THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME

Oil-for-Food: Focus on relief aid

A sampling of the life-saving work done by UN agencies in Iraq

The United Nations is extremely concerned about the serious allegations of corruption surrounding the Oil-for-Food programme.

KEY ISSUES:
Programme origins
Humanitarian relief operation
UN weapons inspections
Financing
Smuggling occurred independent of Oil-for-Food
Iraqi Government sovereignty
UN's latest efforts to improve management and accountability
Early action against signs of corruption
Common myths
The UN fights terrorism

Responding to these allegations, the Secretary-General on 21 April 2004 named Paul A. Volcker, former Chairman of the Board of Governors of the United States Federal Reserve System, to head an Independent Investigation Committee independent inquiry committee (IIC).

That same day, the Security Council adopted a unanimous resolution calling on the Coalition Provisional Authority, Iraq and all other Member States , including their national regulatory authorities, to cooperate fully with the probe.

The Secretary-General also issued written instructions to all UN staff to do the same, and publicly declared that those who fail to cooperate will face dismissal.

The UN has handed over all relevant documentation to the IIC.

On the question of outside requests for information, the UN has urged contractors working for the Oil-for-Food programme to cooperate with subpoenas from other investigations and they are in fact doing so.

In addition, Mr. Volcker has stated on a number of occasions that he is committed to cooperating with other ongoing investigations.

PROGRAMME ORIGINS

Right after Iraq invaded Kuwait in 1990, the United Nations Security Council put in place a comprehensive set of sanctions to isolate the regime in Baghdad .

Unfortunately, those measures also had unintended negative consequences on the civilian population. In an effort to mitigate the damage, the Security Council adopted resolution 986 (1995) setting up the Oil-for-Food Programme , which allowed Iraq to sell its oil and use the major portion of the revenues to purchase food and other humanitarian relief supplies. The remainder of the earnings was allocated to war reparations to those who suffered damages as a result of Iraq 's invasion and subsequent occupation of Kuwait , the UN weapons inspection programme, administrative costs and other expenses. At no time did Saddam Hussein have access to or authority over any of the funds in the UN-managed escrow accounts.

The Security Council Iraq sanctions committee, known as the “661 Committee” for the resolution that established it, had full responsibility for monitoring implementation of the Programme. The Committee, which had the same membership as the Security Council itself, also approved contracts and dealt with any irregularities in their implementation.

Operations began in December, 1996, and the first relief goods under the Programme arrived in 1997.

HUMANITARIAN RELIEF OPERATION

The Oil-for-Food programme achieved its core mission of providing humanitarian relief to 27 million Iraqis. Caloric intake rose by 83 percent, while malnutrition rates in much of the country were cut by half, and some 76,500 mines were cleared. On the health front, enough medicines and vaccines were imported to eradicate polio and drastically reduce other often deadly communicable diseases, including cholera, malaria, measles, mumps, meningitis and tuberculosis. The capacity to undertake major surgeries increased by 40 per cent in the centre and south of Iraq .

UN WEAPONS INSPECTIONS

The UN weapons inspection programme - funded initially through voluntary contributions from UN Member States and frozen Iraqi assets - supervised the destruction of Iraq 's WMD arsenal. Since the inception of the Oil-for-Food programme, the effort - begun by the UN Special Commission ( UNSCOM ) and continued by the UN Monitoring, Verification and Inspection Commission ( UNMOVIC ), working with the International Atomic Energy Agency ( IAEA ) - has been funded through oil revenues.

UNSCOM destroyed missiles, mobile launchers, fixed launch sites, chemical munitions, a chemical weapons complex and a germ warfare complex as well as tons of missile fuel, chemical warfare agents, precursor chemicals and bacteria growth media. The effort was interrupted in late 1998.

UNMOVIC inspectors only returned to Iraq in November, 2003, when they destroyed dozens of Iraqi Al Samoud 2 missiles and warheads, as well as launchers, shells filled with chemical weapons precursors and other arms. That activity was funded entirely through a small portion of Iraq 's oil revenues.

