Global Policy Forum

Oil for Food: The True Story


By Alain Gresh

Le Monde Diplomatique
October 2000

Part 1: A Debt of Dishonour | Part 2: How the UNCC Works

A Debt of Dishonour

We know about the sanctions that have impoverished Iraq, claiming many lives through lack of medicines and malnutrition, but we haven't heard much about the money Iraq still raises through exporting oil, other than the concept of "oil for food". This slogan implies that all permitted oil exports fund necessary humanitarian supplies for Iraq, but this is not true. For 10 years, a third of Iraq's export income has been collected to compensate companies and individuals claiming for losses during the invasion and occupation of Kuwait, and the Gulf war: the collection and awards are made discreetly by a UN organisation with a dubious legal basis, the UN Compensation Commission (UNCC), dominated by the US, which still believes that Iraq must pay endless reparations for Saddam Hussein's ambitions a decade ago. The Kuwait Petroleum Corporation, and a few others, were awarded this year, in just a single payment, $15.9bn -- which is double the amount the Baghdad government received between 1996 and 2000 to feed and care for 17m people.

But the UNCC's judgments have just been challenged from within. The high-ranking diplomats from the 15 UN security council member countries who make up the governing council of the UNCC were asked to decide on that claim for compensation submitted by the Kuwait Petroleum Corporation, and others, for $15.9bn. French and Russian diplomats blocked the move, saying they couldn't allow an opulent emirate to take so much from Iraq, which grows daily poorer. UNCC meetings were adjourned repeatedly until late last month, when the claim was voted through unanimously, in exchange for which cooperation, the French and Russian objectors were conceded cosmetic changes to the UNCC's functioning and the percentage of Iraqi exports commandeered for compensation.

How did the UN come to be running a compensation service which acts as judge and jury, and refuses to allow Iraq to spend any of its export revenues to hire legal help to defend itself against the claims? The UNCC was set up in 1991 after a security council resolution confirmed that Iraq was "liable under international law for any direct loss, damage ... or injury to foreign governments, nationals and corporations, as a result of Iraq's unlawful invasion and occupation of Kuwait". There is no precedent for this procedure, at least not since the Treaty of Versailles, which concluded the first world war and paved the way for the second, by laying the full responsibility for the war on Germany and forcing it to pay endless reparations - the "Germany must pay" slogan ultimately led to Adolf Hitler taking power.

The UNCC is a discreet body, with offices scattered around Geneva's international quarter. It decides the amount of compensation on the basis of a report by a panel of three commissioners - experts appointed by the secretariat, a theoretically administrative body but in practice the seat of real power. From the start, representatives of the US took control of the secretariat and directed - or misdirected - all the UNCC decisions. Every year $50m is deducted from Iraqi exports to fund the UNCC itself, the business-class travel expenses of its experts, its commissioners' hefty fees and so on. The most serious aspect of all this, though, is that, for the first time in international law since the second world war, a state has been allowed no right of appeal against a procedure in which it is involved. Even a criminal is entitled to defence lawyers, and is not required to pay for investigations, trials or judges.

In 1991 the UN secretary-general recommended that Iraq should be "informed of all the claims and will have the right to present its comments to the commissioners". But later, the security council decided that Iraq had only "a right to receive the summary reports of the executive secretary and comment thereon" - more like the Inquisition than modern legal practice; Norbert Wuhler, head of the legal department at UNCC, describes it as an "inquisitorial procedure". And the UNCC first secretary, Carlos Alzamora, says the inconvenient legal safeguards "which generally encumber judicial proceedings" have been eliminated. Michael E. Schneider, a former professor of international public law, is a lawyer with a firm which filed a request to defend Iraq, paid for from UNCC funds. The request was rejected. He says the main flaw in the procedure is that Iraq has not been recognised as "a defendant party and no attempt has been made to obtain its agreement. Iraq, and only Iraq, must pay for every penny of the procedure, the fees of the commissioners and their experts, yet it cannot even consult the experts' findings".

Muhammad al-Douri, Iraq's ambassador to the UN in Geneva and also a former professor of international law, says he works "under an embargo". Iraq has lost the right to vote at the UN because it has not paid its dues, although the US, which is the organisation's largest debtor and more than $1bn in arrears with its dues, has never been penalised. Communication between the Iraqi ambassador and his government is laborious: an envoy takes at least four days to make the round trip from Geneva to Baghdad and back. Al-Douri doesn't even have office equipment. Xerox has refused to sell him photocopiers: perhaps the company is afraid he will use them as chemical weapons.

