Susan Sachs and Judith Miller
New York Times
August 13, 2004

Toward the end of 2000, when Saddam Hussein’s skimming from the oil-for-food program for Iraq kicked into high gear, reports spread quickly to the program’s supervisors at the United Nations.

Oil industry experts told Security Council members and Secretary General Kofi Annan’s staff that Iraq was demanding under-the-table payoffs from its oil buyers. The British mission distributed a background paper to Council members outlining what it called “the systematic abuse of the program” and described how Iraq was shaking down its oil customers and suppliers of goods for kickbacks.

When the report landed in the United Nations’ Iraq sanctions committee, the clearinghouse for all contracts with Iraq, it caused only a few ripples of consternation. There was no action, diplomats said, not even a formal meeting on the allegations.

Since the fall of Mr. Hussein, the oil-for-food program has received far more scrutiny than it ever did during its six years of operation. Congress’s Government Accountability Office, formerly the General Accounting Office, has estimated that the Iraqi leader siphoned at least $10 billion from the program by illicitly trading in oil and collecting kickbacks from companies that had United Nations approval to do business with Iraq. Multiple investigations now under way in Washington and Iraq and at the United Nations all center on one straightforward question: How did Mr. Hussein amass so much money while under international sanctions? An examination of the program, the largest in the United Nations’ history, suggests an equally straightforward answer: The United Nations let him do it.

“Everybody said it was a terrible shame and against international law, but there was really no enthusiasm to tackle it,” said Peter van Walsum, a Dutch diplomat who headed the Iraq sanctions committee in 1999 and 2000, recalling the discussions of illegal oil surcharges. “We never had clear decisions on anything. So we just in effect condoned things.”

As recently as February, the official position of the United Nations office that ran the program was that it learned of the endemic fraud only after it ended. But former officials and diplomats who dealt directly with the program now say the bribery and kickback racket was an open secret for years.

In blunt post-mortem assessments, they describe the program as a drifting ship – poorly designed, leaking money and controlled by a Security Council that was paralyzed by its own disputes over Iraq policy.

The program, created in 1996, was an ambitious attempt to keep up international pressure on Iraq to disarm while helping the Iraqi people survive the sanctions imposed on the Hussein government after its invasion of Kuwait in 1990.

The entire effort was financed by the sale of Iraqi oil. A political compromise allowed Iraq to decide to whom it would sell its oil and from whom it would buy relief supplies. It was up to the United Nations to make sure that the price Iraq set for the oil was fair and that the proceeds were buying relief goods, and not being funneled to Mr. Hussein’s coffers or being used for illicit arms.

As the flow of money ballooned, the United Nations, with an annual budget of just $1.5 billion, was responsible for collecting and disbursing as much as $10 billion a year in Iraqi oil revenues. Even as the fraud engineered by Mr. Hussein’s government became widely understood, the officials said, neither the Security Council nor United Nations administrators tried to recover the diverted money or investigate aggressively.

The work of the Office of the Iraq Program, which administered the oil-for-food activities, and of its former director, Benon V. Sevan, is the focus of an independent United Nations investigation headed by Paul A. Volcker, the former Federal Reserve chairman. His panel is looking into the broader charges of mismanagement and corruption in the program, as well as specific accusations that United Nations officials, including Mr. Sevan, took kickbacks.