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U.S.A.: Houston Oilmen Deny Paying Kickbacks to Iraq

Appearing in federal court, David B. Chalmers Jr., head of Houston-based BayOil (USA), and his business associate Ludmil Dionissiev pleaded innocent to charges they fixed oil prices and paid illegal surcharges as part of a scheme to ingratiate themselves with Saddam Hussein's regime and thereby profit from Iraqi oil sales.

by David IvanovichThe Houston Chronicle
April 18th, 2005

NEW YORK -- Two Houston oil traders denied allegations today they paid kickbacks to Saddam Hussein's regime to purchase crude under the United Nations' oil-for-food program.

Appearing in federal court here, David B. Chalmers Jr., head of Houston-based BayOil (USA), and his business associate Ludmil Dionissiev pleaded innocent to charges they fixed oil prices and paid illegal surcharges as part of a scheme to ingratiate themselves with Saddam's government and thereby profit from Iraqi oil sales.

"We intend to vigorously defend this case," Bart Dalton, an attorney for Chalmers and BayOil, said Monday after the defendants appeared for their arraignment before U.S. District Court Judge Denny Chin, adding: "We have no doubt we're going to be completely vindicated."

Federal prosecutors, meanwhile, are trying to extradite a third BayOil trader, John Irving, who lives in London.

Prosecutors left the courtroom without talking to reporters.

If convicted on all counts, each man could face a maximum 62 years in prison. Prosecutors also want to seize more than $100 million in profits they say BayOil earned illegally.

Despite the indictments, and the government's efforts to take company assets, Dalton says, BayOil remains a "vibrant and dynamic firm." With its headquarters on the second floor of the Rice Lofts, BayOil employs about 15 in Houston.

Chalmers, 51, appeared nervous before the hearing Monday. Tall and thin, Chalmers quietly hung his head, stretched or smiled wanly as sketch artists surrounded him. Dionissiev, seemingly more at ease, joked with the courtroom artists, insisting: "Make me beautiful. Don't make me look like a criminal."

The next hearing in the case is scheduled for May 18 to discuss the schedule for sharing evidence.

The oil traders are accused of cooperating with Saddam's regime to exploit weaknesses in the U.N.'s humanitarian effort to use Iraqi oil sales to provide food and medicine to the Iraqi populous during the long years of economic sanction.

The U.N. was supposed to retain complete control of those oil sales to keep the revenues generated out of Saddam's hands. U.N. officials determined the price to be paid for Iraqi oil, trying to match market conditions as closely as possible. And proceeds from those sales were deposited into a U.N.-monitored bank account in Manhattan.

But Saddam's government was permitted to choose its own initial customers. And investigators have learned that Baghdad pressured those recipients to pay secret surcharges for the privilege.

BayOil did not purchase crude directly from Saddam's regime. Instead, the company was the middle-man, arranging to buy crude from an initial or even secondary purchaser and then selling that crude to a refiner or other trader.

Under the oil-for-food program, companies like BayOil were permitted to pay this initial allocation holder a fee. Prosecutors contend BayOil paid inflated commissions, with the understanding that some portion of those payments would be used to pay kickbacks to Baghdad.

According to the indictment made public last week, BayOil officials then tried to hide those kickbacks and help boost profit margins by working to purposely deflate the price the U.N. would set for Iraqi crude.

The government contends BayOil officials secretly communicated with Saddam's regime, proposing an inaccurate pricing mechanism Baghdad could use when dealing with U.N. officials. If true, the allegations might help explain why small, little-known BayOil was able to muscle ahead of so many larger competitors to take possession of Iraq's high-quality crude.

Prosecutors, who continue to investigate the oil industry's dealings with Saddam, have not ruled out the possibility of more indictments.

For years, the oil industry was rife with reports Saddam was demanding kickbacks. News accounts at the time discussed his reputed strategy of suspending the surcharges at the same time he was inviting U.N. weapons inspectors to return to the country.

In a report made public last year, Charles Duelfer, an investigator for the Central Intelligence Agency with access to documents obtained in Iraq after the U.S.-led invasion, listed numerous individuals and companies believed to have received Iraqi crude at the time when Saddam's regime was trying to force customers to pay kickbacks.

Those documents repeatedly listed legendary Houston oil man Oscar Wyatt, as well as what was then known as Houston-based Coastal Corp. Wyatt's name also was listed together with other, little-known entities such as Nafta Petroleum and Mednafta.

Wyatt has repeatedly denied any wrongdoing, and a spokeswoman has argued Wyatt's relationship with entities such as Nafta Petroleum had been misunderstood.

Neither the spokeswoman nor Wyatt's attorney could be reached for comment Monday.

Houston Chronicle reporter Tom Fowler in Houston contributed to the report.





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