Friday, July 30, 2010

General Electric Fined For Corrupt Practices During Oil For Food Program

In July 2010, General Electric (GE) was fined $23.5 million by the Securities and Exchange Commission (SEC) for illegal dealings with Iraq during the Oil for Food Program. Last year GE had to pay an additional $50 million for fraudulent activities in Iraq from 2002-2003. The SEC claimed that GE broke the Foreign Corrupt Practices Act when it offered equipment and services in illegal deals to Iraqi officials to win contracts. This was just the latest example of the vast corruption that occurred during the Oil for Food Program.

The Oil For Food Program was started in 1995 to allow Iraq to sell its oil under United Nations supervision in return for buying food, medicine, and humanitarian supplies. Since 1990 Iraq had been under U.N. sanctions for first invading Kuwait and then not fully declaring its weapons of mass destruction and nuclear programs. The Iraqi economy was strangled by the international restrictions, while malnutrition and infant mortality rates skyrocketed. (1) The U.N. came under public pressure to relieve these problems, which resulted in the Oil for Food Program.

Saddam Hussein took advantage of the new situation to undermine the sanctions. Iraq made companies pay a 10-35% surcharge on each barrel of oil sold through the program, with the difference being paid to Baghdad. It sold oil illegally for cash, and smuggled it out of the country as well to be sold on the black market. It offered oil vouchers to prominent individuals and businesses in return for them to work against the sanctions. Finally, Iraq demanded kickbacks from any company that wanted to sell goods to Iraq. That was the situation with GE. It had to bribe officials in the Iraqi Health Ministry in order to win deals with them. A review of abuses under the Oil for Food Program found that General Electric was just one of approximately 2,000 companies that paid kickbacks in return for contracts with Iraq. It also found that Baghdad earned between $10.8 billion to $12.8 billion through these illegal methods.

FOOTNOTES

1. Tyler, Patrick, “Western Health Study in Iraq Finds Child Mortality Has Nearly Tripled,” New York Times, 10/22/91

SOURCES

Iraq Survey Group, “Comprehensive Report of the Special Advisor to the DCIA on Iraq’s WMD,” 9/30/04

Lemer, Jeremy and Kirchgaessner, Stephanie, “GE pays $23m after Iraq probe,” Financial Times, 7/27/10

Tyler, Patrick, “Western Health Study in Iraq Finds Child Mortality Has Nearly Tripled,” New York Times, 10/22/91

Williams, Phil, “Criminals, Militias, And Insurgents: Organized Crime In Iraq,” Strategic Studies Institute, June 2009

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