The rich get richer, the poor . . .

                    Billions of dollars worth of goods evade U.N. rules

                                          By Sandro Contenta
                                      Toronto Star Middle East Bureau

                    ZAKHO, Iraq - TRUCK DRIVER Suleiman Mohammed Ali and his pals seem the most
                    carefree smugglers in the world as they wait to get their load of Iraqi oil across the
                    border to Turkey.

                    They sip tea and chat by a lineup of trucks that stretches as far as the eye can see,
                    each one containing up to 5,000 litres of diesel - and each one on the verge of
                    breaking the U.N.'s international trade embargo on Iraq.

                    ``I've been waiting in line since noon and I hope to cross the border at midnight,'' says
                    Ali, 41, alluding to the snail's pace at which the 500 trucks cross the Iraqi border every
                    day to sell diesel to Turkey.

                    It's sunset and on the Turkish side of the border, another line of trucks waits to bring
                    in goods to Iraq. U.N. officials estimate only 1 of every 200 trucks coming from Turkey
                    is selling goods to Iraq legally - that is, goods approved by the U.N.
 

                                `Many Iraqis are convinced the U.S. is
                                more interested in keeping Saddam in
                                power than getting rid of him'
 
 

                    The rest are breaking the 10-year-old embargo, with no one verifying what is
                    smuggled in and no one knowing what Saddam Hussein is doing with the money he
                    makes from oil smuggled out.

                    Western diplomats estimate Iraq smuggles the equivalent of about $1.5 billion worth
                    of oil annually. But they won't venture an estimate on the amount of non-oil goods
                    smuggled to and from Iraq, nor how much Baghdad is pocketing in customs' duties on
                    these goods.

                    It's a lucrative, illegal trade that U.N. humanitarian officials here privately describe as
                    one of the most damning indictments of the U.N.'s sanctions policy against Iraq.

                    Originally designed to punish Saddam and his regime for invading Kuwait in 1990 and
                    triggering the Persian Gulf War the following year, the U.N. trade embargo has missed
                    its target. Those it punishes are ordinary Iraqis.

                    Saddam and his repressive regime remain entrenched and well-heeled through the
                    smuggling trade, while the vast majority of Iraqis languish in filth, disease and
                    poverty.

                    Some observers suggest the United States, the main opponent to lifting sanctions,
                    turns a blind eye to much of the smuggling - at least as it involves its ally Turkey.

                    Many Iraqis are convinced the U.S. is more interested in keeping Saddam in power
                    than getting rid of him.

                    The ``smuggling'' done here does not involve people sneaking around under cover of
                    darkness on perilous routes. Much of it is conducted at main border crossings in
                    plain sight.

                    The main smuggling routes are by land through Jordan and Turkey and by sea
                    through the Persian Gulf. Iraq actively encourages the trade, which it doesn't consider
                    smuggling.

                    ``I am not going to allow myself to be choked to death by an embargo that has no
                    legitimacy,'' says Riyadh Al Qaysi, Iraq's deputy foreign minister. He argues that
                    sanctions are illegal because Iraq no longer has weapons of mass destruction.

                    ``Every opportunity I get to survive, I will certainly take. In fact, I am duty bound to
                    take it,'' Qaysi says.
 

                                `Smuggling is conducted relatively freely,
                                keeping Saddam Hussein and the ruling
                                elite rolling in dough and creating a class
                                of nouveau riches'
 
 

                    Under the international trade embargo, all goods going in or out of Iraq must be
                    approved by the U.N. under its Oil For Food program. Iraq's approved oil sales
                    amount to almost $39 billion since the program began in December, 1996, $21 billion of
                    that in the last 12 months.

                    The U.N. uses the money to allow Iraq to buy humanitarian goods such as food and
                    medicine and to pay for Gulf War reparations.

                    Since the Oil For Food program began in late 1996, the U.N. has approved less than
                    $16 billion worth of contracts for a country of 22 million people, whose infrastructure -
                    from hospitals to sewage treatment plants - is crumbling.

                    Goods that come and go illegally aren't policed by U.N. officials because their
                    mandate is to inspect only those shipments approved under the program.

                    So smuggling is conducted relatively freely, keeping Saddam Hussein and the ruling
                    elite rolling in dough and creating a class of nouveau riches.

                    Iraqis call them the Intiha'ah al-Hasar - the ``embargo cats.'' Fat cats is more to the
                    point. They own swanky villas in Baghdad's elite Monsour and Araset
                    neighbourhoods that can cost more than $2 million and cruise around in the latest
                    Mercedes or BMWs.

                    Yousef Ahmed, co-owner of a company that installs indoor pools, says smugglers
                    helped his business boom during the last decade.

                    He had virtually no competition when he started his indoor pool business in 1989,
                    Ahmed says. Today, there are eight companies that install indoor and outdoor pools
                    in Baghdad.

                    Smuggling has also fuelled Iraq's fledging stock exchange. The number of companies
                    it lists has grown from 64 in 1992 to 98 today. The total value of the market's stock has
                    climbed from $1 million to about $300 million.

                    Iraq's business community was initially crushed by the embargo. Faris El Hadi, for
                    example, watched most of the six companies he owned - selling everything from
                    computers to nuts - go down the tube.

