July 1, 2004 | Commentary

Oil-for-Food

Oil-for-Food

To the Editor:

Since Claudia Rosett's campaign to deny the United Nations any role in “bringing democracy to Iraq” may offer the best hope of saving my colleagues from further risks in that country, it is tempting to leave her unanswered [“The Oil-for-Food Scam: What Did Kofi Annan Know, and When Did He Know It?,” May]. But honesty compels me to clarify at least the following points:

(1) The Oil-for-Food program is now being investigated by an independent inquiry appointed by the Secretary-General and headed by Paul Volcker, former head of the Federal Reserve.

(2) Whatever shortcomings that inquiry may reveal, the program's successes were significant. It saved at least half a million children from malnutrition; reduced the incidence of cholera, malaria, measles, mumps, meningitis, and tuberculosis; and completely eradicated polio from Iraq. It also cleared 12.2 million square meters of landmine-infested land and destroyed tens of thousands of items of unexploded ordnance.

(3) The UN employed inspectors at fixed points on Iraq's borders, not to check all traffic going in and out but to confirm that specific deliveries were made, so that payment could be authorized. They had no power to police the frontier or to stop the “smuggling” across it that had been going on since 1990.

(4) In New York, UN oil overseers reviewed the export contracts, and UN customs experts reviewed the import contracts, before passing them for approval to the sanctions committee on which all fifteen Security Council members sat.

(5) In late 2000, the oil overseers warned that the oil price fixed by Iraq's oil ministry at the beginning of each month was suspiciously low, leaving room for purchasers to pay an undeclared premium. The sanctions committee authorized the overseers to inform all buyers of Iraqi oil that payment of these surcharges would be illegal, and soon afterward the committee made Iraq switch to fixing the price retroactively, at the end of each month, when the real market value of the oil had been established.

(6) On the import side, UN experts also drew attention to suspiciously high prices, which could allow Saddam to extract kickbacks from suppliers. Any member of the Security Council could put any contract on hold, and the U.S. did block thousands on security grounds—citing fears that the items might have military value. Not once was a contract held up because of doubts about the price or quality of the goods.

(7) The 2.2 percent of oil revenue set aside for administrative (and operational) costs was not a “commission.” No “fees” were “collected by Annan's office,” as Claudia Rosett writes, or by any other part of the UN. When all of the 2.2 percent was not needed for the program, the surplus was transferred to the humanitarian account. These payments, along with much other information, were published in weekly updates on the UN's website. Nor has the UN made any secret of the fact that some $2.9 billion in interest accrued on the program's bank balances, and was used to purchase additional humanitarian supplies.

(8) As time went on, the ceiling on Iraq's oil sales was first raised and then lifted altogether, and the scope of the program expanded beyond narrowly defined humanitarian purposes. These were political decisions, taken by the Security Council. Sanctions were meant to stop Saddam from rearming, not to harm future generations of Iraqis by holding back the country's development. It was in this context that “distribution plans” including sectors such as sports were drawn up—but that did not imply automatic approval of any given contract. Plans for a stadium did figure in one such plan, as Claudia Rosett writes, but no Oil-for-Food money was actually spent on it.

(9) Last year, after the overthrow of Saddam's regime, the Security Council told Annan to “prioritize” the remaining contracts, in consultation with the Coalition Provisional Authority (CPA) and Iraqi experts. It was during this process—with Iraqi officials now free to talk—that the full extent of the kickback system came to light. The CPA (not the Pentagon's Defense Contract Management Agency, whose report came much later) asked the UN to remove so-called “after-sale service fees” from a number of contracts. In most cases, the contractors agreed and reduced their prices accordingly. But, as Claudia Rosett indicates, a few refused, and one or two could not be traced. In these latter cases the goods would presumably never have reached Iraq anyway, and therefore would not have been paid for.

(10) On November 21, the CPA received the program's complete database, with all outstanding contracts and relevant documents on compact disk. It is still using that database for the receipt and payment of goods.

(11) The CPA is also still using the services of Cotecna Inspections, a company that did indeed briefly employ Kofi Annan's son in West Africa before it won the UN contract in Iraq. This fact has been public and uncontested since 1999.

