United Nations Oil-For-Food Program: History and Scandals

By Discover The Networks
2005

The United Nations Oil-For-Food program was created in 1995 by Security Council Resolution 986 to “provide for the humanitarian needs of the Iraqi people” while Iraq was still subject to economic sanctions for disobeying Security Council resolutions requiring its disarmament. The very existence of the program – which was set up to provide food containing 2,400 calories for every man, woman and child in Iraq – exposes the hypocrisy of those who accused the Bush Administration of having intentionally “starved” some 500,000 Iraqi children prior to the 2003 war. Soon after the first phase of the war was over, it was discovered that the program – and the UN officials who ran it – had allowed Saddam Hussein to skim more $21 billion from the program, money which he used to bribe foreign politicians to oppose American policy, all the while depriving his own people of the food and medicine they needed.

Some of the stolen money was also used to fund international terrorism. For example, $74 million went directly to Hamas. Nor were Palestinian terrorists the sole beneficiaries of diverted Oil-for-Food money. According to a June 2003 investigative report by the Forward, a liberal New York-based newspaper, revenue from the program may also have found its way to al-Qaeda. The report noted that among Iraq’s oil clients since 1997 was a Liechtenstein-based company called Galp International Trading Establishment. Citing business records obtained from Liechtenstein, the paper reported that the company’s legal representative in that country was a company called Asat Trust. The finding was significant: Both the United States and the UN had previously identified Asat Trust as a financier of al-Qaeda. The connection centered on the company’s links to al-Taqwa, an international financial network headquartered in Switzerland. Operated by members of the Islamist terrorist group the Muslim Brotherhood, al-Taqwa has incurred sanctions from the UN Security Council for its continued support of al-Qaeda. The director of al-Taqwa, Egyptian banking magnate Youssef Nada, has reportedly funneled his considerable assets—secreted in European tax havens—to terrorist groups like al-Qaeda and Hamas. American officials further charge that Nada personally saw to it that al-Qaeda received financial assistance, both before and after the terrorist attacks of September 11. Lending additional support to the charge are the 1996 findings of the Italian counter-terrorism agency, the Division of General Intelligence and Special Operations. The agency disclosed that al-Taqwa had bankrolled a host of Islamist terrorism groups, including Hamas, the Algerian Armed Islamic Group, and the Egyptian group Gamaa Islamiya. The latter organization was incorporated into al-Qaeda in 1998.

The Forward’s report also called attention to another link between the Oil-For-Food program and terrorism, a link that involved another of Iraq’s client oil companies, Delta Services. Now closed, the Swiss-based company was a subsidiary of Delta Oil, a Saudi company on suspiciously intimate terms with the Taliban regime in Afghanistan throughout the years that it supported Osama bin Laden and his terrorist acolytes. In the 1990s, Delta Oil sought to win a contract for a massive pipeline project to transport gas from Afghanistan to Pakistan. Also involved in the project was another Saudi company, Nimir Petroleum. The company was headed by Khalid bin Mahfouz, a controversial Saudi millionaire who is accused, in numerous reports as well as in a lawsuit lodged by families of 9-11 victims, of bankrolling bin Laden.

Yet another tie between Oil-For-Food and terrorism centered around the case of a Yemenite family-owned company called Hayel Saeed Anam. One report, drawing on the extensive database of the Oil-For-Food program, noted that the company did a brisk business with the Saddam Hussein regime under the program, reaping over $286 million in profits between January 1997 and February 2001. The interests of the company’s directors, however, extended beyond revenues to terrorism: among the directors of Hayel Saeed Anam was Abdul Rahman Hayel Saeed, reportedly the founder of an Italian company called the Malaysian Swiss Gulf and African Chamber (MIGA for short). Juan Zarate, a member of the Treasury Department’s, has accused MIGA of being a “front company,” charging that it is “used as a shell to hide and move money.” As to the possible recipients of the money, one clue comes from the 2002 decision of the United States and the United Nations to pronounce MIGA as “belonging to or associated with” al-Qaeda.

