Global Policy Forum

Nearly Half of the 4,500 Companies that Participated Paid Hussein Bribes, Report Says

By Peter Grier

In scale, the skimming operation probably ranks as one of the greatest financial crimes of all time. Iraqi insiders knew it as the "Saddam Bribery System" - kickbacks and surcharges on the United Nations' oil-for-food program that netted Saddam Hussein $1.8 billion in the final years of his regime.

Now, as Mr. Hussein's trial gets under way in Iraq, continuing revelations about alleged corruption in the oil-for-food humanitarian effort have fueled widespread financial scandal. The controversy involves both the culpability of those accused of paying the bribes, and the zeal - or lack thereof - of UN oversight of the oil-for-food program.

Critics such as Paul Volcker, who released his final report on the whole mess Thursdayw, think it shows that concrete reform is necessary to salvage the UN's credibility. Others say that it's important to remember the context in which the oil-for-food program was cobbled together - and that its vulnerabilities were apparent from the start. "It was well known by everyone, including the US government, that the system as constructed invited kickbacks," says James Dobbins, director of the International Security and Defense Policy Center at the RAND Corp.

On Thursday, the Volcker probe revealed that almost half of the 4,500 companies that participated in the program paid Hussein under-the-table cash, according to the report. The money involved amounted to a $1.8 billion tax on the $64 billion program, which ran from 1996 to 2003.

The accused represent virtually every nation that took part. Companies and individuals from 66 countries sent illegal kickbacks to Hussein's government, according to the Volcker inquiry. Those who simply paid an illegally high price for their oil to begin with came from 40 countries.

Among the firms named by the report are Volvo Construction Equipment, which allegedly paid $317,000 in extra fees to the Iraqi government on a $6.4 million contract. DaimlerChrysler tacked an extra $7,000 onto a $70,000 contract, according to the Volcker inquiry.

Mr. Volcker, a forceful presence in Washington during his tenure as head of the US Federal Reserve, strongly criticized the UN and the Security Council for laxity in watching over the oil-for-food bureaucracy. Volcker's report urges the establishment of a UN chief operating officer nominated by the UN Security Council, among other reforms. "Whether there's a meaningful reaction remains to be seen," Volcker said this week.

The oil-for-food program was one of the largest humanitarian efforts of all time, in terms of its scope and finances. Launched as a means of softening the blow of UN sanctions on ordinary Iraqis, it allowed Iraq to sell quantities of oil, provided most of the money was used to buy goods for Iraq's hard-pressed citizens.

Whatever the program's faults, its successes should also be remembered, says Dirk Salomons, director of the program for humanitarian affairs at Columbia University. "The UN kept large chunks of the Iraqi population alive for over a decade," he says.

Given the way oil-for-food developed, problems were inevitable, according to Professor Salomons. Hussein was allowed to pick his own suppliers, for instance. "If the selection of providers had been done by UN procurement, this wouldn't have happened," he says. Furthermore, it was not UN money that was stolen, or US money for that matter. In essence, Hussein stole his own money - or, perhaps more accurately, stole money from his own people.

Given the nature of the Hussein regime, probably nothing could have stopped all illegality in the system, says Mr. Dobbins of RAND. That said, bribes are bribes, and the Volcker inquiry has represented just one strand of an interlocking web of efforts to bring any wrongdoers to account.

In June, for instance, Joseph Stephanides, a mid-level UN official, was fired by Secretary-General Kofi Annan for allegedly colluding to steer an oil-for-food contract to a London-based shipping inspection company, Lloyd's Register. Benon Sevon, former chief of the oil-for-food program, resigned under pressure in August, following allegations that even the head of the effort had taken kickbacks.

Last Friday, Midway Trading, a Virginia-based oil trading company, pleaded guilty in New York State Supreme Court to paying kickbacks to participate in oil-for-food. An investigation by Manhattan US Attorney Michael Garcia has produced five other guilty pleas or criminal charges. In France, Serge Boidevaix, a former secretary-general for the Foreign Ministry, is under investigation for suspect corruption in connection with the oil-for-food effort. Jean-Bernard Merrimee, France's former UN ambassador, also allegedly received more than $150,000 in commission from oil allocations awarded him by Hussein, according to the Volcker report. He is also under investigation by French authorities.