Long before Libor, a U.S. senator reportedly once called the United Nations Oil-For-Food Program "the biggest financial scandal ever." But unlike other big financial scandals, plaintiffs lawyers haven’t been able to make much hay out of the U.N. program’s collapse.
In a 49-page decision issued on Wednesday, U.S. District Judge Sidney Stein in Manhattan dismissed five-year-old claims brought on behalf of the Republic of Iraq against more than 90 companies that participated in the oil-for-food program, which allowed Iraq to sell oil to the world in exchange for food and medicine for Iraqi citizens. The program was dismantled in 2003, amid claims of widespread corruption that were largely borne out by subsequent U.N. and U.S. investigations.
Stein concluded Wednesday that Iraq doesn’t have standing to sue because it’s partly responsible for the wrongdoing alleged in the complaint. He also rejected Iraq’s bid to avail itself of the Racketeering Influenced and Corrupt Organizations Act and the Foreign Corrupt Practices Act. RICO doesn’t apply to extraterritorial conduct, Stein ruled, and the FCPA is not a private cause of action.
Houston-based plaintiffs lawyer Mark Maney brought the case in 2008, and later enlisted the help of Bernstein Liebhard in Manhattan. They alleged that dozens of companies, including Chevron Corp. and Siemens AG, participated in a kickback scheme organized by Saddam Hussein. By pricing its oil below market price and overpaying for food and medicine, the Hussein regime allegedly generated hundreds of millions of dollars in cash for itself. In exchange for their cooperation, companies supposedly got side payments in the form of surcharges. The complaint alleged violations of RICO, the FCPA, as well as state law fraud claims.
The complaint also alleged that BNP Paribas SA manipulated the escrow account for the oil-for-food program, and, in doing so, committed wire fraud and mail fraud. In a sign of how seriously BNP took the charges, it hired Washington, D.C., defense heavyweight Robert Bennett of Hogan Lovells to fight the accusations.
Stein spotted so many potential hurdles facing the plaintiffs–the political question doctrine, the parens patriae, doctrine, the in pari delicto doctrine–that his decision reads like a really good response to a law school issue-spotter.
Ultimately, he found that because Hussein’s acts were carried out in Iraq’s name, the Republic doesn’t have standing to sue for injuries to its people, although it does have standing to sue over harm to the BNP escrow account. "[T]hat government, however deplorable it may have been, represented Iraq and its acts, however allegedly depraved, are attributable to the sovereign," he wrote.
After addressing standing, Stein dismissed the RICO claims on the grounds that Iraq participated in the alleged wrongful conduct. Turning to the FCPA, he wrote that the plaintiffs "point to no jurist–of any court–who has concluded" that the anti-bribery statute offers a private right of action. Finally, Stein refused to exercise jurisdiction over Iraq’s remaining state law claims.
"I thought it was a very thorough and thoughtful decision, and clearly correct," Bennett said Wednesday afternoon. "I’m obviously very pleased." Bennett argued for BNP at a hearing on the defendants’ motion to dismiss in October. Brant Bishop of Kirkland & Ellis, which represents units of Siemens AG and ABB AG, argued for all the defendants.
Counsel for Iraq, Mark Maney of Maney & Associates and Christian Siebott of Bernstein Liebhard, were not immediately available for comment.
Correction: An earlier version of this story incorrectly reported that Kirkland partner James Gillespie argued for the defendants at the Second Circuit. In fact it was Brant Bishop. We regret the error.