Under the Oil-For-Food plan, the UN Security Council allowed “the import of petroleum and petroleum products originating in Iraq, including financial and other essential transactions directly relating thereto, sufficient to produce a sum not exceeding a total of one billion United States dollars every ninety days.” The resolution required that every transaction with Saddam’s government be “transparent.” Iraq’s oil exports and the buyers’ oil imports were all to be supervised and documented by the UN for later audit. Payments were made into an escrow account established by UN Secretary General Kofi Annan.

The UN’s share of the revenue was to be limited to covering the expenses of the program and the UN weapons inspectors, and paying for the food and medical supplies that would be distributed to the Iraqi people. The UN was supposed to charge a fee of 2.2 percent of all oil sales, but investigations by journalist Claudia Rossett of the Hudson Institute show that UN officials took – and allowed Hussein to take – much more. Because Iraq’s oil industry was a state monopoly, the UN was essentially being paid commissions by Saddam to supervise Saddam. In sworn testimony before the House Subcommittee on National Security, Rossett said, “Had the United Nations deliberately set out to design a program open to manipulation by Saddam Hussein’s regime, it is hard to think how the U.N. could have improved upon the arrangement that was put in place.”

The Oil-For-Food program was the biggest financial undertaking the UN has ever handled, and also the most corrupt. The program had glaring flaws in its design that virtually invited graft. Saddam blamed the misery of his people on the sanctions in general and the United States in particular. The Security Council agreed to conditions that were favorable to Iraq. Saddam was given the right to negotiate his own contracts to sell Iraqi oil and to choose his own foreign customers. He was also allowed to draw up the shopping lists of humanitarian supplies he needed, and to strike his own deals for those goods, picking his foreign suppliers. The UN further granted Saddam the authority to choose the bank that would handle the funds and issue the letters of credit to pay the suppliers; the designated institution was a French bank now known as BNP Paribas.

In October 1997, Annan appointed Benon Sevan to run Oil-For-Food, which Sevan did for the duration of the program. Sevan reported directly to Annan. Every six months, Sevan would make his report, and Annan would recommend the continuation of the program to the Security Council. The fifteen-member panel was considered to be responsible for the sanctions against Iraq, but in practice it only watched for the purchases of dual use items that could be used in manufacturing weapons.

Only two of the five permanent Security Council members – the U.S. and the U.K. – made any attempt at overseeing the program. The other three – China, France, and Russia – were Saddam’s allies on the Council and consistently advocated the expansion of the program. Some of the ten rotating members of the Security Council – like Syria – were among Saddam’s favorite trading partners and ideological allies. Others lacked the resources to do any serious monitoring.

On March 8, 2004, Michael Soussan, a former Oil-For-Food program coordinator for the UN, wrote in the Wall Street Journal: “Were the UN employees supposed to oppose Security Council resolutions, lobby for a lifting of sanctions and whitewash the regime? That is what a majority of our Baghdad staff did. No one took action to redress their behavior. The small minority who sought to hold the regime accountable were overruled, sidelined, and sometimes branded spies by our own leadership. Meanwhile, the Saddam regime had infiltrated our mission in Iraq. All of the 4,233 local staff hired by the UN were required to report to Iraqi intelligence services. At our Baghdad headquarters, UN mission leaders saw no problem with assigning Iraqi staff to man our switchboard, fax machines, and photocopy room. Our 151 international observers were under siege, spied on by their employees, and sometimes threatened by Iraqi officials when they tried to communicate information to New York that was embarrassing to the regime. All of this severely curtailed the UN’s ability to do its job.”

Not only was the Oil-For-Food program infiltrated by Iraqi intelligence, but the food and medical supplies the Iraqis bought with UN money were sold at inflated prices so that Saddam could pocket the margin. Moreover, the food and medicine was frequently unfit for use. “Take the medical sector,” Soussan continued. “The regime’s decision to use kickback friendly front companies to purchase drugs meant that hospitals often received medicines that were nearly expired or otherwise damaged from unscrupulous suppliers.”

