November 29, 2005 | Wall Street Journal (Opinion Journal and European Edition)

Don’t Shred on Me

Paul Volcker's findings on Oil for Food have been widely received as the final word on the United Nations relief program for Saddam Hussein's Iraq. Far from it–as Mr. Volcker himself has admitted. In reporting that Saddam, along with his smuggling and oil graft, diverted $1.8 billion in kickbacks from U.N.-approved relief contracts under the program, Mr. Volcker underestimates, quite probably by billions, the amount the U.N. allowed Saddam Hussein and many of his favored business partners to graft out of Oil for Food deals for goods such as oil parts, milk, laundry soap and baby food. In low-balling the total, Mr. Volcker understates the negligence of the U.N., and overlooks some of the most potentially virulent links in Oil for Food.

The most urgent implication of Mr. Volcker's incomplete findings is that his huge and expensively assembled archives must be preserved intact well beyond the Dec. 31 deadline by which Mr. Volcker now plans to start disposing of them. Above all, they must not be handed back to the U.N., where too much related to the corrupt Oil for Food program has already vanished–including, to a fascinating extent, Secretary-General Kofi Annan's own powers of recollection. The former head of the program, Benon Sevan, alleged to have taken bribes from Saddam, was allowed to skip town, U.N. pension in hand. Mr. Annan is even now resurrecting, via a new $4 million U.N. program called the Alliance of Civilizations, the career of his former chief of staff, Iqbal Riza, who officially retired earlier this year after it came to light that during Mr. Volcker's investigation Mr. Riza had overseen the shredding of three years' worth of documents that might have better illuminated the oil-for-fraud shenanigans of the U.N.'s executive 38th floor.

As it happens, Rep. Henry Hyde, who has led the main investigation into Oil for Food in the House, introduced a bill on Nov. 17 urging that the U.S. withhold $100 million from its U.N. dues for each of the next four fiscal years, or until the secretary of state certifies to Congress that the Volcker investigation's archives have been transferred, intact and uncensored by the U.N., “to an entity other than the [Volcker] Committee or the United Nations”–and made available for public inspection, at the very least by law-enforcement authorities.

If $100 million a year seems a punitive sum, it pales next to the billions in suspect money that Mr. Volcker left out of the grand totals in his final report. And that's even if we set aside for now the staggering $19 billion in Oil for Food revenues which the U.N. doled out under its usual secrecy via the U.N. Compensation Commission to victims of Saddam's 1990 invasion of Kuwait. These compensation payments were, for the U.N., a huge chunk of the program, which Mr. Volcker promised to cover and somehow never got around to–though U.N. internal audits suggest it was riddled with waste and abuse.

More immediately, let us turn to the $39 billion or so in U.N.-approved payments by Saddam to his chosen Oil for Food relief suppliers. When Sen. Norm Coleman's investigators last year estimated the amounts scammed by Saddam out of this relief money, they came up with a total of some $7 billion–almost four times larger than what Mr. Volcker reports. Why the big difference? Saddam used a variety of scams, and Mr. Coleman's investigators took into account most of them, while Mr. Volcker focused on only two–illicit transportation fees, and the $1.8 billion in standardized kickbacks to Saddam–which he was able to measure fairly precisely. Basically, if Mr. Volcker could not attach precise numbers to a graft scheme, he did not try to measure it at all–even if the amounts involved almost certainly totaled billions. Notably, after puzzling over one of the biggest flows of suspect relief money, Mr. Volcker concluded in a comment buried on page 299 of his 623-page Oct. 27 final report that “this matter likely warrants further investigation and review.”

That note comes at the end of a section describing Saddam's tendency to overpay for many relief supplies, thus providing fat profits to favored suppliers. In some cases–or, as Mr. Volcker reports, in virtually all cases for the last half of the seven-year program, meaning from 2000 until the 2003 overthrow of Saddam–the supplier would kick back about 10% of the contract price to Saddam. Those kickbacks Mr. Volcker duly totals, to produce his estimate of $1.8 billion grafted out of the relief contracts. But in some cases, as a Pentagon audit study reported in 2003, and further evidence from both congressional investigations and Mr. Volcker himself has since corroborated, the routine kickbacks to Saddam's regime did not account for the full amounts overpaid to the suppliers. In other words, vendors of baby food, or detergent, or milk, even after paying a kickback to Saddam, would in some cases still end up with extra loot on their hands. Asked about this at an Oct. 27 press conference, Mr. Volcker speculated this sort of thing was perhaps “just a reward” for the “favored” contractors. OK. But what were they being rewarded for?

