Scope of oil-for-food fraud 'overwhelming' 

By Barbara Slavin
November 18, 2005
USA Today
Original Source: http://usatoday.com/news/world/2005-11-17-oil-for-food_x.htm


It began with the best of intentions and achieved its major goals: feeding the Iraqi people while keeping dangerous weapons out of Saddam Hussein's hands.
Along the way, the United Nations' oil-for-food program metastasized into the worst corruption scandal in U.N. history.
Three weeks after a scathing report detailed the scope of the fraud — implicating governments, former diplomats, businessmen and corporations — a relatively small number of criminal investigations and other probes have begun.
The allegations in the report have not resulted in any major shake-up at the United Nations, despite long-stalled efforts to overhaul the body.
The investigative panel, headed by former Federal Reserve chairman Paul Volcker, was to wrap up its work at the end of November but is extending for a month. It wants time to help other countries pursue criminal cases against the thousands of companies and individuals alleged to have paid or received bribes over a seven-year period.
The United States and Denmark asked this week for an indefinite extension of the probe.
Wednesday, John Bolton, the U.S. ambassador to the United Nations, asked U.N. Secretary-General Kofi Annan to protect the documents Volcker's team collected during its investigation.
Bolton said the United States feared that the documents would disappear if they were returned to countries that provided them.
The scope (of fraud) is of overwhelming proportion, says Sen. Norm Coleman, R-Minn., who chairs the Senate Permanent Subcommittee on Investigations, which also examined the scandal. What's hard to digest is how it was allowed to unfold without anyone raising his head before Saddam fell.
The $64 billion oil-for-food program operated under U.N. oversight from 1996 to 2003. According to the Volcker report, it attracted a large and unusual cast of participants, from Australian wheat farmers to Russian politicians, former French diplomats, U.S. oilmen and Iranian terrorists. Some of the money paid to Iraq in kickbacks and bribes may be funding insurgents who are killing U.S. troops in Iraq, the report says.
The scandal tarnished Annan, whose son, Kojo, worked for a Swiss company that obtained a contract from the program. A poll released Thursday by the Pew Research Center found that 48% of Americans have a positive view of the United Nations, down from 77% four years ago.
It is an extraordinary program, which we were pulled in to run, Annan said in an interview last spring. This organization is not geared to run this sort of program, and I pray to God we don't have to do another program of that kind.
The history 
The oil-for-food program came about because Iraq did not fully satisfy U.N. demands for information about its weapons of mass destruction after the Persian Gulf War in 1990-91.
As sanctions imposed after the war continued for years, Iraq became poorer, and children began to die of malnutrition and disease, pushing the U.N. Security Council to act.
The council voted to let Iraq export oil and deposit the revenue — to be used to buy food and other humanitarian goods — into an escrow account in a French bank. Iraq got to choose who received contracts for oil and who supplied humanitarian goods. That gave Saddam leeway to reward those he thought would lobby for an end to sanctions.
The money 
•Neighbors. Jordan, Turkey and Syria circumvented the program, smuggling $10 billion in Iraqi oil after the Gulf War — $8 billion from 1996 to 2003, Volcker told senators Nov. 1. The United States tried to stop the trade with Syria, but other Security Council members, especially Russia, balked because Washington wouldn't move against its allies, Jordan and Turkey.
The administration decided to look the other way, notified Congress, and we decided to look the other way, Sen. Carl Levin, D-Mich., ranking member of the Senate Subcommittee on Investigations, told the hearing.
•Kickbacks. Saddam's second biggest source of unmonitored cash was $1.5 billion in kickbacks on humanitarian goods. The Volcker report said that 62% of the 3,614 companies that sold products to Iraq under the program paid kickbacks, often disguised as transportation and service fees.
The Australian Wheat Board, a farmers' consortium, paid 14% of total kickbacks through a Jordanian front company, the report said.
•Oil surcharges and vouchers. Iraq played favorites in doling out oil contracts. It collected $228.8 million in bribes from 139 of 248 companies involved. Four oil companies, led by a U.S. firm that was indicted last month — Bayoil of Houston — accounted for most of the contracts.
Iraq identified individuals and organizations it considered friendly, then gave them vouchers to buy oil that could be resold at a higher price on the world market. Those who benefited, according to the Volcker investigation, included: Vladimir Zhirinovsky, deputy chairman of the Russian parliament; former French U.N. ambassador Jean-Bernard Merimee; and George Galloway, a vehement opponent of the Iraq war who is a member of the British parliament.
The legacy 
The full extent of the scandal was not known until after Saddam fell and investigators could obtain records. Corruption within the United Nations by officials involved in overseeing the program prevented it from investigating the giant scam, the Volcker report says. The program head and a procurement officer are accused of taking bribes.
More than a dozen individuals and companies face charges in the USA. France is investigating eight people, including three former diplomats. Australia began an inquiry last month after the Volcker panel disclosed that the Wheat Board was the single largest source of kickbacks — $221.7 million.
A panel appointed by Annan has suggested U.N. management changes. So have the Bush administration, Volcker and a bipartisan panel chaired by former House speaker Newt Gingrich and former Senate majority leader George Mitchell. Little has been done.
A U.N. summit in September was a disappointment, says Lee Feinstein, a former Clinton State Department official who served on the Gingrich-Mitchell panel. The issue is whether out of the glare of a summit you can get the major donors to push through real reforms like appointing a chief operating officer for the U.N., creating an independent auditing authority and giving hiring and firing power to the secretary-general.
Robert Orr, Annan's policy planning chief, says Annan has put into a new two-year budget funds for an independent auditing authority and an ethics office, among other reforms. Implementation depends on member states.
The United States provides about $3.8 billion to the United Nations each year. Coleman has proposed legislation that would give President Bush discretion to reduce U.S. payments if changes do not occur. A House version would mandate cuts.
But with the Bush administration counting on the world body to build pressure against Syria and Iran, a reduction in dues seems unlikely.
The United States and other countries all want the U.N. to do more even as they are expressing more and more doubts about its capability to operate effectively and honestly, says Edward Luck, a U.N. expert at Columbia University.