T Nation

Oil for Food Scandal Update

Interesting – things are progressing, even though the U.N. still won’t release a bunch of the paperwork involved. Now that Sevan and Yakovlev have been named, one wonders if they will start elucidating some facts to save themselves…

Wall Street Journal Editorial
Oil for Fraud
August 9, 2005; Page A10

Imagine an American administration in which the Attorney General secretly derives nearly half his income from the Gambino crime family. Imagine, too, that this hypothetical AG is a longstanding confidant of the President. That is what Paul Volcker’s investigation of the Oil for Food Program has now demonstrated was roughly the case with Kofi Annan’s United Nations.

We are referring to the publication yesterday of Mr. Volcker’s latest report on Oil for Food, which focuses chiefly on the activities of Benon Sevan, formerly executive director of the U.N.'s Office of Iraq Program, and Alexander Yakovlev, a U.N. procurement officer. Although the report contains few surprises, it shows in meticulous detail how Messrs. Sevan and Yakovlev benefited to the tune of $150,000 and $950,000 respectively from various U.N. procurement-related schemes. In doing so, it provides a vivid picture of how Mr. Annan’s U.N. “works.”

The accusations against Mr. Sevan are straightforward. On a visit to Baghdad in June 1998, he asked Iraq’s oil minister for an allocation of 1.8 million barrels of crude oil in the name of a small Geneva-based oil-trading firm called AMEP. One of AMEP’s directors, Egyptian-born Efraim Nadler, was Mr. Sevan’s closest friend.

Between 1998 and 2001 AMEP was granted 7.3 million barrels of Iraqi oil, from which it netted $1.5 million in profit. Of that, nearly $600,000 was deposited in a Geneva bank account controlled by Mr. Nadler. According to Mr. Volcker’s report, cash withdrawals totaling $257,000 were made during periods “when Mr. Nadler and/or Mr. Sevan were in Geneva and returning soon to New York.”

It is not clear how Mr. Sevan and Mr. Nadler divided the money, but we do know that Mr. Sevan and his wife (also a U.N. employee) made cash deposits in New York banks of $147,184, and that there is “a high degree of correlation between these deposits and prior cash withdrawals from Mr. Nadler’s Geneva account.” The Sevans, who jointly earned $200,000 tax-free dollars and maintained two residences, then used this money to pay off some of their chronic debt.

Mr. Yakovlev, who was recently dismissed for getting his son a job with a company that did business with the U.N., is accused by Mr. Volcker of trying to trade secret bidding information in exchange for a bribe from the French oil inspections company SGS. Mr. Volcker has turned up no information suggesting SGS paid the bribe. But Mr. Volcker did find that some $1.3 million was wired to an account controlled by Mr. Yakovlev in Antigua, $950,000 of which “came from various companies – or persons affiliated with such companies – that collectively won more than $79 million in United Nations contracts and purchase orders.”

Yesterday, Mr. Yakovlev was taken into U.S. custody, where he pleaded guilty to bribery, wire fraud and money laundering charges. Mr. Sevan, however, maintains his innocence, and has written Mr. Annan to say “the charges are false, and you, who have known me all these years, should know that they are false.” What Mr. Annan knows will be the subject of Mr. Volcker’s next report, due in September. In the meantime, it will be interesting to see whether the Secretary General honors his pledge to lift Mr. Sevan’s diplomatic immunity if and when he is indicted.

What is clear is that the Secretary General intends to spin the Volcker report not as an indictment of his tenure in office, but – and this is amazing – as another reason to endorse his reform agenda and, therefore, his continuance in office. “As part of its investigation of Mr. Yakovlev,” a U.N. press release states, the U.N. “will separately make recommendations for further reforms, particularly regarding strengthened supervision and controls over individual procurement officers.”

Mr. Sevan’s graft is reprehensible, but the real scandal is that Saddam Hussein was able to manipulate the Oil for Food program and bend the U.N. to his will for such comparatively tiny sums. That didn’t happen because of U.N. oversight failures; it happened because of the U.N.'s political commitment to continued dealings with Saddam, something Mr. Annan endorsed personally, both through his own diplomatic initiatives and his stalwart defense of the prewar status quo.

Even now, the U.N.'s defenders like to paint Oil for Food as a great humanitarian effort slightly tarnished by a few overhyped instances of corruption. In fact, Oil for Food was a huge field of graft, helped by the fact that the man in charge of policing it was, based on the evidence Mr. Volcker has collected, in the service of the bad guys. Mr. Annan might think of this as yet another opportunity for “reform.” If he’s even remotely serious on that score, he can begin by reflecting a little harder on his own responsibility for the failures over which he, and nobody else, presided.

