STAFFDEL SCHARFEN MEETINGS ON OIL-FOR-FOOD

C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 004426

SIPDIS

NOFORN

E.O. 12958: DECL: 05/31/2014
TAGS: ETRD ETTC JO IZ
SUBJECT: STAFFDEL SCHARFEN MEETINGS ON OIL-FOR-FOOD

Classified By: Ambassador Edward W. Gnehm for reason 1.5 (b)


1. (SBU) SUMMARY: In a May 21-24 visit to Jordan, Staffdel Scharfen
engaged in meetings with officials from the Iraqi government,
CPA, Jordanian government, and the United Nations. In these
meetings the delegation dealt primarily with issues
pertaining to Iraqi trade during the period of UN sanctions
on Iraq, and particularly under the 1996-2003 Oil-for-Food
(OFF) program. The delegation also met with USG contractors
on the subject of the Iraq Police Training Center.
CPA-organized meetings with Iraqis will be reported through
CPA channels. END SUMMARY.

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JORDANIAN AUDIT BUREAU
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2. (SBU) Salem Al-Khazaleh, President of Jordan,s Audit
Bureau, reviewed for the delegation the history and structure
of the Bureau, which has a role theoretically similar to that
of the GAO in the United States. Khazaleh expressed the
Bureau,s interest in improving its technical capabilities
and thanked the delegation for the technical assistance and
advice that the USG had provided to the Bureau in the past.
The delegation asked Khazaleh about the Bureau,s role in
monitoring funds coming in from Iraq. Khazaleh replied that
while the Audit Bureau,s mandate did not extend to the
monitoring of funds flowing to and from private Jordanian
corporations and banks, it did monitor flows into and out of
the Jordanian government accounts. He said, however, that he
would look into the flow of Iraqi money through Jordanian
government accounts and would pass anything of interest that
the Bureau had on record to the delegation. (NOTE: Following
this exchange, one of Khazaleh,s subordinates whispered in
Arabic that this information might be confidential. Khazaleh
replied that he would deal with that possibility if and when
it arose.) STAFFDEL raised the possibility that port fees,
illegally charged by Saddam,s regime during sanctions but
before the beginning of OFF, might have been paid into the
account of a Jordanian corporation or bank. Khazaleh
reiterated that monitoring of private capital flows generally
fell outside the mandate of the Audit Bureau.

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JORDANIAN MINISTRY OF PLANNING
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3. (SBU) Minister of Planning Dr. Bassem Awadallah briefed
the delegation on the Jordanian-Iraqi trade protocol, which
predated both the OFF program and UN sanctions on Iraq by
several years. He described the circumstances of the
Iran-Iraq War, under which the program had been put into
place, and the development in the 1980s of industries in
Jordan whose raison d,etre was the service of the Iraqi
market under the trade protocol. As the Iraqi and Jordanian
economies became even more closely linked following the
cutoff of Saudi oil supplies to Jordan in 1990, the volume of
trade conducted under the protocol had grown. Awadallah
noted, however, that the favored position of Jordanian
industry in the Iraqi market prior to sanctions had not
carried over into the OFF program, observing that very few
Jordanian companies had been approved by the Iraqi government
for participation in the program. He attributed this
phenomenon principally to the state of Iraqi-Jordanian
bilateral relations, which were worsening markedly by 1996.


4. (C) Jordanian companies participating in the trade
protocol, on the other hand, had continued to export products
into Iraq during this period of worsening relations.
Awadallah attributed this to the relationships established
during the previous ten years of the trade protocol by many
Jordanian exporters with the Iraqi private companies,
parastatals, and government bodies, who found it easier to
simply renew contracts than to find new suppliers for the
same goods. Awadallah observed that while some of the
traditional exporters to Iraq are now having trouble
adjusting to the advent of open competition in the Iraqi
market, the overall volume of Jordanian exports to Iraq in
the first quarter of 2004 have been greater than the combined
total for the year 2002. He cautioned, however, that the
postwar situation had brought new challenges for Jordan, and
he asked that the delegation study the possibility of
assisting Jordan,s efforts to control its borders.

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JORDANIAN MINISTRY OF INDUSTRY AND TRADE
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5. (C/NF) Farouk Al-Hadidi, Secretary-General of the Ministry
of Industry and Trade, expanded further on OFF and the
Jordanian-Iraqi trade protocol and the role of the Jordan
Export Development and Commercial Centers Corporation
(JEDCO),of which Hadidi had previously been chair, in both
processes. Very few Jordanian companies were not approved by
the UN OIP committee to bid on OFF contracts (because of
perceived links to the regime); those that were approved,
however, were rarely awarded contracts by the Iraqis or had
the funding of awarded contracts delayed by the Iraqis.
JEDCO had acted as sponsoring agent in this process, making
sure that the Jordanian companies applying for OFF contracts
contained actual assets and were properly registered in
Jordan. It did not perform further vetting of companies
applying for contracts. As head of JEDCO, Hadidi had
interacted closely with companies applying for contracts to
export to Iraq, but he said that he had never seen a case in
which a company holding a contract under OFF or the trade
protocol had reported a request by the Iraqi government that
it pay kickbacks. This did not necessarily mean that
Jordanians had not been asked to pay kickbacks, but Hadidi
supposed that companies holding contracts were afraid that
they would be blacklisted by the regime if they blew the
whistle. Hadidi said that it was well known, however, that
Saddam used contracts to reward his friends and punish his
enemies, whether on the level of individual corporations,
sectors, or entire countries.

