October 20, 2004
by Claudia Rosett
Over at the United Nations "Conflicts-of-Interest-R-Us" world headquarters, there's a new twist on the former Oil-for-Food program for Iraq. Secretary General Kofi Annan has now decided that the U.N.-authorized investigation into Oil-for-Food, the "independent inquiry" headed by former Fed Chairman Paul Volcker, will be funded with money left over in the administrative account of ...Oil-for-Food.
In other words, Volcker's investigation, with its $30-million projected budget, will now be funded out of one of the same Oil-for-Food accounts Volcker is supposed to be investigating.
That's bad enough. The other problem with Annan's plan is that all Oil-for-Food money flowed from the oil wells of Iraq and was meant to bring aid to the Iraqi people. Any leftover funds belong by rights to the Iraqis, to serve their needs - not those of the U.N. So why should Annan use the Iraqi people's money to pay for an inquiry into an Iraq-relief program that under U.N. management became the biggest bungle in the history of humanitarian relief?
Maybe that seems natural to Annan, who runs a U.N. Secretariat that for over six years was paid by Saddam to supervise Saddam. But that was precisely one of the conflicts of interest that helped create the U.N. Oil-for-Food fiasco that now needs investigating. Under Oil-for-Food, the Secretariat collected a 2.2 percent cut of Saddam's oil revenues to cover the cost of ensuring that Saddam did nothing but good deeds for his fellow Iraqis with the rest of his oil income (apart from using .8 percent for the weapons inspections that for four years Saddam refused). The evidence is now legion of the $10 billion or more grafted by Saddam out of Oil-for Food; the expired medicines and rotten cooking oil shipped into Iraq; the relief funds spent on palaces, fancy cars, illicit arms, and whiskey for Saddam's Republican Guard.
One lesson of all this ought to be that incentives work pretty much the same way at the U.N. as anywhere else. With the U.N. Secretariat effectively paid on commission by Saddam to keep an eye on Saddam, and U.N. secrecy blanketing the deals, the U.N. rapidly evolved into one of Saddam's biggest business partners. The Secretariat, home to the Office of the Iraq Program (better known as Oil-for-Food) and the program's administrative budget, collected fees from Baghdad totaling $1.4 billion. It should come as no surprise, then, that the Secretariat played Arthur Andersen to Saddam's Enron - assuring the world that all was well, telling us that Oil-for-Food was one of the most efficient and thoroughly audited programs the U.N. had ever run (a terrifying thought, if true).
Not all the money in the Secretariat's 2.2 percent Oil-for-Food administrative account got spent before Saddam fell, and the U.N. relief program six months later wound to an end. It is from the remains of the 2.2 percent account's $1.4 billion that Annan now proposes to pay Volcker's Independent Inquiry Committee (IIC) to investigate matters including, one might assume, exactly how the U.N. spent the rest of that $1.4 billion. That creates a certain disincentive to look too close.
Back this past March, when Annan finally conceded that Oil-for-Food's bacchanal of bribery and kickbacks did in fact deserve investigating, even the U.N. Security Council had its doubts about using leftover Oil-for-Food money to fund a U.N. inquiry. In a rare interlude of integrity, the Security Council decided that Annan should drum up funding from other sources.
This week, Annan decided otherwise. In a letter dated Oct 13 to the president of the U.N. Security Council, Annan explained - in language implying the idea came not from Annan himself, but from some distant nebula: "An examination of the proposed budget reached the conclusion that the independent inquiry could be financed from funds earmarked for the administrative and operational costs in the Escrow Accounts."
In English, that means Annan now plans to fund Volcker's $30 million budget out of the so-called 2.2 percent U.N.-managed escrow account, meant to oversee relief for Iraq. The purpose of this account is spelled out in the U.N.'s own documents on Oil-for-Food. The program was set up by former U.N. Secretary-General Boutros Boutros-Ghali, who in an interim report to the Security Council, dated Nov. 25, 1996, specified that out of the oil revenues Saddam would collect under the program, "Approximately 2.2% will be set aside for the various operational and administrative costs to the United Nations associated with the implementation of resolution 986 (1995), as specified in paragraph 8(d)."
That Resolution 986, referred to by Boutros-Ghali, was the resolution authorizing Oil-for-Food in the first place, and enumerating its aims. The relevant paragraph 8(d), explains that the 2.2 percent account will be used "To meet the costs to the United Nations of the independent inspection agents and the certified public accountants and the activities associated with the implementation of this resolution." Those activities, as the resolution clarifies, boiled down to ensuring not some post-Saddam investigation of Oil-for-Food iniquities, but "equitable distribution of humanitarian relief to all segments of the Iraqi population."
Perhaps Annan regards Volcker's inquiry as just one more in the long series of U.N.-authorized audits that during Oil-for-Food's heyday somehow by-passed Saddam's circus of corruption. If so, then why spend anyone's money on an inquiry now shaping up as one more Kofi cover-up?
Tapping the dregs of the Oil-for-Food 2.2 percent account relieves Annan of having to go hat-in-hand to U.N. member states, asking for money to pay for an investigation into one of the U.N.'s biggest scandals, which took place almost entirely on his watch. But that might just be a healthy exercise, especially if it involves Annan finally opening the books on such matters as the 2.2 percent account. To this day, the U.N. has provided no clear public disclosure of how that money got spent or how much, precisely, remains. Presumably there is at least $30 million in ready cash, soon enroute to Volcker. But is there more?
In a letter earlier this month to the Fox News website, U.N. Under-Secretary-General Shashi Tharoor said the Secretariat had turned over $272 million in unspent money from the 2.2 percent administrative account to the "general relief effort" (presumably the relief funds with which Saddam liked to order up substandard goods and skim kickbacks), and since Saddam's fall the Secretariat had turned over another $100 million to the Development Fund for Iraq. That sounds noble, but leaves the question of: How do we know this is so? Who outside the U.N. has seen the books? And who at the U.N. got paid just how much out of this 2.2 percent account for doing precisely what to supervise Saddam (and evidently not doing it very well)? It leaves the question of why on earth these accounts, including interest paid on whatever millions remain, should be kept secret, with information dribbled out only now and then in U.N. letters implying we should trust the nine-digit figures cited therein. And it leaves the question of why there is still any 2.2 percent account at all - since the Oil-for-Food program officially ended almost eleven months ago, on November 21, 2003. Why wasn't all remaining money turned over to the Iraqis back then?
Calls to the U.N. and Volcker's team brought no answers. The U.N. isn't eager to talk. And Volcker's investigation team, secretive in any event, is now shy a press secretary. The woman brought on board in that post this summer resigned last month after it came to light that two years ago, in an interview with the British newspaper The Guardian, she implicitly compared President Bush to Osama bin Laden.
But this much is clear: If Volcker wants to run a decent investigation into Oil-for-Food, he would do well to insist that Annan find some way to fund it other than robbing the Iraqi people while creating a financial conflict of interest for Volcker's own inquiry.
All that said, if Annan and Volcker go ahead with this plan, the U.N. should probably keep in reserve a last few drops of that leftover Saddam oil money. Annan just might need it for the logical next act in this U.N. saga: The independent investigation into what is about to become the not-so-independent Volcker investigation.
This article appeared on National Review Online on October 15, 2004.
Claudia Rosett was formerly an adjunct fellow with the Hudson Institute.
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