More details, from Claudia Rossett, the journalist who has driven this story.


August 05, 2005, 8:41 p.m.
Benon Sevan?s Finest Hour

Late in the day, former Oil-for-Food chief demands the U.N. open its books.

It’s rich that the former head of the United Nations Oil-for-Food program, Benon Sevan, is now protesting the secrecy surrounding U.N. records that he himself set up as confidential.

With Sevan a target of the U.N.-authorized probe into the Oil-for-Food scandal, Sevan’s lawyer has just released letters accusing the U.N.-backed investigators of “systematically” depriving Sevan of access to U.N. documents and other information needed to defend himself. Instead, writes Sevan’s lawyer, Eric Lewis, Sevan has been “barred access to all records of interviews of witnesses,” and provided only with CDs “relating to a limited number of files, requiring Sevan to view thousands and thousands of pages one page at a time.”

Sevan has a legitimate complaint. His lawyer is quite right that the U.N.'s “Independent Inquiry,” led by former Federal Reserve Chairman Paul Volcker, is engaging in high-handed and unjust tactics. Volcker’s committee has already leaked its intention to lambaste Sevan in a report due out early next week, and since last year has been choreographing the tone and timing of its reports in ways more attuned to managing the news than getting at the full truth. The result so far has been to spare U.N. Secretary General Kofi Annan while fingering a handful of his subordinates, and to delay until just before the opening of the U.N. General Assembly in September a “main report,” which Volcker has already telegraphed as likely to divert blame from the U.N. Secretariat (which ran the program) to the U.S. (which at least did more than any other U.N. member to try to clean it up).

Worst of all, Volcker has parked himself for more than a year atop U.N. records that might have helped outside investigators crack some of the Oil-for-Food schemes involving ties to terror, organized crime, arms rackets, and political bribery, all of which are salted among the more than $110 billion of Saddam Hussein?s deals administered by the U.N. under Oil-for-Food. It is welcome that Sevan is at last protesting in public the secrecy of these proceedings.

Unhelpfully Late Conversion

But it would have worked out far better for the U.N., and the rest of us, had Sevan achieved this appreciation of transparency and access back in the years when he was running Oil-for-Food, from 1997-2003. Today, Sevan remains on the U.N. payroll as a $1-per-year “adviser,” retained by the secretary-general with no apparent duties but to “assist” in the U.N.-authorized Oil-for-Food inquiry ? which Lewis, Sevan’s lawyer, is now denouncing on Sevan’s behalf as a cover-up in search of “cartoon villains, not the truth.”

It would be more helpful still, were Sevan’s boss, Kofi Annan, to conceive even at this late date a similar urge for open and honest U.N. dealings and public access to U.N. records. Such priorities have so far eluded the secretary-general, perhaps because ? as Sevan’s lawyer correctly points out ? the Volcker inquiry has applied a double standard. Sevan aside, the committee?s findings have imposed spit-shine discipline on a few obscure U.N. officials, while dismissing as merely “inadequate” Annan’s failure to inquire competently into conflicts of interest involving six-figure payments to his own son ? and excusing Annan’s growing list of memory lapses along the way. Nor has the Volcker team displayed much interest in broadening its focus on the secretary-general from his paternal oversights to his abject failure to run an honest or even adequately audited multibillion-dollar-relief program in Saddam’s U.N.-sanctioned Iraq.

In the protests Sevan is now airing over U.N.-related secrecy, opaque pronouncements, and warped reports, there has to be an oddly familiar ring for reporters, private investigators, congressional staffers, and possibly even U.S. prosecutors, who for some time have been trying to pry from the U.N. the kind of records to which Sevan believes he is entitled.

D?j? Vu

Sevan’s recent experience of scrolling one page at a time through highly limited sets of U.N. documents, trying to piece together shreds and scraps of information, is an excellent description of what it was like during the Oil-for-Food era for anyone outside the U.N. seeking to know who was doing U.N.-approved business with Saddam ? and on what terms. The United Nations did not disclose the names of the contractors, the price, quantity, or quality of goods. The U.N. provided no public accounting for the billions in bank balances, the interest collected, the letters of credit amended or even the $1.4 billion cut of Saddam’s oil sales collected by Annan?s secretariat to run the program (from which the Volcker inquiry is now drawing its $34 million budget, for which there has also been no public accounting).

