By Douglas Gillison
NEW YORK — Taking on a phalanx of high-powered corporations in federal court here Tuesday, the government of Iraq is fighting to rescue a mammoth lawsuit against companies accused of plundering hundreds of millions of dollars of humanitarian aid under the former dictator Saddam Hussein.
Now on appeal after a loss in a lower court, the case — which the plaintiffs call the “largest financial fraud in human history” under the scandal-tarred U.N. Oil-for-Food Program of the 1990s — raises the difficult question of directly compensating the victims of international corruption.
Though Western governments continue to collect mounting fines for corporate bribery, little of the money collected goes toward restitution to defrauded countries in the developing world.
A federal judge last year dismissed the new Iraqi government’s claims, finding that the current government of Prime Minister Nuri Kamal al-Maliki could not sue for corruption instigated by former President Saddam Hussein, who was deposed in 2003, as the latter government bore responsibility for the actions of the former.
U.S. District Judge Sidney H. Stein also said the lawsuit improperly called for U.S. law to be applied to actions occurring outside the United States.
But Stein’s decision appeared to be on shaky ground Tuesday as a presiding judge pressed lawyers for the 92 defendant corporations and subsidiaries to explain the fairness of allowing companies to shield themselves from liability for actions they knew all along were illegal.
Mark Maney, a Houston attorney for the Republic of Iraq, told the three-judge bench that Saddam had acted in violation of Iraq’s laws and against his nation’s interests to enrich himself — actions that should not be conflated with the functions of a sovereign government.
“He was found with $750,000 in cash when he was found in his rat hole. His sons removed a billion dollars from the Central Bank of Iraq right before the Gulf War started,” said Maney. “Those funds could only have come from these defendants because that was the only source of cash the Republic of Iraq had.”
“He directed the government of Iraq using his dictatorial powers to effect that corruption, but the corruption was very personal,” said Maney.
The lawsuit has assembled a Who’s Who of boldface names from the white-shoe world of legal services to the rich and powerful, with at least 50 attorneys assigned to the case. In advance of the hearing, court administrators reassured the defendants that spill-over space, with seats and a viewing monitor outside the courtroom, would be available to accommodate their numbers.
In an odd turn of events, the handful of attorneys representing Iraq found themselves opposite John R. Bolton, the famed neoconservative of the Bush State Department and defender of the 2003 invasion, who is now representing Siemens subsidiaries accused of corruption under the Saddam regime.
Before oral arguments began, Bolton chatted amiably with Robert S. Bennett, the former attorney for President Bill Clinton in the Monica Lewinsky affair of the 1990s who now represents BNP Paribas, which maintained the U.N. escrow account for the Oil-for-Food Program in New York.
Begun in 1996 to help alleviate the terrible social costs of U.N. economic sanctions intended to demilitarize the Saddam regime, the Oil-for-Food Program instead became a juggernaut of transnational corruption that finally came undone following the U.S.-led invasion.
In 2005, a U.N. committee led by former Federal Reserve Chairman Paul Volcker accused more than 2,000, or nearly half of all participants, of paying hundreds of millions of dollars in bribes. Investigations in the United States, France, Switzerland, Australia, Germany, Sweden and elsewhere unearthed arrangements by Saddam’s business partners who had systematically defrauded the U.N. and the Iraqi treasury.
At Tuesday’s hearing, Droney, the presiding appeals judge and formerly the chief federal prosecutor in Connecticut, pressed the defendants’ lead attorney, Brant W. Bishop, to explain the fairness of holding the current Iraqi regime liable for the actions of the previous one.
“How can you avail yourself of that in equity when, if the allegations are true, every one of the defendants in this case violated the U.N. resolution and the laws of the United States?” asked Droney.
Bishop said the argument did not shield the defendant companies against any legal consequences, only those brought by the Iraqi government.
“The issue was that this actor, this plaintiff, cannot both instigate the wrongdoing and then come back and claim damages for the wrongdoing that it instigated,” said Bishop.
