Secretary-General Kofi Annan suspended the head of the U.N. Oil-for-Food (search) program in Iraq and a senior U.N. official who dealt with contracts following an independent investigation that accused them of misconduct, a U.N. spokesman said Monday.

Benon Sevan (search), who was in charge of the $64 billion humanitarian program, and Joseph Stephanides (search), who heads the U.N. Security Council Affairs Division, were told Friday that they had been suspended with pay, spokesman Fred Eckhard said.

Sevan and Stephanides were told they would receive a letter this week "laying out the charges against them," which will allow them to defend themselves before U.N. disciplinary bodies in what will likely be a lengthy appeals process, he said.

"Suspension is the beginning of a disciplinary process," Eckhard said.

Sevan ran the Oil-for-Food program from 1996 until it ended in November 2003 and retired from the United Nations last year but remains on the payroll for $1 a year to help with the investigation. Stephanides is scheduled to retire in about five months.

An investigation led by former Federal Reserve Chairman Paul Volcker (search) accused Sevan in an interim report released Thursday of a "grave conflict of interest," saying his conduct in soliciting oil deals from Iraq was "ethically improper and seriously undermined the integrity of the United Nations."

Volcker did not say that Sevan received kickbacks, but expressed concern at $160,000 in cash which he said he received from his aunt in his native Cyprus from 1999-2003. The report questioned this "unexplained wealth," noting that his aunt, who recently died, was a retired Cyprus government photographer living on a modest pension.

Volcker said he is still investigating "the scope and extend of benefits" that Sevan received from his request that a small Swiss-based oil company, African Middle East Petroleum Co. Ltd. Inc., known as AMEP, be given a chance to buy Iraqi oil.

Sevan's lawyer, Eric Lewis, accused Volcker's Independent Investigative Committee of trying to "scapegoat" the head of the program and said, "Mr. Sevan never took a penny." He said Sevan was proud of his 40-year U.N. career and of the oil-for-food program, the largest humanitarian relief operation in U.N. history, which saved tens of thousands of innocent Iraqis "from death by disease and starvation."

Under the program, Saddam Hussein'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 U.N. Security Council committee overseeing sanctions monitored the contracts.

To curry favor and end sanctions, Saddam allegedly gave former government officials, activists, journalists and U.N. officials vouchers for Iraqi oil that could then be resold at a profit.

Volcker's report found "convincing and uncontested evidence" that selection of the three U.N. contractors for the Oil-for-Food program — Banque Nationale de Paris, Saybolt Eastern Hemisphere BV, and Lloyd's Register Inspection Limited — did not conform to established financial and competitive bidding rules.

The report said Stephanides, who was then chief of the U.N. Sanctions Branch and deputy director of Security Council Affairs, "tainted" the competitive bidding process for a company to inspect humanitarian goods entering Iraq under the program.

His contacts with an unidentified U.N. mission — which a U.N. committee acquiesced to for political reasons — led to Lloyd's winning the contract, even though there was a lower bidder, it said.

Annan said he was "shocked" about Volcker's findings regarding Sevan.

He has reiterated several times that if any of Volcker's findings lead to criminal charges, he would cooperate with national law enforcement authorities and lift diplomatic immunity.

Eckhard said Monday the lifting of diplomatic immunity is an executive option for the secretary-general, which he would consider exercising once there was convincing evidence of criminal activity.

The suspension of Sevan and Stephanides is a separate, internal U.N. process, he said.

The two U.N. officials will have 14 days to respond to the formal charges. The U.N. Secretariat would then decide on what action "of a disciplinary nature to take." he said. There could then be two appeals.

"So this process can take months and months and months to be completed," Eckhard said.