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CENTRAL BANK OF JORDAN
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6. (C) Faris Sharaf, Executive Director of the Banking
Supervision Department at the Central Bank of Jordan (CBJ),
briefed the delegation on the basic regulatory structure for
banks in Jordan and passed to them copies of Jordan,s
banking law. Sharaf noted that the primary mission of the
inspectors in the banking supervision department was to
ensure that banks were meeting CBJ standards in areas such as
reserve ratios and prudent allocation of loan portfolios, not
to check accounts for links to Iraq. He added that the
decision to freeze assets in Jordanian accounts usually came
from outside the CBJ, and was transmitted through the CBJ
Vice-Governor (not present at the meeting) to the banks in
which the accounts were located. In answer to a question
posed by the delegation about Jordan,s banking secrecy law,
Sharaf explained that the law should pose no serious
difficulties in the sharing of information between the GOJ
and USG; it was in no way comparable in scope to the law
governing bank secrecy in Lebanon, for instance. In any
case, the law could be superseded by a bilateral treaty
between Jordan and the U.S.

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UNITED NATIONS ASSISTANCE MISSION FOR IRAQ
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7. (C) Farid Zarif, Chief of Staff of the United Nations
Assistance Mission for Iraq (UNAMI) and Alan Feles, Political
Affairs Officer for UNAMI, met with the delegation on May 23.
Zarif briefed the delegation on his personal history with
the OFF program, which included constant involvement, in
positions both in New York and in Iraq in directing the
program throughout its duration. Asked his opinion of the
potential for future conflict in Iraq, Zarif said that while
it was difficult to say what exactly would happen, he was not
optimistic that the transition would be peaceful. Zarif and
Feles declined to respond to questions regarding abuses under
the OFF program, saying that they would be unable to add
anything of substance to the consultations already held
between Congressional staff members and UN officials in New
York and Washington. Zarif further noted that despite
attempts to contact the office of Paul Volcker, the director
of the UN investigation of allegations of past OFF abuses, he
had received no response and felt unable to speak on the
subject of an ongoing internal UN investigation without
specific clearance from the person leading that
investigation. Asked whether he had been specifically
forbidden from speaking on the subject without clearance,
Zarif replied that he had not. To a question by a delegation
member about resentment within the UN towards congressional
scrutiny of OFF abuses, Zarif replied that UN staff generally
consider the pressure to be politically motivated and driven
by a faction within the U.S. government rather than the
government or society as a whole.

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IRAQI POLICE TRAINING
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8. (C/NF) Following up committee interest in Jordanian
support of Iraqi reconstruction, the delegation met with
Richard Pemberton and William Vigneault, consultants employed
by INL, and Aiman Zureikat, legal representative of DynCorp,
to discuss the ongoing construction of the Iraqi police
training center in Muwaqqar. The INL and DynCorp
representatives briefed the delegation on the substantial
strides made over the past six months in the construction of
the center, whose essential facilities have already been
completed with extraordinary speed during a time of
unprecedented strain on the resources of Jordan contractors
due to their participation in other Iraq reconstruction work.
The representatives also noted their periodic frustration
with the high prices in bills submitted by the Shaheen Group,
a GOJ contractor on the same project tasked with supplying
logistics services to the training center. They added,
however, that they had been given broad leeway to negotiate
the prices in these bills down to market levels, and they
felt they had done so successfully for all bills to date.

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COMMENT
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9. (C/NF) The Government of Jordan was generally receptive to
meeting with STAFFDEL Scharfen at a reasonably high level and
was quite open and cooperative in answering the delegation,s
questions on the role of Jordanian companies in alleged
abuses of UN sanctions on Iraq. The apparent fact that no
official body within the GOJ appears to have much of a role
in tracking Iraqi assets is plausible, given the Byzantine
nature of Saddam,s various sanctions-avoidance scams, the
reluctance of contract-holding Jordanian companies to
participate in whistle-blowing against the regime, and the
likely disinterest of the GOJ in investigating very deeply
into the contracts awarded to Jordanian companies. The
atmospherics of the delegation,s meeting with UNAMI staff
were rather tense; however, this was not entirely surprising
in view of the officials, failure to receive instructions
from their headquarters giving guidelines on what is
currently a very delicate subject for the UN.

GNEHM