One company now notorious for its record of corruption is the Swiss inspections firm Cotecna. In 1998, the firm was awarded a contract by Kofi Anann for the purpose of monitoring the Oil-For-Food and vetting the imports that flowed into Iraq under the program. The deal was a lucrative one for Cotecna: the UN contract was reportedly worth millions of dollars. Findings now indicate, however, that the company failed to fulfill its contractual obligations, a dereliction that did not prevent Cotecna from accepting payment. All of this prompted interested observers to ask why the company had been awarded a contract in the first place. What they found spoke unfavorably of the UN operations generally and Kofi Annan specifically. As it turned out, among Cotecna’s more prominent employees was Kojo Annan, son of the UN secretary general. Hired as a trainee with the firm in 1995, Kojo Annan parted ways with Cotecna in 1998. Yet he continued to receive a steady salary from the company until February 2004. In all, Cotecna paid Annan over $300,000.

Both revelations proved damning to the UN’s already suspect credibility. Critics accused the secretary general of a conflict of interest for awarding a sizable contract to a company that employed his son; they also faulted him for failing to treat the matter of Cotecna’s corruption with adequate seriousness.

A combination of widespread secrecy within the global body and Kojo Annan’s relentless refusal to testify about his relationship with Cotecna, has kept many of these criticisms in the realm of speculation. However, a March 2005 interim report about the program, overseen by the Independent Inquiry Committee headed by former US Federal Reserve chairman Paul Volcker, attempted to bring to light some of the details about Kojo Annan’s involvement with Cotecna, and to determine whether there was any merit to allegations that Kofi Annan was guilty of a conflict of interest. Although it absolved Annan of major wrongdoing, the report did fault him for his slipshod investigation into the matter, noting that it was “inadequate [with] no referral to the UN departments carrying the responsibility for thorough and independent investigation of such matters.” The Independent Inquiry Committee (IIC) also found that Kojo Annan “intentionally deceived” his father about his “continuing financial relationship” with Cotecna. “Significant questions remain about Kojo and his actions,” the report stated. The final version of the report is slated for release in June of 2005.

Other disclosures about Oil-For-Food have corroborated critics’ claims that the program was ineptly administered. In February 2005, the U.S. Government Accountability Office (GAO), having conducted a detailed audit of the United Nations, identified 702 defects within the program—nearly one third of those involving contract management and oversight issues. Based on the GAO’s findings, the UN’s attention to bookkeeping had been negligent at best: only two to six auditors were assigned to oversee Oil-For-Food, in violation of the UN’s own operating procedure, which mandated at least 12 auditors to monitor every $1 billion spent on programs. These findings dovetailed with prior evidence of mismanagement and abuse of the Oil-For-Food program, as revealed by several reports carried out by U.N. auditors between 1996 and 2003. Among their revelations were the following:

Under Oil-for-Food, the Iraqi government received annual cash payments of $500,000 for “building inspectors” who performed no actual work for the UN.
UN officials bought 287 computers, at a cost of $870,000, for their Baghdad offices, although they had no use for 100 of them.
UN personnel based in Iraq had purchased $47,000 worth of office furniture for their Baghdad office at a price that, auditors noted, “appeared to be exorbitant.”
UN staffets bought six diesel generators to provide power to people in northern Iraq, despite the fact that diesel was hard to come by and would have cost $10 million to supply.
UN officials failed to keep timesheets, with the result that staffers on leave continued to receive payment.
UN officials in Iraq failed to keep track of petty cash and failed to provide set limits regarding which expenditures were permissible.

Buffeted by the sustained criticism and widespread disapproval prompted by these revelations, Kofi Annan has nevertheless clung to his post as the top man in the embattled global body. Asked by a reporter in March 2005 whether he would consider resigning as secretary general, Annan shot back tersely, “Hell, no.”