Jul 1 2004

A Timely Scandal

Oil-for-food charges conveniently tarnish U.N.

With its policy in Iraq flailing, the Bush administration has lately made a great show of delegating authority over the country’s political future to the United Nations. For some dyed-in-the-wool conservatives, this is heresy. And for some reviled Iraqi exile politicians, notably Ahmed Chalabi, it is a threat.

So perhaps it is not surprising that just as plans for the transfer of sovereignty were being finalized, a U.N. “scandal” involving the world body’s now-defunct humanitarian program in Iraq splashed onto the front pages and op-ed sections of the nation’s newspapers.

“Disturbing evidence to date suggests that U.N. officials may have been complicit, perhaps maliciously so, in cheating the Iraqi people out of billions of dollars in badly needed food and medical supplies,” editorialized the Chicago Tribune (5/9/04). The paper did not neglect to draw the appropriate political conclusion: The new Iraqi government “will carry [a] U.N. seal of approval” that “may not be worth much.”

At the New York Times , conservative columnist William Safire has carried the torch for the story, penning at least seven columns this year mentioning the so-called oil-for-food scandal—or, as he calls it (5/24/04), “the U.N.’s complicity in the $5 billion oil-for-food kickback ripoff.”

Media mogul Mort Zuckerman lectured in his weekly column (U.S. News & World Report , 4/26/04) that “the prospects of the United Nations taking over the transition in Iraq may now be fatally compromised. The world body is caught up in a welter of allegations and evidence suggesting strongly that a noble effort of humanitarian assistance was tainted by greed, bribery and the most venal kind of power politics.” Meanwhile, the rightwing media have made predictable hay with the story; see National Review editor John O’Sullivan’s screed, “UNfit for Iraq: The United Nations Can’t Escape the Oil-for-Food Scandal” in the Chicago Sun-Times (5/5/04).

Falsehoods and howlers

Most of these media accounts make for confusing reading, since they tend to be vague about just what the United Nations is supposed to have done wrong. Big numbers are thrown around: “$4 billion,” says the International Herald Tribune (5/12/04); “$5 billion,” according to Safire (New York Times , 5/24/04); “$6.7 billion” (Seattle Times editorial, 5/10/04); even “$100 billion” (Portland Press Herald column, 5/24/04). The figures are then typically paired with elliptical characterizations of the U.N.’s culpability: The organization is “caught up in” (U.S. News , 4/26/04) or “provided the largest opportunity for” (Seattle Times , 5/10/04) or was “involved with” (New York Post op-ed, 4/7/04) Iraqi corruption.

To decipher what the U.N. is really being accused of, it’s necessary to turn to the intellectual guru of the oil-for-food story, journalist Claudia Rosett. A longtime opinion writer for the Wall Street Journal editorial page, Rosett is now perched at the neo-conservative Foundation for the Defense of Democracies, where she has propelled the story forward with a steady stream of op-eds and features carrying such headlines as “Turtle Bay’s Carnival of Corruption” (National Review Online , 3/21/04), “Oil-For-Terror” (Wall Street Journal , 4/28/04) and “The Oil-for-Food Scam: What Did Kofi Annan Know, and When Did He Know It?” (Commentary , 4/16/04). As the story’s undisputed champion, she has even been invited to testify before Congress.

In April, Rosett published what has emerged as the standard text of the oil-for-food scandal-mongers, the above-cited Commentary article that laid out the charges in full detail. But even a cursory scan of the piece exposes a litany of falsehoods and howlers. Before the oil-for-food program, she wrote, Iraqis under sanctions “were theoretically allowed to import essential foods and medicines, but Saddam’s repressive system prevented them from earning the necessary foreign exchange.” Actually, it was the sanctions themselves that prevented Iraq from earning foreign exchange—that was the whole idea. The U.N. (UNSC 661, 8/6/90) specifically ordered all member states to prohibit “the import of all commodities and products originating in Iraq.”

Rosett claimed that “the U.N. granted Saddam a say in the choice of the bank that would mainly handle the funds and issue the letters of credit to pay these suppliers; the designated institution was a French bank now known as BNP Paribas.” In insinuating that a French bank was somehow illegitimately the recipient of tainted Iraqi largesse, Rosett failed to mention that BNP Paribas handled only 60 percent of Iraq’s deposits; the other 40 percent were held by what was then Chase Manhattan Bank of New York. In any case, Iraq could not use funds from either bank account without written permission from the U.N. (Inter Press Service , 12/17/96; House Subcommittee on National Security, 4/26/04).