FINANCING

Press reports on Oil-for-Food vary widely in their account of the financial picture, some describing it as a $100 billion effort and others saying that only $15 billion was spent on relief aid. Neither figure is in any way correct.

Income from the sale of oil totaled $64.2 billion. Funds were allocated according to a formula determined by the Security Council as follows:

With $2.9 billion earned in interest and a $2.3 billion gain on currency exchange, the total available for humanitarian activities amounted to $47.9 billion. Of that figure, $39.7 billion was spent. $8.1 billion was transferred to the Development Fund for Iraq (DFI). Once the UN has completed an assessment of the liabilities left against the account, the remaining balance will be transferred to the DFI.

SMUGGLING OCCURRED INDEPENDENT OF OIL-FOR-FOOD

Press accounts are also citing the figure of $21.3 billion in describing how much money Saddam Hussein obtained illegally. However Saddam Hussein was receiving revenue from oil sales and other sources before the Oil-for-Food Programme even existed, and therefore a substantial amount of the new estimate of $21.3 billion had no link to the UN programme at all.

As far back as 1991, the Security Council mandated a Multinational Interception Force (not administered by the UN) to prevent illegal smuggling.

The UN Oil-for-Food staff were never given the authority by the Security Council to prevent smuggling. As the GAO noted, "Under Security Council resolutions, all member states were responsible for enforcing the sanctions and the United Nations depended on states bordering Iraq to deter smuggling."

The report of the United States Central Intelligence Agency (CIA) Iraq Survey Group (ISG) estimated the Iraqi Government's total "illicit revenue" from Aug 1990 to March 1993 at $10.9 billion, of which $8 billion came from exports under trade protocols which were known – and in some cases condoned – by the Security Council. Smuggling was estimated to account for $1.2 billion. The amount related to the Oil-for-Food programme was $1.74 billion, or 16 per cent of the illicit revenue - far less than the proportion estimated by the US Government Accountability Office (GAO).

The GAO, using a different methodology, has estimated that "from 1997- 2002, the former Iraqi regime acquired $10.1 billion in illegal revenues, including $5.7 billion in oil smuggled out of Iraq and $4.4 billion through surcharges on oil sales and illicit commissions from suppliers exporting goods to Iraq through the Oil-for-Food programme."

IRAQI GOVERNMENT SOVEREIGNTY

As is well known, after the first Gulf War ended in 1991, Saddam Hussein remained in power. Although constrained by international sanctions, he nevertheless was still the leader of a recognized, sovereign State. Conscious of this fact, when the Security Council, by unanimous decision, set up the Oil-for-Food programme, it agreed to allow the Iraqi Government to choose who could buy Iraqi oil, and from whom Iraq would import humanitarian supplies. Without this agreement, Iraq would not have allowed humanitarian goods to enter Iraq at a rate high enough to make a difference to the daily lives of the Iraqi people.

As the GAO put it, "the Security Council allowed the Iraq government, as a sovereign entity, to negotiate contracts directly with purchasers of Iraqi oil and suppliers of commodities. This structure was an important factor in allowing Iraq to levy illegal surcharges and commissions."

In his testimony before a hearing of the US House of Representatives National Security, Emerging Threats and International Relations Subcommittee, Patrick Kennedy, U.S. Representative to the UN, said:

In retrospect, had the program been constructed differently, perhaps by eliminating Iraqi contracting authority and the resulting large degree of autonomy afforded to Saddam to pick suppliers and buyers, then the allegations currently facing the program might not exist.

One can postulate the elimination of this authority and the establishment of another entity to enter into contracts on behalf of the former government of Iraq and this entity might have had tighter oversight of financial flows, thus inhibiting Saddam Housing's ability to cheat the system through illegal transactions.

The problem is, of course, that these specific decisions to allow the government of Iraq to continue to exercise authority, to let Saddam Hussein continue to determine who he could sell oil to and purchase goods from were all done in a larger context of a political debate on Iraq. It was reluctantly accepted to ensure that the significant sanctions program would remain in place, thus achieving a U.S. goal.