Contrary to Annan’s and Sevan’s public statements, many of these vital details ? especially concerning contracts, bank statements, and letters of credit ? the U.N. did not even turn over to the U.S.-led Coalition Provisional Authority. According to numerous sources, what the CPA got from the U.N. when it inherited the program in late 2003 was a welter of corrupted files and incomplete documentation. For months the U.N. treasury did not even deign to forward information either to the CPA or the Iraqi central bank on the billions still in the U.N.-managed Oil-for-Food escrow accounts.

During Oil-for-Food, the U.N. insisted on confidentiality for Saddam and the clusters of front companies he dealt with in places such as Switzerland, Cyprus, Liechtenstein, and Panama ? an abuse of the Iraq relief program that even minimal sunlight could have done much to expose. But in the U.N.'s public records, for example, an outfit such as Al Wasel & Babel, designated last year by Treasury as a front company for Saddam’s own regime, appeared simply as a nameless contractor in the United Arab Emirates, selling such generic goods as “toilet soap” and “minibuses” ? contracts only later revealed to have involved hundreds of millions worth of suspect deals.

The names of assorted oil traders now under investigation, and in a few cases now under indictment, did not appear at all. And though the U.N. spewed stacks of paperwork, there was no way to glean from it such telling information as the dollar totals for the heaping portions of Saddam’s U.N.-vetted business doled out to contractors in such security-council veto-wielding states as France, China, and Russia, or to Saddam?s favored collaborators in terrorist-spawning states such as Saudi Arabia and Syria.

Since the scandal broke big-time following the overthrow in 2003 of Saddam, some of the U.N. Oil-for-Food records have been leaked, eked, or pried loose via showdowns between congressional investigators and the U.N. ? as finally happened with the release of Oil-for-Food?s secret and damning internal audits last January. Yet more documents have surfaced in Baghdad, providing insights and leads into an underworld of billions in graft, abuse, and the likely existence of hoards built up by Saddam under Oil-for-Food, which may be funding terror even today, in Iraq and beyond ? as a number of congressional hearings have recently highlighted.

The Cover-Up Continues

But loads of important information remains buried in the U.N. records to which the Volcker committee claims monopoly rights. Much of what has leaked from the U.N., or even been released by Volcker, appears in formats every bit as difficult to search as the artificially constricted files to which the frustrated Sevan would like easier access. Volcker released a set of “company tables” last fall, which gave at least some official confirmation of the names of some of the Oil-for-Food contractors, and totals for some of the deals. But Volcker apparently struck off the list some of the contracts, and in some cases the contractors, that turned up on Saddam?s agenda late in the program ? and following Saddam?s overthrow were then dropped, in some cases because the contractors ran for the hills. In other words, gone missing from Volcker’s presumably comprehensive list are some of Saddam’s fishiest U.N.-approved deals.

In any event, the format of Volcker?s Oil-for-Food tables qualifies less as a help to outside investigators than as a bad joke. Instead of an easily searchable spreadsheet (which one must hope the 65 staffers of the $34 million Volcker inquiry have managed to put together over the past year), Volcker released a locked pdf file ( http://www.iic-offp.org/documents/IIC%20Tables%2010-21-2004.pdf ), in type so small it could better serve as an eye test. There are no addresses, there are no contract details; there columns of sums paid out, but still no mention of the details one might assume a former Fed chairman would know are basic to evaluating a contract, such as quantity.

To date, almost every important disclosure about the billions in Oil-for-Food scams has been driven not by the U.N., or even by the Volcker inquiry, but by the press, by Pentagon auditors, by the CIA’s Iraq Survey Group, and by congressional investigators. Among these, only Congress wields direct leverage over the U.N. by way of funding. If Sevan is serious about opening up U.N. records, his best bet is to pay a call to congressional investigators, and start by opening up himself ? not just in his own defense, but about the inner workings of the entire Oil-for-Food program, including the complicity of his boss, Kofi Annan. Had the UN come clean years ago, this colossal scandal might never have happened.

? Claudia Rosett is a journalist in residence at the Foundation for the Defense of Democracies.

Get real BB,

saddam was obviously contained. It wasn’t as if he was massively bribing officials, pouring money into wmd, firing on our planes, subverting inspections, harboring, protecting, paying terrorists, and trying to assasinate former U.S. Presidents.

