The accusations against the oil for food program: the Volcker reports.

THE SANCTIONS IMPOSED ON IRAQ FROM 1990 to 2003 were the most severe economic sanctions ever imposed in the name of international governance. Because Iraq was highly dependent on oil exports and highly dependent on imports, its economy was particularly vulnerable to comprehensive sanctions. During the Persian Gulf War of 1991, the massive bombing campaign destroyed much of Iraq's infrastructure, and the sanctions then prevented Iraq from rebuilding. Electrical generators, water and sewage treatment plants, telecommunications facilities, and much of Iraq's industrial production was devastated. The humanitarian situation, described shortly after the war by an envoy of the UN Secretary General as "near apocalyptic," worsened. By 1995, the malnutrition and deteriorating health of the Iraqi population were at a crisis. The Oil for Food Program (OFFP) was established in 1996 to allow some amount of humanitarian goods into Iraq to relieve the crisis. Although limited in scope, and compromised by the many political agendas at play, the Oil for Food Program nevertheless resulted in significant increases in nutrition and health, as well as some restoration of electricity and other critical public services. However, the last two years have seen an explosion of attacks upon the program, maintaining that it was corrupt. The most extensive and credible investigation was that conducted by the Independent Inquiry Committee, headed by Paul Volcker. The accusations against the Oil for Food Program, in turn, have served as a springboard for larger attacks on the credibility and effectiveness of the United Nations as a whole. In this essay, I will argue that those accusations of improprieties have been greatly overstated; and that the member states, including the United States, hold fully as much responsibility for smuggling and other illicit trade as the UN.

THE ACCUSATIONS AGAINST THE OIL FOR FOOD PROGRAM

In January 2004, the Iraqi newspaper Al Mada published a list of persons and organizations that supposedly received "vouchers" from the Iraqi government to purchase oil. Included on the list was the UN's head of the Oil for Food Program, Benon Sevan, as well as liberal British MP George Galloway. In April 2004, the General Accounting Office published a report claiming that the Oil for Food program had been rife with corruption, and that through smuggling and kickbacks, Saddam Hussein had managed to acquire over $10 billion in illicit funds. What followed were a series of congressional investigations, that frequently included testimony from one of the most vitriolic of the journalists covering the issue, Claudia Rosett of the of the Wall Street Journal, as well as witnesses from the Heritage Foundation and other conservative organizations; but rarely included scholars, or experts from liberal organizations. Journalists, particularly Rosett and William Safire, wrote numerous articles describing the OFFP accusations in grandiose terms, saying (among other things) that the accusations constituted "the largest financial rip-off in history." (1)

"A mountain of evidence has now accumulated to suggest the Iraqi people suffered from shortages of quality food and medicine not because international sanctions were too strict, but because lax or corrupt oversight at U.N. headquarters in New York allowed Saddam Hussein to exploit the system for his own purposes," reads a Wall Street Journal editorial. (2) Rep. Ralph Hall stated at a heating he chaired:

      By allowing such fraud and deception to continue and for
   U.N. employees to participate in it has probably resulted in the
   deaths of thousands of Iraqis through malnutrition and lack of
   appropriate medical supplies. We have a name for that in the United
   States, it is called murder. (3)

The members of Congress participating in the hearings, even moderate Republicans such as Christopher Shays, used the opportunity for considerable grandstanding. For the Republicans, the OFFP accusations came at a critical time. There were massive corporate scandals, most notably Enron, involving billions of dollars of pension funds and investment that had disappeared through systematic fraud. At the same time, the Bush Administration's war in Iraq was going poorly. The US occupation had concluded with Iraq imploding into civil war, while domestic protest against the war grew along with the body count of American soldiers. The presidential election was a few months off. In the face of growing perceptions of incompetence and corruption involving the Bush administration, there was considerable incentive among the Republicans to find an even larger scandal affecting what was seen as a liberal international institution. For the Democrats, there was nothing to be gained by defending what was increasingly viewed as a corrupt and failed institution; and for the most part they distanced themselves, or actively joined in the excoriation of the UN.

In the midst of the feeding frenzy, there were three sets of investigations conducted that, while characterized by bias in certain regards, were

also conducted with considerable thoroughness. The General Accounting Office (GAO, now called the Government Accountability Office) published a series of reports. The most significant was the first, in April 2004. (4) A "definitive" report is due to come out from the GAO as of this writing. The second was a report by the Iraq Study Group, in affiliation with the CIA. Headed by Charles Duelfer, it was released in September 2004, and totaled approximately 1000 pages. (5)

THE VOLCKER COMMITTEE

The UN itself responded to the accusations by creating the Independent Inquiry Committee (IIC), headed by Paul Volcker, former chairman of the Federal Reserve Bank. He was joined by Swiss international law scholar Mark Pieth; and South African supreme court justice Richard Goldstone. The IIC, which came to be known as the Volcker Committee, had a budget of $30 million, hired a staff of 60, and in the end issued reports totaling over 3000 pages. All UN employees were required to cooperate fully with the Committee's enquiry, although the committee did not have the power to subpoena testimony or documents outside the UN.

