The Magazine

The Buck Still Hasn't Stopped

From the October 3, 2005 issue: The Volcker report on Oil-for-Food is sadly incomplete.

Oct 3, 2005, Vol. 11, No. 03 • By CLAUDIA ROSETT
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ON SEPTEMBER 7, PAUL Volcker's inquiry into the Oil-for-Food program issued its "definitive report" on the biggest relief program--also the biggest scandal--in the history of the United Nations. The investigation alone cost $34 million, took over 16 months, and employed some 75 staff from 28 countries. Running to four volumes and totaling 847 pages, the report is hefty. But definitive it is not.

Volcker's report is at best a beginning, and a skewed and incomplete one at that. To be fair, credit is due to some of the investigators on Volcker's staff, who have conducted many interviews and toiled down many byways of the U.N. paper trail to produce such items as footnote 64, page 27, Volume III. Here we find that "kickbacks were levied on all or nearly all contracts" among the thousands of U.N.-approved deals done by Saddam Hussein, as the program, during its final years, hit its full multibillion annual stride. The investigators have also painstakingly documented such findings as the one on page 124 of Volume III. Here we find that, during Oil-for-Food, Secretary General Kofi Annan, his deputy secretary-general, Louise Fréchette, and his chief of staff, Iqbal Riza, "were all informed of the issue of kickbacks, but remained passive."

But somewhere between the Volcker committee's labors on the ground and the conclusions of the three commissioners at the top--former Fed chairman Volcker, South African justice Richard Goldstone, and Swiss lawyer Mark Pieth--a fog descends. Despite the load of detail, illuminating and deeply damning to the United Nations, the result is a patchwork of dropped leads and watered-down judgments, leading in some cases to unwarranted and even bizarre conclusions.

Not that getting to the bottom of Oil-for-Food could ever be easy. The program was vast. From 1996 to 2003, it was supposed to ensure that more than $110 billion worth of oil sales and relief purchases contracted by Saddam's regime were honest, and that the proceeds were fairly distributed to ease the suffering of more than 24 million people in U.N.-sanctioned Iraq. But, under cover of U.N. secrecy, with the United Nations' approval, and while the international body assured the public that Oil-for-Food was one of its most efficient programs ever, Saddam, by Volcker's estimate, skimmed and smuggled his way to $12.8 billion in illicit income. And this is a conservative estimate that omits some rather obvious scams. By more complete estimates, Saddam swiped as much as $17 billion or upwards. There is abundant evidence--turned up by Congress, Treasury, the CIA, private investigators, and the media--that these illicit billions went not only to build palaces, but also to fortify Saddam's Baathist dictatorship, restock at least his conventional arsenal, bribe politicians, pay off accomplices worldwide, and fill secret bank accounts that may have funded terrorists during Saddam's reign--and may still be funding them today. This picture of where the money went is vital to grasping the full implications of the United Nations' corruption and dereliction in running Oil-for-Food. But Volcker has deferred almost all discussion of it to an "additional report," due out with a lot less fanfare next month.

If Volcker's September 7 "main report" is to be the final word on U.N. management of this fiasco, then the bottom line is this: Under a program involving thousands of U.N. employees, nine U.N. agencies, and an administrative budget totaling $1.4 billion, the United Nations abetted Saddam Hussein in one of the biggest heists in history--and no one, except for a couple of third-tier U.N. officials, is being punished for it. Annan, having taken "responsibility," is still at his post. His deputy, Louise Fréchette, having directly supervised the corrupt official heading Oil-for-Food, is now in charge of U.N. reform. And the former head of Oil-for-Food, Benon Sevan, accused by Volcker of taking at least $147,000 in bribes from Saddam, has been allowed to cash in his U.N. pension and leave the country.

The two U.N. officials penalized to date played relatively small roles in the Oil-for-Food saga. One is a former political affairs officer, Joseph Stephanides, who was never accused of taking a bribe and is appealing Annan's decision to fire him. The other is a Russian staffer in the U.N. procurement department, Alexander Yakovlev, portrayed in an initial, interim report from Volcker this past February as a champion of U.N. integrity. Only after media reports documenting otherwise did Volcker report in August that Yakovlev had tried unsuccessfully to solicit a bribe via Oil-for-Food. (Yakovlev entered a guilty plea in a Manhattan federal court last month for scams that appear to have centered on U.N. business outside Oil-for-Food.)

These are the predictably thin results of a report that, despite such media descriptions as "blistering," arrives again and again at oddly limp conclusions regarding individual U.N. officials. No doubt by the standards of a United Nations unaccustomed to anyone poking through its files, peering at its books, or asking the secretary-general to explain his own organizational chart, Volcker's findings were a sharp rebuke. The preface criticizes not only Oil-for-Food, but the United Nations as a whole, quite rightly, for "managerial weaknesses," "ethical lapses," and "serious instances of illicit, unethical and corrupt behavior," along with a "grievous absence of effective auditing and management controls."

