Conflicts Cited in Iraq Oil Program

The Washington Post
Friday February 4, 2005

By Colum Lynch, Washington Post Staff Writer

UNITED NATIONS, Feb. 3 — The former director of the U.N. oil-for-food
program had serious conflicts of interest that violated the integrity of
the world body and helped undermine economic sanctions against Iraq,
U.N.-appointed investigators reported Thursday.

Benon Sevan repeatedly sought — and received — from Iraqi officials
the rights to purchase millions of barrels of discounted oil while he
was running the program, and then misled investigators about his
relationship with an Egyptian national who sold those rights for $1.5
million in profits, the inquiry found.

The findings are the first to come from a panel appointed by U.N.
Secretary General Kofi Annan to investigate allegations that the $64
billion oil-for-food program was corrupt and mismanaged. Those
allegations have led to calls for Annan’s resignation by some members of
Congress and have spurred probes by five congressional committees.
Those, like the probe by the United Nations, are continuing.

In its preliminary report Thursday, the U.N.-appointed panel, led by
former Federal Reserve chairman Paul A. Volcker, also said that former
secretary general Boutros Boutros-Ghali was one of a few U.N. officials
who improperly helped steer contracts related to the program to selected
companies, and that two of his relatives were involved in the sale of
the oil allocated to Sevan.

Annan announced that he will pursue “disciplinary proceedings” against
Sevan and another U.N. official, Joseph Stephanides, who allegedly
helped the British government circumvent the United Nations’ competitive
bidding process to steer a contract to a British company. Stephanides
did not respond to a request for comment.

Annan said Volcker’s report contains “extremely troubling evidence of
wrongdoing” by Sevan.

“Should any of the findings of the inquiry give rise to criminal
charges, the United Nations will cooperate with national law enforcement
authorities pursuing those charges, and in the interests of justice I
will waive the diplomatic immunity of the staff member concerned,” Annan
said.

Annan noted that he is awaiting a report by Volcker probing possible
wrongdoing by Annan’s son, Kojo, who received $150,000 over a five-year
period from a Swiss company while it profited from the oil-for-food
program. The company maintains that Kojo Annan, who had been an
employee, had nothing to do with its work in Iraq and that the payments
were part of a standard agreement that would bar him from working for a
competitor.

Sevan’s attorney, Eric L. Lewis, said that “Mr. Sevan never took a
penny” from the program. Volcker’s commission has “succumbed to massive
political pressure and now seeks to scapegoat” Sevan, Lewis said.

“Mr. Sevan’s goal throughout the life of the program was to expedite the
pumping of oil in order to pay for urgently needed humanitarian
supplies” in Iraq, he said.

Some in Congress viewed Volcker’s report as vindication of their
criticism of the organization. Rep. Henry J. Hyde (news, bio, voting
record) (R-Ill.), chairman of the House International Relations
Committee, said the findings “reinforce evidence we have developed
detailing lapses in program oversight, management, fiscal controls and
an absence of even the most rudimentary standards of accountability.”

Sen. Richard G. Lugar (R-Ind.), chairman of the Foreign Relations
Committee, said that “part of the blame for the current imbroglio lies
with the U.N.” but that “we must recognize that those nations who sat on
the Security Council . . . another during the life of the program — and
this includes the United States — must also answer questions as to why
they, too, did not pay greater scrutiny to this program.”

The United Nations established the program in December 1996 to allow
Iraq, which had been put under U.N. sanctions after its 1990 invasion of
Kuwait, to buy food, medicine and other humanitarian goods.

The program helped ease the plight of millions of undernourished Iraqis,
but it also provided the Iraqi government with at least $2 billion in
illicit kickbacks and payoffs, according to a report last year by CIA
adviser Charles A. Duelfer. Volcker said that the government received
far more in illicit funds from unauthorized oil sales outside the
oil-for-food program to Jordan, Turkey, Syria and Egypt.

Volcker’s report also said U.N. auditors had “inadequate” resources and
staff to conduct a proper investigation of the program, and it charged
that the United Nations violated its own competitive bidding practices
in 1996 when it selected three companies — BNP Paribas of France,
Saybolt Eastern Hemisphere BV of the Netherlands and Lloyd’s Register
Inspection Ltd. of Britain — to monitor Iraq’s trade.

Boutros-Ghali, of Egypt, acting on the instructions of the Iraqi
government, helped steer a banking contract to hold Iraqi’s oil revenues
to BNP, the report said. “When provided with the short list, he
contacted the government of Iraq and asked for its choice,” the report
said. “Apparently the Government of Iraq indicated a preference for BNP,
and the secretary general acquiesced.”

Boutros-Ghali could not be reached at a number in Paris provided by the
United Nations.

Volcker said the “most disturbing finding” is that Sevan solicited oil
for a small company headed by an Egyptian relative of Boutros-Ghali’s. A
brother-in-law of Boutros-Ghali “was a likely intermediary” between the
two men, the report said.

Shortly after he was appointed to run the oil-for-food program in
October 1997, Sevan championed an Iraqi initiative to allow Iraq to use
its oil profits to buy $300 million worth of spare parts to repair its
oil infrastructure. Two days after the U.N. Security Council adopted the
proposal in June 1998, Sevan traveled to Baghdad and asked Iraq’s oil
minister, Amir Rashid, to grant an associate rights to buy discounted
oil, the report said.

The Iraqi government granted the oil company headed by the Boutros-Ghali
relative rights to buy 1.8 million barrels of oil, which were sold for a
profit of $300,000.

The report continued with the following account:

Sevan subsequently made a similar request, but the Iraqis cut the oil
allocation to 1 million barrels to express disappointment with his
failure to counter U.S. efforts to block the export of some spare parts.

Sevan returned to Iraq in the summer of 1999 with a fresh proposal to
expand the spare-parts arrangement. Within five days of his departure,
Iraq approved the rights to buy 2 million barrels of oil, which the oil
company sold for $500,000 in profits.

Volcker’s team has not proved that Sevan received money from the
company’s oil deals. Volcker is examining cash payments Sevan received
between 1999 and 2003 amounting to $160,000. Sevan has filed U.N.
financial disclosure forms saying the money came from his aunt, who died
last year after falling into an elevator shaft.

“Her lifestyle did not suggest this to be so,” the report said. “She was
a retired Cyprus government photographer living on a modest pension.”

“Mr. Sevan placed himself in a grave and continuing conflict of interest
situation,” the report concluded. “The Iraqi government, in providing
such allocations, certainly thought they were buying influence.”

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