A Texas businessman is one of three people who were indicted Thursday as part of the U.N.'s Oil-for-Food (search) scandal.
David B. Chalmers (search), head of Texas-based Bayoil (search), which participated in oil deals through the program, is the sole American among the three and is expected in federal court later on Thursday.
Chalmers and Bulgarian citizen and permanent U.S. resident Ludmil Dionissiev were arrested Thursday morning at their homes in Houston. U.S. Attorney David N. Kelley said he will seek the extradition from England of a third defendant, John Irving.
The three men are being slapped with charges involving an alleged scheme to pay millions of dollars in secret kickbacks to Saddam Hussein's regime so Bayoil and another Chalmers company, Bayoil Supply & Trading Limited, based in Nassau, Bahamas, could continue to sell Iraqi oil under the Oil-for-Food program.
Federal prosecutors charge that Bayoil executives helped divert funds that were supposed to go to needy Iraqis but instead were funneled to front companies set up by Saddam's regime between mid-2000 and March 2003.
Authorities also unsealed a criminal complaint that charges a South Korean citizen, Tongsun Park, with conspiracy to act in the United States as an unregistered government agent for the Iraqi government's effort to create the Oil-for-Food program.
Kelley said officials believe that Park helped bribe "high-ranking U.N. officials" for his part in scamming the program. Park is still at large and is believed to be at his home in South Korea.
Prosecutors: Bayoil 'Motivated by Greed'
Chalmers and his associate were arrested in Houston on Thursday morning for playing "a pivotal role in efforts to fix the price of oil that was traded and sold under the auspices of the Oil-for-Food program and facilitated payment of illegal surcharges to the Saddam Hussein regime," Kelley said in the press conference.
John Klochan, acting assistant director in charge of the New York office of the FBI, called the scheme a "cash cow masked as a humanitarian venture." Money from the Oil-for-Food program was supposed to help provide relief to Iraqi citizens adversely affected by sanctions placed on Iraq after Saddam invaded Kuwait in 1990.
Bayoil was "motivated by greed, they flouted the law, made a mockery of the state and aim of the Oil-for-Food program and willingly conspired with a foreign government with whom our country was on the brink of war," Klochan added.
Under Oil-for-Food, Iraqi oil was only supposed to be bought by those granted the right by the Iraqi government. It was typically bought at the price set by U.N. officials; the price included a type of commission. The program was corrupted, in part, Kelley said, because the recipients of the oil allocations were forced to pay a surcharge to the Iraqi government.
Bayoil also helped hide inflation caused by those surcharges by conspiring with Iraqi officials to artificially deflate the price of oil.
Chalmers is being charged with: wire fraud and wire fraud conspiracy, which carries a sentence of up to 40 years in prison; engaging in prohibited financial transactions with a country supporting international terrorism, which carries a maximum of 10 years in prison; and violating the International Emergency Economic Powers Act, which prohibits transactions with the Iraqi regime and carries a sentence of up to 12 years in prison.
Prosecutors also will file a forfeiture notice seeking about $100 million in funds from Bayoil for oil purchased.
On Jan. 18, Iraqi-born American businessman Samir A. Vincent (search) was accused of skimming money from the Oil-for-Food program; he pleaded guilty in New York to being an illegal agent of Saddam Hussein's government. Vincent, 64, a naturalized U.S. citizen from Annandale, Va., was the first person to be charged in the Justice Department's investigation of the program.
Prosecutors now allege that Park was acting in concert with Vincent to sell Iraq's oil despite the sanctions placed on the regime after 1990. They charge that the two men, along with Iraqi officials, knew that part of the Iraqi government's money would be used to "take care of" one U.N. official with whom Park had interactions with.
"Although he may call himself a lobbyist, acting covertly on United States oil on behalf of a foreign government [unbeknownst to the American government] ... is not legal lobbying," Kelley said. Park faces a maximum of five years in prison if convicted.
Kelley was peppered with questions regarding which U.N. officials interacted with Park while he tried to illegally sell Iraqi oil. Kelley dodged many questions, saying that he would not name targets of the investigation and that issues of diplomatic immunity will be addressed "as we go forward."
Volcker Still Probing
Former U.S. Federal Reserve Chairman Paul Volcker (search) is heading up the Independent Inquiry Committee, which was tapped by U.N. Secretary General Kofi Annan (search) to investigate the Oil-for-Food program. Volcker expects to release the third of his reports on the issue this summer. Whereas the first two interim reports focused on key U.N. figured involved in mismanagement and lack of oversight of the program, the third is likely to focus on dozens of criminal prosecutions by legal authorities in various countries for bribery, sanctions busting, money laundering and fraud, officials told The Associated Press last month.
IIC spokesman Michael Holtzman said Thursday that the Volcker panel is "well aware" of the conduct outlined in Thursday's indictments and that Bayoil is one of "many companies and individuals to do business" under the Oil-for-Food program.
The third report will also look at broader issues, including the U.N. Security Council's oversight of the $64 billion Oil-for-Food program and Saddam's attempts to use it for his own personal wealth and political influence.
The report will also look into whether Iraqi oil contracts were awarded to Security Council countries in an attempt to influence council decisions on Iraq, and whether banks inside and outside Iraq may have helped facilitate corruption.
Several congressional committees are also conducted their own investigations into the Oil-for-Food program.
The Associated Press contributed to this report.