No, he wasn’t an imminent threat to the United States or our allies. If we would have just waited, we could have had the “international community” on board.

In all seriousness, good articles.


Swiss bank accounts have such an air of criminality to them. These primitive people obviosly have no concept of modern corruption. Don’t they know that they’re supposed to hold off on the larger forms of compensation until after they are out of their jobs so they can then be given new “jobs” paying hundreds of thousands if not millions of dollars to live the jet set lifestyle with their friends on the company tab? Apparently not. The results of either may be the same, but the immediate cash payment quid pro quo lacks the plausible deniability regarding impropriety of the alternative.


The people involved should spend the rest of their lives in jail.

Did it ever occur to you that WE do not want this thing busted wide open as some of our folks were also involved?

WSJ and NRO have no credibility.

Ironically the NY Post does a better job in their business section than the WSJ. Unfortunately, Murdoch uses it for his own personal right wingnut fish wrap and loses money keeping it running since the NY Posts inception.

It is a great way to spend money at a publically traded mutlinational corporation I might add.

Another couple of updates – one written before, and one after, the Volcker report was released:

Here’s the before:


The U.N.'s Spreading Bribery Scandal: Russian Ties and Global Reach

By Claudia Rosett, George Russell

September 6, 2005
Web site: http://www.foxnews.com/story/0,2933,168591,00.html

How widespread is the corruption at the United Nations? The multibillion-dollar Iraq Oil-for-Food scandal was just the beginning.

Now the issue is becoming the scale of corruption in the U.N.'s normal operations ? and which individuals and corporations are reaping the benefits of a network of bribery and conspiracy that investigators have just begun to uncover. So far, those identities are still a mystery ? but perhaps not for much longer.

Last Friday, federal prosecutors in Manhattan indicted the head of the U.N.'s own budget oversight committee, a Russian named Vladimir Kuznetsov, on charges of laundering hundreds of thousands of dollars worth of bribes paid by companies seeking contracts with the United Nations.

Kuznetsov, who has pleaded innocent, allegedly took a cut so openly that he had part of it deposited into the United Nations’ own staff credit union in New York.

Kuznetsov’s arrest is the latest twist in the scandal involving the U.N. procurement department, which was the longtime post of Alexander Yakovlev (search), another Russian U.N. official recently fingered by U.S. federal investigators.

On Aug. 8, Yakovlev pleaded guilty to federal charges of corruption, wire fraud and money laundering, after a FOX News investigation revealed his unauthorized ties with a U.N. contractor, IHC Services, and details leading to his secret offshore bank account. Federal investigators have now alleged that from 2000 on, Yakovlev did at least some of his grafting in partnership with Kuznetsov, transferring bribe money to him via the Antigua Overseas Bank in the West Indies. Allegedly the bribe money was obtained in exchange for providing inside information to companies seeking U.N. contracts.

The Yakovlev-Kuznetsov scandal joins a growing list of cases of U.N. misconduct, waste, theft and abuse. They include bribe-taking under Oil-for-Food, sexual abuse of minors by peacekeepers in West Africa, sexual and financial misconduct ? including outright larceny ? at U.N. offices in Geneva, and business ties between the son of Secretary-General Kofi Annan and one of the Oil-for-Food inspection firms hired with Yakovlev’s input, Swiss-based Cotecna Inspection (Cotecna has denied any wrongdoing).

In yet another scandal that emerged just last week, the United Nations disclosed that its Ukrainian peacekeeping contingent in Lebanon, including the commanding officer, has engaged in “significant financial misconduct” ? though the world body has refused to provide details of what was done wrong or how much money was involved.

Amid all this, the U.N. procurement scandal at headquarters stands out as especially important, because the graft is not confined to any one program, but radiates from the United Nations’ administrative core. Kuznetsov held an influential post in which he passed judgment on line items in the U.N. budget. Yakovlev, who held various portfolios in procurement during his 20-year career, dealt with contractors operating in places as far-flung as Africa, Asia and the Middle East. He even managed the architectural contract for the U.N.'s proposed $1.2 billion renovation of its Manhattan headquarters.

While there is no proof that in every case Yakovlev solicited bribes, there is by now enough evidence to invite investigation into all contracts he dealt with. Secretary-General Annan has ordered a review of the procurement department and put the organization’s new controller in charge, but has not lifted the secrecy behind which Yakovlev operated in the first place. The investigation, according to a U.N. spokesman, is “ongoing.”

