* Total says sought to avoid illegal surcharges on Iraq oil
* Energy says system of middlemen was not known until later
* Total charged with bribery, complicity, and influence peddling
By Chine Labbé and Alexandria Sage
PARIS, Feb 11 (Reuters) - France's Total told a Paris court on Monday that it had taken precautions to avoid illegal payments to the Iraqi government during the U.N. oil-for-food programme, but had been thwarted by an opaque system of middlemen that it only discovered later.
The energy giant, France's second-largest company by market capitalisation, is accused of bribery, complicity and influence peddling at the time of the programme, designed to allow Saddam Hussein's Iraq to buy humanitarian goods through United Nations-controlled oil sales at a time of international sanctions.
The other defendants in the trial include the Swiss oil trader Vitol and 18 individuals including Total's chief executive.
"Our point of view was, 'We won't pay surcharges'," said Total's general secretary, Jean-Jacques Guilbaud, a member of the executive committee who is representing the company in the case.
"In spite of all the precautions, perhaps indirectly, we contributed to surcharge payments," he added.
Total is accused of bribing foreign agents between October 2000 and 2002 and influence peddling and its concealment between 1999-2000.
An independent inquiry led by the former U.S. Federal Reserve chairman Paul Volcker found in 2005 that the 1996-2003 programme had been undermined by kickbacks and payments to prominent individuals with access to Iraqi oil.
Iraq's 2000-2002 policy of levying so-called "surcharges" on each barrel of oil - in general 10 to 30 cents per barrel - put some $228.8 million in the pocket of the government, the report found. Iraq also gave oil allocations to prominent individuals who it hoped would lobby on its behalf to reduce sanctions.
The system was opaque and relied on little-known companies as intermediaries that entered into contracts with Iraq, or political beneficiaries who held oil allocations and subsequently sold oil to traders or oil companies, it found.
An inquiry by French independent investigating magistrates found that of the 37 contracts Total entered into to buy Iraqi oil on the secondary market, 30 had involved surcharges.
Guilbaud argued that Total had put in place a system it believed would protect it from the surcharge system. This involved working only with "serious" intermediaries who could procure Iraqi oil, and adding a clause into contracts that forbade the payment of surcharges.
"What more could we do?" Guilbaud told the three judges and the ornate courtroom filled with black-robed lawyers.
Total, which could be fined up to 1.88 million euros ($2.52 million), has said the charges lack merit. It cites the fact that public prosecutors, who answer to the Justice Ministry, have asked for the case be dropped.
The company has also denied knowing about the illegal allocation system.
"It's a system that wasn't known until the (Volcker) report," said Guilbaud.
Asked by a judge why Total would not have seen that surcharges were included in the prices it paid its suppliers, Guilbaud said all the prices paid matched the market rate.
"It wasn't possible to deduce from these prices that there was a surcharge," Guilbaud said, adding that sometimes Total's own suppliers did not realise that surcharges had been added in.
Last week, Total CEO Christopher de Margerie, who is accused of complicity in the misuse of corporate assets, denied knowing that Total had paid surcharges. ($1 = 0.7474 euros) (Writing By Alexandria Sage; Editing by Kevin Liffey)