07 September 2005

Inquiry Cites Security Council, General Assembly in U.N. Failures

Oil-for-Food Inquiry report calls to "thoroughgoing" U.N. reform

By Judy Aita
Washington File Staff Writer

United Nations -- Releasing its comprehensive report on U.N. management September 7, the Independent Inquiry Committee into the United Nations Oil-for-Food Program concluded that "the United Nations organization needs thoroughgoing reform -- and it needs it urgently."

The report is set out in five volumes totaling 1,035 pages, covering administration of the Oil-for-Food Program both in New York and Iraq, senior U.N. management, manipulation by Iraq, negotiations and establishment of the program, the Security Council, smuggling, the U.N. secretariat, performance of U.N.-related agencies, and a special report on the impact of the program on the Iraqi people.  The inquiry committee plans to issue one more report in October listing the firms that did business with Iraq through the program and including amounts paid in kickbacks to the Iraqi regime.

In the wake of the report’s release, Committee Chairman Paul Volcker, U.S Ambassador to the United Nations John Bolton and U.N. Secretary-General Kofi Annan offered reaction to the report and observations on what it meant in the context of the need for broader U.N. reform. (See related article.)

The committee said the "most notable" of the organization's structural faults is "a grievous absence of effective auditing and management controls."  The General Assembly's efforts to correct the situation have so far "fallen far short of what is needed."

The report documents how differences among member states "impeded decision-making, tolerated large-scale smuggling and aided and abetted grievous weaknesses in administrative practices within the secretariat."

The committee did acknowledge, however, that the United Nations might have been asked to do too much too soon without any clear sense of how long the program would run.  As the program continued, the huge flow of money far exceeded that of other U.N. operations and thousands of staff were hired and deployed, overtaxing weak management and oversight and accountability, it said.

As the program expanded, Saddam Hussein "found ways and means of turning it to his own advantage," the committee said.

SADDAM HUSSEIN’S REGIME MANIPULATED PROGRAM

One of the worst challenges to the program's integrity was Iraq's effort to manipulate transactions with companies to get payments outside U.N. supervision.  For oil sales, it was a per-barrel "surcharge" imposed by Iraq beginning in late 2000.  For humanitarian goods and oil spare parts, it was various forms of kickbacks, usually labeled as an "after-sales-service fee" or "inland transport fee."

From 1997 to 2003, Iraq made about $10.2 billion from surcharges, kickbacks and smuggling.  In the years before the program began, Iraq made about $2.6 billion by selling oil to its neighbors in contravention of U.N. sanctions.

The Security Council's Sanctions Committee failed to act decisively when presented with the evidence of the oil surcharges, the committee said.  Because committee decisions have to be by consensus, the only action the committee took was to send warnings to oil buyers.  It did not act on a U.S. proposal that would have restricted sales to a list of oil buyers and creditworthy companies.

The Security Council also failed to act on draft resolutions sponsored by the United Kingdom and France to tighten buyer registration requirements, it said.

The committee also said that Saddam Hussein derived far more revenues from smuggling oil outside the U.N. program than from surcharges and kickbacks.  "Thousands of vessels, vehicles and trucks carried smuggled oil and goods -- in both directions across the Iraqi border -- without any kind of inspection or oversight by the United Nations," it said.  By the program's design, U.N. inspectors were charged only with the inspection of oil and goods financed under the program.

According to the committee, Iraq received more than $800 million from oil sales to Turkey outside the program.  During the last four years of the program Iraq received more than $3 billion of smuggling revenue from Syria and Baghdad sold more than $6 billion of oil to Jordan.

Syria was Iraq's largest illegal oil export outlet, the committee said.  In 2002, Syria became a member of the Security Council and thus a member of the Sanctions Committee.  Because of the committee's consensus voting rule, it thus was able to block any inquiry by the committee into illegal sales or smuggling, the report said.

IN SPITE OF MISMANAGEMENT, PROGRAM SAVED LIVES

With all its faults, the program did reverse a serious and deteriorating food crisis, prevent widespread hunger and probably reduced deaths due to malnutrition, according to an independent working group set up by the committee to look at the impact of the program.

While there were problems with the sporadic delivery of equipment and medical supplies, undoubtedly many lives were saved, it said.

The Oil-for-Food Program "has exposed chronic weakness of planning, sorely inadequate funding and the simple absence of enough professional personnel to implement controls and auditing," the committee said.

The instances of corruption signal "the absence of a sufficiently strong organization ethic," it said.

Benon Sevan, the head of the program has been accused of taking bribes from Iraq and an official in the secretariat's procurement division has been indicted for soliciting bribes.

The cumulative management performance of Secretary-General Kofi Annan and Deputy Secretary General Louise Frechette "fell short of the standards that the United Nations Organization should strive to maintain," the committee said.

"The organization requires stronger executive leadership, thorough administrative reforms and more reliable controls and auditing," the committee said in the report.

SIX MAJOR RECOMMENDATIONS

The committee made six major recommendations:

-- Create the position of chief operating officer appointed by the General Assembly on the recommendation of the Security Council and with authority over all administrative aspects;

-- Establish an independent oversight board with responsibility for all independent audits, investigations and evaluations;

-- Improve coordination and oversight of programs involving other U.N. agencies;

-- Strengthen the quality of U.N. management; and

-- Extend financial disclosure requirements to staff who have any decision-making role in the disbursement of U.N. funds.

Other committee members in addition to Volcker, who is a former chairman of the U.S. Federal Reserve System, are Justice Richard Goldstone of South Africa, who was the first chief prosecutor of the U.N. International Criminal Tribunals for the former Yugoslavia and Rwanda, and Mark Pieth of Switzerland, a University of Basel professor of criminal law and criminology with expertise in international bribery and money laundering. They were assisted by a staff of experts from 28 nations.

The Oil-for-Food Program, which started in 1996 and ended in November 2003 when it was handed over to the Coalition Provisional Authority, was intended to allow Iraq to sell oil under U.N. supervision with the proceeds to be used primarily for humanitarian supplies for Iraq civilians and reparations to victims of Iraq's invasion of Kuwait.   During its seven years the program carried out more than $100 billion in transactions -- over $64 billion in oil sales and almost $39 billion in food purchases.

(The Washington File is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)