08.02.2004

Rene — Scandals of Oil for Food

Topic(s): Iraq | Comments Off on Rene — Scandals of Oil for Food

In all of the discussion about the war, one thing that should not go unaccounted for is the debacle of the Sanctions, and the “oil for food” program, which sounds like a title of a satirical story of our times, is revisited through this article on some recent congressional hearings – rg
Scandals of Oil for Food by Joy Gordon; _Middle East Report Online_
(http://www.merip.org/) ; July 20, 2004
Rep. Ralph Hall opened a set of Congressional hearings on July 8 with
a dramatic flourish, denouncing “the deaths of thousands of Iraqis
through malnutrition and lack of appropriate medical supplies.” “We
have a name for that in the United States,” the Texas Republican told
a subcommittee of the House Energy and Commerce Committee. “It’s
called murder.” The target of Hall’s accusation was not the UN
economic sanctions that, according to a 1999 UNICEF study, had helped
to double the rate of mortality among children under five in central
and southern Iraq over the preceding decade.
Rather, the Congressman was introducing yet more hearings to air
broad allegations of incompetence, manipulation and personal
corruption in the so-called Oil for Food program established by the UN
Security Council in 1995 to ameliorate the humanitarian emergency in
Iraq. According to these allegations, UN mismanagement allowed Saddam
Hussein to pocket billions of dollars in oil sales at the expense of
the Iraqi people. Benon Sevan, former head of the Office of Iraq
Program, which housed the now dissolved Oil for Food program, has been
named as one UN official who purportedly took what amount to bribes to
look the other way.
No fewer than nine discrete investigations into these claims have been
launched: three in the House of Representatives, one in the Senate,
one each at the Treasury Department and US Customs Service, one in New
York courts and one by the US-appointed Iraqi Board of Supreme Audit,
as well as an internal UN investigation headed by Paul Volcker, former
head of the Federal Reserve Bank.
One House probe has issued a subpoena for relevant records from the
Paris-based bank, BNP Paribas, where the UN kept the Oil for Food
funds on deposit; ExxonMobil has received a subpoena from a US
attorney’s office in New York.
The raft of investigations has been accompanied by a loud campaign,
led by William Safire and other conservative columnists, to discredit
the Oil for Food program in public opinion. Claudia Rosett, one of the
most vitriolic critics, wrote in the April 28 Wall Street Journal,
“It’s looking more and more as if one of the best reasons to get rid
of Saddam Hussein was that it was probably the only way to get rid of
Oil for Food.” How seriously should these sensational accusations be
taken?
HUMANITARIAN EMERGENCY
Oil for Food, though never more than a stopgap measure, saved Iraqi
civilians from privations even worse than those they suffered. The
economic sanctions imposed by the Security Council following the Iraqi
invasion of Kuwait in 1990, combined with the destruction of
infrastructure during the Gulf war and refugee flight afterwards, had
resulted in a massive humanitarian crisis by the summer of 1991. A UN
team found a threefold increase in under-five mortality over the first
eight months of that year. Iraq rejected the terms of the Security
Council’s initial proposal to permit very limited oil sales, and, over
the next four years, the nearly comprehensive sanctions helped to
cause increases in malnutrition and waterborne diseases. The
infrastructure continued to crumble. In 1995, the Security Council
authorized a new proposal allowing Iraq to sell somewhat larger
amounts of oil and then use the proceeds to buy food, medicine and
other humanitarian goods.
Several different UN agencies provided expertise, service delivery and
monitoring once Oil for Food was finally implemented in March 1997,
including UNICEF, the World Health Organization, the World Food
Program, the Food and Agriculture Organization and the UN Development
Program. When the program was formally terminated in November 2003,
$31 billion of humanitarian aid had been delivered, primarily food and
medicine, but also items for water and sewage treatment, electricity
production, transportation and agriculture. Within the narrow
strictures of the sanctions regime, the Oil for Food program
accomplished a great deal, according to statistics kept by these
agencies and independent observers. Between 1997 and 2002, the
nutritional value of the food basket distributed monthly by the
program almost doubled, from 1,200 calories per person per day to
about 2,200. The incidence of communicable diseases, including cholera
and malaria, was cut down substantially. Electricity became more
reliable, as did the availability of potable water. Despite these
gains, sanctions continued to take a toll.
In the late 1990s and the early days of the current Bush
administration, most of the debate over Oil for Food focused on its
limitations as a remedy for Iraq’s humanitarian crisis. Today’s
spotlight on alleged corruption in the program, in addition to being
tinged with reflexive right-wing hostility to the UN, reveals the
collective amnesia about the effects of the economic sanctions that
made Oil for Food necessary in the first place.
SMUGGLING
It is important to separate out accusations implicating the UN
agencies, as distinct from individuals working at the UN, or the
policies of member nations. One of the main sources cited by the UN’s
accusers is a General Accounting Office (GAO) report issued in April
2004, which estimates that Iraq received $5.7 billion in proceeds from
oil smuggling between 1997 and 2002. Critics like Safire and Rosett
charge the UN with incompetence, if not complicity, in this illicit
trade that bypassed the Oil for Food mechanism.
