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Probe: Oil-for-Food Money Went to Palestinian Bombers' Families

Money from the United Nations Oil-for-Food program (search) helped pay the families of Palestinian homicide bombers, the House Committee on International Relations is expected to reveal Wednesday during a hearing on corruption in the Iraqi relief program.

Investigators working for Illinois Republican Rep. Henry Hyde, chairman of the panel, are expected to say they have traced funds from former Iraqi President Saddam Hussein's (search)kickback scheme through a Jordanian bank and into the hands of families of bombers who attacked Israeli citizens.

It has long been established that Saddam paid bounties of $15,000 to $25,000 to the Palestinian families of the murderers. Hyde's committee will reveal at the hearing that some of the reward money was deposited from illegal profits Saddam made by demanding 10 percent kickbacks on all the contracts of companies that did business with the U.N.'s Oil-for-Food program.

Those funds were then deposited with other Iraqi money, such as Jordanian Oil-for-Food oil payments, into the Central Bank of Iraq account in the Rafidain Bank (search) in Amman, Jordan. The funds were then transferred to another account in the bank controlled by Iraq's ambassador to Jordan Sabah Yaseen (search). It was from Yaseen's account that Saddam's officials would cut and hand out checks to the homicide bombers' families, Hyde's investigators are expected to say.

Corruption Spreads Outward

As congressional inquiries continue into the scandal-ridden Oil-for-Food program, more evidence has come to light revealing how Saddam was able to funnel more than $21 billion away from the food and medicine program into the pockets of criminals.

"In essence, the Hussein regime created a system of kickbacks, as we have heard today, skimming schemes and smuggling operations to bilk the international sanctions regime of all its potential value and profits," Juan Carlos Zarate, an assistant secretary at the Treasury Department, told lawmakers on Monday.

"He used the implements of the state, the Central Bank, commercial enterprises and his diplomatic and intelligence assets to help skirt international restrictions. In some cases, he used this system to attempt to procure weapons and other banned goods, all in an effort to fortify his regime," Zarate said.

According to U.S. officials, the former Iraqi leader spread billions of dollars around the globe, particularly targeting France, Russia and China, all permanent members of the U.N. Security Council (search).

While diplomats from those three nations deny they were bought off, and U.N. Secretary-General Kofi Annan (search) says he doesn't believe they were, Saddam's oil voucher scheme was aimed at ending sanctions, and a CIA report revealed that Saddam was very generous to his friends and supporters.

According to U.S. investigators, Saddam was able to set up a system of rewarding sympathizers and supporters with pieces of paper that entitled them to sell allocations of Iraqi oil to real oil companies at an instant profit, sometimes earning in the hundreds of thousands, or even millions of dollars. Saddam allegedly even personally picked the lucky recipients as a reward for their support.

Witnesses at the Senate Governmental Affairs Permanent Subcommittee on Investigations (search) told lawmakers Monday that Saddam got away with the scam because the Security Council made the mistake of letting him pick the buyers and sellers of Iraq's oil, which in effect let Saddam nearly completely control the relief program.

Subcommittee chairman Norm Coleman of Minnesota suggested that a lot of businesspeople wanted to play ball with Saddam, and cited the case of a well-known multinational corporation, Weir Group (search), which sells oil equipment. That company did $80 million worth of business under the Oil-for-Food program but Coleman said the company inflated one big contract by 30 percent and admitted it knew the extra money was going to Saddam.

In another example, the Al Bashier Trading Company (search) was apparently run directly by Saddam's regime, say officials. In that situation, Saddam made money by selling items to himself. Al Bashier allegedly secretly took the Oil-for-Food money to buy weapons.

In a different situation, Saddam also ran Corsin Financial Ltd. (search), a front company whose money is now missing. Saddam presumably grabbed the money and used it to pay for his palaces, bolster his corrupt regime and go on a weapons-buying spree.

United Nations Keeps a Tight Lip

In essence, say investigators, Saddam relied on a sophisticated worldwide financial network of both legitimate and shell companies to earn billions in illegal profits. One official who allegedly received such a voucher was the Oil-for-Food program's former director, Benon Sevan (search). He has denied the allegation, but the Senate panel wants to pull him in to discuss the accusations.

At the hearing, Charles Duelfer (search), who now heads the weapons inspections team in Iraq, told Sen. Carl Levin of Michigan, the ranking Democrat on the investigations subcommittee, that he believes Sevan likely did get the vouchers.

"The Iraqis firmly believe that," Duelfer said. "I would conclude with high confidence from the data that the Iraqis provided, from all we saw, that that happened."

Annan has promised Sevan will cooperate with the U.N.'s own investigation, but it's not clear what Sevan would do if subpoenaed by the Senate, and he could claim diplomatic immunity to avoid testifying or even meeting with senators.

Coleman's subcommittee has also wanted to meet with U.N. officials to discuss their Oil-for-Food audits. But the U.N.'s chief in-house investigator, former Federal Reserve Chairman Paul Volcker (search), has refused to disclose information to any Senate panels, saying that to do so now would hurt his investigative efforts.

Volcker claims that "partial and premature disclosures of sensitive internal documents or demands for congressional appearances of U.N. employees will be damaging to the pursuit of investigative leads, chill participation of those called upon to cooperate, and risk misleading, prejudicial and unfair impressions on institutional, personal and member-state behavior."

Click in the box near the top of the story to watch a report by FOX News' Eric Shawn.