[Mb-civic] NYTimes.com Article: Under Eye of U.N., Billions for Hussein in Oil-for-Food Plan

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Under Eye of U.N., Billions for Hussein in Oil-for-Food Plan

August 13, 2004
 By SUSAN SACHS and JUDITH MILLER 



 

Toward the end of 2000, when Saddam Hussein's skimming from
the oil-for-food program for Iraq kicked into high gear,
reports spread quickly to the program's supervisors at the
United Nations. 

Oil industry experts told Security Council members and
Secretary General Kofi Annan's staff that Iraq was
demanding under-the-table payoffs from its oil buyers. The
British mission distributed a background paper to Council
members outlining what it called "the systematic abuse of
the program" and described how Iraq was shaking down its
oil customers and suppliers of goods for kickbacks. 

When the report landed in the United Nations' Iraq
sanctions committee, the clearinghouse for all contracts
with Iraq, it caused only a few ripples of consternation.
There was no action, diplomats said, not even a formal
meeting on the allegations. 

Since the fall of Mr. Hussein, the oil-for-food program has
received far more scrutiny than it ever did during its six
years of operation. Congress's Government Accountability
Office, formerly the General Accounting Office, has
estimated that the Iraqi leader siphoned at least $10
billion from the program by illicitly trading in oil and
collecting kickbacks from companies that had United Nations
approval to do business with Iraq. Multiple investigations
now under way in Washington and Iraq and at the United
Nations all center on one straightforward question: How did
Mr. Hussein amass so much money while under international
sanctions? An examination of the program, the largest in
the United Nations' history, suggests an equally
straightforward answer: The United Nations let him do it. 

"Everybody said it was a terrible shame and against
international law, but there was really no enthusiasm to
tackle it," said Peter van Walsum, a Dutch diplomat who
headed the Iraq sanctions committee in 1999 and 2000,
recalling the discussions of illegal oil surcharges. "We
never had clear decisions on anything. So we just in effect
condoned things." 

As recently as February, the official position of the
United Nations office that ran the program was that it
learned of the endemic fraud only after it ended. But
former officials and diplomats who dealt directly with the
program now say the bribery and kickback racket was an open
secret for years. 

In blunt post-mortem assessments, they describe the program
as a drifting ship - poorly designed, leaking money and
controlled by a Security Council that was paralyzed by its
own disputes over Iraq policy. 

The program, created in 1996, was an ambitious attempt to
keep up international pressure on Iraq to disarm while
helping the Iraqi people survive the sanctions imposed on
the Hussein government after its invasion of Kuwait in
1990. 

The entire effort was financed by the sale of Iraqi oil. A
political compromise allowed Iraq to decide to whom it
would sell its oil and from whom it would buy relief
supplies. It was up to the United Nations to make sure that
the price Iraq set for the oil was fair and that the
proceeds were buying relief goods, and not being funneled
to Mr. Hussein's coffers or being used for illicit arms. 

As the flow of money ballooned, the United Nations, with an
annual budget of just $1.5 billion, was responsible for
collecting and disbursing as much as $10 billion a year in
Iraqi oil revenues. Even as the fraud engineered by Mr.
Hussein's government became widely understood, the
officials said, neither the Security Council nor United
Nations administrators tried to recover the diverted money
or investigate aggressively. 

The work of the Office of the Iraq Program, which
administered the oil-for-food activities, and of its former
director, Benon V. Sevan, is the focus of an independent
United Nations investigation headed by Paul A. Volcker, the
former Federal Reserve chairman. His panel is looking into
the broader charges of mismanagement and corruption in the
program, as well as specific accusations that United
Nations officials, including Mr. Sevan, took kickbacks. 

Mr. Volcker announced in a news conference on Monday that
his panel would need at least $30 million and probably a
year to determine whether the charges are justified.
Despite an elaborate system in the United Nations for
overseeing oil-for-food contracts, corruption never seemed
to be the chief concern of anyone involved. The United
States and Britain were focused on keeping material related
to illicit weapons out of Iraq. Other nations that had
greater financial stakes in Iraq, including France and
Russia, favored lifting the sanctions. And for the United
Nations bureaucracy, diplomats said, the priority was
keeping goods flowing to the Iraqi people. 

In the halls of the United Nations, the program became a
battleground for the competing commercial interests and
political agendas of the 15 individual nations that made up
the Security Council, diplomats said. Those same nations
made up the Iraq sanctions committee, which took action
only by a consensus that could be blocked by any member. 

The result was a paralysis that translated into
acquiescence toward matters like oil kickbacks. Annual
reports of the sanctions committee reflect the limp
reaction to repeated signs of corruption. 