Even more ludicrous was Rosett’s effort to portray the oil-for-food program as a money-making scheme for the U.N. In 1996, when the U.N. Security Council decided to allow Iraq to sell limited quantities of oil, it ordered a large percentage of the proceeds to be set aside to pay for the damage Iraq had caused with its invasion of Kuwait: 25 percent went to Kuwaiti reparations, 0.8 percent went to pay the costs of U.N. weapons inspections and 2.2 percent was earmarked to cover the administrative costs of the U.N.’s humanitarian programs. The logic of this punishment was to force Iraq, rather than the taxpayers of U.N. members, to shoulder the costs of Iraq’s aggression.

But according to Rosett, these percentages represented “fees” and “commissions” that the U.N. was raking in courtesy of Saddam Hussein. “The effect was to create a situation in which the U.N. Secretariat was paid handsomely, on commission, by Saddam-to supervise Saddam,” wrote Rosett. “The U.N. Secretariat was swimming in his cash.” By the same logic, Kuwaiti reparations should also be treated as a bribe from the Iraqi dictator.

Remember the members

There is no question that Iraqi corruption was rife during the sanctions era. The question is what responsibility the U.N. bears for these corrupt dealings. According to a study by the General Accounting Office (3/18/04), “the former Iraqi regime acquired $10.1 billion in illegal revenues related to the Oil-for-Food program.” The money falls into three categories: First, $5.7 billion worth of oil was illegally smuggled out of Iraq with the help of Turkey, Jordan, Syria and Kurdish militias. Second, Iraq’s legal oil sales were often governed by under-the-table contracts in which buyers purchased oil at below-market prices and the difference was paid into illegal Iraqi bank accounts. Third, Iraq often paid above-market prices for humanitarian supplies and the difference would be sent back to Iraq in the form of kickbacks. These last two methods netted Iraq $4.4 billion in illicit funds.

According to Rosett, these black-market Iraqi transactions have exposed the United Nations as little more than a vast playground of corruption. “For those who look yearningly to the U.N. for answers to the world’s problems, it has provoked, perhaps, some introspection about the pardonable corruption that threatens even the most selfless undertakings”; for critics of the institution, it is “a delicious vindication.”

Yet for all the verbiage in Rosett’s article, she never convincingly explains why it is the staff of the United Nations that should be held responsible for the corrupt practices of the Iraqi regime. Here we come upon a problem that plagues so many criticisms of “the U.N.”: In most cases, decisions made by the United Nations are actually just decisions made by its member states, especially members of the Security Council, where the United States has a veto. Rosett, evidently aware of this awkward fact, is at pains to show that it is the U.N. bureaucracy-not its member states, led by the U.S.-that should ultimately be faulted for any Iraqi corruption. But again and again, the facts show otherwise.

Take, for example, the matter of Iraq’s overpriced import contracts. Under the system established at the start of the oil-for-food program, every contract for humanitarian imports into Iraq, after being processed by the U.N.’s oil-for-food bureaucracy, had to be submitted to the U.N. Sanctions Committee for review. No contract could be approved without the unanimous consent of the Sanctions Committee. The main purpose of the review was to make sure Iraq did not import items with potential military uses, but members of the Committee could place a “hold” on a contract for any reason. Since the Sanctions Committee was simply made up of the members of the Security Council at any given time, the U.S., along with the other countries on the Council, had an effective veto over all contracts.

However, according to the General Accounting Office (5/27/04), while the U.N. oil-for-food bureaucrats “at times noted to the Security Council when prices seemed high . . . no holds were placed [by the Council’s sanctions committee] due strictly to pricing.” One might legitimately ask why the U.S. and the other members of the committee apparently never made an effort to ensure the soundness of Iraq’s contracts. Yet Rosett does not ask that question. Instead, she insists that “if final responsibility lay anywhere at all, it lay with the [U.N.] Secretariat,” which administered the program.

Not only is this wrong, but the State Department has publicly admitted that it’s wrong. At a congressional hearing in April, Rep. Carolyn Maloney (D-N.Y.) asked why the U.N.’s internal auditors did not detect the inflated prices. The answer, from Patrick Kennedy, an official at the U.S. mission to the U.N., was: “They did not, because the mandate to the United Nations Secretariat from the Security Council resolution did not give them the authority to make such analysis and determinations.”

