Weir caught up in scandal over oil-for-food kickbacks in Iraq

The engineering company Weir Group shocked the City yesterday by admitting it might have been caught up in an international scandal about alleged kickbacks paid to Saddam Hussein's regime under the United Nations' oil-for-food programme in Iraq.

The company was forced to issue a statement admitting that earlier denials about being involved in the row over illegal payments may not have been true. Weir, which counts the former Nato secretary general, Lord Robertson of Port Ellen, as a non-executive board member, said it had now carried out an internal investigation which revealed it made £4.2m of irregular payments to an unnamed agent who arranged 15 contracts for work to Iraq.

Weir said in a statement: "The investigations have not been able to establish the ultimate recipients of the payments to the agent. Therefore the group cannot rule out the possibility that the sums may have been returned to Iraq."

Sir Robert Smith,the chairman of the Glasgow-based company, added: "It is most regrettable that previous statements, while made in good faith, were incorrect. Shareholders can be assured the board will take whatever actions are necessary to address ... concerns identified by the investigations." Weir's shares fell 5.25p to 276.5p.

Weir has now hired the City law firm Herbert Smith to delve more deeply into the situation. Weir said it would not know exactly what had happened to the payments until that inquiry was complete, which is likely to be in a number of weeks.

So far, Weir - an expert in sewage plants and plants for oil pipelines - has discovered that its subsidiary in the United Arab Emirates, Wesco Dubai, paid the extra money to an agent in the field, on top of normal commissions. Controversy has engulfed the defunct oil-for-food programme, set up by the United Nations to shelter ordinary Iraqis from the worst hardships of sanctions by providing food, medicines and other goods paid for by oil sales.

Under the scheme, the Iraqi regime was allowed to sell oil worth about $47bn (£25.5bn) in return for food and other humanitarian supplies. Baghdad is believed to have received millions of dollars in bribes. It was reported in May that Weir was one of hundreds of companies alleged to have made illicit payments, according to a Pentagon report. The US General Accounting Office has said Saddam raised $4.4bn by imposing oil surcharges and commissions.