More than 2,400 businesses, including scores of international shell companies and major blue-chip European firms such as Siemens and DaimlerChrysler, paid nearly $1.8 billion in illegal kickbacks to the former Iraqi government through the U.N. oil-for-food program, according to a report by a U.N. committee investigating misconduct.
The 623-page report, which was presented Thursday by former Federal Reserve chairman Paul A. Volcker, the head of the Independent Inquiry Committee, is the most detailed account of how Iraq persuaded almost half of its 4,500 trading partners in more than 60 countries to circumvent U.N. sanctions by secretly channeling kickbacks into Baghdad-controlled Jordanian banks.
The report also shows how French and Russian diplomats, business executives, U.N. officials and anti-sanctions advocates, including a former Vatican official, either solicited oil trade from Iraqi officials on behalf of companies or benefited financially from the program.
After the report was released, Volcker and his top advisers pleaded with the 191-member U.N. General Assembly to change U.N. business practices to prevent future abuses. But he received a chilly response from Costa Rican and Mexican officials, who complained about not being formally given copies of the report. They also questioned why Volcker was raising the matter with the assembly when the Security Council bears primary responsibility for mismanaging the program.
Volcker said design and management failures that permitted the abuses in the oil-for-food program permeate the United Nations. He noted that the failure to institute administrative changes to confront the flaws will lead the world body to repeat its mistakes, further undermining its credibility.
The release of Volcker's fifth and final report marked the end of a $35 million, 18-month investigation into abuses in the United Nations's largest humanitarian program. U.N. investigators expect criminal prosecutors in the United States and other countries to follow up on the report's findings and investigate the firms and individuals named in the report.
Federal and state prosecutors in New York have already charged more than a dozen companies and executives with paying bribes to the former Iraqi government. The Securities and Exchange Commission is conducting its own inquiry into Iraqi businesses.
Texas oil tycoon Oscar S. Wyatt Jr., the former chairman of Coastal Corp., pleaded not guilty Thursday in New York to charges that he paid bribes. The report says Wyatt-controlled firms paid more than $7 million in illegal surcharges. Wyatt has denied wrongdoing through his attorney.
Iraq used its oil wealth to influence some countries' policies at the United Nations, rewarding Russia $19 billion in oil contracts and France $4.4 billion in deals, according to the report. The report notes that numerous U.S. companies, prevented from directly entering the trade, established subsidiaries in France to do business in Iraq.
The report provides additional evidence in support of allegations that two former top French diplomats, a former senior Kremlin official and British parliamentarian George Galloway profited from the program. It cites a payment to a bank account controlled by Galloway's wife. Galloway has denied wrongdoing.
The report challenges assumptions that most of the kickbacks involved illegal oil surcharges. It asserts that the vast majority of kickbacks were obtained through the sale of food, medicine and other humanitarian goods to Iraq. To illustrate the scheme, the report cites case studies showing how Iraq disguised its kickbacks through inflated "transportation fees" and "after sales services charges."
Three subsidiaries of Siemens AG -- in France, Turkey and the United Arab Emirates -- paid more than $1.6 million in such fees on the sale of street lights, transformers, circuit breakers and other equipment, the report shows. Siemens of Germany -- one of the world's largest electronics and electrical engineering companies -- said in a letter to Volcker's committee that its findings are "premature [and] unjustified."
The report also cites evidence that a representative of Germany's DaimlerChrysler signed a secret agreement to pay Iraq $7,000 for an armored Mercedes van valued at about $70,000. The price paid into a U.N.-controlled bank account was inflated to cover the cost of the kickback, the report says.
The company told the Volcker committee that its representative could not remember signing the agreement and was confused about the U.N. rules banning such fees. DaimlerChrysler told the Associated Press it could not comment because of investigations by the SEC and the Justice Department.
The report also sharply criticizes BNP-Paribas, a Paris-based bank that managed billions of dollars in funds for the U.N. program, saying it had divided its "loyalties" by representing many of Iraq's major traders. The bank often disguised the role of its clients, including Marc Rich & Co. Investment AG, by using shell companies to trade with Iraq, according to the report. The company, which was founded by Marc Rich, the billionaire oil trader who was pardoned by President Bill Clinton in 2000, allegedly paid kickbacks. The company has denied paying such bribes.
Several customers, including an Italian executive the firm knew was a money laundering suspect, channeled more than $10 million in illegal surcharges through the bank, the report alleges. "Although there is no evidence that BNP knew or approved of the use of its own facilities to pay illegal surcharges, BNP was uniquely positioned to probe such payments -- and failed to do so," the report says.
The Volcker report also says that anti-sanctions activists and U.N. bureaucrats, including the organization's former humanitarian coordinator in Iraq, Hans Von Sponeck, made money from the program. Von Sponeck, who resigned from his post to protest the sanctions policy, solicited financial contributions for his anti-sanctions activities from companies seeking business deals with Iraq, the report says. He was also paid for introducing German business executives to Iraqi officials, the report adds.
The Rev. Jean-Marie Benjamin, a Roman Catholic priest who served as an assistant in the early 1990s to the Vatican's secretary of state, received a $140,000 donation for his charity from a Swiss businessman, the report says. The businessman received rights to buy more than 2 million barrels of Iraqi oil after Benjamin, an outspoken critic of U.N. sanctions with ties to Iraq's leaders, assured Iraq's then-Deputy Prime Minister Tariq Aziz that he was a "good man," according to the report.
The Volcker report clears former U.N. secretary general Boutros Boutros-Ghali, whose relatives allegedly engaged in illicit oil trade, of allegations of wrongdoing. It says a review of Boutros-Ghali's and his wife's bank accounts provided no evidence that he received bribes.