The UN Oil-for-Food Program: Who Is Guilty?

The shadow of potential disasters, some global in scope, mostly man-made in origin, hangs heavy over the fifth year of the new millennium. There is a widespread feeling that our planet is out of sorts—maybe out of control—and that there is little sign of the leadership or strategy that might get it going in the right direction again. The desire for wholehearted international action that could at least slow down a universal catastrophe like global warming is lacking. Expediency rules the policies of most of the governments mainly responsible, although it is encouraging that several governments, the governors of at least ten states in the United States, and a number of major corporations are beginning to take steps to curb carbon emissions on their own. Nonetheless, it seems still to be widely accepted that the short-term interests of the economy and the industrial sector outweigh the need to avert a global disaster that will, in time, blight the lives of billions of people, and animals as well.

Thomas L. Friedman wrote in a recent article about the political situation in the United States:

It is the yawning gap between the huge problems our country faces today…and the tiny, fragile mandate that our democracy seems able to generate to address these problems that is really worrying.¹

Reading the final declaration of the September 2005 summit meeting at the United Nations, which brought 155 heads of state and government to New York, one might reach a similar conclusion about the world in general. International politics, as reflected in the United Nations, in spite of the efforts of Secretary-General Kofi Annan, now largely concern compromise and half-measures. The North–South difference has succeeded the forty-year East–West deadlock as a brake on international policy and action.² National self-interest and short-term thinking seem, for the time being at least, to have overcome practical idealism and an urgent sense of common purpose.

It is hardly surprising that the United Nations,³ originally the embodiment of practical idealism on an international scale, is not thriving in such an atmosphere. In June 1945, when the representatives of fifty states signed the Charter at San Francisco, the idea of a new world inspired a sense of optimism and a spirit of enthusiasm. It was to be a world where the ideals and principles of the Charter would be paramount. The victorious wartime alliance was widely and confidently expected to live on indefinitely as the backbone of the future peace. With the possible exception of a very few American, British, and Soviet officials, the delegates at San Francisco had never heard of nuclear weapons. Nor had they heard of the balance of terror, the cold war, interdependence, environmental degradation, the population explosion, the information revolution, globalization, global terrorism, global warming, global poverty, global epidemics, nuclear proliferation, the threat of failed states, and other phenomena that are now part of our daily lives. The positive, even visionary, international atmosphere of 1945 evaporated with the cold war and has never been recaptured.

Obviously the United Nations should be seen as an indispensable universal organization through which governments can more effectively address the great problems of our time. In 2005, therefore, there has been much talk of reforming the world organization, and some tentative steps toward that ever-elusive goal have been taken. The September 2005 summit meeting produced a long and much-qualified manifesto that included some signs of genuine progress, such as the creation of a peace-building commission intended to assist countries emerging from conflict to avoid falling back into it again, and the recognition of the obligation of governments in the UN to protect suffering populations under certain conditions, particularly genocide, if the government in question is unable to do so or is itself inflicting the suffering. The almost daily atrocities in Darfur painfully demonstrate the very real obstacles to be overcome before this becomes a practical proposition.

1.

A strong independent report on some particular UN activity may also provide an incentive for reform. The so-called Volcker Report⁴ on the Iraq Oil-for-Food Program, and especially the overwhelming interest of the press in the more gossipy aspects of it, hung over the year of UN reform like a recurrent thunderstorm at a community picnic.

The Oil-for-Food Program was created in 1996 by the UN Security Council in an agreement with Saddam Hussein. It was intended to counter the calamitous shortages of food and other essentials in Iraq caused by the sanctions that had been imposed by the UN after Iraq invaded Kuwait in 1990 and that continued after the Gulf War ended. Among their other provisions, the sanctions provided that Iraq could not sell its oil internationally until it showed that it had destroyed any weapons of mass destruction that it possessed and had shut down any programs to produce them. The Oil-for-Food Program provided that the proceeds from specially permitted sales of Iraq’s oil were to pay for food, medical supplies, and other basic necessities for Iraq’s 26 million people. This enormous operation lasted from 1997 until the invasion by the US coalition in March 2003.