There were several interim reports issued throughout 2005, with a massive final report released in September 2005.

* In January 2005, the IIC released a briefing paper on the audits that had been conducted by the UN on the OFFP over the course of its history

* In February 2005, the IIC released an interim report that primarily addressed three contracts involving the "2.2% account," oil allocations to Benon Sevan, and internal audits

* In March 2005, the IIC released a second interim report, with additional material concerning Cotecna (one of the contracts from the 2.2% account), as well as some concerns regarding two senior UN officials. One, Kofi Annan's chief of staff, was questioned about the destruction of his set of documents; another received part of his salary from OFFP, although his work was not closely related to the program.

* In September 2005, the IIC released its final report. It included discussion of the Secretariat's overall administration of the program; the manipulation of the program to produce kickbacks and other forms of illicit income; the lobbying activities of two or three individuals on behalf of Iraq; and some of the elements of the program's design that made abuses possible.

In addition to investigating the accusations of improprieties, the Volcker Committee also commissioned a group of experts in public health and other fields to measure the effectiveness of the program as a humanitarian operation. Their findings were included in the final report of September 2005. This group found that the Oil for Food Program had significantly reduced malnutrition among Iraqi children, and significantly improved the health of the Iraqi population in several other regards. These findings were almost universally ignored by the media.

The IIC's findings regarding actual misappropriations of funds were somewhat less than those of the Duelfer report and the GAO. All three investigations found that Iraq engaged in trade illicitly, mostly through smuggling which was unrelated to the Oil for Food Program, and to a lesser extent through kickbacks and surcharges on contracts within the OFF program. All estimated that two-thirds or more of the illicit funds involved smuggling, unrelated to OFFP. The remainder concerned OFFP contracts, in a variety of ways. Prices on oil contracts were set low, and oil purchasers then paid the Iraqi government additional fees under the table. Prices on import contracts were set high, such that vendors received payments in excess of the value of the goods; then returned part of the money illicitly to the Iraqi government. Finally, in some cases the Iraqi government improperly charged "after sales service fees," which were essentially kickbacks. The GAO's April 2004 report estimated that "from 1997 through 2002 the former Iraqi regime acquired $10.1 billion in illegal revenues related to the Oil for Food Program." (6) $5.7 billion of this came from oil smuggling and $4.4 billion from illicit surcharges on oil sales and commissions on imports. (7) The report of the CIA's Iraq Study Group maintained that the bulk of Iraq's illicit funds came from "government to government protocols"--ongoing trade agreements between Iraq and other countries, in violation of the sanctions. Iraq's income from these, according to the report, came to $8 billion, while kickbacks from import contracts were estimated to be $1.5 billion, surcharges from oil sales were $229 million, and private sector smuggling was estimated at $1.2 billion. (8) The Volcker Committee estimated oil surcharges to be the same, and estimated improper fees on import contracts to be $1.55 billion; with total illicit funds involving OFFP to be $1.8 billion. (9)

For all the rhetoric about "the worst financial scandal in history," the amounts involved do not in fact support such a claim. $229 million of improper surcharges, on some $60 billion of oil sales, comes to less than one-tenth of one percent. The total amount of improper funds involving OFFP came to $1.8 billion on about $100 billion of transactions, an amount that is probably no greater than simply the margin of error for an honest and well-run business. The bulk of the illicit funds involved Iraq's ongoing trade relations with Jordan, Syria, and Turkey. Yet those had no relation to the Oil for Food Program. It was not the responsibility of the Secretariat or the Office of Iraq Program (OIP), which housed the Oil for Food Program, to enforce the sanctions against smuggling. That responsibility was held by the Security Council and the member states.

