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March 21, 2004, 9:55 p.m.
Turtle Bay's Carnival of Corruption
Digging deeper into the scandalous Oil-for-Food program.

by Claudia Rosett

With United Nations Secretary-General Kofi Annan finally conceding the need for an independent investigation of the U.N.'s 1996-2003 Oil-for-Food program in Iraq, the next question is how investigators might begin to get a grip on the U.N.'s central role in this huge scandal.

Naturally, the rampant signs of corruption are important, and leads on graft involving U.N. personnel — including the program's executive director, Benon Sevan — need pursuing. If Sevan did receive oil from Saddam, as it now appears, then the immediate follow-up question is: What might Sevan have done in return, given his responsibilities for "overall management and coordination of all United Nations humanitarian activities in Iraq"?

KOJO'S CONSULTANCY
It would also be prudent, if only to clear up any doubts, for investigators to look into the relationship between Annan's son, Kojo Annan, and the Swiss-based company, Cotecna Inspection SA, which two years into the seven-year Oil-for-Food program won a contract from the U.N. for the pivotal job of inspecting all Oil-for-Food shipments into Iraq — a responsibility Cotecna has held ever since. Kojo Annan worked for Cotecna in the mid-1990s, a possible conflict of interest which neither Cotecna nor the U.N. bothered to declare.

A spokesman in Kofi Annan's office has now offered in Kojo's defense that Kojo was no longer in the pay of Cotecna on the day the company won the U.N. contract. But the timing was close: Kojo had resigned from a consulting job for Cotecna earlier that same month. According to Annan's spokesman, Kojo held a staff job at Cotecna in a junior position from December 1995 through February 1998. Just two months later, Kojo reappeared on Cotecna's payroll as a consultant, via a firm called Sutton Investments, from April 1998 to December 1998, resigning from that consultancy just before Cotecna clinched the U.N. contract on December 31, 1998.

It might all be mere coincidence. Kojo's recent statements, relayed to me last Friday by Kofi Annan's U.N. office, convey that Kojo's consulting work for Cotecna was limited to projects in Nigeria and Ghana, unrelated to Oil-for-Food. But given the U.N.'s tendency to take several months to process contracts, and considering that the U.N. had to review several competing bids, the dates here suggest that Kojo resigned from Cotecna's staff only to return as a consultant during precisely the period in which Cotecna would most likely have been assembling and submitting its bid for the U.N. job, and the U.N. Secretariat would have been reviewing the bids. That certainly warrants attention by an independent panel.

But beyond such specific questions, the larger issue is the U.N. setup of secrecy and lack of accountability that fostered the Oil-for-Food fiasco in the first place. The damage at this point includes Iraqis deprived of billions of dollars worth of relief, and signs of massive corruption quite likely involving hundreds of U.N.-approved contractors in dozens of countries, as well as the U.N.'s own head of the program, Sevan. An inquiry should also look into the U.N. Secretariat's silent assent to Saddam's efforts to buy political influence in the Security Council. In this bribe-riddled program, Saddam tipped vast amounts of business to contractors in such veto-wielding Security Council member states as Russia, France, and to a lesser extent, China. In the heated debates over Iraq, leading up to the beginning of the war last March, Annan brought none of Saddam's influence-peddling to public attention, though he had access to specific information about the huge sums going from Saddam's regime to select nations, and the public did not.

OIL-FOR-TERROR?
Even more disturbing is the $10.1 billion that the General Accounting Office estimates Saddam Hussein was able to salt away "in illegal revenues related to the Oil-for-Food program." By GAO estimates, recently revised upward, Saddam acquired $4.4 billion via kickbacks on relief contracts and illicit surcharges on oil contracts; plus $5.7 billion via oil smuggling. All this took place under cover of repeated Oil-for-Food "good housekeeping" seals of approval. The U.S. has so far located only a small portion of these assets. That leaves billions of Saddam's secret stash still out there. The danger is that Baathists, terrorists (with whom Saddam did indeed have connections), or some combination of the two, will get to these billions first, if they haven't already. It is worth asking if some mix of U.N. secrecy, incompetence, and corruption may have allowed the accumulation of money now backing terrorist attacks in Iraq, or elsewhere.

In any event, the first practical step should be to secure the U.N.'s own records of Oil-for-Food. In Baghdad, Oil-for-Food-related documents kept by Saddam have already proven a source of damning information and are under investigation. The Iraqi Governing Council has already commissioned a report by the private accounting firm KPMG International, due out in a few months. And U.S. administrators in Baghdad have now frozen the records there relating to Oil-for-Food, to help with congressional inquiries in advance of hearings expected next month.

But at the U.N.'s New York headquarters, not all records have been rendered up. The U.N. treasurer's office still controls the Oil-for-Food bank accounts, held in the French bank, BNP Paribas. And, the U.N. still has in its keeping all U.N. records of these BNP accounts, according to officials both in Baghdad and at the U.N.