For instance, at a meeting in 2002, an annual report said,
the sanctions committee "considered a report from the
Islamic Republic of Iran on the interception of an alleged
oil-smuggling attempt in its territorial waters," adding,
"The committee took note of this information." 

When the committee learned from a press report in late 2001
of allegations that an Indian company was helping Iraq
purchase embargoed materials for a nuclear fuel plant, the
United States and Britain pressed for an investigation. Two
committee members said the panel debated for months whether
to urge India to investigate. "Discussions on the matter
remain inconclusive," the committee said in its 2002
report. 

While the diplomats were deadlocked over how to address
violations of the sanctions, money and contracts continued
to flow through the Office of the Iraq Program. 

Mr. Sevan, the Cypriot who headed the program, has denied
that he received any kickbacks and would only say in a
statement that his office was not responsible for ferreting
out corruption. Congressional investigators this year
disputed that claim, citing United Nations resolutions. 

Evidence of fraud passed from office to office in a round
robin ending nowhere. A former State Department official
who was part of an interagency committee that reviewed
trade contracts with Iraq said the group detected
"abnormalities in pricing that suggested fees and
kickbacks." The former officials said the committee "asked
why Iraq needed to import gilded tiles for palaces, or
liposuction equipment." 

Peter Burleigh, who was the deputy American representative
to the United Nations in the late 1990's, said those
concerns had been relayed to Mr. Sevan's office. Mr.
Sevan's office said it had passed information regarding
suspicious contracts to the sanctions committee, on which
the United States held a permanent seat. 

Even after the committee received reports that suppliers
were padding their contracts to hide payoffs, the committee
never rejected a contract because of cost, according to
recent Congressional reports and former United Nations
officials. 

Mr. Sevan's chief interest was to avoid deadlocks over
relief supplies, said Michel Tellings, one of the three oil
overseers who monitored Iraq's oil sales for the United
Nations. 

"Benon saw that he had a divided Security Council in front
of him and was more concerned about getting the food in and
the oil out," Mr. Tellings said. "So he took a middle way
and didn't investigate problems. He'd say, 'If you've got
clear evidence, I've got to go to the Security Council. If
it's a rumor, don't bother.' " The lack of coordination in
the program was evident in the fact that while United
Nations auditors produced 55 reports on the program over
the years, several diplomats on the sanctions committee
said in interviews that they never even saw them. 

In the end, a complicated set of political and financial
pressures kept the program ripe for corruption.Mr. van
Walsum, the retired Dutch diplomat, said he sometimes
suspected that his fellow diplomats were disinclined to
hear about potential fraud because they were concerned
about protecting the interests of friendly companies and
foreign allies eager to trade with Iraq. 

"Everyone," he said, "was living in the same glass house."


A System Ripe for Picking 

The oil-for-food program was established to get food and
medicine to the Iraqi people and to counter Mr. Hussein's
claims that sanctions were solely responsible for the
widespread malnutrition in Iraq after the embargo was
imposed in 1990. 

Iraq was not prohibited from buying food and medicine; it
just was not using its money for that purpose. By modifying
the oil sanctions, the Security Council wagered that it
might gain enough leverage to force Iraq to buy more relief
goods. 

On one level, the program worked well. According to
Congress's General Accounting Office, the program provided
food, medicine and services to 24 million Iraqis.
Malnutrition rates for children fell. But along the way,
the Security Council approved provisions that opened the
program to corruption. 

Mr. Hussein agreed to the program in 1996 only after
winning a major concession: While the United Nations would
control oil revenues, Iraq could negotiate its own
contracts to sell oil and to purchase supplies. That
arrangement, according to the General Accounting Office,
"may have been one important factor in allowing Iraq to
levy illegal surcharges and commissions." 

Then in 1999, the Security Council removed all restrictions
on the amount of oil Iraq could sell. And the Office of the
Iraq Program was given power to approve contracts for a
range of items - food and medicine, agriculture and
sanitation equipment - without approval from the Council's
sanctions committee. 

Meanwhile, the United States and Britain were delaying the
approval of billions of dollars in contracts that they
feared would provide Iraq with material or equipment that
could be used for the development of weapons of mass
destruction. Those "holds" on contracts deeply concerned
the United Nations officials trying to improve Iraqi living
conditions, and drew objections from members of the
Security Council that favored a freer flow of commerce with
Iraq. 

Countries that supported the continuation of sanctions came
to see the relief aid side of the program as secondary. As
Mr. van Walsum put it, "oil for food meant oil not for
W.M.D. " 

Facing pressure from other nations, the United States and
Britain agreed to further compromises in the sanctions
system. 

Special Interests in Council 

Under Security Council resolutions and the oil-for-food
program, all of Iraq's oil revenues were to be paid into a
United Nations bank account to be used for relief goods.
But Iraq's booming trade in illicit oil continued under the
eyes of the Council. 

