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Report Criticizes Annan, U.N. Security Council in Oil-for-Food Scandal

Kofi Annan on Wednesday called the latest report on the U.N. Oil-for-Food (search) program "embarrassing" as it slammed the secretary-general, his deputy and the Security Council for allowing Saddam Hussein to cheat $10.2 billion from the humanitarian operation.

The report was released by the Independent Inquiry Committee to the Security Council Wednesday morning before it was released to the public.

Click on the links below to read sections of the report:

Volume I - The Report of the Committee (pdf)
Volume II - Program Background (pdf)
Volume III - United Nations Administration, Part I (pdf)
Volume IV - United Nations Administration, Part II (pdf)
Impact of Oil-for-Food Program on the Iraqi People (pdf)

"The findings of today's report must be deeply embarrassing to all of us," Annan told the Security Council Wednesday. "None of us — member states, secretariat … can be proud of what it has found. Who among us can now claim that U.N. management is not a problem or is not in need of reform?"

The document — the fourth report released by the IIC, headed by former Federal Reserve Chairman Paul Volcker (search) — lays out a pattern of "illicit, unethical and corrupt behavior" that overwhelmed the United Nations. It criticizes Annan and slams his stewardship and management skills, as well as the oversight of the Security Council.

"Much of this report is critical of his management of the secretariat in general terms and in quite specific terms about his own personal responsibilities," Volcker said. "I can't say the responsibility was only his, but he certainly has, he is the head of the organization."

The report said that France and Britain cooperated with the investigation, but Russia and China refused requests for information or access to state-owned companies implicated in the probe. While some branches of the U.S. government were helpful, notably the U.S. mission to the U.N. and the State Department, others were not, the report said.

Former Secretary-General Boutros Boutros-Ghali (search), who played a key role in the creation of Oil-for-Food, also comes under heavy scrutiny.

Volcker presented the report at a Security Council meeting attended by Annan. The IIC was commissioned by the secretary general to probe the program.

"In essence, the responsibility for the failures must be broadly shared, starting, we believe, with member states and the Security Council itself," Volcker said.

"The politicization of decision making, the managerial weaknesses, the ethical lapses — that was our mandate. To seek out and report mismanagement ... and any elements of corruption," Volcker said later during a press conference as he publicly released the report.

While he acknowledged that Oil-for-Food helped avert a more dire humanitarian crisis and food shortage in Iraq and helped keep Saddam from obtaining weapons of mass destruction, "over time, these important achievements came under a dark cloud," Volcker added.

Political differences among Security Council member states "clearly impeded decision-making" and other issues led to the program's downfall.

The report said those managing the program failed the ideals of the United Nations, ignoring clear evidence that corruption and waste flourished after it was created in 1996.

"The inescapable conclusion from the committee's work is that the United Nations organization needs thorough reform — and it needs it urgently," the report said.

The U.S. ambassador to the United Nations, John Bolton (search), called the report a "catalyst for change" and said it casts the world organization in a "harsh light."

"This report unambiguously rejects the notion that business as usual at the United Nations is acceptable," Bolton said. "We need to reform the U.N. in a manner that will prevent another Oil-for-food scandal. The credibility of the United Nations depends on it."

Saying "there's plenty of blame to go around for the failings of the Oil-for-Food program," Bolton — along with other representatives from countries such as Great Britain — stressed that it was the former Iraqi dictator who was the biggest culprit.

"We can all agree that Saddam Hussein (search) exploited the goodwill of the international community," Bolton added.

Annan: None of Us Can Be Proud

In his address to the Security Council Wednesday, Annan said neither his office nor the Security Council as a whole knew enough about the distress Oil-for-Food was in and the corruption going on. He said the roles of various U.N. entities must be further defined "so that the secretary general knows precisely what is expected of him and member states can hold him fully accountable for the results."

"I know that none of you want a secretariat that can always blame its failings on member states or member states always blaming its failings on the secretariat," Annan said.

One of the largest humanitarian programs in history, Oil-for-Food was a lifeline for 90 percent of the country's population of 26 million. But Saddam was allowed to choose the buyers of Iraqi oil and the sellers of humanitarian goods, and used that power to curry favor by awarding oil contracts to former government officials, activists, journalists and U.N. officials who opposed the sanctions.

"The findings in today's report must be deeply embarrassing to us all," Annan said in a briefing to the 15-nation Security Council. "The Inquiry Committee has ripped away the curtain, and shone a harsh light into the most unsightly corners of the organization. None of us — member states, Secretariat, agencies, funds and programs — can be proud of what it has found."

