Topics: Sanctions

Note: The Republic of Iraq (Iraq) sued various companies and banks in New York federal court, alleging that numerous business entities that transacted with the Government of Iraq during the rule of Saddam Hussein conspired with Hussein's business regime to frustrate the United Nations' Oil-for-Food Programme.

The Oil-for-Food Programme was designed by the United Nations to alleviate, to a limited extent, economic sanctions imposed against Iraq during the Hussein regime. Through the programme, Iraq was permitted to sell its oil to third parties, provided that the proceeds of any such sale were used to purchase food and medical supplies for the Iraqi population. The programme established an escrow account at BNP Paribas' New York offices, and BNP agreed, as the escrow agent, "not to take any instructions from any person in or acting on behalf of the Government of Iraq, or representing persons or entities in Iraq." Also as a part of its role, BNP confirmed letters of credit issued by banks for the account of the buyers of oil, and issued letters of credit for the purchase of humanitarian goods by Iraq.

Potential buyers of Iraqi oil entered into contracts directly with the Iraqi State Oil Marketing Organization. The UN was to have final approval of any such contract, and a UN committee would set the price at which oil would be sold, based upon market forces. Oil purchasers were required to deposit the full amount of each purchase into the escrow account, which was accomplished by providing a letter of credit issued for the benefit of the escrow account in the amount of the full purchase price.

Companies wishing to sell humanitarian goods to Iraq were to negotiate contracts directly with the appropriate governmental ministry or state-owned enterprise. The contracts were approved by the UN. After a contract was in force, BNP would issue a letter of credit in favor of the supplier of the goods. This programme generated hundreds of millions of US dollars.

After Hussein's regime was ousted by force, Iraq sued companies that had agreed to purchase oil from Iraq, companies that had agreed to supply humanitarian supplies to Iraq, and BNP (Defendants) in federal court in New York. Defendants moved to dismiss on a variety of grounds, and all of Iraq's claims were ultimately dismissed. The United States District Court for the Southern District of New York, Stein, J., dismissed the action with prejudice.

Iraq alleged that the companies, BNP, and the Hussein regime had conspired to frustrate the Oil-for-Food programme and profit from it to the detriment of the Iraqi people. Specifically, Iraq alleged that the Hussein regime helped to set the price of oil at artificially low prices, resulting in windfall profits to the purchasers who-as allies of the Hussein regime-returned those profits to the Hussein regime or accepted the profits as bribes. Similarly, the Hussein regime allegedly agreed to overpay vendors for the humanitarian supplies, so that the vendors- who also were allies of the Hussein regime-were granted windfall profits either to be kept as bribes or returned to the regime as kickbacks. Iraq alleged that BNP was aware of these illegal transactions and willingly participated in them to gain fees through the issuance of letters of credit or banking relationships that it would not otherwise have.

Iraq raised a number of claims against Defendants, including BNP. It alleged that Defendant's actions violated the U.S. Racketeer Influenced and Corrupt Organization Act (RICO) and the Foreign Corrupt Practices Act, and that Defendants' actions constituted fraud, civil conspiracy, a breach of fiduciary duty, breach of contract, or an unjust enrichment.

The Judge ruled that Iraq had standing to sue Defendants because Iraq could have incurred actual damages as a result of wrongful depletion of the UN escrow account, since wrongful depletion of the escrow account could have caused pecuniary harm to Iraq itself. He noted that Iraq did not have standing to sue the defendants for harms to its quasi-sovereign interests as parens patriae of the Iraqi people. Thus, the Judge did not dismiss Iraq's claims solely on the basis that Iraq lacked jurisdiction.

The Judge did find, though, that Hussein's actions were attributable to Iraq and therefore that Iraq bore responsibility for Hussein's actions as alleged in the Complaint. The Judge also found that Defendants' actions as alleged was primarily extraterritorial to the United States, and as a result, were not actionable under the RICO statute. Moreover, even if the conduct was not primarily extraterritorial, the Judge found that Hussein's own actions, which had been attributed to Iraq, severed the causal relationship between the defendants' actions and the harm alleged.

The Judge dismissed the remaining claims on other grounds, and as a result, dismissed Iraq's entire Complaint against Defendants.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.