Yet it is somewhat misleading to portray smuggling as a failure on the
part of the UN. In 1990, Security Council Resolution 665 invited
member states to interdict the suspected smuggling with their own
military forces, leading to the establishment of the Multinational
Interception Force patrolling the Persian Gulf. The US Navy provides
most of the ships for the force, which has operated under the command
of a series of American rear admirals and vice admirals from the Fifth
Fleet based in Bahrain. None of the members of the Security Council
ever intervened to block the well-known smuggling route passing
through parts of northern Iraq controlled by US-allied Kurdish
militias into Turkey. The US also filed no objection to the oil trade
between Iraq and Jordan that took place throughout the history of the
sanctions.
KICKBACKS
The GAO report estimates that Iraq received $4.4 billion in illicit
income from kickbacks on import contracts and on oil surcharges.
According to interviews with Iraqi ministry officials cited in the
report, it was the practice of the Iraqi government to inflate by 5-10
percent the price it would pay for humanitarian imports channeled
through Oil for Food. The vendor would then return the surplus to the
Iraqis under the table.
It would have been difficult for UN officials to detect and stop these
kickbacks. As the deputy director of the Defense Contract Audit Agency
testified before Congress on April 21, his agency had found that of
several hundred contracts reviewed, 48 percent were “potentially
overpriced” by at least 5 percent, based on market prices. A 5 percent
price difference is not outside the normal variations of commerce. But
Oil for Food contracts were not signed under normal market
conditions. Many contracts were for specially designed items, such as
parts for sewage treatment plants, for which there was no “market
price.” In addition, there were extraordinary transaction costs: to
sell Iraq goods under the Oil for Food program, a vendor had to go
through an elaborate application procedure, provide detailed
documentation and often answer additional questions about component
parts and chemical makeup. The process sometimes dragged on for
years. It would be surprising if, under these circumstances, vendors
always sold their goods at the “normal” rates.
On more than 70 occasions when there were obvious price discrepancies,
the Office of the Iraq Program did bring them to the attention of the
so-called 661 Committee — composed of all 15 Security Council members
— which reviewed all proposed Oil for Food contracts. In testimony
submitted to Congress on April 28, John Ruggie, the assistant
secretary-general charged with relations with the US mission, recalled
that the committee “approved roughly 36,000 contracts over the life
span of the program. Every member had the right to hold up contracts
if they detected irregularities, and the US and Britain were by far
the most vigilant among them. Yet, as best as I can determine, of
those 36,000 contracts not one — not a single solitary one — was
ever held up by any member on the grounds of pricing.” The US
delegation alone had 60 people examining contracts, and, over the
course of the program, this delegation blocked thousands of contracts
worth billions of dollars. In July 2002, for instance, over $5 billion
of contracts were on hold, virtually all of them red-flagged by the US
and its ally Britain. Yet, in placing the holds, the US and Britain
were almost exclusively concerned with preventing potential “dual-use”
goods — items that theoretically could have military uses — from
entering Iraq. From time to time, according to sources who served on
the 661 Committee staff, Americans on the staff did claim to have
espied kickbacks, but offered no evidence.
SURCHARGES
In late 2000, Iraq began a practice of selling oil at low prices,
often to middlemen, who would then resell the oil at higher prices and
pay Iraq a surcharge under the table. The “oil overseers,” oil
industry consultants working for the Oil for Food program, brought
this practice to the attention of the Security Council. The US and
Britain responded in 2001 by implementing a “retroactive oil pricing
policy.” Normal commercial practice is to set the sale price for some
period of time, such as a month. Under Oil for Food, the oil overseers
submitted a proposed price, the 661 Committee then approved it and oil
was then sold for the following month at that price. As the 661
Committee operated by consensus, every member could effectively
exercise a veto over any measure. Making “creative use of the
consensus rule,” in the words of Ambassador Patrick Kennedy, a US
official familiar with the 661 Committee, the US and Britain simply
withheld their approval of contracts until the sales period had
passed. The 661 Committee then decided what the market value would
have been the prior month — a determination that can be somewhat
arbitrary — and required the buyer to pay that amount. Thereafter,
buyers had to sign a contract to purchase oil literally without
knowing the price until well afterwards.
Few buyers would commit to purchases under these conditions, and the
oil overseers warned the committee that Iraqi oil sales were likely to
collapse.
Iraqi petroleum exports, in fact, dropped from an average of 1.7
million barrels per day in 2001 to less than one quarter of that
amount in September 2002.
Meanwhile, Iraq had ended its surcharges — oil prices were raised and
the profit margin was too low for surcharges to be possible. Still,
the US and Britain would not suspend the retroactive pricing gambit,
with which they continued until the US-led coalition invaded Iraq in
March 2003.
