Iraq Oil-for-Food Case Kept Down on Appeal

MANHATTAN (CN) - It was Saddam's fault, a divided panel of the 2nd Circuit ruled Thursday, tossing off a case that the Iraqi government filed six years ago against more than 70 corporations over the corruption of the United Nations oil-for-food program.

The U.N. Security Council set up the oil-for-food program by resolution on April 14, 1995, to alleviate civilian suffering caused by sanctions against Iraq. The program allowed the sale of Iraqi oil with proceeds going to buy humanitarian goods for its citizens. 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.

U.N. investigator Paul Volcker outlined the extent of the corruption in multiple reports, leading Iraq to sue the Zurich-based robotics giant ABB AG and dozens of other entities with which it had done business on behalf of its citizens in 2008.

Several entities of BNP Paribas, the French bank that administered the program, were among the defendants that Iraq accused of breach of contract and violations of U.S. anti-racketeering law and the Foreign Corrupt Practices Act.

U.S. District Judge Sidney Stein also blamed Hussein when he threw out the case last year.

"The court concludes that the complaint alleges conduct by the Hussein regime that, as a matter of law, is attributable to plaintiff itself, the Republic of Iraq," he wrote.

Earlier this year, lawyers for Iraq told the 2nd Circuit that Iraq was not at fault because its former dictator had been looking out only to enrich himself.

Saddam's actions were "absolutely for his personal benefit," lawyer Mark Maney of the Texas-based firm Maney & Gonzalez-Felix told the court at the time.

The 2nd Circuit called this argument "meritless" on Thursday.

"We are not persuaded by the republic's argument that, under general principles of agency law, a government's actions should not be attributed to the state it governs when the government abuses its power to contravene the national interest," Judge Amalya Kearse wrote, joined by Judge Ralph Winter.

BNP's attorney Robert Bennett of the Washington-based Hogan Lovells firm said in a phone interview that he was "obviously very pleased" with the decision.

"I believe that the majority got it right," Bennett said. "It is a very carefully written and thorough opinion."

Judge Christopher Droney wrote in dissent that the companies should not be let off the hook for their alleged roles in the corruption.

"The majority identifies no decisions ... in which this principle of state 'responsibility' operates - as it does here - to release a non-state defendant from liability for conduct that was illegal under U.S. law from its inception," Droney wrote.

While the majority found that Hussein pursued what he considered to be a "public goal" of undermining sanctions in order to remain in power," Droney pointed out that his alleged co-conspirators were aligning "directly at odds with U.S. policy."

"The vast scale of the alleged fraud does not render the Republic's allegations any less proper for judicial resolution, and I believe it is more consistent with principles of equity to hold the defendants accountable for their own role than to impute to the plaintiff the wrongdoing of its former authoritarian regime," the dissent states.

Iraq's attorney Maney has not yet responded to a request for comment.

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