These accounts are highly relevant to any independent look at the U.N. itself. As Sevan reminded Saddam's regime on July 12, 2001, "the signatories are United Nations staff members." Through these accounts passed more than $100 billion in U.N.-approved oil sales and relief purchases made by Saddam, and toward the end of the U.N.'s administration of Oil-for-Food, they held balances of more than $12 billion.

Outside the U.N. these bank accounts have long been a source of some mystery. The U.N. has refused to disclose BNP statements, or the amount of interest paid on those balances of billions. Even such directly concerned parties as the Kurdish regional authorities of northern Iraq — entitled to 13 percent of the proceeds of Saddam's Oil-for-Food sales — who for years have been requesting a look at the books, have received no details.

The U.N. bank records of Oil-for-Food could be especially important in filling in gaps in U.N. documentation on other fronts. For example, the U.N.-processed relief contracts were often brief, vague, and in some cases involved suppliers who could not later be located, as confirmed both by notes on the U.N.'s own website, and in a phone interview with officials of the U.S. Defense Contract Management Agency, which together with the Defense Contract Audit Agency last summer reviewed hundreds of top-dollar Oil-for-Food contracts, culled from the thousands still open after the fall of Saddam. The bank records should at least include full details of all transfers of funds — the accounts whence they came, and the accounts to which they went.

Why did the U.S. allow the U.N. to keep control of the accounts (and the records) after responsibility for winding down all other aspects of the Oil-for-Food program was turned over to the CPA last November? One CPA official explains that the BNP accounts were left in the hands of U.N. personnel because the bookkeeping was so Byzantine the CPA feared any attempt to intervene might interrupt needed deliveries of relief to Iraq.

MISSING BANK STATEMENTS
It now appears that neither the Iraqi Governing Council nor the CPA has thus far received a single bank statement from either BNP or the U.N. treasurer's office. A frustrated CPA official, connected with the wrapping-up of some $8.2 billion worth of relief contracts inherited from the U.N., tells me there has been no answer to his repeated requests to see current statements: "They never say no, but they never do it either." Neither has the Iraqi central bank received any statements, he adds. For the Iraqis and CPA officials now administering the remaining contracts in Iraq, this source explains, there is no way to tell "what activity has taken place" in the BNP accounts, or "how much money's left."

U.N. Treasurer Suzanne Bishopric, reached by phone in New York last Friday, confirms that she has sent no bank statements either to the CPA or to the Iraqi Governing Council. As she explains it, "They never asked me." Bishopric says that in any case, after the U.N.'s withdrawal from Iraq following the bombing of the U.N.'s Baghdad offices last August, she has not been able to deliver current bank statements because "we have no mechanism to send them."

Asked if it would not be possible to transmit the statements by fax, email, or express-delivery service, Bishopric says, "I'm not going there."

Bishopric further explains that the U.N. does plan to turn over all the records to the CPA, "with absolutely full disclosure." Asked why the delay of many months, she says the U.N. is busy scanning all the records into computer files, in order to turn over the collected works all at once. She expects this project will be finished "in a few weeks."

Perhaps the U.N.'s delay of almost a year in delivering to the Iraqis and the CPA any bank statements, either past or current, is simply a function of the lumbering U.N. bureaucracy. In this CPA-U.N. version of he-said she-said, it is hard to know whether the U.S. government failed to deliver to the U.N. the CPA's request for the information, or the U.N. received the requests but ignored them.

Either way, two questions leap out. Why should the U.N. records of the BNP accounts be in a condition such that it is taking months to assemble and turn them over? And why would the U.N. not forward regular updates to the CPA now running the program? In the context of the Oil-for-Food program, so beset by allegations of bribes, kickbacks, and shady financial dealings that Annan after months of denials and resistance has finally bowed to demands for an independent investigation, it would be a lot healthier to have the bank records, right up to the latest statement, and in whatever condition, turned over post-haste to the Iraqis, the CPA, and any other authorities who might be able to preserve them — as they are — until an independent investigation can begin.

If the problem is lack of a delivery vehicle, and the more than $1 billion in U.N. administrative fees collected from Saddam under the Oil-for-Food program have already been used up, it would seem worthwhile for the U.S. government, on top of its usual 22-percent-or-so contribution to the U.N.'s core budget, to donate to the U.N. treasurer's office the cost of express delivery of all BNP-related documents. Or maybe just back a truck up to the U.N. loading dock and haul away every last Oil-for-Food-related file and CD-ROM, right now. Annan, who recently expressed his wish that the reputation of the U.N. should not be impugned, would surely be glad to cooperate.

