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Total, CEO Fight Charges as Paris Oil-for-Food Trial Opens

Total SA and Chief Executive Officer Christophe de Margerie will fight charges stemming from the United Nations oil-for-food Iraq relief program scandal at a trial in Paris.

The program, meant to ease conditions in Iraq after sanctions imposed for its 1990 invasion of Kuwait, was used by Iraqi officials to evade UN limits. At issue in the French trial starting today is whether the defendants, including 18 people and two companies, aided the Iraqis activities and to what degree.

“This trial is a French peculiarity,” said Emmanuel Rosenfeld, de Margerie’s lawyer. France is alone in prosecuting the corruption claims and misinterpreted surcharges, which Total didn’t pay, as bribes, he said.

Total, Europe’s third-biggest oil company, now operates in Iraq’s south and the northern self-ruled Kurdish region, despite friction between the central government and the Kurds over the terms of the energy deals.

The 61-year-old CEO is accused of enabling the misuse of company assets, while Total faces claims including influence peddling. De Margerie faces as many as five years in prison and 375,000 euros ($499,000) in fines and the company as much as 1,875,000 euros in fines, according to the Paris prosecutors.

The other company on trial is Vitol SA.

Volcker Inquiry

The UN program was designed to allow Iraq to sell oil to raise revenue for food and medicine, in short supply due to the sanctions. Under the program purchasers were required to pay the contract price into a UN trust account in New York. Paying surcharges to the Iraqi government was a violation.

In 2005, an inquiry led by former U.S. Federal Reserve Chairman Paul Volcker found that Iraq began the kickback scheme in 1999 and more than 2,200 companies paid almost $1.8 billion to Saddam Hussein’s regime to win contracts. About 60 percent of companies in the program paid surcharges or kickbacks on humanitarian goods for Iraq, according to the report.

Volcker described the oil-for-food operation as flawed from the start because it was a “compact with the devil,” referring to Hussein, overthrown in 2003 in a U.S.-led invasion.

In the French investigation, which began in 2002, Total is accused of paying surcharges through intermediaries in the form of mark-ups over the market price at which Iraq had to sell the oil under the terms of the UN program. Total denies making such payments and wasn’t faulted in the Volcker report.

“No evidence in this case backs up these allegations,” Total said in an e-mailed statement. “When it bought Iraqi oil, the company did it totally legally. All received deliveries were authorized by the United Nations.”

Prosecutor Opposition

The charge against de Margerie, then head of exploration and production for the Middle East, is groundless, Rosenfeld said, and rooted in a 1999 request he received from a lawyer to discuss buying Iraqi oil from a third party. De Margerie referred the lawyer to another Total unit as he wasn’t responsible for purchasing, Rosenfeld said.

The Paris prosecutors opposed putting de Margerie and Total on trial. In France, an investigating judge conducts the probe and decides whether to send a matter to court and can override prosecutors, who still must argue the case at trial.

Vitol will seek to block the trial by disputing the constitutionality of the procedure, said Olivier Metzner, a lawyer for the closely-held oil trader. France lacks jurisdiction to prosecute the Swiss company, which paid $17.5 million in 2007 to settle a New York case over the oil, and he said he will ask the judge to refer the challenge to the French constitutional council.

Other defendants include retired diplomats and French politicians. The trial is scheduled to run until Feb. 20 and a decision may come later in the year.

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