Global Policy Forum

Volcker: UN Scandal Exposes Corruption


Chief UN Investigator Says Iraq Oil-for-Food Scandal Exposes Extent of Corruption in the World

By Edith M. Lederer and Nick Wadhams

Associated Press
October 29, 2005

Fraud in the U.N. oil-for-food scheme for Iraq reached from French politicians to a former Vatican aide and name-brand companies, sending a sobering message about the state of global business, the chief investigator said after publishing his conclusions on what went awry. "There's a lot of corruption in the world," Paul Volcker told The Associated Press on Thursday, when he released his scathing final report on the 18-month investigation.

The former Federal Reserve chairman's team found that more than 2,200 companies and individuals, or about half of all those involved in the humanitarian program, paid kickbacks and illegal surcharges to win lucrative contracts while Iraqi dictator Saddam Hussein pocketed $1.8 billion at the expense of his people who were suffering under U.N. sanctions. But the report stressed that Saddam was able to keep filling his coffers primarily because of shoddy U.N. management and failures by the world's most powerful nations, which allowed the racket to go on for years. "What I do want to emphasize is that the corruption of the program by Saddam ... could not have been nearly so pervasive had there been more disciplined management by the U.N. and its agencies," said Volcker.

The report is almost certain to be followed by action on two fronts: national investigations and possible prosecutions of those named in the report and fresh efforts to reform the United Nations. Interim reports in Volcker's investigation have already led to criminal inquiries and indictments in the United States, Switzerland and France, and Volcker said his team would cooperate with legal actions in following up on his findings. Switzerland said Thursday it has launched a criminal investigation focusing on four people connected to the oil-for-food program. They were not identified. And Texas oilman, the former chairman of Coastal Corp. who was described in the report as a favorite Oscar S. Wyatt Jr customer of Iraq, pleaded not guilty Thursday in New York to charges that he conspired to pay several million dollars in illegal kickbacks to Saddam's regime to win oil-for-food contracts. Volcker said Wyatt, 81, was the lone exception to an Iraqi ban on selling oil to American companies.

The program achieved "an important measure of success" in providing food, medicine and other humanitarian items to Iraqis, and in keeping weapons of mass destruction out of Saddam's hands, Volcker said. "But that success came with a high cost and in my judgment, a really intolerable cost by grievously wounding the confidence and the competence and even the integrity of the United Nations." The United States said the investigation again showed the need for urgent reform of the United Nations. "I do think it does highlight that there are certain management practices within the U.N. that need reform," State Department spokesman Sean McCormack said.

The 623-page report documented in minute detail Saddam's manipulation of the $64 billion oil-for-food operation. The program, which ran from 1996-2003, allowed Iraq to sell limited and then unlimited quantities of oil provided most of the money went to buy humanitarian goods such as food and medicine. It was meant to alleviate the suffering of ordinary Iraqis caused by U.N. sanctions imposed after Saddam's 1990 invasion of Kuwait.

But Saddam, who could choose the buyers of Iraqi oil and the sellers of humanitarian goods, corrupted the program by awarding contracts to and getting kickbacks from favored buyers. The report named some high-profile individuals and companies including a former French interior minister, Charles Pasqua; Rev. Jean-Marie Benjamin, a priest who once worked as an assistant to the Vatican secretary of state and opposed Iraqi sanctions; carmakers DaimlerChrysler AG, Volvo and South Korea's Daewoo International; and industrial giants Siemens AG. Pasqua, a conservative who headed the interior ministry in the late 1980s and early 1990s, said he was unwittingly implicated. Jean-Bernard Merimee, France's former U.N. ambassador, received $165,725 in commissions from oil allocations awarded to him by the Iraqi regime. He is now under investigation in France and has denied any wrongdoing. Other "political beneficiaries" included British lawmaker George Galloway; Roberto Formigoni, the president of the Lombardi region in Italy; Vladimir Zhirinovsky, who heads Russia's Liberal Democratic Party; and Alexander Voloshin, who at the time was chief of staff in the administration of Russia's president. They have all denied wrongdoing. It also alleged oil companies including Texas-based Bayoil and Coastal Corp., Russian oil giant Gazprom, and Lukoil Asia Pacific, a subsidiary of Russia's Lukoil were caught up in the scandal.

The investigators found that companies and individuals from 66 countries paid illegal kickbacks using a variety of methods, and those paying illegal oil surcharges came from, or were registered in, 40 countries. Most of the contracts went to Russian and French companies and individuals, who were rewarded for their governments' outspoken opposition to the sanctions. Still, even firms in countries supportive of the sanctions, such as the United States, found ways to manipulate the system illegally sometimes by using Russian firms as middlemen.

Russia's Foreign Minister Sergey Lavrov on Friday voiced skepticism about the report, saying some of the documents relating to the alleged collusion between Saddam's regime and Russian officials were forged. But many little-known businesses in the developing world made large payments to get contracts. "Big companies tended to be involved in a small way" while small companies "are heavily involved," Volcker told AP.

The report gave several examples of just how companies and Saddam colluded to manipulate the program. It alleged German car manufacturer DaimlerChrysler's won oil-for-food contracts worth about $5.2 million to sell Iraq spare parts and vehicles. The contracts were paid out of a U.N. bank account funded by Iraqi oil sales, also administered by the U.N. One of those contracts was to sell Iraq's oil ministry a Mercedes armored van worth about $70,000. As a sweetener, a DaimlerChrysler agent signed a secret deal to give Iraq a $7,000 kickback 10 percent of the van's value. When the final contract for the van was submitted for U.N. approval, the price of the truck was inflated to include that amount. That meant that the U.N. fund ended up paying DaimlerChrysler for the kickback. DaimlerChrysler said it was aware of the report but declined to comment because of ongoing investigations by the Securities and Exchange Commission and the Justice Department.



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