The U.N. leader's chief of staff said Wednesday that the United Nations (search) was mistaken when it said the world body had agreed to pay the legal fees of the former Oil-for-Food program chief to encourage his cooperation with an investigation into the $64 billion humanitarian program for Iraq.

Secretary-General Kofi Annan's (search) chief of staff Mark Malloch Brown acknowledged the mistake just hours after former Federal Reserve Chairman Paul Volcker (search), who is investigating the Iraq Oil-for-Food program at the request of Annan, disputed the statement issued by U.N. spokesman Fred Eckhard on Tuesday.

"We got it wrong," Malloch Brown said.

No payments have yet been made on behalf of Benon Sevan (search), the suspended Oil-for-Food chief. But when they are, the United Nations will have put itself in the position of using money from the sale of Iraqi oil both to fund Volcker's investigation into possible corruption in the program and to pay at least part of the legal fees of the now-discredited head of the program.

The issue of Sevan's legal fees arose after an initial report by Volcker in February accused Sevan 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 has not said Sevan took kickbacks but has questioned $160,000 in cash which Sevan said he received from his aunt in his native Cyprus between 1999 and 2003. The report called the money "unexplained wealth" and noted that the aunt, who recently died, was a retired government photographer living on a modest pension.

Iraq's U.N. Ambassador Samir Sumaidaie said he was "shocked and dismayed" that Sevan's legal fees might eventually be paid from Iraqi oil funds.

He urged the Security Council to intervene "to stop this blatant misuse of funds," saying Iraq oil money would essentially pay for Sevan to defend himself against charges that he bilked the program that he ran.

Iraq opposed using its oil money to fund the $30 million Volcker inquiry and Sumaidaie said using it as well to defray Sevan's legal costs would be "adding insult to injury."

Eckhard's Tuesday statement said that Annan decided to pay Sevan's legal fees "on an exceptional basis" because of the importance the Volcker inquiry placed in Sevan's cooperation.

Michael Holtzman, spokesman for Volcker's Independent Inquiry Committee, issued the unusual protest Wednesday, saying investigators had allowed Sevan "as an exception" to be accompanied by a lawyer because he was the key figure in the investigation.

The decision "was not motivated ... by a desire to induce Mr. Sevan to cooperate," and the committee never gave an opinion about Sevan's legal costs, Holtzman said.

Eckhard had said the decision to pay Sevan's legal costs was made not only to ensure Sevan's cooperation but also because Sevan had retired and was not subject to Annan's order that all U.N. staff to cooperate with the investigation "on pain of dismissal."

Earlier, however, Annan had said Sevan had been kept on the U.N. payroll at the nominal salary of $1 a year to ensure his cooperation.

"Mr. Sevan made it clear that if he could not avail himself of legal counsel he was going home to Cyprus," Malloch Brown said.

The secretary-general decided to pay the Sevan's inquiry-related expenses because he "was at the center of this web that the panel was seeking to unravel" as a result of his U.N. position "and that therefore any transgression that had occurred were things that he had done related to his official duties," Malloch Brown said.

Eckhard's statement said the United Nations would pay Sevan's legal fees up to Feb. 3, when the Volcker investigation accused Sevan of a possible conflict of interest.

At that time, the United Nations suspended Sevan and Joseph Stephanides, head of the U.N. Security Council Affairs Division, who was accused of interfering in the competitive bidding process for an Oil-for-Food contract, and charged them with violating U.N. rules.

The U.N. legal office is still reviewing the bills submitted by Sevan and no money has yet been paid. Malloch Brown said the total of the bills turned in by Sevan was "a big number."

The Oil-for-Food program was the largest U.N. humanitarian aid operation, running from 1996-2003. It was designed to let Saddam Hussein's government sell limited — and eventually unlimited — amounts of oil in exchange for humanitarian goods as an exemption from U.N. sanctions imposed in 1991 following Iraq's invasion of Kuwait.