Volcker Report to Blast U.N. Management

A U.N.-authorized investigation of the Oil-for-Food (search) program to be released Thursday will say that the official charged with running the $60 billion program violated U.N. conflict of interest rules.

The report will say that Benon Sevan (search) broke the rules by allegedly trying to obtain oil vouchers from Saddam Hussein's regime in Iraq, the head of the investigation said in a news column. Sevan has been accused of receiving about $1 million worth of lucrative oil vouchers but he has denied any wrongdoing.

This is the first time a high-level U.N. official has been implicated by the investigative panel headed by Paul Volcker (search), a former chairman of the U.S. Federal Reserve. Volcker's group — known as the Independent Inquiry Committee — will publicly release the report Thursday at 3 p.m. EST.

Volcker personally delivered a copy of the 200-page report to U.N. Secretary-General Kofi Annan on Thursday morning, but refused to talk to reporters at U.N. headquarters.

In a opinion piece on the Wall Street Journal's editorial page, Volcker said that the committee found that "the procurement process was tainted, failing to follow the established rules of the organization designed to assure fairness and accountability."

Volcker also said the evidence against Sevan is "conclusive."

Sevan "placed himself in an irreconcilable conflict of interest, in violation both of specific United Nations rules and of the broad responsibility of an international civil servant to adhere to highest standards of trust and integrity," Volcker said.

Click here to read Volcker's Wall Street Journal opinion piece (paid subscription required).

The report apparently will not deal with the possible connection of Annan's son, Kojo Annan (search), to Oil-for-Food. But Volcker said in the Wall Street Journal column that his investigation into Kojo Annan "is well advanced and will be the subject of a further Interim Report."

Kojo Annan was employed for a period by the Swiss company, Cotecna Inspection SA, which had a U.N. contract to certify deals under the Oil-for-Food program.

Critics have raised questions about nepotism and whether Kojo Annan (search) played any role in securing contracts for Cotecna — allegations he denies. Volcker is expected to address actions by the secretary-general and his son in a separate report later this winter, the source close to the investigation said.

The Oil-for-Food program, launched in December 1996 to help ordinary Iraqis cope with U.N. sanctions imposed after Saddam Hussein's (search) 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.

The Financial Times reported Tuesday that Sevan personally intervened to steer lucrative Iraqi oil contracts to Africa Middle East Petroleum, a Swiss-based oil trading company. The contracts could be sold to international traders for a markup of up to 35 cents a barrel, the paper said.

Last month, Volcker released more than 50 audits of the Oil-for-Food program carried out by the U.N.'s internal watchdog office, headed by Dileep Nair, who is also expected to be criticized in the report, the source familiar with the investigation said.

The audits detail how U.N. agencies working under the Oil-for-Food program allegedly squandered millions of dollars through suspect overpayment to contractors, mismanagement of purchasing and assets, and fraud by its employees.

In a briefing paper that accompanied the release of the audits, Volcker's Independent Inquiry Committee questioned why the auditors neglected the New York headquarters of the Office of the Iraq Program that Sevan headed. It said auditors also neglected the oil and humanitarian supplies contracts, and transactions through the program's account at the French bank BNP Paribas.

Investigators say Saddam's government used its control over contracting to corrupt the program.

Expectations that the preliminary report will produce real evidence are high, especially since Volcker has come under intense criticism for comments downplaying his potential findings.

Annan told reporters Wednesday the United Nations is already taking measures to strengthen some management practices and will implement Volcker's recommendations.

He added that he has already asked the General Assembly to review the mandate of the U.N. watchdog office, which was created 10 years ago, "to see how we can strengthen it and give it appropriate authority to do its work."

Mark Malloch Brown, the secretary-general's new chief of staff, said Monday Volcker will probably "land some very heavy blows."

Asked about his comment, Annan quipped with a laugh, "Do I look worried?"

"We will look at the report when it comes," he said. "Obviously there will be some, maybe, harsh judgments."

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