Digging deeper into the scandalous Oil-for-Food program

March 21, 2004, 9:55 p.m.

Turtle Bay’s Carnival of Corruption
Digging deeper into the scandalous Oil-for-Food program

By Claudia Rosett

With United Nations Secretary-General Kofi Annan finally conceding the
need for an independent investigation of the U.N.’s 1996-2003
Oil-for-Food program in Iraq, the next question is how investigators
might begin to get a grip on the U.N.’s central role in this huge

Naturally, the rampant signs of corruption are important, and leads on
graft involving U.N. personnel – including the program’s executive
director, Benon Sevan – need pursuing. If Sevan did receive oil from
Saddam, as it now appears, then the immediate follow-up question is:
What might Sevan have done in return, given his responsibilities for
“overall management and coordinationof all United Nations humanitarian
activities in Iraq”?


It would also be prudent, if only to clear up any doubts, for
investigators to look into the relationship between Annan’s son, Kojo
Annan, and the Swiss-based company, Cotecna Inspection SA, which two
years into the seven-year Oil-for-Food program won a contract from the
U.N. for the pivotal job of inspecting all Oil-for-Food shipments into
Iraq – a responsibility Cotecna hasheld ever since. Kojo Annan worked
for Cotecna in the mid-1990s, a possible conflict of interest which
neither Cotecna nor the U.N. bothered to declare.

A spokesman in Kofi Annan’s office has now offered in Kojo’s defense
that Kojo was no longer in the pay of Cotecna on the day the company
won the U.N.

contract. But the timing was close: Kojo had resigned from a
consulting jobfor Cotecna earlier that same month. According to
Annan’s spokesman, Kojo held a staff job at Cotecna in a junior
position from December 1995 through February 1998. Just two months
later, Kojo reappeared on Cotecna’s payroll as a consultant, via a
firm called Sutton Investments, from April 1998 to December 1998,
resigning from that consultancy just before Cotecna clinched the
U.N. contract on December 31, 1998.

It might all be mere coincidence. Kojo’s recent statements, relayed to
me last Friday by Kofi Annan’s U.N. office, convey that Kojo’s
consulting workfor Cotecna was limited to projects in Nigeria and
Ghana, unrelated to Oil-for-Food. But given the U.N.’s tendency to
take several months to process contracts, and considering that the
U.N. had to review several competing bids, the dates here suggest that
Kojo resigned from Cotecna’s staff only to return as a consultant
during precisely the period in which Cotecna would most likely have
been assembling and submitting its bid for the U.N. job, and the
U.N. Secretariat would have been reviewing the bids. That certainly
warrants attention by an independent panel.

But beyond such specific questions, the larger issue is the U.N. setup
of secrecy and lack of accountability that fostered the Oil-for-Food
fiasco inthe first place. The damage at this point includes Iraqis
deprived of billions of dollars worth of relief, and signs of massive
corruption quite likely involving hundreds of U.N.-approved
contractors in dozens of countries, as well as the U.N.’s own head of
the program, Sevan. An inquiry should also look into the
U.N. Secretariat’s silent assent to Saddam’s efforts to buy political
influence in the Security Council. In this bribe-riddled program,
Saddam tipped vast amounts of business to contractors in such
veto-wielding Security Council member states as Russia, France, and to
a lesser extent, China. In the heated debates over Iraq, leading up to
the beginning of the war last March, Annan brought none of Saddam’s
influence-peddling to public attention, though he had access to
specific information about the huge sums going from Saddam’s regime to
select nations, and the public did not.


Even more disturbing is the $10.1 billion that the General Accounting
Office estimates Saddam Hussein was able to salt away “in illegal
revenues relatedto the Oil-for-Food program.” By GAO estimates,
recently revised upward, Saddam acquired $4.4 billion via kickbacks on
relief contracts and illicit surcharges on oil contracts; plus $5.7
billion via oil smuggling. All this took place under cover of repeated
Oil-for-Food “good housekeeping” seals of approval.The U.S. has so far
located only a small portion of these assets. That leaves billions of
Saddam’s secret stash still out there. The danger is that Baathists,
terrorists (with whom Saddam did indeed have connections), or some
combination of the two, will get to these billions first, if they
haven’t already. It is worth asking if some mix of U.N. secrecy,
incompetence, and corruption may have allowed the accumulation of
money now backing terrorist attacks in Iraq, or elsewhere.

In any event, the first practical step should be to secure the U.N.’s
own records of Oil-for-Food. In Baghdad, Oil-for-Food-related
documents kept by Saddam have already proven a source of damning
information and are under investigation. The Iraqi Governing Council
has already commissioned a report by the private accounting firm KPMG
International, due out in a few months. And U.S.

administrators in Baghdad have now frozen the records there relating
to Oil-for-Food, to help with congressional inquiries in advance of
hearings expected next month.

But at the U.N.’s New York headquarters, not all records have been
rendered up. The U.N. treasurer’s office still controls the
Oil-for-Food bank accounts, held in the French bank, BNP Paribas. And,
the U.N. still has in its keeping all U.N. records of these BNP
accounts, according to officials both in Baghdad and at the U.N.