Edward Mortimer
Office of the Secretary-General
United Nations
New York City

 

To the Editor:

Claudia Rosett's article places full blame for alleged fraud and abuse in the Oil-for-Food program on UN Secretary-General Kofi Annan and his staff. She incorrectly dismisses the responsibility of members of the UN Security Council—especially its five permanent members—characterizing them as passive observers of the sanctions regime rather than the ultimate overseers of the program. She writes that contracts simply “flowed through” the Security Council.

In fact, by its own design, the Council retained exclusive authority to void or put holds on contracts under the program. She acknowledges that “the fifteen member governments were mostly on the watch for so-called dual-use items,” and “only two of the five permanent, veto-wielding members appear to have done any overseeing at all.” The numbers speak clearly for themselves: acting as a sanctions committee, the Council approved 36,000 contracts; the United States and United Kingdom held up over 5,000 of them on dual-use grounds, but not a single one on pricing grounds— even when alerted by the Secretariat.

The program was “amenable to manipulation” not because of the nefarious scheming of Secretariat officials but because it was a political compromise among fifteen Security Council members with very different interests and with Saddam Hussein, without whose agreement it would have been impossible to install a humanitarian program. Moreover, better alternatives were not obvious at the time, nor are they obvious in retrospect. Continuing with sanctions without a humanitarian program would have meant increasingly dire conditions for the Iraqi people and, rightly or wrongly, ever larger political costs for the U.S. These conditions might have tipped the already-strained sanctions regime toward complete collapse because of a lack of support from Russia, France, and regional powers. This would have represented a significant policy failure for the United States.

Claudia Rosett gives short shrift to the considerable positive benefits of Oil-for-Food. Average daily caloric intake increased by 83 percent over the life of the program; chronic malnutrition among children under the age of five in the central and southern parts of the country decreased by half from 1996 levels, and by 56 percent in the Kurdish region where the UN administered the program; and improved health services led to reduced child mortality rates. At the same time, proceeds from the sale of oil under the program were used to pay for the costs of the UN's weapons inspections and disarmament efforts in Iraq, as well as to provide $18 billion in compensation to the citizens of Kuwait for losses suffered during the 1990 Iraqi invasion.

Whatever the various investigations ultimately reveal about Oil-for-Food, it is a leap beyond logic to conclude from this episode, as Claudia Rosett does, that “the UN suffers from an endemic affinity with anti-Western despots, and will turn a blind eye to the devil himself in order to keep them in power.” In fact, the UN Secretariat—and Secretary-General Annan in particular—is often ahead of the world's governments in condemning dictators and calling for action to halt their abuses. Annan has been extremely vocal, for example, in condemning abuses by government-backed militias in the Sudan, Robert Mugabe's harsh rule in Zimbabwe, and Slobodan Milosevic's aggression in the Balkans. The international criminal tribunal for the former Yugoslavia, with strong support from the UN Secretariat and the Secretary-General himself, is now trying Milosevic—the epitome of an “anti-Western despot”—for crimes against humanity.

Investigations into possible abuses of the Oil-for-Food program should continue vigorously as part of broader efforts to document the full measure of Saddam Hussein's crimes, and to improve the effectiveness and transparency of the UN. Annan's appointment of and cooperation with an independent investigative panel led by former Federal Reserve chairman Paul Volcker demonstrates his commitment to both of these goals. By seriously mischaracterizing the Oil-for-Food program and the United Nations as a whole, Claudia Rosett fails to serve either.

William H. Luers

United Nations Association of the U.S.A.
New York City

 

Claudia Rosett writes:

Defending the United Nations Oil-for-Food program is an unenviable task. Edward Mortimer, who works for the UN, and William H. Luers, whose position entails close ties with the institution, have made the best of a daunting challenge.

But that is not saying much. Both Mr. Mortimer and Mr. Luers seem more disturbed that the UN has been criticized for the most corrupt and divisive relief program it has ever run than that Saddam Hussein took advantage of this program to graft billions out of contracts for goods like baby food, medicine, rice, and wheat, all at the expense of the intended beneficiaries, the people of Iraq. Instead, both correspondents would have us believe that the real victim here has been the UN itself.

