Science Fair Project Encyclopedia
The Oil-for-Food Programme was established by the United Nations in 1996 to allow Iraq to sell oil on the world market in exchange for food, medicine and the like. The ostensible intent of the program was to help the Iraqi government provide for the needs of ordinary Iraqi citizens affected by international economic sanctions imposed on the government in the wake of the first Gulf War, without letting the country rebuild its military.
Many advocates supported the program on humanitarian grounds, hoping that it would indeed help ordinary Iraqis. Others criticized the program, particularly after the fall of Saddam Hussein's regime, citing the Iraqi government diversion of oil profits to prop itself up in a corruption scandal implicating officials of several governments as well as top officials in the U.N.
The program design
The program used an escrow system, whereby oil exported from Iraq was paid for by the recipient into an escrow account, instead of having the money go directly to the Iraqi government. Of this money, part went to reparations for Kuwait, and part went to help pay for ongoing coalition and United Nation operations with Iraq. The remaining money remained in the account. The Iraqi government was then permitted to request items that were not forbidden to it to be purchased from the account. Certain items, such as raw foodstuffs, were expedited, and shipped right away. Most items, including simple things like pencils and folic acid, were investigated in a process that typically took about six months before shipment was allowed. Items deemed to have any potential application in chemical, biological, and nuclear weapons, as well as long-range delivery systems, were refused, regardless of what their intended purpose was.
The programme was instituted to relieve the extended suffering of civilians as the result of the extended comprehensive sanctions on Iraq from the UN, following Iraq's invasion of Kuwait in August 1990. After an initial refusal, Iraq signed a Memorandum of Understanding (MOU) in May 1996 for arrangements for the implementation of that resolution to be taken. The Oil-for-Food program started in October 1997, and the first shipments of food arrived in March 1998.
Some 60 percent of Iraq's 26 million people were solely dependent on rations from the oil-for-food plan. Supplies worth about US$ 27 billion for humanitarian supplies and equipment have been delivered to Iraq.
Over US$65 billion worth of Iraqi oil were sold on the world market. About US$46 billion of these were used to provide for the humanitarian needs of Iraqi people such as food and medicine in the context of international economic sanctions. A considerable amount was spent for Gulf War reparations through a Compensation Fund (25 per cent since December 2000); UN administrative and operational costs for the program (2.2 per cent) and costs for the weapons inspection program (0.8 per cent).
End of the program
On March 28 2003, Secretary-General Annan, the United States, and Britain asked the Security Council to ensure that nearly US$10 billion in goods Iraq ordered and already approved, including US$2.4 billion for food, can enter the country when conditions allow. Another US$2.1 million could be voted for Iraqi civilians to cover other emergency needs. U.N. officials estimate they may have to help 350 000 refugees for everything from tents to food. The resolution under discussion made clear that the chief responsibility for addressing humanitarian consequences of the war would fall to the United States and Britain if they took control of the country. This refers to the 1949 Fourth Geneva Convention on the responsibilities of the occupying power.
Support and criticism
The program was conceived as a way of mitigating the impact on ordinary Iraqis of the sanctions against Iraq. The most fundamental criticism of the programme was that this was a stop-gap solution which was bound to strengthen Saddam Hussein's position, ensuring that his dictatorship would survive longer than it otherwise would. If the sanctions were too harmful for Iraqis to sustain, critics argued, the sanctions should be removed (excepting clearly military items).
Critics claimed that the oil for food program was responsible, under the blockage of dual-use equipment, for preventing Iraq from repairing the water purification and medical systems destroyed by the initial sanctions, and in the 1991 Gulf War. Others have likewise challenged the program on the opposite side of the spectrum, claiming that it was too harsh and did not permit Iraq to import the food and medicine necessary to prevent millions of easily preventable deaths. Supporters viewed the program as a way to keep Saddam Hussein in check without resorting to war.