THE ABSENT AUDIT REPORTS
An independent panel will also have to be genuinely independent — not as defined within the incestuous U.N. Secretariat, but by lights of the same commercial world in which the U.N. Secretariat ran this program. There has been much protest by the U.N. that Oil-for-Food was the most audited U.N. program ever. Back in 1995, in U.N. Resolution 986, authorizing Oil-for-Food, the Security Council asked the Secretary-General to hire "independent and certified public accountants" to audit the program's bank accounts and "to keep the Government of Iraq fully informed." These are the same escrow accounts on which the U.N., post-Saddam, has kept all the records and statements to itself.

According to the U.N. treasurer, Bishopric, the auditing of the escrow accounts was entrusted by the secretary-general to a "board of auditors" consisting of government agencies of a revolving trio of member states. There has been no public disclosure of their findings. This three-member board of auditors was chaired in 2002 by the Philippines, and in 2003 by France — home base to BNP. That may qualify as U.N. in-house supervision, but hardly as an independent audit.

Yet more "auditing" was carried out by the U.N.'s own Office of Internal Oversight Services, which is not an independent firm, but a U.N. agency within the Secretariat, with every incentive to protect in public the reputation of the same U.N. bureaucracy it is supposed to be auditing. Nor has this oversight office been forthcoming. Nothing remotely approaching a full audit report has been released outside the U.N. According to an adviser to the Iraqi Governing Council, Claude Hankes-Drielsma, even Saddam's regime saw little of these audits. Early in Oil-for-Food, from 1997-1999, they were sent to Baghdad. But it now appears that after 1999, they stopped coming. Whether Security Council members saw all the documents is hard to say. One diplomat linked to the Security Council notes that the volume of paperwork associated with Oil-for-Food was so huge that not everything was sent over automatically to members of the Security Council. Some material had to be specifically requested. It's not clear everything was.

A VESUVIUS OF GRAFT
Once a genuinely competent and independent panel is set up, the task should be not simply to look for discrepancies in the records, or clear evidence of corruption. The larger problem is that the U.N., while running largely on public money, operates with a degree of secrecy that means graft has to reach Vesuvian proportions before outside watchdogs can easily prove anything.

There is also the problem that at the U.N., the buck seems to stop nowhere. In Oil-for-Food, the Secretariat agreed to shoulder enormous tasks requiring a high degree of integrity and responsibility. But when allegations of corruption and mismanagement began to emerge, the immediate defense of U.N. officials, including Annan, was to present the Secretariat as nothing more than a hapless and humble servant of the Security Council. U.N. officials argued that Oil-for-Food staffers were not responsible for spotting Saddam's pricing scams, but were merely supposed to check that the paperwork was in order (a goal the treasurer's office seems to have missed).

If U.N. staff in truth had no responsibility for sounding an alarm on obvious kickbacks, oil smuggling, and gross, damaging, and dangerous violations of U.N. sanctions and relief rules, then why bother with the U.N. staff at all? The Security Council might as well have let Saddam handle his own paperwork.

But the Secretariat was, in fact, expected to supervise the program. For example, Resolution 986, authorizing the Secretariat to set up Oil-for-Food, specifically laid out the goal of ensuring "equitable distribution of humanitarian relief" — not the embezzlement by Saddam of $10.1 billion. If carrying out this mandate was an impossible job — and given the habits of Saddam, perhaps it was — Sevan and Annan themselves, in the interest of upholding the integrity of the Secretariat, should have stepped forward to voice the problem, just as Annan found occasion to voice his criticisms of U.S. policy in Iraq.

DID KOFI KNOW?
Instead, U.N. officials urged the rapid growth of Oil-for-Food, with Annan and Sevan using their public platforms to complain that the U.S. and U.K. were spending too much time scrutinizing contracts (France, Russia, and China evidently were not). In the final year of the program, Annan agreed to a revised plan that cut the Security Council out of the loop on all Oil-for-Food contract approvals except those involving goods that might be used for weapons. This allowed the Secretariat to more swiftly and directly process what have now turned out to be thousands of relief contracts involving billions in bribes to suppliers and kickbacks to Saddam.

Could Kofi Annan — no fool — really have been oblivious to the carnival of corruption under his jurisdiction? "I don't think that's plausible," says Hankes-Drielsma.

Ultimately, the big questions here are not just who profited from graft under Oil-for-Food, but the extent to which the U.N. setup of secrecy, warped incentives, and lack of accountability allowed it to supervise the transformation of Oil-for-Food into a program of theft-from-Iraqis, cash-for-Saddam, and grease-for-the-U.N. Were this a corporation, the CEO, Enron-style, would already be out the front door, and a major restructuring underway. The least that needs to come out of an independent investigation, or congressional hearings for that matter, is a clear understanding of the ways in which the U.N. Secretariat must be not simply reprimanded, but deeply reformed, starting with the introduction of complete transparency in U.N. use of public money — and proceeding to any further incentives that might be devised to ensure it will better honor the public trust.

— Claudia Rosett is a senior fellow with the Foundation for the Defense of Democracies, and an adjunct fellow with the Hudson Institute. Rosett previously wrote on the United Nations Oil-for-Food Program for NRO here.