History and Background

The Oil-for-Food Program was established by the United Nations to deal with the humanitarian crisis in Iraq instigated by the adoption of Resolution 661 by the Security Council, which placed the country under economic sanctions in response to its invasion of Kuwait in August of 1990. As reported by a commission sent to Iraq after its surrender in the Persian Gulf War, the Iraqi people--because of a severe shortage of critical medical supplies and food--were in danger of facing an "imminent catastrophe, which could include epidemic and famine, if massive life-supporting needs are not rapidly met." However, the sanctions placed on the Iraqi government were the only direct leverage that the world community had on forcing Saddam Hussein's government's compliance on the terms of the recent ceasefire, and the Security Council was unwilling lift all sanctions on Iraq.

Realizing, though, that they were inflicting punishment on Mr. Hussein's people rather than the dictator himself, the member nations of the Security Council offered in Security Council Resolutions 706 and 712 (adopted in August and September of 1991 respectively) the regime a chance to sell limited amounts of its oil abroad for the purchase of critical supplies. Mr. Hussein, demanding instead that all sanctions be lifted from his country, refused both offers of aid and was content to allow his citizens to starve while blaming the international community for their abject living conditions.

Finally, in April of 1995, the Security Council passed Resolution 986, which set up the Oil-for-Food Program. It extended to Iraq another opportunity to sell its oil to buy needed supplies and food on the world market and was intended to be a "temporary measure to provide for the humanitarian needs of the Iraqi people" until the Iraqi government was in full compliance with the terms of the Persian Gulf-ceasefire agreement. Mr. Hussein accepted this proposal, and the next year, signed the Memorandum of Understanding (MOU) that provided the framework for the Program. The first shipment of oil by Iraq took place in December of 1996, and the first shipment of food reached the country in March of 1997.

Organization and Management

At first, the Iraqis were only permitted to sell $2 billion worth of oil every six months through the Program. However, to meet the ever-growing humanitarian needs of the country, that amount was increased to $5.26 billion every six months in 1998. Then, in December of 1999, the Security Council removed Iraqi spending restrictions.

The proceeds from the sale of Iraqi oil was divided up in the following way:

  • 72% went towards funding the humanitarian program.
    • 59% of this was used by the regime for contracting supplies and equipment.
    • The remaining 13% of the humanitarian funding was given to the Northern Kurdish areas that had broken away from Mr. Hussein's government after the Gulf War.
  • 25% of the general fund was put in a compensation fund for Iraqi reparations payments of wartime damages inflicted by the regime.
  • 2.2% was appropriated by the United Nations for administrative and operational costs.
  • And 0.8% was earmarked for the weapons inspection program.

Oil-for-Food was administered by the Office of the Iraq Program as a separate entity from all other United Nations activities in Iraq. It was managed by the Executive Director of the Iraq Program, whose job it was to facilitate and coordinate the transfer of supplies and money under the Program.

The Phasing out of the Program

International sanctions were lifted on the liberated Iraq according to provisions set down by Security Council Resolution 1483, which empowered Secretary General Kofi Annan to appoint a Special Representative to coordinate efforts between the United Nations, the occupying Coalition Provisional Authority (CPA) and the Iraqi Governing Council. (The first representative, Sérgio Vieira de Mello, was killed in a suicide bombing the summer of 2003.) Also under the resolution, the Oil-for-Food Program was gradually "phased down"--privatizing many of its contracts or turning them over to the CPA--and finally brought to a close on November 21, 2003. Revenues that the Program accrued were transferred to a "development fund" in Iraq's Central Bank to be managed by the CPA.

Accusations of Corruption

As with anything associated with the ex-regime, it was always assumed that the Oil-for-Food Program was corrupt. But it wasn't until after Mr. Hussein fell that the true breadth of corruption in the Program was revealed. Claudia Rosett, a former journalist for The Wall Street Journal and a senior fellow with the Foundation for the Defense of Democracies, first broke the story with an Op-Ed appearing in The New York Times December of 2003. She accused the former Iraqi government of turning the Program "into a multibillion-dollar contracting business flowing through the shrouded books of the United Nations" through which Mr. Hussein enriched himself at his citizens' expense. Further investigation into the Program only served to prove the veracity of Ms. Rosett's accusations. A report compiled by the General Accounting Office (GAO), the investigative arm of Congress, estimated that "the former Iraqi regime attained $10.1 billion in illegal revenues" by misuse of the Program.

Anatomy of a Scheme

So how did Mr. Hussein's government accomplish what has been dubbed by some as the "largest corruption case in history"? According to investigators, the former regime played the sanctions game like a pro, relying mostly on kickbacks from oil companies to skim off illegal funds destined for Mr. Hussein's and his cronies' pockets. The deals were generally carried out in a three-step procedure outlined by a British newspaper, The Daily Telegraph:

  1. Iraqi oil was sold at below market price to an intermediary.
  2. That oil was then sold at market price, with the Hussein government "skimming" off part of the illegally gotten profit.
  3. That amount was transferred to the regime via secret bank accounts in Oman and other Middle Eastern countries.