And yet, more than 800 pages later, as the volume wends to Volcker's final recommendation that the United Nations add another branch of bureaucracy by establishing "an office of ethics," the buck still hasn't stopped. Having enjoyed unlimited access to U.N. records and personnel, Volcker's committee shows a whole series of top officials, including both Secretary-General Kofi Annan and his predecessor, Boutros Boutros-Ghali, wandering oblivious through a gauntlet of Iraqi schemes to subvert and manipulate Oil-for-Food via everything from bags of cash to open demands for kickbacks.

Part of the problem is that Volcker has imposed on his inquiry the standards not of a prosecutor, but of an accountant. Faced with a pole too tall to measure by hand, he instead tells us its precise circumference on the ground, and lets it go at that. Much has been aired already of Volcker's account of Annan's strange and abiding ignorance of his own son's lively lobbying for U.N.-related business. So let us focus on another character, Annan's former special adviser Maurice Strong, longtime U.N. guru of good governance. (Strong did depart the United Nations this spring, but with Annan's office expressing fervent hopes he will soon return.)

At some length, Volcker does the genuine service of laying out how Strong, in mid-1997, received a check for $988,885 made out to his name (a copy can be found on page 106, Volume II). The check was drawn on a Jordanian bank, funded by Saddam's regime, and delivered by Korean businessman Tongsun Park, who was a U.N. "back-channel" go-between with Saddam. Strong endorsed the check over to a third party to invest in a Strong family-controlled business, Cordex Petroleum. Interviewed by Volcker's team earlier this year, Strong said he did not recall receiving such a check. When shown a copy, he said he did not know the money came from Iraq. Volcker leaves the matter there, concluding that "the Committee has found no evidence that Mr. Strong was involved in Iraqi affairs, matters relating to the [Oil-for-Food] Programme or took any actions at the request of Iraqi officials."

But how hard did the Volcker committee look? In July 1997, the month before Strong cashed the Saddam-backed check, Annan was issuing his first U.N. reform program, reshaping the secretariat. Strong was the major architect of that reform, and was thanked profusely by Annan at the time for "his important contributions." A significant aspect of that reform was the consolidation of the then-new, ad hoc, and diffuse Iraq Oil-for-Food program into a single, more firmly entrenched office. This move tilted control of the daily administration of Oil-for-Food away from the Security Council and toward the secretariat. When the new, unified office set up shop three months later, in October 1997, Annan appointed Sevan as executive director. That marked the beginning of the stretch in which Sevan began taking bribes from Saddam, and the Oil-for-Food program, urged on by Annan, began to grow astronomically in size and scope. Lacking any disclosure of the secret U.N. paper trail that led to the creation of this office and its expanded mission, it is impossible to know whether Strong took a direct hand in setting up the office from which Sevan then, in effect, collaborated with Saddam. Perhaps Strong had nothing to do with it. But Volcker doesn't even ask the question.

Only in the case of Sevan, already documented in the press before the Volcker inquiry got started in mid-2004, does Volcker assign blame to a specific individual. And even there, the Volcker committee fumbled, issuing an interim report last February, which, after eight months of preliminary investigation, merely rebuked Sevan for engaging in a "grave and continuing conflict of interest." Two weeks later, Sen. Norm Coleman's Permanent Subcommittee on Investigations accused Sevan outright of having taken bribes from Saddam. By the time Volcker finally worked around in his third interim report, August 8, to repeating the accusation, Sevan had made use of the intervening months to cash in his U.N. pension and leave New York. He is now widely believed to be back in his native Cyprus, which has no extradition treaty with the United States.

It's all enough to raise questions about the agenda of the Volcker probe itself. As it happens, Rep. Henry Hyde's Committee on International Relations is planning to do just that. Hyde's investigators expect to focus on, among other things, why one of Volcker's lead investigators, Robert Parton, defected this past April with boxes of evidence. Parton explained via his lawyer that he had resigned on "principle" because the second of Volcker's three interim reports had been too soft on Annan. Volcker went through the courts to silence Parton, but that arrangement is about to end. Hyde's inquiry is expected to issue a report on the United Nations later this fall. Coleman's investigators into Oil-for-Food are also due to check in. Federal prosecutors have issued a number of indictments related to U.N. corruption. And--who knows?--Volcker next month gets one more chance.

Claudia Rosett is a journalist-in-residence with the Foundation for the Defense of Democracies.