COMMITTEE ON INTERNATIONAL RELATIONS HENRY J. HYDE, Illinois, Chairman JAMES A. LEACH, Iowa TOM LANTOS, California CHRISTOPHER H. SMITH, New Jersey, HOWARD L. BERMAN, California Vice Chairman GARY L. ACKERMAN, New York DAN BURTON, Indiana ENI F.H. FALEOMAVAEGA, American ELTON GALLEGLY, California Samoa ILEANA ROS-LEHTINEN, Florida DONALD M. PAYNE, New Jersey DANA ROHRABACHER, California ROBERT MENENDEZ, New Jersey EDWARD R. ROYCE, California SHERROD BROWN, Ohio PETER T. KING, New York BRAD SHERMAN, California STEVE CHABOT, Ohio ROBERT WEXLER, Florida THOMAS G. TANCREDO, Colorado ELIOT L. ENGEL, New York RON PAUL, Texas WILLIAM D. DELAHUNT, Massachusetts DARRELL ISSA, California GREGORY W. MEEKS, New York JEFF FLAKE, Arizona BARBARA LEE, California JO ANN DAVIS, Virginia JOSEPH CROWLEY, New York MARK GREEN, Wisconsin EARL BLUMENAUER, Oregon JERRY WELLER, Illinois SHELLEY BERKLEY, Nevada MIKE PENCE, Indiana GRACE F. NAPOLITANO, California THADDEUS G. MCCOTTER, Michigan ADAM B. SCHIFF, California KATHERINE HARRIS, Florida DIANE E. WATSON, California JOE WILSON, South Carolina ADAM SMITH, Washington JOHN BOOZMAN, Arkansas BETTY McCOLLUM, Minnesota J. GRESHAM BARRETT, South Carolina BEN CHANDLER, Kentucky CONNIE MACK, Florida DENNIS A. CARDOZA, California JEFF FORTENBERRY, Nebraska MICHAEL MCCAUL, Texas TED POE, Texas THOMAS E. MOONEY, SR., Staff Director/General Counsel ROBERT R. KING, Democratic Staff Director (II) SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS DANA ROHRABACHER, California, Chairman EDWARD R. ROYCE, California WILLIAM D. DELAHUNT, Massachusetts JEFF FLAKE, Arizona, Vice Chairman HOWARD L. BERMAN, California MARK GREEN, Wisconsin EARL BLUMENAUER, Oregon MIKE PENCE, Indiana ADAM B. SCHIFF, California JOE WILSON, South Carolina GREGG RICKMAN, Subcommittee Staff Director GREGORY MCCARTHY, Professional Staff Member CLIFF STAMMERMAN, Democratic Professional Staff Member EMILY ANDERSON, Staff Associate SUBCOMMITTEE ON THE MIDDLE EAST AND CENTRAL ASIA ILEANA ROS-LEHTINEN, Florida, Chair STEVE CHABOT, Ohio, Vice Chair GARY L. ACKERMAN, New York THADDEUS G. MCCOTTER, Michigan HOWARD L. BERMAN, California JOHN BOOZMAN, Arkansas ELIOT L. ENGEL, New York CONNIE MACK, Florida JOSEPH CROWLEY, New York JEFF FORTENBERRY, Nebraska SHELLEY BERKLEY, Nevada JO ANN DAVIS, Virginia ADAM B. SCHIFF, California MIKE PENCE, Indiana BEN CHANDLER, Kentucky KATHERINE HARRIS, Florida DENNIS A. CARDOZA, California DARRELL ISSA, California YLEEM POBLETE, Subcommittee Staff Director MATT ZWEIG, Professional Staff Member DAVID ADAMS, Democratic Professional Staff Member LEE COHEN, Staff Associate (III) SYRIA AND THE UNITED NATIONS OIL-FOR-FOOD PROGRAM WEDNESDAY, JULY 27, 2005 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, AND SUBCOMMITTEE ON THE MIDDLE EAST AND CENTRAL ASIA, COMMITTEE ON INTERNATIONAL RELATIONS, Washington, DC. The Subcommittees met, pursuant to notice, at 10:33 a.m., in room 2172, Rayburn House Office Building, Hon. Dana Rohr- abacher (Chairman of the Subcommittee on Oversight and Inves- tigations) and Ileana Ros-Lehtinen (Chair of the Subcommittee on the Middle East and Central Asia) presiding. Mr. ROHRABACHER. I call this joint meeting of the Oversight and Investigations Subcommittee and the Middle East and Central Asia Subcommittee to order. This Subcommittee has held a number of hearings this year on the Oil-for-Food Program of the United Nations. This hearing, held jointly with the Middle East Subcommittee, will examine the role of Syria in the program. Let us note, to be fair, Syria is not the only country that has been involved with any questionable activities in the United Na- tions Oil-for-Food Program. This Subcommittee has already inves- tigated other countries who have had very questionable involve- ment, and we will further investigate other countries as well in our investigation of the Oil-for-Food scandal. So this is just one of a se- ries of hearings to look into a specific set of circumstances and de- tails that we think need to be known by the public. Despite the historic enmity between Syria and Iraq, both of these countries managed to profit from the manipulation of the United Nations sanctions on Iraq. Today, we want to discuss two concerns: First, the actions of the Commercial Bank of Syria, which facilitated kickbacks for sup- pliers and kickbacks for the buyers of those who were involved in the U.N. Oil-for-Food Program. Again, let me note we have spent considerable time on the banks of other countries. Second, we will be looking at Syrian complicity in the purchase of weapons in di- rect violation of the United Nations guidelines at that time and in direct violation of the Oil-for-Food Program’s intent. Evidence suggests that CBS (Commercial Bank of Syria) was the recipient of the proceeds of more than $1.8 billion in oil sales from June 2000 to February 2003. These funds were deposited into ac- counts controlled by Iraq's State Oil Marketing Organization (1) 2 (SOMO) at the Syrian bank (CBS). A trade protocol