Report Criticizes Annan, U.N. Security Council in Oil-for-Food Scandal

Wednesday, September 07, 2005

UNITED NATIONS  — Kofi Annan on Wednesday called the latest report on the U.N. Oil-for-Food (search) program"embarrassing" as it slammed the secretary-general, his deputy and the Security Council for allowing Saddam Hussein to cheat $10.2 billion from the humanitarian operation.

The report was released by the Independent Inquiry Committee to the Security Council Wednesday morning before it was released to the public.

"The findings of today's report must be deeply embarrassing to all of us," Annan told the Security Council Wednesday. "None of us— member states, secretariat … can be proud of what it has found. Who among uscan now claim that U.N. management is not a problem or is not in need of reform?"

The document — the fourth report released by the IIC, headed by former Federal Reserve Chairman Paul Volcker (search) — lays out a pattern of "illicit, unethical and corrupt behavior" that overwhelmed the United Nations. It criticizes Annan and slams his stewardship and management skills, as well as criticize the Security Council — specifically France and Russia — for their dealings with former Iraqi President Saddam Hussein. Companies in Russia and France had major Oil-for-Food contracts and for years were considered friendly to Iraq.

Former Secretary-General Boutros Boutros-Ghali (search), who played a key role in the creation of Oil-for-Food, also comes under heavy scrutiny.

"The politicization of decision making, the managerial weaknesses, the ethical lapses -- that was our mandate. To seek out and report mismanagement ... and any elements of corruption," Volcker said during apress conference as he publicly released the report.

While he acknowledged that Oil-for-Food helped avert a more direhumanitarian crisis and food shortage in Iraq, "overtime, these important achievements came under a dark cloud."

Political differences among Security Council member states"clearly impeded decision-making" and other issues led to the program's downfall.

The report said those managing the program failed the ideals ofthe United Nations, ignoring clear evidence that corruption and waste flourished after it was created in 1996.

"The inescapable conclusion from the committee's work is that the United Nations organization needs thorough reform — and it needs iturgently," the report said.

The U.S. ambassador to the United Nations, John Bolton, called the report a "catalyst for change" and said it casts the world organization in a "harsh light."

"We need to reform the U.N. in a manner that will prevent another Oil-for-Food scandal. The credibility of the United Nations depends onit," he said.

Saying "there's plenty of blame to go around for the failings of the Oil-for-Food program," Bolton — along with other representatives from countries such as Great Britain — stressed that it was the former Iraqidictator who was the biggest culprit.

"We can all agree that Saddam Hussein exploited the goodwill of the international community," Bolton added.

In his address to the Security Council Wednesday, Annan said neither his office nor the Security Council as a whole knew enough about the distress Oil-for-Food was in and the corruption going on. He said the roles of various U.N. entities must be further defined "so that the secretary general knows precisely what is expected of him and member states can hold him fully accountable for the results."

"I know that none of you want a secretariat that can alwaysblame its failings on member states or member states always blaming itsfailings on the secretariat," Annan said.

The IIC's definitive report on its probe of the $64 billion operation faults U.N. management for allowing Saddam to manipulate the program.The IIC was commissioned by Annan to probe the program.

"This very large and very complex program accomplished manyvital goals in Iraq ... At the same time, things went wrong, damaging the reputation and credibility of the United Nations," the IIC said in astatement. "The committee's central conclusion is that the United Nations requires stronger executive leadership, thorough going administrative reform andmore reliable controls and auditing."

The IIC questions whether the United Nations is even capable of running such massive operations.

"Neither the Security Council nor the Secretariat leadership was clearly in command," the preface to the report said. "When things went awry — and they surely did — when troublesome conflicts arose between political objectives and administrative effectiveness, decisions were delayed,bungled or simply shunned."

The preface called for four central reforms, including the creation of a chief operating officer at the United Nations. The U.N.General Assembly (search)should demand that the changes go into force no later than a year from now, the preface said.

While Annan's failure to properly manage the $64 billion program will be a central focus, there is no new "smoking gun" linking him to an Oil-for-Food contract awarded to a Swiss company that employed his son Kojo,said one official with knowledge of the final report.

The report is expected to say that IIC investigators couldn't find evidence that Annan directly influenced the awarding of the contract but it will find more troubling links between Kojo Annan and Cotecna, and will citemanagement problems.

It reveals that Kojo Annan saved $20,000 by improperly claiming that a new Mercedes he bought was his father's, getting a diplomatic discountand saving customs fees.

The Italian business newspaper Il Sole 24 Ore and the London-based Financial Times were to report in their Wednesday editions that Kojo Annan(search) received morethan $750,000 from oil trading companies being scrutinized by Oil-for-Food investigators.

The newspapers said the payments appeared to be linked to oildeals in West Africa. Kojo Annan's lawyer, Clarissa Amato, denied the payments were connected to Oil-for-Food, but said Annan was a director of a Nigerian company called Petroleum Projects International (search).

The report will say the Oil-for-Food program succeeded inproviding minimal standards of nutrition and health care for millions of Iraqis trying to cope with tough U.N. sanctions imposed after Saddam's 1990 invasion of Kuwait.

The program let the Iraqi government sell limited — and eventually unlimited — amounts of oil primarily to buy humanitarian goods. But Saddam chose the buyers of Iraqi oil and the sellers of humanitarian goods.

In a bid to curry favor and end sanctions, Saddam allegedly gave former government officials, activists, journalists and U.N. officials vouchers for oil to be resold at a profit.

Volcker's team plans to release a last follow-up report in October that will focus on the companies that did work under Oil-for-Food. The preface said that "the wholesale corruption" in the program had less to do with the United Nations itself than these companies, which were manipulated by Saddam.

Questions of U.N. corruption have now spread far beyond Oil-for-Food. Click here to read a FOX News investigation.

Federal prosecutors last week indicted the head of the worldbody's budget oversight committee, Vladimir Kuznetsov (search), for allegedly laundering hundreds of thousands of dollars in bribes. He has pleadednot guilty.

This came less than one month after U.N. procurement officer, Alexander Yakovlev (search),pleaded guilty to stashing $1.2 million in illegal payments in an offshore bank. The investigation of Yakovlev has now expanded to include questions abouta Giant Food service company, Eurest Support Services (ESS), that providesmeals for U.N. peacekeepers around the globe.

Volcker's latest report included documents annotated by Yakovlevthat were heavily edited to conceal the company involved. An ESS spokesman would not comment, citing client confidentiality.

The preface of the report makes four broad recommendations:

—Create the position of a chief executive officer, to ensurehiring decisions are based on talent rather than "politicalconvenience."

—Establish an Independent Auditing Board to fully review U.N.programs and hiring.

—Seek more effective coordination between U.N. agencies.

—Make sure the U.N. Security Council is clearer about the purposeand criteria for U.N. operations that it authorizes.

While the report recommends the changes be enacted by next year,the chances of that happening are not clear. U.N. member states are already grappling over similar reform proposals ahead of a summit of world leaders nextweek, but have confronted deep divisions.

FOX News' Liza Porteus, Eric Shawn and The Associated Press contributed to this report.