Inside Saddam Inc.

By Adam Zagorin

In the event of war, U.S. special forces will scour Iraq in search of Saddam Hussein, but another team of American sleuths will be hunting something even more shadowy: his money. Severing the dictator from his dollars would make it far more difficult for Saddam to survive in hiding like Osama bin Laden, while the recovery of those assets could help rebuild Iraq.

But it won't be easy. Saddam is considered one of the world's richest men, but over the past three decades, he has gone to great lengths to conceal his vast, ill-gotten fortune. "Money is profoundly important to Saddam, but not because of greed," says Dr. Jerrold Post, a psychiatrist and former CIA profiler of the Iraqi leader. "It represents instead his insurance policy and a tool through which he exercises power and manipulates others."

Before the 1991 Gulf War, Saddam's wealth was estimated at $10 billion by a senior Iraqi defector. But after more than a decade of sanctions, he is no longer as fat a cat. The State Department's Richard Armitage recently put the figure at $7 billion. Forbes magazine, in its annual tally of the world's most affluent, put Saddam at a mere $2 billion.

Since 1990, Saddam has faced U.N. sanctions designed to control all of Iraq's foreign trade. In response, he has demonstrated a genius for milking cash from the very system meant to squeeze him dry. He has set up a network--call it Saddam Inc.--that involves smuggling, kickbacks and other scams that rack up steady profits year after year.

HOW SADDAM DODGES THE U.N. The Oil for Food program, part of the U.N. sanctions on Iraq, theoretically controls all Iraqi oil sales. But according to a recent estimate by the General Accounting Office, between 1997 and 2001 Saddam generated an extra $6.6 billion in illegal revenue from oil smuggling and kickbacks.

Iraq is required to apply each month to the U.N. for approval of the price it charges for crude. But Iraq usually requests a number at least 50-c- per bbl. below the going price. Then Baghdad demands an illegal surcharge of, say, 30-c- per bbl. on top of the U.N.-approved price. The arrangement still gives buyers a 20-c- discount.

Buyers then write two checks. One, at the official, U.N.-approved price, is deposited in a U.N.-monitored Iraqi bank account in New York City. But the 30-c- kickback goes directly to Saddam after deposit in an Iraqi bank account in Jordan or some other location over which the U.N. has no control. During one 10-month period in 2000 and 2001, officials working with the U.N. determined that Iraq had successfully imposed a 30-c--per-bbl. surcharge, netting Saddam $175 million.

The system works because, under U.N. rules, Baghdad gets to choose which companies are allowed to buy its oil, and it often selects lesser-known brokers or offshore shell companies. These shady middlemen quickly resell the petroleum to more established oil dealers and companies around the world.

The U.S., by the way, has long been the largest single purchaser of Iraqi oil, although often through intermediaries, some of which may pay kickbacks to Baghdad. Washington supports the Oil for Food program because it helps funnel money to the Iraqi people, but the illegal surcharges paid by middlemen are passed on to U.S. refineries and, eventually, come out of the pockets of American motorists. In January 2002, when President Bush named Iraq as part of the "axis of evil," the U.S. was buying some 75% of all Iraqi oil funneled through the Oil for Food program.

HE NETS EVEN MORE FROM SMUGGLING OIL. This is the oil he secretly sells outside U.N. supervision--and he pockets all the revenue. Late last month U.N. officials reported that Iraq was smuggling huge, 1 million--bbl. shiploads of oil through the gulf. But most of it is carried by small craft or aging scows guided by experienced, radio-equipped Iraqis and is later sold in Iran, other gulf countries and onto the world market.

Then there's the pipeline from northern Iraq to the Turkish Mediterranean coast, which until recently exported up to hundreds of thousands of barrels a day of Iraqi crude, all of it outside the U.N.-sanctions system. Long dependent on Iraqi oil, Jordan illicitly imports some 110,000 bbl. a day, for which it pays a below-market price directly to the Iraqi government. Yet another pipeline runs from northern Iraq to Banias, a Syrian port, with a second outlet in Lebanon. It currently carries some 230,000 bbl. a day, generating annual revenue estimated at more than $1 billion.

IT'S THE FAMILY BUSINESS. Saddam's two sons operate on a smaller scale but display their father's cunning and ruthlessness. Uday, 38, the headstrong elder child, long dominated most smuggling routes but was severely injured in a 1996 assassination attempt. That has propelled Qusay, 36, to the fore. He runs Iraq's pervasive security apparatus and has used that position to consolidate financial and political power.

The profit in the sons' scams stems from exploiting local price differences. In Iraq, 20 liters of gasoline can be purchased for as little as 50-c- and resold in neighboring countries that produce no oil for as much as $10. Luxury items are smuggled in tax free by middlemen and then resold at a higher price. One big moneymaker for the sons involves trucking diesel fuel into Turkey. The trade has fallen off amid recent preparations for war, but at its high point, according to the Coalition for International Justice, a Washington-based human-rights group, some 45,000 Turkish truckers traveled regularly between the oil fields of northern Iraq and delivery points in eastern Turkey.

The sons have also masterminded cigarette-smuggling deals, which are worth as much as several hundred million dollars. The European Union is currently suing RJ Reynolds, charging it with violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act because the company has allegedly allowed its products to be smuggled into Iraq, depriving the E.U. of millions of dollars in tax revenue. The company has strenuously denied the E.U. charges, which include a court filing that says Uday "oversees and personally profits from the illegal importation of cigarettes into Iraq."

SO WHERE'S THE MONEY? Some of it, of course, pays for the sumptuous Iraqi palaces that Saddam collects, 20 of them in the Baghdad area alone. But a Kuwaiti-financed investigation conducted after the Gulf War determined that Iraq had about $10 billion in bank accounts and other investments around the world, nearly all of it well hidden. One that remains in the open involves a long-held 8.4% share in Hachette, a French media group that publishes such well-known titles as Elle and Woman's Day. In response to questions about Iraq's stockholding, a Hachette owner has stressed that U.N. sanctions prevent Baghdad from voting the shares or receiving dividends.

The question is, Can anyone get the money back? Kuwait has tried for years. After allied troops expelled the Iraqis from Kuwait in 1991, the country launched a global dragnet to attach Iraqi assets. But little was ever recovered beyond $16 billion in reparations garnisheed from the proceeds of Iraq's official U.N. oil sales. As Deputy Defense Secretary Paul Wolfowitz suggested last week in testimony before Congress, any money that is found might also be used to defray the billions of dollars in costs the U.S. will incur if it invades Iraq. "There's a lot of money out there," Wolfowitz said, when asked whether America would foot the entire bill. "To assume that we're going to pay for it is just wrong."