Oil-For-Food: Facts

Hearings on The United Nations Oil-for-Food Program: Issues of Accountability and Transparency

John G. Ruggie

United States House of Representatives Committee on International Relations

April 28, 2004

Chairman Hyde and distinguished members of the Committee: I am honored to be here today to discuss with you important issues concerning the United Nations oil-for-food program.

Allow me to introduce myself: Currently, I am the Evron and Jeane Kirkpatrick Professor of International Affairs, and the Frank and Denie Weil Director of the Center for Business and Government, at Harvard University 's Kennedy School of Government. From 1997-2001, I served as Assistant Secretary-General and senior adviser for strategic planning to UN Secretary General Kofi Annan. I had no responsibility for the oil-for-food program, but UN-US relations fell into my portfolio. Although I have returned to full-time academic life, I continue to advise the Secretary General on an initiative called the Global Compact, which engages the private sector in the promotion of UN principles in the areas of human rights, labor standards and environmental sustainability. I am here today in my personal capacity as an American citizen and a professional student of international politics.

Let me state at the outset that I would be sickened if even one of my former colleagues at the UN were found guilty of wrong-doing in the oil-for-food program. But if that were to be the case, I expect that the Secretary-General would waive all diplomatic immunities and permit any such individual to be prosecuted in a court of law. As you know, an independent inquiry headed by Paul Volcker is now in place; the other members are the highly respected Justice Richard Goldstone of South Africa , and Swiss law professor Mark Pieth, an internationally recognized expert on money laundering. Their mandate includes investigating not only possible individual malfeasance but also whether there were improprieties in the administration and management of the program overall. The panel has been endorsed by a unanimous Security Council resolution, and the Secretary General has pledged to open every file, and make available every official, it needs to fulfill its mandate. Kofi Annan has demonstrated his commitment to transparency and integrity in very difficult situations before, including the inquiries into Rwanda , Srebrenica and the security failures at Baghdad headquarters. So I agree fully with Ambassador Negroponte's assessment at the Senate Foreign Relations Committee hearings on this subject on April 7, 2004 , when he said: "I believe that the fundamental motivation of the Secretary-General is to have maximum transparency."

Mr. Chairman, Members of the Committee:

Like you, I am deeply troubled by the question "how could this have happened" - where "this" refers to Saddam Hussein's smuggling, surcharges, bribes and kickbacks, part of it under the nose of the oil-for-food program. UN critics have claimed that individual greed and bureaucratic interests in the United Nations were responsible - some of them out of sheer eagerness to score points against the UN and to render it an illegitimate and irrelevant instrument of American foreign policy in the economic and political reconstruction of Iraq .

But even if charges against individuals were proven to be true - and it is important to remind ourselves that, so far, none have been - that story would remain partial and skewed. In the interest of maximizing the lessons learned, I want to suggest that this one episode of the world's relations with Saddam Hussein, like so many others, illustrates the deeper reality that the United States and the United Nations often found themselves forced to choose the lesser of evils in trying to get the job done in Iraq . I will frame my answer to the "how could this have happened" question around ten core facts.

1. The 1991 Gulf war left Saddam in power as the authoritarian master of a sovereign state, and that is how the rest of the world, including the United Nations, was obliged to deal with him thereafter.

2. The world community, led by the United States , did impose a disarmament and sanctions regime on Saddam, designed to destroy his weapons of mass destruction and deny him the capability to reconstitute, or the resources to purchase, such weapons in the future. There were efforts from the start to include a humanitarian component in the sanctions to offset their adverse effects on the Iraqi people, but Saddam rejected it as an intrusion into Iraqi sovereignty. In any case, no one in 1991 anticipated that sanctions would have to remain in place as long as they did.

3. By the mid 1990s Saddam was still in power; by then he was smuggling substantial quantities of oil out of the country; and he was still suspected of developing weapons of mass destruction. So sanctions remained necessary. But the human costs they imposed on the Iraqi people became unbearable - not for Saddam, who couldn't have cared less, but for the international community. So we - the outside world - persuaded him to allow us to feed his people and to provide them with necessary medicines and other humanitarian goods, funded through the supervised sale of Iraqi oil. That's how the oil-for-food program came into existence. One of the questions that has been asked repeatedly of late is: why was Saddam allowed to pick and choose with whom to contract these sales and purchases? The answer is obvious: Saddam did not accept any other terms. He was fully prepared to let innocent Iraqis suffer, blame the consequences on the sanctions, and have us take the hit in international public opinion.

