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- Background to and History of the Application
- Paras 48 and 49, FA, p20.
- Clawbacks, kickbacks and retroactive pricing
- Kickbacks have been a hallmark of trade with the regime of Saddam Hussein since its grasp of power in the late 1970s.
- Glencore International AG (Glencore)
- Glencore through its own Swiss-based company
- Specific Reference to South Africa
- Mr Majali described himself as an
- Advisor to the President of South Africa
- [p107 of the IIC Report, p347(e) of the papers]
- [p108 of the IIC Report, p347(f) of the papers]
 IN THE HIGH COURT OF SOUTH AFRICA /ES
(NORTH GAUTENG HIGH COURT, PRETORIA) CASE NO: 2263/06 DATE: 30/7/2009 REPORTABLE
M & G MEDIA LIMITED 1ST APPLICANT FERIAL HAFFAJEE 2ND APPLICANT STEFAANS BRUMMER 3RD APPLICANT SAM SOLE 4TH APPLICANT AND
THE PUBLIC PROTECTOR RESPONDENT 
JUDGMENT POSWA, J Parties [1] The first applicant is a company that publishes the Mail & Guardian newspaper and the Mail & Guardian 0nline. It will, from time to time, be referred to also as the Mail & Guardian. The second applicant is an adult female who was, at all relevant times, employed as the editor of the Mail & Guardian at all relevant times. The third and fourth applicants were, at all relevant times, journalists employed by the Mail & Guardian. The deponent to the founding affidavit states that he and the fourth applicant "were primarily responsible for researching and writing the articles that [as will later appear in this judgment] were published in the Mail & Guardian and which led to the respondent's investigation and the report [which will later be referred to in the judgment] that forms the subject-matter of this application." The respondent is a Public Protector appointed in terms of s.1(a) of the Public Protector Act 23 of 1994 ("the Public Protector Act"), read with s.181 and 193 of the Constitution of the Republic of South Africa, 1996 ("the Constitution"). Background to and History of the Application [2] It is, in my view, essential for a proper understanding of this application that a brief background and history of events preceding it be stated. The United Nations Security Council's concerns about and reaction to Iraq's invasion of Kuwait in August 1990 [3] Information on which the background and history of this application (with regard to this subheading) is based is in annexures "SB12" to "SB21", referred to in paragraphs 47 to 58 of the applicants' founding affidavit. The respondent, in paragraph 42.1 of his answering affidavit [p745], states, with regard to these paragraphs: "I do not have personal knowledge of the averments made in these paragraphs. For the purpose of the presentation I do not dispute them." (Emphasis added.) The following is a list of what emerges from these annexures ("SB12" to "SB21"): 1. 0n 2 August 1990, 6 August 1990 and 9 August 1990, respectively, the Security Council passed resolutions with regard to the situation between Iraq and Kuwait. In Resolution 60 (1990), of 2 August 1990, the Security Council commented as follows: "Alarmed by the invasion of Kuwait on 2 August 1990 by the military forces of Iraq …" It then sets out what the Security Council had resolved. In Resolution 661 (1990), of 6 August 1990, the Security Council reaffirms Resolution 660 (1990) and further resolves in respects set out therein. It makes various decisions, the net effect whereof to restrict relations between UN member-states and the government of Iraq to affairs that were "exclusively for strictly medical or humanitarian purposes and, in humanitarian instances, foodstuffs". Even non-member states were, in paragraph 5 of Resolution 661 (1990), called upon to join UN member-states and "to act strictly in accordance with the provisions of the present resolution notwithstanding any contract entered into or licence granted before the date of the present resolution". The Security Council then- "6. Decide[d] to establish, in accordance with rule 28 of the provisional rules of procedure, a Committee of the Security Council consisting of all the members of the Council, to undertake the following tasks and to report on its work to the Council with its observations and recommendations: (a) To examine the reports on the progress of the implementation of the present resolution which will be submitted by the Secretary-General; (b) To seek from all States further information regarding the action taken by them concerning the effective implementation of the provisions laid down in the present resolution;" The Resolution went on to set out further decisions designed for ensuring strict compliance with the embargo on Iraq. 2. After almost six years, on 14 April 1995, the Security Council relaxed its embargo on Iraq previously imposed by Resolution 661 (1990). The relevant portion of Resolution 986 (1995), of 14 April 1995, reads: "The Security Council, … 1. Authorises States, notwithstanding the provisions of paragraphs 3(a), 3(b) and 4 of resolution 661 (1990) and subsequent relevant resolutions, to permit the import of petroleum and petroleum products originating in Iraq, including financial and other essential transactions directly relating thereto, sufficient to produce a sum not exceeding a total of one billion United States dollars every 90 days for the purposes set out in this resolution and subject to the following conditions: …" (Emphasis added.) It is not necessary to repeat those conditions for purposes of this background. 