The amounts at issue in this alleged Russian bribery ring are quite likely far larger than the “several hundreds of thousands” so far cited by federal investigators. The most recent report from Paul Volcker’s Oil-for-Food investigation dwelled at length on Yakovlev’s failed attempt in 1996 to solicit a bribe related to an Oil-for-Food contract. But Volcker also noted in passing that Yakovlev had received more than $950,000 in bribes from companies that “collectively won more than $79 million in United Nations contracts and purchase orders.”

Volcker did not elaborate, presumably because the graft involved U.N. activities outside his Oil-for-Food mandate. But the hundreds of thousands that according to federal investigators allegedly passed from Yakovlev to Kuznetsov via secret bank accounts in the West Indies hint at a pie even bigger than $79 million.

(The Volcker committee is slated to deliver its main report on Oil-for-Food on Wednesday. Read more by clicking here and read the preface to the report by clicking here.)

Procurement and budgeting corruption may escape Volcker’s scrutiny, but they are central to the mandate of Annan.

This scandal touches on almost everything the secretary-general is supposed to control. It is by way of procurement contracts, for goods and services ranging from cappuccino and paper clips at U.N. headquarters, to air freight services and food rations for peacekeeping troops worldwide, that the United Nations spends the billions contributed every year by member states ? of which U.S. taxpayers provide the largest slice.

So which contractors paid the six-figure bribes mentioned by federal prosecutors and by Volcker? And what did they get in return? In almost all cases, the United Nations keeps secret most details of its procurement contracts, including which procurement officials handled specific deals. The international organization still refuses to disclose the names of all the firms Yakovlev dealt with.

U.S. federal investigators, who are clearly not done with their own probe, have lifted the curtain only a little further.

So far U.S. authorities have cited four unnamed “foreign firms” in connection with the Yakovlev-Kuznetsov case, and provided only a bare description of their activities. One firm is described in the federal summaries as involved in “the airlifting of United Nations supplies to foreign countries.” Two more were described in Yakovlev’s guilty plea as firms helping additional firms get U.N. contracts ? companies known in U.N. parlance as “vendor intermediaries” ? which strongly implies that yet more companies are involved.

In a June 20 report, FOX News uncovered close personal links between Yakovlev and one “vendor intermediary.” That report led to his resignation from the United Nations, and his subsequent arrest. The firm identified by FOX News is IHC Services, a company with offices in New York and Milan, Italy, that in 1999 supplied nearly $2 million worth of portable generating sets to U.N. peacekeepers and, according to its CEO, Ezio Testa, has helped a wide variety of suppliers obtain other U.N. contracts.

A report issued last month by Paul Volcker’s U.N.-authorized probe into Oil-for-Food provides clear clues to the identity of yet another U.N. contractor that dealt intensively with Yakovlev though nothing in the report suggests any impropriety in the contractor’s U.N. dealings.

The report includes in its back pages a heavily redacted copy of a letter to Yakovlev from an unknown correspondent, dated May 4, 2005, and a memo from Yakovlev dated June 6, 2005. These documents include scribbled annotations by Yakovlev and were apparently released by Volcker solely as part of a set of handwriting samples. All personal and corporate names except Yakovlev’s were blacked out by the investigators.

Even so, the documents provide more information than perhaps Volcker intended. The letter discusses food services costs for U.N. peacekeeping missions in Liberia, Eritrea and Burundi, and refers to pricing and delivery amendments to the supply contracts. The memo includes references in Yakovlev’s handwriting to peacekeeping operations in Lebanon, Cyprus, Western Sahara and the Golan Heights.

Piecing together the details with information from other sources, FOX News has learned that the contractor referred to in both documents is Eurest Support Services Worldwide, or ESS, a food services company that has become one of the biggest suppliers of food rations for U.N. peacekeepers around the world. ESS is in turn a subsidiary of the Compass Group, a British-based firm that operates in 90 countries and bills itself as the world’s largest food services company, with revenues last year in excess of $21.6 billion.

When asked to discuss the Volcker documents, a spokesman for ESS declined, citing client confidentiality agreements.

But it is intriguing that ESS not only dealt with Yakovlev, but had close ties with IHC Services, the vendor intermediary with which Yakovlev had unauthorized ties. According to an ESS Web site press release, dated Sept. 13, 2004, ESS formalized these ties by establishing a special “Best in Class” business partnership with IHC last year. This partnership was hailed in the same press release by ESS’s CEO Peter Harris. The press release has since been removed from the ESS web site, though FOX News has obtained copies from two different sources.

