August 13, 2004
Susan Sachs and Judith Miller/NYT NYT
New York Times
Toward the end of 2000, when Saddam Hussein's skimming from the oil-for-food program for Iraq kicked into high gear, reports spread quickly to the program's supervisors at the United Nations.
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Oil industry experts told Security Council members and Secretary General Kofi Annan's staff that Iraq was demanding under-the-table payoffs from its oil buyers. The British mission distributed a background paper to council members outlining what it called "the systematic abuse of the program" and described how Iraq was shaking down its oil customers and suppliers of goods for kickbacks.
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When the report landed in the UN's Iraq sanctions committee, the clearinghouse for all contracts with Iraq, it caused only a few ripples of consternation. There was no action, diplomats said, not even a formal meeting on the allegations. Since Saddam's fall, the oil-for-food program has received far more scrutiny than it ever did during its six years of operation. In Washington, the General Accountability Office has estimated that Saddam siphoned at least $10 billion from the program by illicitly trading in oil and collecting kickbacks from companies that had UN approval to do business with Iraq.
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Multiple investigations now under way in Washington and Iraq and at the UN all center on one question: How did Saddam amass so much money while under international sanctions?
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An examination of the program, the largest in the UN's history, suggests a straightforward answer: The United Nations let him do it.
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"Everybody said it was a terrible shame and against international law, but there was really no enthusiasm to tackle it," said Peter van Walsum, a Dutch diplomat who headed the Iraq sanctions committee in 1999 and 2000, recalling the discussions of illegal oil surcharges. "We never had clear decisions on anything. So we just in effect condoned things." Former officials and diplomats who dealt directly with the program now say that the bribery and kickback racket was an open secret for years.
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The program, created in 1996, was an ambitious attempt to keep up international pressure on Iraq to disarm while helping the Iraqi people survive the sanctions imposed on Saddam's government after its invasion of Kuwait in 1990.
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The effort was financed by the sale of Iraqi oil. A political compromise allowed Iraq to decide to whom it would sell its oil and from whom it would buy relief supplies. It was up to the UN to make sure that the price Iraq set for the oil was fair and that the proceeds were buying relief goods, and not being funneled to Saddam's coffers or being used for illicit arms. As the flow of money ballooned, the UN, with an annual budget of just $1.5 billion, was responsible for collecting and disbursing as much as $10 billion a year in Iraqi oil revenues.
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Despite an elaborate system for overseeing oil-for-food contracts, corruption never seemed to be the chief concern of anyone involved. The United States and Britain were focused on keeping material related to illicit weapons out of Iraq. For the UN bureaucracy, the priority was keeping goods flowing to the Iraqi people. In the halls of the UN, the program became a battleground for the competing commercial interests and political agendas of the 15 individual nations that made up the Security Council, diplomats said. Those same nations made up the Iraq sanctions committee, which took action only by a consensus that could be blocked by any member.
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The result was a paralysis that translated into acquiescence toward matters like oil smuggling and kickbacks.
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When the committee learned from a press report in late 2001 of allegations that an Indian company was helping Iraq purchase embargoed materials for a nuclear fuel plant, the United States and Britain pressed for an investigation.
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Two committee members said the panel debated for months whether to urge India to investigate. "Discussions on the matter remain inconclusive," the committee said.
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While the diplomats were deadlocked over how to address violations of the sanctions, money and contracts continued to flow through the Office of the Iraq Program, the administrator of the oil-for-food program. The work of that office, and its former director, Benon Sevan, are the focus of a UN investigation of mismanagement and corruption in the program, an inquiry headed by Paul Volcker, the former Federal Reserve chairman. Volcker has announced that his panel will need at least $30 million and probably a year more to determine whether United Nations officials took bribes or engaged in other corruption while administering the program.
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Sevan, a Cypriot, has declined to comment, but has said in a statement that his office was not responsible for ferreting out corruption.
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Evidence of fraud passed from office to office in a round robin ending nowhere. A former State Department official who was part of a committee that reviewed trade contracts with Iraq said the group detected "abnormalities in pricing that suggested fees and kickbacks." The former official said the committee "asked why Iraq needed to import gilded tiles for palaces, or liposuction equipment." Peter Burleigh, who was the deputy American representative to the UN in the late 1990s, said those concerns had been relayed to Sevan's office. Sevan's office said it had passed information regarding suspicious contracts to the sanctions committee, on which the United States held a permanent seat. Even after the committee received reports that suppliers were padding their contracts to hide payoffs, the committee never rejected a contract to sell goods to Iraq because of cost, according to recent congressional reports and former UN officials. Sevan's chief interest was to avoid deadlocks over relief supplies, said Michel Tellings, one of the three overseers who monitored Iraq's oil sales for the United Nations. "Benon saw that he had a divided Security Council in front of him and was more concerned about getting the food in and the oil out," Tellings said. "So he took a middle way and didn't investigate problems. He'd say, 'If you've got clear evidence, I've got to go to the Security Council. If it's a rumor, don't bother.'" The lack of coordination in the program was evident in the fact that while UN auditors produced 55 reports on the program, several diplomats on the sanctions committee said in interviews that they never even saw them. In the end, a complicated set of political and financial pressures kept the program ripe for corruption. Van Walsum, the retired Dutch diplomat, said he sometimes suspected that his fellow diplomats were disinclined to hear about potential fraud because they were concerned about protecting the interests of friendly companies and foreign allies eager to trade with Iraq. "Everyone," he said, "was living in the same glass house."
