Report Criticizes Oil-For-Food Program

Report Criticizes Oil-For-Food Program

2/3/04

By EDITH M. LEDERER, Associated Press Writer

UNITED NATIONS - Former U.S. Federal Reserve (news - web sites) chairman Paul Volcker says his investigation of corruption in the oil-for-food program in Iraq (news - web sites) found that program director Benon Sevan engaged in "an irreconcilable conflict of interest" by choosing the companies that bought Saddam Hussein (news - web sites)'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 (news - web sites) 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 (news - web sites). 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 (news - web sites), 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 program.

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 said.

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 anonymity.

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 judgments."

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 work."