At this point I need to take a minute to describe the overall structure of the oil-for-food program. Imagine, for starters, that this Committee - the House Committee on International Relations - was assigned responsibility for supervising the current reconstruction of Iraq , and that you had to approve every contract with Bechtel, Halliburton or any other firm providing goods and services there. And imagine further that you designated a unit in one of the departments of government - say a group of civilians in the Pentagon - to prepare the paperwork for you, as well as to monitor and for some parts of the country actually to execute the program in Iraq. That's how the oil-for-food program was set up: the Security Council exercised oversight, and the Office of the Iraq Program supported the Council's work and was responsible for its implementation on the ground. Now I'll get back to my narrative.

4. The oil-for-food program had no responsibility for preventing Saddam from smuggling oil out of the country. The United States set up a special maritime force in the Persian Gulf for that purpose, but according to the GAO it interdicted only about 25 percent of the outflow. And I remember watching clips on the evening news at the time showing trucks weighed down with Iraqi oil rolling into Jordan and Turkey ; it was also public knowledge that oil was pipelined into Syria . Perhaps the United States thought the quantities involved weren't large enough to worry about. Or perhaps we realized that the Iraq sanctions had hit Iraq 's neighbors particularly hard - as sanctions invariably do. And because some of them were our close allies, including in the struggle against Saddam, we may simply have chosen to ignore that illicit trade. Whatever the case, here's the important point for the oil-for-food program: the recent GAO report states that Iraq gained $10.1 billion from illegal oil revenues and kickbacks, but $5.7 billion of that - well over half - actually came from smuggling, which was entirely unrelated to the UN's responsibilities. Needless to say, the remaining $4.4 billion is still a lot of money, and it is directly associated with the oil-for-food program. So let's look more closely at that.

5. The Security Council had oversight for the oil-for-food program - a committee of the whole called the 661 committee, after the number of the resolution that authorized the sanctions in the first place. It approved roughly 36,000 contracts over the life span of the program. Every member had the right to hold up contracts if they detected irregularities, and the US and Britain were by far the most vigilant among them. Yet, as best as I can determine, of those 36,000 contracts not one - not a single solitary one - was ever held up by any member on the grounds of pricing. Several thousand were held up because of dual-use technology concerns. What does this suggest about US and British motives, as permanent members of that committee? Stupidity? Complicity? Or competing priorities? I strongly suspect it was the last. Support for the sanctions was eroding fast. Saddam's allocation of contracts significantly favored companies in some of the countries that were also represented on the committee. So it seems reasonable to infer that the US and Britain held their noses and overlooked pricing irregularities in order to keep the sanctions regime in place and to put all their efforts into preventing dangerous technologies from getting into Saddam's hands. Besides, we need to bear in mind today that the magnitude of the skimming problem was not known to anyone at the time; it has become clear only as files have been opened in Baghdad .

6. What did the UN staff do about these things? Time - and the Volcker inquiry - may tell that they didn't do enough, or worse. But fairness requires us also to acknowledge that it was UN oil overseers who first alerted the 661 committee to Saddam's oil-pricing scam, in which he undercharged some buyers, who then made excess profits on resale and shared the proceeds with Saddam. The US and Britain then persuaded the committee to change the rules of the oil pricing game, significantly limiting if not completely eliminating the problem.

7. Detecting price padding in Iraq 's purchase of goods in many cases was harder because obvious benchmarks were lacking, or because the goods were custom made. I understand that the Secretariat as a rule of thumb allowed a small margin of variation, roughly 10 percent, based on some comparative shopping. Saddam may well have learned to game the situation because he kept most surcharges within this band. Nevertheless, I am told that the Secretariat on numerous occasions delayed contracts for further investigation and alerted the 661 committee to unresolved pricing concerns in Iraq 's purchase of humanitarian goods. But, as I noted earlier, the committee seems to have held up no contracts on these grounds.

