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Oil-for-Food Panel Rebukes Annan, Cites Corruption
Secretary General Faulted For Management of Program

By Colum Lynch
Washington Post Staff Writer
Thursday, September 8, 2005

UNITED NATIONS, Sept. 7 -- A U.N.-appointed panel investigating corruption in prewar Iraq's oil-for-food program delivered a scathing rebuke of Secretary General Kofi Annan's management of the largest U.N. humanitarian aid operation and concluded that Kojo Annan took advantage of his father's position to profit from the system.

Former U.S. Federal Reserve chairman Paul A. Volcker, the head of the Independent Inquiry Committee, said blame for the program's failure was shared by the Security Council, other members of the United Nations and Annan's senior advisers. In a dramatic appearance before the Security Council, Volcker warned Annan and the 15-nation council to change the way they do business or face a worldwide loss of public support.

"Our assignment has been to look for mis- or mal-administration in the oil-for-food program, and for evidence of corruption within the U.N. organization and by contractors. Unhappily, we found both," Volcker told the council.

Senior U.N. officials said they hope that Volcker's fourth and most complete report will bring an end to a painful 18-month probe of the $64 billion program, which investigators concluded was so poorly managed that Iraqi leader Saddam Hussein raked in $1.7 billion in kickbacks from participating companies and $11 billion in oil-smuggling profits. Among the most volatile allegations probed by Volcker were suspicions that Kofi Annan had steered lucrative Iraqi oil contracts to a Swiss company, Cotecna, that had put his son on its payroll.

Wednesday's report said the panel found no evidence that Kofi Annan had interceded on behalf of Cotecna and no conclusive proof that he knew of his son's activities. But it provided fresh details suggesting that Kojo Annan, 31, may have obtained privileged information about U.N. business deals from his father's personal assistant and from contacts in the U.N. procurement office. It also asserted that Kojo Annan abused his father's diplomatic status to secure more than $20,000 in breaks on taxes and customs fees for a Mercedes-Benz he bought in Geneva in 1998.

"We have found no corruption by the secretary general," said Volcker, but "his behavior has not been exonerated by any stretch of the imagination."

Annan told reporters after the report's release that he accepted its "criticism," but he dismissed calls for his resignation by U.N. critics, saying: "I don't anticipate anyone to resign. We are carrying on with our work."

He also underscored Volcker's conclusion that blame should be shared by the broader U.N. membership. In a statement released by his lawyer, Kojo Annan denied that he played any role in promoting Cotecna's case for oil-for-food business and said he had never discussed the company's plans with his contacts in the U.N. procurement office. "As to using my father's name to get a discount on a car, I was young and I just didn't think it through," he said.

U.S. Ambassador John R. Bolton seized on the report's findings to advance his case for greater independent oversight of U.N. spending, citing the need "to reform the U.N. in a manner that will prevent another oil-for-food scandal. The credibility of the U.N. depends on it."

Bolton accused dozens of developing countries "who are in a state of denial" of resisting attempts to agree on such changes before world leaders arrive in New York next week for a summit on poverty and U.N. reform.

Congressional leaders said the report raises questions about Annan's capacity to lead the organization.

"The flagship of international diplomacy ran aground while Kofi Annan was at the helm," said Rep. Christopher Shays (R-Conn.), who is heading an investigation into U.N. corruption. "The critical question now is whether the secretary general can provide the management direction needed to restore U.N. credibility and effectiveness."

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.

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