May 26, 2004
By David Pallister
A leading British engineering company, which now boasts a BBC governor and the former Nato secretary general, Lord Robertson, on its board, has been identified by US investigators as one of hundreds of firms alleged to have agreed to pay illicit kickbacks to Saddam Hussein's regime.
The allegations about the Glasgow-based Weir Group appear in an internal Pentagon report seen by the Guardian. They have emerged as the United Nations faces a growing barrage of criticism over its $47bn (£26.2bn) humanitarian oil for food programme with half a dozen official investigations in train. Weir has presented detailed denials of the allegations.
Weir Group came under scrutiny after the war last year when it became apparent that the Saddam regime had been insisting on a 10% mark-up on all supplies under the oil for food programme since the middle of 2000. UN officials had long suspected, from anecdotal evidence, that the regime was asking for illicit commissions. But they have since insisted that it was not their job to audit prices and no contract was rejected solely on price.
From June last year a tripartite group of UN agencies, the new coalition provisional authority and Iraqi officials began a comprehensive review to renegotiate thousands of contracts and cancel the kickbacks.
The US defence department ordered a separate price review. A team from the defence contract audit agency examined 759 contracts worth $6.9bn. They included 300 Mercedes cars, worth £16m, which Saddam used as loyalty rewards.
These parallel reviews - revealed in testimony to Congress in the past month - were conducted without publicity. UN and American officials have explained that in their dealing with suppliers no formal reference was made to corruption or kickbacks "so as not to prejudice possible legal action in the future".
The Pentagon investigators concluded that nearly half the contracts, particularly those for food, had been overpriced by up to 40%, amounting to £656m. Payments believed to be kickbacks were often described as "after sales service" charges, the investigators say.
The Weir contract, dated April 2002, was placed by the ministry of oil with a company in the United Arab Emirates called Wesco, a joint venture with the Weir Group and a local firm. Valued at more than $2m, it was for parts for maintaining water treatment pumps.
Wesco ordered the pumps from Weir Engineering Services, part of the Glasgow group. Noting that the price of all 73 items in the Wesco quote had been raised by 10%, the Pentagon report concluded: "We believe this contract was overpriced by $250,796." Ex plaining its reasoning the report says: "When Weir [in Glasgow] sent us its original quote, they also sent us, in writing, the following statement, 'Please note the order placed on our sister company included a portion for after sales services.' As noted above, 'after sales service costs' were considered to be illicit surcharges earmarked for return by the supplier to the Iraqi government."
At the time the contract was made both the chairman of Weir, Sir Robert Smith, who is the BBC Scottish governor, and Lord Robertson had yet to join the board. The contract was eventually reduced in price last August after discussions between the company and the United Nations Office for Project Services (Unops), one of eight UN agencies involved in the review process.
Rolf Sprauten, head of Iraqi projects for Unops, told the Guardian: "We renegotiated with Wesco in Dubai last summer to change the price." He said in many contracts "after sales services fees were just a euphemism for kickbacks".
Weir told the Guardian it was aware of the purpose of the Pentagon investigation and at no time appreciated the reasons why Unops wanted the contract price reduced. A spokeswoman said: "The initial tender for the contract included product supply and after sales service, which covers installation and maintenance. We were subsequently advised by Unops that installation and maintenance were not required and as a consequence the contract was amended and the price reduced to cover product supply only. Correspondence to this effect was exchanged with the US joint defence audit agency at the time."
The scandal surrounding the oil for food programme, the biggest humanitarian effort in the UN's history, is now the subject of three congressional committee hearings and a high-level inquiry by the UN.
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