8. Related to this point, the issue of transparency and accountability - or the alleged lack of it - at the UN has been raised repeatedly in the recent oil-for-food debates. The UN is an organization of governments; they make the rules, and the Secretariat is held accountable to them. In addition to having to approve all oil-for-food contracts, every member of the 661 committee received and reviewed the program's regular external financial audits. (I have appended a summary financial statement of the oil-for-food program, provided to me by the UN, to the text of this testimony.)

Mr. Chairman, distinguished Representatives:

The inference that I draw from these facts is that the overriding policy priorities were the maintenance of sanctions on Saddam Hussein in order to deny him weapons of mass destruction, together with limiting the adverse humanitarian impact of those sanctions on the Iraqi people. Other issues, including pricing scams and kickbacks, the full magnitude of which would have been difficult if not impossible to know at the time, seem to have been considered of lesser importance. Were these the wrong priorities? Could the same aims have been achieved through cleaner means? I'm not sure that I'm smart enough or wise enough to answer those questions, and I do know that we don't have time enough to settle them today. Nevertheless, in concluding, I would like to stress two final points that have been largely overlooked in the frenzy of charges against the United Nations and some of its officials:

9. From everything we now know, it would appear that Saddam's weapons of mass destruction were eliminated, and that he was prevented from rebuilding them successfully. Intellectual honesty requires us to acknowledge that UN weapons inspections and sanctions contributed to that outcome.

10. In addition, however ill conceived the design of the oil-for-food program may have been, and whatever its management failures may turn out to be, it, too, served the purposes that were asked of it. According to the official records:

• Enough food was imported to feed all 27 million Iraqis, and their average daily caloric intake increased by 83 percent. Malnutrition rates among children under the age of five in the center/south in 2002 were half those of 1996; in the three northern governorates - the Kurdish region - chronic malnutrition decreased 56 percent.

• The program substantially improved health services by expanding surgical and laboratory capacity, reducing communicable diseases, ensuring the importation of vaccines that eliminated polio from the country, and helping to reduce child mortality.

• Oil-for-food contributed significantly to demining, an increase in agricultural production and helped prevent further degradation of the country's public services. Clean water and more reliable electricity were provided for millions of Iraqis and the infrastructure and functioning for the country's housing, transportation and education systems were improved.

• And the evidence suggests that the oil-for-food program worked better in every respect in the northern governorates - or the Kurdish region - because the UN was directly responsible and did not have to work through Iraqi government agencies. Northern Iraq is more prosperous and stable today as result.

America is discovering in Iraq today that we don't have a surplus of policy instruments to deal with the proliferating and escalating challenges that confront us there. In fact, the reverse is true. If we are going to learn lessons from past experience they need to include not only what we did wrong, but also what we got right. But we absolutely cannot afford to allow whatever did go wrong to be used as a pretext for undermining the legitimacy and utility of the United Nations to the people of Iraq - and to ourselves.

Thank you.

Appendix I

Proceeds from sale of Iraqi oil authorized by the Security Council

From inception to December 31, 2003

• Proceeds from the sale of oil as authorized by Security Council Resolutions 986 (1995) and subsequent resolutions amounted to $64.2 billion.

• In accordance with Security Council decisions,
• • $42.7 billion was allocated to the humanitarian activities,
  • $18 billion was allocated to the Compensation Commission,
  • $0.5 billion to the United Nations Special Commission (UNSCOM) and its successor, the United Nations Monitoring, Verification and Inspection Commission (UNMOVIC),
  • $0.6 billion for repayment to Member states who advanced funds for humanitarian purchases pending the start of oil sales.
  • $1.1 billion for the operational and administrative expenses associated with the implementation of resolution 986
  • $1.3 billion for transportation costs of oil.

• The total available for humanitarian activities amounted to $47.9 billion, as follows:

• Allocated from oil sales 42.7
• Interest earned 2.9
• Gain on currency exchange 2.3

• A total of $39.7 billion has been spent. This amount includes $7.7 billion set aside for contracts to be delivered after 31 December.

• $8.1 billion has been transferred to the Development Fund for Iraq .

• An unencumbered balance of about $400 million remains. Once the UN has completed an assessment of the liabilities left against the account, the balance will be transferred to the Development Fund for Iraq .

Source: United Nations ( April 23, 2004 )