Many of the defendants were targeted despite, or rather because of the fact that they have already been prosecuted in the U.S. The Houston oil trader David B. Chalmers Jr., who is named as a plaintiff, was sentenced to two years in 2008 for funneling bribes to the former Iraqi regime.
Chevron Corp. settled in 2007 with U.S. agencies for $30 million. General Electric Co. resolved the matter for almost $24 million in 2010. Johnson & Johnson did likewise in 2011 for $70 million, resolving allegations in the Oil-for-Food Program and elsewhere.
When it settled with U.S. and German authorities in 2008 for bribery across the globe, Siemens pleaded guilty to charges that included winning $80 million in contracts from Iraq’s ministries of oil and electricity between 2000 to 2002 by kicking back 10 percent as “commissions” to supposed business consultants.
Droney asked Bishop, who has represented Siemens throughout much of his legal career, whether the location of the United Nations in New York could give U.S. courts jurisdiction over Iraq’s claims.
Bishop called the location of the funds in New York merely “incidental,” saying that under recent Supreme Court precedent, the actions in question would have had to have focused on the U.S.
The Oil-for-Food funds were “Iraqi in the first instance, were destined for humanitarian aid to Iraq, and were located in the United States temporarily, only by virtue of a global, international diplomatic understanding,” said Bishop.
Maney, the lawyer for Iraq, countered that the defendants had knowingly circumvented U.S. law on U.S. soil.
“No one from the Republic of Iraq made a misrepresentation to the United Nations. No one from the Republic of Iraq made a misrepresentation to the U.S. Treasury Department,” said Maney. “And no Iraqi official violated the Emergency Powers Act or the Patriot Act. The defendants did. And all of those violations are violations of U.S. law occurring in the United States.”
A handful of federal bribery prosecutions brought in the last six years by authorities in New York and Washington have seen over $50 million returned to governments in Asia, Africa, the Caribbean and the Middle East, including $20 million which Chevron Corp. agreed to pay into a post-2003 invasion fund created at the Federal Reserve in New York.
(Known as the Development Fund for Iraq, the program also failed to account for billions of dollars meant to benefit the Iraqi public.)
But in order for restitution to be paid in U.S. courts, federal law requires that prosecutors identify victims and the precise amounts of money they have lost — often a thorny proposition in many financial crimes, including bribery.
The amounts pale in comparison to the funds collected in foreign bribery prosecutions, with the U.S. Justice Department raking in nearly $3 billion in corporate fines alone since 2009.
In 2011, a Costa Rican power utility known as ICE tried to win a slice of a $137 million bribery settlement between the U.S. government and the French telecom company Alcatel, which had paid bribes in Malaysia, Taiwan and Honduras in addition to Costa Rica. But since ICE officials were the ones who had taken the bribes, federal judges found this hard to stomach and turned down the request.
In 2012, a Nigerian NGO, the Socio-Economic Rights and Accountability Project, or SERAP, called on the U.S. Securities and Exchange Commission to devise a way for outside organizations to apply to receive some of the funds collected.
The victimized public in developing countries may view penalties and payments “imposed by the U.S. and then kept by the U.S. as in fact representing funds that rightfully ‘belong’ to the victim,” the group said in a letter to the SEC’s enforcement division.
SEC officials considered the request but ultimately took no action, according to the group’s attorney, Alexander Sierck.
According to Heather Lowe, legal counsel at Global Financial Integrity, a pro-transparency organization in Washington, U.S. officials had not been overly receptive to efforts from the World Bank‘s so-called Stolen Assets Recovery Initiative, an anti-kleptocracy program, to channel restitution to the victims of corruption.
“I do believe that victim compensation is an important part of the corruption-fighting legal landscape,” Lowe wrote in an email.
“[B]ut I would probably focus my energies on ensuring that victims of corruption, human rights abuses, environmental degradation, etc., perpetrated by U.S. companies operating abroad had a clear right to bring cases against the perpetrators in the U.S., ” Lowe wrote.