The Independent Inquiry Committee was established on the initiative of Secretary-General Kofi Annan and with the agreement of the Security Council in April 2004, after serious charges concerning the management of the program, based originally on captured Iraqi documents, had been made and aired with much colorful exaggeration in the press. Among the charges were claims that UN officials and many others had benefited from illegal payments in their dealings with Saddam Hussein’s government, which had itself received kickbacks and other illegal payments in return for granting contracts to various private companies. The Inquiry Committee was to look into a question of fundamental importance for the United Nations: the competence, accountability, and integrity of the UN, and especially of its Secretariat, in carrying out a large and complex emergency program.

In six volumes containing 2,160 pages in all, produced at a cost of about $35 million paid out of Oil-for-Food Program funds, the Volcker Report is certainly the most detailed and searching ever undertaken. The Volcker team’s seventy-five investigators and other staff, with their seemingly limitless access to people, information, e-mails, papers, business dealings, correspondence, itineraries, and telephone logs, were able to expose even the smallest details of an enormously complicated program. The report’s final volume, for example, lists in 192 pages of fine print “Humanitarian Goods Purchased by the Government of Iraq” classified by the “Supplier” of the goods, all the way from “Tipper Truck; Trailer; Spare parts” at $6,342,840 from Russia, to “Mydolate Eye Drops” at $9,500 from Pakistan.

There are also 142 pages of “Surcharge Payments Associated with a Contracting Company” (i.e., extra, illegal payments above the market price made by companies dealing with Iraq in order to get contracts), thirty-five pages listing “Known Underlying Oil Financiers,” and, in fifty-five pages, “Oil Sales Summary by Contracting Company and Contract.” Other volumes go into immense detail about the administration of the program, including matters of accountability and of individual behavior and personal integrity. A number of international operators, including the recently arrested South Korean businessman Tong-Sun Park, were investigated by Volcker’s staff to find out whether they were illegitimately implicated in dealings with the Oil-for-Food Program. Practically everybody even remotely involved with Oil-for-Food seems to have been interviewed except Saddam Hussein and his ministers, the principal culprits.

The last and largest volume, “Manipulation of the Oil-for-Food Programme by the Iraqi Regime,” came out almost two months after the rest of the report. It deals with vast sums of money and hundreds of oil and other companies, government agencies, and banks, as well as with Saddam Hussein’s success in getting surcharges and kickbacks for oil and humanitarian supplies under the program. But it has attracted far less sustained attention and few of the righteous cries of scandal that greeted the previous volumes, which dealt mostly with the UN management of the program. A former French ambassador to the UN, it is true, is under investigation in France for allegedly trying to profit from the program, and the Indian foreign minister, Natwar Singh, has had to resign for similar alleged reasons, but public interest in the final volume quickly flagged.

The charges against the UN Secretariat, on the other hand, were front-page news almost throughout the more than one-year duration of the Volcker inquiry. Neoconservative journalists and politicians in particular, doubtless recalling the UN’s and Kofi Annan’s lack of enthusiasm for the invasion of Iraq and the Security Council’s refusal to endorse the US invasion in 2003, indulged in furious accusation and exaggeration, sometimes even attacking Paul Volcker himself. William Safire of The New York Times, an early advocate for this group, proclaimed the Oil-for-Food Program to be “history’s largest swindle,” at one point claiming that $20 billion was stolen from the program. A reporter on MSNBC referred to “the $100 billion oil for food scandal” when that sum was in fact the total amount of the entire program’s transactions. Long before the inquiry’s final report was available, Senator Norm Coleman of Minnesota was demanding the resignation of Secretary-General Kofi Annan, and others chimed in to similar effect. The UN Secretariat was widely denounced as an “oil-drenched” sea of corruption and incompetence. Outraged legislators in Albany canceled a carefully worked out and mutually advantageous plan for temporarily rehousing the UN while its fifty-five-year-old building underwent a much-needed modernization.

Now that the Volcker Report is complete, it is well worth a look at what it actually says.

2.

