Caught Between Saddam And Uncle Sam

Beginning in the early 1980s, the U.S. government encouraged American companies to do business with Iraq as part of a broader policy to aid Saddam Hussein in his war with Iran. But after Iraq invaded Kuwait, the companies were suddenly left with billions in unpaid bills. Even if Iraq had agreed to pay up, U.S. sanctions barred the companies from collecting on goods shipped or services rendered to Iraq before the August, 1990, invasion.

Now, those companies are accusing the Bush Administration of betraying them--again. They say the U.S. has failed to make good on promises to set up a compensation system funded with the $1.3 billion in Iraqi assets that were frozen under the wartime sanctions.

PROMISES, PROMISES. Some companies are waging their battle in the federal courts, where they are arguing that they should be paid from the pool of frozen Iraqi assets. But both the State Dept. and the Treasury Dept.'s Office of Foreign Assets Control (OFAC), which handles the money, are vigorously trying to block the payments. "We think we've had a very raw deal from the U.S. government in multiple respects," says Raymond J. Roberts, president of Consarc Corp., a Rancocas (N.J.) engineering company that filed one of the suits.

Administration officials say deserving U.S. companies will get paid--but not just yet. OFAC Director R. Richard Newcomb says his aim is an orderly and fair resolution of claims. OFAC has about 1,100 claimants seeking a total of $6 billion--far more than the $1.3 billion in frozen funds available.

Meanwhile, U.S. companies are upset by a payment that did sail through OFAC. The Treasury office allowed the U.S. Agriculture Dept. to issue $416 million to Bahrain-based Gulf International Bank--a big lender to Iraq before the invasion. The money, which honored USDA loan guarantees, came from Agriculture funds, not the OFAC pool.

But the payment is controversial. OFAC has argued in the suits that the Iraqi sanctions bar transfers of cash if the Iraqi government has any interest in the money. And when the $416 million was paid out, Gulf was 10.45% Iraqi-owned. That sparked a Mar. 30 inquiry by Senate Agriculture Committee Chairman Patrick J. Leahy (D-Vt.). Agriculture responded a month later, noting that Gulf's board had extinguished Iraq's interest on Apr. 22. Both Agriculture and Newcomb have noted that OFAC determined in August, 1990, that Iraq's minority stake did not give it "ownership or control" over Gulf.

Consarc attorney Neil E. McDonell says that's not good enough. He says the money, at a minimum, should have been paid into a frozen account. Congress also has doubts about the payouts. The House Banking Committee on Aug. 12 subpoenaed documents from Gulf regarding its Iraqi ownership. And the Senate Agriculture Committee is probing the transfer. Says Leahy: "We're continuing to investigate the legality and propriety of USDA's payments to GIB."

COURT ADVANTAGE? No wonder U.S. companies are looking to the courts. In September, 1990, Consarc sued an Iraqi ministry and bank over the busted sale of four industrial furnaces. After the Iraqis failed to appear in court, U.S. District Court Judge Stanley Sporkin awarded Consarc $64.1 million. Rejecting Administration pleas, the judge in August, 1991, affirmed the award. He also barred OFAC from transferring to third parties $6.4 million in frozen funds that Consarc is entitled to. OFAC is appealing.

In another case, Centrifugal Casting Machine Co. in Tulsa sued Iraq and others for access to $2.7 million--downpayment for machinery made under a letter of credit issued by the Central Bank of Iraq. The case was settled, and the district court ordered the money disbursed over OFAC's objections. In June, a federal appeals court affirmed the order. The U.S. has declined to appeal.

Until recently, Iraq hasn't shown up in court, allowing the companies to win judgments by default. That's changing. In April, 1991, First City, Texas-Houston won a $53.2 million default judgment for unpaid loans. It's now seeking a partial payment of $21 million in frozen assets. In a hearing set for Aug. 21, Edward L. Powers, a lawyer representing Iraqi-controlled Rafidain Bank, will seek to void the judgment. Powers says that Iraq has up to now ignored the claims against it because it had more pressing concerns--and didn't think the suits would hold up.

Some lawyers are telling clients not to sue--that they'll do better waiting for OFAC to set up a claims procedure. Says Washington lawyer Joseph P. Griffin: "Our view is: Why spend all this money to fight the U.S. government?" Then again, it could be some wait: The U.S. still hasn't released all of the funds frozen during the Korean conflict.

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