- The Washington Times - Friday, October 28, 2005

NEW YORK — Russian and French firms dominated the list of companies that made nearly $2 billion in illicit payments to Saddam Hussein’s regime in order to win contracts under the Iraq oil-for-food program, according to a massive new report released yesterday in a U.N.-approved inquiry.

More than half the companies that participated in the U.N. oil-for-food program helped Saddam undermine international sanctions by paying kickbacks and fees to the regime, according to investigators, who found that 2,250 firms from 66 nations made illegal payments to Iraq.

“The reports show that Saddam Hussein aggressively manipulated a well-intentioned program so that he could divert to his personal use billions of dollars that belonged to the Iraqi people,” said John R. Bolton, the U.S. ambassador to the United Nations.

“But he was only able to accomplish this misdeed with the willing cooperation of U.N. officials, the acquiescence of some member states, and, as today’s report indicates, the willingness of private companies and individuals to pay huge sums in bribes and kickbacks to the Hussein regime.”

Firms from countries that Iraq deemed sympathetic — including U.N. Security Council powers France, Russia and China — were often given preferential treatment, according to the 623-page report compiled by a team of investigators headed by former Federal Reserve Chairman Paul A. Volcker.

Those same governments worked to loosen the sanctions, and also opposed the U.S.-led 2003 invasion of Iraq.

Among the firms that are suspected of paying kickbacks or bribes are DaimlerChrysler AG, Siemens AG, Volvo’s construction vehicle unit and a variety of international firms.

Also singled out for criticism is BNP Paribas, the French bank that managed all the oil-for-food escrow accounts and letters of credit. The bank did not adequately scrutinize the accounts, nor cooperate fully with investigators, according to the report.

The final report, also implicates a surprising swath of political figures around the globe ranging from Russian ultranationalist Vladimir Zhirinovsky to British lawmaker George Galloway. A Vatican priest who campaigned against the sanctions received a $140,000 contribution from a French oil importer.

The report also implicates a financial company owned by fugitive American financier Marc Rich, who received a pardon from President Clinton, saying his firm underwrote letters of credit for a French oil firm while trying to keep its role a secret.

Only a handful of U.S. firms were found to be in violation of the oil-for-food program, in part because Washington was emphatically in favor of stern sanctions. Among the U.S. firms named was Reston-based Midway Trading, which paid a $220,000 fine earlier this week to settle grand larceny charges.

The report makes clear that Iraq’s hunger for extra revenue began shortly after the program was put into place in 1996, and that many of the secret payments were an open secret, widely known among oil traders and those given humanitarian contracts with Iraq.

By 2000, the report found, “gatekeepers of the program, the [U.N.] Secretariat, the Security Council and the U.N. contractors failed most grievously in their responsibilities to monitor the integrity of the program.”

Mr. Volcker told reporters yesterday “there was a failure of diligence by U.N. officials” and a politicization of the oil-for-food contracting process.

“Corruption of the program would not have been so pervasive if there had been effective management by U.N. agencies,” he said.

He stressed that his panel’s yearlong, $35 million investigation underscored the importance of management reform, particularly the oversight of internal financial functions.

U.N. Secretary-General Kofi Annan, who authorized the investigation and then became a target because of his son’s concealed employment by a key oil-for-food contractor, yesterday vowed to make needed reforms in the organization.

“I think there are lessons for us to learn,” he told reporters.

However, Mr. Annan indicated that close aides and senior officials implicated in the scandal, including his former chief of staff Iqbal Riza and U.N. Deputy Secretary-General Louise Frechette, would not be fired or reprimanded.

“I think I’ve taken all the action necessary, and I have nothing further to add,” Mr. Annan said.

Firms competing to buy Iraqi oil or sell humanitarian goods often tried to win favor with the dictator’s inner circle by agreeing to Iraqi demands to pay a variety of surcharges and fees.

Companies selling a variety of humanitarian goods to Iraq often built in extended “service contracts,” for example, which made it easier to split profits with the regime.

Many firms allowed middlemen, shell companies and consultants to handle the transactions, making it more difficult to trace or prove, Mr. Volcker said. He said the panel’s findings should prompt national courts to press charges under their own laws.

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