The New York Times
February 3, 2005
Inquiry Severely Criticizes U.N.’s Oil-for-Aid Program
By JUDITH MILLER

An interim report by a United Nations-appointed panel investigating
the oil-for-food program in Iraq severely criticizes its director and
depicts the program as “tainted” for failing to follow the
organization’s own procedures.

In an essay appearing today in The Wall Street Journal, Paul
A. Volcker, the former Federal Reserve chairman who heads the
three-member commission investigating the oil-for-food program, said
its procurement system had failed to follow “the established rules of
the organization designed to assure fairness and accountability.”

He said the report, which is scheduled to be made public today, also
accuses Benon Sevan, the Cypriot who had headed what was once the
world body’s largest humanitarian effort, of “irreconcilable conflict
of interest.”

Citing what he called “conclusive” evidence, Mr. Volcker wrote that by
“effectively participating in the selection of purchasers of oil under
the program,” Mr. Sevan had violated both “specific United Nations
rules and of the broad responsibility of an international civil
servant to adhere to the highest standards of trust and integrity.”

One official who has seen parts of the report said that it also
criticized another senior United Nations official, Joseph Stephanides,
a senior official on the Security Council staff, for failing to ensure
that the organization’s own rules for buying oil, selling goods and
selecting contractors were followed.

Telephone calls were made last night to the offices of both Mr. Sevan
and Mr. Stephanides, but neither man could be reached for comment.

In his essay, Mr. Volcker said the report explored in “excruciating
detail” three “potentially vulnerable” parts of the $64 billion
program, which was aimed at easing the debilitating effects of
economic sanctions on the Iraqi people between 1996 and 2003 by
ensuring that Iraq’s oil revenues were used to buy food, medicine and
other necessities for its people.

Specifically, he said the interim report discussed the initial
selection of major contractors hired to inspect Iraqi oil exports,
imports of ostensibly humanitarian goods, and how the program’s funds
were spent and managed. The report also discusses internal program
audits, many of which have already been disclosed, and how the program
spent its own administrative funds, he wrote.

“The findings do not make for pleasant reading,” Mr. Volcker
concluded.

His interim report, which has been eagerly and skeptically awaited by
United Nations critics, is months overdue. Hampered by what
investigators and diplomats called a reluctance among some member
countries to cooperate and a lack of subpoena power, Mr. Volcker’s
panel has had difficulty obtaining evidence. Conservatives and other
critics have accused him of being insufficiently impartial and
independent, a charge he has denied. And John Danforth, who recently
left his position as American ambassador to the United Nations, said
Mr. Volcker, with a staff of over 60 people and a budget of some $30
million, lacked some tools needed to conduct a thorough inquiry.

Mr. Volcker was particularly critical of the oil-for-food program’s
procurement system. “We have found in each case that the procurement
process was tainted,” he wrote, by a failure to follow established
rules.

“Perhaps not surprisingly,” he added, “political considerations
intruded, but in a manner that was neither transparent nor
accountable.”

Repeating criticisms the commission, officially known as the
Independent Inquiry Committee, made in an earlier report, Mr. Volcker
said the interim report concluded that the auditing system was
“underfunded and undermanned” and hence, “unable to meet effectively
the challenge posed by a really unique, massive and complex program of
humanitarian assistance.”

Despite the “skill and dedication of auditing professionals,” he
wrote, the auditing system lacked “clear reporting lines and the
management responsiveness critical to achieving a fully effective
auditing process.”

Even though no evidence of “systematic or widespread abuse” was found
in how the program’s administrative funds were spent, Mr. Volcker
wrote, the commission still found what he called “a clear lapse from
disciplined judgment.”

Mr. Volcker called his panel’s initial findings about Mr. Sevan “more
disheartening.” He indicated that the investigation of Mr. Sevan, an
aide to Kofi Annan, was continuing, as was his investigation of how
and why Cotecna Inspection, a Swiss-based company that was hired to
inspect humanitarian goods bought by Iraq and that employed
Mr. Annan’s son, got its own contract.

Mr. Annan has denied charges of nepotism within his organization and
said he had not known that his son, Kojo, had continued being paid by
Cotecna after leaving the company. Mr. Sevan have also previously
denied charges of wrongdoing, but he has declined for many months to
meet with or talk to reporters.

Under the rules of the oil-for-food program created by the United
States and other members of the Security Council, Iraq could chose to
whom it would sell its oil and buy humanitarian goods. Congressional
investigators have said that because of the program’s structure,
secrecy and poor oversight, billions were diverted from the program.

Mr. Annan told reporters yesterday that the United Nations would adopt
reforms in response to Mr. Volcker’s criticisms and recommendations,
and that he was already doing so.