Report Criticizes Oil-For-Food Program

Report Criticizes Oil-For-Food Program

Associated Press
February 3, 2005

By EDITH M. LEDERER, Associated Press Writer

UNITED NATIONS – Former U.S. Federal Reserve chairman Paul Volcker says
his investigation of corruption in the oil-for-food program in Iraq
found that program director Benon Sevan engaged in “an irreconcilable
conflict of interest” by choosing the companies that bought Saddam
Hussein’s oil.

Volcker’s first report, as outlined to The Associated Press by an
official close to the investigation and by Volcker himself in an op-ed
article in Thursday’s Wall Street Journal, found the $60 billion program
“tainted” from top to bottom.

Volcker said in the article that program managers, auditors, contractors
hired to oversee the program’s operation and those who controlled U.N.
expenditures for it, all failed “to follow the established rules of the
organization designed to assure fairness and accountability.”

The 219-page report was scheduled to be released by Volcker Thursday
afternoon. He personally delivered a copy to U.N. Secretary-General Kofi
Annan on Thursday morning and spent about 45 minutes with the U.N. chief.

“We had some discussion of it,” Volcker said.

U.N. spokesman Fred Eckhard said Annan was “perhaps surprised” by
Volcker’s decision to preview his findings before giving the
secretary-general the report.

“We are currently studying the report,” Eckhard said.

Mark Malloch Brown, the secretary-general’s new chief of staff, would
hold a press conference after the report’s release to give Annan’s
reaction, he said.

The oil-for-food program, launched in December 1996 to help ordinary
Iraqis cope with U.N. sanctions imposed after Saddam’s 1990 invasion of
Kuwait, quickly became a lifeline for 90 percent of the population.

Under the program, Saddam’s regime could sell oil, provided the proceeds
went primarily to buy humanitarian goods and pay reparations to victims
of the 1991 Gulf War. Saddam’s government decided on the goods it
wanted, who should provide them, and who could buy Iraqi oil. But the
Security Council committee overseeing sanctions monitored the contracts.

The program ended in November 2003, after the U.S.-led war that toppled
Saddam. Allegations of corruption first surfaced in late 2000, with
accusations that the Iraqi leader was putting surcharges on oil sales
and pocketing the money.

In January 2004, the Iraqi newspaper Al-Mada published a list of about
270 former government officials, activists, journalists and U.N.
officials from more than 46 countries suspected of profiting from Iraqi
oil sales that were part of the U.N. program. Annan appointed Volcker in
April to lead an independent investigation.

Volcker made clear that the committee’s intention is to improve the
United Nations, not to destroy it, and he applauded Annan for opening
the world organization’s books, saying “few institutions have freely
subjected themselves to the intensity of scrutiny entailed in the
committee’s work.”

The interim report will not address questions about Annan or the
employment of his son, Kojo, by the Swiss company, Cotecna Inspection
SA, which had a U.N. contract to certify deals under the oil-for-food

Critics have raised questions about nepotism and whether Kojo Annan
played any role in securing contracts for Cotecna – allegations he
denies. Volcker said the investigation of the secretary-general and his
son “is well advanced” and the person close to the inquiry told AP that
it will be addressed in a separate report later this winter.

Though Sevan has repeatedly denied wrongdoing, Volcker said “the
evidence is conclusive that Mr. Sevan, in effectively participating in
the selection of purchasers of oil under the program, placed himself in
an irreconcilable conflict of interest.” This violated both U.N. rules
and Sevan’s responsibility as an international civil servant, he said.

Volcker did not accuse Sevan of corruption. Annan has said he will lift
the diplomatic immunity of any U.N. official if Volcker finds evidence
of alleged involvement in criminal activity. Sevan has retired, but
remains on the U.N. payroll for $1 a year to help with the investigation.

The Financial Times reported Tuesday that Sevan personally intervened to
steer lucrative Iraqi oil contracts to Africa Middle East Petroleum, a
Swiss-based oil trading company. The contracts could be sold to
international traders for a markup of up to 35 cents a barrel, the paper

Volcker said the procurement process was “tainted,” auditing of the
program was “underfunded and undermanned,” and its management was
“lacking.” Perhaps not surprisingly, he said, “political considerations
intruded” into procurement.

Last month, Volcker released more than 50 audits of the oil-for-food
program carried out by the U.N.’s internal watchdog office, headed by
Dileep Nair, who is also expected to be criticized in the report, the
official familiar with the investigation said, speaking on condition of

The audits detail how U.N. agencies working under the oil-for-food
program allegedly squandered millions of dollars through suspect
overpayment to contractors, mismanagement of purchasing and assets, and
fraud by its employees.

In a briefing paper that accompanied the release of the audits,
Volcker’s Independent Inquiry Committee questioned why the auditors
neglected the New York headquarters of the Office of the Iraq Program,
which Sevan headed. It said auditors also neglected the oil and
humanitarian supplies contracts, and transactions through the program’s
account at the French bank BNP Paribas.

Investigators say Saddam’s government used its control over contracting
to corrupt the program.

Expectations that the preliminary report will produce real evidence are
high, especially since Volcker has come under intense criticism for
comments downplaying his potential findings. He has said he intends to
provide a final report around midyear.

Annan told reporters Wednesday the United Nations is already taking
measures to strengthen some management practices and will implement
Volcker’s recommendations, saying there will probably be some “harsh

He added that he has already asked the General Assembly to review the
mandate of the U.N. watchdog office, which was created 10 years ago, “to
see how we can strengthen it and give it appropriate authority to do its


From: Emil Lazarian | Ararat NewsPress