Oil-for-Food Panel Rebukes Annan, Cites Corruption

The oil-for-food program was established in December 1996, to provide relief to Iraqis enduring hardship from a U.N. trade embargo that was imposed after Iraq's 1990 invasion of Kuwait. The program allowed Iraq to sell oil under U.N. auspices and to use the proceeds to buy food and medicine and also pay billions of dollars in war reparations.

Annan appointed Volcker in April 2004 to investigate reports of abuses by U.N. officials and by foreign businessmen and officials. Several congressional committees have also conducted investigations.

The probes have led Volcker to accuse the former head of the U.N. program, Benon V. Sevan, of receiving about $150,000 in bribes from an Egyptian businessman who bought millions of barrels of Iraqi oil. Volcker alleged that the former Iraqi government provided Sevan with the rights to buy discounted Iraqi crude in the hope he would back its efforts to obtain relief from U.N. sanctions. Sevan then passed on those purchase rights to his Egyptian associate, according to Volcker's panel. Sevan, who is now in his home country of Cyprus, has denied receiving any payments.

The U.S. attorney for the Southern District of New York is conducting his own criminal probe of the U.N. program. One former U.N. procurement officer, Alexander Yakovlev, a Russian national, pleaded guilty last month to money laundering and wire fraud. Volcker had accused him of soliciting a bribe from a Swiss company trying to do business with the United Nations in Iraq and of receiving nearly $1 million in bribes from contractors in other U.N. programs.

Volcker's report, which runs more than 840 pages, concludes that the oil program "undoubtedly" saved lives but says Hussein's regime "found ways and means of turning it to his own advantage, primarily through demands for surcharges and kickbacks from companies doing business with the program." He said that Iraq earned $1.8 billion in illicit proceeds from corruption in the U.N. program and nearly $11 billion from smuggling profits outside the program.

Volcker sharply criticized Annan and his top advisers, principally Deputy U.N. Secretary General Louise Frechette. He said they did not exercise adequate oversight over Sevan, and made "minimal efforts" to address sanctions violations with Iraqi officials or to ensure that "critical evidence" of wrongdoing was brought to the Security Council's attention.

It also charged that the former Iraq regime tried to bribe former U.N. secretary general Boutros Boutros-Ghali. The report states that Baghdad sought to channel the money through Iraqi American businessman Samir Vincent, who recently pleaded guilty to federal charges of acting as an unregistered agent of Iraq, and a Korean lobbyist, Tongsun Park, who faces similar charges.

The Iraqi leadership hoped the money would make Boutros-Ghali "more flexible," setting favorable terms for Iraq in the establishment of the oil-for-food program, the report said. The panel found no evidence that Boutros-Ghali knew about such plans or received any such payments. Boutros-Ghali, who is in Cairo, declined an interview request Wednesday.

The report also criticized Russia and China for refusing to turn over documents to U.N. investigators or to require officials or businessmen to be interviewed.

It also accused U.S. officials of approving "the single largest episode of oil smuggling" out of Iraq, by Jordan, in the weeks before the U.S.-led invasion of Iraq in March 2003. The United States and Jordan declined Volcker's requests for interviews and documents, the report said, saying his panel had no authority to investigate oil smuggling outside the oil-for-food program.