Let Him Who is without Sin, Get His Hand out the Till

For those who complain that my blog is not short enough, here is seriously bad news. My article in the current edition of the WORLD POLICY JOURNAL • WINTER 2006/07, to which you should subscribe runs to many thousands of words. All of them golden of course. Check their site, and check the story, yet another homage to Little W's Big Adventure in Mesopotamia.

The True UN Scandal: Who Pocketed the $10 Billion for Iraq?

Ian Williams

In December 2006, Kofi Annan finished his two-term tenure as secretary general of the United Nations. Among his greatest achievements was undoubtedly shepherding the principle of “The Responsibility to Protect” through to adoption by the Heads of State Summit in the General Assembly in September 2005. By beginning to put some teeth in the Universal Declaration of Human Rights and overturning the traditional concept of absolute national sovereignty, this prefigured a huge change in international law, even if, as the ongoing conflict in Darfur demonstrates, its implementation leaves much to be desired.

Sadly, however, in the United States at least, many commentators tied Annan’s name to the alleged “Oil for Food” (OFF) scandal. It is perhaps timely to take a retrospective look at this, not least since the miasma it raised at the time still lingers around both him and the organization. Perhaps no molehill has ever been made into such a mighty mountain.

Following attacks by the conservative UN-hating media in the United States, and to a lesser extent in the United Kingdom, Secretary General Kofi Annan convened an Independent Inquiry Committee into the OFF program to be headed by the former Federal Reserve chair, Paul Volcker. His committee had unprecedented access to documents, emails, and phone and financial records across the world. Annan’s act was not that of a man who had anything to hide.

In October 2005, and with the investigation costing almost $50 million dollars, the report (1) came out, and in summer 2006 it was followed with a précis “Good Intentions Corrupted: The Oil for Food Scandal and the threat to the UN.”(2) Paul Volcker wrote the introduction but two of the investigators, Jeffrey A. Meyer and Mark G. Califano, authored the content. In contrast to the enthusiastic coverage from the conservative media about the so-called scandal, the report did not garner much media attention, perhaps because, in general, it exonerated the United Nations from the hyperbolic accusations made against it. Its conclusions are relatively sober, unexceptional, and essentially repeat those of many previous reports on the failings of UN management.

The book recounts examples of the five ambassadors holding permanent seats on the Security Council bypassing UN procurement procedures, and of U.S. naval cover occasionally being provided for oil smuggling operations, which, in total, amounted to $8.4 billion of revenue for Iraq in defiance of sanctions. It notes the general apathy of Security Council members to reports of smuggling, kickbacks, and surcharges, which netted the regime another $1.8 billion. It also points out that the Security Council gave the UN Secretariat and the Oil for Food program the mandate and framework that made it possible for Iraq— and many companies and governments—to manipulate the program.

In the précis to the report, Volcker writes, “I did not, and do not today, believe that the evidence developed by the committee justifies a sweeping allegation that financial corruption is or was characteristic of the institution as a whole. Rather...there is a ‘culture of inaction,’ of a strong tendency to evade administrative responsibility. That culture is rooted both in the character of the UN organization and in broadly political considerations.”

It is, however, that political context that is mostly missing from “Good Intentions Corrupted,” just as it was from the Volcker report. There were good reasons why the Iraq program was not robust in its enforcement of sanctions, no matter how much shock the report expresses about inattention to such details. It is unlikely that the Security Council, cognizant of the hardship that Iraqi sanctions caused,will ever again agree to impose such comprehensive and draconian economic sanctions. Indeed, another lesson from the affair may be that, in a globalized world, any attempt to micromanage the foreign trade of an entire country’s economy is not only futile, but risks disastrous socio-economic consequences. Since, the Security Council has limited subsequent sanctions to rogue regimes or against strictly military trade.

The Background to OFF

In a vindictive mood at the end of the original Gulf War in 1991, the Americans, with British and (at the time) French support, instituted a crushing package of economic sanctions, reparations, and monitoring against Iraq. Not since Versailles had victors imposed such measures on the defeated. The sanctions did not have a “sunset clause.” A positive vote of the Security Council was necessary to lift them. It was only possible because, at that immediate juncture, the Soviet Union, and then Russia, cooperated. Later, other members asked for “light at the end of the tunnel”—a demonstration that Iraqi compliance with Security Council resolutions would lead to lifting the sanctions—but the United States made it plain that it would veto any such attempt while Saddam Hussein remained in power.

