06/19/2000 - Monday - Page A 8
Fatter in Lean Times
Iraqi elite gets richer from illegal smuggling ignored by U.S.

By Matthew McAllester. MIDDLE EAST CORRESPONDENT

Baghdad, Iraq -Back in 1990, before the sanctions started, Youssef Ahmed was
the only game in town. Now he has seven competitors, all angling for the
business of building private luxury pools in Baghdad.

In the first three months of this year, the Baghdad stock exchange index
rose more than 75 percent.

Behind three-meter-high walls in a part of central Baghdad, work finished
last year on a presidential palace the size of a small town.

Houses sell for the equivalent of a million dollars in the wealthy
neighborhoods.

Refrigerators, air conditioners, microwaves and all sorts of cheap
electronic goods from Korea fill dozens of shops all over the city. This is
the other side of the United Nations sanctions in Iraq.

As innocent babies die at unprecedented levels in part because of an
infrastructure crumbling under the weight of sanctions imposed in 1990, the
embargo on Iraq has also enriched a small cadre of Iraqi
businessmen-smugglers including, Newsday has learned, the immediate family
of Iraqi dictator Saddam Hussein, trading through a company called Asia. The
massive smuggling-some estimates reach $1 billion a year-is taking place
almost unhindered, with the acquiescence of the embargo's biggest proponent,
the United States, which has been loath to object because several
neighboring countries involved in the smuggling are U.S. allies.

"In the 1990s a new class of people was created," said Ahmed, explaining the
surge in demand for private pools. "Those people started building modern
houses...After the embargo started, the merchants and smugglers and traders,
their activities flourished more than before. Before, the government
provided our goods. Now smugglers and merchants do that." "The president and
his men are getting stronger and stronger," one diplomat said. "Look at [the
wealthy neighborhoods of] Arasat and Mansour. Look at the cars. Most people
are driving clunkers but every week I go down there and there are more
Mercedes and not just your baby Mercs but big S classes. These people are
getting richer and richer." In order to appease allies in the region, the
United States and its allies elsewhere make little effort to stem much of
this illegal trade, many diplomats and politicians in Iraq and analysts in
the United States say. American naval vessels patrol the Persian Gulf
looking for smugglers of oil and other goods.

But on none of Iraq's borders does any country strictly enforce the embargo.

Several diplomats and UN officials say the United States and its key allies
turn a "blind eye" to Hussein's illegal trade, as shown by the long line of
trucks that cross at the Turkish border in Kurdish-controlled northern Iraq
24 hours a day.

"I brought in one ton of potatoes and I'm taking out 5,000 liters of
diesel," said Suleiman Mohammed Ali, 41, a Turkish Kurd who was waiting with
his truck at the Iraqi-Turkish border crossing on a recent evening. In front
and behind his truck were hundreds of others, all illegally carrying Iraqi
diesel, which the Kurdish authorities tax before allowing it to leave the
country.

"The diesel goes to the Turkish government at a station across the valley
there," said Ali, who had slept in his cab for four days on this trip. "It
takes the oil and distributes it around Turkey." And where did the oil come
from? "This is Saddam Hussein's oil," Ali said.

According to diplomats and officials in Iraq, the United States has applied
no pressure on Turkey to curtail the trade, which boosts the economy of
southeastern Turkey and so provides stability to a region whose Kurdish
population has often rebelled against the government. On the Iraqi side,
most of the revenue goes to Hussein and to the Kurdish authorities who
currently control northern Iraq.

"Why do the Americans tolerate the trade?" said one Middle Eastern diplomat
here. "Because it creates revenue for the Kurds, not because they like the
Turks. It's one of the pillars of their foreign policy, to keep Saddam
limping, to keep him on his toes." A State Department official acknowledged
this was one reason why the trade continues: "The Kurds are getting a lot of
money through the oil trade and we like the Kurds." The United States also
tolerates the trade because it needs to use Incirlik, a Turkish base, to
operate its flights to maintain two no-fly zones over Iraq, said a Turkish
official. "If they say we must shut this door and have no contact with Iraq,
we would say OK, and now we'll discuss our entire relationship with the U.S.
Our cooperation is a package deal," he said.

The State Department official said the United States is trying to address
the illegal oil sales. "This trade is an issue of concern," the official
said. "To suggest that we tolerate it is not accurate. It's something we're
working on with the Turks to address. It's not an easy problem to solve."
Iraqi politicians are unabashed about the government's policy of conducting
illegal trade. "I am not going to allow myself to be choked to death simply
for a resolution that has no legitimacy," said Riyadh Al Qaysi, Iraq's
deputy minister of foreign affairs. "Every opportunity I get to survive I
will certainly take. In fact, I am duty-bound to take it." A large
percentage of Iraq's illegal trade in oil and other goods is controlled by
Asia, Newsday learned from diplomatic and political sources in Iraq. The
company, owned by the Hussein family, manages the bulk of illegal trade with
neighboring nations.