Kennedy admitted that “customs experts at the [U.N.] Office of Iraqi Programs [which ran oil-for-food] did review the value of each [oil-for-food] contract to ensure that the price was in the credible range,” and they “did on occasion identify overpriced contracts and inform the [Sanctions] Committee.” Asked by Maloney whether the U.S. ever used its veto on the committee to block an overpriced contract, Kennedy demurred, promising to get back to her on that (House Subcommittee on National Security, 4/26/04).

Keeping the oil flowing

As this example shows, the bureaucrats of the United Nations ultimately answer to the member states, especially the most powerful ones. And if the most powerful member state-the U.S.-doesn’t like something the U.N. staff is doing, the record shows it will make every effort to stop it. In 2000, the U.S. engineered the firing of the U.N.’s top oil-for-food officer in Baghdad because he had documented civilian deaths from U.S. bombings in the no-fly zones (Knight Ridder News Service , 2/26/00). And from the beginning, the U.S. managed to install an American as deputy head of the U.N. weapons inspection agency; Paris later imposed a French political adviser on the agency’s executive director.

The notion that the U.S. and its fellow Security Council members were unaware of or unable to prevent Iraqi corruption because of stonewalling from U.N. staff is hard to credit. Indeed, when corruption allegations first emerged-before the invasion-an oil-for-food spokesperson complained (Washington Post , 9/18/02) that “the Security Council has never granted her office the authority to investigate claims of Hussein’s efforts to exploit the program.”

In fact, when the U.S. believed it was in its interests to do so, it did sometimes take strong action against Iraqi corruption. One example involves the illegal surcharges Iraq was pocketing from its oil sales. Reports of these covert deals first surfaced soon after the Bush administration took office. When initially asked about the reports, America’s U.N. ambassador, James Cunningham, said he was “not surprised,” but claimed that too little information was available to do much about it. “We’re looking for people that are violating the sanctions and if we find them, we will try to correct the situation,” he said (AP , 3/7/01). At that time, there were reports the U.S. had decided to “get tough” on the practice, and in April some tentative moves were made, but no major changes were put into effect (Financial Times , 2/27/01).

When the U.S. and Britain finally did unveil a package of measures to adjust the sanctions, they omitted any action on the illegal surcharges. Iraq nevertheless opposed the package and in protest it halted its oil exports for a month, causing world oil prices to surge. With little spare oil capacity worldwide, this move alarmed the Bush administration. “This new dependence on Iraq could be a recipe for disaster should Iraq decide to stop selling oil,” wrote the conservative magazine Insight on the News (6/11/01), citing government energy analysts.

When the U.S. and U.K. proved unable that summer to secure a majority vote for their sanctions plan in the Security Council, Britain considered using its veto in the U.N. Sanctions Committee to force Iraq to submit its oil prices for review every 10 days, rather than the usual 30, in order to reduce the scope for black-market oil deals. (The Sanctions Committee had jurisdiction over Iraq’s oil sales as well as its imports.)

But Britain had a problem: “The U.S., which is the largest importer of Iraqi oil, has taken a more cautious stance,” reported the Financial Times (8/21/01). “Concerned over a possible interruption [of Iraqi oil exports], Washington scuttled London’s initial suggestion that the U.N. review Iraq’s oil prices every 10 days. ‘We want to reduce the illegal kickbacks-we know we can’t stop them,’ said one diplomat, adding the U.K. was unlikely to push things far enough to prompt Baghdad to halt its exports again.”

After September 11, Washington had a change of heart. In early October, with virtually no publicity, the Sanctions Committee suddenly decided to adopt a proposal similar to the one that Washington had rejected just a month earlier. Oil prices were now set retroactively, after sales were finalized, to ensure that Iraq charged the full market price at the time of sale (Oil Daily , 10/5/01). Within a year, the new policy proved a success. In a “startling” development, Iraq abruptly stopped demanding surcharges on oil sales, a move attributed to the U.N.’s new “restrictive pricing policy” (Financial Times , 8/1/02).

What prompted Washington’s sudden U-turn? The Financial Times (7/29/02) described the new post- September 11 oil policy as “part of [the U.S.’s] efforts to overthrow Saddam Hussein . . . and limit [his regime’s] access to Iraq’s oil revenues, which would also undermine Iraq’s ability to prepare for possible war.”

Throughout this complex saga, the U.S. and its Security Council colleagues correctly acknowledged it to be their responsibility, not the U.N. staff’s, to ensure that Iraq was not illicitly profiting from the humanitarian program-a fact totally ignored by the oil-for-food scandal-mongers. (Incidentally, the U.S. and U.K. were not alone in getting tough with Iraq: “Irritated by Paris’ opposition to illegal surcharges on oil exports . . . Baghdad has slashed trade with its most important European supplier nearly in half,” the Washington Post reported on July 3, 2001-three months before the Bush administration finally decided to crack down on the deals.)