The result was that the Oil for Food program was, in substantial
measure, bankrupted. Speaking before Congress on April 21, Kennedy
bragged that, through retroactive pricing, “we were able to save the
people of Iraq significant sums of money in illegal oil charges,” yet
the policy also prevented the program from raising billions of dollars
in revenue for critical humanitarian goods. In February 2002, Benon
Sevan announced that revenues had dropped so drastically that $1.6
billion of approved contracts could not be funded. If the contracts
then on hold had been approved, the shortfall would have totaled $6.9
billion. While the former Iraqi regime may well have reaped ill-gotten
gains from the surcharges, that practice had far less impact on the
Iraqi population than the punishing response of the US and Britain,
which nearly halted the humanitarian program altogether.
PROFITEERING
In January 2004, the Iraqi newspaper al-Mada published a list of
individuals and companies around the world that supposedly received
certificates from the government of Iraq that entitled them to buy a
certain amount of oil from Iraq. The list included an apparent
reference to Sevan, the former director of the Office of the Iraq
Program. If Sevan did in fact accept these oil certificates, he would
indeed be guilty of an egregious form of corruption.
It is rumored that the list was provided to al-Mada by Ahmed Chalabi,
the former member of the Iraqi Governing Council now in disrepute for
allegedly providing the US with false information about weapons of
mass destruction in pre-war Iraq. Thus far, no documentation of the
list’s authenticity is in evidence; the Volcker commission is
inquiring.
While Saddam Hussein’s regime may have found ways to capture funds
that were meant to serve the Iraqi population, abuse of oil monies
seems to be occurring on a similar scale in US-occupied Iraq. For
example, Halliburton, under its contract with the US Army Corps of
Engineers, provided fuel to the military at $1.59 per gallon, while
the Iraqi national oil company could buy the fuel at 98 cents per
gallon. The difference came to $300 million, and the profits were
funneled into the coffers of an American corporation, rather than
pumped into the Iraqi economy. In October 2003, a leading British aid
agency, Christian Aid, released a study showing that of the $5 billion
in Iraqi oil money transferred to the Coalition Provisional Authority,
the CPA could only account for $1 billion. The accounts were still
incomplete upon the CPA’s dissolution, according to Christian Aid. On
July 15, the International Accounting and Monitoring Board, created by
the Security Council to watch over the CPA’s stewardship of Iraqi oil
funds, found that controls over the funds from November-May 2003 had
been inadequate. The CPA, for instance, was unable to certify that
crude had not been smuggled out of Iraq. Another independent NGO, the
Iraq Revenue Watch project of the Open Society Institute, reported
that in the weeks before the June 28 handover of “sovereignty,” the
CPA rushed to commit nearly $2 billion in Iraqi funds with no planning
and questionable justification. In many cases, billions of dollars of
US funds had already been committed in the same areas.
MASS DISTRACTION
Regardless of the truth of the allegations of impropriety in the UN’s
administration of Oil for Food, it is clear that the real goal of the
program’s vociferous new critics is to damage the credibility of the
entire international body. At the July 8 Congressional hearings, Jed
Babbin, a former Defense Department official and author of a
UN-bashing tract called “Inside the Asylum,” described the UN as “the
handmaiden of terrorism, the errand boy of despots and dictators, and
a quagmire that is the antithesis of our policy to preempt terrorist
attacks.” Perhaps not coincidentally, the unfolding investigations
into Oil for Food come at a time when the terms of the UN’s future
involvement in Iraq are unclear. Security Council Resolution 1483,
passed in May 2003 under enormous pressure from the US, removed all UN
monitors from Iraq, eliminated the 661 Committee, suspended the role
of UNMOVIC, the UN disarmament agency, and eliminated any UN oversight
of oil sales or disposition of oil proceeds. The resolution also
endorsed the “Occupying Authority” of the US and Britain in Iraq.
One year later, the Bush administration again induced the Security
Council to approve a mandate for a US-dominated “multinational force”
and left the UN role in Iraq’s troubled political transition
undefined. Despite its substantial experience in reconstruction,
development and the supervision of free elections, the UN’s ability to
negotiate a larger role was arguably compromised by the accusations
involving the Oil for Food program.
More to the point, the Oil for Food flap fits into the decade-old
pattern whereby Washington and London place exclusive blame for the
humanitarian crisis in Iraq before the invasion — and now for the
country’s hobbled economy as well — upon the “neglect” of the former
regime. While Oil for Food funds may have improperly ended up in the
hands of Saddam Hussein’s government, the fundamental responsibility
for the humanitarian crisis was the sanctions regime imposed on Iraq
by the Security Council, and then enforced in an extraordinarily harsh
way at the insistence of the US and Britain. Under the sanctions,
Iraq’s annual gross domestic product dropped from about $60 billion to
about $13 billion, according to a joint Food and Agriculture
Organization and World Food Program estimate released in 1997. Assume
that all the accusations of corruption are true, and the government of
Saddam Hussein did indeed salt away $11 billion over the six years in
which Oil for Food was in effect. Even if those funds had purchased
humanitarian goods, the Iraqi GDP would have risen to $15 billion
annually — not an amount that could have compensated for the loss of
75 percent of the economy or rebuilt the dilapidated infrastructure.
History may record US and British evasion of their share of
responsibility for the havoc wrought by sanctions in Iraq as the real
Oil for Food scandal.