The IHC-ESS partnership was to be managed, according to the press release, by an ESS official named Andy Siewert. According to a food service industry insider, Siewert was also the main liaison between ESS and the U.N. procurement department, and spoke frequently of meeting with Yakovlev, who in recent years managed many of the peacekeeping food service contracts.

Contacted by FOX News, Siewert referred all questions to the Compass Group media relations department, which referred all questions to a public relations firm, the Brunswick Group, as did ESS CEO Peter Harris. The Brunswick Group refused to comment on the grounds of client confidentiality.

Since 2000, ESS has won food contracts via the U.N. procurement department with U.N. peacekeeping forces in places such as East Timor, Liberia, Burundi, Eritrea, Lebanon, Cyprus and Syria. The company has just won an additional contract to feed the expanding peacekeeper force in strife-torn Sudan, which could grow to 15,000 personnel. U.N. officials estimate the total value of the institution’s current peacekeeping contracts with ESS at more than $237 million. Including optional renewals and add-ons the total could run as high as $351 million.

In a previous report this past June, FOX News identified another U.N. contractor that dealt with Yakovlev. This was an architectural firm, Renato Sarno, based like IHC in Milan, which was hired by the United Nations in 2001 under Yakovlev’s supervision on a $44 million contract to provide architectural services for the renovation of U.N. headquarters in New York. That contract was apparently dropped after the preliminary phase for reasons the U.N. has not explained, and it is now under scrutiny by congressional investigators.

The fact that both Yakovlev and the recently indicted Kuznetsov are Russian citizens raises additional urgent questions about where this scandal might lead.

Kuznetsov, while serving as a member, then chairman, of the U.N.'s General Assembly budget advisory committee, held a dual appointment as a Russian government official. Yakovlev joined the U.N. staff in 1985, when all Russian appointees were nominated by the former Soviet regime. Since at least 2000 Yakovlev has worked closely with at least two other Russians in the procurement department, as documented in e-mails and other records seen by FOX News, and according to some of his former U.N. colleagues he has been in frequent contact with the Russian embassy. Records seen by FOX News show that Yakovlev maintained an apartment in Moscow.

Yakovlev was also heavily involved in the United Nations’ hiring of inspection firms to monitor Saddam Hussein’s oil sales and relief purchases under the 1996-2003 Oil-for-Food program, in which Russia topped the global list of both oil buyers and relief suppliers. Indeed, in the first of three interim reports this year from the U.N.-authorized probe into Oil-for-Food, led by Volcker, Yakovlev was presented as a star example of U.N. integrity. Only after his wrongdoing was brought to light by FOX News did Volcker produce evidence that Yakovlev was himself embroiled in corruption schemes.

Federal investigations into the alleged U.N. procurement bribery ring are continuing. Volcker has promised to release the underlying documentation of his Oil-for-Food probe when it comes to an end, after the main report due out Wednesday and a wrap-up report due in October. That could help identify the unnamed parties Volcker referred to as holding at least $79 million worth of U.N. contracts on which they paid Yakovlev close to $1 million in bribes.

But the real responsibility for coming clean on U.N. contracts lies with the United Nations itself, where Secretary-General Annan’s pledges of reform must now contend with scandals spreading well beyond Saddam Hussein’s old oil patch.

Claudia Rosett is a journalist-in-residence with the Foundation for the Defense of Democracies. George Russell is executive editor of FOX News.

And the after – given the Volcker report runs to thousands of pages, it will take awhile before all the pieces are fitted together, but the initial read still looks plenty bad:

Wall Street Journal Editorial
Oil for Food as Usual
September 9, 2005; Page A16

“The scandal, quote, unquote, is, in my view, nonsense.” Thus did Denis Halliday, a former United Nations Assistant Secretary General, opine in November 2004 on the U.N.'s Oil for Food program. With the release Wednesday of Paul Volcker’s fourth report on Oil for Food, we have the clearest account yet of what this quote-unquote scandal is really about.

Let’s begin with what this scandal is not about, at least not fundamentally. It is not about the dubious business practices of the Swiss Inspections company Cotecna, which was improperly awarded a multimillion-dollar Oil for Food contract while employing Secretary General Kofi Annan’s son Kojo, although this taught us something about the nepotism that typifies U.N. dealings. Nor is it about Kofi Annan’s personal probity, which had been called into question by evidence that he was aware of, and tried to influence, the Cotecna bid. Mr. Volcker has found no conclusive proof on this score.

