A Deepening U.N. Scandal

By Perry Bacon Jr.

A congressional committee estimated last week that Saddam Hussein collected more than $20 billion, almost double the previous estimate, by cheating United Nations sanctions. Here's a primer for understanding the controversy, which seems to sweep up more diplomats and businesses every day:

How did Saddam's swindle work? In 1995, the Iraqis suffered from food shortages caused by U.N. sanctions imposed after Gulf War I. The U.N. created the oil-for-food program, which allowed Iraq to sell its oil to alleviate the hardship but stipulated that the revenue could be used for food and medical supplies only. Saddam's government ignored the restrictions. It added illegal surcharges and demanded kickbacks, generating billions for Iraq's purchase of weapons and construction of palaces.

Who else was allegedly involved in this scheme? Egypt, Jordan, Syria and Turkey bought most of the oil this way. But Iraq also offered reduced-price oil vouchers to curry favor with specific companies and individuals--in the hope that foreign governments would have the U.N. sanctions revoked. According to a September CIA report, the biggest beneficiaries of those vouchers were businesspeople from France, Russia and China, including a former French Interior Minister and members of the Russian parliament. The most serious charge is that Benon Sevan, the U.N. administrator from Cyprus who managed the $64 billion oil-for-food program, illegally received more than 7 million bbl. of oil, although Sevan has denied doing so. Investigators accuse Banque Nationale de Paris, where the U.N. held the money for the oil-for-food program, of failing to monitor how the oil revenue was spent--a charge the company denies.

Why are U.S. officials angry with Kofi Annan? The U.N. Secretary-General is not accused of wrongdoing, but he refuses to compel U.N. employees to testify before U.S. congressional committees investigating the fraud, angering Senators of both parties. Annan appointed Paul Volcker, former chairman of the Federal Reserve Board, to lead a U.N. investigation of the program. Volcker says separate congressional inquiries would impede his work. Investigators are also looking into Cotecna, a Swiss contractor for which Annan's son Kojo worked as a consultant.

Where is the money now? The U.S. has frozen more than $6 billion of Iraqi assets worldwide, meaning billions remain unaccounted for. Some congressional officials are worried that the money is helping fuel the insurgency in Iraq. --By Perry Bacon Jr.