approval of the UN.
Putin was allowed to use Saddam’s underpriced oil to dole out cash favors to Russia’s oligarchs and political parties, and Saddam was allowed to buy (mostly) Russian- or Chinese-made weapons on the black market.
In addition to benefiting illicitly from oil sales, Iraq’s trading partners also poured cash into Saddam’s pockets through the sale of humanitarian goods. Here’s how that worked. Companies that sold products to Iraq through the Oil-for-Food program would send a 10 percent kickback to Saddam. (On some occasions, it went as high as 30 percent, but on average 10 percent was the rule.) In the case of Russian companies, they would literally send the money in cash. An employee would head over to the Iraqi Embassy in Moscow with a sports bag (or several) filled with money—mostly dollars, though toward the end of his reign Saddam seemed to prefer euros. Three Iraqi Embassy employees were in charge of taking receipt of the cash. Because Saddam liked to have his own people keep an eye on one another, these three employees included the embassy’s commercial counselor, its accountant, and a third staffer who would change every couple of months, to make sure the other two didn’t get any funny ideas.
This was classic Saddam Hussein School of Management. The trio of embassy staff formed what the Iraqis called a “payment committee.” Such committees would be replicated in other countries as the Oil-for-Food program grew, including Greece, Egypt, Switzerland, Italy, Malaysia, Turkey, Austria, Yemen, and Syria. In France and other countries, further creative solutions would be found, but the Russian cash-transfer model had the clear advantage of staying out of the international banking system entirely, operating without a trace. Well, almost.
After they counted the cash, the Iraqis on the payment committee would issue a receipt in three copies, which each of them would have to sign. The receipts would contain a serial number, the amount of the payment, the name of the company depositing the money, and the names of the Iraqis who had counted it. Sometimes the receipts even contained the names of the individuals bringing cash to the embassy. International investigators would eventually find some of these receipts.
After the money was taken in, the Iraqi ambassador would sign and stamp each receipt. One copy would go to the company (which probably sent it straight to the shredder); one copy was placed with the cash in a safe, for future shipment to Iraq; and the last copy stayed in the embassy books.
The Iraqi Embassy staff were then charged with transporting the money to Iraq in red canvas diplomatic bags that were immune from search by airport authorities. Each diplomatic bag could hold up to $1.5 million in $100 bills. The bags were numbered and sealed with wax before the trip. Problem was, flying into Iraq was illegal under the sanctions. But this didn’t stop one very entrepreneurial airline operator, A.V.M. Air, from scheduling regular Moscow-Baghdad flights, which operated from 1999 to 2003 with the full accord of the Russian government. The trick was to avoid flying through the U.S.-operated no-fly zones over northern and southern Iraq. Flying in through Iran would usually do the trick. A.V.M. are the initials of the company’s owner (Al-Dzhilaui) and pilot (Vladimir Malyugin). It was basically a two-person shop, and one has to imagine that ticket prices on the A.V.M. flights were pretty steep—not only because the flights were illegal but also because a piloting error could cause the plane to get shot down by patrolling F-16 fighter jets. Bringing the cash into Iraq by road was not an option either; even under Saddam Hussein, the unruly tribes of western Iraq regularly ambushed travelers coming into the country from Jordan or Syria. Our own staff never took that road by night. In addition to running a profitable air route, the owners of A.V.M. Air eventually solicited an oil allocation from the Iraqis for themselves.
Once the plane full of cash landed in Baghdad, the Iraqi diplomat who had been charged with transporting it usually began to sweat, and not just because of the temperature. Upon arrival, he would be met at the airport by one of Saddam’s henchmen and transported to the Ministry of Foreign Affairs, where the money was to be counted once again. The Iraqi diplomat had better pray that every bill was still in there, or he’d be in for a particularly unpleasant time. From the Ministry of Foreign Affairs they would call the embassy in Moscow and double-check that the sum matched the receipt that had been left behind. They would then draw up new receipts, just in case Saddam decided to throw an audit on his little business, and then the money would simply be deposited into Saddam’s bank to do with as he pleased, just as in the old days, when there were no sanctions on Iraq.
At the time of our first trip to Iraq, in November 1997, there was still a cap on how much oil Iraq could sell. So in terms of volume, Saddam was not yet receiving as much cash in kickbacks as he might have before the Gulf War. Iraq was allowed to sell only $2.2 billion worth of oil every six months, or $4.4 billion per year. But in light of the conditions we had seen on the ground, and UNICEF’s alarming studies on child mortality rates due to continuing problems with water and sanitation, food transportation, and other basic services that Iraqi civilians depended on to survive, Pasha and I were becoming convinced that the solution was to expand our operation. What we didn’t understand then, because we did not know for sure why the Russian ambassador in Baghdad was smiling at us like a hungry wolf, was that lifting the cap on Iraq’s oil sales was basically equivalent to lifting the sanctions on Saddam. For every Russian contract that went through our complex system of bureaucratic controls, red bags filled with cash flew directly into Saddam’s pockets.
From Russia With Love,
Vladimir & Friends.