U.N.: 2,000 Companies Gave Illicit Funds to Iraq in Oil-for-Food Scandal

More than 2,000 companies paid about $1.8 billion in illicit kickbacks and surcharges to Saddam Hussein's (search) government through extensive manipulation of the U.N. oil-for-food program in Iraq, according to key findings of a U.N.-backed investigation obtained by The Associated Press (search).

The investigators reported that companies and individuals from 66 countries paid illegal kickbacks through a variety of devices while those paying illegal oil surcharges came from, or were registered in, 40 countries. The names will be included in Thursday's report but were not in the key findings obtained Wednesday by the AP.

Thursday's final report of the investigation led by former U.S. Federal Reserve chairman Paul Volcker (search) strongly criticizes the U.N. Secretariat and Security Council for failing to monitor the program and allowing the emergence of front companies and international trading concerns prepared to make illegal payments.

According to the findings, the Banque Nationale de Paris S.A. (search), known as BNP, which held the U.N. oil-for-food escrow account, had a dual role and did not disclose fully to the United Nations the firsthand knowledge it acquired about the financial relationships that fostered the payment of illegal surcharges.

The oil-for-food program was one of the world's largest humanitarian aid operations, running from 1996-2003.

Under the program, Iraq was allowed to sell limited and then unlimited quantities of oil provided most of the money went to buy humanitarian goods. It was launched to help ordinary Iraqis cope with U.N. sanctions imposed after Saddam's 1990 invasion of Kuwait and became a lifeline for 90 percent of the country's population of 26 million.

But Saddam, who could choose the buyers of Iraqi oil and the sellers of humanitarian goods, corrupted the program by awarding contracts to — and getting kickbacks from — favored buyers, mostly parties who supported his regime or opposed the sanctions. He allegedly gave former government officials, journalists and U.N. officials vouchers for Iraqi oil that could then be resold at a profit.

Tracing the politicization of oil contracts, the new report said Iraqi leaders in the late 1990s decided to deny American, British and Japanese companies allocations to purchase oil because of their countries' opposition to lifting sanctions on Iraq. At the same time, it said, Iraq gave preferential treatment to France, Russia and China which were perceived to be more favorable to lifting sanctions and were also permanent members of the Security Council (search).

Volcker's previous report, released in September, said lax U.N. oversight allowed Saddam's regime to pocket $1.8 billion in kickbacks and surcharges in the awarding of contracts during the program's operation from 1997-2003.

According to the new findings, Iraq's largest source of illicit income from the oil-for-food program was the more than $1.5 billion from kickbacks on humanitarian contracts.

The smuggling of Iraqi oil outside the program in violation of U.N. sanctions poured much more money — $11 billion — into Saddam's coffers during the same period, according to a finding in the new report.

Volcker's Independent Inquiry Committee calculated that more than 2,200 companies worldwide paid kickbacks to Iraq in the form of "fees" for transporting goods to the interior of the country or "after-sales-service" fees, or both.

The report to be released Thursday chronicles Saddam's manipulation of the program and examines in detail 23 companies that paid kickbacks on humanitarian contracts including Iraqi front companies, major food providers, major trading companies, and major industrial and manufacturing companies.

According to the findings, the program was just under three years old when the Iraqi regime began openly demanding illicit payments from its customers. The report said that while U.N. officials and the Security Council were informed, little action was taken.

The report is the fifth by Volcker and wraps up a year-long, $34 million investigation that has faulted Secretary-General Kofi Annan, his deputy, Canada's Louise Frechette, and the Security Council for tolerating corruption and doing little to stop Saddam's manipulations. The investigation also accused Benon Sevan, the former head of the U.N. oil-for-food program, of taking $147,000 in illegal kickbacks.