Oil-For-Food: Facts

Final Report of the Independent Inquiry Committee
on the Oil-for-Food Program

The Independent Inquiry Committee (IIC) led by former Federal Reserve Chair Paul Volcker, released its final report into its inquiry regarding allegations stemming from the Oil-for-Food Program (OFFP) on October 27, 2005. Previous reports focused on the program contractors and the management of the program; this report provides detailed information regarding the more than 2,000 companies that were involved with illicit payments to the regime of Saddam Hussein during the life of the program.

Surcharges and Kickbacks
The report finds that “Iraq’s largest source of illicit income from the Programme came from “kickbacks” paid by the companies that it selected to receive contracts for humanitarian goods under the Program. The Hussein regime was able to divert $1.8 billion in illicit surcharges and kickbacks from the companies that participated in the OFFP. The companies involved in illicit kickback schemes on humanitarian goods came from 66 UN Member States. Forty companies were involved in making illicit payment on oil surcharges.

The report finds that Iraq’s policy of kickbacks began in mid-1999 but by the fall of 2000, additional companies had to be found that were willing to pay the increasing surcharges. The Committee found that, as the price went higher, “Oil sales increasingly took the form of contracts with front companies, backed financially and technically by several international trading companies willing to facilitate surcharge payments.” The report examines and provides case studies for twenty-three companies which participated in the scheme of kickbacks on the humanitarian contracts related to the program. Generally, four types of companies participated in the scheme:
(1) Iraqi front companies;
(2) major foodstuff providers,
(3) major trading companies and;
(4) major industrial and manufacturing companies.

Details of the actions of individual companies can be found in tables prepared by the IIC and released with this final report.

The Iraqi government was also found to have highly politicized choices for trading partners based on countries and individuals that were deemed “friendly” or “unfriendly” to Iraq or to companies and individuals deemed to have particular influence over opinions regarding the country. As such, American, British, and Japanese companies were routinely denied oil allocations because these countries remained steadfast in maintaining the sanctions against Iraq. France, Russia, and China were routinely favored by Iraq in oil allocations because all were permanent members of the Security Council and were perceived as more favorably inclined toward lifting the Iraq sanctions.

Role of Banque Nationale de Paris S.A. Questioned
The IIC raises serious questions about the dual role played by Banque Nationale de Paris S.A. (BNP) which served as the escrow bank to receive and disburse all funds related to program transactions. BNP was clearly conflicted throughout the program by its role and responsibility to the UN while also protecting its individual clients. In this capacity, the IIC found that “BNP was clearly inhibited from disclosing fully the firsthand knowledge it acquired of the true nature of financial relations that fostered the payment of illicit surcharges.” And in its report it further underscored that “BNP’s loyalties were divided between serving the interests of the United Nations to promote the transparency of transactions conducted under the Programme and serving the interests of its private clients to maintain the confidentiality of their business and financing arrangements.”

Blame is Shared
The report makes it clear that there is much blame to go around regarding the failure to stop these surcharge and kickback practices from taking place. While many of the shortcomings are placed on the program management and the UN Secretariat, the Committee also points out that the Member States of the Security Council and its 661 Committee shared responsibility for the program’s oversight. In addition, the Permanent Missions to the United Nations “were responsible for approving their national companies to do business with the Programme.” However, in its final report, the Committee did not find evidence that two of the Program’s Humanitarian Coordinators--Hans von Sponeck and Tun Myat--violated existing UN staff regulations and rules. It also did not find evidence that former UN Secretary-General Boutros-Ghali either was party to or was aware of these activities.

Oil Smuggling: Principal Source of Illicit Income
In this report, in its earlier interim reports, and in comments from Chairman Volcker, the IIC has made it clear that by far the largest amount of illicit revenue gained by Saddam Hussein during the program’s existence was from illegal oil smuggling outside of the purview of the UN’s mandate--rather than from transactions through the Oil-for-Food Program. The report states:

“Saddam Hussein’s 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…UN inspectors were charged only with the inspection of oil and goods financed under the Programme and the Security Council failed officially to recognize the problem and authorize an effective response. The value of oil smuggled outside of the Programme is estimated by the Committee to be nearly USD 11 billion as opposed to an estimated USD 1.8 billion of illicit revenue from Saddam Hussein’s manipulation of transactions occurring under the Programme.”

Moving Forward with Reform
Secretary-General Annan remains committed to reforming management and auditing functions of the UN to achieve greater transparency, accountability, and effectiveness in the United Nations. The Oil-for-Food Program uncovered serious flaws in the UN system and the Secretary-General has already begun pushing forward initiatives such as broader and more rigorous financial disclosure requirements, a policy to protect whistleblowers, and enhancement of oversight and audit programs. The 2005 World Summit Outcomes document calls for further reforms of the UN’s management, oversight, and accountability systems such as the development of an ethics office, strengthening of the expertise, capacity and resources of the OIOS, creation of an independent oversight advisory committee to ensure the independence of the UN oversight bodies, and an independent external evaluation of the entire oversight and management system. A serious effort on the part of Member States in the coming months will be necessary for these reforms to be enacted.