Former program heads such as Hans von Sponeck questioned whether the sanctions should exist at all. Von Sponeck, speaking in Berkeley in late 2001, decried the proposed "Smart Sanctions", stating "What is proposed at this point in fact amounts to a tightening of the rope around the neck of the average Iraqi citizen"; claimed that the sanctions were causing the death of 150 Iraqi children per day; and accused the US and Britain of arrogance toward Iraq, such as refusing to let it pay its UN and OPEC dues and blocking Iraqi attempts at negotiation.
Abuse of the Program
In addition to criticism of the basic approach, the program suffered from continuing criticisms of widespread corruption and abuse.
Throughout its existence, the program has been dogged by accusations from US conservative circles that some of its profits have been unlawfully diverted to the government of Iraq. Starting in April of 2004 , accusations were made that skimmed profits were being used to buy influence at the UN or even with Kofi Annan himself.
According to the report released on February 3, 2005, from former Federal Reserve chairman Paul Volckers commission (see investigation below) much of the food aid supplied under the program "was unfit for human consumption". Peter van Walsum , the now retired Netherlands ambassador to the United Nations and chairman of the Iraq sanctions committee 1999-2000, speculated in a recent book that Iraq deliberately divided the security council by awarding contracts to France, Russia, and China but not to the United Kingdom and the United States. He also stated he encountered a number of cases in which he felt the lack of Iraqi cooperation was designed to exacerbate the suffering of its own people. He also claimed that it was his opinion that the sanctions were not an effective deterrent.
Benon Sevan of Cyprus, who headed the program, strongly defended the program, citing that it had only a 2.2% administrative cost, that it was subject to more than 100 audits (internal and external), and blamed restrictions from the Security Council for making the situation difficult. He also pointed out that 90% of Iraq's population relied on the program for its monthly food basket.
Al Mada list
One of the earliest allegations of wrongdoing in the program surfaced on January 25, 2004, when al Mada , a daily newspaper in Iraq, published a list of individuals and organizations alleged to have received oil sales contracts via the UN's Oil for Food program. The list came from over 15,000 documents which were reportedly found in the state-owned Iraqi oil corporation which had close links to the Iraqi Oil Ministry . The oil ministry was headed by allies of Ahmed Chalabi, a felon and former member of the governing council who had been widely criticized even by his former supporters for supplying the US with bogus information during the lead up to the war. Chalabi's possible involvement and the initial lack of corroborating evidence placed doubt on the accuracy of the al Mada list.
Named in the list of beneficiaries were the British MP, George Galloway and his charity, the Mariam Fund, former French Interior Minister Charles Pasqua, and Shaker al-Kaffaji , an Iraqi-American businessman, who contributed US$400,000 to produce a film by ex-UN inspector Scott Ritter discrediting the weapons searches. Many prominent Russian firms and individuals were also included in the Al-Mada allegations. Even the Russian Orthodox Church was supposedly involved in illegal oil trading. George Galloway subsequently won two libel actions against the Christian Science Monitor and Daily Telegraph which reported the allegations.
In an interview with the Financial Times Khafaji admitted that he received and sold Iraqi oil contracts to Italtech , an Italian based oil trading company, which resold the oil to Houston-based Bayoil . Khafaji claims Ritter was unaware of this activity.
Arthur Millholland, president of Oilexco Ltd, whose name also appeared on the Al Mada list denied any wrongdoing, but confirms the charges that illegal surcharges were being paid to the Iraqi government by contractors.  However, the al-Mada list does not discuss bribes paid to Iraq - it discusses bribes paid to individuals so that they would support Iraq. Few deny that in Iraq, like in many third world countries, bribes and kickbacks were regularly paid to the leadership in order to get contracts, but some suggest that kickbacks would normally not occur in such countries when a UN-run program was involved.
Operation of the Scheme
The scheme is alleged to have worked like this: individuals and organizations sympathetic to the Iraqi regime, or those just easily bribed were offered oil contracts through the Oil for Food program. These contracts for Iraqi oil could then be sold on the open world market and the seller was allowed to keep a transaction fee, said to be between 0.15 and $0.50 $/barrel (0.94 and 3.14 $/m³) of oil sold. The seller was then to refund the Iraqi government a certain percentage of the commission.
