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Source: Associated Press
WASHINGTON - The U.S.-led postwar government in Iraq awarded business to two multinational banks fined for violating U.S. sanctions against Iraq during the regime of ousted dictator Saddam Hussein, records show.
The U.S.-appointed interim Iraqi government awarded one of the first foreign banking licenses in Iraq to British bank HSBC - the only firm fined twice for transactions with Saddam's Iraq by the U.S. Treasury Department.
A CIA report last month said Saddam's regime also stashed illicit oil profits in accounts at an HSBC branch in Jordan. And an Iraqi bank under Saddam was one of five investors in a London bank controlled by HSBC. The deal gave one of Saddam's bankers a seat on the board of directors of the British Arab Commercial Bank until last year.
HSBC said in a statement its internal reviews have found no evidence of wrongdoing.
JPMorgan Chase & Co., the American bank chosen by U.S. officials to manage the Trade Bank of Iraq, paid a fine four years ago to resolve allegations its Chase Manhattan Bank allowed a $50,000 funds transfer involving Saddam's Iraq.
Bids from 58 banks from around the world were considered in selecting the consortium led by JPMorgan. JPMorgan and HSBC were the only banks on that list which had paid fines for violations involving Saddam's Iraq.
JPMorgan spokeswoman Kristin Lemkau said the transfer was a mistake. She said a Chase employee improperly allowed the transaction to go through after it had been halted by the bank's internal controls. The money was destined for an Iraqi soccer association, Lemkau said.
Sean McCormack, a spokesman for President Bush's National Security Council, did not respond to questions Friday about the banking arrangements. Former U.S. officials with Iraq's Coalition Provisional Authority, which ran Iraq from Saddam's ouster until last June, also declined to answer questions about the arrangements.
Saddam's government had prohibited foreign banks from operating in Iraq, and Iraq was largely cut off from international banking after Saddam invaded Kuwait in 1990. The United Nations banned most transactions with Iraq, although it later allowed deals under an oil-for-food program Saddam evaded through profitable clandestine arrangements.
After the U.S.-led invasion toppled Saddam in April 2003, reviving Iraq's banking sector was one of the reconstruction jobs taken on by the U.S.-managed CPA and the Iraqi interim government it appointed.
The Iraqi interim government awarded banking licenses in January to HSBC and the National Bank of Kuwait. Neither has opened any branches in Iraq. HSBC got the license despite its recent connections with Saddam's regime.
HSBC USA, the British bank's American subsidiary, paid the U.S. Treasury Department's Office of Foreign Assets Control more than $223,000 in 2000 and 2001 to settle allegations it violated trade embargoes against Iraq and other rogue nations. The fines covered a dozen transactions involving Saddam's Iraq, Libya, Sudan, Cuba and the former Yugoslavia.
Three transactions involving Iraq included a $21,000 funds transfer in February 2000. The others, in May 2000, totaled more than $510,000 and were initiated by an entity connected to Saddam's regime, Treasury Department records show. The name of that person or organization was blacked out on documents about the case released by the Treasury Department under the Freedom of Information Act.
Iraq's state-owned Rafidain Bank owns 4.91 percent of the British Arab Commercial Bank, which is an affiliate of the HSBC banking group. HSBC owns 46.51 percent of the bank and the next-largest shareholder is the Libyan Arab Foreign Bank, which owns 25 percent.
Bassim Mahdi, a top executive in Rafidain under Saddam, was a member of BACB's board of directors and participated in the board's London meetings from September 2002 until he resigned on Sept. 15, 2003, according to BACB's annual reports. HSBC officials have said the arrangement was legal because there were no transactions between Rafidain and BACB or HSBC.
Separately, the report last month from chief U.S. weapons inspector Charles Duelfer said an HSBC branch in Amman, Jordan, was part of an international network of banks Saddam's regime used to hide black-market profits. Duelfer wrote that one way to finance an under-the-table oil deal with Saddam was to pay cash to Iraq's Rafidain Bank in Amman, which would then transfer money to the HSBC branch, "where regime money remained."
In a statement, HSBC said it tried to avoid dealing with Saddam's regime while Iraq was under U.N. sanctions. The bank said it periodically reviewed accounts in Jordan and elsewhere for possible ties to Saddam and those reviews "revealed no irregularities."
The Coalition Provisional Authority named the 13-bank consortium led by JPMorgan to oversee operations of the Trade Bank of Iraq, which has financed more than $2.5 billion in reconstruction and development work.
JPMorgan paid a $28,585 fine to the U.S. Treasury Department in 2000 for participating in the $50,000 funds transfer in 1999 and a $7,000 transfer involving Cuba.
Lemkau said the $50,000 transfer request was routed through a bank in Beirut, Lebanon, and a Chase employee mistakenly thought the transaction could be completed because the money was going to Lebanon, not Iraq.
Peter McPherson, then head of financial operations for the CPA, said at the time that JPMorgan won the contract because the consortium convinced officials "they could do a cost-effective, quality job." McPherson, who returned to his post as president of Michigan State University a year ago, declined comment through a spokesman.
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