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CIA Details Oil-for-Food Scam

A new CIA report released Wednesday outlines how Saddam Hussein (search) illegally sponged off the seven-year U.N. Oil-for-Food program (search) to enrich his regime.

The report estimates the deposed Iraqi dictator diverted up to $1 billion over the years from the relief program to fatten his military and industrial capabilities — all right under the U.N.'s nose. The diverted cash, part of a series of bribes and payoffs related to the program, was supposed to go to suffering Iraqis in the form of humanitarian aid and food.

The report by CIA consultant and weapons inspector Charles Duelfer (search) is expected to reveal how Saddam turned the humanitarian program into a cash cow for himself and his cronies. U.S. officials said that in the report, Duelfer asserts that Iraq readily accepted the 1996 program because he knew it would give his government a steady flow of cash, much of which he could toss into his military-industrial complex.

Officials said Duelfer concluded in the report that the move was shrewd because by 1996, five years after the Persian Gulf War (search), Iraq's domestic economy was in such a sorry state that the regime could have collapsed at that time. The program allowed for the transfer of funds into civilian enterprises that could later have been converted for military use.

The Duelfer report estimates that Saddam's military-industrial budget was $8 million per year in 1996. By 2001, prior to the Sept. 11 terror attacks, the figure had ballooned to $350 million per year. The report credits the Oil-for-Food program for the jump, said the U.S. officials.

The CIA's details come as the Wall Street Journal on Wednesday exposed new details about the Oil-for-Food program's head, Benon Sevan, who has been accused of receiving valuable oil contracts while he ran the program. Sevan has denied receiving bribes or payoffs, but the Journal alleged Sevan received contracts worth more than $1 million over five years.

"We raised issues about smuggling ... concerns about quality of the metering and other tools that we had available to us to conduct our duties under the Oil-for-Food program. We reported those to the U.N. This was outside our mandate to do these things," said John Denson, general counsel for Saybolt, one of the companies that was hired to monitor oil sales and the products entering Iraq bought with the proceeds.

Representatives from Saybolt testified in the House on Tuesday that they were threatened by Iraqi officials — on one occasion by 20 armed guards — and stymied by Saddam's ability to manipulate records and trade.

One European contractor hired by the United Nations to make sure the program was legitimately operating said he also complained that when he brought up allegations of corruption to Sevan, the United Nations did little or nothing to investigate.

Investigators are probing whether Saddam bought off the U.N. Security Council by giving billions in contracts to France, Russia and China, three of the five permanent members on the council. At congressional hearings on Tuesday, House Government Reform subcommittee Chairman Chris Shays, R-Conn., charged that the United Nations turned a blind eye to the corruption.

"It is really sad that we were so eager to end the embargo that we were willing, basically, to set up a program that really amounted to a fraud. Saddam got what he wanted, and yet proclaimed there were still sanctions," Shays said.

Meanwhile, the list of companies with whom Saddam did not want to do business was obtained by investigators working for House International Relations Committee Chairman Henry Hyde, R-Ill. The top reason Saddam apparently refused to do business with companies was that they also sold materials to what Iraqis called "The Zionist entity," in other words, Israel.

FOX News' Eric Shawn and Ian McCaleb and The Associated Press contributed to this report.