Video: Investigators critical of U.N.

updated 2/3/2005 6:12:29 PM ET 2005-02-03T23:12:29

U.N. Secretary-General Kofi Annan will discipline the former director of the oil-for-food program for Iraq and another official named in a probe in the operation, his chief of staff said Thursday.

Benon Sevan, who was in charge of the program, was accused in a report from Paul Volcker, the former head of the U.S. Federal Reserve, of using his position to solicit and receive oil allocations for a trading firm. Another official, Joseph Stephanides, was said to intervene in selecting contractors in the program.

But Mark Malloch Brown, Annan's new chief of staff, acknowledged that there was limited action that could be taken against Sevan, who has retired, although Stephanides was still on U.N. staff.

Should there be proof of criminal acts, however, Annan would immediately lift diplomatic immunity on any U.N. official, Malloch Brown told a news conference. Sevan, in a statement released by his lawyers, denied the allegations and said he was being made a political scapegoat.

‘Unexplained wealth’ and other concerns
Details of Volcker's investigation were released Thursday in a report that accused Sevan of a “grave ... conflict of interest,” saying his conduct in soliciting oil deals was “ethically improper and seriously undermined the integrity of the United Nations,” according to a report released Thursday.

Despite Sevan’s claims that he never recommended any oil companies, the investigation concluded that Sevan repeatedly solicited allocations of oil from Iraq under the program and “created a grave and continuing conflict of interest.”

Volcker did not say that Sevan received kickbacks, but expressed concern at US$160,000 in cash which he said he received from his aunt in his native Cyprus from 1999-2003. The report questioned this “unexplained wealth,” noting that his aunt, who recently died, was a retired Cyprus government photographer living on a modest pension.

The Independent Inquiry Committee headed by Volcker said in its first report that it is still investigating “the scope and extent of benefits” that Sevan received from his request that a small Swiss-based oil company, African Middle East Petroleum Co. Ltd.  Inc., known as AMEP, be given a chance to buy Iraqi oil.

“The most distinct finding is the accumulation of evidence that the executive director of the program Benon Sevan did in fact solicit oil allocations for a small trading company,” Volcker told a news conference releasing the report. “The Iraqis, who were assigning such allocations, certainly thought they were buying influence.”

Official says he’s being scapegoated
Asked whether the committee found any criminal wrongdoing, Volcker said, “We are not a criminal tribunal. Other people will have to draw conclusions from the facts that we have presented.”

He said Sevan had not been entirely cooperative and had not responded to interview requests in a timely way.

Sevan’s lawyer, Eric Lewis, accused Volcker’s committee, known as the IIC, of scapegoating Sevan and denied he ever received a penny.

“The IIC has turned its back on the principles of due process, impartiality and fairness ... and it has caved in to the pressures of those opposed to the mission of the U.N.,” Lewis said in a statement.

Lifeline for Iraqis under sanctions
The oil-for-food program, launched in December 1996 to help ordinary Iraqis cope with U.N. sanctions imposed after Saddam Hussein’s 1990 invasion of Kuwait, quickly became a lifeline for 90 percent of the population.

Under the program, Saddam’s regime could sell oil, provided the proceeds went primarily to buy humanitarian goods and pay reparations to victims of the 1991 Gulf War. Saddam’s government decided on the goods it wanted, who should provide them, and who could buy Iraqi oil. But the Security Council committee overseeing sanctions monitored the contracts.

In a bid to curry favor and end sanctions, Saddam allegedly gave former government officials, activists, journalists and U.N. officials vouchers for Iraqi oil that could then be resold at a profit.

Volcker’s report also found “convincing and uncontested evidence” that selection of the three U.N. contractors for the oil-for-food program — Banque Nationale de Paris, Saybolt Eastern Hemisphere BV, and Lloyd’s Register Inspection Limited — did not conform to established financial and competitive bidding rules.

‘Affected by political considerations’
Paris-based BNP was chosen by former Secretary-General Boutros Boutros-Ghali to be the program’s banker without meeting the U.N. requirement to accept the “lowest acceptable bidder,” the report said.

Volcker told reporters that Boutros-Ghali is under investigation for that decision, which he said was “clearly affected by political considerations.”

The competitive bidding process for a company to monitor Iraqi oil exports was manipulated by Allan Robertson, who was in charge of the U.N. procurement department, so Saybolt could lower its bid and win the contract, the report said.

For the inspection of humanitarian goods, the report said, there was a clear early preference for Lloyd’s and the competitive bidding process was “tainted” by Stephanides, who was then chief of the U.N. Sanctions Branch and deputy director of the Security Council Affairs Division. His contacts with an unnamed U.N. mission, which a U.N. committee acquiesced to for political reasons, led to Lloyd’s winning the contract even though there was a lower bidder, it said.

Poor auditing
Pointing to flaws in the auditing of the program, the report said there was insufficient funding and staff, poor planning, and stressed that important areas of the oil-for-food program were never reviewed. It called for greater transparency and accountability.

The report said U.N. watchdog Dileep Nair had a report that was critical of the oil-for-food management but never submitted it to the General Assembly.

Sevan has denied any wrongdoing but Volcker said evidence from Iraqi officials contradicted that.

Sevan’s lawyer said a statement would be released later Thursday. He has retired, but remains on the U.N. payroll for a dollar a year to help with the investigation.

The committee said its investigation found that Sevan requested oil allocations from the Iraqi government on behalf of AMEP from 1998 to 2001. The company received the allocations and earned US$1.5 million (euro1.15 million) from them.

“The committee finds also that Mr. Sevan’s solicitations on behalf of AMEP and AMEP’s resulting purchases of oil presented a grave and continuing conflict of interest, were ethically improper, and seriously undermined the integrity of the United Nations,” the report said.

AMEP was run by Fakhry Abdelnour, described as an oil trader. The report cited an Iraqi official as saying that Sevan asked Iraqi officials in 1998 to allocate oil vouchers to AMEP to “help a friend,” and said the friend’s name was “Abdelnour.”

Investigation continues
As for administration of oil-for-food money, it said that in general, budgeting, accounting, auditing and administration was relatively disciplined but there were isolated violations.

The interim report did not address questions about Annan or the employment of his son, Kojo, by the Swiss company Cotecna Inspection SA, which had a U.N. contract to certify deals under the oil-for-food program. It said that topic would be addressed in another report.

Volcker said he intends to issue a definitive report in mid-summer on the entire management and oversight of the program, including the role of the U.N. Security Council, the U.N. Secretariat and the U.N. agencies that administered the program in Iraq.

Volcker said the investigation is also going to focus on some parties involved in the sale of Iraqi oil or the purchase of goods under the program in cooperation with national investigations.

The program ended in November 2003, after the U.S.-led war that toppled Saddam, but allegations of corruption first surfaced in late 2000, with accusations that the Iraqi leader was putting surcharges on oil sales and pocketing the money.

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