A document seldom quoted is the press release entitled “Independent Inquiry Committee Finds Mismanagement and Failure of Oversight: UN Member States and Secretariat Share Responsibility,”⁵ issued by Volcker and his two colleagues when the main body (five volumes) of the report was released. This release provides a valuable summary of the inquiry’s main conclusions. It in no sense exonerates the UN Secretariat from mismanagement or failure of oversight; but it does provide a much-needed, and balanced, account of the inquiry’s general verdict, and the unusual difficulties the program faced, as well as the actual sums of money involved.

The release also reminds the public of what the Oil-for-Food program had actually done. In the Inquiry Committee’s words:

This very large and very complex Programme accomplished many vital goals in Iraq. It reversed a serious and deteriorating food crisis, preventing widespread hunger and probably reducing deaths due to malnutrition. While there were problems with the sporadic delivery of equipment and medical supplies, undoubtedly many lives were saved. At the same time things went wrong, damaging the reputation and credibility of the United Nations…. However, responsibility for what went wrong with the Programme cannot be laid exclusively at the door of the Secretariat. Members of the Security Council and its 661 Committee⁶ must shoulder their share of the blame in providing uneven and wavering direction in the implementation of the Programme.

Volcker and his two colleagues concluded that the Security Council failed to define adequately both the policies and the chain of administrative responsibility governing the program, so that neither the Council and its 661 Committee nor the secretary-general and the Secretariat were in overall control. Nor, in the Inquiry Committee’s opinion, did the secretary-general and his deputy in overall charge of the program adequately recognize their own responsibility either for rigorous administrative oversight or for ensuring that critical evidence reached the Security Council on such matters as Iraq’s violations of the sanctions or its manipulation of the Oil-for-Food Program. As a result Saddam Hussein, to whom the Security Council had given the right to choose and negotiate both with the oil companies that would buy and sell Iraqi oil and with other contractors under the program, soon found ways to make a large profit from oil surcharges as well as kickbacks from other companies under contract.

In a section entitled “Illicit Income” Volcker’s press release also puts the relative size of the illicit income from Oil-for-Food and that from sources outside the program in perspective:

…It is important to note that the regime derived far more revenues from smuggling oil outside the Programme than from its demands for surcharges and kickbacks from companies that contracted within the Programme…. The value of oil smuggled outside of the Programme is estimated by the Committee to be USD 10.99 billion as opposed to an estimated USD 1.8 billion of illicit revenue from Saddam Hussein’s manipulation of the Programme.

Smuggling on such a scale could hardly be secret, but it was the position of the United States, tacitly accepted by the Security Council, that since the smuggled oil was largely going to Jordan and Turkey, two friendly countries that previously had done much business with Iraq and had been particularly hard hit by the UN sanctions, that the council should turn a blind eye. This informal exemption had been in place since 1991. (Those illicit revenues were not used by Saddam Hussein to pay for food and medicine but, among other dictatorial purposes, to build presidential palaces.)

Volcker states that in seven years more than $100 billion in complementary transactions—over $64 billion in sales of Iraqi oil through private companies, and $37 billion thus raised for food, medical supplies, etc.—were carried out through the Oil-for-Food Program.⁷ The $64 billion in oil sales made the program possible. A vast number of oil and other companies were involved, from the most obscure firms to pillars of the market like Volvo and Siemens, with whom Saddam Hussein’s people could try to arrange surcharges and kickbacks. The UN Secretariat is reported to have given information to the Security Council informally—although not in the secretary-general’s quarterly reports on the program—on more than seventy occasions about pricing irregularities which showed that Saddam Hussein’s regime demanded and received surcharges or kickbacks.

The council was more interested in any deal that might be a breach of the sanctions forbidding Saddam’s regime to procure weapons or materials for military purposes. Professor John G. Ruggie of the Kennedy School at Harvard explains that

The United States and Britain, along with the other members of the UN Security Council, designed and oversaw the oil-for-food program. The United States alone had 60 professionals review each of the 36,000 contracts awarded—a group more than twice the size of the UN oil-for-food office’s professional staff. America and Britain held up 5,000 contracts, sometimes for months, to ensure that no technology was getting through that Saddam Hussein could use for weapons purposes. But they held up none—not a single solitary one—on the grounds of pricing irregularities, even when alerted by UN staff.⁸

(Actually, in 2001, a member of the 661 Committee had two contracts put on hold because of allegedly high “service-related components.”)

