Report: Rampant corruption in Iraqi oil-for-food program

UN report lists 2,200 companies that made about $1.8 billion in illicit payments to Saddam's gov't.

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October 27, 2005 07:02
saddam 88

saddam 88. (photo credit: )

 
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In a scathing final report documenting massive corruption in the UN oil-for-food program, investigators accused more than 2,200 companies and prominent politicians of colluding with Saddam Hussein's regime to bilk the humanitarian operation of US$1.8 billion (€1.5 billion). The 623-page document exposed the global scope of a scam that allegedly involved such name-brand companies as DaimlerChrysler and Siemens AG, as well as a former French U.N. ambassador, a firebrand British politician and the president of Italy's Lombardi region. It meticulously detailed how the US$64 billion (€52.76 billion) program became a cash cow for Saddam and more than half the companies participating in oil-for-food - at the expense of Iraqis suffering under UN sanctions. It blamed shoddy UN management and the world's most powerful nations for allowing the corruption to go on for years. "What I do want to emphasize is that the corruption of the program by Saddam ... could not have been nearly so pervasive had there been more disciplined management by the UN and its agencies," said Paul Volcker, a former US Federal Reserve chairman who led the investigation. Volcker and many nations said the report underscored the urgent need to reform the United Nations. Earlier reports in his investigation have already led to criminal inquiries and indictments in the United States, France and Switzerland, and Volcker said his team would cooperate with legal and judicial authorities following up on the report. The investigators found that companies and individuals from 66 countries paid illegal kickbacks using a variety of methods, and those paying illegal oil surcharges came from, or were registered in, 40 countries. The companies came from Thailand, Malaysia, Russia, Belarus, Syria, Canada and many other places. Many businesses in the developing world made large payments to get humanitarian contracts. Vietnam Northern Food Corp. purportedly paid US$37.5 million (€30.92 million) in kickbacks, while Egypt's Holding Company for Food Industries allegedly paid US$30.5 million (€25.14 million). Asked what the report said about the state of global business, Volcker said in an interview: "There's a lot of corruption in the world." Most of the contracts went to Russian and French companies and individuals, who were rewarded for their governments' outspoken opposition to the sanctions. Still, even firms in countries supportive of the sanctions, such as the United States, found ways to manipulate the system illegally - sometimes by using Russian firms as middlemen. The oil-for-food program, which ran from 1996-2003, allowed Iraq to sell limited and then unlimited quantities of oil provided most of the money went to buy humanitarian goods. It was launched to help ordinary Iraqis cope with U.N. sanctions imposed after Saddam's 1990 invasion of Kuwait. But Saddam, who could choose the buyers of Iraqi oil and the sellers of humanitarian goods, corrupted the program by awarding contracts to - and getting kickbacks from - favored buyers. Volcker's US$38 million (€31.33 million) investigation, which ran for more than a year, had earlier faulted UN Secretary-General Kofi Annan, his deputy, and the Security Council for tolerating corruption. Thursday's report detailed just how companies bilked the program: through surcharges paid for humanitarian contracts for supplies; and via kickbacks for oil contracts. Most of the illicit income - more than US$1.5 billion (€1.24 billion) - came from the humanitarian contracts. Among the companies that paid illegal surcharges were South Korea's Daewoo International and three subsidiaries of Siemens AG of Germany, as well as the Brussels, Belgium-based Volvo Construction Equipment. On the oil side, contractors listed included Texas-based Bayoil and Coastal Corp., Russian oil giant Gazprom, and Lukoil Asia Pacific, a subsidiary of the Russian company Lukoil. The founder and former chairman of Coastal, Texas oil tycoon Oscar Wyatt, pleaded not guilty Thursday in New York to charges that he conspired to pay several million dollars in illegal kickbacks to Saddam's regime to win contracts through the program. His trial date was set for June 20. Volcker's report referred to Wyatt, 81, as a "longtime and loyal oil customer of Iraq," the lone exception to an Iraqi ban on selling oil to American companies. Among the individuals targeted in the report, investigators found that Jean-Bernard Merimee, France's former UN ambassador, received US$165,725 (€136,625) in commissions from oil allocations awarded to him by the Iraqi regime. He is now under investigation in France. Merimee "began receiving oil allocations that would ultimately total approximately 6 million barrels from the government of Iraq," the report said. He has denied wrongdoing. Other "political beneficiaries" included British lawmaker George Galloway; Roberto Formigoni, the president of the Lombardi region in Italy; and the Rev. Jean-Marie Benjamin, a priest who once worked as an assistant to the Vatican secretary of state and opposed Iraqi sanctions. Formigoni, in a statement, said he received "neither a drop of oil, nor a single cent." Galloway also denied the allegations, saying "I've never had a penny through oil deals and no one has produced a shred of evidence that I have." Benjamin has also denied any personal benefit from the program. The report strongly criticizes the UN Secretariat and Security Council for failing to monitor the program and allowing the emergence of front companies and international trading concerns prepared to make illegal payments. In a letter to Annan, the committee said its task had been to find mismanagement and evidence of corruption, and "unhappily, both were found and have been documented in great detail." Yet the report cleared former UN Secretary-General Boutros Boutros-Ghali, who headed the world body when the oil-for-food program was launched, of accepting bribes. Volcker had earlier raised suspicion about the extent of his involvement. The letter said responsibility should start with the UN Security Council, which is dominated by its five permanent members: Britain, China, France, Russia and the United States. "It was, as one past member of the council put it, a compact with the devil, and the devil had means of manipulating the program to his ends." The United States said the report again showed the need for urgent reform of the United Nations. "I do think it does highlight that there are certain management practices within the U.N. that need reform," State Department spokesman Sean McCormack said. "We're going to continue to urge and push for management reform at the United Nations. In the report, Volcker's team gave several examples of just how companies and Saddam went about manipulating the program. German car manufacturer DaimlerChrysler's dealings were emblematic on a small scale. According to Volcker's team, DaimlerChrysler had oil-for-food contracts worth about $5.2 million (€4.29 million) to sell Iraq spare parts and vehicles. The contracts were paid out of a U.N. bank account funded by Iraqi oil sales, also administered by the UN. One of those contracts was to sell Iraq's Oil Ministry a Mercedes armored van worth about US$70,000 (€57,710). As a sweetener, a DaimlerChrysler agent signed a secret deal to give Iraq a US$7,000 (€5,770) kickback - 10 percent of the van's value. When the final contract for the van was submitted for UN approval, the price of the truck was inflated to include that amount. That meant that the UN fund ended up paying DaimlerChrysler for the kickback. DaimlerChrysler said it was aware of the report but declined to comment because of an ongoing investigations by the Securities and Exchange Commission and the Justice Department.

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