As the program got bigger, and the U.N.-approved range and scope of suppliers grew, so the overpricing grew too–as Mr. Volcker's own team illustrated in a chart (click here to see it), from the Sept. 7 penultimate report on Oil for Food, which shows the growing spread between market price and Saddam's purchase price for three sample commodities (which Mr. Volcker for some reason does not name). A post-Saddam Pentagon audit in 2003 of the prices paid on a sampling of Oil for Food contracts found similar spreads. Such overpayments are as a rule a bright red flag for graft in the form of payoffs. But instead of explaining that, or trying to estimate the scale, Mr. Volcker puzzled over it briefly in his last two reports, speculating that perhaps Saddam had to pay a growing premium to soothe suppliers “uncomfortable with their continued obligation to pay kickbacks.”

The real mystery is why this was all so mystifying to a veteran money man like former Fed chairman Paul Volcker. In every other aspect of Oil for Food, from Saddam's bribery attempts before the program even began, to the shrink-wrapped cash that surfaced in liberated Iraq, there is every sign that Saddam's regime levered every penny it could out of the program. And every sign that in choosing contractors Saddam picked a great many who had something to offer his regime beyond arm's-length market deals on groceries. The official aim of the U.N. program, of course, was to limit Saddam's use of oil money to the purchase of fairly priced goods for relief. But the way the U.N. actually ran the program allowed Saddam not only to skim money earmarked for aid, but to launder it via relief suppliers worldwide, for any use to which a supplier might agree.

Another odd oversight in the Volcker report is the glaring lack of follow-up on suppliers–especially ones that were, according to Mr. Volcker, based in places such as Cuba and Afghanistan–that, as far as Mr. Volcker could determine, paid no kickbacks. That could mean they were just companies so honest, selling goods so desirable, that in these cases Saddam simply forsook his crooked ways. Or it could mean Saddam for more worrisome reasons was so eager to transfer money to these companies that he did not even bother to demand a kickback. These companies include U.S. suppliers of food and equipment, a drug manufacturer in Cuba; and a company listed by Mr. Volcker as operating out of both the United Arab Emirates and Afghanistan, some of that during the years in which Osama bin Laden, courtesy of the Taliban, was resident there, planning the Sept. 11 attacks on the U.S.

The likeliest explanation of Saddam's growing zest to overpay for relief, and his apparent benevolence toward select companies in places not generally famed for their shopping centers, is that both these tendencies offered Saddam ways to transfer purloined relief money to suppliers who were in a position not only to sell him rice, soap and medicine, but to do sanctions-busting favors for Saddam–such as procure illicit goods, forward money to secret bank accounts, or send it onward to people whom Saddam wished to support. Arms dealers and terrorist groups come to mind. All that would have been possible, under cover of these U.N. contracts, no less. Saddam's suppliers under the U.N. program included companies based in or linked to such financial havens as Liechtenstein and Switzerland; such arms-trafficking hubs as Russia, China and Belarus; and such trouble spots as Syria, Sudan, Saudi Arabia, Yemen and–as Mr. Volcker notes in passing–Cuba and Afghanistan.

To sort out the innocent from the not-so, far more information is needed than the U.N., or Mr. Volcker, has so far disclosed–including which specific contracts were most clearly overpriced, and whether anyone actually inspected the medicine ordered up by Saddam from Cuba–or, to take another example, the yogurt from Liechtenstein. But far from making available the full documentation on the thousands of U.N.-approved Oil for Food relief deals, Mr. Volcker's reports, apart from providing a few case studies, do not even try to break out even the most egregious overpricing by company, or even country. Perhaps it was simply too much work, even for Mr. Volcker's well-equipped inquiry, funded with $35 million in leftover Oil for Food money, and employing 75 investigators from 27 countries for 18 months.

But in that case, before the U.N. revs up its shredders, there are others more attuned to such matters as arms-trafficking and terror-funding, or for that matter, payoffs forwarded via U.N.-approved baby-food contracts, who need a chance to sift through Mr. Volcker's document trove.

Ms. Rosett is a journalist-in-residence with the Foundation for the Defense of Democracies. Her column appears here and in The Wall Street Journal Europe on alternate Wednesdays.



International Organizations