Congressional lawmakers on Wednesday laid out a detailed and disturbing picture of alleged Syrian complicity with Saddam Hussein's Iraq.
And because of that complicity, money funneled into Iraq may have gone to help fuel the insurgency currently targeting U.S. and coalition troops, as well as Iraqi civilians, said members of the House International Relations Joint Oversight Subcommittee.
Syria had a more than $3 billion role in funneling money and weapons to Saddam Hussein during the period of the scandal-plagued U.N. Oil-for-Food (search) program, according to documents obtained by the congressional panel.
The Syrian government, led by President Bashir Assad, isn't saying what it has done with that cash. But Congress fears it may now be in the hands of terrorists not just in Iraq but around the world.
"We see the bloody consquences of the arming of Iraq even going on today," Rep. Dana Rohrabacher, R-Calif., said Wednesday during a subcommittee hearing. "I wouldn't think that it would be irrational for us to conclude, madame chairman, that those funds are being filtered to those people who are financing this bloody insurgency that is going on in Iraq today."
Victor Comras, former member of the U.N. Al Qaeda monitoring group, responded by saying: "That's a fair assumption that at least part of these funds are being made available to support this insurgency and perhaps other terrorist activities."
But those accusations haven't gone over well with Syrian officials.
"They need a scapegoat and they like to blame Syria for their own failed policies in Iraq," Syrian Ambassador Imad Moustapha told reporters after the hearing.
The documents in question, prepared by IRS special agents, have emerged as a new avenue in Congress' investigation into Oil-for-Food.
The papers expose how Syria was used by Saddam as a major conduit for illegal oil exports and weapons deals, effectively short circuiting the humanitarian intent of Oil-for-Food. At the same time, Damascus profited enormously from the relationship which included laundering money for Saddam and, after the U.S. invasion of Iraq in 2003, funneling hundreds of millions in Iraqi money out of that government's hands without authorization.
At least some of that money could be fueling terrorist attacks against U.S. forces based in Iraq, investigators believe.
Following the collapse of Saddam's government in 2003, IRS criminal investigators opened an inquiry into Iraqi operations of Oil-for-Food and interviewed numerous mid-level government officials, former Iraqi ministers and other imprisoned officials and supplied information to Congress, CIA and IRS.
Commercial transactions and deposits were uncovered that implicated the Syrian government in the Oil-for-Food scandal.
The IRS learned through its interviews that Iraq's State Oil Marketing Organization (SOMO) maintained accounts at the Commercial Bank of Syria (CBS) that received funds from the oil sales to Syria. Beginning in June 2000 and lasting until March 2003, Iraq and Syria set up a border trade protocol, which ultimately resulted in $3 billion worth of Iraqi oil being imported by Syria.
IRS investigators have concluded that the money was funneled through these accounts. About 40 percent was paid in cash while the other 60 percent came in "goods" such as arms.
Both the imports of oil and the exports of military supplies were illegal under U.N. sanctions imposed after the first Gulf War.
Funds in these accounts were used to purchase merchandise through Syrian suppliers, transferred in cash to Baghdad using a diplomatic courier, and used to pay the 10 percent kickback demanded by Iraq of all companies involved in the U.N. program, according to the House International Relations Committee.
And some of the highest officials in the Syrian government were part of the illegal trade, according to the probe.
IRS investigators have also determined that Syrian Defense Minister Mustapha Tlas (search) received a "tribute payment" in return for permitting trade between the two countries in violation of U.N. sanctions. Tlas' son, Firas, and other officials with personal ties to Assad, also received commissions for acting as intermediaries in military procurement contracts. Another intermediary was Thualhima Shaleesh (search), chief of the presidential bodyguard and cousin of the Syrian president.
One document details how Iraq's Military Industrialization Commission (search) used intermediaries to arrange for arms imports. Another document says that a source at the Iraqi Ministry of Trade (search) told the U.S. agents, "the majority of the Iraqi trade with Syria was transacted through [a company called] SEAS ... belonging to Dr Asef Shaleesh. He mentioned that Shaleesh was related to the president of Syria."
The Bush White House and previous administrations have known that Syria was violating the sanctions and importing enormous amounts of oil illegally from Iraq. In fact, one of former Secretary of State Colin Powell's first trips was to the Middle East, including a stop in Syria, to urge Iraq's neighbors to strengthen the sanctions against Saddam.
At that point, the United States was still somewhat hopeful that the younger Assad would be a more flexible and democratic leader than his father
"Candidly, we then discussed the Iraqi-Syrian pipeline. Of course, as you know, the Syrians want to stay within the context of the U.N. Security Council resolutions to play their role and they have been on record with that," Powell told reporters after his meeting with Assad on Feb. 26, 2001.
"The president said to me in response to my query that it is their plan to bring that pipeline, and what is going through that pipeline and the revenues generated in that pipeline, to be under the same kind of control as other elements of the sanctions regime. I found that to be a very important statement on his part, and we have passed that information to President Bush; he has been informed of that, and he also was pleased."
As for what happened to the billions of dollars in cash, IRS agents cannot say for sure; some of it has been traced, some of the Iraqi accounts in Syria are frozen, but possibly hundreds of millions of dollars were taken out of those Syrian accounts and transferred to banks in Beirut, Lebanon.
After the transfers, investigators say "a special truck would be dispatched to withdraw the money and bring it to the Central Bank of Iraq. These trucks would make the journey at least on a weekly basis."
FOX News' Jonathan Hunt and Teri Schultz contributed to this report.