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On one level, the program worked well. According to the General Accountability Office, which is an arm of the U.S. Congress, the program provided food, medicine and services to 24 million Iraqis. Malnutrition rates for children fell, and the decline in living conditions was arrested, UN data show. But along the way, the Security Council approved provisions that opened the program to corruption. Saddam agreed to the program in 1996 only after winning a major concession: While the UN would control Iraq's oil revenues, Iraq could negotiate its own contracts for the sale of oil and for the purchase of supplies. That arrangement, according to the General Accountability Office, "may have been one important factor in allowing Iraq to levy illegal surcharges and commissions." Then in 1999, the Security Council removed all restrictions on the amount of oil Iraq could sell.
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The United States and Britain, meanwhile, were delaying the approval of contracts that they feared would provide Iraq with material or equipment that could be used for the development of weapons of mass destruction. This deeply concerned the UN officials trying to improve Iraqi living conditions and drew objections from members of the Security Council that favored a freer flow of commerce with Iraq. Van Walsum said that even for those countries that supported sanctions, oil for food meant oil not for weapons of mass destruction. Facing pressure from other nations, the United States and Britain agreed to further compromises in the sanctions system.
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Different Council members had different levels of tolerance for the abuse, said Tellings, the former oil overseer. When the United States and others wanted the sanctions committee to confront Syria on oil sales, they were blocked by Russia and France, which argued that Syria should not be singled out when the Americans refused to investigate Iraq's equally lucrative oil trade with their allies, Jordan and Turkey.
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Congressional investigators have estimated that Iraq collected $5.7 billion from selling oil outside UN supervision, while the oil-for-food program was short of money for relief supplies.
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John Negroponte, then the U.S. ambassador to the UN and now to Iraq, defended the special treatment given to Jordan and Turkey that let them pay Iraq directly for oil. Both countries were suffering economically from the sanctions, he told a Senate committee.
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He demurred when Senator Christopher Dodd, one of the committee members, asked who benefited from the unsupervised oil sales. But Dodd said he had few doubts. "Wouldn't it be a pretty good guess," he asked, "that they probably ended up in the pockets of Saddam Hussein and his cronies?" Dodd asked. Negroponte replied, "I just don't know, sir."
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Saddam's government demanded kickbacks on almost every contract it negotiated, beginning in 2000, according to documents from Iraqi ministries obtained by The New York Times. Iraqi leaders ordered ministries to notify companies that they had to pay an amount equal to 10 percent of the contract value into secret foreign bank accounts, a violation of the UN sanctions. To do so, Iraqi officials said, suppliers would inflate the prices of their goods.
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A shakedown plan of such magnitude - $33 billion worth of goods were ordered by Iraq from mid-2000 until the American-led invasion last year - did not go unnoticed.
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"When the 10 percent came in, companies came and asked us what to do," recalled Jacques Sarnelli, who served as the commercial counselor of the French Embassy in Baghdad at the time. "We said it's illegal. You do it at your own risk. We don't want to know about it, and we are against it."
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At UN headquarters in New York, the officials administering the program were more concerned about relief supplies. Sevan, who headed the Office of the Iraq Program, repeatedly appealed to the sanctions committee to speed up the processing of contracts for equipment, food and other goods. Sevan's office was supposed to examine the contracts to ensure price and quality. But it was unclear how it fulfilled that responsibility, according to the General Accountability Office.
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At one point, the sanctions committee outmaneuvered Saddam on the illegal surcharges. In late 2000, the oil overseers relayed complaints by oil companies that were buying from Iraq.
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After the sanctions committee debated for months about what to do, the United States and Britain pushed through a change in the way Iraq's oil was priced, bringing it more in line with world prices and reducing the margin for fraud. But no attempt was made to recover the surcharge payment or to investigate which companies paid.
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"You couldn't ask the committee for guidance because you'd never get an answer," Tellings said. "It was nobody's responsibility."
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