These accounts are highly relevant to any independent look at the U.N.

itself. As Sevan reminded Saddam’s regime on July 12, 2001, “the
signatories are United Nations staff members.” Through these accounts
passed more than $100 billion in U.N.-approved oil sales and relief
purchases made by Saddam, andtoward the end of the U.N.’s
administration of Oil-for-Food, they held balances of more than $12

Outside the U.N. these bank accounts have long been a source of some

The U.N. has refused to disclose BNP statements, or the amount of
interest paid on those balances of billions. Even such directly
concerned parties asthe Kurdish regional authorities of northern Iraq
– entitled to 13 percent of the proceeds of Saddam’s Oil-for-Food
sales – who for years have been requesting a look at the books, have
received no details.

The U.N. bank records of Oil-for-Food could be especially important in
filling in gaps in U.N. documentation on other fronts. For example,
the U.N.-processed relief contracts were often brief, vague, and in
some cases involved suppliers who could not later be located, as
confirmed both by notes on theU.N.’s own website, and in a phone
interview with officials of the U.S. Defense Contract Management
Agency, which together with the Defense Contract Audit Agency last
summer reviewed hundreds of top-dollar Oil-for-Food contracts, culled
from the thousands still open after the fall of Saddam. The bank
records should at least include full details of all transfers of funds
– the accountswhence they came, and the accounts to which they went.

Why did the U.S. allow the U.N. to keep control of the accounts (and
the records) after responsibility for winding down all other aspects
of the Oil-for-Food program was turned over to the CPA last November?
One CPA official explains that the BNP accounts were left in the hands
of U.N. personnel because the bookkeeping was so Byzantine the CPA
feared any attempt to intervene might interrupt needed deliveries of
relief to Iraq.


It now appears that neither the Iraqi Governing Council nor the CPA
has thus far received a single bank statement from either BNP or the
U.N. treasurer’s office. A frustrated CPA official, connected with the
wrapping-up of some $8.2 billion worth of relief contracts inherited
from the U.N., tells me there has been no answer to his repeated
requests to see current statements: “They never say no, but they never
do it either.” Neither has the Iraqi central bank received any
statements, he adds. For the Iraqis and CPA officials now
administering the remaining contracts in Iraq, this source explains,
there is no way to tell “what activity has taken place” in the BNP
accounts, or “how much money’s left.”

U.N. Treasurer Suzanne Bishopric, reached by phone in New York last
Friday, confirms that she has sent no bank statements either to the
CPA or to the Iraqi Governing Council. As she explains it, “They never
asked me.” Bishopric says that in any case, after the U.N.’s
withdrawal from Iraq following the bombing of the U.N.’s Baghdad
offices last August, she has not been able to deliver current bank
statements because “we have no mechanism to send them.” Asked if it
would not be possible to transmit the statements by fax, email, or
express-delivery service, Bishopric says, “I’m not going there.”
Bishopric further explains that the U.N. does plan to turn over all
the records to the CPA, “with absolutely full disclosure.” Asked why
the delay of many months, she says the U.N. is busy scanning all the
records into computer files, in order to turn over the collected works
all at once. She expects this project will be finished “in a few

Perhaps the U.N.’s delay of almost a year in delivering to the Iraqis
and the CPA any bank statements, either past or current, is simply a
function of the lumbering U.N. bureaucracy. In this CPA-U.N. version
of he-said she-said, it is hard to know whether the U.S. government
failed to deliver to the U.N. the CPA’s request for the information,
or the U.N. received the requests but ignored them.

Either way, two questions leap out. Why should the U.N. records of the
BNP accounts be in a condition such that it is taking months to
assemble and turn them over? And why would the U.N. not forward
regular updates to the CPA now running the program? In the context of
the Oil-for-Food program, so beset by allegations of bribes,
kickbacks, and shady financial dealings that Annan after months of
denials and resistance has finally bowed to demands for an independent
investigation, it would be a lot healthier to have the bank records,
right up to the latest statement, and in whatever condition, turned
over post-haste to the Iraqis, the CPA, and any other authorities who
might be able to preserve them – as they are – until an independent
investigation canbegin.

If the problem is lack of a delivery vehicle, and the more than $1
billion in U.N. administrative fees collected from Saddam under the
Oil-for-Food program have already been used up, it would seem
worthwhile for the U.S. government, on top of its usual
22-percent-or-so contribution to the U.N.’s core budget, to donate to
the U.N. treasurer’s office the cost of express delivery of all
BNP-related documents. Or maybe just back a truck up to the
U.N. loading dock and haul away every last Oil-for-Food-related file
and CD-ROM, right now. Annan, who recently expressed his wish that the
reputation of the U.N. should not be impugned, would surely be glad to


An independent panel will also have to be genuinely independent – not
as defined within the incestuous U.N. Secretariat, but by lights of
the same commercial world in which the U.N. Secretariat ran this
program. There has been much protest by the U.N. that Oil-for-Food was
the most audited U.N. program ever.