Contracts to sell Iraq humanitarian goods through the Oil For Food program were given to companies and individuals based on their willingness to kickback a certain percentage of the contract profits to the Iraqi regime. Companies that sold commodities via the oil for food program were overcharging by up to 10%, with part of the overcharged amount being diverted into private bank accounts for Saddam Hussein and other regime officials and the other part being kept by the supplier.
The involvement of the UN itself in the scandal began in February after the name of Benon Sevan, executive director of the Oil-for-Food program, appeared on the Iraqi Oil Ministry's documents. Sevan allegedly was given vouchers for at least 11,000,000 barrels (1,700,000 m³) of oil, worth some $3.5 billion. Sevan has denied the charges.
It has also been alleged that USA and British government was fully aware of the scandal, but opted to close their eyes to smuggling because their allies Turkey and Jordan benefited from the majority of the smuggled oil.
Complaints by Kurds
The Kurds had complained since the start of the program that they were not being paid their fair share of the oil revenues. According to the guidelines set up by the Oil for Food program, the revenues were to be divided up in such a way as to protect Iraq's predominantly Kurdish regions. The allegations include claims that the Cairo office of the U.N.'s World Health Organization, run by an individual alleged to have received oil sales contracts, managed to stall the building of a new general hospital for the Kurdish city of Sulaymaniyah, even though the funds for the project had been available since 1998.
While Benon Sevan was in charge of the program, he rejected efforts to review and investigate the program.  He ordered his staff that complaints about illegal payoffs should be formally filed with the whistleblower's country, making them public and allowing Iraq to bar any whistleblowers.
In 2000, Dileep Nair, the UN corruption watchdog, wanted to determine the program's vulnerability. Sevan, along with UN deputy secretary general Louise Frechette rejected any such investigation, claiming that it would be too expensive to be worthwhile.
Charles Duelfer Investigation for Director of US Central Intelligence
The Comprehensive Report of the Special Advisor to the DCI on Iraq’s WMD released on 30 September 2004, described, in a key finding, the impact of the Oil for Food Program on Saddam's regime:
- • The introduction of the Oil-For-Food program (OFF) in late 1996 was a key turning point for the Regime. OFF rescued Baghdad’s economy from a terminal decline created by sanctions. The Regime quickly came to see that OFF could be corrupted to acquire foreign exchange both to further undermine sanctions and to provide the means to enhance dual-use infrastructure and potential WMD-related development.[vol. I, p.1]
After the 2003 Invasion of Iraq, and subsequent Coalition victory over the Iraqi army, the US General Accounting Office (GAO) was given the task of finalizing all Oil for Food related supply contracts with the now defunct regime as well as tracking down the personal fortunes of former regime members.  During this task, the GAO found weaknesses in the program that allowed kickbacks and other sources of wealth for Saddam Hussein.
The GAO estimates that the Saddam Hussein regime generated $10.1 billion in illegal revenues. This figure includes $5.7 billion from oil smuggling, and $4.4 billion in illicit surcharges on oil sales and after-sales charges on suppliers. The scale of the fraud was far more extensive than the GAO had previously estimated. A US Department of Defense study, cited by the GAO, evaluated 759 contracts administered through the Oil for Food program and found that nearly half had been overpriced, by an average of 21 percent . Unlike the 661 committee, members of the security council had the authority to launch investigations into contracts and to stop any contract they did not like. The British and American had turned down hundreds of Oil for Food contract requests, but these were blocked primarily on the grounds that the items being imported were dual use technologies.
To quote the GAO report, in its summary:
- Both the U.N. Secretary General, through the Office of the Iraqi Program (OIP) and the Security Council, through its sanctions committee for Iraq, were responsible for overseeing the Oil for Food Program. However, the Iraqi government negotiated contracts directly with purchasers of Iraqi oil and suppliers of commodities, which may have been one important factor that allowed Iraq to levy illegal surcharges and commissions.