The Volcker Report describes in detail how the Iraqi manipulation of the Oil-for-Food Program relied on the Security Council decision that the Iraqi regime, not the UN, would choose and negotiate with oil buyers and other contractors. This arrangement not only made it possible for Iraq to obtain illicit income; it also gave Iraq political and economic leverage. Iraq used this leverage primarily in an effort to secure support in the Security Council for overturning of the sanctions. Oil allocations, therefore, went first to those countries which the Iraqi regime thought might be influential for this purpose. About one half of the allocations went to Russia, with France as the next-largest contractor. Surcharges on oil contracts from ten to thirty cents a barrel were paid into Iraqi embassies or into Iraqi bank accounts in Jordan or Lebanon, both well outside the range of UN oversight.

In late 2000, when oil traders balked at Iraqi attempts to impose a fifty-cent-per-barrel surcharge, UN overseers warned the traders that surcharges were illegal. However, such surcharges could be, and were, easily disguised as “loading fees” or as Iraq’s expenses for transport. By the end of 2002 the demand for Iraqi oil decreased, and Iraq discontinued the surcharges. By far the largest source of Iraq’s illicit income—some $1.5 billion—came from kickbacks from the 2,200 companies Iraq had selected to provide humanitarian goods. Hidden from the UN, these kickbacks went straight into Iraqi bank accounts or front companies.

The inquiry committee was extremely critical of the management of Benon Sevan, the director of the program, whom the UN deputy secretary-general, Louise Frechette, referred to as a “one-man band.” The committee charges that Sevan, a Cypriot citizen, failed to monitor the sanctions and withheld critical evidence from the 661 Committee on kickbacks and surcharges; that he failed to effectively coordinate the nine other UN agencies involved in the program; and that he did not give sufficient support to the oversight activities of his own Program Management Division.

Sevan was the only member of the UN Secretariat charged by the Volcker group with receiving illicit funds. An Iraqi document listed Sevan as being a “beneficiary” of an allocation of 8,800,000 barrels of oil contracted for by the African Middle East Petroleum Company Inc., registered in Panama.⁹ According to the Volcker Report this allotment eventually netted Sevan just under $150,000 for services rendered to the African Middle East Petroleum Company, a charge that Sevan has hotly denied.¹⁰

Another member of the Secretariat, also from Cyprus, Joseph Stephanides, who worked for the Security Council’s 661 Committee, was charged by the Volcker inquiry with improperly divulging information on competing bids for contracts to the United Kingdom mission at the UN. He was summarily dismissed by the secretary-general but was recently reinstated, and retired, after a UN joint disciplinary committee concluded that his dismissal was unjust.¹¹

3.

Another matter that particularly obsessed the press was a variety of charges related to Kofi Annan personally. These concerned a Swiss accounting firm, Cotecna, which, in 1998, won a contract to inspect items being sent to Iraq under the Oil-for-Food Program. It is highly unlikely that the secretary-general, who is responsible for the entire range of UN operations, would have known in detail about this or any other of the 36,000 contracts involved. When, however, it was discovered that Secretary-General Annan’s son, Kojo, had once worked at Cotecna—albeit solely on Africa—and for a few years, under Swiss law, had continued to receive a small annual payment from it, the heady possibility of nepotism set the press off in full cry to discover whether Kojo Annan had exercised pressure on his father to get the contract for Cotecna.

One of the most surprising things about the Volcker inquiry was the active and tendentious public discussion of its investigations before the committee itself had reached any of its conclusions. In particular, speculations on the rumored charges against Kofi Annan and Kojo Annan, aired ad nauseam in the press, especially in the United States, were eventually dismissed as baseless by the inquiry committee, but not before Kofi Annan’s and the UN’s reputation had been seriously damaged. As for Kojo Annan, he was also alleged to have used his father’s position for his advantage in various other ways.¹²

The Volcker committee press release concluded bleakly, “The Committee also confirms its prior finding that no evidence exists that the Secretary-General influenced, or attempted to influence, the procurement process in 1998 leading to the selection of Cotecna.” It goes on to restate “its earlier conclusion that the Secretary-General was not diligent and effective in pursuing an investigation of the procurement of Cotecna”—a reference to the earlier failure to investigate Kojo Annan’s relationship with Cotecna. “A resolution of the questions much earlier would likely have resolved the issues arising from the Cotecna bid process and the consequent conflict of interest concerns.” Kofi Annan, in a public statement on television, said that he was distressed that Kojo had not kept him fully informed of his business connections.