Similar schemes were also carried out in other aspects of the Oil-for-Food Program. Iraqi ministries were ordered to inflate their contracts "by the biggest percent possible" and to then secretly transfer these extra sums to bank accounts in Jordan and the United Arab Emirates, according to a memo written by Taha Yassin Ramadan, a former vice president under Mr. Hussein. According to the GC, 70% of suppliers to Iraq under the Program agreed to inflate their prices and pay 10% of this back to the regime. Faleh Khwaji--an official with the reconstituted Iraqi Oil Ministry who was involved in the kickbacks process--told the Times that most Western companies, to avoid scrutiny by regulatory agencies and their shareholders, worked through "trading companies." These companies, mostly Russian- or Arab-based, were little more than shells, selling products on Western companies' behalf.

A Tool for Foreign Policy

Mr. Hussein, the consummate politician, quickly figured out how to utilize the Program as an instrument for foreign policy. Countries that were supportive of the regime were quick to secure contracts. In one example, Russia and Syria--hardly powerhouses in the automotive industry--managed to secure a contract supplying the country with Japanese automobiles. Libya, Syria and Saudi Arabia--all desert countries--were somehow supplying Iraqis with powdered milk. Ms. Rosett, in another Op-Ed appearing in the Times, noted that a number of countries friendly with Mr. Hussein--Syria, Lebanon, Libya, Algeria, Yemen and Sudan--managed to snag a lucrative "detergent" contract with him. In all, approximately 267 companies and individuals from 68 countries were involved in the kickback program, many of which were also allies of Mr. Hussein. Nidhal R. Mardood, the director-general for finance of the Iraqi Ministry of Trade, described the process eloquently: "It depended on what was going on in New York at the UN and which country was on the Security Council. {The regime} apportioned the amounts according to politics."

According to journalists investigating the corruption in the Program, France, Russia and Germany--the main opponents of the Iraqi War prosecuted by President Bush last year--also received illicit money under the Program's auspices. Strangely enough, all of the funds handled by the Program went through one French-based bank, BNP Paribas. There are also allegations that illicit business transactions were carried out by Russian companies using Russia's embassy in Baghdad. Some editorialists--Charles Krauthammer of The Washington Post and William Safire of the Times, to name two--go so far as to link governments' recalcitrance on the Iraqi War to their status as preferred business partners with Mr. Hussein. (Though critics are quick to note that these writers supported the War in the first place.)

"Kofigate" and Cotecna

But the most troubling accusations so far have been leveled at the UN and Mr. Annan. His son, Koji, worked in conjunction with Cotecna, a Swiss-based company that, starting in 1999, monitored oil-for-food shipments into Iraq for the UN. Not once did it report any irregularities in the Iraqis' involvement in the Program, despite the fact that Mr. Hussein was busily misappropriating the funds right under Cotecna's nose the whole time.

There is also the question of how active Mr. Annan was in overseeing the Program. Mr. Annan appointed his right-hand-man, Benon Sevan, to manage the Program despite his alleged ties to French bankers connected with the regime. And, despite his close oversight of the Program via Mr. Sevan, Mr. Annan claims that he was never made aware of possible corruption. This doesn't square, however, with the "housecleaning" the Office of the Iraqi Program did before turning over oil-for-food contracts to the CPA. When reviewing many of these contracts, the UN canceled them, citing glaring discrepancies between what companies operating under the Program were promising, what they were delivering and the costs associated with their operations. If the UN could discover corruption before being forced to turn over its files to a foreign entity, then why couldn't it find any during the years that the Program was managed "in house" by its own bureaucrats?

When asked to comment on this, Mr. Annan's staff referred reporters to the so-called "661 Committee." All members of the UN Security Council were on the board, which was set up to vet contracts relating to the Program. Yet the Committee largely acted as a rubber-stamp for the Office of the Iraqi Project. "It's purpose," according to Mr. Safire, citing an American official familiar with the process, "was formally to approve what the UN staff recommended. Only the US and the UK experts ever put a hold on a contract, and that was about items that had a dual use in weaponry" forbidden to Iraq under existing Security Council resolutions.

Currently, the emerging scandal--dubbed "Kofigate" by Mr. Safire--is being investigated by three Congressional committees, the GAO, the GC, the CPA (due to be dissolved by June 30) and an independent commission appointed by Mr. Annan and overseen by Paul Volcker, a former head of the Federal Reserve.

Unanswerable Questions

Despite these accusations, much of the activities of the UN during the time in question remain shrouded in secrecy. The GC and CPA, combing through thousands of documents left over by Mr. Hussein's old ministries, found ample evidence of corruption on the Iraqi side. Al-Mada, an Iraqi newspaper founded after the fall of the regime, also has been busy printing lists of companies involved with the Program and their connections to foreign government.

