U.N. Lesson: Follow the Oil-for-Food Money

Published July 01, 2004

| FoxNews.com

This is the tale of a bribe linked to the U.N. oil-for-food program in Iraq.

The bribe itself, paid to Saddam Hussein's regime, first made the news in late 2002. What got no attention at the time, however, was just how odd a response it drew from the United Nations. There, it was treated as just another modest irregularity in oil-for-food — worthy of polite inquiry, but not the outrage and immediate expert investigation it deserved.

Certainly there was far less fury from the United Nations over this bribe than Secretary-General Kofi Annan and his aides have since expressed in rejecting criticisms that the world body ran a crooked oil-for-food program. But here's the charm at the center of it all (and one that various investigators now sorting through oil-for-food might want to keep in mind): U.N. procedure itself, even in a matter as serious as bribery, evidently entailed treating Saddam not like a totalitarian ruler under strict sanctions, but as just another esteemed head of state — albeit one with a particularly large U.N. welfare program underway.

Here's the story of the bribe itself — or rather, of its discovery.

As a rule, Saddam's partners-in-corruption were not eager to file official complaints, having nothing to gain from informing on themselves. Nor was the United Nations very inquisitive, despite rumors about corruption from the program's early days. When several oil-for-food contractors brought Iraqi kickback demands to the attention of the program's executive director, Benon V. Sevan, in 2000 — as the Secretariat finally disclosed to the Financial Times in 2004 — he effectively buried the issue at that time by telling informants to leave him alone and go file official complaints with their country missions.

But in the case of this particular bribe, matters had already gone too far for a brush-off.

The informant was a Russian businessman named Gazi Luguev, president of a Swiss-based trading company, Lakia S.A.R.L, which was authorized to buy Iraqi oil from Saddam under the program. Luguev was upset — not because Saddam's regime had asked him for a bribe — but because, by his own account, he had paid the bribe to no avail. He wanted his company's money back.

As detailed in a fax dated Oct. 2, 2002, which Luguev sent to Iraq's State Oil Marketing Organization (SOMO) and copied to the U.N. oil overseers in Sevan's New York office, Luguev had been asked by the Iraqi regime to pay a "deposit" of $60,000 into a secret bank account in the Jordan National Bank in order to procure an oil-for-food shipment of underpriced Iraqi oil. Any such payment was in gross violation of both U.N. sanctions against Iraq and oil-for-food rules, which spelled out that all Iraq's oil-related revenues would flow strictly into a U.N.-held escrow account. To read the Lakia fax, click here — Adobe Acrobat required to view pdf.

According to Luguev's fax, Lakia had paid the $60,000 to Baghdad in advance (which was by several accounts standard practice for such kickbacks on oil shipments, which were widely rumored to be commonplace). But this time, Iraq did not deliver any oil. So Luguev, in his fax to the Iraqi authorities and to Sevan's office, demanded Iraq refund to Lakia its deposit "or we will be obliged to take all necessary legal steps and apply to all concerned organizations to get our money back."

A copy of this fax, and the ensuing correspondence, was obtained by private investigators John Fawcett and Christine Negroni, at the New York law firm of Kreindler & Kreindler. In reviewing these papers recently, they took a closer look at Sevan's response to Luguev's fax. What jumped out was that Sevan had fired off a letter that same day, Oct. 2 (as well he should have, this being formal documentary evidence of a kickback to Saddam's regime.) To read the Sevan letter, click here -- Adobe Acrobat required to view pdf.

But did he write immediately to inform the Security Council, which oversaw the program? Did he alert any independent auditing or investigative authority? 

Evidently not. First, and foremost, Sevan wrote to Saddam's U.N. ambassador, Mohammed Aldouri, attaching Luguev's complaint. Sevan warned Aldouri: "I am duty bound to bring the matter to the attention of the Security Council Committee." Sevan then added a crucial sentence: "Prior to doing so, however, I should like to receive most urgently the views and comments of the Government of Iraq on the information provided by Lakia SARL."