There is no doubt, as Secretary-General Annan has himself publicly stated, that there was a lack of adequate oversight of this very important and complex program. No one at the UN, which largely remained silent under a barrage of innuendo and abuse while the Volcker committee was at work, has attempted to excuse this failure either on the grounds that the UN does not have the administrative and management facilities to run such a program adequately at short notice, or that the program was operating under extremely difficult conditions in a country completely controlled by a particularly ruthless dictator, who was able to choose, and deal directly with, the contracting companies involved.

Volcker and his colleagues rightly stress the vital importance and urgency of reforming the UN’s management and oversight process. Their main proposals call for the appointment of a chief operating officer with full control over all aspects of UN administration and of an independent oversight board responsible for all independent auditing, investigation, and evaluation activities. These reforms make excellent business sense. It remains to be seen whether such powerful and independent positions can be installed in a 191-member intergovernmental organization whose members attach great importance to their own role in controlling the administrative and financial side of the organization, and whose charter designates the secretary-general as “chief administrative officer.” At the very least the Volcker inquiry has memorably emphasized the importance of such oversight and administrative control and has provided a major incentive for reform.

4.

The short- and long-term damage created by some of the press handling of the so-called “Oil-for-Food scandal” is another matter. According to the Volcker Report, in June 2003 Ahmad Chalabi, the Iraqi exile who had considerable influence on the US decision to invade Iraq, informed Edward Mortimer, a senior member of the secretary-general’s office, that “he was going to initiate a public campaign against the UN for having enabled the Iraqi regime to make substantial profits under the program.” Chalabi, now deputy prime minister of Iraq, is an extremely versatile politician. He seems to have been remarkably successful in pursuing this campaign, especially with his neoconservative friends in Washington. In January 2004 al-Mada, a Baghdad newspaper, published the list mentioned above of the individuals and firms that had received oil allocations from Saddam Hussein’s regime, and listed the name of Benon Sevan. This was quickly taken up in Washington by the press and by various US congressional inquiries, another fertile source of combustible material to feed the “Oil-for-Food scandal.”¹³

During the months before the final conclusions of the Volcker inquiry were published, the scurrilous and prolonged political attack on the credibility and integrity of the secretary-general and the Secretariat, especially by neoconservative politicians and writers, gained credibility with many reasonable people as well. This kind of mud sticks. It didn’t matter that the Volcker committee found, after examining the secretary-general’s personal finances, that Kofi Annan, far from having received any illegitimate benefit, is a dedicated and generous contributor to charities and that he gave the entire financial award he received with the Nobel Peace Prize to the United Nations. The world organization has been pictured as a morass of corruption, nepotism, and incompetence on the basis of charges that have now mostly been dismissed by the Volcker committee, while other, much larger anomalies have been ignored.

To give only one example—about $9 billion that was on the books of the Oil-for-Food Program when the United States invaded Iraq in March 2003 was handed over, on instructions from the Security Council, by the UN office of the Iraq program to the Coalition Provisional Authority in Iraq. It is believed that this sum was then passed on by the Authority to the Halliburton Company, but it has never been accounted for or audited. The vanished $9 billion, nearly five times as much as Saddam Hussein’s illicit gains from the Oil-for-Food Program, has received little attention, especially from those who talk of “history’s largest swindle.”

The net alleged illicit financial gain by UN personnel in the Oil-for-Food Program amounts to one hotly disputed sum of about $150,000—certainly very serious, but hardly making the UN an “oil-drenched sea of corruption.” The question of possible individual corruption preoccupied the press to the almost complete exclusion of the inquiry’s main work, its painstaking and voluminous reporting and recommendations on shortcomings in management, administration, and oversight.