Before U.N. officials had pledged full cooperation with the GAO's investigation, Joseph A. Christoff, director of international affairs and trade at the General Accounting Office, told a House hearing that U.N. auditors had refused to release the internal audits of the Oil For Food program . Benon Sevan, with support from Kofi Annan, had written letters to all former Oil for Food contractors asking them to consult Sevan before releasing any documents to GAO or US congressional inquiry panels . Throughout its history, the program had received complaints from critics saying it needed to be more open, and complaints from companies about proprietary information being disclosed.
The United Nations has denied all requests by the GAO for access to confidential internal audits of the Oil For Food Program.
While attempting to determine the complexity of the Oil for Food program for an article in the New York Times, investigative journalist Claudia Rosett of the Foundation for the Defense of Democracies and the Hudson Institute, discovered that the UN treated details such as the identities of Oil-for-Food contractors, the price, quantity and quality of goods involved in the relief deals, and the identities of the oil buyers and precise quantities they received, as confidential. The bank statements, the interest paid, the transactions, were all secret as well.  Rosett has come under harsh criticism, from Dennis Halliday  and Benon Sevan , who claimed that many of Rosett's claims (such as Oil For Food funding the approval of an Olympic stadium, and where responsibility for various issues lay according to the UN resolutions) were incorrect.
The House International Relations Committee investigated the Oil for Food program and discovered that money from the program was being used by Sabah Yassen , the former Iraqi ambassador to Jordan, to pay the families of Palestinian suicide bombers between $15,000 to $25,000. From September 2000 until the invasion of Iraq, the families of Palestinians killed or wounded in the conflict with Israel (including 117 responsible for suicide bombings in Israel) received over $35 million.
After initial opposition to an investigation, UN Secretary-General Kofi Annan stated on March 19th 2004, that a full investigation would be launched. In an official press interview, Annan said "[...] it is highly possible that there has been quite a lot of wrongdoing, but we need to investigate [...] and see who was responsible." . (audio clip, @5:56) However, Annan was very specific that most of the claims were "outrageous and exaggerated" , and that most of the criticisms were over things that the program had no authority over.
The following individuals were chosen in April of 2004 to head the United Nations' independent panel of inquiry:
- Paul Volcker, former U.S. Federal Reserve System chairman;
- Mark Pieth of Switzerland, an expert on money-laundering in the Organization for Economic Cooperation and Development (OECD); and
- Richard Goldstone of South Africa, former Prosecutor of the International Criminal Tribunal for the former Yugoslavia (ICTY) and the International Criminal Tribunal for Rwanda (ICTR).
On April 22, 2004, the United Nations Security Council passed a unanimous resolution endorsing the Volcker inquiry into corruption in the United Nations Oil for food program for Iraq calling upon all 191 member states to cooperate. (NYT)
A leaked internal U.N. audit, which surfaced on mineweb.com, shows massive discrepancies between Cotecna reports and U.N. agency reports for the value of the shipments into northern Iraq. The audit found that Cotecna did no "value" inspections on nearly US$1 billion worth of aid shipments for the Inter-Agency Humanitarian Programme into northern Iraq. Benon Sevan was briefed in December 2002 on the findings of the audit. 
The audit is available here. Its summary states:
- OIOS' overall conclusion is that the management of the Contract has not been adequate and certain provisions of the Contract had not been adhered to. In addition, the incorporation of additional costs, such as rehabilitation of camps in the man-day-rate was an unacceptable arrangement. Also, the Contract had been amended prior to its commencement, which was inappropriate. OIP needs to strengthen its management of contracts and the Procurement Division (PD) should ensure that the basis of payment is appropriate in order to avoid additional costs to the Organization
After reading the leaked audit congressman Henry Hyde wrote to Kofi Annan wondering why "The U.S. Congress — which provides 22 percent of the U.N.'s budget and which has publicly requested copies of the 55 internal audits — should be required to depend on media leaks for source documents."