He tries to explain how impossible the whole situation is: take two claims which totalled $21.6bn, for the suspension of production and sale of Kuwaiti oil during the Iraqi occupation, and loss through fires. Tens of thousands of pages of claims were filed six years ago and passed to the three commissioners. The secretariat gave the Iraqi government a summary of their contents five years after the filing and gave Kuwait only weeks to respond. As the Iraqi delegation explained to the UNCC council, the claims "address too many legal, scientific, technical, engineering and accounting aspects. How much time is required to prepare a comprehensive, scientific and appropriate response? The members should work out the time required for communicating the voluminous documents, verifying, studying, translating them from a foreign language to Arabic and back again to English, and then prepare the response."

Al-Douri adds: "We did submit our comments, to which Kuwait replied, but we have no idea what it said in response. After much procrastination we were at last allowed to state our case to the commissioners - in no more than one hour." The commission awarded $15.9bn to the claimants: this was the original handout that prompted the French and Russian UNCC representatives to express misgivings. Al-Douri says: "Iraq is responsible but there is no justification for violating international law."

Michael Schneider asks: "How can a case be judged unless contradictory opinions are expressed and both parties are given an opportunity to state their point of view? Kuwait organised an international call for tenders to prepare and plead its case. To get to the bottom of it would require painstaking work for which the commission does not have time. Not only has Iraq been refused money to defend itself, but all the major law firms have already been hired by the claimants or by the UNCC itself." The UNCC hired Price Waterhouse after it had worked for Kuwait, creating a conflict of interest.

The UNCC justifies its behaviour by the pressing need to refund hundreds of thousands of ordinary people who suffered during the invasion of Kuwait . Out of 2.6m claims, most were made by private individuals, although these add up to only $20bn of a total of $320bn. By speeding up procedures for dealing with individual claims (using statistical models because of the impossibility of examining each claim separately), the commission facilitated compensation through short-cuts, many politically motivated.

The claims are divided into categories. Category C claims group individual claims - for destruction of goods, mental anguish, flight - for less than $100,000. The last C category claims were settled in September: 97% were dealt with, but the claimants did not all receive the same treatment. Almost all the Kuwaiti claims were successful, and some claimants were given more than they had demanded. But 40,000 Jordanians (mainly Palestinians) only received 40% of their claimed compensation.

From the start, the whole procedure was guided. Michael F Raboin, the UNCC deputy executive secretary, an American, in charge of handling claims, set up the secretariat in 1991 and recruited Norbert Wuhler, with whom he had worked on the Iran-US claims tribunal, founded in the early 1980s and still at work in The Hague settling disputes between the two countries. Both men say: "We are impartial. The commission made allowance for Iraq's case. Particularly as we had to deal with several hundred thousand claims in a very short time. Many claimants have actually complained that we were too favourable to Iraq."

Impartial is perhaps not quite the right word. Five years ago the head of the category C claims unit told his team: "All this abstract work that we do in this air-conditioned building in Switzerland makes it very easy for us to forget what we are here to achieve: to help the claimants." He added, in reference to the torture Kuwaitis had suffered: "I think it is useful for us to remember the luxurious position we are in. All of us are guilty of this to a smaller or greater extent; the important thing is for you to realise when you may be going a little too far." This was a fairly overt encouragement to cut corners.

A former Egyptian civil servant who worked in the unit remembers that, in the course of his work, he was regularly asked to "make the criteria as generous as possible", so as to make many awards. Another civil servant was struck by recurrent references to "doctoring the samples". The statistical models used to compensate victims more quickly had been modified. The restricted number of documents (receipts, invoices) provided by claimants made operations easier. The Kuwaitis filled in 160,000 individual claims, some on behalf of new-born babies. In many cases identical telephone numbers appeared on separate claims for the same losses. Various documents reported these duplicates. The Chinese representative protested several times, and an audit criticised the sloppiness, but nothing changed. Another civil servant said the Kuwaiti delegation lobbied "to ensure that the process favoured its country. The victims played an active part in this. Although it would be exaggerating to say that they were in our offices every day. More like every two days."

