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U.N. Agencies Agree to Repay Oil-For-Food Proceeds

The nine U.N. agencies involved in the oil-for-food program (search) have agreed to pay Iraq about $40 million in oil proceeds they received in 2003 to finish their work but never spent, United Nations officials said Tuesday.

A U.N.-backed probe of the scandal-tainted operation, led by former U.S. Federal Reserve Chairman Paul Volcker (search), has been investigating the nine agencies and their handling of the money. The cash, which came from Iraqi oil revenue, was a flat fee and there had been no expectation that it would be returned.

Nonetheless, Iraqi officials and Volcker's team had raised questions about the message that would be sent by keeping it. U.N. controller Warren Sach (search) sent a letter on the issue to the nine agencies and all have agreed to pay back any surplus, U.N. spokeswoman Marie Okabe said.

The money was meant to help the agencies wrap up their work under oil-for-food, the 1996-2003 humanitarian operation that helped ordinary Iraqis cope with U.N. sanctions imposed after Saddam Hussein's (search) 1990 invasion of Kuwait.

One of the largest humanitarian programs in history, it was a lifeline for 90 percent of the country's population of 26 million.

After the U.S.-led invasion of Iraq in 2003, the program was given six months to shut down. The U.N. Security Council set aside 1 percent of the value of ongoing projects for the nine U.N. agencies working in northern Iraq to help them finish up.

In a February interim report, Volcker's team discussed the nine agencies in a generally positive tone, noting that they had requested less money for their operations than had been available.

Yet the Volcker probe promised to investigate the nine because of an "apparent lack of transparency and oversight" in the way they spent the money allotted to them.

The total amount to be returned was expected to be around $40 million, two officials with the U.N. agencies said. The officials spoke on condition of anonymity because they were not authorized to discuss Volcker's findings before they are publicly released next week.

The United Nations refused to release Sach's letter or disclose exactly what it said. But one of the U.N. officials read excerpts in which Sach reports Volcker's finding that they didn't spend all the money and asks that they retain it so it can be returned.

Neil Gallagher, spokesman for the World Food Program (search), said his agency had already sent back its portion, which he estimated at around US$10 million. It will go to the Development Fund for Iraq (search), which replaced the oil-for-food program in 2003.

"I think we spent between a third and a half of it and we sent the rest back," Gallagher said. "The money sat in an account, so it was very easy for us to do that."

The nine agencies involved are: the U.N. Development Program; UNESCO; the World Food Program; the Food and Agriculture Program; the World Health Organization; U.N. Habitat; the U.N. Office for Project Services; the International Telecommunication Union; and the U.N. Children's Fund.

The officials said the U.N. Office for Project Services will pay back some $11.5 million and the U.N. Development program will pay about $2 million. The amounts the others will pay was not immediately known.

Iraq's Deputy U.N. Ambassador Feisal Istrabadi said his mission had not received notice of the agencies' decision. Iraq has long demanded that the United Nations transfer all money remaining in its oil-for-food accounts.

"Obviously we would welcome it as a positive development," he said.

Volcker's spokesman Mike Holtzman refused to comment on the letter or any upcoming findings.

"As we have maintained, we will offer a series a recommendations — some specific and some broader — to protect the interests of those the program was meant to serve," Holtzman wrote in an e-mail to AP.

The agencies strongly defend their work under the program. They note that the U.N. Security Council in 2003 had initially said they should be given 3 percent of proceeds to pay for their costs, but the agencies thought that was too high and lowered it to 1 percent.

Nick Parsons, spokesman for the Food and Agriculture Organization (search), said his agency wasn't aware of any "suggestion or accusation" that it misspent money.

"We did a good job and we don't believe we have anything to apologize for," he said.