Business as Usual

By Claudia  Rosett
October 27, 2005
Wall Street Journal
Original Source: http://online.wsj.com/article/SB113037307063480702.html?mod=opinion&ojcontent=otep

Few outside U.N. circles have heard of IHC Services, a private company that for years was one of hundreds of firms selling goods and services to the U.N. As a rule, the U.N. keeps secret most details of these deals. But scandals involving IHC have begun lifting the lid on how the U.N. handles taxpayers' money.
The IHC story suggests that the U.N.'s failures of governance are not confined to such special projects as the Oil for Food program. If anything, Oil for Food looks more and more like a large outcropping of U.N. business as usual. And as with Oil for Food, which ran from December 1996 until the fall of Saddam in 2003, the timeline of IHC business with the U.N. starts in December 1996. That was the month before Kofi Annan took over as secretary-general, and it is on his watch that the IHC-U.N. tale has unfolded.
Headquartered on the sixth floor of a modest midtown Manhattan high-rise, with additional offices in Milan, IHC was, until this June, one of many companies approved by the U.N. as a registered vendor to its procurement division -- which handles U.N. contracting for everything from office supplies to rations for peacekeeping troops. IHC signed some deals directly with the U.N., and on others served as a go-between for third-party contractors -- despite the U.N.'s officially stated preference for avoiding middlemen.
Since the U.N. handles its contracts with secrecy, the full extent of IHC's involvement in U.N. business is hard to know. But from documents seen by this writer, the amounts around 1999 involved millions of dollars; a few years later they involved scores of millions; and in the past year or two -- counting IHC business partnerships -- the totals reached hundreds of millions.
IHC's CEO Ezio Testa, has denied any wrong-doing. But IHC's history includes hiring the son of a U.N. official who later (and unrelated to the hiring) pled guilty to corruption in federal court. In addition, a star U.N. diplomat served as chairman of the IHC board of directors while also holding a post as personal representative of the U.N. secretary-general. On top of that, IHC appears to have had access to valuable inside information on U.N. contract bids, which in at least one documented case it shared with a company involved in the bid.
Last year, information was bubbling around in unofficial quarters that something was amiss in the U.N. procurement department. Together with Fox News executive editor George Russell, I began looking into it. A name that came to our attention was Alexander Yakovlev, a Russian staffer in the procurement department. Imagine our surprise when Mr. Yakovlev was depicted in a Feb. 3 interim report from Paul Volcker's Oil for Food probe as a defender of integrity in the U.N. procurement department, where he'd handled Oil for Food inspection contracts.
Mr. Russell and I continued our reporting, and in early May -- about the time the U.N. now says its own investigation into Oil for Food began -- we contacted the U.N. procurement department with questions. On June 20, our story ran on Fox News, alleging that Mr. Yakovlev, while handling at least one IHC contract, had obtained a job with IHC for his son Dmitry, and providing details of a secret offshore company and bank account set up by Mr. Yakovlev and his wife. Two days later, Alexander Yakovlev had resigned, and the U.N. had suspended IHC from its vendor list. On Aug. 8, Mr. Volcker released a report that, as a sidenote to his Oil for Food investigation, alleged that Mr. Yakovlev had taken $950,000 in bribes on $79 million worth of U.N. contracts. Mr. Yakovlev was arrested, and in a Manhattan federal court pled guilty to conspiracy, wire fraud and money-laundering in relation to his U.N. procurement activities. That federal investigation has since gone on to indict the head of the U.N. budget oversight committee, Vladimir Kuznetsov, on allegations of money-laundering.
That was far from the end of the IHC trail. Last month, we obtained IHC corporate documents showing that one of the U.N.'s most prominent personalities, Giandomenico Picco -- currently a special adviser to Mr. Annan -- had served as a director of IHC in 1997 and then as chairman of the IHC board from 1998 until at least February 2000. Mr. Picco's initial career with the U.N. had spanned from 1973 to 1992, and at the time he joined IHC he was in private business, running a consulting firm, GDP Associates, in New York. But during his tenure as IHC chairman, he accepted an appointment from Kofi Annan in August 1999, to serve as a U.N. under-secretary and personal representative of the secretary-general for a globetrotting project called the Dialogue of Civilizations.
During the interval in which Mr. Picco was both an official U.N. representative for Mr. Annan and chairman of the IHC board -- i.e., from August 1999 to February 2000 -- IHC signed one multimillion dollar deal to sell portable generators to the U.N. and brokered another to supply a hostel ship for peacekeeping troops in East Timor. Mr. Picco has said he resigned as IHC chairman before that, but IHC board minutes show him as chairing the company's annual meeting on Feb. 17, 2000.
It then came to light that IHC's CEO, Ezio Testa, had sent an email providing an inside tip on confidential U.N. bidding information to a corporate officer at another company, Cyprus-based Eurest Support Services (ESS). ESS was then bidding on the aforementioned contract -- which it won -- to supply $62 million worth of rations to U.N. peacekeepers. Altogether, ESS, which in 2004 announced a formal partnership with IHC, has in recent years won U.N. contracts that, with add-ons and options, total $351 million. ESS has now been suspended by the U.N., which is investigating the matter.
There's more. Corporate documents show that in June, just before the first wave of this scandal went public, IHC was quietly sold -- in a move that raises questions about who really owned it. The buyer was a company registered in the British Virgin Islands, whose sole representative was listed in sale documents as Peter Harris -- apparently an officer with ESS's parent company, the U.K.-based Compass Group, one of the world's largest catering companies. (Compass has announced it is suspending Mr. Harris and is investigating the matter.)
IHC's seller was even more intriguing. The sole shareholder was a Luxembourg-based company, Torno S.A.H. One of the two major shareholders in Torno, who voted by proxy in a Milan meeting on June 3 to approve the sale, was a Liechtenstein-based businessman, Engelbert Schreiber, Jr. A provider of financial and legal services, he, as recently as 2000, had professional dealings with Ahmed Idris Nasreddin, a naturalized Italian citizen and former honorary consul of Kuwait in Milan who in 2002 was listed on the U.N.'s roster of individuals and entities belonging to or associated with Al Qaeda.
What next might turn up in the IHC saga depends on a number of investigations. But in an era when many authorities are worried about the transit of millions across borders and the enforcement of good governance, it appears the U.N. has been serving as a bazaar in which corruption, conflicts of interest and shadowy financial networks have found ways to set up shop. Behind the maze, who was the real owner of IHC during its nine years of doing big business with the U.N.? The U.N. won't say, and quite possibly does not even know. Its policy, in fact, was not even to ask.
Ms. Rosett is a journalist-in-residence with the Foundation for the Defense of Democracies.