The Times (London)
April 23, 2004, Friday

Saddam, the politicians, the kickbacks and the $ 4.4bn UN
Oil-for-Food scandal

by James Bone in New York

Investigations are under way to expose how the Iraqi dictator bought
influence around the world and broke sanctions, writes James Bone in
New York

Simultaneous investigations of the now-defunct United Nations
Oil-for-Food programme aim to expose how Saddam Hussein used Iraq’s
vast oil wealth to buy political influence around the world.

The Iraqi Governing Council, the US Congress and an independent panel
established by the UN have started to investigate allegations that
Saddam’s regime used oil to bribe politicians, political parties,
journalists and a leading UN official.

The inquiries are also examining Saddam’s system of kickbacks, which
he used to break sanctions, fund his military and sustain his regime.

The scale of the alleged corruption is staggering. The investigative
arm of the US Congress estimates that Saddam earned $ 4.4 billion
(£2.59 billion) in illegal “surcharges” and “after sale service fees”
on contracts overseen by the UN. Individual bribes allegedly ran into
millions of dollars.

The scandal has created an atmosphere of dread at the UN, which ran
the Oil for- Food scheme, just as the world organisation prepares to
play a larger role in the political transition in Iraq. But the
allegations have also sent shockwaves around the world because
hundreds of prominent figures in two dozen countries stand accused.

The fall of Saddam has made available a treasure trove of documents
that contain some of Iraq’s most closely guarded secrets. Few have
been made public, but coalition officials have taken steps to secure
the evidence.

The UN Oil-for-Food scheme was the largest UN humanitarian programme
in the organisation’s history, handling a total of $ 64 billion worth
of Iraqi crude from December 1996 until it was wound up last year.

The programme was established after the first Gulf War to mitigate
the effects of the UN economic embargo imposed after the 1990
invasion of Kuwait.

Britain and the United States played a leading role in its creation
because governments did not want to be accused of starving the Iraqi
people. At times, both powers had to bend to pressure from other
countries to turn a blind eye to corruption and mismanagement so that
Iraq continued to co-operate with the scheme.

The UN exercised oversight through its control of Iraqi oil revenues.
Money generated from approved Iraqi oil sales was deposited in a UN
escrow account. The UN then released funds to pay for approved
imports of food, medicine and other humanitarian supplies.

The oil price was set by a panel of UN “oil overseers” and all
contracts approved by the UN Security Council’s 15-member sanctions
sub-committee, operating by consensus so that any single member could
block a decision. But Iraq found ways to circumvent the UN
monitoring, enabling it to demand billions of dollars in kickbacks.

The first weakness of the UN system was the mechanism to set the oil
price.

Although there were originally three oil overseers, retirements and
resignations reduced this number to one -a relatively young former
Russian insurance executive. For more than a year, Russia blocked the
appointment of new overseers to replace those who had left.

Until late 2000, the UN’s price for Iraqi oil was set at the start of
each month.

That allowed Iraq to time its sales to exploit the ups and downs of
the world oil market.

A higher world price meant a higher margin over the price set by the
UN, allowing it a greater profit, which Iraq could then demand be
kicked back to Baghdad.

Congressional investigators estimate that Iraq levied an illegal
“surcharge” of between 10 cents and 35 cents a barrel on crude
shipped under the Oil-for-Food programme.

Iraq also made money by demanding kickbacks on contracts to supply it
with humanitarian goods under the UN scheme. US officials say that
the customary kickback was 10 per cent. A vendor selling Iraq $ 100
(£56) of goods would notify the UN that the shipment was worth $ 110
and give the $ 10 to Iraq.

The money generated was deposited in front companies, bank accounts
or Iraqi embassies abroad and transported back to Iraq as cash. But
some was also used to rebuild Iraq’s military and buy prohibited
equipment abroad.

Charles Duelfer, the former UN inspector who is leading the CIA
search for weapons of mass destruction in Iraq, told Congress last
month that Iraq funnelled Oil-for-Food money to the Military
Industrialisation Commission (MIC), which worked with the Iraqi
intelligence service to set up front companies overseas to procure
arms. The MIC budget increased nearly a hundred-fold from 1996 to
2003, totalling $ 500 million last year alone.

Iraq’s demands for kickbacks were long known to British and US
officials, who tried to fix the UN system to counter them.
Eventually, Russia allowed the replacement of the departed “oil
overseers” and the sanctions subcommittee changed to “retroactive
pricing” to cut Iraq’s possible margin on oil sales.

But what has really ignited the scandal was the publication by the
Iraqi al Mada newspaper in January of a list of 270 politicians,
journalists, businessmen and even a UN official who were allegedly
given “vouchers” to buy Iraq oil.

There are some doubts about the veracity of the list, but it
nevertheless includes powerful figures in key UN powers, such as
Russia and France, as well as a range of Middle Eastern countries.
Among the alleged recipients are the Russian Peace and Unity Party of
President Putin, as well as the Russian Communist Party and companies
linked to the party of Vladimir Zhirinovsky, a Russian nationalist.

Charles Pasqua, the former French Interior Minister, and a former
French ambassador to the UN are also on the al-Mada list. Also named
was President Megawati of Indonesia, who is said to have received one
million barrels as “the daughter of President Sukarno”, and one
million barrels as Megawati.

Recipients of oil “vouchers” did not have to trade the oil
themselves. They could merely sell the vouchers to oil traders for 10
to 30 cents a barrel.

A good example of how the system was used to peddle influence is the
case of Shakir Khafaji, one of two Iraqi-American businessmen on the
list. Mr Khafaji admitted to the Financial Times last week that he
had been awarded oil allocations by the Saddam regime, and sold them
to an Italian firm on his family’s behalf. It was Mr Khafaji who
provided $ 400,000 to fund an anti-sanctions documentary by Scott
Ritter, the former UN weapons inspector.

The UN’s own investigation, led by Paul Volcker, the former Federal
Reserve chairman, is focusing initially on allegations against Benon
Sevan, the Cypriot Armenian UN official who ran the Oil-for-Food
programme.

A “Mr Sevan” who appeared on the al-Mada list was allegedly allocated
14.3 million barrels of crude, of which 7.291 million were actually
“lifted”.

But Mr Sevan, who has been asked to postpone his retirement while the
investigation is conducted, has denied the charge. “I should like to
state that there is absolutely no substance to the allegations made
in a local Iraqi newspaper…that I had received oil or oil moneys
from the former Iraqi regime,” he said.

The ABC television network reported this week, citing US and European
intelligence services, that three unnamed UN officials had taken
bribes from Saddam.

“The UN Oil-for-Food programme provided Saddam Hussein and his
corrupt and evil regime with a convenient vehicle through which he
bought support internationally by bribing political parties,
companies, journalists and other individuals of influence,” Claude
Hankes-Drielsma, a British consultant for the Iraqi Governing
Council, told Congress this week.

“This secured the co-operation and support of countries that included
members of the Security Council of the UN.”