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Iraq: High-Level Probe To Target Suspected Abuse Of Oil-For-Food Program

The UN secretary-general plans to form an independent body this week to investigate charges of abuse of the UN-administered oil-for-food program in Iraq, which is believed to have lavishly benefited former ruler Saddam Hussein. But still unclear is the extent to which UN Security Council members will support the probe. The 15 Council members had major influence over the awarding of contracts under the program, many of which benefited companies from council states.

United Nations, 31 March 2004 (RFE/RL) -- The United Nations is moving ahead with an investigation into persistent charges that a wide range of actors helped Saddam Hussein manipulate the UN's oil-for-food program.

UN Secretary-General Kofi Annan is expected to name panel members this week. He has sent the UN Security Council a letter detailing the workings of the inquiry, which will look into charges of corruption by UN officials and outside firms dealing with Iraq under the now-defunct program.

But it is not yet clear whether the Security Council will formally endorse the investigation, which would be expected to review the Security Council's own role as main overseer of the oil-for-food program for nearly seven years.

"The Iraq committee was essentially acting as Gosplan in the old Soviet economy, deciding every contract for the entire Iraqi economy -- and that kind of system is bound to be inefficient and subject to corruption."
All contracts for oil sales were approved by a Security Council panel -- known as the 661 Committee -- which also oversaw most contracts for the purchase of relief supplies.

UN spokesman Fred Eckhard says there are two reasons the inquiry will need the Security Council's support: "It's not within [Annan's] competence or his authority to initiate an investigation of the actions of governments or private companies, so in putting together this panel, he's looking for a nod (signal) from the council. And second, without the full cooperation of governments and companies, the investigation is not likely to succeed."

The Security Council imposed sanctions on Iraq in 1990 for its invasion of Kuwait and linked their lifting to the elimination of Iraq's weapons of mass destruction. To ease the humanitarian impact, it approved a program at the end of 1996 aimed at using Iraqi oil revenues to provide goods to Iraqi citizens. But the Security Council, growing increasingly divided over Iraq, gave the government control over whom it could sell oil to.

It is believed that Hussein's regime demanded surcharges from buyers shortly after the program went into effect and that the amount rose over time.

Under the scheme, Iraq would sell oil at a UN-approved price to scores of little-known "middlemen" companies. It would demand a secret fee for each barrel, which the middlemen companies would pass on when they sold the oil to larger oil-trading firms. The middlemen would deposit the surcharge into bank accounts controlled by the Iraqi regime.

In this way, the Iraqi regime is estimated to have gained $4.4 billion, according to the U.S. General Accounting Office.

Oil-trading experts say the practice had become institutionalized by the end of 2000. In 2001, the United States and Britain attempted to block the surcharge practice by delaying the 661 Committee's approval of the official Iraqi oil-selling price as long as possible, with mixed results.

Complicating the process is the fact that many of the middlemen profiting from the Iraqi oil trade were from Russia, China, and France, all permanent Security Council members. The United States, which battled to maintain tough sanctions on Iraq, also turned out to be one of the main markets for Iraqi oil. U.S. Department of Energy figures show that in 2001, for example, the United States imported 8.5 percent of its oil from Iraq.

John van Schaik has analyzed the oil-for-food program for the New York-based Energy Intelligence Group. He tells RFE/RL that corruption in the program was well known among industry insiders and diplomats: "The irony is that everybody knew there was a lot of abuse going on, and I'm surprised to see that, all of a sudden, the world is waking up to the fact that we had a stink here. Obviously, we had a stink here for years."

Van Schaik says there was also widespread knowledge about Iraqi smuggling to Syria, Turkey, and Jordan. The opening of an Iraq to Syria pipeline in late 2000, says van Schaik, made it the biggest source of smuggling.

"We knew Syrian production. We knew Syrian domestic consumption. We knew their imports-exports, and if their exports are way higher than they produce minus consumption, then somebody will have to make up the balance, and that balance came from Iraq."

The United States and Britain pressured Syria to halt the flows from Iraq after Syria joined the Security Council in January 2002. Syria denied it was buying Iraqi crude oil, and the matter was not pursued intensively afterward. The General Accounting Office says Iraq smuggled $5.7 billion in oil outside the UN program through Syria, Jordan, and Turkey.

David Cortright is co-author of a book on UN sanctions and president of the Fourth Freedom Forum, a policy institute. He says the Security Council had the opportunity to shut down the Syrian pipeline and enforce greater controls over marketing, but declined to do so.

A major flaw in the oil-for-food program, Cortright says, was the dominance of the Security Council committee in approving contracts, which were vetted by the trade ministries of member states involved in the business.

"The Iraq committee was essentially acting as Gosplan [the central-planning committee] in the old Soviet economy, deciding every contract for the entire Iraqi economy -- and that kind of system is bound to be inefficient and subject to corruption," he says.

Some have raised concern that the economic interests of Security Council members heavily influenced the debate that preceded the U.S.-led military action to oust Hussein last year. France and Russia were two key opponents of military action, depriving Washington of an explicit UN mandate to wage war on Hussein.

Secretary-General Annan, asked recently about the role of economic forces in the debate, downplayed them. He told the Council on Foreign Relations earlier this month that policy differences overrode all other concerns in the run-up to war last year.

"There were genuine policy differences in my judgment during that period," Annan said. "It wasn't for economic or other reasons that sometimes one impugns. It may have been involved, but that was not my experience and my discussions with them. The discussions were so heated and so sincere that I didn't think anybody [would consider] his oil interests as a reason to hold back this issue."

The UN investigation comes at the same time as other probes launched by the Iraqi Governing Council, the U.S. Congress, and the U.S. Defense Department into abuses of the program.

They were fueled by a report in January in Baghdad's "Al-Mada" daily. The newspaper published what it said was a list of contracts awarded by Iraq's State Oil Marketing Organization (SOMO) allocating large amounts of crude oil under Hussein's regime to about 270 foreign dignitaries and organizations. The allocations would have entitled the beneficiaries to collect a commission on the sale of the oil by middlemen.

The list of contract beneficiaries quoted by "Al-Mada" includes the head of the UN oil-for-food program, Benon Sevan. He has repeatedly denied any wrongdoing.

Others named include members of Arab ruling families, religious groups, political parties, and other organizations in Egypt, Jordan, Syria, the United Arab Emirates, Turkey, Sudan, Russia, France, and China, among other countries.

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