3. A United Nations program to implement the provisions of Resolution 986 (1995) was named the 0il-for-Food Program ("OFF"), effective from 1996. According to the OFF, Iraq was permitted to sell crude oil, to cater for the humanitarian needs of the people of Iraq. 4. The Security Council and the Government of Iraq signed a Memorandum of Understanding, on 20 May 1996, "on the implementation of Security Council resolution 986 (1995) of 14 April 1995" ("SB40"). According to the OFF program, Iraq was entitled to select companies and/or persons to whom it would make allocations of crude oil, subject to UN oversight. The Memorandum of Understanding set out the terms and conditions under which the Iraqi State 0il Marketing 0rganisation ("SOMO") would contract with such companies or individuals, having sought UN approval in accordance with rules set out in the Memorandum of Understanding. [Paras 48 and 49, FA, p20.] 5. It is the UN's view that, because the OFF program was not destined to benefit the Iraqi regime, the government of Iraq found ways of benefiting itself out of the OFF program. It used a system of clawbacks, kickbacks and retroactive pricing. The latter system is described in detail at pp12-14 of "SB15" [pp240 269(e)], which is titled "SOURCES OF REVENUE FOR SADDAM & SONS". As stated in earlier reports, even large western governments were involved in this practice of undermining the OFF program. In that regard, I quote the following under a heading titled "Clawbacks, kickbacks and retroactive pricing": "A kickback is the payment of a minor portion, usually five to ten percent, of the price of a good by one party in a transaction with another. It is a form of bribery or extortion that is tolerated by the party making the kickback so as to clinch a deal. The recipient is usually a government official in position to either block or facilitate the transaction. Kickbacks have been a hallmark of trade with the regime of Saddam Hussein since its grasp of power in the late 1970s. While the practice has usually been associated with weapons procurement, it was also a regular feature of the Reagan administration's agricultural support program to Iraq, as administered by the US Department of Agriculture's Commodity Credit Corporation (CCC)." 6. "SB15" lists a number of instances where the Iraqi government is said to have made attempts to obtain the UN approval of various sales of Iraqi oil at "prices below the market trade", which attempts were always turned down by the UN. There is reference to, for instance, an arrangement between the Iraqi and Syrian governments, in terms whereof: "the Iraq-Syrian pipeline had begun carrying Iraqi oil for the first time in nearly 20 years, meaning that Iraq had another potentially lucrative market for its production. Because the Syria-bound oil was and is sold outside of the 0il-for-Food program, the proceeds from these sanctions-busting sales bypass the UN's BNP bank account and go straight into Iraqi coffers." 7. A major occurrence in this regard, which is aptly summarised in paragraph 52 of the founding affidavit, took place at the beginning of January 2004: "52. An Iraqi newspaper, Al Mada, published a report on 25 January 2004 to the effect that the former Iraqi regime had bestowed lucrative crude oil allocations under the OFF on certain parties in exchange for support for the regime. Copies of the relevant pages of Al Mada are attached as 'SB16'. They are written in Arabic but a copy of a translation by the Global Policy Forum is attached as 'SB17'. Annexure SB13 alleges that the OFF was corrupt. [I could not find this allegation in SB13.] Al Mada published a list of allocation recipients under the OFF. This list included Imvume (called 'Infiom Management/Sandy Majali') and Montega Trading (Pty) Ltd ('Montega'), another company associated with Majali (referred to as 'Montica')." 8. The allegations or assertions by Al Mada (in "SB17") sparked an international outcry and aroused the UN's vigilance and circumspection about the alleged abuse of the OFF program by the Iraqi Government, in conjunction with other countries or individuals from other countries. The Independent Inquiry Committee ("the IIC"), which was formed to inquire into the performance of the United Nations 0il-for-Food program, was, in April 2004, "charged by the Secretary-General and the Security Council with the task of thoroughly reviewing the management of the United Nations 0il-for-Food Programme". That report is titled "The Management of the United Nations 0il-for-Food Programme". 