Despite the criticism, Annan told reporters afterward "I don't anticipate anyone to resign. We are carrying on with our work."

The report, more than 800 pages long, was highly critical of the almost total lack of oversight of the program by the secretary-general and Deputy Secretary-General Louise Frechette (search), who was the direct boss of Benon Sevan, the program's executive director who is being investigated for allegedly accepting kickbacks.

It said lax oversight of the program allowed Saddam's regime to pocket $1.8 billion in kickbacks in the awarding of the contracts.

"This very large and very complex program accomplished many vital goals in Iraq ... At the same time, things went wrong, damaging the reputation and credibility of the United Nations," the IIC said in a statement. "The committee's central conclusion is that the United Nations requires stronger executive leadership, thoroughgoing administrative reform and more reliable controls and auditing."

But the IIC said the United Nations is essentially the only organization of its kind in the world that is capable of taking on such daunting tasks.

The committee also accused top U.N. officials and the powerful U.N. Security Council of turning a blind eye to the smuggling of Iraqi oil outside the program in violation of U.N. sanctions. That poured much more money — $8.4 billion — into Saddam's coffers from 1997-2003.

Saddam pocketed an additional $2.6 billion before the program started from illegal oil sales in violation of sanctions, the report said.

Volcker's team repeated previously known charges that the five permanent members of the U.N. Security Council — Britain, China, France, Russia and the United States — repeatedly looked the other way as the smuggling took place — and sometimes even actively supported the practice — as a way to compensate Iraq's neighbors, who suffered too from the tough trade sanctions against Baghdad.

No Smoking Gun on Annan

The report's preface called for four central reforms, including the creation of a chief operating officer at the United Nations. The U.N. General Assembly (search) should demand that the changes go into force no later than a year from now, the preface said.

While Annan's failure to properly manage the $64 billion program will be a central focus, there is no new "smoking gun" linking him to an Oil-for-Food contract awarded to a Swiss company that employed his son Kojo.

The report said IIC investigators couldn't find evidence that Annan directly influenced the awarding of the contract but it will find more troubling links between Kojo Annan and Cotecna (search), and will cite management problems.

Yet, as the Volcker panel has said previously, Annan did not sufficiently investigate conflicts of interest involving his son.

As for Kojo himself, the committee said he used his father's "name and position" in 1998 to buy and deliver a car at reduced price. It said he had asked beforehand whether he could buy the car in his father's name, but no evidence showed the secretary-general ever agreed.

It reveals that Kojo Annan saved $20,000 by improperly claiming that a new Mercedes he bought was his father's, getting a diplomatic discount and saving customs fees.

The Italian business newspaper Il Sole 24 Ore and the London-based Financial Times were to report in their Wednesday editions that Kojo Annan (search) received more than $750,000 from oil trading companies being scrutinized by Oil-for-Food investigators.

The newspapers said the payments appeared to be linked to oil deals in West Africa. Kojo Annan's lawyer, Clarissa Amato, denied the payments were connected to Oil-for-Food, but said Annan was a director of a Nigerian company called Petroleum Projects International (search).

Questions of U.N. corruption have now spread far beyond Oil-for-Food. Click here to read about the FOX News investigation.

Federal prosecutors last week indicted the head of the world body's budget oversight committee, Vladimir Kuznetsov (search), for allegedly laundering hundreds of thousands of dollars in bribes. He has pleaded not guilty.

This came less than one month after U.N. procurement officer, Alexander Yakovlev (search), pleaded guilty to stashing $1.2 million in illegal payments in an offshore bank. The investigation of Yakovlev has now expanded to include questions about a Giant Food service company, Eurest Support Services (ESS), that provides meals for U.N. peacekeepers around the globe.

Volcker's latest report included documents annotated by Yakovlev that were heavily edited to conceal the company involved. An ESS spokesman would not comment, citing client confidentiality.

The preface of the report makes four broad recommendations:

—Create the position of a chief executive officer, to ensure hiring decisions are based on talent rather than "political convenience."

—Establish an Independent Auditing Board to fully review U.N. programs and hiring.

—Seek more effective coordination between U.N. agencies.

—Make sure the U.N. Security Council is clearer about the purpose and criteria for U.N. operations that it authorizes.

While the report recommends the changes be enacted by next year, the chances of that happening are not clear. U.N. member states are already grappling over similar reform proposals ahead of a summit of world leaders next week, but have confronted deep divisions.

Volcker's team plans to release a last follow-up report in October that will focus on the companies that did work under Oil-for-Food.

FOX News' Liza Porteus, Eric Shawn and The Associated Press contributed to this report.