IRAQ: Report Criticizes Annan but Finds No Evidence of Corruption

UNITED NATIONS - The commission investigating the oil-for-food program in Iraq cleared Secretary General Kofi Annan today of exercising any influence in the awarding of a program contract to the company that employed his son.

But it faulted him for poor management in not taking more aggressive action to look into the company's relationship with the United Nations once conflict of interest questions were raised, and it accused his longtime chief of staff of shredding three years of documents.

Mr. Annan told a news conference that he viewed the conclusions as an exoneration, which he said he welcomed with "great relief" after "so many distressing and untrue allegations." Asked if he thought the report's criticisms of him for management failures meant he should step down for the good of the organization, he replied bluntly, "Hell, no."

But the commission, headed by Paul A. Volcker, the former Federal Reserve chairman, based its judgments on its inability to find "sufficient" evidence to support charges against Mr. Annan rather than an absolute vindication of him, and this methodology could leave Mr. Annan open to continuing criticism from Washington.

While spokesmen at the White House and the State Department offered support to him and his pledges to bring needed change to the United Nations, Senator Norm Coleman, a Minnesota Republican, who has called on him to step down, said he was unpersuaded by the new report.

"His lack of leadership, combined with conflicts of interest and a lack of responsibility and accountability point to one, and only one, outcome: his resignation," he said.

Secretary Annan's new chief of staff, Mark Malloch Brown, told doubters that they should accept the report as exoneration. "Mr. Volcker looked under every stone," he told reporters, "he put $3 millions of dollars of investiment in this and he concluded, 'No story.' "

"It's done, it's past, the verdict has been delivered," he said of the attacks on Mr. Annan. "He himself is satisfied by the clearance he got. He's decided to move on."

In the report, the committee was harshest in its judgment of the secretary's son, Kojo Annan, 31, and the Geneva-based company he worked for, Cotecna Inspection Services. It said they had both conspired to conceal their business and professional relationship and that young Mr. Annan had deceived his father about it.

In addition, it said that the younger Annan had been uncooperative with the Volcker investigators.

Mr. Annan told reporters that he had urged his son to change his mind but that "he didn't give me an answer," adding, "I've asked him to reconsider and I hope he's reconsidering."

The report is a second interim accounting from the commission, which will deliver its final verdict this summer. The panel was commissioned by Mr. Annan a year ago to investigate how Saddam Hussein managed to skim billions of dollars from the $65 billion program and whether there had been corruption in addition to mismanagement on the part of United Nations officials.

The first report, on Feb. 3, accused Benon V. Sevan, the former head of the program, of a "grave conflict of interest" that "seriously undermined the integrity of the United Nations." The conclusion was based on evidence that Mr. Sevan had steered deals to a friend and to his inability to explain where he got $166,000 in cash. A second official, Joseph Stephanides, was accused of violating procurement regulations.

The new report questioned the conduct of two more of Mr. Annan's closest advisors, Iqbal Riza, his chief of staff until his retirement in December, and Dileep Nair, the head of the watchdog Office of Internal Oversight Services.

Mr. Riza was found to have shredded three years of personal files during the startup period of the oil-for-food program and after an order from Mr. Annan to preserve all documentation. Mr. Nair was shown to have named a person to a high-level post with oil-for-food responsiblities who did almost no work on the program.

But the centerpiece of the report was the awarding of the $10 million-a-year contract for humanitarian aid inspections to Cotecna, and whether Kojo Annan's employment by the company influenced the choice of Cotecna by the United Nations and whether the secretary general knew a key contract had been won by the company where his son worked.

While it accepted that Mr. Annan had no knowledge of the awarding of a key contract to Cotecna, it faulted him for not acting to curb suspicions of a conflict of interest when a report in The Sunday Telegraph of London broached the issue in an article in 1999.

Mr. Annan commissioned an in-house investigation that ended up being so superficial that it dismissed the matter in a single day. "What we think he should have authorized, insisted upon, was an independent, thoroughgoing professional investigation," Mr. Volcker said.