As they note, the United Nations is now in the process of being investigated—a fact they brandish as if it rendered all other critiques invalid. That inquiry may turn up some “shortcomings,” Mr. Mortimer concedes, while insisting in the next breath that “the program's successes were significant.” To this Mr. Luers adds that there was no real alternative to Oil-for-Food, and that in any case I am wrong to place blame on the UN Secretariat when the real culprits were (a) Saddam Hussein and (b) the Security Council.

It is true that the UN is now being investigated—no thanks to any initiative by Oil-for-Food officials or their boss, Secretary-General Kofi Annan. As I recounted in some detail in my article, Annan, in handing over the remains of the seven-year program to the U.S.-led coalition last November, was content to lavish praise on the program and its executive director, Benon Sevan, and bury the already festering issue of corruption for all time. Thereafter, confronted with damning evidence, Annan tried for months to ignore, dismiss, and deny it—though, oddly enough, Messrs. Mortimer and Luers now claim that the Secretariat was aware of big problems with Oil-for-Food all along.

Why, then, the Secretary-General's silence? According to Messrs. Mortimer and Luers, the explanation is that the Secretariat, being the humble servant of the Security Council, is perennially buffeted by the self-serving interests of assorted member states, constrained from speaking up in public even on behalf of a captive population being bilked of billions by its ruler. An interesting proposition—albeit one that fails to explain why spokesmen for the self-same Secretariat have suddenly been freed, now that the scandal has erupted into public view, to blame the whole thing on the Security Council.

In fact, as I wrote, there is plenty of blame to go around, especially among Saddam's favored business partners on the Council: Russia, China, and France. Nevertheless, as I also wrote, final responsibility lies with the Secretariat. It was the Secretariat that consolidated Oil-for-Food into one office in New York, reporting directly to Annan and coordinating nine UN agencies with more than 4,000 staff on the ground in Iraq. It was the Secretariat that was the chief interlocutor with Saddam, and it was the Secretariat that managed the bank accounts, arranged the audits, hired the relief inspectors, kept the records—and kept secret such telling details as the names of Saddam's business partners and the prices paid. Finally, it was the Secretariat, not the Security Council, that had the budget to administer Oil-for-Food, amounting over the life of the program to well over $1 billion, funded directly out of Saddam's oil revenues.

Did Oil-for-Food deliver some relief, as Mr. Mortimer asserts? Of course it did, and I stipulated as much. The relevant questions are how much relief, and at what cost—both in dollars and in terms of preserving the Iraqi dictator's power. This was a program in which the UN, according to Secretary-General Kofi Annan's figures, oversaw $111 billion worth of Saddam Hussein's business: $65 billion in oil sales and $46 billion in relief contracts, with the remainder paid out in compensation to victims of Iraq's 1990 invasion of Kuwait. Of the $46 billion approved for relief, perhaps $15 billion was actually delivered for the food and medicine that were the original aim of the program. Moreover, according to estimates by the Defense Contract Management Agency, the food shipped into Iraq under Oil-for-Food was overpriced on average by about 22 percent, a figure representing the likely graft component of the contracts.

So the real value of this core relief was almost certainly lower than the UN official figures suggest. What those figures really suggest is that the overpriced rations were themselves a sideshow, the main events being the global network of bribery, kickbacks, and clout enjoyed by Saddam and the vast expansion of Annan's domain.

 

Mr. Mortimer amplifies his criticism of my article by means of a long list of quibbles over footnotes, intended, no doubt, to discredit the substance of my thesis. His list begins with the intriguing information that UN inspectors of relief supplies, posted at UN-authorized entry points into Iraq, “had no power to police the frontier” but were there only to check whether specific deliveries conformed to the criteria for releasing payment out of Saddam's oil revenues.

Mr. Mortimer seems quite unaware of the devastating implications of this bland statement. By his own admission, it seems, a program—UN sanctions—established to control Iraq's trade had devolved under Oil-for-Food into a UN-administered setup under which a convoy of trucks carrying anything whatsoever could have rolled right past UN inspectors in broad daylight, and those inspectors would have been required to do nothing but tell the drivers whether or not to send their paperwork elsewhere. To make matters even more poignant, there were not any UN weapons inspectors on hand to intervene during the heyday of Oil-for-Food, Saddam having kicked them out in late 1998—coincidentally, right around the time the UN began expanding the size and scope of the program.