Iraq's suppliers included Russian factories, Arab trade
brokers, European manufacturers and state-owned companies
from China and the Middle East. In one instance, American
officials in Iraq found, Syria had been prepared to kick
back nearly 15 percent on its $57.5 million contract to
sell wheat to Iraq. And some of the world's biggest oil
traders and refineries did business with Baghdad, including
Glencore, a Swiss-based trading company. 

Different Security Council members had different levels of
tolerance for the abuse, said Mr. Tellings, the former oil
overseer. 

When the United States and others wanted the sanctions
committee to confront Syria on oil sales, they were blocked
by Russia and France, which argued that Syria should not be
singled out when the Americans refused to investigate
Iraq's equally lucrative oil trade with their allies,
Jordan and Turkey. 

Congressional investigators have estimated that Iraq
collected $5.7 billion from selling oil outside United
Nations supervision, while the oil-for-food program was
chronically short of money for relief supplies. 

"They could have done a cost analysis of at least what
Saddam was selling to Syria," said Hans von Sponeck, a
longtime United Nations diplomat who resigned as relief aid
coordinator for Iraq in 1999, "and then ask Iraq for a
credit to the oil-for-food program because there was never
ever money enough for the minimal needs of the people." 

John D. Negroponte, then the American ambassador to the
United Nations and now to Iraq, defended the special
treatment given to Jordan and Turkey that let them pay Iraq
directly for oil either in cash or barter goods. Both
countries were suffering economically from the sanctions,
he told a Senate committee this year. 

He demurred when asked by Senator Christopher J. Dodd who
benefited from the unsupervised oil sales. But the senator
said he had few doubts. 

"Wouldn't it be a pretty good guess," he said, "that they
probably ended up in the pockets of Saddam Hussein and his
cronies?" Mr. Dodd asked. 

Mr. Negroponte replied, "I just don't know, sir." 

Hussein
the 10 Percenter 

The Hussein government demanded kickbacks on almost every
contract it negotiated, beginning in 2000, according to
documents from Iraqi ministries obtained by The New York
Times this year. 

Senior Iraqi leaders ordered ministries to notify companies
that they had to pay an amount equal to 10 percent of the
contract value into secret foreign bank accounts, a
violation of the United Nations sanctions. To do so, Iraqi
officials said, suppliers would deliberately inflate the
prices of their goods. 

On a $500,000 contract for trucks, for instance, Iraq would
tell the supplier to prepare a contract for $550,000, with
a side agreement promising to transfer the $50,000 add-on
to an Iraqi-controlled bank account. 

A shakedown plan of such magnitude - $33 billion worth of
goods were ordered by Iraq from mid-2000 until the
American-led invasion last year - did not go unnoticed. 

"When the 10 percent came in, companies came and asked us
what to do," said Jacques Sarnelli, who was the commercial
counselor of the French Embassy in Baghdad at the time. "We
said it's illegal, you do it at your own risk, we don't
want to know about it, and we are against it." 

>From his vantage point, he said, pinpointing evidence of a
kickback would have been difficult. "It was a shadow part
of the business," he said. 

At United Nations headquarters in New York, diplomats said
the officials administering the program were more concerned
about relief supplies. Mr. Sevan, who headed the Office of
the Iraq Program, repeatedly appealed to the sanctions
committee to speed up contracts for equipment, food and
other goods. 

Mr. Sevan's office was supposed to examine the contracts to
ensure price and quality. But it was "unclear" how it
fulfilled that responsibility, according to the General
Accounting Office. 

At the sanctions committee, news of the systematic 10
percent kickback scheme prompted some public hand-wringing.
Some diplomats, reacting to news reports, said they wished,
but did not expect, companies to come forward and provide
information. 

Ole Peter Kolby, a Norwegian diplomat who succeeded Mr. Van
Walsum as chairman of the sanctions committee, expressed
hope for "hard evidence," but then added, "I guess also
companies that do that are not likely to tell anybody." 

At one point, the sanctions committee outmaneuvered Mr.
Hussein on the illegal surcharges the Iraqis levied on
every barrel of oil. In late 2000, the oil overseers
relayed complaints by major oil companies that were buying
from Iraq. 

After the committee debated for months about what to do,
the United States and Britain pushed through a change in
the way Iraq's oil was priced, bringing it more in line
with world prices and drastically reducing the margin for
fraud. 

But no attempt was made to recover the surcharge payment or
to investigate which companies paid. 

"You couldn't ask the committee for guidance because you'd
never get an answer," Mr. Tellings said. "It was nobody's
responsibility." 

http://www.nytimes.com/2004/08/13/international/middleeast/13food.html?ex=1093415227&ei=1&en=0e8f9fd34dc33ead


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