0n 27 0ctober 2005 the IIC produced another report on "Manipulation of the 0il-for-Food Programme by the Iraqi regime" [pp327 355(d) of the papers] 9. In a chapter headed "Summary of Report", the following is stated (at page 1 of the 0ctober, 2005 IIC Report), [p334 of the papers]: "Today, the Independent Inquiry Committee ('the Committee') issues its fifth and final substantive report concerning the United Nations 0il-for-Food Programme ('the Programme'). This Report illustrates the manner in which Iraq manipulated the Programme to dispense contracts on the basis of political preference and to derive illicit payments from companies that obtained oil and humanitarian goods contracts. Today's Report complements the Committee's recent report addressing the adequacy of the Programme's management by the United Nations. Under the Programme, the Government of Iraq sold $64.2 billion of oil to 248 companies. In turn, 3,614 companies sold $34.5 billion of humanitarian goods to Iraq. Beyond the narrative set forth in this volume, the Committee releases today a set of eight comprehensive tables identifying contractors under the Programme and other actors of significance to Programme transactions (such as non-contractual beneficiaries of Iraqi oil allocations and parties that financed oil transactions). These tables can be accessed at the Committee's website: … Several of the tables identify specific illicit payments made in connection with oil and humanitarian contracts under the Programme. 0il surcharges were paid in connection with the contracts of 139 companies, and humanitarian kickbacks were paid in connection with the contracts of 2,253 companies. The tables identify whether and, if known, how much was paid to the Government of Iraq with respect to particular Programme contracts. The principal basis for this illicit payment data is information received from various ministries of the Government of Iraq, as well as data retrieved from numerous banking institutions and, in some cases, from the company contractors themselves. A preface to the tables explains the basis for the Committee's calculations. The Committee emphasises that the identification of a particular company's contract as having been the subject of an illicit payment does not necessarily mean that such company – as opposed to an agent or secondary purchaser with an interest in the transaction – made, authorised or knew about an illicit payment." (Emphasis added.) 10. In this 27 0ctober 2005 Report, the IIC recaptures the situation with regard to the Program as follows: "Following six years of international economic sanctions, Iraq resumed its export of crude oil in December 1996 under the 0il-for-Food Programme. Under the rules of the Programme, Iraq was free to sell its oil so long as it was sold at what the United Nations decided was a fair market price and the proceeds of each sale were deposited to a UN-controlled escrow account to be used only for humanitarian and other purposes allowed by the Security Council. It was a basic assumption of the Programme that Iraq – not the United Nations – would choose its oil buyers. Yet the decision to allow Iraq to choose its buyers empowered Iraq with economic and political leverage to advance its broader interest in overturning the sanctions regime. Iraq selected oil recipients in order to influence foreign policy and international public opinion in its favor. Several years into the Programme, Iraq realised that it could generate illicit income outside of the United Nations' oversight by requiring its oil buyers to pay 'surcharges' of generally between ten to thirty cents per barrel of oil. …
Iraq's attempt to impose a fifty-cent surcharge rate at the end of 2000 sparked a crisis in the market for Iraqi crude oil as the United Nations oil overseers warned traders and companies that such payments were illegal. After many of Iraq's regular customers balked at buying Iraqi oil, a group of four oil traders took a much greater role in the market during Phase IX of the Programme from December 2000 to July 2001. These four companies were Bayoil Supply & Trading Limited ('Bayoil'), the Taurus Group ('Taurus'), Glencore International AG ('Glencore'), and the Vitol Group ('Vitol'). All four had had limited access to direct contracts under the Programme, and had used intermediaries to maintain their access to Iraqi crude. In Phase IX, these companies purchased crude oil through intermediary entities: … Glencore through its own Swiss-based company, …" (Emphasis added.) (I have omitted the remaining details with regard to the other three companies because, as will later appear in the judgment, it is only Glencore that is of relevance to this application.) Specific Reference to South Africa 11. The IIC devoted ten pages of its 27 0ctober 2005 report, on Programme Manipulation, to Mr Sandi Majali, Montega Trading (Pty) Ltd ("Montega") and Imvume Management (Pty) Ltd ("Imvume") of South Africa. In the very first paragraph of the report in this regard, the following adverse statement is made: "0ne example in the Programme of exploitation of the symbiotic relationship between a country's closely aligned political and business figures and the Government of Iraq, is that of Montega Trading (Pty) Ltd ('Montega Trading') and Imvume Management (Pty) Ltd ('Imvume'). As described below, the principals of these two companies used their relationships with South African political leaders to obtain oil allocations under the Programme. Throughout the Programme, South Africa and Iraq were