In other words, Oil for Food is not about some isolated incidents of perceived or actual wrongdoing during the course of a seven-year effort to maintain sanctions on Iraq, monitor its oil flows and feed its people. Oil for Food is a story about what the U.N. is. And our conclusion from reading the 847-page report is that the U.N. is Oil for Food.

To better understand the scandal, it helps to distinguish its political and managerial components. Responsibility for administering the program fell primarily to the U.N. Secretariat, which established the Office of Iraq Program (OIP) under the direction of Benon Sevan.

But the program itself was designed by members of the U.N. Security Council following protracted negotiations with the government of Saddam Hussein. It was the Security Council, for example, that approved Saddam’s right to choose the companies, contractors and middlemen with whom Iraq would do business, and through which the entire program was corrupted. The Security Council also ran its own supervisory “661 Committee,” named after the 1990 Security Council resolution that imposed sanctions on Iraq following its invasion of Kuwait.

The result of this bifurcated structure was that real responsibility for overseeing Oil for Food fell between two stools – and into the lap of Mr. Sevan and his staff. Mr. Volcker’s previous reports tell us that Mr. Sevan was in the pay of the Iraqi government.

The current report adds to our knowledge of what the Iraqis got for their money. For example, Mr. Sevan and his staff failed to inform the Secretariat and the 661 Committee of the extent of Iraq’s various kickback schemes – involving as many as 2,500 companies – and dismissed media reports about them as “groundless allegations, provocative suggestions and factual mistakes.” Mr. Sevan also fought tooth-and-nail the Bush Administration’s successful attempt to impose retroactive pricing standards on the sale of Iraqi oil, which helped curb some of Saddam’s abuses.

However, part of the reason Mr. Sevan was able to get away with his malfeasance was that neither the Secretariat nor the 661 Committee showed any appetite to exercise their fiduciary obligations. Mr. Annan testified to the Committee that Mr. Sevan worked directly for the 661 Committee. Yet as the report acidly notes, “the difficulty with the Secretary-General’s view is that he appointed Mr. Sevan and he created OIP in the first place.” Maybe former Enron CEO Kenneth Lay should call Mr. Annan to testify as an expert witness at his trial.

Mr. Annan is also on record telling the Committee he viewed Oil for Food as “a very transparent operation.” Yet as the report shows, Mr. Annan was himself complicit in covering up Iraqi violations of the sanctions regime. Specifically, Mr. Annan was aware of the kickback issue from at least February 2001, yet “the Secretary General’s quarterly reports never mentioned the emerging problem.” (See the report excerpt nearby.)

Why Mr. Annan chose to see no evil on Iraqi sanctions violations, much less use his bully pulpit to denounce it (as he later denounced the Iraq war as “illegal”), is an interesting question. Our sense is that the U.N. Secretariat as a whole took the view that the sanctions regime was immoral and that Saddam was within his rights to break free of it.

Whatever the case, the Secretariat had a more than willing partner in the 661 Committee, and for reasons that are more easily comprehended. Iraq regularly steered contracts to Security Council members it believed were friendly to its political interests. Russian companies, for instance, did $19 billion in oil deals with Iraq, and French companies sold Saddam $3 billion in humanitarian assistance (much of which, the report notes, was diverted for Iraqi military purposes).

It’s no coincidence, comrade, that France and Russia, as well as China (which did its own thriving business with Saddam) consistently downplayed the kickback allegations and pushed to have the sanctions regime eased. Only the U.S. and Britain made any effort to monitor Oil for Food for fraud, although even these efforts were lackluster until the Bush Administration came to office. We should also note the U.S. was itself guilty of looking the other way when it came to Iraq’s oil smuggling through allies Jordan and Turkey.

So it was that the largest fraud ever recorded in history came about. Press reports often cite the overall size of Oil for Food at $60 billion, but Mr. Volcker’s report makes clear that the real figure was in excess of $100 billion. From this, Saddam was able to derive $10.2 billion from illicit transactions. But the important point is that he was able to steer 10 times that sum toward his preferred clients in the service of his political aims.

