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Iraqi People Suffered Under Oil-for-Food Scam

From the looks of it now, it's hard to believe Iraq once had a first-class health care system.

"It was one of the best in all of the Middle East," said Dr. Haqqi Razouki, director of Baghdad's Al-Yarmouk Hospital (search). "But following the first Gulf War the things started to go downhill."

The declining health care system turned up the pressure at the United Nations (search) to dump the sanctions. The United States and the United Kingdom balked but agreed to ease the sanctions with the Oil-for-Food program, created in late 1996 to allow Iraq to sell oil under strict conditions.

[Editor's Note: this is one in a series of articles about the U.N. Oil-for-Food program. Check back tomorrow for the next installment.]

Iraq remained a member of OPEC during Oil-for-Food but the United Nations would in effect take over the Iraqi economy — overseeing the sale of oil, depositing the profits in an escrow account, and ensuring the money bought only food, medicine and other humanitarian supplies for the Iraqi people.

Saddam was never supposed to see a dinar or a dollar. But in Iraq, the people knew better.

"Their suffering increased, their mortality increased," said Dr. Khudair Abbas, Iraq's health minister after Operation Iraqi Freedom (search), the second Gulf War in 2003 that succeeded in ousting Saddam from power. "Everybody knew that the Oil-for-Food, it was an embargo on the ordinary Iraqi people … Saddam's regime was not touched."

Not touched because the United Nations largely let Saddam call the shots, said Claudia Rosett (search), a journalist in residence for the Foundation for the Defense of Democracies (search) and a FOX News contributor working on Oil-for-Food stories.

"Saddam got to pick his own business partners. He could decide who he sold oil to, who he bought relief goods from, he drew up the shopping list for the people of Iraq," Rosett said.

"This was a program so perverse that if they had set out to create a crooked scheme, I can't think how they could have done it better," she said.

Because the United Nations kept them secret, investigators are just learning about some of Saddam's new trading partners. Many were based in Switzerland, Liechtenstein, the Bahamas – countries known for being secret financial havens.

Others were front companies controlled by Saddam himself, and, still others may have even more sinister connections.

Though Saddam was supposed to sell his oil at market price, he offered deep discounts. That way, when his handpicked buyers resold it at market, they reaped a windfall, which they split with Saddam. Saddam skimmed 30 to 50 cents on every barrel of oil.

"That money went into secret, illicit bank accounts outside Iraq, and bingo: Saddam had access to money outside the country in spite of sanctions," Rosett said.

Saddam, reportedly, was soon also handing out Oil-for-Food "vouchers" to all sorts of friends of his regime.

The vouchers entitled the holder to buy huge amounts of Iraqi oil — a million barrels or more at a discount, sources told FOX. The situation was seen as a perfect vehicle for Saddam to hand out bribes.

Even if someone wasn't in the oil business, it was easy to convert such vouchers into hundreds of thousand of dollars.

Word is someone only needed to stop by Baghdad's Al Rashid Hotel (search).

In the Saddam Hussein era, the hotel was the main stop on the Oil-for-Food tour. Regime-friendly types would stay there when visiting Baghdad. They'd stop and say hello to Saddam or a crony, snag a voucher good for a load of Iraqi crude and conveniently enough there were oil traders in the lobby of that hotel who could turn those vouchers into cash.

Just who got these vouchers was secret, as was another alleged Saddam scam to hit up the "aid" suppliers for kickbacks. Saddam purposely overpaid for supplies, allowing venders to collect extra profits and to kick back, say, a 10 percent so-called "service charge."

Although the United States put an end to Saddam's oil-pricing scam in 2001, aid suppliers paid those illegal surcharges until the end, and the U.S. Government Accountability Office (search ) estimates Saddam pocketed at least $4.4 billion in kickbacks.

The GAO also found that Oil-for-Food let Saddam pocket an additional $5.7 billion from oil smuggling — for a grand total of at least $10.1 billion in illegal revenues.

Supporters of Oil-for-Food said even if that's true, Iraqi people still received — by a U.N. estimate — $15 billion in aid from a total of $67 billion in oil sales.

Benon Sevan (search), the head of the U.N. Oil-for-Food program, spoke to FOX News about the program in November 2002.

"Just over five years, since the start of the implementation of the program, we have been able to almost double the food baskets," Sevan said then. This year, Sevan has refused to discuss Oil-for-Food with FOX because of investigations into the program's management.

There is no doubt that Oil-for-Food did some good — but maybe significantly less than its proponents think because it now appears some of those supplies were unusable. That's because Saddam also generated kickbacks by allowing vendors to fill their orders with worthless goods or incomplete shipments.

"This is a sickening problem," said Dr. Abdul Wadood Al-Talibi, an Iraqi health official, who showed FOX equipment for a new hospital that never got installed.

"The U.N., they are telling me that they don't know. I don't buy that," Al-Talibi said. "When it comes to the millions of Iraqi money, and they don't know? God forgive them."

Al-Talibi said, "God forgive them" because the United Nations was paying itself a 2.2 percent commission on every oil sale. It collected $1.4 billion to ensure that Oil-for-Food was on the up-and-up.

But according to the GAO, U.N. inspectors visually checked only 7 to 10 percent of the shipments into Iraq.

The United Nation's own secret internal audit — obtained by FOX News — found that management of border inspections had "not been adequate" and that the company the United Nations hired to check Oil-for-Food shipments — a Swiss-based firm called Cotecna (search) — had not "adhered" to its contract.

That came as no surprise to Kamil Gailani, who was minister of finance under the Iraq Governing Council, the U.S.-appointed body that helped run the country between the end of the war and the creation of Iraq's new government.

"I think they only just check like that and they don't interfere with more details," Gailani said.

Gailaini said that U.N. inspectors let shipments of spoiled food and expired medicines get through. "Maybe they were warned by the Iraqi government not to check it, I don't know, there is a possibility of that."

In a written statement, Cotecna told FOX it performed ethically and couldn't respond to allegations due to confidentiality agreements it made with the United Nations — but said it is cooperating with U.N. and congressional investigations.

Of course, an audit wasn't needed to see Saddam was getting more powerful from Oil-for-Food.

All around Iraq, parks, palaces and other lavish marble encrusted structures were concrete evidence of the dollars being pumping into the Saddam Hussein regime right up until the very end.

Kofi Annan met with Saddam at one of those palaces in 1998, a time when he was defiantly blocking U.N. weapons inspectors while Annan tried to get him to reconsider.

Saddam refused, and yet in 1999 the United Nations began removing all restrictions on the amount of oil Iraq could sell. By 2000, Saddam was buying fleets of Mercedes Benz automobiles and other luxury goods.

The United Nations even let him spend $50 million to upgrade Iraq's TV and radio propaganda machine that coalition forces bombed in Operation Iraqi Freedom. Then there's the $20 million that the United Nations approved for the Olympic program run by Saddam's notorious son, Uday.

Well known, even then, were stories of how Uday tortured and killed athletes. Later, coalition soldiers found in Uday's Olympic complex a chamber of horrors that included an actual iron maiden, a medieval apparatus of death.

"What this program was helping to sustain was a regime which executed people, which employed professional rapists to torment them," Rosett said. "Yes, some relief was delivered, but at what cost? The cost was it helped keep Saddam in power."

Greg Palkot currently serves as a London-based senior foreign affairs correspondent for Fox News Channel (FNC). He joined the network in 1998 as a correspondent.