Food-for-oil claims shake UN

The Australian, Australia
April 24 2004

Food-for-oil claims shake UN
>From The Times

SIMULTANEOUS investigations of the former United Nations oil-for-food
program aim to expose how Saddam Hussein used Iraq’s oil wealth to
buy political influence around the world.

The US-appointed Iraqi Governing Council, the US Congress and an
independent panel established by the UN have started investigating
claims the Hussein regime used oil to bribe politicians, political
parties, journalists and a leading UN official.

The inquiries are examining Iraq’s system of kickbacks, which Baghdad
used to break sanctions, fund his military and sustain his regime.

The scale of the alleged corruption is huge. The investigative arm of
the US Congress estimates Saddam earned $US4.4 billion ($5.7 billion)
in illegal surcharges and after-sale service fees on contracts
overseen by the UN. Individual bribes allegedly ran into millions of

The claims have created an atmosphere of dread at the UN, which ran
the oil-for-food scheme, at a time when the world organisation is
being urged to play a larger role in the political transition in

The allegations have also sent shockwaves around the world, because
hundreds of prominent figures in two dozen countries are accused of
involvement in the oil deals.

The overthrow of Saddam has made available hundreds of documents that
contain some of Iraq’s most closely guarded secrets. Few have been
made public, but coalition officials have secured the evidence they

The UN oil-for-food scheme was the largest UN humanitarian program in
the organisation’s history, handling a total of $US64 billion worth
of Iraqi crude from December 1996 until it was wound up last year.

The program was established after the first Gulf War to mitigate the
effects of the economic embargo imposed on Iraq after the 1990
invasion of Kuwait. Britain and the US played a leading role in its
creation because they did not want to be accused of starving the
Iraqi people.

At times both powers bent to pressure from other countries to turn a
blind eye to corruption and mismanagement so that Iraq continued to
co-operate with the scheme.

The UN exercised oversight through its control of Iraqi oil revenues.
Money generated from approved Iraqi oil sales was deposited in a UN
holding account. The UN then released funds to pay for approved
imports of food, medicine and other humanitarian supplies.

The price was set by a panel of UN oil overseers, and all contracts
had to approved by the UN Security Council’s 15-member sanctions
committee, operating by consensus so any single member could block a

But Iraq found ways to circumvent the monitoring, enabling it to
demand billions of dollars in kickbacks.

The first weakness of the UN system was the mechanism to set the oil

Although there were originally three oil overseers, retirements and
resignations reduced this to one — a relatively young former Russian
insurance executive. And for more than a year, Russia blocked the
appointment of new overseers to replace those who had left.

Until late 2000, the UN’s price for Iraqi oil was set at the start of
each month. That allowed Iraq to time its sales under the program to
exploit the ups and downs of the world oil market. A higher world
price meant a higher margin over the price set by the UN, allowing
Iraq a greater profit, which it could then demand be paid over to

Congressional investigators estimate Iraq levied an illegal surcharge
of US10c to US35c a barrel on crude oil shipped under the UN program,
providing millions to cash-strapped Baghdad

Iraq also made money by demanding kickbacks on contracts to supply
Baghdad with humanitarian goods under the UN scheme.

US officials say the customary kickback was 10 per cent. A vendor
selling Iraq $US100 of goods would notify the UN that the shipment
was worth $US110 and give the $US10 to Iraq. The money generated was
deposited in front companies, bank accounts or Iraqi embassies abroad
and transported back to Iraq as cash. But some was also used to
rebuild Iraq’s military and buy prohibited equipment abroad.

Charles Duelfer, the former UN inspector who is leading the CIA
search for weapons of mass destruction in Iraq, told Congress last
month that Iraq funnelled oil-for-food money to its Military
Industrialisation Commission, which worked with the Iraqi
intelligence services to set up front companies overseas to procure

The commission budget increased nearly 100-fold from 1996 to 2003,
totalling $US500million in 2003.

Iraq’s demands for kickbacks were long known to British and US
officials, who tried to fix the UN system to counter them.

Eventually, Russia allowed the replacement of the departed oil
overseers and the UN sanctions committee changed to “retroactive
pricing” to cut Iraq’s possible margin on the program’s oil sales.

But what really ignited the issue was the publication by Iraq’s
Al-Mada newspaper in January of a list of 270 politicians,
journalists, businessmen, and even a UN official, who were allegedly
given vouchers to buy Iraq oil.

There are some doubts about the veracity of the list, but it
nevertheless includes powerful figures in key UN powers, such as
Russia and France, as well as a range of Middle Eastern countries.

Among the alleged recipients are the Russian Peace and Unity Party of
President Vladimir Putin, as well as the Russian Communist Party and
companies linked to the party of Vladimir Zhirinovsky, a Russian

Charles Pasqua, the former French interior minister, and a former
French ambassador to the UN are on the Al-Mada list. Also named by
the paper was Indonesian President Megawati Sukarnoputri, who is said
to have received 1 million barrels of oil as the daughter of
President Sukarno, and 1 million barrels as herself.

Recipients of the vouchers did not have to trade the oil themselves.
They could sell the vouchers to oil traders for US10c-US30c a barrel.

An example of how the system was used to peddle influence is the case
of Shakir Khafaji, one of two Iraqi-American businessmen on the list.
Khafaji told the London Financial Times last week he had been awarded
oil allocations by the Saddam regime and sold them to an Italian firm
on his family’s behalf.

Khafaji provided $US400,000 to fund an anti-sanctions documentary by
former UN weapons inspector Scott Ritter that was shown around the

The UN’s investigation, led by former US Federal Reserve chairman
Paul Volcker, is initially focusing on allegations against Benon
Sevan, the Cypriot Armenian UN official who ran the oil-for-food
program. A “Mr Sevan” named on the Al-Mada list was allegedly
allocated 14.3 million barrels of crude. The UN official has denied
the claims.

US television network ABC reported this week, citing US and European
intelligence services, that three unnamed UN officials had taken
bribes from Saddam. “The UN oil-for-food program provided Saddam
Hussein and his corrupt and evil regime with a convenient vehicle
through which he bought support internationally by bribing political
parties, companies, journalists and other individuals of influence,”
a British consultant for the Iraqi Governing Council, Claude
Hankes-Drielsma, told the US Congress this week.