established be- tween Syria and Iraq in 2000 was the basis for these ongoing transactions. Unseen, however, was an additional $1.2 billion in oil money that was at times put into another account at the CBS. These funds were used to pay for trade between the two countries, including weapons that were very likely used. In fact, some of these weapons could have very likely been used against American troops in Iraq. Part of this scheme included a procedure for these funds to be automatically transferred through a secretive route to the Central Bank of Iraq. In one case, Committee investigators spoke to an Iraqi courier that transported a payment worth millions of dollars in gold bars. He transported these gold bars via car back to Bagh- dad. One can only envision this transfer of money and gold bars in the trunk of an automobile being transferred from Damascus to Baghdad. It does create quite a picture. Treasury Department officials have told Congress in January that Syrian officials had thus far failed to return all of the Iraqi funds. Let us note that the funds that Iraq derived from this procedure were illegal, that the United Nations had a program that was being misused in which billions of dollars were actually taken from the Oil-for-Food Program for purposes that they did not intend, and that the Syrian officials, at least in January, had announced that all of those funds had not been reported. These topics will be the matter of discussion today. There needs to be a full accounting and a reappraisal of the Syr- ian cooperation with United States demands for the return of these funds. The cloak and dagger element of transferring gold bars from Damascus to Baghdad in the trunk of a car is certainly provocative, but we need some hard answers to where this money is today. While Syria acted as Iraq's banker, some of its highest officials brokered military deals for Iraq and profited from these military deals. One source suggests that former Syrian Defense Minister Tlas received a regular “tribute payment” for his role in the deals between these two countries. Anything shipped had to receive his approval in order to be allowed through Syrian customs. Tlas' son also received 10 to 15 percent kickbacks for contracts made through Iraq's military industrial commission. In addition to Tlas—and I am going to mispronounce these names—Thualhima Shaleesh–I am sorry about that—Chief of the Presidential Body- guard and cousin to Syrian President Assad also received these kickbacks for acting as an intermediary in military deals. Understanding these facts, Syria's denials of its help to Iraq seem, let us say, to be a bit suspect, and we need to look at these denials today. I personally would like to have arranged this so we could have the Syrian Ambassador come and state his side, where we could question him about these things directly. Perhaps that can be arranged in the future. One must suspect that such help as Syria gave Iraq in the past may well be continuing today, perhaps in support of Iraq's insur- gency. So we are looking at what happened in the not-so-distant past. We certainly have to ask questions about what Iraq is doing today. 6 We would appreciate it if Secretary Dibble, who is representing the Department of State, would elaborate upon the steps taken by the United States against Syria, not just through the 661 Com- mittee, but United States bilateral actions to bring about an end to the collaboration between these two rogue states, Iraq and Syria. In that vein, we would ask Secretary Dibble to discuss the May 2004 designation of the Commercial Bank of Syria as a primary money laundering concern. As you know, it derived from President Bush's Executive Order 13338 implementing the provisions in the Syria Accountability and the Lebanese Sovereignty Restoration Act, as well as invoking sec- tion 311 of the USA PATRIOT Act, which requires United States financial institutions to sever correspondent accounts with the Commercial Bank of Syria because of money laundering concerns. Was the Commercial Bank of Syria's involvement in the Oil-for- Food scandal the sole variable considered? What other factors played a role in this determination? Further, while sanctions were threatened, they were not imple- mented at the time. Has the bank now been cut off from the U.S. financial system and from international financial markets? Does this include closing accounts not only with the corresponding U.S. banks but also security dealers and mutual fund providers? Given that Syria is a state sponsor of terrorism and a corrupt re- gime, as illustrated by its role in the Oil-for-Food scandal, is there any degree of confidence that the Syrian regime will comply with the specific steps outlined by the United States to address money laundering and terrorist financing concerns? Earlier this year, the Treasury Department sanctioned SES International, which was reportedly the primary facilitator for the transshipment of weapons and munitions as well as many other unauthorized