The United Nations Security Council Mar. 31 agreed to commission an independent panel to investigate corruption charges within the UN's now-defunct Iraq Oil-for-Food program.
The probe replaces an internal UN audit that began after news reports alleged that UN officials, private companies, and contractors defrauded the assistance program by engaging in kickback schemes with high-level officials of President Saddam Hussein's regime (OGJ, Apr. 12, 2004, p. 17).
The panel, whose members will be announced this month, is directed to give its findings to the Security Council in 3 months. The final report will be made public.
Good intentions
The UN's Oil-for-Food program began in 1996 as a way to limit the humanitarian crisis that developed in the wake of Gulf War I and subsequent international sanctions. US Republican lawmakers often criticized the UN effort because they said it contained big loopholes and did not provide an adequate accounting of how oil revenues were being spent.
The program ended in November 2003 and the remaining funds placed into the Development Fund for Iraq, administered by the Coalition Provisional Authority and Iraqi officials. Some nongovernmental organizations, such as the Open Society Institute, maintain that the Development Fund needs to be more carefully scrutinized by independent auditors to ensure funds are being spent judiciously.
US Department of State officials estimate that, during its operation, the UN oil program handled more than $46 billion.
GAO report
Days before the UN independent panel announcement, the US General Accounting Office released a report on the challenges policymakers face in recovering Iraq's assets.
GAO estimates that, during 1997-2002, the former Iraqi regime received $10.1 billion in illegal revenues related to the Oil-for-Food program. Auditors from the nonpartisan government agency said about $5.7 billion in oil was smuggled out of Iraq; suppliers paid out about $4.4 billion in illicit surcharges on oil sales and after-sales charges. Those figures are dramatically higher than GAO's $6.6 billion figure from May 2002. The agency said the new numbers reflect 2002 data from oil revenues and contracts under the UN program and newer estimates of illegal commissions from commodity suppliers.
Some Security Council members told GAO that oil surcharges were as much as 50¢/bbl of oil; the commission was 5-10% of the commodity contract. The funds then were paid directly to officials connected with the Iraqi government with no official UN oversight.
GAO also cited a September 2003 US Department of Defense report that evaluated 759 contracts funded and approved under the UN's Oil-for-Food program. The study found that at least 48% of the contracts were overpriced and that on average the contracts were overpriced by 21%.
In testimony before House Subcommittee on Oversight and Investigations, GAO officials cautioned that the US faces a tough road ahead recovering the money. While the amount of still hidden oil-generated assets is unknown, some analysts say the range could be anywhere from $10 billion to $40 billion.