Two sources separately said that the Kurdish party that controls the border
with Turkey is a partner with the Baghdad-based Asia, even though that
party, the Democratic Party of Kurdistan, claims to be an enemy of the Iraqi
government. Asia has an office in the DPK-controlled town of Zakho, one
Western diplomat said, and may have offices in neighboring countries like
Turkey and Jordan.

"Asia, it's the biggest racket here," the diplomat said. "It's a brokerage
company that trades between Turkey, Iraq, Iran and Syria." Other Iraqi
business owners are not shy to say how they get their goods. As he talked
about his work, Ahmed the pool contractor glanced down at the tiles, pumps
and other materials he needs to build pools lying on the floor. They were
from Germany, Lebanon, Italy, Spain, Britain and elsewhere.

"I started to go through Dubai and Jordan as transshipment points because of
the embargo," he said.

Across town, Faris Al-Hadi was also happy to explain how his Samsung
dealership manages to skirt the sanctions. From a well-known Baghdad family,
Al-Hadi is as respectable a businessman as they come. In the years before
the sanctions, Al-Hadi and his father had many business interests and were
agents for well-known Western watches, radios, typewriters, pens. Al-Hadi
owned a successful flower shop and a big nursery and factories for
retreading tires and processing nuts. He also owned a photo-developing lab
and a computer consulting group.

When the sanctions started, he said, "everything was messed up totally."
After the Gulf War, Al-Hadi began to nurture a relationship with the Korean
electronic goods manufacturer, Samsung, and together with a partner he
formed his current company, Qareeb Trading Agency. Two years ago he and
Samsung struck a deal. Al-Hadi would import some Samsung goods to Dubai, in
the United Arab Emirates south of Iraq on the Persian Gulf. Others would go
through a transfer company in Jordan and then across the Iraqi desert in
trucks to Baghdad.

Samsung's "concern was, 'we are afraid of the UN and the U.S.'-that they
might consider any direct dealing with Iraq as breaching the sanctions,"
Al-Hadi said.

James Chung, a spokesman for Samsung Electronics in Seoul, acknowledged that
Samsung goods are sold in Iraq. "We have sales offices in Amman and Saudi
Arabia but we don't have an official office in Iraq," he said. "Many local
distributors can get Samsung Electronics goods around the countries near
Iraq and they import these products through various channels and sell our
products in Baghdad." Chung said the company complies with the sanctions.
"Samsung Electronics wants to negotiate with the local distributors directly
but it is not possible because Iraq is under UN sanctions," he said. "So we
cannot make official relations with any distributor in Iraq. We are not
making any gains through sale of our products there." As an experienced and
upfront businessman, Al-Hadi finds it demeaning to have to import his goods
in this roundabout way. "It's almost like smuggling, you know?" he said.
According to international law, it is smuggling.

It's a perilous way to run a business. Once, one of the small boats his
company hires to bring the goods from Dubai caught fire and $60,000 worth of
music tapes were destroyed. Another time, a boat was caught by one of the
U.S.

warships that sail the Gulf and act as the only physical deterrent to
smuggling on Iraq's perimeter. The boat was held for six weeks and fined.

But usually, the boats face no problems in the Gulf. "These boats are not in
international waters," Al-Hadi said. Those ships pass through the waters of
Saudi Arabia, Qatar and Kuwait with those governments' apparent knowledge.

"They are very close to the shore. They know when they can sail and when to
stop. They know what they're doing. They're smugglers." Business under these
conditions is difficult but Al-Hadi is doing well. Last year he had sales
worth $2 million. This year he expects that to double. But it's nothing
compared to the success of his businesses pre-embargo.

Samsung, which has heavy competition in Iraq, likes to be sure its products
are marketed properly, Al-Hadi said. "We receive a lot of Samsung staff," he
said.

"They visit Iraq and check the market share and do a lot of work and see
their products here." Chung acknowledged that Samsung employes visit
Baghdad. "We hope to make some good relationship with Iraq after the
sanctions," he said. "It's possible that an employee met Mr. Al-Hadi some
day but that does not directly mean there is an official connection with
Samsung Electronics." Unashamed of the way he does business, Al-Hadi
nevertheless has harsh words for some Iraqi businessmen who he says have
taken advantage of the basic needs of the Iraqi people to make a fast buck.
This is the new, pool-building class that are Ahmed's clients.

"They are mainly engaged in the food business, the smuggling business in
general," he said. "They bring in low quality goods and the purchasing power
of people is very low so people buy this food. They cheat. Some food items
imported are expired or branded with a brand that's not true. You can see
Pepsi Cola in the marketplace from five different sources." In fact, Pepsi
is one of the 98 companies traded on the Baghdad stock exchange.

"Not the real Pepsi," noted Sabih Al-Dulaimi, director general of the
exchange.

Al-Dulaimi echoed Al-Hadi in his explanation of the new wealthy class in
Iraq.

"It's a kind of exploitation of the situation," he said, noting that all of
the 98 companies on the exchange import goods illegally and are encouraged
to do so by the government. "We're still in a war. In a war, many people go
up and a lot go down."
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