The original sin was the rush of enthusiasm in the aftermath of the Gulf War and the Cold War, when the UN looked likely to become the executor of Washington’s foreign policy. A more independent secretariat might have warned of the pitfalls of the policy the Security Council adopted, although, to be fair, at the time few foresaw that sanctions would still be in effect a decade later.

As the economy imploded and public services collapsed, it soon became apparent that the sanctions’ primary victims were ordinary Iraqis. Indeed, Secretary of State Madeleine Albright ruminated on CBS’s 60 Minutes in 1996: “We have heard that a half million children have died. I mean, that’s more children than died in Hiroshima.... Is the price worth it?... I think this is a very hard choice, but the price—we think the price is worth it.” She has since regretted the statement, but at least it had the benefit of candor. Clearly, Washington did think that the political and strategic benefits outweighed the costs paid by Iraqi civilians, otherwise it could have relaxed the sanctions.

Sadly, it was the United Nations that tallied those casualty figures, though staff members saw their job as developing economies, not destroying them; saving children, not starving them. They tended to see the sanctions as an American-enforced aberration from the true mission of the UN system. High-profile officials—such as Assistant Secretary General Denis Halliday, in September 1998, and Hans Von Sponeck, in March 2000—resigned in protest against complicity in what Halliday called genocide. It did not help that the resolutions earmarked 30 percent of the proceeds of oil sales to war reparations, which went mostly to Kuwait and major oil companies and which provided an additional pretext for Baghdad’s defiance.

Without firm opposition within the United Nations, for a few years during and after the Gulf War, Washington and its junior partner in London promulgated instructions inside the UN as if it were an extension of their own foreign policy apparatus. It was a brave staff member who resisted their wishes—as indeed Egypt’s Boutros Boutros-Ghali himself discovered when his term as secretary general was not renewed, in part because he was insufficiently cooperative with Madeleine Albright.

In the Arab and Muslim world, and even in Western Europe, the palpable suffering of Iraqi citizens eroded support for sanctions and diminished the moral standing of the world organization. The stark contrast between the relentless application of pressure on Iraq, and the free diplomatic pass given to Israel in enforcing compliance with Security Council resolutions, also exacerbated disaffection. While legally significant, the contrast between resolutions censuring Iraq, which contained their own means of enforcement, and those against Israel, which did not, merely reinforced the perceived disparity. Even Saddam Hussein’s cavalier disregard for, and defiance of, UN disarmament resolutions found defenders in the face of Washington’s relentless antipathy. As the sanctions wore on and American officials began to call for regime change, UN members chafed at what seemed a blatant attempt to flout the bedrock principle of national sovereignty. (No UN resolutions ever mentioned overthrowing Saddam— indeed George H. W. Bush had deliberately avoided that option at the end of Operation Desert Storm in order to preserve the international coalition.) Clearly, if the sanctions had needed a reauthorization vote—as peacekeeping operations do—it is unlikely there would have been a Security Council majority to re-impose them, apart from the potential veto that the Russians, Chinese, and later the French might have wielded.

Besides the moral considerations, Iraq represented potential oil concessions and trade with Russia, China, and France. By 1997, sanctions were losing support and were about to crumble completely. For the majority of the council, and for much of the secretariat, since the U.S. veto was an insuperable obstacle to lifting sanctions, the Oil for Food program was seen primarily as a way to mitigate the effect of the sanctions on ordinary Iraqis by providing food supplies. In contrast, for Washington, whose basic assumptions the Volcker report reflects, the purpose of the Oil for Food program (to which it reluctantly agreed) was to maintain sanctions in the face of growing worldwide reluctance to cooperate.

Smuggling Condoned

Though a hostile conservative press has accused the Oil for Food program of providing billions of dollars to the Iraqi regime, most of the smuggling was already under way before the program was established. This was known to Western intelligence services and the media—or indeed anyone who wanted to know. The Americans and the British kept sending mixed messages—not officially condoning, but never overtly condemning Iraq’s oil trade with Western allies. Under Article 50 of the charter, Iraq’s neighbors, like Turkey and Jordan, were entitled to compensation for costs they incurred in maintaining sanctions. However, no one really wanted to pay up, least of all a U.S. administration that had for years found it difficult to obtain congressional approval of UN dues. So from the outset there was massive oil-trading, referred to as “smuggling” in the press and committee reports, across the borders to Jordan and Turkey, which the Volcker report confirms was well established by the time Oil for Food had begun.

