Editorial: The UN needs reform

Sept. 12, 2005
The oil and gas industry should treat seriously the final report of the Independent Inquiry Committee (IIC) investigating the United Nations Oil-for-Food Program in Iraq.

The oil and gas industry should treat seriously the final report of the Independent Inquiry Committee (IIC) investigating the United Nations Oil-for-Food Program in Iraq. The industry needs a credible, effective UN with which to align transcendent values of its global activities. But UN credibility is at risk.

Oil and gas companies find and produce hydrocarbons to make money for their owners. Foreign governments grant them licenses to work in exchange for shares of otherwise unattainable wealth. The UN has strong reason to encourage this relationship because resource development, by stimulating economic development in host countries, can greatly enhance human welfare, its core mission. The interests of the UN and oil companies thus converge about a value beyond the routine metrics of business. The strongest argument in support of international oil and gas activity is not that it makes money for company owners or that it boosts energy supply-although both are legitimate motives-but that it can improve lives of people where the work occurs.

Spreading wealth

Resource development can’t do much for general welfare, however, if consequent wealth doesn’t spread equitably through host-country populations. Where such failure occurs-and it occurs with regrettable frequency-the legitimacy of expatriate oil and gas work suffers, and the UN’s mission goes unfulfilled.

A prominent hindrance to the spread of wealth from resource development is corruption, the obliteration of which should be a shared, priority goal of industry and the UN. Yet the UN, according to IIC findings, not only allowed corruption to flourish during the Oil-for-Food Program’s 7 years of operation but also had high-ranking officials directly involved in it.

Problems came into focus in earlier reports of the IIC, which the UN, prodded by allegations arising elsewhere, set up under the direction of former US Federal Reserve Chairman Paul A. Volcker. In February, the committee’s first interim report presented evidence that Benon Sevan, executive director of the UN Office of the Iraq Program, received money after securing valuable Iraqi oil allocations for a small African trading company (OGJ, Feb. 14, 2005, p. 17). The report also alleged preferential selection of program contractors and political influence in the choice of a bank to handle the program’s escrow account.

In March, the IIC’s second interim report focused on Kojo Annan, son of UN Sec.-Gen. Kofi Annan (OGJ, Apr. 4, 2005, p. 19). Kojo Annan had worked for Cotecna Inspection SA of Switzerland and was receiving payments from the firm when it received an Oil-for-Food contract. The second report criticized the UN’s response to disclosure of Kojo Annan’s obvious conflict of interest but said there was no evidence that Kofi Annan influenced the contract decision.

The third interim report presented further details of the arrangements whereby Sevan allegedly profited from the program he directed and of illicit activities of Alexander Yakovlev, a UN procurement officer (OGJ, Aug. 15, 2005, p. 17). The third report also disclosed an e-mail indicating that Kofi Annan knew about the bid by his son’s former employer for an inspection contract. The final report, issued Sept. 7, says evidence for that allegation is insufficient.

The voluminous final report mainly provides context for the earlier findings. It estimates that the regime of former Iraqi President Saddam Hussein raised far more money by smuggling oil ($10.99 billion) than by manipulating the Oil-for-Food Program ($1.8 billion). And it points out that retention of a measure of control over the program by the politically driven UN Security Council hampered administration by the secretariat.

Sharply critical

Overall, the final report is sharply critical. Its preface says: “The organization requires stronger executive leadership, thoroughgoing administrative reform, and more reliable controls and auditing. At stake is the United Nations’ ability to responds promptly and effectively to the responsibilities thrust upon it by the realities of a turbulent and often violent world. In the last analysis, that ability rests upon the organization’s credibility-on maintaining a widely held perception among member states and their populations of its competence, honesty, and accountability. It is precisely those qualities that too often were absent in the administration of the Oil-for-Food Program.”

The oil and gas industry needs the UN. It should encourage the broad reform without which the organization cannot regain its credibility.