Glencore International AG, the Swiss trading firm, has again fallen under suspicion of flouting regulations under the UN's oil-for-food programme for Iraq.

The latest incident concerns a shipment of one million barrels of Iraqi crude which Glencore says was destined only for storage in Croatia before shipment to the US - a claim that UN officials have reportedly described as not credible.

Glencore under fire

According to an Iraqi official the issue was resolved after Glencore "corrected" its letter of credit (L/Cs). The official also said that Iraq would ask trading partners to rectify any apparent mistakes and that State Oil Marketing Organization (SOMO) had noticed and subsequently corrected discrepancies in an earlier deal with Glencore.

Britain had threatened to exclude Glencore from Iraqi crude sales unless it could provide more information on its latest contentious business transaction with Iraq. In response, the Swiss trader's London office provided a document that the firm said showed the shipment in question had been held outside customs in Croatia. Analysts have estimated that Glencore would have made around US$3 million extra by diverting the shipment to Croatia.

L/Cs may reveal irregularities

There has been growing concern in London and Washington that Iraqi officials have been surcharging oil sales made under the oil-for-food shipments. US officials have said that while there is evidence that Iraq has sought such surcharges, no hard evidence has yet emerged to show that fees levied outside UN regulations have been paid.

According to UK government officials, exporters to Iraq have also been asked to enjoin in deals that would enable officials in Baghdad access to kickbacks worth around 10 per cent of order values. Evidence of illicit fees may appear in L/Cs and associated documentation in the form of excessive management or shipping charges.

L/Cs are instrumental in the UN's oil-for-food programme for Iraq. Proceeds from oil sales under the UN oil for food scheme are handled in New York by French bank, Banque Nationale de Paris.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.