Such an investigation would have turned up difficulties in Cotecna's recent business dealings, Mr. Volcker said. "Had there been such an investigation of these allegations, it is unlikely that Cotecna would have been awarded renewals of its contract with the United Nations," the report said.

Kojo Annan worked for Cotecna in Africa starting in 1995 and continuing until the end of 1998, when it won the United Nations contract. Both he and the company led the United Nations and investigators to believe that he had ended his association then, but subsequent disclosures showed that he continued to receive payments until February 2004. They were described as health care reimbursements and payments to keep him from joining a competing firm.

The commission faulted Cotecna and Mr. Annan for attempting to disguise the duration of this association through third-party payments. The report concluded that while Cotecna "generally has cooperated" with the investigation, it had made "false statements" to the public, the United Nations and the committee about Kojo Annan's period of service.

In Geneva, the firm's chief executive officer, Robert Massey, put out a "preliminary statement" pointing out only that the committee had confirmed that Cotecna had won its contract fairly.

The report said that there were occasions when the father and son were in contact during the time Kojo Annan worked for Cotecna and the contract was awarded. It noted that on the day of the award, young Mr. Annan was a guest in in his father's official residence in New York. But Mr. Volcker said that Mr. Annan did not participate in contract decisions, and there were no indications that he knew Cotecna was a program bidder.

"Our investigation has disclosed several instances in which he might, or could have, become aware of Cotecna's participation in the bidding process," Mr. Volcker said at a news conference in a Midtown Manhattan hotel. "However, there is neither convincing testimony to that effect nor any documentary evidence."

"Taking all this into account, the committee has not found the evidence is reasonably sufficient to show that the secretary general knew that Cotecna had participated in the bidding process in 1998," Mr. Volcker said.

"The commssion found that both Cotecna officals and Kojo Annan acted to disguise their continuing business and financial relationship, misleading the secretary general himself, other U.N. officials and the public in the process," Mr. Volcker said. "It is the failure of the U.N. officials to discover and of Cotecna and Kojo Annan not to have fully disclosed these relationships that has contributed so heartily to the questions about the integrity of the U.N.'s adminstration and indeed to the need for this particular report."

Kojo Annan, 31, is the son of Mr. Annan and his first wife. Though Kojo Annan's parents divorced when he was very young, the report said that he and his father had maintained close relations and that the son would telephone his father once a week.

Of all the accusations leveled against the United Nations and Mr. Annan, none struck home more than those involving his son.

"For reasons that parents everywhere will understand, the most difficult and painful moments for me personally, throughout this past year, have been those when it appeared that my son, Kojo, might have acted inappropriately or might not have told me the full truth about his actions," Mr. Annan said at the news conference.

"The inquiry has now rendered its judgment on those issues. I love my son, and I have always expected the highest standards of integrity from him. I am deeply saddened by the evidence to the contrary that has emerged, and particularly by the fact that my son had failed to cooperate fully with the inquiry. I had urged him to cooperate, and I urge him to reconsider his position and cooperate."

A letter in the report's appendix from Kojo Annan's lawyer, William R. Taylor, admitted that his client had not been truthful with his father, but it also rejected the accusation, made orally again today by Mr. Volcker, that he had not been cooperative. "He regrets the embarrassment that omission caused to his father and to the United Nations and accepts responsibility for it," the letter said.

Mr. Sevan is currently preparing his response to United Nations charges based on the first report and has been granted two three-week delays in producing it. Mr. Annan's spokesman Fred Eckhard said on Monday that the new deadline woud occur next month.

The United Nations ended an agreement on Monday to pay for Mr. Sevan's legal expenses for his appearances before the Volcker commission after a barrage of criticism when it was disclosed last week. Under the agreement, Mr. Sevan has yet to be paid for any legal costs, but Mr. Brown, the chief of staff, said last week that the United Nations had intended to reimburse him for appearances up until the first Volcker report charged him with conflict of interest.

The plan drew sharp comment, in particular because officials said the reiumbursements would be paid with money from Iraqi oil sales used to finance the oil-for-food program.

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