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THE SUNDAY TIMES: NEWS

British firms helped Iraq beat oil ban

March 23 1997

by Tim Kelsey and David Leppard

BRITISH companies have helped Iraq broker an illegal $8 billion (£5 billion) oil deal with China in the largest breach of United Nations sanctions.

A network of London firms, acting as intermediaries for the Chinese government and reporting directly to Li Peng, the Chinese prime minister, helped Peking to arrange a swap of Iraqi oil for weapons and humanitarian aid. Last week the UN said it would inv

British banks were also consulted over plans to arrange credit to help Iraq repay a huge debt, partly for the supply of tanks, missiles and material destined for Saddam Hussein's nuclear programme. At one point the Chinese considered using part of the pro

Two British businessmen involved say the Chinese acted in defiance of the international embargo imposed by the UN after the Gulf war to prevent Iraq trading oil. They spoke on condition that they were not identified because they fear reprisals from Chines

Hundreds of documents signed by senior Iraqi and Chinese officials show how during the past six years China, a permanent member of the UN security council, used British firms to flout the oil embargo.

At the centre of the oil deal was Sinochem London, a British petroleum product trading firm which is a subsidiary of China's largest trading company, Sinochem. Subsidiaries of Unipec, the state fuel distributor, were also involved.

The documents, seen by The Sunday Times, show how Sinochem executives concluded the deal after talks in Baghdad with trade and oil ministers, including Saddam Hussan, a relative of Saddam Hussein.

China has always been suspected of secretly supplying and financing the Iraqi regime at a time when Saddam was virtually cut off from the outside world. The documents establish for the first time the full extent of the Peking-Baghdad trading pact and show

Iraq first approached two British middlemen in 1991, shortly after it was defeated in the Gulf war. Iraqi ministers explained that Baghdad was in desperate need of food and medicine. They said the Iraqi government was prepared to promise an initial tranch

Acting on orders from Baghdad, the middlemen contacted French diplomats in London, who expressed interest in the deal even though they knew it might be against the law. After the French failed to get official approval, the middlemen tried to persuade BP a

Finally they contacted Chinese diplomats in London who told them Sinochem, its state-owned oil trading enterprise, would be interested.

The company, which has a worldwide turnover in excess of £13.5 billion, planned to use money raised during the deal to buy the Canary Wharf complex, which was then in receivership. Senior Chinese government officials inspected the development but wer

At meetings with Gong Min, then vice-president of Sinochem, at the company offices in London, the British fixers were told that the Hongkong & Shanghai Bank, which now owns the Midland, and the London branch of Bank Paribas, a French bank, would be ap

After visiting Peking, where Gong reported that he had obtained approval for the deal from Li, the Sinochem chief returned to London. He explained that Li wanted to link the $3 billion contract ­ equivalent to the supply of 100,000 barrels of oil a d

The British businessmen say they pulled out after they discovered weapons were involved. They were later told by the Chinese that part of the deal had gone ahead and shipments of goods had been sent to Iraq. They allege that senior Chinese officials have

The Iraqi oil embargo was partly lifted by the UN four months ago to allow Saddam to sell limited quantities of oil under strict UN supervision in order to buy humanitarian supplies. Any trade in Iraqi crude before December 1996 was strictly prohibited. I

Last week Sinochem declined to answer questions about its dealings. The UN, which has already expressed concern that Iraq has been secretly trading oil to other countries, said it would investigate. "This is serious," said a spokesman for the UN Iraqi san