actively developing business and political ties. In late November 1999, South Africa's Deputy Foreign Minister Aziz Pahad led a delegation of 30 South African companies with interests in oil, electricity, and other sectors to Iraq. 0ne purpose of the visit was 'to expose South African businesses with already established interests in the so-called "oil-for-food" programme with Iraq to the processes involved in winning such UN-approved contracts.' Deputy Prime Minister [of Iraq] Tariq Aziz and other Iraqi officials were also interested in gaining the political support of South Africa and its leaders. At the time, South Africa chaired several influential political alliances. South African President Thabo Mbeki was Chair of the Non-Aligned Movement ('NAM') and had been the President of South Africa's ruling party, the African National Congress ('ANC'), sine 1997. He was also Chairman of the African Union. Within weeks after Mr Pahad returned from his trip, Iraq established its Embassy in Pretoria, and, by 2001, Iraq had accredited a full Ambassador to South Africa using Iraqi funds that had been frozen until then. South African officials also pushed to improve trade relations. In 0ctober 2002, the South African Department of Foreign Affairs ('DFA') sent a delegation of senior officials to Iraq. Both sides reportedly expressed satisfaction with the state of relations between their respective countries, which had been boosted by Mr Aziz's then recent visit to South Africa. Later that month, the DFA issued a statement that Mr Pahad would visit Iraq to represent South Africa at the annual Baghdad International Trade Fair in November. During his visit, Mr Pahad reportedly met with Saddam Hussein and conveyed a message to him from President Mbeki. He also met with Mr Ramadan and Mr Aziz, and the Foreign Minister, the Minister of Trade, and the Minister of Electricity. According to the public statement of Mr Pahad, Saddam Hussein told South African officials that he would instruct his ministers to 'observe special care' with respect to economic, technical, and scientific relations with South Africa. Mr Aziz perceived that South Africa could be supportive of Iraq. During his July 2002 official visit of Mr Aziz to South Africa, Mr Aziz attended a farewell dinner hosted by the ANC with members of South Africa-Iraq Friendship Association ('SAIFA') and the business community at the Cabanga Conference Center, which was funded by Imvume, which – as described below – had been purchasing oil from Iraq under the Programme." (Emphasis added.) 12. There is no doubt that the effect of the contents of the section dealing with South Africa is to depict South Africa – acting through the Department of Foreign Affairs and the influential position occupied by its erstwhile President, Mr Mbeki - through also Montega and Imvume, as represented by Mr Sandi Majali and the ANC, through some of its senior officials, such as its erstwhile Secretary-General, Mr Kalema Motlanthe, as corrupt country, with a corrupt President, a corrupt Department, corrupt Cabinet, Ministers and Senior Government officials and a corrupt ANC, the organisation to which the bulk of the members of Parliament and the Cabinet – including the President – belong. 13. Mr Majali is depicted, right through this Report, as having held very high and influential positions in the country. Apart from his position in Imvume, he was the chairperson of SAIFA and a newly-formed South African Business Council for Economic Transformation ("SABCETT"). Initially, Mr Majali received oil allocations from Iraqi through Montega Trading. 0f Montega Trading the following is stated in the Report: "An Iraqi-American, Shakir Al-Khafaji, helped facilitate the granting of oil allocations to Sandi Majali, a self-proclaimed advisor to the ANC and President Mbeki, through his joint venture with Mr Majali and Rodney Hemphill, a South African businessman, called Montega Trading Limited. Mr Al-Khafaji had access to Mr Aziz; indeed, Mr Aziz specifically asked Mr Al-Khafaji to help strengthen the ties between Iraq and South Africa. In December 2000, Mr Al-Khafaji travelled to Baghdad with Mr Majali and Mr Hemphill to meet with Iraqi officials. During their meetings in Iraq, Mr Majali described himself as an adviser to both the ANC and President Mbeki. After several days of meetings, Mr Majali was allocated two million barrels of oil. The SOMO [Iraq's state oil marketing organisation] contract of approval explicitly referenced 'Sandi Majali – Advisor to the President of South Africa.' …
