Whitewash feared in oil-for-food scandal

December 2, 2005
Financial Times
Original Source: http://news.ft.com/cms/s/5884f512-632c-11da-be11-0000779e2340.html

One month after Paul Volcker published his report on corruption in the United Nations-monitored Iraq oil-for-food programme, anti-corruption campaigners fear the world’s governments will sweep its findings under the carpet.  
Some 2,253 companies were accused by Mr Volcker of taking kickbacks from Saddam Hussein’s regime, while officials and middlemen around the globe were accused of receiving illicit oil allocations in return for political support. The payments were in contravention of international law and the rules of the oil-for-food system.
The UN, which is engulfed in an internal debate on how to revamp its management structure as a result of the scandal, is debating what to do with the mountain of evidence from an investigation that lasted 18 months and cost $35m.
But the UN has no power to prosecute, and the bulk of action now lies with national authorities.
An informal survey by Financial Times reporters has shown that individual countries’ readiness to take further action is decidedly mixed, even in nations that might otherwise claim to be on the virtuous end of the fight against corruption.
Under the programme, the government of Iraq sold $64.2bn of oil to 248 companies; oil surcharges were paid in connection with the contracts of 139 companies. Separately, 3,614 companies sold $34.5bn of goods ranging from foods to medicines to sustain the Iraqi population in the face of international sanctions designed to isolate the country’s political leadership. The Volcker commission said that “humanitarian kickbacks” were paid in relation to the contracts of 2,253 companies.
Mark Pieth, a Swiss criminal law professor and member of the Volcker commission, says the findings are highly embarrassing for companies boasting high ethical and compliance standards now alleged to have paid bribes to Iraqi authorities. “This is very disturbing. We need to look very critically whether nice codes of conduct signed by companies make a difference in reality,” he said. “Companies will claim that the incidents [in the Volcker report] happened at the periphery [of their business activities]. In fact the findings show that even the centres of big companies
	 .	 .	 .	  can be touched by corruption. 
On the oil sales side, the report named a number of small, rich, private traders who paid illicit surcharges, many based in Switzerland. Some of these have been accused of corruption and sanctions in the past. One sma
ll oil company, Bayoil, has been investigated by the US Congress and its head David Chalmers, was indicted in connection with the Volcker findings.
Mr Volcker also pointed out that bigger oil companies had received Iraqi oil through middlemen, knowing full well it was impossible to purchase it without paying kickbacks. But oil executives do not expect any legal consequences.
What the findings have done however is to give campaigners a powerful new yardstick by which to measure governments’ commitment to clamping down on corporate bribery of foreign officials. Now researchers know that in one area at least, Saddam Hussein’s Iraq, bribery was rampant, and can consequently assess each nation’s record in prosecuting it far more precisely. Transparency International (TI), the anti-corruption group, plans to report on progress on this front next spring.
Many governments claim they can do little with the report’s findings as the task is now for independent prosecutors to lay charges. Corruption experts disagree: they argue that governments could take immediate legal and political steps to prevent such scandals recurring, especially by ensuring full compliance with the Organisation for Economic Co-operation and Development’s anti-corruption convention.
In addition, according to TI, some governments hold more immediate responsibility, as many companies named by the Volcker report consulted with their national authorities before signing contracts with Iraq.
To be fair to national authorities, there is still confusion over how to manage the Volcker commission’s evidence, as the UN tries to sort out legal issues about national authorities’ access to sensitive testimony. The commission, whose life has been extended until the end of this month, has received requests for information from seven countries so far.
The US is at the most proactive end of the scale, with numerous congressional inquiries and actions by federal and state authorities.
France too has taken action, with seven senior officials and businessmen charged with corruption and bribery of foreign officials.
In response to allegations of corruption by former top diplomats, the French foreign minister has promised to set up an ethics committee.
In India, the findings forced the resignation of Natwar Singh, the foreign minister, after he was named as a “non-contractual beneficiary” of Iraqi oil sales, an allegation he strenuously denied.
In the UK, the Serious Fraud Office described the Volcker report as “an officially registered case that we have to look at” and was “still in the process of studying it to see what if any UK authority may need to take it forward.”
In Germany, the report spurred several ministries to meet last month with state prosecutors from across the country to examine how to respond.
The government has argued that responsibility for follow-up lies in the hands of state prosecutors.
Even in countries which take corruption seriously, the slow pace of justice might not be surprising. Prosecutors are often reluctant to follow up foreign bribery cases because of their complexity. Collecting data abroad is always difficult, said Fritz Heimann from TI. But this time, because of Mr Volcker’s work, “this should be much easier for prosecutors”.
As a result, the degree of national follow-up will come down to political will. “My impression is, in part because of the publicity, something is being 
done, but my impression is that [it is] not enough,” says Mr Heimann. “Unless there’s a follow-up mechanism, the countries that don’t bother are under no pressure to do anything.”
Reporting by Mark Turner in New York, Hugh Williamson in Berlin, and our International Staff