Beyond these, the Volcker committee found little that indicated that funds were misspent or that there were improprieties affecting the delivery of the program's services. The most direct claim of corruption that was made concerned Benon Sevan, who headed the Office of Iraq Program. The IIC found that he had improperly received vouchers to buy oil from Iraq; and that there was $160,000 in his bank accounts that did not have a sufficient explanation. There was a suggestion in the Duelfer report that Iraq provided Sevan with these vouchers so that he would press the members of the Security Council to lift the holds on Iraq's import contracts for humanitarian goods and for oil equipment. It was true that Sevan on various occasions implored the Security Council members to do this; but it was also the case that there was enormous pressure from many fronts regarding the holds, which by 2002 totaled $5 billion of critical imports. Sevan in fact was quite even-handed, chastising the Iraqi government when it was slow to submit paperwork for the imports, as well as asking the members of the Security Council to act more promptly to resolve problems with the blocked contracts.

The committee investigated the activities of Samir Vincent and Tongsun Park, who were apparently paid by Iraq in the early 1990s to lobby Boutros-Ghali. But there was no evidence that Boutros-Ghali received or agreed to receive bribes or anything of that sort; (l0) and there is nothing illegal or improper about a member state hiring a lobbyist. There was a claim that Iqbal Riza, Kofi Annan's chief of staff, ordered the routine destruction of his files, which he said were duplicates, while the investigation was pending. There was a claim that Dileep Nair, a UN official, hired an assistant with OFFP funds, although little of the assistant's work was related to OFFP.

One of the issues the committee explored in excruciating detail concerned the awarding of an inspection contract to Cotecna, a company for which Kojo Annan (Kofi Annan's son) had previously been employed. There was no question that Cotecna had provided the inspection services for which it had been contracted. Nor was there a claim that it had been overpaid; the committee noted that it had submitted the lowest bid. The only question was whether Kojo Annan had had a role, through his father, in lobbying for the contract. The IIC described the elaborate investigation conducted; there were numerous interviews of Kofi Annan, as well as scrutiny of records cell phone calls between Kofi Annan and his son. The committee found that, in general, father and son spoke to each other by phone with some regularity, and that there were no grounds to believe that the Secretary General had any knowledge or involvement with the Cotecna contract. But in the course of looking for improprieties concerning the Cotecna contract--which, again, entailed no accusations that either the company was overpaid, or that the services were not provided--the IIC came across materials suggesting that Kojo Annan had bought a car, and claimed that he was doing so on behalf of his father, which enable him to get a discount on the purchase, and avoid paying customs taxes when shipping it back to Ghana. The total amount of financial benefit came to around $20,000. There was no claim that this had any relation to the Oil for Food Program. In the end, the IIC found that there was no evidence that Kofi Annan had known or approved of his son's purchase of a car in this manner.

WHO WAS RESPONSIBLE?

Despite the very extreme rhetoric of the media and the US Congress, in the end, after $30 million and nearly two years, the Volcker committee in fact had no evidence that there was any sort of extensive corruption within the UN; to the extent that there were improprieties, there was little evidence that they significantly affected the implementation of the program, and in many cases, there was no claim that they affected the program at all. While there was massive research into how many times per week Kofi Annan talked to his son on the telephone, and whether Boutros-Ghali could remember meeting with a lobbyist over a decade ago, there was at the same time a real failure on the part of the committee to address the fundamental question of accountability: when a program is established by the Security Council, under its Chapter VII powers, who has the right and obligation of oversight? The Secretariat, which housed the Office of Iraq Program, was charged with failing to administer the program properly, failing to audit the contracts adequately, failing to take more vigorous steps to stop smuggling, and failing to stop the kickbacks and surcharges on the oil sales and import contracts. In the media and Congress, there was an additional set of accusations that were directed more broadly against "the UN," and that in turn was often taken to mean the Secretariat. Yet the fundamental responsibility for the design of the program, the accountability structure, the enforcement of the sanctions, and the oversight of the OFFP's implementation lay with the Security Council. The sanctions themselves were imposed by resolution of the Security Council. The authorization to address smuggling was a Security Council resolution that invited member states to interdict smuggling. All exceptions to the sanctions regime were authorized only by Security Council resolution or by decision of the Security Council committee overseeing the sanctions. The Oil for Food Program itself was established by Security Council Resolution 986.

One of the central criticisms raised against the program was that it permitted Iraq to choose its trade partners, both for its oil sales and its humanitarian imports. The media and Congress often railed against "the UN" for its foolishness and gullibility in agreeing to this. Yet it was the Security Council in its entirety, including the United States and the United Kingdom, that agreed to this, as a deliberate political concession necessary for Iraq to accept the program. This took place at a time when the humanitarian situation in Iraq had deteriorated so badly that support for the sanctions had substantially eroded within the Council, and the US and UK believed that the only way the sanctions could be maintained was by implementing some form of humanitarian exemptions. Regardless of the motivation for this decision, it was a decision of the Security Council, pursuant to its powers under Chapter VII of the UN Charter, which authorizes the Security Council, and the Council alone, to take measures regarding aggression and threats to peace. There is no provision in the Charter for the Secretariat to override the Council in a Chapter VII measure. Nor is there any other body that may do so. No suit may be brought against the Council before the International Court of Justice. The Council itself could seek an advisory opinion--only advisory, not binding--from the ICJ regarding its own actions; but, unsurprisingly, that has almost never happened.

