Politics & Policy

Another Scandal Corner

The big bucks overlooked in Oil-for-Food.

Here’s the $19.2 billion question: Among the investigators now dredging the depths of the United Nations Oil-for-Food program in Iraq, is anyone focused on the biggest riptide of cash that flowed from Saddam Hussein via one of the U.N.’s most obscure channels?

That would be the $19.2 billion in Iraqi oil money disbursed by the U.N. over the past 12 years, not in the name of Iraqi relief, but as reparations for Saddam’s 1990-1991 invasion and occupation of Kuwait. This money was parceled out by a U.N. outfit based in Geneva, Switzerland, the U.N. Compensation Commission (UNCC), which has so far escaped the spotlights that have begun to expose the web of graft, kickbacks, and front companies that infested almost every other aspect of Oil-for-Food. All told, the U.N.’s Iraq program involved roughly $65 billion in U.N.-monitored oil sales, of which some $46 billion were designated for relief and oil equipment, with most of the remainder funneled through the UNCC.

The guest appearance at Wednesday’s U.N. press briefing in New York by UNCC spokesman Joe Sills provides a prime opportunity to revisit some of the mysteries surrounding the Iraqi money doled out by the UNCC.

One of the simplest questions is whether we will ever see a full accounting of UNCC administrative costs, which totaled well over $350 million. Given that the commission fielded a staff of about 200 during its boom years (1999-2003), with yearly budgets running to roughly $50 million, and had no business other than assessing and paying out claims, those administrative costs average out to about $250,000 per employee. Even with Swiss overhead, and the support staff needed for the rotating three-member panels of commissioners who judged the claims, one has to wonder about the perks. The UNCC costs were U.N. fees above and beyond the $1.4 billion in Iraqi money collected by the Secretariat to run Oil-for-Food and the $500 million collected for weapons inspections (though for four of the program’s almost seven years, there were no weapons inspections).

Spokesman Sills took the podium Wednesday not to invite investigation of the UNCC, but to announce that the commission, having distributed $19.2 billion to date, with another $200 million still in the pipeline, has begun wrapping up its operations, albeit at a pace stately enough to require another two years before the expected closing of the commission’s Geneva office in 2007. The costs of winding down, including archiving and other administrative expenses, are budgeted for an additional $15.1 million–by some standards no minor sum in itself.

But the mind-bending number is the $19.2 billion in Iraqi oil revenues disbursed by the UNCC, which–to name a handy benchmark–comes to more than three times the $6 billion pledged by various governments and private organizations for tsunami relief.

The UNCC awards have been allocated in largely secret proceedings, overseen by a total of 58 commissioners over the years, working in groups of threes. And though the names of some of the recipients and partial breakdowns of the sums paid out are available on the UNCC website, the information is both confusing and incomplete. We are told, for example, that thousands of Palestinians received compensation awards, but the names of individuals are withheld, and the money is disbursed via the governments of the claimants–in this case, the Palestinian Authority.

Nor do the U.N. internal audits of the UNCC offer much reassurance. This past January, after months of pressure from the U.S. Congress, the U.N.-authorized investigation into Oil-for-Food, led by former Fed Chairman Paul Volcker, finally released to the public 55 U.N. internal audit reports and three summary reports on the Oil-for-Food program. Nineteen of these audit reports covered the UNCC–which protested their release and questioned the authority of the auditors to pry into its affairs in the first place. The reports detailed such concerns as the following sampling, in which the Volcker team summed up the findings of just one of the internal U.N. audits, covering UNCC handling of $4.7 billion worth of “asserted” claims and dated March 30, 2004:

Numerous deficiencies in valuation and verification of claims, including 1) overlapping claims for similar items; 2) failure to consider cost-saving measures; currency exchange errors; 3) calculation errors; 4) claim compensation on insufficient evidence; 5) inadmissible claims; and 6) inconsistent application of recommended adjustments. Notes that the Secretariat has accepted errors totaling approximately $3.2 million.

The litany goes on, to the tune of U.N. auditors fretting that UNCC practices may have resulted in overpayments of as much as $4 billion (for more detail, see my column of this past January. All this was dumped out amid an even bigger stack of similarly damning but flashier information about the workings of U.N. headquarters in New York. Investigations into such matters as the financial dealings of the secretary-general’s handpicked head of Oil-for-Food, Benon Sevan, and the secretary-general’s son, Kojo Annan, have since monopolized the Oil-for-Food headlines. But there is enough smoke curling up around the UNCC to warrant some more careful explanation of what, exactly, was going on in Geneva.

At the U.N. briefing Wednesday, UNCC spokesman Sills was at pains to say that the commission had “nothing to do the Oil-for-Food program”–implying there is no need to include the UNCC in the Oil-for-Food investigations. But that’s not quite right. The UNCC’s money flowed from the same tap as the scandal-plagued main program. Until Oil-for-Food swung into operation, from 1996-2003, the compensation commission had almost no funds to dispense. But the U.N. designed Oil-for-Food from the outset, starting in 1996, to funnel 30 percent of Saddam’s oil sales to the UNCC. Indeed, when Kofi Annan as an assistant U.N. secretary-general in 1992 was first haggling with Saddam’s regime over the terms of what eventually crystallized into Oil-for-Food, one of his concerns, as reported by the Middle East Economic Survey at the time, was to secure a flow of money for the U.N. Compensation Commission. Once Oil-for-Food got rolling, it was Annan, by then secretary-general who with the consent of the UNCC governing council, named the commissioners who decided which claimants got how much.

Just over halfway through Oil-for-Food’s tenure, during 2000, the U.N. reduced the UNCC’s take of Saddam’s oil sales to 25 percent from the original 30 percent. But even with that cut, the money pouring through the UNCC still amounted to billions annually during the final years of Saddam’s regime. As the UNCC itself explains on its website, out of the $19.2 billion paid out to date, “With the exception of a number of very large claims, the vast majority of payments were provided from the sale of Iraqi petroleum pursuant to the ‘Oil-for-Food’ programme.” Following the 2003 overthrow of Saddam, payments to the UNCC were reduced by the Coalition Provisional Authority to 5 percent of Iraqi oil revenues. And, as Sills explained, the reparations machinery is now winding down. It is glaringly unclear at this stage what will happen with the remaining $33.3 billion in compensation claims awarded by the UNCC but not made available, for the basic reason that the funding–post-Saddam–has dried up.

According to Sills, investigators from Volcker’s team have interviewed some members of the UNCC staff in Geneva. Asked Wednesday whether investigators were looking into the UNCC itself, as part of the U.N.-authorized Oil-for-Food inquiry, a spokesman for the Volcker committee said he could not confirm that. And given the reluctance of the U.N. and Volcker to share documentation and access to U.N. staff, congressional investigators have had their hands full simply trying to cover the core of the massive Oil-for-Food scandal. But someone needs to take a closer look at the UNCC. Especially intriguing is the question of why Saddam himself, who gamed every other aspect of Oil-for-Food to his own advantage, chose to tolerate the U.N. funneling billions in Baghdad oil revenues to claimants petitioning the UNCC in Geneva. What did Saddam know that we didn’t?

Claudia Rosett is a journalist in residence at the Foundation for the Defense of Democracies.

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