Mr. Chairman, here I want to reiterate a point that I made earlier on the issue of sovereignty. While we oppose the authoritarian regime of the former Saddam era, Iraq was and is a sovereign nation. Sovereign nations are generally free to determine to whom they will sell their national product and from whom they purchase supplies.

UN’S LATEST EFFORTS TO IMPROVE MANAGEMENT AND ACCOUNTABILITY

In early January 2005, Mr. Volcker made public 58 audit reports under his purview, including 37 related to the Oil-for-Food programme, 16 related to the UN Compensation Commission and two draft reports related to the Oil-for-Food programme which were not finalized due to the outbreak of war.

These reports, and an initial analysis or Briefing Paper by the IIC, are now available on the IIC website at www.iic-offp.org.

The Secretary-General immediately welcomed the release of the internal audits as part of the effort he initiated to get to the bottom of allegations surrounding the programme.

The Briefing Paper shows that there was a dynamic auditing process generated by the United Nations itself, as well as the reports of external auditors which have already been made public. All the audits, both internal and external, were conducted in accordance with internationally recognized standards.

At the same time, the IIC briefing paper identified deficiencies in the management of the Oil-for-Food Programme, which it noted operated “amid acute political sensitivities in an area of the world where corruption is rife.”

While awaiting the IIC's final report, the UN is already focused on issues of management and accountability, and engaged in a critical review of the way we work, which will lead to a broad overhaul of the UN’s management structure and systems in order to improve performance and accountability. The lessons of the Committee's interim report, expected by early February, will be fully taken into account in that process.

Some lessons are already being applied. For example, on the financial side of the tsunami relief effort the United Nations is already implementing procedures for greater accountability and transparency.

The tsunami effort, like Oil for Food, is a humanitarian programme on an unusually large scale, although they differ from each other in nearly all other respects.

The Iraq Programme and tsunami relief efforts are two very different projects. With tsunami relief, the UN is coordinating the donations of individual countries and international organizations. Coordinating and directing aid is a familiar role for the UN, which has well-proven tracking and monitoring systems in place.

The US accounting firm Price Waterhouse is providing pro bono services to the United Nations to help improve tracking of assistance being offered to the victims of the tsunami.

EARLY ACTION AGAINST SIGNS OF CORRUPTION

As early as 2000, UN oil overseers alerted the Security Council to suspicions of illegal oil surcharges by the Iraqi Government. The Secretary-General himself drew attention to the problem in a 2001 public report to the Security Council. In response, the Council instituted a "retroactive pricing" mechanism designed to curb the practice.

The UN secretariat also strengthened contract review procedures in response to reports of kickbacks. From 2001 onwards, hundreds of contracts were queried for pricing, some were held back indefinitely and many were specifically flagged by UN staff to the Security Council. Not once did the members place any of them on hold for pricing reasons.

One example of the Oil-for-Food staff's efforts to flag dubious suppliers concerns the Al Wasel and Babel General Trading Company, which has been the subject of press attention. In October 2001, UN experts alerted the Security Council Sanctions Committee (the "661 Committee") that the prices in a proposed contract between the Al Wasel and Babel General Trading Company and Iraq appeared high. The members of the Security Council nevertheless unanimously approved the contract. It was only in April 2004 that the US Treasury Department identified this company as a front for the regime. This example demonstrates that UN staff did report suspicious cases and that while they were not mandated or equipped to check the backgrounds of all suppliers, even those who could, such as the US Government, did not have all of this information until after the Oil-for-Food programme ceased to operate.

COMMON MYTHS

Although the UN has been accused of secrecy, all Oil-for-Food contracts had to be submitted to the UN for approval via the national authorities of each supplier. All details of every contract were known not only by the national authorities of each supplier but also by the members of the Security Council 661 Committee who had the power to approve or hold any contract.

Further, on November 23, 2003 , the UN provided the Coalition Provisional Authority with its entire database. Simultaneously, thousands of copies of Oil-for-Food contracts were placed on CDs and transferred to the Iraqi authorities and the CPA.

It is important to note that in the ISG report, all names of U.S. citizens and business entities have been redacted in accordance with U.S. privacy laws. This action could be considered analogous to the UN's own decision to protect the confidentiality of commercial transactions under Oil-for-Food, while at the same time keeping the Security Council fully informed.