Meanwhile, Mr. Mortimer assures us, UN experts in New York were warning the Security Council about Saddam's kickback schemes as early as 2000. Although any Council member could have put any contract on hold, “and the U.S. did block thousands on security grounds,” it turns out that “not once was a contract held up because of doubts about the price or quality of the goods.” What readers need to know, and what Mr. Mortimer neglects to say, is that, almost monthly during this same period, either Kofi Annan or Benon Sevan was going public to express the UN's “serious concern” or “continuing concern”—not, however, over the fact that Saddam was deep into graft but that the U.S. was holding up his precious Oil-for-Food deals.

Mr. Mortimer argues that the 2.2 percent of Saddam's o l revenue “set aside” for administrative costs “was not a ‘commission'” and that no “fees” were collected by the UN. How, then, should we describe the 2.2 percent (or 3 percent if we include an additional .8 percent to cover weapons inspections, even though there were no such inspections, for half the life of the program)? It walked like a commission, it quacked like a commission, and in the world of business a percentage cut for services rendered is called a commission.

To those laboring in the vineyards of humanitarian relief, this may sound crude. But when the UN Secretariat tapped straight into Saddam's oil wells and took in $1.9 billion, it crossed over into the realm of commerce, rendering its services less to the Iraqi people than to the tyrant who ruled over them. That is how the incentives were set up, and that is pretty much how things went. By the final years of the program, the UN was waving its supposedly limited and temporary relief operation as a seal of good housekeeping for Saddam's Oil-for-Palaces, Oil-for-Weapons, and quite possibly Oil-for-Terror—plus, lest I forget, Oil-for-Overpriced Food.

Mr. Mortimer does not like my reference to the use of Oil-for-Food to cover such things as UN approval of Saddam's plans to build an Olympic stadium. The sanctions, he protests, were never meant to hold back Iraq's development, and in any case no money was ever spent on the stadium. That is true, but only because, less than three months after Annan signed off on the plan, and very much against Annan's express wishes, the U.S.-led coalition toppled Saddam Hussein.

Mr. Mortimer is trivially right that it was the Coalition Provisional Authority and not the U.S. Defense Contract Management Agency that pushed the UN last summer to clean house. He is wrong, however, to suggest that only “a few” of the contractors asked to renegotiate their deals refused to do so, and that “one or two could not be traced.” According to the UN's own public records, out of more than 5,000 outstanding contracts, more than 1,250 were scrapped, most with no specific reason given. In one batch of 728 dumped contracts, notations indicate at least 126 cases (somewhat more than “one or two,” by my count) in which contractors not only refused to negotiate but either did not respond at all or could not be found. In my article I mentioned one such UN notation concerning a Jordanian supplier of school furniture: “Company does not exist and the person in charge moved to Egypt.”

Did the Coalition Provisional Authority, on November 21, 2003, “receive the program's complete database with all outstanding contracts and relevant documents on compact disk,” as Mr. Mortimer contends? If so, it was not from the UN. The UN's Treasury Department confirmed to me in mid-March that no bank records had been turned over to anyone since the fall of Saddam. As for Annan's son Kojo, I did not simply confirm his employment with Cotecna Inspections, I also confirmed the dates of his employment. His consultancy—wherever it was—coincided with the period in which Cotecna would have been assembling and submitting its competitive bid for the UN job of checking goods coming into Iraq. According to the UN, Kojo quit the consultancy in early December 1998. On the 31st of that month, Cotecna beat out several rivals for the job.

Finally, let me revert to Mr. Luers, who, first excusing the manipulations of Oil-for-Food, ends by conceding that transparency is of course a worthy goal for the UN. If this amounts to more than the sort of thing one can be expected to say after all one's strenuous efforts at opacity have failed, then the sentiment can only be applauded. Like many others around the world, I can hardly wait to behold the next act of the drama.

 

Issues:

International Organizations