                    Hadi, one of Baghdad's better-known business leaders, says he turned to smuggling
                    in 1996 to survive.

                    He first tried to convince Samsung to make him their Iraqi agent. But the South
                    Korean electronics giant feared reprisals for breaking the U.N. embargo. So Hadi, 59,
                    followed a widely used Iraqi business scheme.

                    He set up a Jordanian front company, the Qareeb Trading Agencies Ltd.,
                    Co-ordination Office, in Amman. It is registered under the name of a Jordanian citizen,
                    a friend of Hadi, which allows the company to get letters of credit from Jordanian
                    banks.

                    But Hadi says he and his business partner, Khalil Bunniya, another well-known Iraqi
                    businessman, are the Jordanian company's real owners.

                    Samsung sells goods to Hadi's Jordanian front company, thereby technically
                    respecting the U.N. embargo. Hadi then ships the goods to Baghdad, where he sells
                    and services them, warranty included.

                    Hadi uses the same route to transport air conditioners, refrigerators, microwaves and
                    all sorts of electronic and household appliances that contravene the embargo.

                    The Iraqi government, Hadi says, gets a big cut of the smuggling business. For every
                    air conditioner brought in, for example, the government levies a customs duty of 70
                    per cent of the manufacturing and freight costs, plus a further 10 per cent tax.

                    A simple air conditioner that fits into a window can cost $510 to manufacture and
                    ship, Hadi says. It sells at $1,110 retail.

                    Embargoed goods considered more sensitive by the U.N. Security Council, such as
                    high-powered computers, Hadi brings in by fishing boats from Dubai.

                    ``It's smuggling,'' Hadi says.
 

                                `The smuggling at the Turkish border is a
                                kind of joint venture between the Iraqi
                                government, Iraqi Kurds and the Turkish
                                government'
 
 

                    His shipments hug the coast and have never been stopped by the U.S. navy, which
                    patrols the Persian Gulf.

                    But they are often stopped by Iranian patrols and fined, or taxed, depending on how
                    you see it, before being allowed to continue their trip to a southern Iraqi port near
                    Basra.

                    Iran also takes its cut from the smuggling of Iraqi oil, charging a tax of 30 per cent of
                    the value of oil before letting the tankers cross Iranian waters, says a Western
                    diplomat in Iraq.

                    The Iranians didn't seize a single Iraqi ship smuggling oil until last April. The ship was
                    exporting 2,500 tonnes of oil in breach of the U.N. embargo.

                    Hadi says he shipped $3 million worth of goods last year, 40 per cent with fishing
                    boats from Dubai, the rest through Jordan. He expects to more than double that
                    amount this year but insists he would be doing 10 times the business if the embargo
                    were lifted.

                    The smuggling at the Turkish border is a kind of joint venture between the Iraqi
                    government, Iraqi Kurds and the Turkish government.

                    The no-fly zone imposed by the U.S. and Britain in northern Iraq has helped the
                    Kurds set up an autonomous region. Its western sector is controlled by the
                    Democratic Party of Kurdistan (DPK) and the eastern part is run by the Patriotic
                    Union of Kurdistan (PUK).

                    The two have long been at war, although they have so far respected a 1998
                    U.S.-brokered ceasefire. A main source of tension is the DPK's refusal to give the
                    PUK a cut of its lucrative smuggling trade.

                    The DPK runs the border crossing post at the Turkish border and makes nearly $170
                    million a year on duties levied on the smuggling, says Jawher Namiq, head of the
                    DPK's politburo.

                    That doesn't include the money the DPK makes by buying oil from the Iraqi
                    government and selling it at a profit to Turkish truck drivers who smuggle it across
                    the border, for sale in Turkey.

                    PUK spokesperson Said Ahmed Pire put the oil smuggling revenue at the Turkish
                    border crossing at about $7.5 million a day. He says much of it is controlled by a
                    company called Asia, owned by Turkish, Iraqi and DPK interests.

                    ``Asia is the biggest racket here,'' says a diplomat in Baghdad. ``It's a brokerage
                    company that trades between Turkey, Iraq, Iran and Syria,'' he says, adding that it is
                    owned by ``influential personalities,'' including members of Saddam Hussein's family.

                    Selim Karaosmanoglu, Turkey's ambassador to Iraq, acknowledges his country is
                    illegally doing business with Iraq outside the Oil For Food program, but argues there's
                    not big money involved.

                    ``It's a trickle across the border, not a major trade,'' he says.

                    Since the embargo, Turkey has lost as much as $75 billion in trade with Iraq. Today's
                    cross-border trade is just enough to keep the local economy in eastern Turkey alive,
                    Karaosmanoglu says.

                    The U.S. government is well aware of the illegal trade, says a Turkish official. The U.S.
                    tolerates the trade because it wants to keep using a Turkish air base to operate its
                    flights over Iraq's north, the official adds.

                    The U.N. Security Council tolerates trade between Iraq and Jordan because Jordan is
                    too important a Middle East ally to be destabilized economically at a time when Israel
                    is trying to make peace with Syria and the Palestinians, say Western diplomats in Iraq.

                    They suggest the U.S. may have also decided that keeping Saddam Hussein in power
                    is better than the alternative - a highly fractious opposition in exile, or a takeover by
                    Shiite Muslim groups in the south waging sporadic, armed resistance.