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Texas businessman indicted in U.N. oil-for-food probe

From Phil Hirschkorn

David Chalmers leaves the federal courthouse in Houston on Thursday.
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Indictments are returned in the U.N. oil-for-food scandal.
• Indictment:  U.S. v. Chalmers, et al.  (PDF)external link
• Criminal complaint:  U.S. v. Tangsun Park  (PDF)external link
• Interactive: Who's who in Iraq
• Interactive: Sectarian divide
United Nations
Saddam Hussein

NEW YORK (CNN) -- Federal authorities indicted a Texas oil executive, a South Korean businessman and two others Thursday as part of a U.S. probe of the United Nations' Iraq oil-for-food program.

David Chalmers, owner of the Houston-based company Bayoil Inc., which participated in the U.N. program, was arrested in the Texas city Thursday and made an initial appearance in federal court. Chalmers and two associates are accused of paying millions to the regime of Saddam Hussein to secure oil deals, thereby diverting money from the U.N. humanitarian aid program.

U.S. Attorney David Kelley also announced an indictment against Korean businessman Tongsun Park, who allegedly worked as a lobbyist and tried to influence U.N. officials while disguising his relationship with the Iraqi regime. Park is believed to be at large in South Korea.

Chalmers faces three felony charges in an indictment unveiled by Kelley, the U.S. attorney for the Southern District of New York, whose office is overseeing the federal criminal probe. Charged with the businessman were two of his oil traders -- John Irving of Britain, who lives in London, and Ludmil Dionissiev of Bulgaria, who lives in Houston as a permanent legal alien.

Irving and Dionissiev dealt with Baghdad and the foreign oil companies in pursuing deals with surcharges, according to the indictment.

An arrest warrant will be sought for Irving in the United Kingdom.

Chalmers and Dionissiev were each expected to post $500,000 bail -- including $150,000 in cash -- and appear in New York for their arraignment Monday.

The South Korean businessman, Tongsun Park, is accused of acting as an unregistered lobbyist for Iraq starting in the early 1990s and being paid $2 million by the Hussein regime.

Park is believed to be at large in South Korea. In the 1970s, Park was a lobbyist for the Korean government and a central figure in an influence-peddling scandal involving dozens of members of U.S. Congress.

Kelley said Chalmers and his associates "paid inflated commissions" to brokers "knowing and intending a portion of these commission payments were earmarked for the kickback to the Hussein regime."

"By doing this, the defendants were essentially diverting funds that otherwise would have been deposited to the oil-for-food escrow account from which humanitarian aid to the Iraqi people was to be paid," he said.

Bayoil, an oil refiner, distributes and trades petroleum-related products. It is one of a handful of U.S. oil companies that together accounted for less than 1 percent of the $64 billion in Iraqi oil sales during the seven-year humanitarian program.

Bayoil purchased nearly 6 million barrels of Iraqi oil in 1997, shortly after the program was launched, according to records from the Iraqi Oil Ministry.

Subsequently, according to the indictment, Bayoil paid "millions of dollars in secret illegal surcharges to the government of Iraq" for additional purchases of oil in 2000 and 2001.

Chalmers and Bayoil allegedly schemed to buy some 40 million barrels of oil allocated to other companies beginning in 2000, the same year Baghdad started imposing surcharges.

In addition to the price of oil, negotiations allegedly resulted in Bayoil wiring $1.3 million to a Swiss bank account controlled by the foreign oil company, which in turn wired the money through a Manhattan bank to an Iraqi-controlled front company in the United Arab Emirates.

In late 2001, the defendants allegedly paid another $839,000 surcharge for another 2 million barrels of Iraqi oil allocated to another company and then another $451,000 surcharge for another million barrels allocated to another company.

Kelley said the U.S. government intended to force Bayoil to forfeit at least $100 million in assets, which he called a "conservative estimate" of the total business the company conducted with Iraq.

The percentage of that sum paid in surcharges was not immediately disclosed.

However, a CIA-backed Iraq Survey Group report by former U.N. weapons inspector Charles Duelfer found that surcharges on the U.N.-approved oil exports averaged about 25 cents to 30 cents a barrel.

Prosecutors estimated that Bayoil made at least $1 million in profits from its alleged offenses and are seeking twice that -- a maximum fine of $2 million -- from the company.

Accused refute charges

Chalmers is accused of wire fraud, conducting financial transactions with a state sponsor of terrorism and breaking the economic embargo with Iraq.

Criminal charges have also been levied against Bayoil USA and a Bayoil subsidiary chartered in the Bahamas.

"We will vigorously dispute the allegations of criminal conduct," said Catherine Recker, one of Chalmer's attorneys, in a written statement. Recker said Chalmers and Bayoil would "enter pleas of not guilty when called upon to do so."

David Howard, who is representing Dionissiev, said in a written statement that his client intends to plead not guilty "because he is not guilty, and he will be found not guilty at trial."

"The complete absence of specifics in the government's indictment concerning Ludmil Dionissiev demonstrate that the government has seriously over-reached by charging him," Howard said.

The Chalmers and Bayoil indictments are the second case brought by federal prosecutors investigating the oil-for-food program.

In January, an Iraqi-American who lives in Virginia, Samir Vincent, pleaded guilty for illegally lobbying for Iraq. Vincent was paid by Baghdad to lobby U.S. and U.N. officials to lift economic sanctions on Iraq imposed after its 1990 invasion of Kuwait.

Vincent is now a cooperating witness, and as a result of his information, an indictment against an alleged Vincent accomplice was also announced Thursday.

The oil-for-food program was launched in late 1996 to aid Iraqi citizens adversely impacted by the sanctions and appeared to achieve its goals of delivering more than $40 billion of humanitarian goods, as well as paying for weapons of mass destruction inspections and reparations to Kuwait.

But the program has long been a suspected source of an estimated $2 to $4.5 billion of illicit revenue for Saddam, who extorted the illegal surcharges on the oil sold and an estimated 10 percent kickback on the food, medicine, and supplies purchased.

By design, Baghdad controlled which vendors participated in the program, but not its revenues; those were deposited into a back account controlled by the U.N., which approved the contracts.

The surcharges and kickbacks were deposited in Iraqi-controlled bank accounts in other countries.

Saddam's deposed regime also pocketed an estimated $6 to $8 billion bypassing the U.N. program by selling oil to neighboring Jordan, Turkey, and Syria, all with U.S approval in an effort to bolster its Mideast allies.

U.N. Secretary General Kofi Annan strongly condemned the permitted smuggling activities Thursday.

"It was on the American and British watch," Annan said. "They knew exactly what was going on. They decided to close their eyes."

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