Many Kuwaiti business men were awarded compensation for companies belonging to nationals of other countries, often Palestinians, as Kuwaiti law requires foreign nationals to have a local sponsor to start a company. In 1998 the US government officially asked the governing council to review the criteria applied to payments to Kuwaitis. According to an undisclosed document: "The US recalled that it supported the use of the statistical model, considering it to be fair way to process a large number of claims on an expedited basis. However, the US reported that it was now concerned that there may be an error in the model." The secretariat complied with the advice.

The largest compensation claims are still being examined and $267bn is outstanding. Many claims are unfounded and have been or will be dismissed. Some countries filed for the cost of mobilising troops. But US allies - in particular Kuwait, Saudi Arabia and Israel - have qualified for special treatment because they were hit by Scud missiles. Israeli businesses, including florists, greengrocers, cinemas and hotels, have received millions of dollars to compensate for revenue lost during the crisis (which is as if the UK had demanded compensation from Germany because cinema attendance dropped between 1939-45). Kuwaiti ministries filed claims of $2.2bn and were awarded $1.53bn. The commission in charge of the case sent six missions to Kuwait and the US to check claims, but Iraq was not given a chance to send a representative or state its case to the commission. Only one member of the commission actually made the trip, otherwise sending "experts" provided by the secretariat. Issues raised by the gains or savings made by Kuwait because of the war - increased oil prices, inactivity of its institutions, renewal of capital assets - were ignored or scarcely discussed.

The UNCC has received claims worth $320bn, including $180bn for Kuwait, equivalent to nine times the country's gross domestic product in 1989. Even if we assume (as rumoured in UNCC corridors) that only a third of this will actually be awarded, it would still add up to around $100bn. To that must be added the interest, for periods from 10-15 years, bringing the total to about $300bn. At the current high price of oil, this would absorb all Iraqi oil exports for 15-20 years. If the country continues to spend one third of its revenue on compensation, it will clear its compensation debt slate by 2050-60 - setting aside debts contracted before 1990. But by then, what will be left of Iraq's schools, hospitals and infrastructure? The security council last month decided that for the next phase of "oil for food" (2000-2001), the percentage of Iraqi exports for compensation will be 25%, not 30%, and UNCC procedures will change to give Iraq a bigger say in the discussions.

Is it legal to make a country pay without making allowance for its resources or setting an upper limit? The 1951 peace treaty between the US and Japan stated: "It is recognised that Japan should pay reparations to the Allied Powers for the damage and suffering caused by it during the war. Nevertheless, it is also recognised that the resources of Japan are not presently sufficient if it is to maintain a viable economy, to make complete reparation for all such damage and suffering and at the same time meet its other obligations." Remember that the then head of state of Japan was emperor Hirohito, a war criminal who could - much as Saddam Hussein - have been judged by the International Criminal Tribunal, had it existed.

In this case, the original UN resolution recognised that the "requirements of the people of Iraq [and] Iraq's payment capacity" should be taken into account in the calculation of compensation. But does the UN abide by its own decisions? For many years the International Law Commission, set up by the UN, has been studying the rights and duties of states. It is preparing a convention which has already won a broad consensus, and one article of the convention will stipulate that in no case may reparations deprive a people of its means of subsistence. Some legal specialists have gone further, questioning the right of the security council to decide the amount of compensation due in a dispute between two parties. On several occasions - for example, the Israeli attack on Beirut airport in 1968 - the security council decided that compensation was due to the victims, but never set the amount. That is outside its prerogatives: in one such case, the UK representative on the security council pointed out that it is not a "court of law, nor is it the appropriate forum to determine questions of restitution and compensation for damages".

When asked about this, Raboin, with other members of the secretariat, explained "we thought that the UN had drawn a line" after the invasion of Kuwait, establishing the rule of law in international affairs. The validity of this precedent, and the corresponding new world order, became apparent soon after in Bosnia, South Lebanon and Palestine. Will Israel be required to compensate Lebanon for occupying the southern part of the country for 25 years? According to a European diplomat, the UNCC's partial dealings must be seen in the international context of 1991. "Now an institution of this type would never be set up. The US would never get its way. Everyone would be against it."