That said, the Secretary-General stated on 15 April 2004 that "Transparency is the only way to deal with allegations [like those surrounding the Oil-for-Food programme], and by far the best way to prevent corruption from happening in the first place. That, I believe, will be one of the main lessons we have to learn from this affair, whatever the outcome of the inquiry."

Before the Oil-for-Food programme became operational in 1997, those interested in exporting humanitarian goods had to obtain approval from Security Council members without input from UN experts, without using a UN escrow account and without a formal contract.

Contrary to press reports, no contracts for Johnny Walker whiskey were ever submitted or approved under the Oil-for-Food programme.

Similarly, media coverage has been incorrect in asserting that the UN approved funds for an Olympic Stadium for Saddam's son Uday. While the Iraqi regime did indicate its desire to fund the construction of an Olympic stadium, no money for the stadium was ever approved or paid. And far from having any association with Saddam's son, the UN, through its human rights expert on Iraq , publicly decried Uday's atrocities.

Numerous media reports have raised suspicion about the role of UN Secretary-General Kofi Annan's son Kojo, who worked for a Swiss firm, Cotecna, which was awarded a contract to work on the Oil-for-Food Programme in 1999. In response to questions raised at the time, the UN did an internal investigation which found that there was no knowledge, including on the United Nations Committee on Contracts or the Procurement Officer handling that contract, that Kojo Annan had any link to Cotecna. That matter is also now in the hands of the IIC.

Media reports also allege that the UN was responsible for the delivery of substandard goods to Iraq . The World Health Organization ( WHO ) reported that by the end of 2002 only 0.7 percent of drugs, vaccines and insecticides received in Iraq under the Oil-for-Food Programme had failed quality control tests, according to the Government. Independent testing in Jordan found that out of $127 million worth of drugs received in Amman , failure rates were around 0.25 percent of the total value.

Further, under the Oil-for-Food programme, there was a system for conducting complete checks when requested by a member of the Sanctions Committee. In such cases, each box and container for a given contract would be opened and the contents photographed. All Committee members had access to a database containing reports on such cases.

THE UN FIGHTS TERRORISM

The United Nations is outraged by reports that Saddam Hussein rewarded Palestinian suicide bombers with money he received through kickbacks from contractors, illegal smuggling or side oil deals in breach of the sanctions.

The UN is adamantly opposed to all forms of terrorism, from whatever quarter and for whatever reason. The Secretary-General has declared that, “The United Nations stands four-square against terrorism, no matter what end it purports to serve.” He has condemned terrorist attacks against civilians on countless occasions.

The United Nations helped to negotiate the International Convention for the Suppression of the Financing of Terrorism , which aims to prevent exactly the type of outrageous abuse Saddam Hussein allegedly committed.

That Convention currently has 130 States parties. The Secretary-General urges all countries which have not yet ratified that pact to do so without delay. This treaty, coupled with eleven other legal instruments negotiated under the UN's auspices, provides the basis for coordinated and concerted international action against terrorism.

In the wake of the September eleventh attacks against the United States , the Security Council adopted resolution 1373 – a landmark text requiring all countries to strictly comply with requirements aimed at tackling the terrorist scourge. We also set up a Counter-Terrorism Executive Directorate to ensure that these obligations are met.

In addition, UN agencies around the world are actively working to prevent terrorism in very concrete ways.

The IAEA is helping countries to detect malicious activities involving nuclear and other radioactive materials, and to prevent illicit trafficking in these potentially dangerous substances.

The United Nations Office on Drugs and Crime provides assistance to more than 90 countries in strengthening their counter-terrorism capacity.

The International Civil Aviation Organization ( ICAO ) has taken steps to foster secure skies, including by developing an Aviation Security Plan of Action and sharing expertise in this area through its network of training centres.

The United Nations was moved to act against Osama bin Laden, Al-Qaeda and the Taliban long before September 11, 2001 . They were all declared international outlaws by the UN after the 1998 terrorist bombings of United States embassies in Nairobi , Kenya , and Dar-es- Salaam , Tanzania .