The Oil-for-Food fiasco

What was the purpose of the program?

Ostensibly, to keep Iraqis from starving. After the 1991 Gulf War, the U.N. imposed economic sanctions on Saddam Hussein, barring him from selling Iraq’s oil or buying goods on the world market. With no source of foreign revenue, Iraq’s economy quickly collapsed, and within several years, reports of widespread starvation began reaching the West. In 1996, the U.N. launched the Oil-for-Food program to allow Saddam to sell some oil to buy food and medicine for his people. Under the program, all revenues were paid into an escrow account controlled by the U.N. Money from that account was released by the U.N. to pay for specific contracts for food, medicine, and other essential supplies. By the time the program was suspended, late last year, about $64 billion worth of Iraqi crude oil had been sold, and 36,000 contracts had been approved.

What did the program accomplish?

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The U.N. claims that child malnutrition in Iraq was cut in half and that improvements were made to thousands of schools and clinics. But the scheme obviously never worked as intended. Many Iraqi children continued to go hungry and hospitals went without drugs, even as Saddam spent billions constructing lavish new palaces and rewarding his Baathist cronies with Mercedes-Benz sedans, diamond-encrusted jewelry, and other perks. After Saddam’s regime collapsed, thousands of pages of documents were uncovered in several Iraqi ministries showing that Saddam and his inner circle had siphoned off billions—$10.1 billion, according to a recent General Accounting Office report.

How did Saddam pull this off?

There was a serious flaw built into the system. At the insistence of France and Russia, Saddam was given the authority to award his favorite customers “vouchers” that enabled them to buy a specific number of barrels of Iraqi oil. The vouchers were extremely valuable, because the price of Iraqi oil was set far below the market price. Secretly, many of the Russian, French, and other foreign companies given vouchers started selling them to oil traders at a huge profit. They then kicked back 10 percent to Saddam. At the same time, companies chosen to sell food and other supplies to Iraq overcharged wildly, and kicked back some of their profits to Saddam. “Everybody was feeding off the carcass of what was Iraq,” said Ali Allawi, who served as trade minister in Iraq’s recently disbanded provisional government.

Where was the U.N. oversight?

That’s what several investigations are now trying to figure out. U.N. Secretary-General Kofi Annan says the Security Council was supposed to oversee the program, but most critics say the breakdown was in the office of the Secretariat. Some of the emerging details have already proved embarrassing to Annan. In 1998, it turns out, the U.N. awarded the contract for monitoring Iraqi food and medicine imports to a Swiss company, Cotecna. At the time, the company employed a consultant named Kojo Annan—Kofi’s son. But a potentially more damaging revelation involves Benon Sevan, the U.N. assistant secretary-general and the official Kofi Annan picked to run the Oil-for-Food program.

How has Sevan been implicated?

In January, an Iraqi newspaper, Al Mada, obtained and published a purported Oil Ministry list of 270 recipients of Saddam’s oil vouchers. The roster included companies, political parties, and individuals from more than 50 countries, among them a “Mr. Sevan.” According to the documents, Sevan was allocated 14.2 million barrels of oil, which would have been worth millions, since each million-barrel voucher could reap the holder as much as $300,000. The list’s authenticity has not been proved, and Sevan has denied that he ever received oil or oil money from the Saddam regime. He went on leave earlier this year and announced his intention to retire.

Who else was on the list?

It was a sensational group of names. Most of the voucher recipients were from Russia and France—longtime business partners of Saddam’s regime and, not incidentally, outspoken opponents of the Bush administration’s invasion of Iraq. The list included the office of Russian President Vladimir Putin; the Russian Orthodox Church; Russian nationalist leader Vladimir Zhirinovsky; Charles Pasqua, a former French interior minister; and Jean-Bernard Merimee, the former French ambassador to the U.N. Other alleged beneficiaries included Arab journalists; the Indian Congress Party; President Megawati Sukarnoputri of Indonesia; and George Galloway, a British member of Parliament and outspoken critic of the war. The vouchers provided Saddam “with a convenient vehicle through which he bought support internationally,” said Claude Hankes-Drielsma, an expert hired by the Iraqi Governing Council to investigate the scandal. Critics of the U.N., meanwhile, have noted that the organization itself had a perverse incentive to allow the program to spin out of control.

How did the U.N. benefit?

To pay for the program, the U.N. collected a 2.2 percent commission on every barrel of oil sold, and another 0.8 percent to pay for weapons inspections in Iraq. So the U.N. was in effect being paid by Saddam to supervise Saddam. The bigger the program, the more money the U.N. collected, and the bigger the U.N. bureaucracy became. The U.N. says that it took in about $1.9 billion in commissions, $1.4 billion of which went to administrative overhead and the rest to weapons inspections. No public accounting of this spending has ever been made.

Getting at the truth