The American-allied Kurds in the north siphoned a significant percentage from oil sales to Turkey that passed through their territory, and the Jordanian economy would have collapsed without the oil trade across the border—for which Amman did ask permission of the Sanctions Committee, which “noted” the request without delivering an opinion. It was the diplomatic equivalent of a wink and a nudge. The Western powers only began to be irritated about the “smuggling” in 1997, when Damascus negotiated a rapprochement with Iraq and later re-opened the Syrian pipeline. The flurry of indignation from the British and others was hard to sustain, as they could not explain why this was in any way more censorious than the leakage to Turkey and Jordan.

The Matter of Sovereignty

Anomalously, Iraq was formally a sovereign member state of the UN even as it was being treated as a defeated nation. For example, to respect the letter of international law, the UN applied for Iraqi visas for its personnel in the Kurdish areas where Baghdad had no practical authority whatsoever, and allowed the regime to veto personnel.

The United Nations Special Commission, the nominally UN weapons inspectors team, had proven to be an extension of U.S. intelligence, which played directly to Iraqi Ba’athists’ paranoia. The Iraqis did not want a fresh team of weapons inspectors using the cover of the Oil for Food program serving on behalf of a state threatening military action against them. When the Security Council agreed to the Oil for Food program after initial American resistance, Saddam’s regime showed that it could be equally opportunistic in its feigned principles, and initially cited national honor in resisting inspections.

To get the food to the population, UN officials—who cared more about the Iraqi citizenry than either Baghdad or Washington—in effect had to compromise with the Ba’athists’ pretenses about “national honor” to get the program running. As a result, while the United Nations managed the escrow fund into which all oil sale revenue went, and which paid for the food, the program had no say about which companies or countries Baghdad chose to sell oil to, or to buy food and supplies from.

Unsurprisingly, given hostility in Washington and London, Baghdad did not award many contracts to American or British companies, and used commerce to reward and influence countries like France, Russia, and China, whose votes they coveted in the Security Council. It would be naïve to assume that those contracts had no influence in determining their votes. Certainly France’s position changed considerably over this period. At least Baghdad’s ill will towards Washington had the effect of sparing most American companies from the temptation to join in the kickback scheme.

Taking all this into account, while the Volcker report spreads the blame among the member states, the Security Council, and the secretariat for the program’s failure to enforce sanctions on Iraq, it misses the point in reprimanding the UN staff. To many, and very possibly a majority, while the Iraqi sanctions may have been legal under the UN Charter—they were illegitimate, and arguably immoral. Hence the contrast in outlook between the United States, as reflected in the Volcker committee’s report, and much of the world. For most of the UN staff, the OFF program was about feeding Iraqis. For Washington it was about starving the regime of funds for rearmament. It needs reiteration that in both contexts it was hugely successful. By the end, the program was providing essential food and medical supplies for over 80 percent of the Iraqi population, and, as was subsequently proved by both Hans Blix’s UN Monitoring Verification and Inspection Commission inspectors and their American successors, it was also successful in stopping Iraqi rearmament.

Indeed, it was so successful that the U.S. occupation authorities asked the UN to continue the program after the 2003 invasion and then praised its performance after it ended. A surplus of more than $10 billion dollars was handed over to the Occupation’s “Iraq Development Fund” to be disbursed under the scrutiny of an international monitoring board. Such was the context when Kofi Annan asked Paul Volcker to establish and head the Independent Inquiry Committee. Yet surprisingly, the committee did not take into account the very political circumstances of its own creation.

How Success Turned to Scandal

Within a year of the Iraq invasion, the anti-UN media in the United States began to trumpet the “UN Oil for Food Scandal,” which was, according to the neo-conservative columnist Charles Krauthammer, “the biggest financial scandal in the history of the world.” Some of the wilder pundits claimed it involved the mismanagement of “hundreds of billions of dollars.” The real target of the attacks was the United Nations itself, and, especially, the reputation of the secretary general. When, in December 2004, Republican senator Norm Coleman of Minnesota called for Kofi Annan’s resignation, the Minneapolis Star-Tribune provided a succinct explanation of what lay behind the attacks. Describing Coleman’s call as a “sordid move,” a December 4, 2004, editorial explained, “For months before the election, the right-wing constellation of blogs and talk radio was alive with incendiary rhetoric about Annan and the oil-for-food scandal.... This is really all about Annan’s refusal to toe the Bush line on Iraq and the administration’s generally unilateral approach to foreign affairs. The right-wingers hate Annan and saw in the food-for-oil program a possible chink in his armor. They went after it with a venomous fury.”