A forgery factory

Then there is the matter of the alleged bribes Saddam supposedly paid to his supporters abroad. This juicy detail, understandably, has been a favorite of the oil-for-food chroniclers: “Huge numbers of documents discovered in Iraq indicate that Saddam gave oil vouchers worth millions of dollars-redeemable in cash-to French, British and Russian politicians and influential organizations, with the U.N.’s head of the program, Benon Sevan, down for $3.5 million himself” (Portland Press Herald , 5/24/04).

The documents in question-purportedly listing 270 individuals who received “gifts” of oil vouchers from Saddam-were first reported January 25 by an Iraqi newspaper, Al-Mada . They were leaked from the Iraqi Governing Council and they were drawn up by officials in the Oil Ministry (London Telegraph , 4/24/04). One member of the Governing Council is, of course, Ahmed Chalabi, who, as chair of its finance committee, helps oversee the Oil Ministry, where he has managed to install friends and cronies in key positions (UPI , 6/4/04; Newsweek , 3/8/04).

The list of supposed voucher recipients includes such international luminaries as British member of parliament George Galloway; Indonesian President Megawati Sukarnoputri; former French Interior Minister Charles Pasqua; Jean-Marie Benjamin, a French priest with close ties to the Vatican; India’s Congress Party; and Benon Sevan, the U.N. head of the oil-for-food program.

Of these names, the first is of particular interest. In April 2003, the Christian Science Monitor published a front-page article (4/25/03), based on supposed Iraqi intelligence documents, reporting that Galloway, a longtime opponent of U.S. policy in Iraq, had received oil bribes from Saddam. The documents turned out to be sophisticated forgeries, which fooled even experts on Iraqi government documents, and the Monitor was forced to issue a public apology and pay Galloway compensation. “If they are [forgeries],” the FBI’s former chief document analyst told the Monitor (6/20/03), “it’s somebody who knows what he’s doing.”

Who could have been behind such expert forgeries? One possibility is Chalabi’s Iraqi National Congress, which has acknowledged that for years it ran a high-tech forgery operation in an abandoned schoolhouse in northern Iraq. “It was something like a spy novel,” former CIA station chief Robert Baer told the New Yorker (6/7/04). Baer, who had personally toured the shop during a visit with Chalabi in 1994, recalled: “It was a room where people were scanning Iraqi intelligence documents into computers, and doing disinformation. There was a whole wing of it that he did forgeries in.”

The real scandal

Unravelling the many strands of the oil-for-food scandal story is now the work of a blue-ribbon independent panel chaired by former Federal Reserve governor Paul Volcker. Volcker’s panel may after all find real evidence of U.N. wrongdoing. For example, it recently emerged that the world body once hired a Swiss auditing company whose work was later questioned by internal U.N. auditors and which had ties to Kofi Annan’s son. No good explanation for this apparent conflict of interest has yet been offered. But even if the worst interpretation of these facts is correct, it hardly amounts to the multi-billion-dollar U.N. mega-scam-or as William Safire put it, the “U.N. cover-up” of “the costliest financial rip-off in history”-that has been depicted in the more feverish corners of the right-wing media.

Nor should we accept the crocodile tears that the scandal-mongers-most of whom staunchly supported the sanctions-are now crying for the Iraqi people. A 1999 UNICEF study (7/99) found that 500,000 Iraqi children under age 5 died due to skyrocketing infant mortality rates during the first eight years of sanctions. Describing a postwar visit to Iraq, David Rieff of the New York Times Magazine wrote (7/27/03): “The Iraq I traveled to . . . was full of dissonant voices and contradictory opinions. People were no longer afraid to speak their minds. And yet what I found was an almost universal opposition to sanctions-a stern, unshakable conviction that the 1990s were a human and economic catastrophe for the Iraqi people and that sanctions were at the heart of the disaster.”

“Iraqis still have a glazed, resentful expression when they talk about ‘the siege,'” wrote a veteran Middle East correspondent for The Economist (New York Review of Books , 8/14/03). He quoted a “distinguished exile” on the effect of the embargo: “Lurking one centimeter below Iraqi hatred for Saddam,” the Iraqi said, “is hatred for America.”

But after all, it might be a mistake to trust the Iraqis on such matters. They were on the oil-for-food gravy train too.