goods through Syria into Iraq. Will additional, more rigorous designations or sanctions against the Syrian regime be considered by this Administration, either for their involvement in the Oil-for-Food scandal, their violations under the Syrian Account- ability and Lebanese Sovereignty Restoration Act, or for money laundering and terrorist financing? Considering the roles of banks in Lebanon in the Oil-for-Food scandal, should we expect any punitive action to be undertaken against these Lebanese financial institutions? I would also appreciate it if our witnesses would comment on the possibility that former regime elements in Damascus are financing and coordinating the terrorist campaign in Iraq against the Coali- tion, the Iraqi Government, and innocent Iraqi civilians utilizing money and other assets garnered from its illicit trade and the Oil- for-Food Program. Despite American warnings, Damascus has reportedly continued to expedite the passage of jihadists into Iraq and members of other terrorist organizations. In addition, Syria continues to be a fore- most supporter and weapons supplier of Hezbollah, a terrorist group active in Lebanon and throughout the world, that has been targeting and killing Americans and many others since the early 1980s. I would like to bring these issues to the panelists' attention and emphasize that lives, not just policies, are at stake in our efforts 14 laundering and terrorist finance controls, the Section 311 sanctions could be trig- gered if Syria does not follow through with the transfer of this remaining amount to the DFI. Overall U.S. Assets Recovery Efforts UN Security Council resolution 1483, adopted on May 22, 2003, required that Member States immediately freeze and transfer to the Development Fund for Iraq all funds or economic resources belonging to the previous Iraqi government, to Sad- dam Hussein, or to other senior officials of the former Iraqi regime and their imme- diate family members, unless there were prior judicial, administrative, or arbitral liens or judgments against those assets. The U.S. has been at the forefront of this effort to identify individuals and entities for designation by the UN for assets freeze, with the State Department, through our Mission to the UN in New York and through our Embassies abroad, energetically reaching out and seeking cooperation from governments in cosponsoring submissions to the UN Sanctions Committee. We have gotten support on specific designations from countries ranging from the UK to Syria. So far, the UN Security Council Committee responsible for implementation of resolution 1483 has designated 83 Iraqi individuals and 206 Iraqi government en- tities for assets freeze pursuant to this resolution. With the Treasury Department at the lead, the U.S. has worked hard to seek com- pliance with this resolution. As a member of the Treasury-chaired inter-agency as- sets recovery working group, the State Department has mounted a full-scale diplo- matic campaign to recover Iraqi assets abroad. Since the transfer of sovereignty to Iraq in June 2004, we have also worked closely with the Iraqi government on an assets recovery strategy and sent a State Department expert to Baghdad to share information on the amounts and whereabouts of the frozen assets. We have urged the Iraqi leaders to include this as a priority issue in their bilateral discussions with the relevant governments. Since the adoption of resolution 1483, almost $1.2 billion has been transferred to the DFI. (The U.S. transferred an additional $1.9 billion in Iraqi assets directly to Iraq for reconstruction.) More remains to be done. Of the additional frozen assets, some are subject to prior legal claims. However, we estimate that there may be an- other $1 billion in known frozen Iraqi assets that can potentially be recovered. The largest amounts of frozen Iraqi assets are in Lebanon, Switzerland, the UK, and Syria. We have repeatedly urged governments to transfer the Iraqi assets to the DFI as expeditiously as possible. Madam and Mr. Chairmen, I appreciate this opportunity to provide some back- ground to the Subcommittee on Syria's involvement in illicit oil trade with Iraq and our efforts to recapture the Iraqi assets still held in Syria, as well as frozen Iraqi assets elsewhere around the world. I would be happy to answer questions you may have. Mr. ROHRABACHER. Thank you very much. We appreciate all of the hard work that you have done over your career. You are coming to us today with a treasure house of knowledge. We appreciate what you have done in the past, your service in the past, and that you are a resource to us today. Mr. Sparlin. STATEMENT OF MR. DWIGHT SPARLIN, DIRECTOR OF OPER- ATIONS, POLICY, AND SUPPORT, CRIMINAL INVESTIGATION DIVISION, INTERNAL REVENUE SERVICE Mr. SPARLIN. Thank you. Chairman Rohrabacher, Chair Ros-Lehtinen, Ranking Members Delahunt and Ackerman and distinguished Members of this Com- mittee, thank you for this opportunity to discuss the Internal Rev- enue Service Criminal