Copyright Alain Gresh
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Le Monde diplomatique
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How the UNCC Works

The United Nations Compensation Commission (UNCC) (1) is a subsidiary body of the UN Security Council. It originated on 3 April 1991 with Resolution 687, paragraph 16 of which reaffirmed that, "Iraq, without prejudice to the debts and obligations of Iraq arising prior to 2 August 1990, which will be addressed through the normal mechanisms, is liable under international law for any direct loss, damage, including environmental damage and the depletion of natural resources, or injury to foreign Governments, nationals and corporations, as a result of Iraq's unlawful invasion and occupation of Kuwait." In paragraph 18 of the resolution, the Security Council also decided "to create a fund to pay compensation for claims that fall within paragraph 16 above and to establish a Commission that will administer the fund."

On 20 May 1991 the Security Council approved Resolution 692 which set up the UNCC in Geneva. It also decided that 30% of Iraqi exports of oil and petroleum products should be allocated to paying compensation and UNCC operating expenses (from December 2000 this percentage will be lowered to 25%). Only in December 1996, when the "oil for food" programme started, did the UNCC begin to receive large sums, amounting to a total of $11bn by the end of July. At the end of September the UNCC had paid out $8bn.

UNCC organisation

The governing council determines UNCC policy, within the guidelines set by Security Council resolutions. On the basis of proposals by the commissioners it decides how much to pay out in compensation. There is no appeal against its decisions. The governing council consists of representatives from the 15 Security Council member countries. Non-permanent members are appointed for two years. The right of veto is expressly excluded and a majority of at least nine is required for decisions to be taken. The governing council meets four times a year. Its budget for 1998-99 amounted to $82.3m and should reach $100m for 2000-2001. The governing council, which met for the first time between 23 July and 2 August 1991, should have finished work by July 2003 and has set aside funds to tide it over till then.

There are 54 commissioners - specialists in international law, experts in finance or insurance, accountants, and so on - representing 40 different nationalities, selected for a limited period by the secretariat, from a list provided by the UN secretary general. Applicants are confirmed by the secretary general and the governing council finalises their appointment. There are 18 panels, each comprising three commissioners (some have already completed their mission), responsible for examining a specific category of claim (A, B, C, D, E or F, which in turn are sub-divided) and proposing compensation. Claims under categories B, D, E and F are examined individually, whereas simplified procedures and statistic models have been used to process category A and C claims. The commissioners, whose presence in Geneva is distinctly irregular, are assisted by "experts" provided by the secretariat and responsible for most of the actual work. The various panels submit their compensation proposals to the governing council which has, so far, always followed their recommendations.

The executive secretary is appointed by the secretary general, after consulting the governing council. He or she directs the secretariat, which consists of 240 people from 60 different countries. It takes care of the day-to-day running of the UNCC, prepares claims for the commissioners, and so on. The secretariat is the seat of real power. From the outset it was taken in hand by representatives of the United States, who "guided" its work. English is the working language, which forces Iraq to translate all its documents, and accentuates Anglo-Saxon influence at the UNCC.

Compensation claims

The UNCC has fielded 2.6m claims worth more than $320bn (2). It has established four categories of claim for private individuals (A, B, C and D), one for companies (E) and one for governments (F). National governments centralise claims belonging to the various categories. The governing council has decided that in addition to compensation interest must be paid for the period between the loss of goods and the refund, "at a rate sufficient to compensate the claimants for the loss of use of the principal during this period." Interest will only be paid once the principal has been refunded. It has not yet been decided whether categories D, E and F will qualify for compensation for legal fees preparing their cases. About 100 governments have filed claims.

Categories of claim

Category A: people who were forced to leave Iraq or Kuwait (920,000 applications).
Category B: people who suffered severe injury or whose spouse, child or parent died (6,000 applications).
Category C: individual claims for compensation of less than $100,000 (1,660,000 applications).
Category D: individual claims for compensation in excess of $100,000 (10,700 applications).
Category E: claims by companies (5,840 applications).
Category F: claims by governments and international organisations (431, of which 134 belong in both categories E and F).

Out of 2.6m claims, 2.5m have been processed and 1.5m have received compensation totalling $13bn. Payment of category A and C claims was completed in September. It should be remembered that the largest number of claims (categories A and C) only add up to $12.5bn out of an overall total of more than $320bn.

(1) Internet address:
(2) Except for displaced persons it is now too late to file a claim.

More Information on Sanctions in Iraq
More Information on the Oil for Food Program


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