Evidence that hundreds of millions of dollars of U.N. Oil-for-Food (search) money ended up in the hands of mysterious Middle Eastern and Asian companies has raised concerns among congressional investigators that banks responsible for administering the programs shirked their efforts at due diligence.
For years, the United Nations' $64 billion Oil-For-Food program allowed the sanction-bound government of former Iraqi leader Saddam Hussein to sell oil and use the proceeds to buy food and other humanitarian goods for Iraqi citizens. But an investigation into the program that began last year reveals that billions of dollars disappeared.
Much of the missing money has yet to be traced to its final destinations. Investigators say they fear some of the companies that received money transfers — despite banking rules meant to prevent cash from being diverted — may be fronts for Al Qaeda (search) or other terrorist groups.
On Thursday, members of the House International Relations Subcommittee on Oversight and Investigations questioned executives of BNP-Paribas SA (search), the French-owned institution that handled all transactions for the Oil-For-Food program.
"They are the banker, who is handling the transactions, and it's easy to think of transactions between two people, you know, one may be corrupt, one may not, but there is a banker in the middle there," Rep. Dana Rohrabacher, R-Calif., chairman of the subcommittee, told FOX News.
During the hearing, BNP officials admitted that the bank allowed questionable transactions to take place and may have unwittingly been at the center of a vast money-laundering scheme. They also acknowledged that oversight was lacking, but expressed confidence the bank did not send money to illegitimate actors.
"Nothing in our investigation to date has led us to believe that any letter of credit proceeds that were assigned or paid to anyone other than a bank making loans directly to beneficiaries were causally related to any corruption which may have occurred in the Oil-for-Food program," said Everett Schenk, CEO of BNP-Paribas of North America.
"Further, let me say that we have found that in the course of processing assignments and payments, some mistakes were made. Although mistakes are perhaps inevitable in the context of a program that requires the processing of approximately 54,000 payments under approximately 20,000 letters of credit and 32,000 amendments involving an estimated 5 million pages of documents, they still should not have occurred," he added.
Among its errors, BNP was supposed to send payments to Saudi company Al Riyadh International Flowers for supplies sent to Iraq under the Oil-for-Food program. But on at least 40 occasions, Al Riyadh, which according to congressional investigators is owned by a member of the Saudi Royal family, asked instead that the cash, around $70 million, be sent to a company called East Star Trading. The bank did so even though it was not authorized to make such third-party transfers.
Congressional investigators say one of their chief worries is that this type of transaction appears to have happened hundreds of times with dozens of companies, and in the case of East Star Trading, that company seems to have vanished.
Investigators say they believe East Star may be affiliated with Malaysian-based Pacific Interlink. Pacific Interlink earned hundreds of millions from sales of relief supplies to Iraq. But the trail between East Star and Pacific Interlink is cold right now. The recipients of the millions of dollars transferred by PNB and the cash's final destination remain a mystery.
While congressional committees continue to probe the money transfers, the investigation of former French Interior Minister Charles Pasqua (search) is gathering steam.
Last November, Pasqua sat down with FOX News in Paris and denied any wrongdoing despite his name appearing on an Iraqi government list of recipients of oil vouchers from Hussein. Pasqua's diplomatic adviser has been arrested and is now being questioned by a French judge investigating the Oil-for-Food program.
U.N. Secretary-General Kofi Annan (search) responded to the widening scandal on Thursday, saying the United Nations is taking concrete and urgent steps to correct what he called "managerial lapses."
But even Annan is believed by some to have gotten off easy in a report by Paul Volcker, the man leading the U.N.-approved investigation into the disappearance of Oil-for-Food cash. Volcker is now being accused of a cover-up after he called the chairmen of at least three congressional committees investigating the allegations of mismanagement and corruption and told them they cannot subpoena former members of the investigating team because those individuals have diplomatic immunity.
Click in the box near the top of the story to watch a report by FOX News' Jonathan Hunt.