Iraq and Oil-for-Food: The Real Story

This is part two of a two-part series covering the fallout from U.N.'s Oil-for-Food program in Iraq. For more on this story, read part one: "Kofi and the Scandal Pimps."

Despite the right's feverish attempts to portray the United Nations as a scandal-plagued body of incompetents, independent investigations have found no endemic corruption in the institution.

So you don't have to be an apologist for the U.N. to debunk the usual claims. There were isolated instances of corruption in the program, including one involving a senior U.N. official in the Secretariat in New York. There were also instances in which the U.N. failed to use "best practices" in acquisitions, bookkeeping and program management.

But the most scandalous aspect of the sanctions in place against Iraq between 1991 and 2003 remains the one shrouded in mist and left unrecognized in most Oil-for-Food (OFF) reporting: the incredible destructiveness and high human toll of the sanctions regime demanded by the U.S. and Britain after the first Gulf War.

That context is important for understanding the whole story. In early 1991, the U.S. led a U.N.-sanctioned shellacking of the Iraqi forces that had invaded Kuwait -- a small oil dictatorship -- the year before.

That war, like the one that would follow a dozen years later, was based largely on a claim that would prove to be false: that Iraq had amassed a huge invasion force of 250,000 troops and 1,500 tanks on the Saudi border and were poised to take over Saudi Arabia, a much more significant oil dictatorship.

In February of 1991, Iraq withdrew from Kuwait and George H.W. Bush halted military operations. He stopped short of deposing Saddam Hussein in large part because the move might fracture the broad coalition that his administration had built.

He would later comment rather presciently, "Had we gone the invasion route, the United States could conceivably still be an occupying power in a bitterly hostile land."

But while nobody except for the "crazies in the basement" -- the neocons -- thought occupying Iraq was a good idea, there was broad international support for a sanctions program that would prevent the Iraqi government from re-acquiring the type of chemical and biological weapons that it possessed in the 1980s, or from acquiring nuclear weapons.

In 1992 Clinton was elected, and he inherited a tough situation: Iraq was nominally sovereign (except for "no-fly" zones over her north and south), headed by a petulant dictator, and the sanctions were not weakening the regime, they were killing innocent Iraqis.

Estimates of the number of children who died of malnourishment and disease under the program range to over a million. In 1996, that tragic scandal was bathed ever so briefly in the light of day when Leslie Stahl asked Secretary of State Madeline Albright on 60-minutes: "We have heard that a half-million children have died. I mean, that's more children than died in Hiroshima. And, you know, is the price worth it?" Albright responded, "I think this is a very hard choice, but the price -- we think the price is worth it."

That rare moment of public candor, although barely discussed in the media, ignited a firestorm among foreign policy elites. The Clinton administration found itself in a pickle. On the one hand, institutional inertia had set in in D.C. and New York: The State Department, Pentagon and CIA all believed lifting the sanctions would result in an unacceptable threat to the region. On the other hand was domestic politics.

To Clinton's right, Republicans like Henry Hyde, R-Ill., were waiting to pounce on the Democrat for being soft on dictators, and to his left, a hue and cry was rising about the innocents dying as a result of U.S. policy.

Our closest allies, the Brits, also had reason to get a relief operation of some kind in place in Iraq. The same year that Albright made her "worth it" comment, the British Conservative Party took a firestorm of heat over a report that alleged it had sold weapons to the Hussein government prior to the first Gulf War.

So the U.S. and Britain did what is an all-too-common option in foreign policy formation: they "satisficed" -- an economics term meaning giving up on the best result (in this case because the politics were too tough) and settling on an outcome that one hopes is good enough.

Pretty much everything that went wrong thereafter flowed from that combination of inertia ("we have to do something to contain Hussein") and conflicting goals among different countries and between different constituents within those countries' foreign policy elites.

It was destined to turn out badly for the United Nations itself. The day after the signing of the deal that launched OFF, an advisor wrote to then Secretary General Boutros Boutros Ghali:
Congratulations. But a word of caution! The story the press will be looking for next is how Saddam Hussein circumvents the agreement and diverts oil for his own, or military, use. ... If there are flaws, the story will quickly turn negative.
There were, indeed, many flaws in the program, and Saddam Hussein did divert oil revenues. But the story wouldn't turn negative for years, until after the world-body objected to the United States' second invasion of Iraq in 2003.