Interim Report Results
In a 219-page initial report, the Volcker commission documents how OIF Chairman Benon Sevan used his position to solicit and receive allocations of oil from Iraq during the years he oversaw the humanitarian relief program. Internal records from SOMO (Iraq 's State Oil Marketing Organization) as well as interviews with former Iraqi officials involved in illicit oil deals, show that Sevan had requested and received allocations of 7.3 million barrels of oil on behalf of a Panama-registered trading company called African Middle East Petroleum Co.
Although the report makes no specific allegations of criminal activity by Sevan, Volcker does not rule out the possibility that charges might be filed by authorities in countries with relevant jurisdiction. The report called Mr. Sevan's conduct "ethically improper” noting that Sevan had received large cash payments totaling $160,000 dollars each year he had headed the program. Sevan claims the money came from an aunt in Cyprus who has since died, but the panel found no evidence to back this claim.
Volcker also reported in January that a review of 58 confidential UN internal OIF audits showed UN officials ignored early signs that humanitarian goods shipped to Iraq before the 2003 Invasion war were given little if any inspections by the Swiss company Cotecna. Cotecna paid Kojo Annan, Kofi Annan's son, consulting fees until November 2003. Volcker said future reports would deal with questions regarding Kojo Annan. 
Investigations by Iraqi Governing Council
International accounting firm KPMG had been selected by the Iraqi Governing Council to investigate the al-Mada claims, along with Freshfield Bruckhaus Deringer . They were due to release its findings to the Iraqi Governing Council in May of 2004. However, in June of 2004 KPMG stopped working on the project because they were owed money by the IGC .
The US has been harshly critical of the KPMG probe led by associates of Ahmed Chalabi, accusing it of undermining the main probe established by Paul Bremer. That probe had been run by the head of the Iraq's independent Board of Supreme Audit, Ehsan Karim, with assistance from Ernst & Young. The Board of Supreme Audit is within the Irai Finance Ministry. In June of 2004, Karim's investigation agreed to share information with the Volcker panel. However, on July 1, 2004, Karim was killed by a bomb magnetically attached to his car .
Claude Hankes-Drielsma, a British national and longtime friend of Ahmed Chalabi, was appointed by the IGC to coordinate its investigation of the Oil for Food program. Drielsma testified in front of the US Congress (on April 21, 2004) that the KPMG investigation "is expected to demonstrate the clear link between those countries which were quite ready to support Saddam Hussein's regime for their own financial benefit, at the expense of the Iraqi people, and those that opposed the strict application of sanctions and the overthrow of Saddam." He also testified that Chalabi is in charge of the investigation for the IGC.
In late May of 2004, on the same day that Chalabi's offices at the Iraqi National Congress were raided by coalition forces, Drielsma claimed that an individual or individuals hacked into his computer and deleted every file associated with his investigation. He also claimed that "a back-up databank" was also deleted . When asked by Caludia Rosette if he had been physically threatened as well, Drielsma, replied with "no comment." Drielsma has also been an outspoken critic of the UN's refusal to release any internal Oil for Food audit information to the IGC.
- UN Office of the Iraq Programme Oil-for-Food
- UN news center: Allegations on oil-for-food will be probed ‘very seriously,’ Annan says
- Row deepens over UN oil scandal
- The U.N. Oil for Food scandal - Washington Times
- Claudia Rosett: What Did Kofi Annan Know, and When Did He Know It? - note: takes negative stance
- The Al Mada List
- Galloway accepts libel damages
- First 'Freedom Fries,' Now Oil-for-Food Lies; Op ed of French ambassador to the US in the LA Times
- Hankes-Drielsma connections to Chalabi
- "US ignored warning on Iraqi oil smuggling", Financial Times, 13 January 2005
- Oil for Food Facts
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