REVIEW & OUTLOOK
Oil for Food as Usual
The U.N.'s worst critics couldn't invent what the Volcker report shows.
"The scandal, quote, unquote, is, in my view, nonsense." Thus did Denis Halliday, a former United Nations Assistant Secretary General, opine in November 2004 on the U.N.'s Oil for Food program. With the release Wednesday of Paul Volcker's fourth report on Oil for Food, we have the clearest account yet of what this quote-unquote scandal is really about.
Let's begin with what this scandal is not about, at least not fundamentally. It is not about the dubious business practices of the Swiss Inspections company Cotecna, which was improperly awarded a multimillion-dollar Oil for Food contract while employing Secretary-General Kofi Annan's son Kojo, although this taught us something about the nepotism that typifies U.N. dealings. Nor is it about Kofi Annan's personal probity, which had been called into question by evidence that he was aware of, and tried to influence, the Cotecna bid. Mr. Volcker has found no conclusive proof on this score.
In other words, Oil for Food is not about some isolated incidents of perceived or actual wrongdoing during the course of a seven-year effort to maintain sanctions on Iraq, monitor its oil flows and feed its people. Oil for Food is a story about what the U.N. is. And our conclusion from reading the 847-page report is that the U.N. is Oil for Food.
To better understand the scandal, it helps to distinguish its political and managerial components. Responsibility for administering the program fell primarily to the U.N. Secretariat, which established the Office of Iraq Program (OIP) under the direction of Benon Sevan.
But the program itself was designed by members of the U.N. Security Council following protracted negotiations with the government of Saddam Hussein. It was the Security Council, for example, that approved Saddam's right to choose the companies, contractors and middlemen with whom Iraq would do business, and through which the entire program was corrupted. The Security Council also ran its own supervisory "661 Committee," named after the 1990 Security Council resolution that imposed sanctions on Iraq following its invasion of Kuwait.
The result of this bifurcated structure was that real responsibility for overseeing Oil for Food fell between two stools--and into the lap of Mr. Sevan and his staff. Mr. Volcker's previous reports tell us that Mr. Sevan was in the pay of the Iraqi government.
The current report adds to our knowledge of what the Iraqis got for their money. For example, Mr. Sevan and his staff failed to inform the Secretariat and the 661 Committee of the extent of Iraq's various kickback schemes--involving as many as 2,500 companies--and dismissed media reports about them as "groundless allegations, provocative suggestions and factual mistakes." Mr. Sevan also fought tooth-and-nail the Bush Administration's successful attempt to impose retroactive pricing standards on the sale of Iraqi oil, which helped curb some of Saddam's abuses.
However, part of the reason Mr. Sevan was able to get away with his malfeasance was that neither the Secretariat nor the 661 Committee showed any appetite to exercise their fiduciary obligations. Mr. Annan testified to the Committee that Mr. Sevan worked directly for the 661 Committee. Yet as the report acidly notes, "the difficulty with the Secretary-General's view is that he appointed Mr. Sevan and he created OIP in the first place." Maybe former Enron CEO Kenneth Lay should call Mr. Annan to testify as an expert witness at his trial.
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Why Mr. Annan chose to see no evil on Iraqi sanctions violations, much less use his bully pulpit to denounce it (as he later denounced the Iraq war as "illegal"), is an interesting question. Our sense is that the U.N. Secretariat as a whole took the view that the sanctions regime was immoral and that Saddam was within his rights to break free of it.
Whatever the case, the Secretariat had a more than willing partner in the 661 Committee, and for reasons that are more easily comprehended. Iraq regularly steered contracts to Security Council members it believed were friendly to its political interests. Russian companies, for instance, did $19 billion in oil deals with Iraq, and French companies sold Saddam $3 billion in humanitarian assistance (much of which, the report notes, was diverted for Iraqi military purposes).
It's no coincidence, comrade, that France and Russia, as well as China (which did its own thriving business with Saddam) consistently downplayed the kickback allegations and pushed to have the sanctions regime eased. Only the U.S. and Britain made any effort to monitor Oil for Food for fraud, although even these efforts were lackluster until the Bush Administration came to office. We should also note the U.S. was itself guilty of looking the other way when it came to Iraq's oil smuggling through allies Jordan and Turkey.
So it was that the largest fraud ever recorded in history came about. Press reports often cite the overall size of Oil for Food at $60 billion, but Mr. Volcker's report makes clear that the real figure was in excess of $100 billion. From this, Saddam was able to derive $10.2 billion from illicit transactions. But the important point is that he was able to steer 10 times that sum toward his preferred clients in the service of his political aims.
None of this happened by accident. Mr. Volcker's report is replete with examples of incompetent U.N. oversight and tales of political wrangling among the permanent members of the Security Council. But the abiding fact is that it was the Western powers, not Saddam, who wanted Oil for Food at virtually any cost, because it offered the appearance of a meaningful policy in the absence of a real one, namely regime change. And it was the political convenience of this chimera that led the U.S. and the U.K. to tolerate, and the rest of the Security Council to feast on, the opportunities for corruption that were inscribed in the very nature of the program.
As for the U.N., it proved its worth to Saddam as the one hall of mirrors in which such shenanigans could take place. Yet even now we are told that "at least" Oil for Food fed the Iraqi people when they were on the edge of starvation, and this is accounted a U.N. success. That is false. Oil for Food offered a lifeline of cash and influence to a regime that was starving its people. The program did not corrupt the U.N. so much as exploit its essential nature. Now Mr. Annan wants to use this report as an endorsement of his "reform" proposals. Only at the U.N. could he dare to think he could get away with this.
