U.N.: Massive Fraud in Iraq Oil Program

NEW YORK - The United Nations' oil-for-food program was so badly managed and supervised that more than half of the 4,500 companies doing business with Iraq paid illegal surcharges and kickbacks to Saddam Hussein, an independent investigation into the program will announce today.

The inquiry, led by former U.S. Federal Reserve Chairman Paul Volcker, will detail how the U.N. and its member governments failed to stop the former dictator's exploitation of the $64-billion program, and will expose the participation of prominent international companies, as well as fly-by-night operations, a spokesman for Volcker's committee said Wednesday.

"There are a few marquee names that everyone will recognize," Mike Holtzman said. "Some worked with a wink and a nod with their governments. But the corruption was so widespread that literally thousands of companies were caught up in it. To play, you needed to pay."

The independent panel led by Volcker was established by U.N. Secretary-General Kofi Annan last year to investigate allegations of corruption and mismanagement in the program, which had been set up to help Iraqis weather international sanctions imposed after Hussein's 1990 invasion of Kuwait.

Under terms of the program, Iraq could sell oil only through the U.N., and the proceeds could be used only to purchase humanitarian goods. But in a major loophole, Iraq was allowed to choose its customers.

Russian companies were by far the most heavily implicated, followed by French firms. U.S. companies made up a very small percentage, the report said, though some did business through intermediaries or foreign branches and may not be listed as U.S. firms.

The report also apparently alleges that flamboyant British Parliament member George Galloway received payoffs, despite his denials before the U.S. Congress this year.

But Holtzman said Volcker's emphasis would not be on who was involved as much as what the inquiry showed about the failure of the U.N.'s management and oversight of the massive humanitarian program that ran from 1996 to 2003.

"The moral of the story is that the U.N. was broken, and the program mismanaged to the point where it could be exploited from the outside and the inside. In order to run major humanitarian programs in the future, the U.N. needs to be fixed - urgently," he said.

The report is the final of several by the committee, which has spent 18 months and $30 million investigating how the oil-for-food program went so wrong, bolstering Hussein's grip on power when sanctions aimed to weaken him.

Revelations of the program's failures have also severely undermined the credibility of the U.N., despite what Volcker describes as the success of the program in feeding Iraqi people under harsh international sanctions.

The last report, issued in September, focused on malfeasance and maladministration by U.N. staffers, including what Volcker deemed as the failure of Annan to rein in the abuses of the program. It also charged Security Council members with knowingly allowing smuggling to continue for years.

September's report harshly criticized the secretary-general's lax oversight, but didn't find evidence of wrongdoing by Annan. It did find that his son Kojo traded on his father's name for financial advantage.

Earlier reports also concluded that the U.N.'s procurement process was politicized and in some instances corrupt, and that the chief of the program, Benon V. Sevan, received payoffs. Sevan has denied wrongdoing but resigned from the U.N.

Today's report is a "how-to manual" of corruption, Holtzman said. The majority of the companies involved supplied humanitarian goods to Iraq, and the surcharges they paid amounted to about $1.5 billion. Oil companies paid an additional $300 million in kickbacks.

The committee notified all of the companies named in the report of the findings against them, but only a few responded to challenge the conclusions, Holtzman said. Of those, a large percentage said they were unaware that they had done anything illegal.

The investigators had access to records from the Iraqi government as well as voluminous U.N. documents, and the 500-plus-page report has an additional 950 pages of tables. Each transaction with each company was meticulously recorded, Holtzman said.

"The last entry in the ledger was 'surcharge paid.' It is that stark," he said.

Charges have been filed against two Texas oilmen, David B. Chalmers and Oscar S. Wyatt Jr. A former French ambassador to the U.N., Jean-Bernard Merimee, was arrested in Paris this month.

In a report issued last month, Volcker's committee blamed Annan, the U.N. Security Council and some member states for allowing corruption and mismanagement of the program.

The September report did say that the program had helped deprive Hussein of weapons of mass destruction and allowed Iraqis to maintain minimal standards of nutrition and health. But it also said such accomplishments had been obscured by the program's waste, inefficiency and corruption.

Today's report will reinforce recommendations made in September for an overhaul of the U.N., including the creation of a chief operating officer post to oversee the organization's sprawling aid programs, along with an independent auditing board.

"We are hopeful that the legacy of this investigation is reform," Holtzman said.

The Volcker committee will turn over the documents it has gathered to national law enforcement agencies to use for prosecutions, but expects to end its own investigations and close down in November.

It has been funded by the money the U.N. received from Iraq's oil sales to administer the program, and the current Iraqi government has demanded that it be repaid.

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