While it was working, the Oil-for- Food Program was widely regarded as remarkably successful. It helped 26 million Iraqis to survive the rigors of sanctions, thus making it possible to keep the sanctions in place. Among other things, the sanctions crippled Saddam Hussein’s ability to acquire materials for weapons of mass destruction, assuming that he ever intended to revive his WMD program, which had been effectively destroyed in the early 1990s by, or under the direction of, the UN’s inspectors. Because the inquiry’s report on Saddam Hussein’s manipulation of contracts with hundreds of firms came out some six weeks after the main body of the report, the general public did not become aware of the main source of Iraq’s illicit income—oil smuggled to Jordan and Turkey under the blind eye of the Security Council—until it had drawn its own conclusions about the UN and tired of the subject.

The Volcker Report is a remarkable document, a huge and often repetitive compendium of information largely about shortcomings in the United Nations’ capacity for management and administration. The committee recognizes that the UN did not have the infrastructure, the management skills, or the expert personnel to run such a vast program at short notice. The UN was not originally set up to run complex operations, but almost from the outset it steadily developed programs in the field, especially in peacekeeping, without ever providing adequate permanent structures to support them. Instead, the programs were subject to bureaucratic rules not designed for emergency field operations. The Secretariat thus often had to rely on a large degree of improvisation.

Such a haphazard way of working would not be acceptable for the foreign operations of the larger and wealthier member states. These governments accepted it in the case of UN operations, however, rather than finance a more comprehensive, long-term support structure for field operations. Benon Sevan, whom the Volcker committee describes at one point as having a reputation for being an effective troubleshooter in difficult places like Afghanistan, was accustomed to this improvised way of working, which—quite aside from the charges that he received money illegally—may partly account for the “one-man-band” management style ascribed to him and heavily criticized by the inquiry.

The Inquiry Report frequently acknowledges that the Oil-for-Food Program did what it was supposed to do. It states, for example, in Vol. I, p. 13,

The Committee also believes that the successes of the Programme, although not extensively chronicled here, should not be buried by the allegations of corruption that have enjoyed so much attention in the media and elsewhere.

Unfortunately, through no fault of the Volcker committee, that burial is exactly what did happen. Thus, instead of being welcomed as a significant and successful achievement of the UN as it deserves, the Oil-for-Food Program has come to be seen by many people as a synonym for its disgrace.

5.

Of course there are much larger and more important questions than unwarranted damage to personal reputations and to the credibility of the world organization itself. There is nothing new about the ideological dislike of the UN in some circles in Washington, and the Oil-for-Food “scandal” was certainly a useful distraction from the steadily worsening news from Iraq.

No one I know of in the Secretariat doubts for a moment that the UN’s mechanisms for management, administration, and accountability need to be drastically improved, but there will have to be enough support from governments to do it effectively.

In recent months some longtime supporters of the UN have worried about “saving the UN.” That is not the problem. If there is a general question worth considering, it is, Can our planet be saved? And how can the UN play the most constructive role in what will have to be a titanic global effort? Referring to the 2005 UN summit meeting, which was supposed to help answer the latter question, Mary Robinson, former president of Ireland, more recently UN high commissioner for human rights, has commented, “What we saw was a 20th century institution—built on governments primarily concerned with their sovereignty—failing to address the complex and urgent problems of a 21st-century world that demand shared responsibility and joint action.” She observed that “vacillations in the General Assembly chamber seemed to energize the people outside it,” but so far the efforts by governments, NGOs, progressive corporations, and enlightened billionaires inevitably fall far short of what is required.¹⁴

Citizens of all countries, and especially of those countries which, at their best, are capable of taking on large international responsibilities, need to convince their governments to recognize the urgency of problems such as global warming and nuclear proliferation that may threaten the future of the human race; that the time to do something about them is now very short; and that expediency and half measures will no longer do. Whole-hearted collective action is needed, and it is needed now. Governments should use the existing UN structure as the foundation for coordinating collective action that is essential to a decent future. If that were to happen, reform of the UN might become really substantial.

—January 12, 2006