"After the shipping incident, Mr Majali continued to receive oil allocations through a new company, Imvume. Because Montega Trading had failed to pay the outstanding surcharges, SOMO refused to sell oil to Mr Majali in Phase X. When Mr Majali complained to Iraq officials, SOMO was ordered to allocate oil to Mr Majali in Phase XI. Imvume managed to obtain two Iraqi oil contracts in Phases XI and XII." I pause to mention that the parties do not give a history of the relationship between Montega, Imvume and Mr Majali. The only account in this regard is that given above, from the Report. "Prior to the renewal of his oil allocations, Mr Majali had been very involved in strengthening ties between South Africa and Iraq. In September 2001, as Chairperson of both the SAIFA and the South African Business Council for Economic Transformation ('SABCETT'), Mr Majali led a South African delegation to Baghdad, which included officials from the South African Strategic Fuel Fund Association and South African Department of Minerals and Energy. The delegation was involved in discussions on strengthening ties between the ANC and the Iraq Friendship Association and Arab Ba'ath Socialist Party ('Ba'ath Party'), as well as building better oil trade relationships between the two countries. Mr Majali undertook the trip as a recognised representative of the ANC. In a letter to the Iraq Friendship Association, Mr Motlanthe stated that Mr Majali's position as Chairperson of SAIFA had the ANC's 'full approval and blessing'. He also confirmed the ANC's approval of Mr Majali 'as a designated person to lead the implementation process arising out of our economic development programmes.'" [p108 of the IIC Report, p347(f) of the papers] 15. After the meeting in Baghdad, Mr Majali is said to have written two letters, on 20 September 2001, the one being to the President of the Iraqi Friendship Association – Mr Majali writing in his capacity as "Chairman" of SABCETT – and the other, on the Imvume letterhead, to Mr Saddam Z Hassan. In both letters, he was requesting an allocation of 12 million barrels of oil. According to the Report, at p109, p347(g) of the papers, "These increased allocations do not appear to have been granted." In the second letter: "Mr Majali requested allocations of 12 million barrels to be lifted in December 2001 and February 2002, noting that the order for oil 'is required by the South African government for its strategic reserves and … it will be undertaken by Imvume on behalf of the South African Department of Minerals and Energy.' Mr Majali also expressed an interest in attending the conference in Baghdad in support of lifting the Iraq sanctions held in November 2001 and that the 'ANC will be sending a high level delegation.'" (Emphasis added.) 16. From the next excerpt, it appears that Imvume had some difficulties with regard to due diligence during the bidding process. The Report goes as follows: "A couple of months later, Imvume obtained a contract to supply two million barrels of oil to the South African Strategic Fuel Fund Association. This association is responsible for the procurement and management of the strategic crude oil and petroleum products of South Africa. Because of concerns raised during the comprehensive due diligence of Imvume in the bidding process, Glencore sent a letter to the South African Strategic Fuel Fund Association ('SFF') representing that it backed Imvume 'as its strategic partner'. As part of the contract conditions, Glencore was liable for performance of the contract, and Imvume needed approval to lift oil from SOMO by March 2002." 17. The Report proceeds to discuss, in detail, Mr Majali's and Imvume's difficulties in obtaining further oil from Baghdad, in view of the debt owing to Montega, an amount of $464,000. According to the Report – "Mr Majali promised to settle this debt in two installments with the proceeds from the sale of the crude oil that he hoped to get from Iraq. In early March 2002, SOMO confirmed that Imvume had been allocated two million barrels of oil." 18. Although Mr Majali is reported to have explicitly represented, in a letter, "that he would 'undertake to perform [his] obligation accordingly [sic] to SOMO's requirements regarding the return money … for the quantity of 2.0 million barrels,'" he is reported to have denied, during an interview with a representative of IIC on 30 June 2005, "paying surcharges on any oil contracts during the Programme". The Report continues as follows: "He stated that he made his refusal to pay surcharges clear to Mr Aziz. Mr Majali, however, has admitted that he told Mr Aziz that he was unable to pay surcharges unless he was allocated additional oil at a sufficiently discounted price." [Emphasis added.] The implication, as I understand it, is that Mr Majali was not averse, in principle, to paying the surcharges, on his own version, except that he wanted them to be on the basis of an allocation of additional oil at a discounted price. That, of course, does not place him outside the alleged Programme Manipulation that the Report is dealing with which includes South African Cabinet Ministers, senior Government officials and the ANC. Directory: cases -> ZAGPPHC ZAGPPHC -> Republic of south africa in the high court of south africa ZAGPPHC -> In the high court of south africa, gauteng division ZAGPPHC -> Unreportable in the high court of south africa ZAGPPHC -> In the high court of south africa gauteng division, pretoria ZAGPPHC -> Maidson place cc ZAGPPHC -> Not reportable not of interest to other judges ZAGPPHC -> Jerry ofense phale ZAGPPHC -> In the north gauteng high court, pretoria ZAGPPHC -> In the gauteng division high court, pretoria ZAGPPHC -> In the high court of south africa Download 0.49 Mb. Share with your friends:
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