The Oil-for-Food Program

Not long ago, a wildly dishonest Wall Street Journal editorial had this teaser: "The U.N.'s worst critics couldn't invent what the Volcker report shows." It referred to the exhaustive investigation headed by former Fed Chairman Paul Volcker.

A more accurate statement would be: Without the U.N,'s worst critics inventing what they would like the Volcker Report to show, OFF is quite a common story indeed.

That's because it should be neither surprising nor scandalous that a tin-pot dictator like Saddam Hussein would divert money into his own pockets and those of his cronies. It should also come as no surprise that international energy traders, financiers and other multinational firms would do business with such a dictator (although that part is scandalous).

That's the heart of what happened. According to the Volcker report, the United Nations Secretariat was inadequately staffed to police the program properly and was also sidelined by a bickering Security Council. While the Committee found mismanagement and very limited corruption, the report is clear on one rarely-reported point:
... [T]he pervasive administrative difficulties were not only, or even primarily, related to personal malfeasance. ... The wholesale corruption within the programme took place among private companies, manipulated by Saddam Hussein's government.
Saddam Hussein's illicit revenues under the U.S.-led sanctions regime came from three sources: unauthorized Iraqi oil sales ("smuggling") to neighboring states ($8.4 billion), dubious "inland transportation" ($530 million), "post-sales service" fees ($1.06 billion) and outright kickbacks ($229 million). The Volcker Committee report makes clear that none of those funds ever actually touched the hands of United Nations personnel.

Most of what is reported as "smuggling" -- the primary source of illicit income -- was not smuggling at all in the traditional sense. They were "intergovernmental protocols" signed by the Iraqi government, meaning oil sales that violated the sanctions.

In some cases, huge pipelines that had been built before the sanctions were in place were simply turned back on. This was no secret. The Volcker Report notes "the awareness of the Security Council of large and increasing amounts of border trade activity outside the programme."

Turkey and Jordan, key allies of the West, were major recipients. As the report notes, the United States showed "tolerance for trade with Jordan and Turkey (but not Syria)" while Russia and France (who trade extensively with Syria) were "reluctant to redress smuggling activity between Iraq and Syria."

Jordan tried to get authorization to import oil legally, but instead the Security Council "took note" of Jordan's intent to start importing Iraqi crude, but "made no genuine effort ... to monitor these transactions or the goods that Jordan in turn shipped back to Iraq." According to the Volcker Committee, this "furnished sufficient cover for Jordan to acquire nearly $6 billion of oil from Iraq," or well over half of all Hussein's illicit revenues during the OFF program.

Those transactions are commonly reported as taking place "under the nose" of the U.N. They were also under the nose of the U.S. and U.K. The opening of a pipeline through Syria, for example, was "widely reported in the press," according to the Volcker Report.

The Committee makes clear that smuggling -- the vast majority of illicit revenues -- was "outside the scope" of the U.N.'s mandate and that the "onus" of stopping it was on the five members of the Security Council, not the Secretariat.

The $1.8 billion dollars that was directly related to the OFF program can be traced to the Security Council's (and U.S.' and U.K.'s) decision to 'satisfice' in negotiating the structure of the program.

With terrible publicity surrounding the sanctions regime, there had been efforts to negotiate an oil-for-food program for several years. But both Hussein and the Western powers were deadlocked on the program structure. Neither seemed terribly concerned about the deaths of Iraqi citizens -- both were content to play a grand but deadly game of chicken to see who would blink first.

In 1995, a high-level Iraqi defector revealed explosive details of covert weapons development in Iraq. That put renewed pressure on Hussein, and the Russians convinced the Iraqi government to enter into negotiations. But Hussein knew that the U.S. and U.K. leadership had domestic political and public relations problems, and held his own citizens hostage until he got a deal that was flexible enough for him to manipulate.

Citing concerns over maintaining his country's "sovereignty," the dictator insisted on selecting the vendors that would provide the relief aid, and the customers that would purchase Iraq's oil. He would negotiate contracts independently and then submit them to the U.N. Secretariat, which would in turn submit the contracts to a committee of Security Council member states -- the 661 Committee -- for approval.

After determining that a contract didn't contain "dual-use" material from which prohibited weapons could be manufactured, the 661 Committee would sign off on the contracts. Oil revenues would go into a U.N.-administered trust to pay for relief supplies. Later, it would be expanded to include replacement parts for Iraq's oil infrastructure. About a third of the oil revenues were for program administration, financing the weapons inspections and paying restitution to Kuwait for the 1990 invasion.