None of this happened by accident. Mr. Volcker’s report is replete with examples of incompetent U.N. oversight and tales of political wrangling among the permanent members of the Security Council. But the abiding fact is that it was the Western powers, not Saddam, who wanted Oil for Food at virtually any cost, because it offered the appearance of a meaningful policy in the absence of a real one, namely regime change. And it was the political convenience of this chimera that led the U.S. and the U.K. to tolerate, and the rest of the Security Council to feast on, the opportunities for corruption that were inscribed in the very nature of the program.

As for the U.N., it proved its worth to Saddam as the one hall of mirrors in which such shenanigans could take place. Yet even now we are told that “at least” Oil for Food fed the Iraqi people when they were on the edge of starvation, and this is accounted a U.N. success. That is false. Oil for Food offered a lifeline of cash and influence to a regime that was starving its people. The program did not corrupt the U.N. so much as exploit its essential nature. Now Mr. Annan wants to use this report as an endorsement of his “reform” proposals. Only at the U.N. could he dare to think he could get away with this.

[quote]BostonBarrister wrote:
And the after – given the Volcker report runs to thousands of pages, it will take awhile before all the pieces are fitted together, but the initial read still looks plenty bad: [/quote]

Before you fit all the pieces together you’ll want to make sure you actually have all the pieces.

US ‘approved’ oil smuggling
The largest oil consignment smuggled out of Iraq took place with US approval just weeks before the April 2003 invasion, according to a United Nations report.

The Independent Inquiry Committee has spent the past year examining the now defunct UN oil-for-food program.

The report blamed UN officials and the Security Council for mismanagement that allowed former leader Saddam Hussein to divert more than $10 billion from kickbacks and smuggling.

But it also faulted the United States and other Security Council members for ignoring violations of UN sanctions.

All funds raised from the sale of the oil was supposed to be used to buy humanitarian goods.

The aim of the program was to alleviate the the impact on ordinary Iraqis of sanctions imposed in mid-1990 when Saddam invaded Kuwait.

While US Navy ships were patrolling the Gulf in February 2003, making a show of boarding and searching leaky dhows and small ships, they turned a blind eye to tankers carrying $54 million of Iraqi oil under the scheme on Jordan’s behalf, the report said.

A total of 7.7 million barrels of oil was smuggled through the Khor al-Amaya oil terminal in at least seven shipments in February and March 2003, it said.

The sales were arranged by a businessman in Jordan named “Mr Shaheen” who told an Iraqi official he had “the Pentagon in one pocket and the CIA in the other.”

The oil was bought at a heavily discounted price of around $7 a barrel, the report said.

If it had been sold at fair market value within the oil-for-food program, it could have earned $200 million to buy humanitarian goods.

“The illegal sales of oil from Khor al-Amaya came at a staggering cost to the program in terms of potential revenue foregone,” the report said.

The 1,000-page report showed shipping records from a tanker included instructions for the ship’s captain saying the US Navy was “already aware about your passage and itinerary.”

The investigation said the smuggling in early 2003 was “the single largest episode of oil smuggling” under the oil-for-food program and occurred “with the approval of the United States government.”

“The governments of Jordan and the United States have declined the Committee’s requests for interviews and information concerning the smuggling of oil from Khor al-Amaya,” the report said.

Earlier this year the chief of staff for the US mission to the United Nations admitted Iraqi oil sales with Turkey and Jordan at the time violated UN sanctions.

“We recognised that both countries were acutely vulnerable to a cutoff of their trade with Iraq and that our strategic interests on balance argued against exposing them to that risk,” Thomas Schweich said.

Documents: U.S. condoned Iraq oil smuggling
Trade was an open secret in administration, U.N.
February 2, 2005
(CNN) – Documents obtained by CNN reveal the United States knew about, and even condoned, embargo-breaking oil sales by Saddam Hussein’s regime, and did so to shore up alliances with Iraq’s neighbors.

The oil trade with countries such as Turkey and Jordan appears to have been an open secret inside the U.S. government and the United Nations for years.

The unclassified State Department documents sent to congressional committees with oversight of U.S. foreign policy divulge that the United States deemed such sales to be in the “national interest,” even though they generated billions of dollars in unmonitored revenue for Saddam’s regime.

‘Either silent or complicit’

Rep. Robert Menendez, a New Jersey Democrat on the House International Relations Committee, one of five panels probing the oil-for-food program, told CNN the United States was “complicit in undermining” the U.N. sanctions on Iraq.

“How is it that you stand on a moral footing to go after the U.N. when they’re responsible for 15 percent maybe of the ill-gotten gains, and we were part and complicit of him getting 85 percent of the money?” Menendez asked.