February 3, 2005
by Claudia Rosett
The interim report on the United Nations' scandal-wracked oil-for-food program is to be released today, according to the U.N.-authorized Independent Inquiry Committee, led by a former Federal Reserve chairman, Paul Volcker.
With controversy swirling around the U.N.'s relief program for Saddam Hussein's Iraq, Mr. Volcker's interim report will offer the first findings of this investigation, authorized last March when Secretary-General Annan, after a long bout of stonewalling, finally conceded that there might have been quite a lot of "wrongdoing" under the oil-for-food program.
By now, the credibility of both the U.N. and Mr. Volcker are on the line. From some of the eight or more other investigations currently under way into the oil-for-food program have already come reports of billions grafted out of relief funds by Saddam under U.N. oversight, allegations of complicity and even graft among the world body's own officials, calls from a number of members of Congress for Mr. Annan to resign, and last month's plea bargain by a naturalized American businessman, Iraqi-born Samir Vincent, who has admitted to taking millions from Saddam in exchange for lobbying U.N. and American officials to mitigate or lift U.N. sanctions imposed on Iraq from Saddam's invasion of Kuwait in 1990 until his overthrow in 2003.
Mr. Volcker has for months now been telegraphing the gist of this interim report, along the way defusing a certain amount of potentially explosive material. In early January, his committee leaked word that there would be "no smoking gun" - just before releasing 55 previously secret U.N. internal audit reports and three summary reports on the oil-for-food program that documented waste, mismanagement, and violations of U.N. procedure by the U.N.'s own secretariat. In a series of statements in recent months, Mr. Volcker has suggested that Mr. Annan's secretariat bore no significant responsibility for the oil smuggling that by the estimates of Senate investigators accounted for more than half of Saddam's $17 billion in illicit income during the oil-for-food era, between 1997 and 2003. For example, in an interview aired in December by the U.S.-based Arabic-language TV station Al Hurrah, Mr. Volcker said, "The big figures that you see in the press, which are sometimes labeled oil for food - the big figures are smuggling, which took place before the oil-for-food program started and it continued while the oil-for-food program was in place."
All of which raises a number of questions to which close watchers of this scandal will be looking in the interim report.
One is whether Mr. Volcker, who has promised a "considered answer" to how well the United Nations's auditing process worked, will explain why he does not regard the U.N. audits in themselves as a whole battery of smoking guns, detailing as they do a program that involved, according to a briefing paper released by Mr. Volcker himself last month along with the audits, "many instances of shortcomings in management and control procedures, violations of U.N. procedures, verifiable monetary losses, agreements to implement recommendations that were chronically violated, and other serious irregularities."
In this program, publicly praised by Mr. Annan when the U.N. role came to an end in November 2003, it appears that for critical aspects of the program, such as the oil and relief contracts, there were no systematic audits at all. Many will be looking to see whether, or how, Mr. Volcker will explain how it happened that the U.N. external audits, performed by a revolving trio of U.N. member states and chaired during the final year of Saddam's regime by France, evidently failed to stop or even expose the grand-scale corruption that dogged the program.
There is also the question of whether Mr. Annan himself had enough hands-on involvement with oil for food to have spotted abuses within the program. Since the scandal broke, following the fall of Saddam in 2003, Mr. Annan has professed himself surprised. So many will be watching to see whether Mr. Volcker takes into account such U.N. records as Mr. Annan's own report to the Security Council, dated March 10, 2000, which tells a different story.
By the time of that report, midway through the program, Saddam's corruption was rampant, but Mr. Annan made no mention of it. Instead, he wrote at length about his close supervision of oil for food, which in 1997 he had consolidated into the Office of the Iraq Program, reporting directing to him. Mr. Annan said he had directed oil for food "to serve as a focal point for tracking and coordinating" everything from the relief goods, funds, and contract approvals to "the processing of letters of credit, procurement, delivery, authentication and quality checks performed by the independent inspection agents at points of entry, as well as the distribution of supplies in Iraq." Mr. Annan went on to write: "I have kept under constant review the implementation of my recommendations to the Council and its Committee and to the Government of Iraq. I have also monitored the directives addressed to the Office of the Iraq Programme as well as those addressed to other Secretariat departments and agencies."
The matter of Saddam's oil smuggling raises yet more questions. Both Mr. Annan's staff and Mr. Volcker, in taking the line that smuggling fell outside the purview of oil for food, have evidently failed to review the U.N.'s own records. To smuggle billions worth of oil, Saddam had to first be able to produce it. And it was none other than Mr. Annan who, from 1997 on, went repeatedly to bat before the Security Council to argue that Saddam should be allowed to import oil equipment and expand production. Mr. Annan's argument over and over, as he said in a letter dated April 15, 1998, to the Security Council, was that Iraq's oil industry was in "a lamentable state," and that unless the Security Council approved Mr. Annan's recommendation that Saddam be allowed to refurbish his oil infrastructure, it was doubtful that Iraq would be able to produce even enough oil to pay for relief purchases approved under oil for food.
