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. Last Updated: 07/27/2016

Report Cites Abuse of UN Oil Program

UNITED NATIONS -- Former U.S. Federal Reserve chairman Paul Volcker says his investigation of corruption in the oil-for-food program in Iraq found that program director Benon Sevan engaged in "an irreconcilable conflict of interest" by choosing the companies that bought Saddam Hussein's oil.

Volcker's first report, as outlined by an official close to the investigation and by Volcker himself in an op-ed article in Thursday's Wall Street Journal, found the $60 billion program "tainted" from top to bottom.

Volcker said in the article that program managers, auditors and contractors hired to oversee the program's operation, and those who controlled UN expenditures for it, all failed "to follow the established rules of the organization designed to assure fairness and accountability."

The 200-page report was scheduled to be released by Volcker on Thursday afternoon.

The oil-for-food program, launched in December 1996 to help ordinary Iraqis cope with UN sanctions imposed after Hussein's 1990 invasion of Kuwait, quickly became a lifeline for 90 percent of the population.

Under the program, Hussein's regime could sell oil, provided the proceeds went primarily to buy humanitarian goods and pay reparations to victims of the 1991 Gulf War. Hussein's government decided on the goods it wanted, who should provide them, and who could buy Iraqi oil. But the Security Council committee overseeing sanctions monitored the contracts.

Allegations of corruption in the program surfaced in January 2004 in the Iraqi newspaper Al-Mada, which published a list of about 270 former government officials, activists, journalists and UN officials from more than 46 countries suspected of profiting from Iraqi oil sales that were part of the UN program. UN Secretary-General Kofi Annan appointed Volcker in April to lead an independent investigation.

Volcker made clear that the committee's intention is to improve the United Nations, not to destroy it, and he applauded Annan for opening the world organization's books, saying "few institutions have freely subjected themselves to the intensity of scrutiny entailed in the committee's work."

The interim report will not address questions about Annan or the employment of his son Kojo by the Swiss company Cotecna Inspection SA, which had a UN contract to certify deals under the oil-for-food program.

Critics have raised questions about nepotism and whether Kojo Annan played any role in securing contracts for Cotecna -- allegations he denies. Volcker said the investigation of the secretary-general and his son "is well advanced" and the official close to the inquiry said that it will be addressed in a separate report later this winter.

Though Sevan has repeatedly denied wrongdoing, Volcker said "the evidence is conclusive that Mr. Sevan, in effectively participating in the selection of purchasers of oil under the program, placed himself in an irreconcilable conflict of interest." This violated both UN rules and Sevan's responsibility as an international civil servant, he said.

The Financial Times reported Tuesday that Sevan personally intervened to steer lucrative Iraqi oil contracts to Africa Middle East Petroleum, a Swiss-based oil trading company. The contracts could be sold to international traders for a markup of up to 35 cents per barrel, the paper said.

Volcker said the procurement process was "tainted," auditing of the program was "underfunded and undermanned," and its management was "lacking." Perhaps not surprisingly, he said, "political considerations intruded" into procurement.