Oil-for-Food Suspects Plead Not Guilty

An American Texas oil trader and his business associates pleaded not guilty Monday morning for their alleged roles in the U.N. Oil-for-Food (search) scandal.

David B. Chalmers (search), head of Houston-based Bayoil (search), which participated in oil deals through the program, and Ludmil Dionissiev (search), a Bulgarian citizen and permanent U.S. resident, were arrested Thursday morning at their homes in Houston. The pleas were entered during a brief proceeding in U.S. District Court in Manhattan.

U.S. Attorney David N. Kelley said last week that he will seek the extradition from England of a third defendant, John Irving.

The three men were slapped with federal 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.

Chalmers and Dionissiev entered their pleas before U.S. District Judge Denny Chin, who continued to allow each of them to remain free on bail of $500,000, secured by $150,000 in cash.

Bart Dalton, a lawyer who said he has known Chalmers since the 1970s, spoke on behalf of the men outside court, saying they "entered pleas of not guilty for the best reasons possible. They are not guilty. We fully expect them to be exonerated of these charges."

Robert E. Welsh, entered a not guilty plea on behalf of Bayoil, said it was a "vibrant and active business."

If convicted of the charges, Chalmers, Irving and Dionissiev could face up to 62 years in prison and a fine of $1 million.

Prosecutors also last week unveiled a complaint calling for an arrest warrant for Tongsun Park (search), a South Korean man who they say acted as an intermediary between the Iraqi government and the United Nations when the negotiations were being held to set up the Oil-for-Food program in 1992.

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

The Oil-for-Food program, which ran from 1996 to 2003, was created to help relieve the effects on Iraqi civilians of U.N. sanctions imposed after Saddam's 1990 invasion of Kuwait. It let the Iraqi government sell limited — and eventually unlimited — amounts of oil primarily to buy humanitarian goods.

But Saddam chose the buyers of Iraqi oil and the sellers of humanitarian products. In an effort to halt the sanctions, the former Iraqi president allegedly gave former government officials, activists, journalists and U.N. officials vouchers for oil to be resold at a profit.

Separate from the federal investigation, Paul Volcker (search), the man appointed by U.N. Secretary-General Kofi Annan (search) to lead the independent investigation into Oil-for-Food, is continuing his own probe into the scandal. His committee is expected to release its third and final report this summer. Volcker and panel leaders say their report will likely lead to dozens of criminal prosecutions by legal authorities in various countries for bribery, sanctions busting, money laundering and fraud.

FOXNews.com's Liza Porteus and The Associated Press contributed to this report.