He asked for a response within one week.

In other words, in the interest of what one can only suppose was routine information-gathering at the United Nations, Sevan's first move was, in effect, to give Baghdad a week's notice to bury the evidence and prepare a reply.

In a purely private business setting, this might be excused as nothing worse than an attempt to gather all the facts before taking the case to the boss (though in some quarters, one might hope that documented allegations of a $60,000 payoff would warrant the immediate attention of the top brass).

But oil-for-food was not a private business. It was an international program that existed — and was funded handsomely with 2.2 percent of Saddam's oil revenues — solely to supervise the commerce of a predatory totalitarian regime under strict U.N. sanctions. One would have thought that a fax detailing the illicit flow of money to Saddam's regime via a Jordanian bank account should have inspired loud and immediate alarms on all fronts, and an immediate heads-up to the Security Council — not just an exclusive letter to the Iraqi mission that begins with the salutation, "Excellencies," and requests "views and comments" about the Lakia charges.

Any official oil-for-food document with Sevan's signature gets extra scrutiny these days for two reasons. First, the United Nations has persistently kept most of the vital paperwork concerning the program secret. Second, because there have been allegations, now under investigation, that in 1998 Sevan himself received oil allocations from Saddam.

Sevan has denied he ever took anything from Saddam's regime. But even if he is officially cleared of all allegations, even if in the case of the Lakia bribe he was simply following established procedure, there remains the big question: Just what kind of crazy shop had the United Nations   become that the excellencies of Baghdad — the accused bribe-takers in this dispute — were treated not as a government under sanctions, but as esteemed clients? So softly worded is Sevan's letter that it's hard to tell whether his chief concern was that Baghdad had been collecting bribes, or that Baghdad had failed to deliver on them.

In a reply to Sevan, dated oddly enough a day earlier than Sevan's letter (but registered by the oil-for-food office six days later, on Oct. 8 — just within the deadline set by Sevan) Saddam's Ambassador Aldouri said that the fax from Lakia contained information that was "incorrect." To read the Aldouri letter, click here -- Adobe Acrobat is required to view pdf.

However, according to a Newsweek story about the Lakia kickback spat, published in November 2002, Saddam's government then offered to refund Luguev's money. And while the Security Council's Sanctions Committee was eventually informed of the Lakia affair, a source close to the United Nations reports that such member states as China, Russia, France and Syria opposed any action — and none was taken.

Sevan did not reply to requests for his comments on this matter. Annan's office, asked to clarify if it was U.N. procedure to relay bribe allegations to Saddam before informing the Security Council, gave a pro forma response that the Secretariat is not commenting these days on anything that is "within the purview" of the oil-for-food investigation led by former Federal Reserve Board Chairman Paul Volcker.

Indeed, we have yet to hear any U.N. statement of condemnation, let alone contrition, for the oil-for-food fiasco. Over the course of the program, which ended last year, Saddam's regime by General Accounting Office estimates pocketed more than $4 billion in such "deposits" — skimmed from oil earnings meant to feed and doctor the people of Iraq.

What needs investigating here is not only whether the United Nations violated its own practices, but how it slid into procedures that so comfortably let this happen.

Claudia Rosett is Journalist-in-Residence at the Foundation for the Defense of Democracies, an adjunct fellow at the Hudson Institute, and writes a column, "The Real World," on issues of tyranny and human rights, especially as these relate to the war on terror, for The Wall Street Journal’s  Opinionjournal.com and The Wall Street Journal Europe. Previously, Ms. Rosett has served as a member of The Wall Street Journal’s editorial board in New York, as bureau chief in The Wall Street Journal’s Moscow Bureau and as editorial-page editor of The Asian Wall Street Journal. For her on-site coverage of China’s 1989 Tiananmen Square uprising, Ms. Rosett won an Overseas Press Club Citation for Excellence.

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