The story of how Oil for Food mushroomed into a UN scandal begins with Claudia Rosett, a former Wall Street Journal writer who is now journalist-in-residence at the Foundation for the Defense of Democracies. In a 2002 New York Times op-ed, just after Bush went to the UN to seek authorization for an invasion of Iraq, she called the Oil for Food program “an invitation to kickbacks, political back-scratching and smuggling done under cover of relief operations.... If the oil-for-food operation is extended, however, it will have a tremendous influence on shaping the new Iraq. Before

that is allowed to happen, let’s see the books.”

The idea that the UN had failed by not backing the U.S. invasion of Iraq, and that Saddam Hussein’s continued malfeasance could be blamed on the UN, was very much part of the house philosophy of the Foundation for the Defense of Democracies. Its board included such GOP eminences as Steve Forbes, Jack Kemp, Jeane Kirkpatrick, Frank Lautenberg, Newt Gingrich, and James Woolsey, as well as Richard Perle and Charles Krauthammer. Its own website advertised its connections with the Iraqi National Council and Ahmed Chalabi, its leader-in-exile. Chalabi’s position was crucial. He disliked, in particular, Annan’s special representative, Lakhdar Brahimi, who was assembling an interim government in Baghdad and had correctly assessed the lack of indigenous support for Chalabi in Iraq. At one point, Chalabi had called the secretary general’s office in New York to pressure Annan to appoint him to a position commensurate with his self-perceived importance. When Annan’s office resisted, Chalabi and his team carried out their threat to propagate the claim that Benon Sevan, the retiring Oil for Food chief, was on a list of 267 people for whom Saddam Hussein had authorized commissions on oil trades. This claim provoked a rash of stories focusing on the alleged UN connection.

With so much smoke, the media seemed to assume that there had to be a fire. Interestingly, these stories were mostly in the op-ed pages. The Wall Street Journal news section undertook some sterling investigative work that did not point at corruption in the UN, but rather at collaboration between private companies and member states in providing revenue for Baghdad.

In March 2004, Annan, backed by the Security Council, appointed former Federal Reserve bank chair Paul Volcker to head an inquiry. Soon, however, the same people who had demanded the inquiry began to accuse Annan of under-funding it. When he then obtained $30 million from residual OFF funds set aside for administration, he was immediately accused of taking bread from Iraqi children’s mouths.

The New York Post denounced the inquiry as a cover-up, and New York Times columnist William Safire referred to Annan’s “manipulative abuse of Paul Volcker,” whose reputation for integrity was “being shredded by a web of sticky-fingered officials and see-no-evil bureaucrats desperate to protect the man on top who hired him to substitute for—and thereby to abort—prompt and truly independent investigation.”

The chorus grew louder following the leak of a letter in which Annan cautioned the U.S.-led coalition against a frontal assault on Fallujah. Fox television’s Bill O’Reilly declared that “it’s becoming increasingly clear that UN chief Kofi Annan is hurting the USA.” On November 24, 2004, the National Review declared “Annan should either resign, if he is honorable, or be removed, if he is not.” And, on December 1, 2004, writing in the Wall Street Journal, Senator Norm Coleman called for An-nan’s resignation. When asked, President Bush did not repudiate Coleman’s call with any expression of confidence in Annan, but called simply for the investigation to take its course. A week later, Prime Minister Tony Blair joined much of the world in expressing support for Annan, to whom delegates in the General Assembly gave a standing ovation.

By this time, the Volcker committee had won over the conservative press, albeit inadvertently. The interim reports publicized many allegations from the UN’s own, widely derided Office of Internal Oversight Services, without publishing rebuttals from UN staff. The hostile press also welcomed the Volcker inquiry’s censure of Annan over his son’s involvement with Cotecna, a company contracted to inspect food deliveries. Kojo Annan had lied to his father in declaring that he had severed his relationship with the company, and it was discovered that he had concealed continuing payments from Cotecna.

Volcker’s team found no evidence that the Secretary General had in anyway been involved in the procurement scandal but held that he had not treated these allegations seriously enough. Annan had asked for the advice of his (U.S.-appointed) undersecretary general for management, and of his undersecretary general for legal affairs, who told him that since he had no contact with the procurement process, he did not need to take further action. And, though Volcker countered that he should not have believed his son and authorized a major inquiry, the published report effectively cleared Annan and the UN of the vast majority of the corruption charges leveled by the conservative media. Apart from Annan’s involvement, this was a lesser matter than the ever-growing billions that the critics alleged the UN had squandered.