Back in 1995, in U.N. Resolution 986, authorizing Oil-for-Food, the
Security Council asked the Secretary-General to hire “independent and
certified public accountants” to audit the program’s bank accounts and
“to keep the Government of Iraq fully informed.” These are the same
escrow accounts on which the U.N., post-Saddam, has kept all the
records and statements to itself.

According to the U.N. treasurer, Bishopric, the auditing of the escrow
accounts was entrusted by the secretary-general to a “board of
auditors” consisting of government agencies of a revolving trio of
member states. There has beenno public disclosure of their
findings. This three-member board of auditors was chaired in 2002 by
the Philippines, and in 2003 by France – home base to BNP.

That may qualify as U.N. in-house supervision, but hardly as an
independent audit.

Yet more “auditing” was carried out by the U.N.’s own Office of
Internal Oversight Services, which is not an independent firm, but a
U.N. agency within the Secretariat, with every incentive to protect in
public the reputation of the same U.N. bureaucracy it is supposed to
be auditing. Nor has this oversight office been forthcoming. Nothing
remotely approaching a full audit report has been released outside the
U.N. According to an adviser to the Iraqi Governing Council, Claude
Hankes-Drielsma, even Saddam’s regime saw little of these
audits. Early in Oil-for-Food, from 1997-1999, they were sent to
Baghdad. But it now appears that after 1999, they stopped
coming. Whether Security Council members saw all the documents is hard
to say. One diplomat linked to the Security Council notes that the
volume of paperwork associated with Oil-for-Food wasso huge that not
everything was sent over automatically to members of the Security
Council. Some material had to be specifically requested. It’s not
clear everything was.


Once a genuinely competent and independent panel is set up, the task
should be not simply to look for discrepancies in the records, or
clear evidence of corruption. The larger problem is that the U.N.,
while running largely on public money, operates with a degree of
secrecy that means graft has to reach Vesuvian proportions before
outside watchdogs can easily prove anything.

There is also the problem that at the U.N., the buck seems to stop

In Oil-for-Food, the Secretariat agreed to shoulder enormous tasks
requiring a high degree of integrity and responsibility. But when
allegations of corruption and mismanagement began to emerge, the
immediate defense of U.N.officials, including Annan, was to present
the Secretariat as nothing more than a hapless and humble servant of
the Security Council. U.N. officials argued that Oil-for-Food staffers
were not responsible for spotting Saddam’s pricing scams, but were
merely supposed to check that the paperwork was in order (a goal the
treasurer’s office seems to have missed).

If U.N. staff in truth had no responsibility for sounding an alarm on
obvious kickbacks, oil smuggling, and gross, damaging, and dangerous
violations of U.N. sanctions and relief rules, then why bother with
the U.N. staff at all? The Security Council might as well have let
Saddam handle his own paperwork.

But the Secretariat was, in fact, expected to supervise the
program. For example, Resolution 986, authorizing the Secretariat to
set up Oil-for-Food, specifically laid out the goal of ensuring
“equitable distribution of humanitarian relief” – not the embezzlement
by Saddam of $10.1 billion. If carrying out this mandate was an
impossible job – and given the habits of Saddam, perhaps it was –
Sevan and Annan themselves, in the interest of upholding the integrity
of the Secretariat, should have stepped forward to voice the problem,
just as Annan found occasion to voice his criticisms of U.S. policy in


Instead, U.N. officials urged the rapid growth of Oil-for-Food, with
Annan and Sevan using their public platforms to complain that the
U.S. and U.K. were spending too much time scrutinizing contracts
(France, Russia, and China evidently were not). In the final year of
the program, Annan agreed to a revised plan that cut the Security
Council out of the loop on all Oil-for-Food contract approvals except
those involving goods that might be used for weapons. This allowed the
Secretariat to more swiftly and directly process what have now turned
out to be thousands of relief contracts involving billions in bribes
to suppliers and kickbacks to Saddam.

Could Kofi Annan – no fool – really have been oblivious to the
carnival of corruption under his jurisdiction? “I don’t think that’s
plausible,” says Hankes-Drielsma.

Ultimately, the big questions here are not just who profited from
graft under Oil-for-Food, but the extent to which the U.N. setup of
secrecy, warped incentives, and lack of accountability allowed it to
supervise the transformation of Oil-for-Food into a program of
theft-from-Iraqis, cash-for-Saddam, and grease-for-the-U.N. Were this
a corporation, the CEO, Enron-style, would already be out the front
door, and a major restructuring underway. The least that needs to come
out of an independent investigation, or congressional hearings for
that matter, is a clear understanding of the ways in which the
U.N. Secretariat must be not simply reprimanded, but deeply reformed,
starting with the introduction of complete transparency in U.N. use of
public money -and proceeding to any further incentives that might be
devised to ensure it will better honor the public trust.

– Claudia Rosett is a senior fellow with the Foundation for the
Defense of Democracies, and an adjunct fellow with the Hudson
Institute. Rosett previously wrote on the United Nations Oil-for-Food
Program for NRO here.