Investigation Division, or CI, contributions regarding our role in identifying and tracing the assets of the former Hussein regime for repatriation to the Iraqi people. During the spring of 2003, CI participated in the Treasury-led working group, along with other agencies, to locate assets that had either been removed by the former regime or that were not in 24 well in dealing with the Milosevic regime in Serbia. And such an approach would give us at least some leverage in selling the new sanctions package. We could trade off enforcement of the old sanctions for adoption of the new “smart sanctions” model. For my group it was clear that we would not be able to sell this new package if the front line states and others continued to believe that they faced no consequences for violating sanctions. Even Saddam Hussein indicated a preference for the old, broader sanctions system which he had already corrupted to the new proposals we were putting on the table. So. What happened? Our colleagues in the geographic and functional bureaus at the State Department liked our sanctions proposals, but dismissed our tactics. Our group wanted to press ahead with re-invigorating the old sanctions, while negotiating on the new ones. The powers that be preferred that we distance ourselves from the old sanctions which, they argued, had already been tainted as having caused undue suffering in Iraq. They maintained that the only way to convince the world to adopt a fresh sanctions approach was to forget about the old sanctions. They recommended that Secretary Powell focus attention only on the importance of stopping Saddam from obtaining WMD, and let the rest of the sanctions issues slip. And that is the line the Secretary took. In March 8, 2001, for example, he told the Senate Foreign Relations Com- mittee: “We were being accused and we were taking on the burden of hurting Iraqi people, hurting Iraqi children, and we needed to turn that around. The purpose of these sanctions was to go after weapons of mass destruction. That's what they were put in place for in the first instance back at the end of the Gulf War. In order to make sure that that carried forward, we then had to take a look at the sanctions themselves. Were they being used to go after weapons of mass destruction and was that the way they were connected to our original goals, or, increasingly, were those sanctions starting to look as if they were hurting the Iraqi people? And it seems to me one approach to this was to go to those sanctions and eliminate those items in the sanctions regime that really were of civilian use and benefited people, and focus them exclusively on weap- ons of mass destruction and items that could be directed toward the develop- ment of weapons of mass destruction." A second area of divergence was whether or not to hard press the front line states regarding their lack of compliance with the sanctions, particularly Iraq oil exports outside the oil for food program. Against our advice, the prevailing view was that we concentrate our efforts in gaining UN Security Council approval at the next reg- ularly scheduled Iraq sanctions review session rather than press heads now on sanc- tions and oil for food violations. That Security Council meeting was scheduled for June 1, 2001. A third disagreement surfaced as to whether or not we should work out specific details regarding the procedures to be used to govern our proposed new local escrow account and trade procedures. Once again my small group was overruled. The deci- sion was that we should keep our proposals as general as possible to facilitate win- ning Security Council approval. The details, they argued, could be filled in by a Se- curity Council Committee thereafter. Absent any attendant leverage, such as threatened enforcement of the old sanc- tions, it proved exceedingly difficult to win Security Council approval for the new proposals. In fact, the only leverage seemed to be on the other side. We had allowed the old sanctions to pretty much collapse. We were now the ones that needed Secu- rity Council approval for the new measures. The old measures no longer carried any weight. China, Russia and France had us over a barrel, and they began to push for a much greater reduction in the list of so-called redlined items than we were willing to concede. And other members of the Security Council joined in demanding further details concerning the special preferential arrangements we had in mind for the front line states. Comfortable with the old (no longer enforced) sanctions, and faced with a threatened Russian veto, the Security Council simply postponed consider- ation of the new sanctions proposals. The agenda item was rescheduled for the next regular six month review of Iraq sanctions. That was to take place in November 2001. And once again, at the November 2001 meeting, the decision was to push con- sideration back for another six months. The second Security Council postponement prompted me to write an opinion piece which was published by the