When Mr. Annan became secretary-general in January 1997,oil for food was a temporary program, allowing Saddam to sell limited amounts of oil strictly to buy relief supplies for the people of Iraq, with no provision for oil parts. By 1999, Mr. Annan's recommendations to the Security Council had resulted in more than $1.2 billion a year in oil-for-food income pouring, with U.N. approval, into investments in Saddam's oil production. This oil-for-food investment policy coincided precisely with the huge rise in Saddam's oil smuggling, between about 2000 and 2002, shortly before Saddam's overthrow by coalition forces in 2003.
This oil-for-food inflection point, marking a huge up tick in Saddam's illicit fortunes, turns up clearly not only in the findings of Charles Duelfer's Iraq Survey Group report, released last fall, but also in estimates released last October by investigators for Senator Coleman's permanent subcommittee on investigations. By calculations of the Senate investigators, Saddam during the entire period of sanctions, from about 1991 through 2003, smuggled out an estimated $13.6 billion worth of oil via neighboring countries such as Syria, Jordan, Turkey, and Iran. But it was during the oil-for-food era, covering the years between 1997 and 2003, that this smuggling hit its peak, averaging $1.6 billion a year, or more than double what it was in the era between 1991 and 1996, before oil for food, and before Mr. Annan's push to revive Saddam's oil production.
It might be argued that Mr. Annan in gauging the needs of Saddam's oil industry, relied on the findings of oil experts provided by a Dutch company, Saybolt Nederland BV, which also handled the inspection of oil exports under the U.N. program. But this leads back to the questions raised by the audits, of how well Mr. Annan actually managed the program he claimed he was so carefully monitoring. Among the audits that Mr. Annan refused to release to Congress - until Mr. Volcker released them last month - was one of the Saybolt contract. The auditors noted that "No procedures had been established to monitor the services of the Contractor," and the oil-for-food office "had not been scrutinizing the curriculum vitae of the Contractor's staff effectively, even though they are required to do sounder the Contract."
Yet another intriguing subject is the question of how much of the money that flowed into the oil-for-food program was spent on U.N. administration and oversight. The official figure to date is that from oil sales totaling about $64 billion, the U.N. secretariat collected 2.2%, or about $1.4 billion, which went to cover U.N. costs for overseeing the relief program; plus another 0.8%, or about $500 million, went to pay for weapons inspections (though for four of the seven years of oil for food, there were no weapons inspections).
According to a document seen recently by this reporter, the United Nations may have collected more than that. In a memo dated April 25, 2003, just after the fall of Saddam, the oil-for-food program executive officer, Maurice Critchley, informed U.N. agencies operating in Iraq that funding for some of the relief operations would be provided "at a standard 7% of programme delivery," which would be charged against the funds earmarked for humanitarian goods. So out of the money meant to help the people of Iraq, how much did the world body actually collect for itself - 2.2%, or another 7% on top of that?
Further questions range from how the secretary-general apparently failed to discover that his own son, Kojo Annan, was receiving payments for the duration of the program from a key oil-for-food contractor, Cotecna Inspection Services SA, to why the U.N. failed to audit more than $100 billion worth of letters of credit handled by the oil-for-food program's chief banker, BNP Paribas, which might have disclosed links to the front companies that were an integral part of oil-for-food corruption.
Finally, there is the question of why Mr. Annan to this day has refused to open the United Nations' books. In a speech delivered Tuesday, an American assistant treasury secretary, Juan Zarate,(who has been leading one of the hunts for Saddam's secret assets), referred to the "sham contracts, kickbacks, falsified export documentation, and money laundering designed to deceive U.N. inspectors and deliver, among other things, missile components, surveillance equipment, and tank barrels to the former Iraqi regime."
Mr. Zarate added, "This abuse of the international financial system and of the OFF [oil-for-food] program allowed the arming and enrichment of the Hussein regime. It may also now be part of the financial backing that now fuels the Iraqi insurgency and terrorism inside Iraq."
As Mr. Volcker's committee prepares to release its interim report tomorrow, the big question is not only what went wrong under oil for food, but what's wrong with the organization that spawned such a program.
This article appeared in the New York Sun on February 2, 2005.
Claudia Rosett was formerly an adjunct fellow with the Hudson Institute.
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