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Iraq Cannot Compel Corruption Arbitration

MANHATTAN (CN) - Iraq cannot compel more than 90 defendants to submit to arbitration of the corrupt United Nations oil-for-food program, a federal judge ruled. "(T)he plain language of the contract precludes the Republic from compelling arbitration," U.S. District Judge Sidney Stein wrote in granting BNP Paribas' request to enjoin arbitration.

Judge Stein's decision, issued Thursday, March 3, closes a case that Iraq filed on behalf of its citizens on June 27, 2008. In its original complaint, Iraq called the "corruption of the United Nations' Oil-or-Food Programme" under Saddam Hussein the "largest financial fraud in human history," which "affected the very lives and health of the Iraqi people."

The U.N. Security Council set up the oil-for-food program by resolution on April 14, 1995 to alleviate civilian suffering caused by international economic sanctions against Iraq. The program permitted the sale of Iraqi oil to raise money to buy humanitarian goods for the Iraqi people.

But the Saddam Hussein regime, with the participation of thousands of corporations and prominent international politicians, diverted billions of dollars in cash, goods, and services from their humanitarian purposes. The extent of the corruption was outlined in multiple U.N. Reports led by U.N. investigator Paul Volcker.

(Benon Sevan, the former director of the Oil-for-Food Programme, was suspended in 2005 for his role in the fraud. The Volcker Report concluded that he had accepted bribes from the former Iraqi regime.)

Chevron, one of the defendants sued by Iraq, agreed in 2007 to pay $30 million to settle SEC charges of improper payments under the oil-for-food program.

In its original complaint, Iraq said that "Without the defendants' knowing participation, the former Hussein Regime's corruption of the OFFP would not have been possible."

The defendants included major oil, pharmaceutical, automobile and electronics corporations, including Daimler-Chrysler, Eli-Lilly Export, GlaxoSmithKline, Ingersoll-Rand, Kia Motors, Renault Trucks, Siemens of France and Volvo Construction Equipment.

In his March 3 ruling, Stein acknowledged that vast abuses plagued the oil-for-food program, but found that the ones Iraq alleged were not relevant.

"The Programme, which ceased in 2003, did not perform as intended," Stein agreed, but added, "The Republic's complaint alleges a litany of abuses, the substance of which is not relevant to these motions."

Stein wrote that Iraq, as a self-described third-party beneficiary to the agreement, had no contract with BNP Paribas, which operated the escrow account for the oil-for-food program's pursuant to a contract between its corporate predecessor and the United Nations.

"There is simply no 'clear and unmistakable evidence from the arbitration agreement' that the Republic and BNP agreed to arbitrate the issue of whether their dispute is arbitrable for the simple reason that there is no contract between them. Nor can it be said that the Banking Agreement between BNP and the United Nations 'clearly and unmistakably' provides for arbitral resolution of arbitrability disputes with third parties. That contract's arbitration provision contains not a single mention of the Republic or of third-party beneficiaries in general," Stein wrote.

Attorneys representing Iraq did not immediately respond to phone and email inquiries for comment.

Two previous, related cases in which Iraqi citizens sued BNP Paribas and others for abuses stemming from the Oil-for-Food Program have been unsuccessful.

U.S. District Judge Gerard Lynch ruled in September 2008 that the two lawsuits from different groups of Iraqi citizens against BNP Paribas and others lacked standing in New York Federal Court.

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