Investigation of Iraqi oil sales permitted for humanitarian reasons during a long period of trade sanctions shouldn't stop with the kickbacks and favoritism recently coming to light.
It's of course appalling that former President Saddam Hussein enriched himself and his supporters through a program that was supposed to help the innocent Iraqis he had oppressed. And it's all the more so now that many of those supporters, who lost much with Saddam's downfall, are killing the country's liberators and rebuilders with weapons no doubt bought with the booty.
But the United Nations must answer to more than the oversight lapses that allowed billions of dollars from its Oil-for-Food program to end up in wrong hands. It designed the program to be a cash machine immune to market forces. Why?
Smuggling, manipulation
While subject to trade sanctions imposed after his 1990 invasion of Kuwait, Saddam is known to have smuggled oil out of Iraq by truck to Jordan and Lebanon, by pipeline to Syria, and by boat through the Persian Gulf. He openly tried many times to manipulate the leaky UN program. Only recently, however, has it become clear how successful these efforts became.
Last month, the US General Accounting Office estimated that Saddam's regime raised $10.1 billion through illegal activities related to the Oil-for-Food program during 1997-2001. That's one sixth of all the money the program raised from oil exports and half again what the agency estimated in a similar study in May 2002. GAO reckons that $5.7 billion of the illicit funds came from oil smuggling and $4.4 billion from surcharges against oil sales and illegal commissions on imported goods.
Members of the UN Security Council cited in the GAO report estimate that surcharges on Iraqi oil exports reached 50¢/bbl and that commissions on Iraqi imports amounted to 5-10% of contract value. GAO further points to a September 2003 study by the US Department of Defense finding overpricing in 48% of 759 contracts funded and approved by the Oil-for-Food program. The average gouge: 21%.
Attention rushed to these matters late last January, when the Iraqi newspaper Al-Mada published a list of 270 individuals and organizations said to have received tradable oil vouchers from Saddam in return for political favors. Veracity of the list, purportedly found among Oil Ministry documents, has come under question. If identities of alleged beneficiaries are in doubt, however, the legacy of multibillion-dollar corruption is not. UN officials have been accused of involvement.
With Security Council approval, the UN has promised an investigation and requested documents from Iraq's Governing Council. Congress has requested records from the UN, which says it might not be able to comply. The organization needs to find a way.
It also needs to answer question about the design of its Oil-for-Food program, which invited mischief. While the UN supposedly controlled the money, it let Iraq decide who received contracts. This strange regard for the sovereign sensitivities of a renegade government later blinded the organization to Saddam's oil surcharges, which it didn't address until pressured by the US and UK (OGJ Online, Aug. 24, 2001).
Worse was the UN's original decision to base Iraqi export caps on oil revenues rather than amounts, the market-wrecking potential of which was noted here (OGJ, Feb. 12, 1996, p. 17). The potential became painfully real to oil exporters other than Iraq 2 years later, after UN Sec. Gen. Kofi Annan more than doubled the revenue ceiling before visiting Saddam in Baghdad. His magnanimity poured more than 2 million b/d of Iraqi oil, oblivious to price, into a seriously oversupplied market (OGJ, Feb. 23, 1998, p. 21).
Thoughtless initiative
For what it did to Iraq's oil-exporting neighbors, that act remains one of the most breathtakingly thoughtless initiatives in the history of diplomacy. And the corruption now known to have infected the UN program makes the humanitarian concern with which Annan defended his ceiling increase look weak. If Annan knew Saddam was skimming the program, the increase is indefensible; if he didn't, management of the UN needs work.
At best, the UN can come out of all this looking dangerously inept. If any of its officials are proven to have helped Saddam corrupt the Oil-for-Food program, charges of ineptitude should be the least of its worries.
