The United Nations agreed to reimburse Benon Sevan (search), the suspended head of the U.N. Oil-for-Food program in Iraq, for legal fees he incurred during an investigation into allegations of fraud in the operation, a U.N. official said Tuesday.

Payment for Sevan's legal fees was to come out of the account containing the 2.2 percent of Iraqi oil revenues from the $64 billion program earmarked for its administration, U.N. spokesman Fred Eckhard said.

Sevan's fees are to be reimbursed with Iraqi oil funds set aside to help administer the program. That means Iraq oil money would essentially pay for Sevan to defend himself against charges that he bilked the program.

Eckhard said the United Nations had agreed to pay reasonable legal expenses up to Feb. 3, when an investigation led by former U.S. Federal Reserve Chairman Paul Volcker (search) accused Sevan of a conflict of interest administering the program.

"When that report came out and made specific charges against Mr. Sevan, we informed him at that point that we would not reimburse him for any legal fees that he incurred subsequent to the leveling of charges against him," Eckhard said.

The plan to reimburse Sevan, first reported in the New York Sun on Tuesday, is almost certain to raise new questions about the United Nations' handling of the Oil-for-Food (search) program and draw new criticism from U.S. Congressional investigators also examining its operation.

The issue has become a lightning rod for U.N. critics, who say the world body bungled the handling of the Oil-for-Food and accused officials of massive corruption — though that has not yet been proved.

Eckhard said that Secretary-General Kofi Annan's (search) decision to reimburse Sevan was "exceptional" and stressed that no money had been paid so far.

"When I said it's exceptional it's exactly that — it starts and stops with Benon Sevan."

In a statement released later Tuesday, Eckhard said some of the bills Sevan had submitted were being questioned because they didn't all relate to his cooperation with the investigators.

The statement said Sevan had requested the reimbursement and the U.N. Office of Legal Affairs agreed because it wanted the investigation to "operate smoothly with the full cooperation of Mr. Sevan."

It also justified the decision by saying Sevan was a retired staff member not subject to Annan's instruction that all staff cooperate "on pain of dismissal." Sevan, however, has been kept on the U.N. payroll for a dollar a year, specifically so he would be obliged to talk to the investigators.

The Oil-for-Food program ran from 1996-2003. It was designed to let Saddam Hussein's government sell oil in exchange for humanitarian goods as an exemption from U.N. sanctions imposed in 1991 following Iraq's invasion of Kuwait.

In a bid 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.

Sevan and Joseph Stephanides, head of the U.N. Security Council Affairs Division who dealt with Oil-for-Food contracts, were charged with violating U.N. rules after the Volcker report was issued.