It was always a recipe for disaster and fraud. During some 50 meetings in 1996 to negotiate the terms of the relief program, the United States and Britain "made their respective views well-known to both the Secretary-General" and the lead negotiator. What's more, "the two governments [were] given access to a draft Memorandum Of Understanding at a late stage in the negotiations." While they "were able to tighten some provisions in the draft agreement" their comments "neither altered nor addressed the basic design of the programme." The final agreement "affirmed that it would fall to Iraq, not the United Nations, to choose parties to whom it would sell oil and, except in Northern Iraq, the parties from whom Iraq would purchase humanitarian goods."

Everyone must have known that Saddam Hussein would squeeze funds from such a set-up. In essence, the flexibility itself was the bribe, signed off on by the five permanent members of the Security Council, to get an OFF arrangement in place that would keep prohibited materials out of Iraq and take the heat off the international community for the deadly sanctions regime.

The Real U.N. Scandal

At the heart of the fake scandal is a real crime. There is evidence that Benon Sevan, the OFF Coordinator, accepted four payments totaling $150,000 dollars. Another U.N. official -- a Russian procurement officer -- has also been implicated in accepting bribes, although not related to the OFF Program. Additionally, in Iraq, sums of cash have turned up missing from some of the U.N. agencies on the ground. While these thefts were relatively small, they are instances of actual wrongdoing in the U.N.

The Volcker Committee makes much of the fact that the Secretary-General has been "slow to investigate" certain additional allegations. But in every instance so far, the Independent Investigative Committee has looked into them and found no evidence to bear them out. And when the U.N. departed from "best practices," it did not lead to malfeasance or corruption.

There is evidence that Kojo Annan, Kofi's son, made calls to procurement officials while he was working for a Swiss company that was vying for an OFF contract. The Committee has investigated this angle twice and found no evidence that the Secretary-General knew anything about it, but Kojo dropping his name during the bidding process certainly was unseemly.

The other problem is one that every liberal critic of the U.N. will tell you is endemic to the institution: inadequate resources for the task. In the Committee's first Interim Report, released in February, it faulted the U.N. for not adequately auditing the program. That's the headline, but the details tell a bigger story. The report noted that "resources committed to auditing the program were inadequate," and that "limited funding and staffing hampered it effectiveness." Nonetheless, the U.N.'s "auditors were committed and diligent in the audits they performed. ... In fact, the accomplishments of this small group of audit staff appear to be greater than anticipated based on their number alone."

That is a consistent part of the real story of what happened. And despite all of these problems, the relief program was able to feed 27 million Iraqis and cut the rate of childhood death in half.

The Other Real Scandal

If the real scandal was the consequences of the sanctions themselves, the other scandal is the one linking transnational capital, energy and commodity traders, shadowy middle men, and one of the most brutal dictators of the 20th Century.

Because the fact is, the program was set up as a honey-pot and the flies swarmed right in. That's the story that those who care about what wrong with OFF should investigate.

We should find out why, despite the howling from many conservatives, the Bush administration has itself been accused of obstructing the investigation. We should ask: "what information don't they want to come out?" Perhaps it has to do with at least $23.8 million dollars in contracts -- and perhaps as much as $70 million worth -- that Halliburton subsidiaries submitted to the Oil-For-Food program in 1998 and 1999 during Vice President Cheney's leadership.

Or maybe it has something to do with former vice presidential candidate and influential anti-tax crusader Jack Kemp, who reportedly sent a letter to Trent Lott "promoting a secret agenda" on behalf of Iraq and pushing "talking points" drawn up by Virginia oil trader Samir Vincent, who, according to the New York Post's Niles Lathem, "pleaded guilty to charges that he received payments from Iraq to weaken U.N sanctions."

And maybe it's about Marc Rich, who appears to be knee-deep in OFF. While conservatives love to bash Clinton -- rightly -- for pardoning Rich in one of his final acts in office, the truth is the trader who originally made his fortune busting the sanctions against the Apartheid regime in South Africa has many highly-placed friends on both sides of the aisle (and both sides of the "pond").

All of that will come out in about a month with the release of the eighth and final report of the Volcker Committee. It will focus exclusively on the companies that did business with Saddam under the OFF program, and promises to be an explosive exposé. What remains to be seen is who covers it and how.

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