About Benon Sevan

In the face of allegations of tens of billions floating from the gulf, the sole finding of direct UN corruption was leveled at Benon Sevan, the Cypriot head of the $100 billion program, who declared $147,000 in gifts over four years from an aunt, which the committee decided had come as commission on otherwise legitimate oil trades from a company run by his friends. If true—and the evidence the committee adduced was circumstantial—this was clearly unethical, but not necessarily illegal. They also took Sevan to task for his style of management. Sevan did run the program at arms’ length from the secretariat, but his colleagues, while admitting that he could be stubborn and idiosyncratic, also pointed out that secretariat interference in OFF would have slowed down its work. By insulating it from bureaucratic interference, many believe the Cypriot abetted the program.

Sevan returned to Cyprus in 2005 and has not been in New York since, which does not necessarily imply an admission of guilt. In New York, he faced a politically motivated prosecution in an atmosphere poisoned by media allegations. In January 2007, a U.S. district attorney filed charges against him. He denies guilt and cannot be extradited. Indeed, one suspects that the Volcker team’s report devotes a chapter to him because, in the end, this was the only substantial accusation of serious impropriety against any UN official directly related to the program. For all the time, money, and effort put into the Volcker report, there are several significant omissions that obscure an accurate overall judgment of the Oil for Food program. For example, the inquiry does not look into what happened to the $10 billion in OFF surpluses that were handed to the American occupation authorities for the Development Fund for Iraq, for which no accounting has been provided either to Congress or to the International Advisory and Monitoring Board. It was not in his committee’s mandate, said Volcker, to determine how much money was handed out, much of it in no-bid contracts, to companies close to the White House. Stuart W. Bowen, the

U.S. special inspector general for Iraq reconstruction since October 2004, has also been unsuccessfully trying to find out what happened to the $10 billion, which had been augmented by a matching amount from frozen Iraq reserves. Notably, the press that had fulminated against the United Nations has been silent on this matter. Similarly, little attention has been paid to the fact that the Oil for Food program funneled $20 billion of Iraqi oil revenues to the largest reparations scheme since Versailles. Even at current reduced rates, 5 percent of Iraqi oil money will be diverted indefinitely to pay the balance of $30 billion in accepted claims. Kuwait has refused to discuss dropping these reparation demands. These figures clearly overshadow Sevan’s alleged $147,000 in payoffs—both in quantity and their effect—but have not had one-hundredth of the media coverage. The Security Council voted for both handovers of cash, which perhaps makes a much stronger case for political reform of the organization than the Volcker report makes for the long accepted need for managerial reforms.

Neither the United Nations nor any other organization should be allowed to excuse incompetence or corruption by pointing the finger at other organizations and countries. There were serious faults in the OFF program, inherent in the mixture of political controls and motives behind it, and, as Annan himself said, it was far too ambitious a program for the UN to undertake.

But, it is legitimate to contrast the froth and indignation over OFF with the relative silence from the same critics over the missing funds provided to Iraq. What was immediately apparent was that the UN reconstruction effort proved incapable of defending itself against a politically motivated assault on its integrity. Though there is a big constituency for the United Nations within the United States, it is essentially passive: with a few honorable exceptions, no leading figures stood up to defend the organization. Even as Kofi Annan retired, the stains lingered on both him and the organization.

Among the obvious lessons are that the international community should never impose such draconian economic sanctions on a nation, and that such resolutions should, in any case, contain a sunset clause to prevent veto holders maintaining penalties in pursuit of selfish national interests. The biggest lesson, however, is the need for an independent and strong international civil service in the secretariat. This has not been helped by the failure of successive U.S. administrations to pay UN assessments on time and their tacit connivance in slander campaigns. In an interview with Kofi Annan just before he resigned, he put it with typical understatement: “There have been times when it has been tough, particularly when some people on the Hill or the right wing begin attacking the UN and the secretary general, and no one pulls them back even though that’s the same organization that you are going to turn to tomorrow. If you undermine the organization to that extent, your own population may ask you ‘Why are you going to this organization that you’ve discredited so much?’” Why, indeed?

Notes

1. The Volcker reports are available online at www.iic-offp.org.
2. Jeffrey A. Meyer and Mark G. Califrano, Good Intentions Corrupted: The Oil-for-Food Scandal and the Threat to the U.N., introduction by Paul A. Volcker (New York: PublicAffairs, 2006). WORLD POLICY JOURNAL • WINTER 2006/07