Washington Post on December 31, 2001. I have attached a copy as an appendix to my written state- ment. By the time the Security Council got around to the issue again we were al- ready well on the road to a broader confrontation with Saddam Hussein. I think we were all aware during this entire period, and right up to Operation Iraqi Freedom, that the sanctions were being left to deteriorate and that the oil for 25 food program was operated as little more than a sham. Saddam continued to rake in money outside of the Oil for Food program and to spend it as he pleased. And the Kirkuk Banias pipeline continued to operate at full capacity right up to the out- break of hostilities. Thank you, Mr. Chairman. APPENDIX TO WRITTEN TESTIMONY OF VICTOR D. COMRAS SHOVING SADDAM BACK IN HIS BOX washingtonpost.com By Victor D. Comras Monday, December 31, 2001; Page A17 While things have gone well in Afghanistan in recent weeks, in another arena, far from the war zone, the United States has suffered a serious setback in its efforts to fight terrorism and keep weapons of mass destruction out of terrorist hands. The U.N. Security Council once again has turned down Secretary of State Colin Powell's call to recalibrate the sanctions on Iraq and make them an effective obstacle to Sad- dam Hussein's program for producing weapons of mass destruction. Many argue that Iraq's support for terrorism, mixed with its program for devel- oping such weapons, poses an intolerable risk. Yet we have just agreed with the Russians that we can postpone for another six months taking steps to cut off Iraqi access to this weapons technology and equipment. (The delay is so we can renego- tiate the list of items to be kept out of his hands, a matter supposedly decided months ago, when the United States first laid its new Iraq sanctions proposal before the Security Council—but apparently not yet to Russia's satisfaction.) In the meantime, we have allowed the old sanctions on Iraq to disintegrate to the point at which Saddam Hussein's regime is content to leave them in place rather than face sanctions that are pared down but might have some teeth. The current sanctions are not being well enforced, and they leave the Iraqi dictator with an al- most open door to buy and bring in the technology and equipment he wants to strengthen and harden his military and capability for weapons of mass destruction. And there is much evidence that this is exactly what he is doing. Colin Powell committed himself to “re-energize” the Iraq sanctions when he joined the new administration last January. In March he told Congress we would push for a new sanctions package concentrating on items related to weapons of mass destruc- tion—the stuff that really counts. We would begin, he said, by cutting off Iraq's smuggling outlets through the Arab front-line states and controlling Saddam Hus- sein's money flow. Powell traveled to the Mideast twice last spring to win agreement for this plan from the front-line states, which pledged to better monitor the flow of goods into Iraq and to cut off illegal oil exports from Iraq. But nothing was done. In fact, cross- border trade with Iraq increased, and Iraqi oil exports, with the help of the pipeline through Syria, expanded to record levels. The U.Þ. sanctions on Iraq had been decaying for years, and in the past year, they collapsed. This was in part because of U.S. neglect. This country signaled an abandonment of the old sanctions regime before it had a new regime in place. We relaxed pressure on Jordan, Syria and Turkey to curb trade with Iraq. And we gave France, Russia and China increased leverage over us to reduce the list of controlled items. U.S. failure was clear six months ago, when Russia derailed our new ap- proach with a threatened veto. Since then, the United States has done little or noth- ing to strengthen its hand—no new initiatives with the front-line states, no work on methods for carrying things through, no new pressure on Russia. In fact, we put the issue on a back burner. Little surprise then, that we came out with the same results when the Security Council took up the matter again on Nov. 30, as it does every six months. The Sept. 11 attacks make it clear that terrorist states' access to weapons of mass destruction poses the greatest threat to our national security. We cannot wait an- other six months. We have to decide now whether to choose a military option or to seek some flexibility and time by cutting off-or at least slowing—Saddam Hussein's weapons program. We do not need a new Security Council resolution to do this. Existing U.N. sanc- tions resolutions give us more than enough authority to take the necessary steps- resolutions binding on all states. We must make it clear to all that we view these measures as critical to our war on terrorism. The first step must be to inhibit Saddam Hussein's ability to obtain funds or con- duct financial transactions outside the U.N. oil-for-food system. Special attention Purdue University Libraries 3 2754 078 645 755