The implementation of the program fell to the Council as well. The Council itself passed resolutions laying out the broad structure and changes in the program; while a committee of the Council, the 661 Committee, established the procedures for implementation, approved pricing formulas, blocked contracts at will, and oversaw the program as a whole. The role of the Secretariat was quite limited: it implemented the policies set by the Council and the 661 Committee; and had no authority to override or modify those policies. This was clear at every stage of the program. The OIP staff notified the 661 Committee when there were pricing irregularities, but had no authority to act on them. When OIP staff notified the 661 Committee of pricing irregularities concerning oil sales--which happened within weeks after they began--the 661 Committee altered the pricing process to prevent it from continuing. When OIP staff notified the 661 Committee of pricing irregularities regarding import contracts--which they did on over seventy occasions--the 661 Committee took no action, because the most active members, the US and UK, were singularly concerned with military uses, not pricing issues.

CONCLUSION

In the end, the accusations against the Oil for Food Program, and the United Nations, had far greater impact than was warranted, while the accomplishments of the program and the UN's implementation of it received far less recognition that was deserved. Yet for all the rhetoric about "the scandal of the century," and calls for greater financial oversight, there are much more serious questions that remain outstanding: Who is responsible when a decision of the Security Council goes awry? When it is poorly designed or implemented? Or when it violates international law? The corruption and financial improprieties that have received such abundant attention from the media and from critics of the UN are by no means the most significant abuse in this situation. The sanctions themselves reduced a highly developed country to a catastrophically impoverished society, with massive damage affecting child mortality, nutrition, and critical public services. There are good grounds to maintain that such a policy violates the UN Charter, the Geneva Conventions, and the Genocide Convention. Yet within the framework of the UN Charter, there is no provision for any other body of the UN, including the Secretariat, to question the wisdom or viability of a Security Council measure. Nor is there any venue within the institutions of international law in which the Security Council may be held accountable.

For all of its massive and detailed research, what the Volcker committee did not do was address the elephant in the room. The critical issue of accountability is not whether Kojo Annan used his father's name to get a discount on his new car. The critical issue is the impunity of the Security Council; and whether we may hope for a saner world when those authorized to use any means they wish in the name of peace and security are themselves subject to the oversight of no one.

ENDNOTES

(1.) William Safire, "Kofigate Gets Going," New York Times, 12 July 2004.

(2.) "Oil for Scandal," 18 March 2004.

(3.) Rep. Ralph Hall, Hearing Before The Subcommittee On Energy And Air Quality Of The Committee On Energy And Commerce, House Of Representatives, One Hundred Eighth Congress, Second Session, 8 July 2004, Serial no. 108-106, p. 2.

(4.) "United Nations: Observations on the Oil for Food Program," Statement of Joseph A. Christoff, Director, International Affairs and Trade, General Accounting Office. Testimony before the Senate Committee on Foreign Relations, GAO-04-65IT, 7 April 2004.

(5.) "Comprehensive Report of the Special Advisor to the DCI on Iraq's WMD," 30 September 2004. http://www.cia.gov/cia/reports/iraq_wmd_2004/.

(6.) "United Nations: Observations on the Oil for Food Program," Statement of Joseph A. Christoff, Director, International Affairs and Trade. Testimony before the Committee on Foreign Relations, U.S. Senate. GAO-04-65IT, p. 2.

(7.) "United Nations: Observations on the Oil for Food Program," Statement of Joseph A. Christoff, Director, International Affairs and Trade. Testimony before the Committee on Foreign Relations, U.S. Senate. GAO-04-65IT, p. 2.

(8.) "Comprehensive Report of the Special Advisor to the DCI on Iraq's WMD," 30 September 2004, Regime finance and procurement section, p. 23.

(9.) Independent Inquiry Committee, "Report on the Manipulation of the Oil-for-Food Programme by the Iraqi regime," 27 October 2006, p. 1. http://www.iic-offp.org/story27oct05.htm.

(10.) Independent Inquiry Committee, "Report on the Management of the Oil-for-Food Programme," 7 September 2005, Vol. I, p. 15. http://www.iic-offp.org/Mgmt_Report.htm.

Joy Gordon is Professor of Philosophy at Fairfield University, Connecticut.