But the UN's role in the scandal has been, up to now, impenetrable. Under Mr. Sevan's management, the Office of the Iraqi Program classified much of its activities as "confidential." Many details of the contracts relating to the Program remain unknown, as do many of the businesses involved. Mr. Annan, until he appointed Mr. Volcker (whose activities were at first hampered by the Russian ambassador to the UN) also refused to make public thousands of documents related to the Program. Critics of Ms. Rosett and company claim that, because of the glaring gaps in the data currently available, it's impossible to draw any conclusions yet. (Of course, that question could easily be cleared up if Mr. Annan worked to facilitate the release of Program-related documents to Mr. Volcker, the CPA, the GC and member countries such as the United States that have been demanding answers.)

"Oil for Palaces"

But one aspect of this burgeoning scandal that all parties agree on is that the Oil-for-Food Program would have been better named--in the words of General Tommy Franks, Chairman of the American Joint Chiefs of Staff--the "Oil-for-Palaces Program." Mr. Hussein, once he got a hold of the tremendous funds available through the Program, speedily diverted them to serve his own ends. He built elaborate palaces and mosques in honor of the Persian Gulf War (the Mother of All Battles Mosque is a prominent example) while his own people starved.

The money that was spent on humanitarian assistance to the Iraqi people was used to purchase defective equipment, out-of-date medicines and the like. Ali Allawi--once with the World Bank and now the Iraqi interim Trade Minister for the GC--commented on the results of Mr. Hussein's policies: "You had cartels that were willing to pay kickbacks but would also bid up the price of goods. You had rings involved in supplying shoddy goods. You had a system of payoffs to the bourgeoisie and royalty of nearby countries."

What this meant in real terms was, according to the Times, a "mishmash of equipment: fire trucks from Russia, earth-moving machines from Jordan, station wagons from India, trucks from Belarus and garbage trucks from China." Much of this equipment was, in the words of Mr. Mardood, the director-general for finance of the Ministry of Trade, "the best of the worst". Mr. Hussein regularly ordered that much of the food provided by the Program be used instead to feed his army. In one prominent example, political manipulation resulted in deliveries of drugs whose dosage and quality changed every six months. Important medical equipment was often found to be faulty. Dr. Khadir Abbas, Iraq's new Minister of Health, described "defective ultrasound machines from Algeria, overpriced dental chairs from China and a warehouse filled with hundreds of wheelchairs that the old government did not bother to distribute."

Conclusion

Iraq's Oil-for-Food Program may turn out to be the focal point of the largest, and most expensive, corruption scheme in history. Mr. Hussein's government, in its insatiable greed, twisted the designs of the international community, which had envisioned a program that would bring desperately needed food and medicine to innocent Iraqi civilians. Companies, countries and businessmen around the world eagerly jumped at the chance to cut deals with the regime, knowing full well that they were breaking international law and hurting the very people that the Program was meant to protect. Even the UN establishment looks to have had a hand in poking holes through the Program's rules--though whether through willful corruption or idiotic ineptitude remains a mystery for now. Perhaps the words of Dr. Abbas, an Iraqi himself, can put everything into perspective. He told those responsible for the scandal that "it was very cruel to aid a dictator and his regime when all of you knew what the money was and where it was going. Instead of letting resources dry up, you let the dictatorship last longer."


Sources

The New York Times:

  • "Sanction Violators are Said to Have Paid Kickbacks to Hussein"--by Susan Sachs in Amman, Jordan. Feb. 7, 2004
  • "Hussein's Regime Skimmed Billions from Aid Program"--Feb. 29, 2004. By Susan Sachs in Baghdad with Abeer Allam is Cairo, Erin Arvedlund in Moscow and Jason Horowitz in Rome
  • Op-Eds:
    • "Oil, Food and a Whole Lot of Questions"--by Claudia Rosett. (Ms. Rosett is a former correspondant with The Wall Street Journal, a senior fellow with the Foundation for the Defense of Democracies and an adjunct fellow with the Hudson Institute.) Apr. 18, 2003
    • "Chirac's Latest Ploy"--by William Safire. (Mr. Safire is a columnist with the Times and was a former speachwriter for Richard Nixon.) Apr. 24, 2003
    • "Rebuilding Iraqi with Clean Hands"--by Claudia Rosett. Dec. 16, 2003
    • "Scandal at the U.N."--by William Safire. Mar. 17, 2004.
    • "Follow-Up to Kofigate"--by William Safire. Mar. 29, 2004
    • "Scandal with no Friends"--by William Safire. Apr. 19, 2004
  • The Daily Telegraph:
    • "Where are Iraq's Mission Oil Billions?" May 18, 2004
    • "Saddam's Web of Bribery 'Went Round the World'"--by Philip Delves Broughton in Paris and Jack Fairweather in Baghdad. Jan. 28, 2004
  • The Washington Post:
    • Op-Eds:
      • "U.N. Sanctions and Iraq"--by Charles Krauthammer. (Mr. Krauthammer is a columnist with the Post.) Apr. 21, 2003.
  • The National Review:
    • "Koji & Kofi: Unbelievable U.N. Stories"--by Claudia Rosett. Mar. 10, 2004
  • The United States General Accounting Office: Highlights of GAO-04-651T, a testimony before the Committee on Foreign Relations--"United Nations: Observations on the Oil for Food Program"
  • UN Office of the Iraqi Program--"Oil-for-Food: About the Programme"